Business Context and Reporting Period
Research Solutions, Inc. filed this Form 8-K on November 5, 2013, to report the entry into a Material Definitive Agreement. The company is incorporated in Nevada and maintains its principal executive offices in Encino, California.
Key Financial Metrics and Agreement Terms
This filing details an amendment to a Loan and Security Agreement with Silicon Valley Bank, N.A. (SVB). The filing does not provide current revenue, profit, cash flow, or total debt figures, but outlines specific financial covenants and fees:
- Interest Rate: Increased to 5.25% above the prime rate if the company fails to maintain a minimum account balance of $800,000 with SVB.
- Minimum Interest: $1,000 per calendar month effective November 2013.
- Termination Fees: $80,000 if terminated on or before October 15, 2014; $40,000 if terminated after October 31, 2014 (unless replaced by another SVB facility).
- Anniversary Fee: $20,000 payable on October 31, 2014.
- Tangible Net Worth Covenant: Reduced to $500,000 plus 50% of net income for the fiscal quarter ended after December 31, 2013, plus 50% of equity issuances (reduced to 40% for specific inducement warrants) and subordinated debt.
- Maturity Date: Extended to October 31, 2015.
Material Changes Versus Prior Period
The amendment modifies the original Loan Agreement dated July 23, 2010, with the following material changes:
- Removal of the collateral monitoring fee requirement.
- Reduction of the required tangible net worth threshold.
- Extension of the credit line maturity by approximately one year.
- Clarification that the wholly-owned subsidiary, Techniques Appliquées aux Arts Graphiques, S.p.A., is not a party to the agreement and its accounts are ineligible.
- Designation of inducement warrants as permitted investments.
Guidance, Outlook, and Risks
The filing does not contain forward-looking guidance, management commentary on future performance, or a discussion of general business risks. The primary contingency noted is the financial penalty associated with early termination of the credit facility. The agreement imposes strict liquidity requirements regarding account balances to avoid higher interest rates.
Investor Verification Checklist
- Verify the company's current cash balance to determine if the $800,000 threshold is met to avoid the 5.25% above prime interest rate.
- Confirm the company's ability to meet the reduced tangible net worth covenant of $500,000 plus applicable income and equity adjustments.
- Assess the impact of the new minimum interest fee ($1,000/month) and anniversary fee ($20,000) on operating cash flow.
- Review the status of the inducement warrants mentioned in the amendment to understand their classification as permitted investments.