UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
x
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: June 30, 2017
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File No. 000-53501
RESEARCH SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
11-3797644
(I.R.S. Employer Identification No.)
15821 Ventura Blvd., Suite 165, Encino, California
(Address of principal executive offices)
91436
(Zip Code)
(310) 477-0354
(Registrant’s telephone number, including area code)
5435 Balboa Blvd., Suite 202, Encino, California, 91316
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: common stock, par value $0.001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No þ
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes þ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to
be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes þ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this
Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company”
in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)
Accelerated filer ☐
Smaller reporting company þ
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of December 31, 2016, the last business
day of the registrant’s most recently completed second fiscal quarter, was $14,204,866 based on the closing price of $1.03 per share as reported on the
OTCQB as of that date.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.
Title of Class
Number of Shares Outstanding on September 11, 2017
Common Stock, $0.001 par value
24,169,792
PART I
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
TABLE OF CONTENTS
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits, Financial Statement Schedules
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Cautionary Notice Regarding Forward-Looking Statements
Unless otherwise indicated, (i) the terms “Research Solutions,” “we,” “us” and “our” refer to Research Solutions, Inc., a Nevada corporation, and our
two wholly-owned subsidiaries Reprints Desk, Inc., a Delaware corporation (“Reprints Desk”) and Reprints Desk Latin America S. de R.L. de C.V, an entity
organized under the laws of Mexico (“Reprints Desk Latin America”), and (ii) the term “common stock” refers to the common stock, par value $0.001 per
share, of Research Solutions. The financial information included herein is presented in United States dollars (“US Dollars”), the functional currency of our
company. Although the majority of our revenue and costs are in US Dollars, the costs of Reprints Desk Latin America are in Mexican Pesos.
All statements included or incorporated by reference in this Annual Report on Form 10-K, other than statements or characterizations of historical
fact, are forward-looking statements. Examples of forward-looking statements include, but are not limited to, statements concerning our accounting
estimates; assumptions and judgments; the demand for our products; the competitive nature of and anticipated growth in our industry; and our prospective
needs for additional capital. These forward-looking statements are based on our current expectations, estimates, approximations and projections about our
industry and business, management’s beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often
be identified by words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “may,” “will,” “should,”
“would,” “could,” “potential,” “continue,” “ongoing,” and similar expressions, and variations or negatives of these words. These statements are not
guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ
materially and adversely from those expressed in any forward-looking statements as a result of various factors, some of which are listed under “Risk
Factors” in Item 1A of this report. These forward-looking statements speak only as of the date of this report. We undertake no obligation to revise or update
publicly any forward-looking statement for any reason, except as otherwise required by law.
This Annual Report on Form 10-K also contains estimates and other information concerning our industry, including market size and customer
satisfaction ratings, that we obtained from industry publications, surveys and forecasts. This information involves a number of assumptions and limitations,
and you are cautioned not to give undue weight to these estimates. Although we believe the information in these industry publications, surveys and forecasts
is reliable, we have not independently verified the accuracy or completeness of the information. The industry in which we operate is subject to a high degree
of uncertainty and risk due to a variety of factors.
PART I
Item 1. Business
Company Overview
Research Solutions was incorporated in the State of Nevada on November 2, 2006, and is a publicly traded holding company with two wholly owned
subsidiaries at June 30, 2016: Reprints Desk, Inc., a Delaware corporation and Reprints Desk Latin America S. de R.L. de C.V, an entity organized under the
laws of Mexico.
On June 30, 2017, we sold the intangible assets of our Reprints and ePrints business line, but specifically excluding billed accounts receivable and
respective liabilities, pursuant to an Asset Purchase Agreement dated June 20, 2017. The aggregate net consideration for the sale is comprised of $450,000
paid on the closing date, and earn-out payments of 45% of gross margin over the 30 month period subsequent to the closing date. We have made a policy
election to record the contingent consideration when the consideration is determined to be realizable (each 6-month period ending subsequent to the closing
date).
We provide two service offerings to our customers: annual licenses that allow customers to access and utilize certain premium features of our cloud
based software-as-a-service (“SaaS”) research intelligence platform (“Platforms”) and the transactional sale of published scientific, technical, and medical
(“STM”) content managed, sourced and delivered through the Platform (“Transactions”). Platforms and Transactions are packaged as a single solution that
enable life science and other research intensive organizations to speed up research and development activities with faster, single sourced access and
management of content and data used throughout the intellectual property development lifecycle.
Platforms
Our cloud-based SaaS research intelligence platform consists of proprietary software and Internet-based interfaces. Legacy functionality
allows customers to initiate orders, route orders for the lowest cost acquisition, manage transactions, obtain spend and usage reporting, automate
authentication, and connect seamlessly to in-house and third-party software systems. Customers can also enhance the information resources they
already own or license and collaborate around bibliographic information.
Additional functionality has recently been added to our Platform in the form of interactive app-like gadgets. An alternative to manual data
filtering, identification and extraction, gadgets are designed to gather, augment, and extract data across a variety of formats, including bibliographic
citations, tables of contents, RSS feeds, PDF files, XML feeds, and web content. We are rapidly developing new gadgets in order to build an
ecosystem of gadgets. Together, these gadgets will provide researchers with an “all in one” toolkit, delivering efficiencies in core research workflows
and knowledge creation processes.
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Our Platform is deployed as a single, multi-tenant system across our entire customer base. Customers securely access the Platform through
online web interfaces and via web service APIs that enable customers to leverage Platform features and functionality from within in-house and third-
party software systems. The Platform can also be configured to satisfy a customer’s individual preferences. We leverage our Platform’s efficiencies
in scalability, stability and development costs to fuel rapid innovation and competitive advantage.
Transactions
Researchers and knowledge workers in life science and other research-intensive organizations generally require single copies of published
STM journal articles for use in their research activities. These individuals are our primary users. Our Platform provides our customers with a single
source to the universe of published STM content that includes over 70 million existing STM articles and over one million newly published STM
articles each year.
Our Platform allows customers to find and download digital versions of STM articles that are critical to their research. Customers submit
orders for the articles they need which we source and electronically deliver to them generally in under an hour. This service is generally known in the
industry as single article delivery or document delivery. We also obtain the necessary permission licenses from the content publisher or other rights
holder so that our customer’s use complies with applicable copyright laws. We have arrangements with hundreds of content publishers that allow us
to distribute their content. The majority of these publishers provide us with electronic access to their content, which allows us to electronically
deliver single articles to our customers often in a matter of minutes.
Competitive Strengths
We believe that we possess the following competitive strengths:
Services and Technology
We have developed proprietary software, a sophisticated information logistics technology backbone, and Internet-based interfaces that allow
customers to initiate orders for STM content, manage these transactions, obtain reporting, automate authentication, improve seamless connectivity to in-house
and third-party software systems, and maximize the information resources they already own or license, as well as organize workgroups to collaborate around
bibliographic information. Our services alleviate the need for our customers to develop internal systems or contact multiple content publishers in order to
obtain the content that is critical to their research.
Our services are highly configurable to meet customers’ needs and provide a personalized yet turnkey solution that covers the full spectrum of
customer requirements; from identifying and locating articles, to facilitating copyright compliance, maximizing information resources already owned,
monitoring usage, and automating end-user authentication. We continually enhance the performance of our existing proprietary software and systems and
develop and implement new technologies that expand the available methods of discovering, obtaining and managing content.
Experienced Management Team
Our management team has well over 100 years of experience satisfying customers across the information services and STM publishing and
technology industries. We are led by CEO Peter Derycz, an innovator in the space for more many decades and earning many accolades along the way,
including being nominated to the Pharma Voice 100 list of most inspiring people in the Pharmaceutical industry.
Customer Loyalty
The majority of our revenue comes from our loyal base of customers, indicative of our focus on customer satisfaction and quality. Since our
inception we have ranked first overall and in every category for every Document Delivery Buyer Survey conducted by industry research and advisory firm
Outsell, Inc.: customer satisfaction (depth and breadth of coverage, fair pricing, and ease of doing business) and loyalty (intention to renew or continue
service, and willingness to recommend the service to others).
Industry Presence and Established Relationships
We have a well-established presence and a network of contacts with our customers (life science companies, academic institutions, and other research
intensive organizations), STM publishing partners, and others in the information services space. We have existing arrangements with hundreds of content
publishers that allow us to distribute their content.
Promotion
We employ a segment-focused marketing approach that focuses on traditional buyers such as corporate libraries as well as new types of non-library
buyers across a variety of business functions, including those within research and development. In pursuit of growth, we invest in vertical integration and
channel relationships to increase the value we provide to customers, extend our promotional reach, and decrease customer acquisition costs. We anticipate
growth coming from cross-selling into our existing customer base, penetrating new market verticals, and generating market demand and preference from both
existing and new customers. While we place emphasis on the life science market, with a focus on pharmaceutical, biotechnology and medical device
customers, we are also penetrating the following markets: academic, aerospace, automotive, electronics, chemicals and food and agriculture.
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Growth Strategy
Organic Growth
We seek to grow our customer base through targeted direct and channel promotions of our Platform to potential customers. This strategy for sales
and marketing is supported by inbound marketing driven by educational content, innovative technological systems, competitive pricing and high quality
service. We are also positioning our sales force to be able to better serve small and medium sized businesses that we consider to be largely underserved today.
In addition, we submit proposals to potential customers in response to requests for proposals, or “Request for Proposals” (RFPs). We are continually
improving our operations and technology to ensure that they are capable of delivering proposed solutions and supporting future growth.
Acquisitions and Combinations
From time to time, and as opportunities arise, we may explore strategic acquisitions and combinations, including the acquisition of customer lists,
that bring revenue, profitability, growth potential and additional technology, products, services, operations and/or geographic capabilities to our company.
International Expansion
We have expanded internationally through increased sales to companies located abroad, particularly in Europe and Japan. From time to time, and as
opportunities arise, we may further expand internationally through partnerships or acquisitions.
Publisher Agreements
We have arrangements with all of the major STM content publishers and most of the smaller STM publishers that allow us to distribute their content,
and we regularly advance new business opportunities such as rentals through amendments to existing agreements. In addition, we regularly contact publishers
to negotiate additional publisher agreements. A typical publisher agreement would allow us to distribute the publisher’s content according to a negotiated
price list, thereby eliminating the need to contact the publisher and obtain the rights for each individual order. The majority of these publishers provide us
with electronic access to their content, which allows us to further expedite the delivery of single articles to our customers. In addition, we rely on a small
number of content publishers for the majority of our content costs.
Company Services
We generate revenue by providing two service offerings to our customers: annual licenses that allow customers to access and utilize certain premium
features of our cloud based SaaS research intelligence platform (“Platforms”) and the transaction sale of STM content managed, sourced and delivered
through the Platform (“Transactions”).
Platforms
We charge a subscription fee that allows customers to access and utilize certain premium features of our Platform. Revenue is recognized
ratably over the term of the subscription agreement, which is typically one year, provided all other revenue recognition criteria have been met.
Billings or payments received in advance of revenue recognition are recorded as deferred revenue.
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Transactions
We charge a transactional service fee for the electronic delivery of single articles, and a corresponding copyright fee for the permitted use of
the content. We recognize revenue from single article delivery services upon delivery to the customer only when the selling price is fixed or
determinable, and collectability is reasonably assured.
Customers and Suppliers
There were no customers that accounted for greater than 10% of our revenue for the years ended June 30, 2017 and 2016.
Approximately 27% and 26% of our content cost for the years ended June 30, 2017 and 2016, respectively, was derived from our two largest
suppliers of content. Loss of any or all of these suppliers of content would significantly reduce our revenue, which would have a material adverse effect on
our results of operations. We can provide no assurance that these suppliers of content will continue to supply us with content in the future.
Sales and Marketing
To acquire customers, we rely on sales promotion to sell to large enterprise accounts, and marketing communications to more efficiently recruit
small-to-medium and geographically-dispersed enterprises. The promotional mix of tactics we utilize includes: educational content, advertising, events, direct
response and integrated marketing campaigns, public relations and content publicity, search engine optimization and marketing, thought leadership programs,
channel alliances training, and analyst relations. In addition, a portion of our marketing budget is dedicated to research and customer retention, which, we
believe, increases total lifetime customer value and generates significant amounts of referrals for new business
Competition
The markets in which we compete are highly competitive. The primary methods of competition in our industry are price, service, technology and
niche focus. Competition based on price is often successful in the short-term, but can limit the ability of a supplier to provide adequate service levels.
Competition based on service and/or technology requires significant investment in systems and that investment requires time to produce results. Niche
operators focus on narrow activities, but cannot aggregate sufficient content, technology and services to satisfy broad customer needs. We believe that many
customers and potential customers are less price sensitive if the service levels are high and the technology creates efficiency and/or management information
that has not been available previously.
Our competition includes:
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Gadget –Like Toolkit Providers – We consider the rapidly increasing number of companies that are focused on specialized toolkits for
researchers as competition. These include: Accelrys, Benchling, ChemAxon, Comsol Multiphysics, Genomenom, Main GCl, Workbench,
Molsoft, and SnapGene.
Reference Management Applications – We expect to increasingly compete with tools that exist in the marketplace that are used to aid in
organizing references, storing personal content assets, and prepare scholarly papers for submission to congresses and journals.
Piracy - Perhaps, our most serious competitor. Many entities use content for commercial purposes without complying with applicable
copyright laws, and paying the required copyright to the content publisher. As information becomes more readily available, the opportunity
for piracy increases.
STM Single Article Delivery Vendors and Content Aggregators - Our primary competitors for global, full-service single article delivery
services are Copyright Clearance Center, regional interlibrary loan networks throughout the world such as those owned and operated by
OCLC, and numerous national libraries located outside of the United States.
Customer In-House Services - While single article delivery services are challenging for our customers to provide in-house, many existing
and potential customers manage these services internally.
Publisher In-House Capabilities - Some large publishers have developed in-house capabilities to service the content re-use market,
however, many of them neglect other content repurposing opportunities and may not be able to aggregate content from other publishers.
Corporate History and Structure
Research Solutions was incorporated in the State of Nevada on November 2, 2006, and in November 2006 entered into a Share Exchange Agreement
with Reprints Desk. At the closing of the transaction contemplated by the Share Exchange Agreement, Research Solutions acquired all of the outstanding
shares of Reprints Desk from its stockholders and issued 8,000,003 shares of common stock to the former stockholders of Reprints Desk. Following
completion of the exchange transaction, Reprints Desk became a wholly-owned subsidiary of Research Solutions.
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On July 24, 2012, we formed Reprints Desk Latin America to provide operational and administrative support services to Reprints Desk.
On March 4, 2013, we consummated a merger with DYSC Subsidiary Corporation, our wholly-owned subsidiary, pursuant to which we, in
connection with such merger, amended our Articles of Incorporation to change our name to Research Solutions, Inc. (formerly Derycz Scientific, Inc.).
On June 30, 2017, we sold the intangible assets of our Reprints and ePrints business line, but specifically excluding billed accounts receivable and
respective liabilities, pursuant to an Asset Purchase Agreement dated June 20, 2017. The aggregate net consideration for the sale is comprised of $450,000
paid on the closing date, and earn-out payments of 45% of gross margin over the 30 month period subsequent to the closing date. We have made a policy
election to record the contingent consideration when the consideration is determined to be realizable (each 6-month period ending subsequent to the closing
date).
Employees
As of September 11, 2017, we had 129 full time employees.
Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together
with all of the other information in this prospectus, including our consolidated financial statements and related notes, before investing in our common stock.
The following summarizes material risks that investors should carefully consider before deciding to buy or maintain an investment in our common stock. Any
of the following risks, if they actually occur, would likely harm our business, financial condition and results of operations. As a result, the trading price of our
common stock could decline, and investors could lose the money they paid to buy our common stock.
Risks Related to Our Business and Our Industry
We have incurred significant losses, and may be unable to maintain profitability. If we continue to incur losses, we may have to curtail our
operations, which may prevent us from successfully operating and expanding our business.
Historically, we have relied upon cash from financing activities to fund substantially all of the cash requirements of our activities and have incurred
significant losses and experienced negative cash flow. For our fiscal years ended June 30, 2017 and 2016, we incurred a net loss of $2,293,563 and $497,858,
respectively. As of June 30, 2017, we had an accumulated deficit of $17,875,858. We cannot predict if we will be profitable. We may continue to incur losses
for an indeterminate period of time and may be unable to sustain profitability. An extended period of losses and negative cash flow may prevent us from
successfully operating and expanding our business. We may be unable to sustain or increase our profitability on a quarterly or annual basis.
The loss of our largest customers would significantly reduce our revenue and adversely affect our results of operations.
There were no customers that accounted for greater than 10% of our revenue for the years ended June 30, 2017 and 2016. The loss of our largest
customers would significantly reduce our revenue, which would have a material adverse effect on our results of operations. We can provide no assurance that
these customers will continue to place orders in the future.
The loss of our largest suppliers of content would significantly reduce our revenue and adversely affect our results of operations.
Approximately 27% and 26% of our content cost for the years ended June 30, 2017 and 2016, respectively, was derived from our two largest
suppliers of content. Loss of any or all of these suppliers of content would significantly reduce the attractiveness of our services and our revenue, which
would have a material adverse effect on our results of operations. We can provide no assurance that these suppliers of content will continue to supply us with
content in the future. Moreover, our arrangements with content providers are non-exclusive. As a result, our content providers can provide the same content to
our competitors.
We are exposed to credit risk on our accounts receivable and prepayments to suppliers of content. This risk is heightened during periods when
economic conditions worsen.
There were no customers that accounted for greater than 10% of our accounts receivable as of June 30, 2017 and 2016. In addition, we have made
prepayments to suppliers of content. While we have procedures to monitor and limit exposure to credit risk on our trade receivables as well as long-term
prepayments, there can be no assurance such procedures will effectively limit our credit risk and avoid losses, which could have a material adverse effect on
our results of operations.
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Our services, technology and industry relationships are key assets and competitive advantages of our company and our business may be affected
by how we are perceived in the marketplace.
Our services, technology and industry relationships are key assets that enable us to effectively compete in our industry. Our ability to attract and
retain customers is highly dependent upon external perceptions of the quality, efficacy, responsiveness and ease-of-use of our services and business practices,
and overall financial condition. Negative perceptions or publicity regarding these matters could damage our reputation with customers and the public, which
could make it difficult for us to attract and maintain customers. Adverse developments with respect to our industry may also, by association, negatively
impact our reputation. Negative perceptions or publicity could have a material adverse effect on our business and financial results.
Our business performance is dependent upon the effectiveness of our technology investments, the failure of which could materially impact our
business and financial results.
We have and will continue to undertake significant investments in our technology infrastructure to continually strengthen our position in research
and marketing solutions and improve our existing technology platform. We may fail to effectively invest such amounts, or we may invest significant amounts
in technologies that do not ultimately assist us in achieving our strategic goals. We may also fail to maintain our technology infrastructure in a manner that
allows us to readily meet our customers’ needs. If we experience any of these or similar failures related to our technology investments, we will not achieve
our expected revenue growth, or desired cost savings, and we could experience a significant competitive disadvantage in the marketplace, which could have a
material adverse effect on our business and financial results.
In addition, the failure to continue to invest in our business could result in a material adverse effect on our future financial results. Such investments
may include: executing on, and mitigating risks associated with, new product offerings and entrance into new geographic markets; and ensuring continued
compatibility of our new platforms and technologies with our customers’ networks and systems.
We may be subject to intellectual property rights claims by third parties, which are extremely costly to defend, could require us to pay significant
damages and could limit our ability to use certain technologies.
Third parties, including our content providers, may assert claims of infringement of intellectual property rights against us or our customers for which
we may be liable or have an indemnification obligation. Any claim of infringement by a third party, even those without merit, could cause us to incur
substantial costs defending against the claim and could distract our management from our business. Although third parties may offer a license to their content,
the terms of any offered license may not be acceptable and the failure to obtain a license or the costs associated with any license could cause our business,
results of operations or financial condition to be materially and adversely affected. In addition, our licenses are generally non-exclusive, and therefore our
competitors may have access to the same content licensed to us. Furthermore, a successful claimant could secure a judgment or we may agree to a settlement
that prevents us from providing certain content or that requires us to pay substantial damages, including treble damages if we are found to have willfully
infringed the claimant’s copyrights, royalties or other fees. Any of these events could seriously harm our business, operating results and financial condition.
Our industry is subject to intense competition and rapid technological change, which may result in products or new solutions that are superior to
our products or solutions under development. If we are unable to anticipate or keep pace with changes in the marketplace and the direction of
technological innovation and customer demands, our products or solutions may become less useful or obsolete and our operating results will suffer.
The industry in which we operate in general is subject to intense and increasing competition and rapidly evolving technologies. Because our products
are expected to have long development cycles, we must anticipate changes in the marketplace and the direction of technological innovation and customer
demands. To compete successfully, we will need to demonstrate the advantages of our products and solutions.
Our future success will depend in large part on our ability to establish and maintain a competitive position in current and future technologies. Rapid
technological development may render our products under development, or any future solutions we may have, and related technologies obsolete. Many of our
competitors have or may have greater corporate, financial, operational, sales and marketing resources, and more experience in research and development than
we have. We cannot assure you that our competitors will not succeed in developing or marketing technologies or products that are more effective or
commercially attractive than our products or that would render our solutions and related technologies obsolete. We may not have or be able to raise or develop
the financial resources, technical expertise, or support capabilities to compete successfully in the future. Our success will depend in large part on our ability to
maintain a competitive position with our products and solutions.
Increased accessibility of free or relatively inexpensive information sources may reduce demand for our products and services.
In recent years, more public sources of free or relatively inexpensive information have become available, particularly through the Internet, and this
trend is expected to continue. For example, some governmental and regulatory agencies have increased the amount of information they make publicly
available at no cost. Public sources of free or relatively inexpensive information may reduce demand for our products and services. Our financial results may
be adversely affected if our customers choose to use these public sources as a substitute for our products or services.
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We depend on the services of Peter Victor Derycz and other key personnel, and may not be able to operate and grow our business effectively if we
lose their services or are unable to attract qualified personnel in the future.
Our success depends in part upon the continued service of Peter Victor Derycz, who is our President and Chief Executive Officer. Mr. Derycz is
critical to the overall management of our company as well as to the development of our technologies, our culture and our strategic direction and is
instrumental in developing and maintaining close ties with our customer base. We also rely heavily on our senior management team because they have
substantial experience with our diverse service offerings and business strategies. In addition, we rely on our senior management team to identify internal
expansion and external growth opportunities. Our ability to retain senior management and other key personnel is therefore very important to our future
success. We have employment agreements with our senior management, but these employment agreements do not ensure that they will not voluntarily
terminate their employment with us. In addition, our key personnel are subject to non-solicitation and confidential information restrictions. We do not have
key man insurance for any of our current management or other key personnel. The loss of any key personnel would require the remaining key personnel to
divert immediate attention to seeking a replacement. Competition for senior management personnel is intense, and fit is important to us. Our inability to find a
suitable replacement for any departing executive officer or key employee on a timely basis could adversely affect our ability to operate and grow our
business.
We rely on our proprietary software systems, and our websites and online networks, and a disruption, failure or security compromise of these
systems would disrupt our business, damage our reputation and adversely affect our revenue and profitability.
Our proprietary software systems are critical to our business because they enable the efficient and timely service of a large number of customer
orders. Similarly, we rely on our websites, online networks, and email systems to obtain content and deliver customer orders, and provide timely, relevant and
dependable business information to our customers. Therefore, network or system shutdowns caused by events such as computer hacking, sabotage,
dissemination of computer viruses, worms and other destructive or disruptive software, denial of service attacks and other malicious activity, as well as loss of
service from third parties, power outages, natural disasters and similar events, could affect our ability to store, handle and deliver data and services to our
customers. Any such interruption of our operations could negatively impact customer satisfaction and revenue.
Breaches of our data security systems or unintended disclosure of our customer data could result in large expenditures to repair or replace such
systems, to remedy any security breaches and to protect us from similar events in the future.
In addition to shutdowns, our systems are subject to risks caused by misappropriation, misuse, leakage, falsification and accidental release or loss of
information, including sensitive data maintained in our proprietary software systems and credit card information of our customers. As a result of the
increasing awareness concerning the importance of safeguarding information, ongoing attempts to hack and misuse companies’ information, and legislation
that continues to be adopted regarding the protection and security of information, information-related costs and risks are increasing.
Disruptions or security compromises of our systems could result in large expenditures to repair or replace such systems, to remedy any security
breaches and protect us from similar events in the future. We also could be exposed to negligence claims or other legal proceedings brought by our customers
or their clients, and we could incur significant legal expenses and our management’s attention may be diverted from our operations in defending ourselves
against and resolving lawsuits or claims. In addition, if we were to suffer damage to our reputation as a result of any system failure or security compromise,
our revenue and profitability could be adversely affected.
Our failure to comply with the covenants contained in our loan agreement could result in an event of default that could adversely affect our
financial condition and ability to operate our business as planned.
We currently have a line of credit with Silicon Valley Bank, maturing on October 31, 2017, under which there were no outstanding borrowings as of
June 30, 2017. Our loan agreement contains, and any agreements to refinance our debt likely will contain, financial and restrictive covenants. While we were
in compliance with these covenants as of June 30, 2017, we failed to comply with the tangible net worth covenant in December 2011 and July 2013. On both
occasions the parties agreed to amend and reset the minimum tangible net worth required under the covenant. Our failure to comply with these covenants in
the future may result in an event of default, which if not cured or waived, could result in the bank preventing us from accessing availability under our line of
credit and requiring us to repay any outstanding borrowings. There can be no assurance that we will be able to obtain waivers of future covenant violations or
that such waivers will be available on commercially acceptable terms.
In addition, the indebtedness under our loan agreement is secured by a security interest in substantially all of our tangible and intangible assets, and
therefore, if we are unable to repay such indebtedness the bank could foreclose on these assets and sell the pledged equity interests, which would adversely
affect our ability to operate our business. If any of these were to occur, we may not be able to continue operations as planned, implement our planned growth
strategy or react to opportunities for or downturns in our business.
Government regulations related to the Internet could increase our cost of doing business, affect our ability to grow or may otherwise negatively
affect our business.
Governmental agencies and federal and state legislatures have adopted, and may continue to adopt, new laws and regulatory practices in response to
the increasing use of the Internet and other online services. These new laws may be related to issues such as online privacy, copyrights, trademarks and
service mark, sales taxes, fair business practices, domain name ownership and the requirement that our operating units register to do business as foreign
entities or otherwise be licensed to do business in jurisdictions where they have no physical location or other presence. In addition, these new laws,
regulations or interpretations relating to doing business through the Internet could increase our costs materially and adversely affect our revenue and results of
operations.
9
We may be adversely affected by changes in legislation and regulation.
Laws relating to communications, data protection, e-commerce, direct marketing and digital advertising and the use of public records have become
more prevalent in recent years. Existing and proposed legislation and regulations, including changes in the manner in which such legislation and regulations
are interpreted by courts in the United States, Europe and other jurisdictions, may impose limits on our collection and use of certain kinds of information and
our ability to communicate such information effectively to our customers. It is difficult to predict in what form laws and regulations will be adopted or how
they will be construed by the relevant courts, or the extent to which nay changes might adversely affect us.
Our growth strategy may require significant additional resources, and such additional resources might not be available on terms acceptable to
us, if at all, which may in turn hamper our growth and adversely affect our business.
Our growth strategy will require us to significantly expand the capabilities of our administrative and operational resources. We intend to continue to
make investments to support our business growth and may require additional funds to respond to business challenges, including the need to develop new
technology, improve our operating infrastructure or acquire complementary businesses and technologies. Accordingly, we may need to undertake equity,
equity-linked or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our
existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those
of holders of our common stock. Any debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities
and other financial and operational matters, including the ability to pay dividends. This may make it more difficult for us to obtain additional capital and to
pursue business opportunities. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate
financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and respond to business
challenges could be significantly impaired, and our business may be adversely affected. In addition, our failure to successfully manage our growth could
result in our sales not increasing commensurately with our capital investments. If we are unable to successfully manage our growth, we may be unable to
achieve our goals.
Acquisitions, joint ventures or similar strategic relationships may disrupt or otherwise have a material adverse effect on our business and
financial results.
As part of our strategy, we may explore strategic acquisitions and combinations, including the acquisition of customer lists, or enter into joint
ventures or similar strategic relationships. These transactions are subject to the following risks:
·
Acquisitions, joint ventures or similar relationships may cause a disruption in our ongoing business, distract our management and make it
difficult to maintain our standards, controls and procedures;
· We may not be able to integrate successfully the services, content, products and personnel of any such transaction into our operations;
· We may not derive the revenue improvements, cost savings and other intended benefits of any such transaction; and
·
There may be risks, exposures and liabilities of acquired entities or other third parties with whom we undertake a transaction, that may arise
from such third parties’ activities prior to undertaking a transaction with us.
Our prior acquisitions have resulted in significant impairment charges and have operated at losses. We can provide no assurance that future
acquisitions, joint ventures or strategic relationships will be accretive to our business overall or will result in profitable operations.
We are subject to risks related to our foreign operations which could adversely affect our operations and financial performance.
We have an operational and administrative support organization in Mexico, and sell our services worldwide. Foreign operations are subject to
various risks which could have a material adverse effect on those operations or our business as a whole, including: exposure to local economic conditions;
exposure to local political conditions; currency exchange rate fluctuations; reliance of local management; and additional potential costs of complying with
rules and regulations of foreign jurisdictions. Any adverse consequence resulting from the materialization of the foregoing risks would adversely affect our
financial performance and results of operations.
Unfavorable general economic conditions in the United States, Europe, or in other major markets could negatively impact our financial
performance.
Unfavorable general economic conditions, such as a recession or economic slowdown in the United States, Europe, Japan, or in one or more of our
other major markets, could negatively affect demand for our services and our results of operations. Under difficult economic conditions, businesses may seek
to reduce spending on our services, or shift away from our services to in-house alternatives.
10
Risks Relating to Ownership of Our Common Stock
We cannot predict the extent to which an active public trading market for our common stock will develop or be sustained. If an active public
trading market does not develop or cannot be sustained, you may be unable to liquidate your investment in our common stock.
We cannot predict the extent to which an active public market for our common stock will develop or be sustained due to a number of factors,
including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment
community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be
reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares of common stock until such time as we became
more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as
compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect
on share price. We cannot give you any assurance that an active public trading market for our common stock will develop or be sustained. If such a market
cannot be sustained, you may be unable to liquidate your investment in our common stock.
Our common stock may be subject to significant price volatility which may have an adverse effect on your ability to liquidate your investment in
our common stock.
The market for our common stock may be characterized by significant price volatility when compared to seasoned issuers, and we expect that our
share price will be more volatile than a seasoned issuer for the indefinite future. The potential volatility in our share price is attributable to a number of
factors. First, our common shares may be sporadically and/or thinly traded. As a consequence of this lack of liquidity, the trading of relatively small quantities
of shares by our stockholders may disproportionately influence the price of those shares in either direction. The price for our shares could, for example,
decline precipitously in the event that a large number of our common shares are sold on the market without commensurate demand, as compared to a
seasoned issuer that could better absorb those sales without adverse impact on its share price. Secondly, an investment in us is a speculative or “risky”
investment due to our lack of meaningful profits to date and uncertainty of future profits. As a consequence of this enhanced risk, more risk-adverse investors
may, under the fear of losing all or most of their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the
market more quickly and at greater discounts than would be the case with the stock of a seasoned issuer.
We have not paid cash dividends in the past and do not expect to pay cash dividends in the foreseeable future. Any return on your investment
may be limited to increases in the market price of our common stock.
We have never paid cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable
future. In addition, our Loan and Security Agreement with Silicon Valley Bank prohibits us from paying cash dividends. The payment of dividends on our
common stock will depend on our earnings, financial condition and other business and economic factors affecting us at such time as the board of directors
may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment might only occur if the
market price of our common stock appreciates.
Voting power of a significant percentage of our common stock is held by our president and chief executive officer, and his brother-in-law, who
together are able to exert significant influence over the outcome of matters to be voted on by our stockholders.
As of September 11, 2017, Peter Victor Derycz, our President and Chief Executive Officer, had voting power equal to approximately 16% of votes
eligible to be cast at a meeting of our stockholders. Paul Kessler, the brother-in-law of Mr. Derycz, exercises investment and voting control over the shares
held by Bristol Investment Fund, Ltd., and had, as of September 11, 2017, voting power equal to approximately 20% of votes eligible to be cast at a meeting
of our stockholders. As a result of their significant ownership interests, Mr. Derycz and Mr. Kessler together currently have the ability to exert significant
influence over the election of directors, and other matters submitted to a vote of all of our stockholders. They may also have interests that differ from yours
and may vote in a manner that is adverse to your interests. This concentration of ownership may have the effect of deterring, delaying or preventing a change
of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company
and might ultimately affect the market price of our common stock.
The exercise of outstanding options and warrants to purchase our common stock could substantially dilute your investment.
Under the terms of our outstanding options and warrants to purchase our common stock issued to employees and others, the holders are given an
opportunity to profit from a rise in the market price of our common stock that, upon the exercise of the options and/or warrants, could result in dilution in the
interests of our other stockholders.
The market price of our common stock and the value of your investment could substantially decline if our warrants or options are exercised and
our common stock is issued and resold into the market, or if a perception exists that a substantial number of shares will be issued upon exercise of our
warrants and option and then resold into the market.
If the exercise prices of our warrants or options are lower than the price at which you made your investment, immediate dilution of the value of your
investment will occur. In addition, sales of a substantial number of shares of common stock issued upon exercise of our warrants and options, or even the
perception that such sales could occur, could adversely affect the market price of our common stock. You could, therefore, experience a substantial decline in
the value of your investment as a result of both the actual and potential exercise of our warrants or options.
11
Because we are subject to the “Penny Stock” rules, the level of trading activity in our common stock may be reduced.
Our common stock is currently quoted on the OTCQB tier of the OTC Markets Group Inc., under the symbol “RSSS.” On September 11, 2017, the
last reported sale price of our common stock on the OTCQB was $1.02. As a result, our common stock constitutes a “Penny Stock.” Broker-dealer practices
in connection with transactions in Penny Stocks are regulated by rules adopted by the Securities and Exchange Commission, or SEC. Penny Stocks are
generally equity securities with a price per share of less than $5.00 (other than securities registered on certain national exchanges). The Penny Stock rules
require a broker-dealer, prior to a transaction in Penny Stocks not exempt from the rules, to deliver a standardized risk disclosure document that provides
information about Penny Stocks and the nature and level of risks in the Penny Stock market. The broker-dealer must also provide the customer with current
bid and offer quotations for the Penny Stock, the compensation of the broker-dealer and the salesperson in the transaction, and monthly accounting statements
showing the market value of each Penny Stock held in the customer’s account. In addition, the broker-dealer must make a special written determination that
the Penny Stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements may have the
effect of reducing the level of trading activity in a Penny Stock, such as our common stock, and investors in our common stock may find it difficult to sell
their shares.
Because our common stock is not currently listed on a national securities exchange, you may find it difficult to dispose of or obtain quotations
for our common stock.
Our common stock is quoted on the OTCQB under the symbol “RSSS.” Because our stock is quoted on the OTCQB rather than on a national
securities exchange, you may find it difficult to either dispose of, or to obtain quotations as to the price of, our common stock.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could result in a
restatement of our financial statements, cause investors to lose confidence in our financial statements and our company and have a material adverse
effect on our business and stock price.
We produce our financial statements in accordance with accounting principles generally accepted in the United States, or GAAP. Effective internal
controls are necessary for us to provide reliable financial reports to help mitigate the risk of fraud and to operate successfully as a publicly traded company.
As a public company, we are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-
Oxley Act of 2002, or Section 404. Further, Section 404 requires annual management assessments of the effectiveness of our internal controls over financial
reporting.
Testing and maintaining internal controls can divert our management’s attention from other matters that are important to our business. We may not
be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. If we are unable to
conclude that we have effective internal controls over financial reporting, investors could lose confidence in our reported financial information and our
company, which could result in a decline in the market price of our common stock, and cause us to fail to meet our reporting obligations in the future, which
in turn could impact our ability to raise additional financing if needed in the future.
Our board of directors has broad discretion to issue additional securities.
We are entitled under our certificate of incorporation to issue up to 100,000,000 shares of common stock and 20,000,000 shares of “blank check”
preferred stock, although these amounts may change in the future subject to stockholder approval. Shares of our blank check preferred stock provide our
board of directors’ broad authority to determine voting, dividend, conversion, and other rights. As of June 30, 2017 we had issued and outstanding 23,883,145
shares of common stock and we had 7,276,470 shares of common stock reserved for future grants under our equity compensation plans and for issuances
upon the exercise or conversion of currently outstanding options, warrants and convertible securities. As of June 30, 2017, we had no shares of preferred
stock issued and outstanding. Accordingly, as of June 30, 2017, we could issue up to 68,840,385 additional shares of common stock and 20,000,000 additional
shares of “blank check” preferred stock. Any additional stock issuances could be made at a price that reflects a discount or premium to the then-current
market price of our common stock. In addition, in order to raise capital, we may need to issue securities that are convertible into or exchangeable for a
significant amount of our common stock. Our board may generally issue those common and preferred shares, or convertible securities to purchase those
shares, without further approval by our stockholders. Any preferred shares we may issue could have such rights, preferences, privileges and restrictions as
may be designated from time-to-time by our board, including preferential dividend rights, voting rights, conversion rights, redemption rights and liquidation
provisions. We may also issue additional securities to our directors, officers, employees and consultants as compensatory grants in connection with their
services, both in the form of stand-alone grants or under our stock incentive plans. The issuance of additional securities may cause substantial dilution to our
stockholders.
Our articles of incorporation, bylaws and Nevada law have anti-takeover provisions that could discourage, delay or prevent a change in control,
which may cause our stock price to decline.
Our articles of incorporation, bylaws and Nevada law contain provisions which could make it more difficult for a third party to acquire us, even if
closing such a transaction would be beneficial to our stockholders. We are currently authorized to issue up to 20,000,000 shares of “blank check” preferred
stock. This preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our board of directors
without further action by stockholders. The terms of any series of preferred stock may include voting rights (including the right to vote as a series on
particular matters), preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions. No shares of our preferred stock are
currently outstanding. The issuance of any preferred stock could materially adversely affect the rights of the holders of our common stock, and therefore,
reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge
with, or sell our assets to, a third party and thereby preserve control by current management.
12
Provisions of our articles of incorporation, bylaws and Nevada law also could have the effect of discouraging potential acquisition proposals or
making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also
prevent or frustrate attempts by our stockholders to replace or remove our management. In particular, our articles of incorporation, our bylaws and Nevada
law, as applicable, among other things, provide our board of directors with the ability to alter our bylaws without stockholder approval, and provide that
vacancies on our board of directors may be filled by a majority of directors in office, although less than a quorum.
We may become subject to Nevada’s control share acquisition laws (Nevada Revised Statutes 78.378 -78.3793), which prohibit an acquirer, under
certain circumstances, from voting shares of a corporation’s stock after crossing specific threshold ownership percentages, unless the acquirer obtains the
approval of the issuing corporation’s stockholders. We are also subject to Nevada’s Combination with Interested Stockholders Statute (Nevada Revised
Statutes 78.411 -78.444) which prohibits an interested stockholder from entering into a “combination” with the corporation, unless certain conditions are met.
These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to
acquire control of our company to first negotiate with our board of directors. These provisions may delay or prevent someone from acquiring or merging with
us, which may cause the market price of our common stock to decline.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Our executive offices are located at 15821 Ventura Blvd., Suite 165, Encino, California. We lease approximately 3,765 square feet of office space for
approximately $10,500 per month from an unrelated third party. The lease expires on January 31, 2021.
Reprints Desk Latin America S. de R.L. de C.V, rents on a month to month basis approximately 280 square meters of office space in Monterrey,
Mexico, for approximately $1,200 (22,000 Mexican Pesos) per month.
We believe that our existing facilities are sufficient to meet our present and anticipated needs for the foreseeable future.
Item 3. Legal Proceedings
We are involved in legal proceedings in the ordinary course of our business. Although our management cannot predict the ultimate outcome of these
legal proceedings with certainty, it believes that the ultimate resolution of our legal proceedings, including any amounts we may be required to pay, will not
have a material effect on our consolidated financial statements.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information and Approximate Number of Holders of Common Stock
PART II
Our common stock is quoted on the OTCQB under the symbol "RSSS." The following table sets forth, for the periods indicated, the reported high
and low bid quotations for our common stock as reported on the OTCQB. The bid prices reflect inter-dealer quotations, do not include retail markups,
markdowns, or commissions, and do not necessarily reflect actual transactions
Year Ended June 30, 2017:
First Quarter (July 1 – September 30)
Second Quarter (October 1 – December 31)
Third Quarter (January 1 – March 31)
Fourth Quarter (April 1 – June 30)
Year Ended June 30, 2016:
First Quarter (July 1 – September 30)
Second Quarter (October 1 – December 31)
Third Quarter (January 1 – March 31)
Fourth Quarter (April 1 – June 30)
High Bid
Low Bid
$
$
$
$
$
$
$
$
1.17 $
1.04 $
1.20 $
1.04 $
1.05 $
0.89 $
0.88 $
1.20 $
0.89
0.75
1.00
0.66
0.70
0.55
0.49
0.84
As of September 11, 2017, we had a total of 24,169,792 shares of our common stock outstanding and the closing sales price was $1.02 per share on
the OTCQB. According to the records of our transfer agent, we had 39 record holders of our common stock as of September 11, 2017. Because brokers and
other institutions hold shares on behalf of stockholders, we are unable to estimate the total number of stockholders represented by these record holders.
13
Dividends
We have never declared or paid dividends on our common stock. In addition, our Loan and Security Agreement with Silicon Valley Bank prohibits
us from paying cash dividends. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not
anticipate paying any dividends on our common stock in the foreseeable future, if at all. Any future determination to declare dividends will be made at the
discretion of our board of directors and will depend on our financial condition, operating results, capital requirements, general business conditions and other
factors that our board of directors may deem relevant.
Common Stock Repurchases
On March 10, 2015, the Compensation Committee of our Board of Directors authorized the repurchase, over a 12-month period on the last day of
each trading window and otherwise in accordance with our insider trading policies, of up to $139,181 of outstanding common stock (at prices no greater than
$1.60 per share) from our employees to satisfy their tax obligations in connection with the vesting of stock incentive awards. The actual number of shares
repurchased will be determined by applicable employees in their discretion, and will depend on their evaluation of market conditions and other factors.
On May 24, 2016, the Compensation Committee of our Board of Directors authorized the repurchase, over a 12-month period on the last day of each
trading window and otherwise in accordance with our insider trading policies, of up to $100,000 of outstanding common stock (at prices no greater than $1.60
per share) from our employees to satisfy their tax obligations in connection with the vesting of stock incentive awards. The actual number of shares
repurchased will be determined by applicable employees in their discretion, and will depend on their evaluation of market conditions and other factors.
On February 16, 2017, the Compensation Committee of our Board of Directors authorized the repurchase, over a 12-month period on the last day of
each trading window and otherwise in accordance with our insider trading policies, of up to $300,000 of outstanding common stock (at prices no greater than
$2.00 per share) from our employees to satisfy their tax obligations in connection with the vesting of stock incentive awards. The actual number of shares
repurchased will be determined by applicable employees in their discretion, and will depend on their evaluation of market conditions and other factors.
During the years ended June 30, 2017 and 2016, we repurchased 195,958 and 46,898 shares of our common stock under the repurchase plan at an
average price of approximately $1.02 and $0.80 per share, respectively, for an aggregate amount of $199,323 and $37,747, respectively. As of June 30, 2017,
$175,050 remains under the current authorization to repurchase our outstanding common stock from our employees.
Shares repurchased are retired and deducted from common stock for par value and from additional paid in capital for the excess over par
value. Direct costs incurred to acquire the shares are included in the total cost of the shares.
The following table summarizes repurchases of our common stock on a monthly basis:
Period
September 2015
December 2015
June 2016
Year ended June 30, 2016
September 2016
December 2016
March 2017
June 2017
Year ended June 30, 2017
Total Number
of Shares
Purchased1
Average
Price Paid
per Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Approximate Dollar Value
of Shares that May Yet Be
Purchased Under the
Plans or Programs
1,848 $
27,450 $
17,600 $
46,898 $
25,508 $
54,200 $
7,250 $
109,000 $
195,958 $
0.95
0.67
1.00
0.80
1.04
1.03
1.10
1.00
1.02
-
-
-
-
-
-
- $
- $
- $
-
-
-
-
-
-
292,025
175,050
175,050
1 Consists of shares of common stock purchased from employees to satisfy tax obligations in connection with the vesting of stock incentive awards.
14
Equity Compensation Plan Information
Information relating to compensation plans under which our equity securities are authorized for issuance is set forth in Item 12 of this report under
“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
Item 6. Selected Financial Data
Not required.
15
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Notice Regarding Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations for the years ended June 30, 2017 and 2016 should be
read in conjunction with our consolidated financial statements and related notes to those financial statements that are included elsewhere in this report. Our
discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives,
expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a
result of a number of factors, including those set forth under “Risk Factors” and elsewhere in this report.
We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,”
“should,” “could,” and similar expressions to identify forward-looking statements. All forward-looking statements included in this report are based on
information available to us on the date hereof and, except as required by law, we assume no obligation to update any such forward-looking statements.
Overview
Research Solutions was incorporated in the State of Nevada on November 2, 2006, and is a publicly traded holding company with two wholly
owned subsidiaries at June 30, 2016: Reprints Desk, Inc., a Delaware corporation and Reprints Desk Latin America S. de R.L. de C.V, an entity organized
under the laws of Mexico.
On June 30, 2017, we sold the intangible assets of our Reprints and ePrints business line, but specifically excluding billed accounts receivable and
respective liabilities, pursuant to an Asset Purchase Agreement dated June 20, 2017. The aggregate net consideration for the sale is comprised of $450,000
paid on the closing date, and earn-out payments of 45% of gross margin over the 30 month period subsequent to the closing date. We have made a policy
election to record the contingent consideration when the consideration is determined to be realizable (each 6-month period ending subsequent to the closing
date).
We provide two service offerings to our customers: annual licenses that allow customers to access and utilize certain premium features of our cloud
based software-as-a-service (“SaaS”) research intelligence platform (“Platforms”) and the transactional sale of published scientific, technical, and medical
(“STM”) content managed, sourced and delivered through the Platform (“Transactions”). Platforms and Transactions are packaged as a single solution that
enable life science and other research intensive organizations to speed up research and development activities with faster, single sourced access and
management of content and data used throughout the intellectual property development lifecycle.
Platforms
Our cloud-based SaaS research intelligence platform consists of proprietary software and Internet-based interfaces. Legacy functionality
allows customers to initiate orders, route orders for the lowest cost acquisition, manage transactions, obtain spend and usage reporting, automate
authentication, and connect seamlessly to in-house and third-party software systems. Customers can also enhance the information resources they
already own or license and collaborate around bibliographic information.
Additional functionality has recently been added to our Platform in the form of interactive app-like gadgets. An alternative to manual data
filtering, identification and extraction, gadgets are designed to gather, augment, and extract data across a variety of formats, including bibliographic
citations, tables of contents, RSS feeds, PDF files, XML feeds, and web content. We are rapidly developing new gadgets in order to build an
ecosystem of gadgets. Together, these gadgets will provide researchers with an “all in one” toolkit, delivering efficiencies in core research workflows
and knowledge creation processes.
Our Platform is deployed as a single, multi-tenant system across our entire customer base. Customers securely access the Platform through
online web interfaces and via web service APIs that enable customers to leverage Platform features and functionality from within in-house and third-
party software systems. The Platform can also be configured to satisfy a customer’s individual preferences. We leverage our Platform’s efficiencies
in scalability, stability and development costs to fuel rapid innovation and competitive advantage.
Transactions
Researchers and knowledge workers in life science and other research-intensive organizations generally require single copies of published
STM journal articles for use in their research activities. These individuals are our primary users. Our Platform provides our customers with a single
source to the universe of published STM content that includes over 70 million existing STM articles and over one million newly published STM
articles each year.
Our Platform allows customers to find and download digital versions of STM articles that are critical to their research. Customers submit
orders for the articles they need which we source and electronically deliver to them generally in under an hour. This service is generally known in the
industry as single article delivery or document delivery. We also obtain the necessary permission licenses from the content publisher or other rights
holder so that our customer’s use complies with applicable copyright laws. We have arrangements with hundreds of content publishers that allow us
to distribute their content. The majority of these publishers provide us with electronic access to their content, which allows us to electronically
deliver single articles to our customers often in a matter of minutes.
16
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States, or GAAP,
requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. When making these estimates and assumptions, we consider our historical experience, our knowledge of economic and
market factors and various other factors that we believe to be reasonable under the circumstances. Actual results may differ under different estimates and
assumptions.
The accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our
financial statements because they inherently involve significant judgments and uncertainties.
Revenue Recognition
Our policy is to recognize revenue when services have been performed, risk of loss and title to the product transfers to the customer, the selling price
is fixed or determinable, and collectability is reasonably assured. We generate revenue by providing two service offerings to our customers: annual licenses
that allow customers to access and utilize certain premium features of our cloud based SaaS research intelligence platform (“Platforms”) and the transaction
sale of STM content managed, sourced and delivered through the Platform (“Transactions”).
Platforms
We charge a subscription fee that allows customers to access and utilize certain premium features of our Platform. Revenue is recognized
ratably over the term of the subscription agreement, which is typically one year, provided all other revenue recognition criteria have been met.
Billings or payments received in advance of revenue recognition are recorded as deferred revenue.
Transactions
We charge a transactional service fee for the electronic delivery of single articles, and a corresponding copyright fee for the permitted use of
the content. We recognize revenue from single article delivery services upon delivery to the customer only when the selling price is fixed or
determinable, and collectability is reasonably assured.
Stock-Based Compensation
We periodically issue stock options, warrants and restricted stock to employees and non-employees for services, in capital raising transactions, and
for financing costs. We account for share-based payments under the guidance as set forth in the Share-Based Payment Topic 718 of the FASB Accounting
Standards Codification, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees,
officers, directors, and consultants, including employee stock options, based on estimated fair values. We estimate the fair value of stock option and warrant
awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of the award that is ultimately expected to
vest is recognized as expense over the required service period in our Statements of Operations. We estimate the fair value of restricted stock awards to
employees and directors using the market price of our common stock on the date of grant, and the value of the portion of the award that is ultimately expected
to vest is recognized as expense over the required service period in our Statements of Operations. We account for share-based payments to non-employees in
accordance with Topic 505 of the FASB Accounting Standards Codification, whereby the value of the stock compensation is based upon the measurement
date as determined at either a) the date at which a performance commitment is reached, or b) the date at which the necessary performance to earn the equity
instruments is complete. Stock-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are
estimated at the time of grant and revised, as necessary, in subsequent periods if actual forfeitures differ from those estimates.
Allowance for doubtful accounts
We evaluate the collectability of our trade accounts receivable based on a number of factors. In circumstances where we become aware of a specific
customer’s inability to meet its financial obligations to us, we estimate and record a specific reserve for bad debts, which reduces the recognized receivable to
the estimated amount we believe will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are
recorded based on our historical losses and an overall assessment of past due trade accounts receivable outstanding. We established an allowance for doubtful
accounts of $119,536 and $52,084 as of June 30, 2017 and 2016, respectively.
17
Foreign Currency
The accompanying consolidated financial statements are presented in United States dollars, the functional currency of our company. Capital accounts
of foreign subsidiaries are translated into US dollars from foreign currencies at their historical exchange rates when the capital transactions occurred. Assets
and liabilities are translated at the exchange rate as of the balance sheet date. Income and expenditures are translated at the average exchange rate of the
period. Although the majority of our revenue and costs are in US dollars, the costs of Reprints Desk Latin America are in Mexican Pesos. As a result,
currency exchange fluctuations may impact our revenue and the costs of our operations. We currently do not engage in any currency hedging activities.
The following table summarizes the exchange rates used:
Period end Euro : US Dollar exchange rate
Average period Euro : US Dollar exchange rate
Period end Mexican Peso : US Dollar exchange rate
Average period Mexican Peso : US Dollar exchange rate
Quarterly Information (Unaudited)
Year Ended
June 30,
2017
2016
1.09
1.09
0.05
0.05
1.11
1.11
0.05
0.06
The following table sets forth unaudited and quarterly financial data for the four quarters of fiscal years 2017 and 2016:
June 30,
Mar. 31,
Dec. 31,
Sept. 30,
June 30,
Mar. 31,
Dec. 31,
Sept. 30,
2017
2017
2016
2016
2016
2016
2015
2015
Revenue:
Platforms
Transactions
Total revenue
Cost of revenue:
Platforms
Transactions
Total cost of revenue
Gross profit:
Platforms
Transactions
Total gross profit
Operating expenses:
58,463
$ 318,194 $ 270,920 $
6,521,313 6,372,679 5,866,562 6,006,399 6,025,972 6,394,127 5,702,733 5,567,241
6,839,507 6,643,599 6,085,699 6,178,471 6,155,935 6,515,161 5,795,311 5,625,704
219,137 $ 172,072 $ 129,963 $ 121,034 $
92,578 $
71,097
11,762
5,060,500 4,997,842 4,664,690 4,714,999 4,702,892 4,918,679 4,471,950 4,290,025
5,131,597 5,056,209 4,710,313 4,744,963 4,726,318 4,940,236 4,489,127 4,301,787
23,426
21,557
17,177
29,964
58,367
45,623
212,553
247,097
46,701
1,460,813 1,374,837 1,201,872 1,291,400 1,323,080 1,475,448 1,230,783 1,277,216
1,707,910 1,587,390 1,375,386 1,433,508 1,429,617 1,574,925 1,306,184 1,323,917
106,537
142,108
173,514
99,477
75,401
Sales and marketing
General and administrative
Depreciation and amortization
Stock-based compensation expense
Foreign currency transaction loss (gain)
854,724
963,784
988,962
580,778
1,326,798 1,251,807 1,226,181 1,211,008
30,469
102,589
3,324
520,402
496,641
902,667 1,011,670 1,092,187 1,063,262
14,738
143,741
1,317
2,458,442 2,368,095 2,434,059 1,928,168 1,615,957 1,695,400 1,890,312 1,719,699
16,096
277,389
5,805
29,702
162,192
994
30,310
130,568
(2,829)
32,426
303,097
17,631
36,893
112,151
(6,362)
33,906
112,326
6,272
525,681
498,835
Total operating expenses
Other income (expenses and income
taxes)
Loss from continuing operations
Income from discontinued operations
Gain on sale of discontinued operations
Net income (loss)
(6,425)
(756,957)
113,314
241,196
(402,447)
1,599
(6,913)
(779,106) (1,065,586)
222,626
141,616
-
-
(842,960)
(637,490)
(11,895)
(506,555)
95,889
-
(410,666)
(22,034)
(208,374)
155,385
-
(52,989)
(37,238)
(157,713)
190,089
-
32,376
(4,415)
(588,543)
290,118
-
(298,425)
(13,468)
(409,250)
230,430
-
(178,820)
18
June 30,
Mar. 31,
Dec. 31,
Sept. 30,
June 30,
Mar. 31,
Dec. 31,
Sept. 30,
2017
2017
2016
2016
2016
2016
2015
2015
Net income (loss):
Loss from continuing operations $
Income from discontinued
operations
Net income (loss)
Basic income (loss) per common
share:
Loss per share from continuing
operations
Income per share from
discontinued operations
Net income (loss) per share
Basic weighted average
common shares outstanding
Diluted income (loss) per common
share:
Loss per share from continuing
operations
Income per share from
discontinued operations
Net income (loss) per share
Diluted weighted average
common shares outstanding
(756,957) $
(779,106) $ (1,065,586) $
(506,555) $
(208,374) $
(157,713) $
(588,543) $
(409,250)
354,510
(402,447) $
141,616
(637,490) $
222,626
(842,960) $
95,889
(410,666) $
155,385
(52,989) $
190,089
32,376 $
290,118
(298,425) $
230,430
(178,820)
(0.03) $
(0.03) $
(0.05) $
(0.02) $
(0.01) $
- $
(0.03) $
(0.02)
0.01 $
(0.02) $
- $
(0.03) $
0.01 $
(0.04) $
- $
(0.02) $
- $
(0.01) $
- $
- $
0.01 $
(0.02) $
0.01
(0.01)
$
$
$
$
23,369,727 23,265,939 23,200,975 23,131,570 18,154,762 17,707,900 17,656,087 17,564,070
$
$
$
(0.03) $
(0.03) $
(0.05) $
(0.02) $
(0.01) $
- $
(0.03) $
(0.02)
0.01 $
(0.02) $
- $
(0.03) $
0.01 $
(0.04) $
- $
(0.02) $
- $
(0.01) $
- $
- $
0.01 $
(0.02) $
0.01
(0.01)
23,369,727 23,265,939 23,200,975 23,131,570 18,154,762 18,464,000 17,656,087 17,564,070
Comparison of the Years Ended June 30, 2017 and 2016
Results of Operations
Revenue:
Platforms
Transactions
Total revenue
Cost of revenue:
Platforms
Transactions
Total cost of revenue
Gross profit
Operating expenses:
Sales and marketing
General and administrative
Depreciation and amortization
Stock-based compensation expense
Foreign currency transaction loss
Total operating expenses
Loss from operations
Other income (expenses):
Interest expense
Other income (expense)
Total other income (expenses)
Year Ended June 30,
2017
2016
2017-2016
$ Change
2017-2016
% Change
$
980,323 $
24,766,953
25,747,276
402,038 $
23,690,073
24,092,111
578,285
1,076,880
1,655,165
205,051
19,438,031
19,643,082
6,104,194
73,922
18,383,546
18,457,468
5,634,643
131,129
1,054,485
1,185,614
469,551
3,388,248
5,015,794
133,694
630,163
20,865
9,188,764
(3,084,570)
2,041,559
4,069,786
90,846
713,890
5,287
6,921,368
(1,286,725)
1,346,689
946,008
42,848
(83,727)
15,578
2,267,396
(1,797,845)
(12,000)
23,861
11,861
(17,382)
(31,611)
(48,993)
5,382
55,472
60,854
143.8%
4.5%
6.9%
177.4%
5.7%
6.4%
8.3%
66.0%
23.2%
47.2%
(11.7)%
294.6%
32.8%
(139.7)%
31.0%
175.5%
124.2%
Loss from operations before provision for income taxes
Provision for income taxes
(3,072,709)
(35,495)
(1,335,718)
(28,162)
(1,736,991)
(7,333)
(130.0)%
(26.0)%
Loss from continuing operations
(3,108,204)
(1,363,880)
(1,744,324)
(127.9)%
Discontinued operations:
Income from discontinued operations
Gain from sale of discontinued operations
Income from discontinued operations
573,445
241,196
814,641
866,022
-
866,022
(292,577)
241,196
(51,381)
(33.8)%
-%
(5.9)%
Net loss
$
(2,293,563) $
(497,858) $
(1,795,705)
(360.7)%
19
Revenue
Revenue:
Platforms
Transactions
Total revenue
Years Ended June 30,
2017
2016
2017-2016
$ Change
2017-2016
% Change
$
980,323 $
24,766,953
402,038 $
23,690,073
$ 25,747,276 $ 24,092,111 $
578,285
1,076,880
1,655,165
143.8%
4.5%
6.9%
Total revenue increased $1,655,165, or 6.9%, for the year ended June 30, 2017 compared to the prior year, due to the following:
Category
Platforms
Transactions
Cost of Revenue
Impact
578,285
1,076,880
↑
↑
$
$
Key Drivers
Increased due to additional deployments to new and existing customers. Revenue is
recognized ratably over the term of the subscription agreement, which is typically one
year, provided all other revenue recognition criteria have been met. Billings or payments
received in advance of revenue recognition are recorded as deferred revenue.
Increased primarily due to orders from new customers, and, to a lesser extent, a net
increase in orders from existing customers.
Years Ended June 30,
2017
2016
2017-2016
$ Change
2017-2016
% Change
Cost of Revenue:
Platforms
Transactions
Total cost of revenue
As a percentage of revenue:
Platforms
Transactions
Total
$
205,051 $
73,922 $
19,438,031 18,383,546
$ 19,643,082 $ 18,457,468 $
131,129
1,054,485
1,185,614
177.4%
5.7%
6.4%
Years Ended June 30,
2017
2016
2017-2016
Change *
20.9%
78.5%
76.3%
18.4%
77.6%
76.6%
2.5%
0.9%
(0.3)%
* The difference between current and prior period cost of revenue as a percentage of revenue
Total cost of revenue as a percentage of revenue decreased 0.3%, from 76.6% for the previous year to 76.3%, for the year ended June 30, 2017.
Despite the cost of revenue as a percentage of revenue increasing for both Platforms and Transactions, the total cost of revenue as a percentage of revenue
decreased slightly due to the greater proportion of Platform revenue, with significantly lower cost of revenue as a percentage of revenue, compared to
Transactions revenue.
Category
Platforms
Transactions
Impact as percentage
of revenue
↑
↑
2.5%
0.9%
Key Drivers
Increased due to additional third-party data costs.
Increased primarily due to a reduction in copyright discounts.
20
Gross Profit
Gross Profit:
Platforms
Transactions
Total gross profit
As a percentage of revenue:
Platforms
Transactions
Total
Years Ended June 30,
2017
2016
2017-2016
$ Change
2017-2016
% Change
$
$
775,272 $
5,328,922
6,104,194 $
328,116 $
5,306,527
5,634,643 $
447,156
22,395
469,551
136.3%
0.4%
8.3%
Years Ended June 30,
2017
2016
2017-2016
Change *
79.1%
21.5%
23.7%
81.6%
22.4%
23.4%
(2.5)%
(0.9)%
0.3%
* The difference between current and prior period gross profit as a percentage of revenue
Operating Expenses
Operating Expenses:
Sales and marketing
General and administrative
Depreciation and amortization
Stock-based compensation expense
Foreign currency transaction loss
Total operating expenses
Years Ended June 30,
2017
2016
2017-2016
$ Change
2017-2016
% Change
$
$
3,388,248 $
5,015,794
133,694
630,163
20,865
9,188,764 $
2,041,559 $
4,069,786
90,846
713,890
5,287
6,921,368 $
1,346,689
946,008
42,848
(83,727)
15,578
2,267,396
66.0%
23.2%
47.2%
(11.7)%
294.6%
32.8%
Category
Sales and marketing
General and administrative
Depreciation and amortization
↑
↑
↑
$
$
$
Impact
1,346,689
946,008
42,848
Increased primarily due to greater personnel and consulting cost.
Increased primarily due to greater personnel and consulting cost.
Increased due to greater amortization of customer list.
Key Drivers
Interest Expense
For the year ended June 30, 2017, interest expense was $12,000, compared to $17,382 for the prior year, a decrease of $5,382.
Provision for Income Taxes
During the years ended June 30, 2017 and 2016, we recorded a provision for income taxes of $35,495 and $28,162, respectively, an increase of
$7,333.
Net Income (Loss)
Net Income (Loss):
Loss from continuing operations
Income from discontinued operations
Total net loss
Year Ended June 30,
2017
2016
2017-2016
$ Change
2017-2016
% Change
$
$
(3,108,204) $
814,641
(2,293,563) $
(1,363,880) $
866,022
(497,858) $
(1,744,324)
(51,381)
(1,795,705)
(127.9)%
(5.9)%
(360.7)%
21
Loss from continuing operations increased $1,744,324 or 127.9%, for the year ended June 30, 2017 compared to the prior year, primarily due to
increased operating expenses, partially offset by increased gross profit as described above.
Liquidity and Capital Resources
Consolidated Statements of Cash Flow Data:
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Liquidity
Year Ended June 30,
2017
2016
$
(436,842) $
185,171
361,348
(196,298)
(199,328)
4,746,083
(28,103)
(302,925)
6,076,875
5,773,950 $
(12,239)
4,722,717
1,354,158
6,076,875
$
Since our inception, we have funded our operations primarily through private sales of equity securities and the exercise of warrants, which have
provided aggregate net cash proceeds to date of approximately $15,972,000. As of June 30, 2017, we had working capital of $4,112,932 and stockholders’
equity of $4,344,623. For the year ended June 30, 2017, we recorded a net loss of $2,293,563, cash used by operating activities was $436,842. We may incur
losses for an indeterminate period and may never sustain profitability. We may be unable to achieve and maintain profitability on a quarterly or annual basis.
An extended period of losses and negative cash flow may prevent us from successfully operating and expanding our business.
As of June 30, 2017, we had cash and cash equivalents of $5,773,950, compared to $6,076,875 as of June 30, 2016, decrease of $302,925. This
decrease was primarily due to cash used by operating activities.
Operating Activities
Net cash used by operating activities was $436,842 for the year ended June 30, 2017 and resulted primarily from net loss and reconciling items of
$1,725,799, an increase in prepaid royalties of $392,617, partially offset by an increase in accounts payable and accrued expenses of $752,288, an increase in
deferred revenue of $695,641, and an increase in accounts receivable of $296,561.
Net cash provided by operating activities from continuing operations was $185,171 for the year ended June 30, 2016 and resulted primarily from net
loss and reconciling items of $306,878, an increase in deferred revenue of $292,276, and a decrease in prepaid royalties of $198,916, partially offset by an
increase in accounts receivable of $599,676.
Investing Activities
Net cash used in investing activities was $361,348 for the year ended June 30, 2017 and resulted primarily from the proceeds from sale of
discontinued operations of $435,000, partially offset by purchase of intangible assets and property and equipment
Net cash used in investing activities was $196,298 for the year ended June 30, 2016 and resulted from the purchase of intangible assets and property
and equipment.
Financing Activities
Net cash used by financing activities was $199,328 for the year ended June 30, 2017 and resulted from the repurchase of common stock.
Net cash provided by financing activities was $4,746,083 for the year ended June 30, 2016 and resulted from the issuance of common stock for cash
of $4,783,830.
We entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB”) on July 23, 2010, which, as amended, provides for a revolving
line of credit for the lesser of $4,000,000, or 80% of eligible accounts receivable. The line of credit matures on October 31, 2017, and is subject to certain
financial and performance covenants with which we were in compliance as of June 30, 2017. Financial covenants include maintaining a ratio of quick assets
to current liabilities of at least 0.8 to 1.0, and maintaining tangible net worth of $600,000, plus 50% of net income for the fiscal quarter ended from and after
December 31, 2015, plus 50% of the dollar value of equity issuances after October 1, 2015 and the principal amount of subordinated debt. The line of credit
bears interest at the prime rate plus 2.25% for periods in which we maintain an account balance with SVB (less all indebtedness owed to SVB) of at least
$800,000 at all times during the prior calendar month (the “Streamline Period”), and at the prime rate plus 5.25% when a Streamline Period is not in effect.
The interest rate on the line of credit was 6.50% as of June 30, 2017. The line of credit is secured by our consolidated assets.
22
There were no outstanding borrowings under the line as of June 30, 2017 and June 30, 2016, respectively. As of June 30, 2017 and June 30, 2016,
approximately $3,277,000 and $3,390,000, respectively, of available credit was unused.
Non-GAAP Measure – Adjusted EBITDA
In addition to our GAAP results, we present Adjusted EBITDA as a supplemental measure of our performance. However, Adjusted EBITDA is not a
recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance
measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of liquidity. We define Adjusted EBITDA
as net income (loss), plus interest expense, other income (expense), foreign currency transaction loss, provision for income taxes, depreciation and
amortization, stock-based compensation, income from discontinued operations and gain on sale of discontinued operations. Management considers our core
operating performance to be that which our managers can affect in any particular period through their management of the resources that affect our underlying
revenue and profit generating operations that period. Non-GAAP adjustments to our results prepared in accordance with GAAP are itemized below. You are
encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you
should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of
Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
Set forth below is a reconciliation of Adjusted EBITDA to net income (loss) for the year ended June 30, 2017 and 2016:
Net loss
Add (deduct):
Interest expense
Other (income) expense
Foreign currency transaction loss
Provision for income taxes
Depreciation and amortization
Stock-based compensation
Income from discontinued operations
Gain on sale of discontinued operations
Years Ended June 30,
2017
(2,293,563) $
$
2016
2017-2016
$ Change
(497,858) $
(1,795,705)
12,000
(23,861)
20,865
35,495
133,694
630,163
(573,445)
(241,196)
(2,299,848) $
17,382
31,611
5,287
28,162
90,846
713,890
(866,022)
-
(476,702) $
(5,382)
(296,668)
15,578
7,333
42,848
(83,727)
292,577
(241,196)
(1,823,146)
Adjusted EBITDA
$
We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a
consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA in
developing our internal budgets, forecasts and strategic plan; in analyzing the effectiveness of our business strategies in evaluating potential acquisitions; and
in making compensation decisions and in communications with our board of directors concerning our financial performance. Adjusted EBITDA has
limitations as an analytical tool, which includes, among others, the following:
·
·
·
·
Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
Adjusted EBITDA does not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on our debts;
and
although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the
future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recently Issued Accounting Pronouncements
For information about recently issued accounting standards, refer to Note 2 to our Consolidated Financial Statements appearing elsewhere in this
report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not required.
23
Item 8. Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Research Solutions, Inc. and Subsidiaries
Encino, California
We have audited the accompanying consolidated balance sheets of Research Solutions, Inc. (the “Company”) and Subsidiaries as of June 30, 2017 and 2016,
and the related consolidated statements of operations and other comprehensive loss, stockholders’ equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration
of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Research
Solutions, Inc. and Subsidiaries as of June 30, 2017 and 2016 and the consolidated results of their operations and their cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of America.
/s/ Weinberg and Company, P.A
Los Angeles, California
September 18, 2017
24
Research Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
Assets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance of $119,536 and $52,084, respectively
Prepaid expenses and other current assets
Prepaid royalties
Total current assets
Other assets:
Property and equipment, net of accumulated depreciation of $699,421 and $642,051, respectively
Intangible assets, net of accumulated amortization of $623,714 and $546,679, respectively
Deposits and other assets
Right of use asset, net of accumulated amortization of $45,105
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses
Deferred revenue
Lease liability, current portion
Total current liabilities
Long-term liabilities:
Lease liability, long-term portion
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock; $0.001 par value; 20,000,000 shares authorized; no shares issued and outstanding
Common stock; $0.001 par value; 100,000,000 shares authorized; 23,883,145 and 23,809,593 shares issued
and outstanding, respectively
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated financial statements
25
June 30,
2017
June 30,
2016
5,773,950 $
5,465,299
196,820
566,282
12,002,351
85,737
41,870
14,466
417,917
12,562,341 $
6,076,875
5,761,860
164,610
173,665
12,177,010
82,207
104,848
7,594
-
12,371,659
6,443,056 $
1,335,475
110,888
7,889,419
5,690,768
639,834
-
6,330,602
328,299
8,217,718
-
6,330,602
-
-
23,883
22,267,327
(17,875,858)
(70,729)
4,344,623
12,562,341 $
23,810
21,642,763
(15,582,295)
(43,221)
6,041,057
12,371,659
$
$
$
$
Research Solutions, Inc. and Subsidiaries
Consolidated Statements of Operations and Other Comprehensive Loss
Revenue:
Platforms
Transactions
Total revenue
Cost of revenue:
Platforms
Transactions
Total cost of revenue
Gross profit
Operating expenses:
Selling, general and administrative
Depreciation and amortization
Total operating expenses
Loss from operations
Other income (expenses):
Interest expense
Other income (expense)
Total other income (expenses)
Loss from continuing operations before provision for income taxes
Provision for income taxes
Loss from continuing operations
Discontinued operations:
Income from discontinued operations
Gain from sale of discontinued operations
Income from discontinued operations
Net loss
Other comprehensive loss:
Foreign currency translation
Comprehensive loss
Income (loss) per common share:
Loss per share from continuing operations, basic and diluted
Income per share from discontinued operations, basic and diluted
Net loss per share, basic and diluted
Weighted average common shares outstanding, basic and diluted
See notes to consolidated financial statements
26
Years Ended
June 30,
2017
2016
$
980,323 $
24,766,953
25,747,276
402,038
23,690,073
24,092,111
205,051
19,438,031
19,643,082
6,104,194
9,055,070
133,694
9,188,764
(3,084,570)
73,922
18,383,546
18,457,468
5,634,643
6,830,522
90,846
6,921,368
(1,286,725)
(12,000)
23,861
11,861
(17,382)
(31,611)
(48,993)
(3,072,709)
(35,495)
(1,335,718)
(28,162)
(3,108,204)
(1,363,880)
573,445
241,196
814,641
866,022
-
866,022
(2,293,563)
(497,858)
(27,508)
(2,321,071) $
(13,874)
(511,732)
(0.14) $
0.04 $
(0.10) $
23,241,572
(0.08)
0.05
(0.03)
17,769,827
$
$
$
$
Research Solutions, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
For the Years Ended June 30, 2017 and 2016
Additional
Other
Total
Common Stock
Paid-in Accumulated Comprehensive Stockholders'
Shares
Amount
Capital
Deficit
Loss
Equity
Balance, July 1, 2015
18,242,125
18,242 16,188,358 (15,084,437)
(29,347)
1,092,816
Fair value of vested stock options
-
-
305,734
Common stock issued for cash
5,200,000
5,200 4,778,630
Fair value of vested restricted common stock
414,366
415
377,926
Repurchase of common stock
(46,898)
(47)
(37,700)
-
-
-
-
-
-
305,734
-
4,783,830
-
378,341
-
(37,747)
-
29,815
-
-
-
-
-
375,244
-
366,291
-
(199,328)
-
82,430
Modification cost of stock options issued to directors
Net loss
Foreign currency translation
-
-
-
-
29,815
-
-
-
(497,858)
-
(497,858)
-
-
(13,874)
(13,874)
Balance, June 30, 2016
23,809,593
23,810 21,642,763 (15,582,295)
(43,221)
6,041,057
Fair value of vested stock options
-
-
375,244
Fair value of vested restricted common stock
269,510
268
366,023
Repurchase of common stock
(195,958)
(195)
(199,133)
Modification cost of stock options in connection with
sale of discontinued operations
Net loss
Foreign currency translation
-
-
-
-
82,430
-
-
-
(2,293,563)
-
(2,293,563)
-
-
(27,508)
(27,508)
Balance, June 30, 2017
23,883,145 $
23,883 $ 22,267,327 $ (17,875,858) $
(70,729) $
4,344,623
See notes to consolidated financial statements
27
Research Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Cash flow from operating activities:
Net loss
Adjustment to reconcile net loss to net cash provided by (used in) operating activities of continuing
operations:
Gain from sale of discontinued operations
Depreciation and amortization
Amortization of lease right
Fair value of vested stock options
Fair value of vested restricted common stock
Modification cost of stock options issued to directors
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other current assets
Prepaid royalties
Deposits and other assets
Accounts payable and accrued expenses
Deferred revenue
Lease liability
Net cash provided by (used in) operating activities
Cash flow from investing activities:
Purchase of property and equipment
Purchase of intangible assets
Proceeds from sale of discontinued operations
Net cash provided by (used in) investing activities
Cash flow from financing activities:
Common stock issued for cash
Advance under line of credit
Payment under line of credit
Common stock repurchase and retirement
Net cash provided by (used in) financing activities
Effect of exchange rate changes
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental disclosures of cash flow information:
Cash paid for income taxes
Cash paid for interest
Supplemental noncash investing and financing activities:
Acquisition of leased asset and lease liability
See notes to consolidated financial statements
28
Years Ended
June 30,
2017
2016
$
(2,293,563) $
(497,858)
(241,196)
133,694
45,105
263,870
366,291
-
296,561
(32,210)
(392,617)
(6,872)
752,288
695,641
(23,834)
(436,842)
(59,595)
(14,057)
435,000
361,348
-
-
-
(199,328)
(199,328)
(28,103)
(302,925)
6,076,875
5,773,950 $
-
90,846
-
305,734
378,341
29,815
(599,676)
(94,415)
198,916
1,877
79,315
292,276
-
185,171
(58,376)
(137,922)
-
(196,298)
4,783,830
1,000,000
(1,000,000)
(37,747)
4,746,083
(12,239)
4,722,717
1,354,158
6,076,875
35,495 $
12,000 $
28,162
17,382
463,022
-
$
$
$
$
RESEARCH SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2017 and 2016
Note 1. Organization, Nature of Business and Basis of Presentation
Organization
Research Solutions, Inc. (the “Company,” “Research Solutions,” “we,” “us” or “our”) was incorporated in the State of Nevada on November 2, 2006,
and is a publicly traded holding company with two wholly owned subsidiaries at June 30, 2017: Reprints Desk, Inc., a Delaware corporation and Reprints
Desk Latin America S. de R.L. de C.V, an entity organized under the laws of Mexico.
On June 30, 2017, we sold the intangible assets of our Reprints and ePrints business line, but specifically excluding billed accounts receivable and
respective liabilities, pursuant to an Asset Purchase Agreement dated June 20, 2017. The aggregate net consideration for the sale is comprised of $450,000
paid on the closing date, and earn-out payments of 45% of gross margin over the 30 month period subsequent to the closing date. We have made a policy
election to record the contingent consideration when the consideration is determined to be realizable (each 6-month period ending subsequent to the closing
date).
Nature of Business
We provide two service offerings to our customers: annual licenses that allow customers to access and utilize certain premium features of our cloud
based software-as-a-service (“SaaS”) research intelligence platform (“Platforms”) and the transactional sale of published scientific, technical, and medical
(“STM”) content managed, sourced and delivered through the Platform (“Transactions”). Platforms and Transactions are packaged as a single solution that
enable life science and other research intensive organizations to speed up research and development activities with faster, single sourced access and
management of content and data used throughout the intellectual property development lifecycle.
Platforms
Our cloud-based SaaS research intelligence platform consists of proprietary software and Internet-based interfaces. Legacy functionality
allows customers to initiate orders, route orders for the lowest cost acquisition, manage transactions, obtain spend and usage reporting, automate
authentication, and connect seamlessly to in-house and third-party software systems. Customers can also enhance the information resources they
already own or license and collaborate around bibliographic information.
Additional functionality has recently been added to our Platform in the form of interactive app-like gadgets. An alternative to manual data
filtering, identification and extraction, gadgets are designed to gather, augment, and extract data across a variety of formats, including bibliographic
citations, tables of contents, RSS feeds, PDF files, XML feeds, and web content. We are rapidly developing new gadgets in order to build an
ecosystem of gadgets. Together, these gadgets will provide researchers with an “all in one” toolkit, delivering efficiencies in core research workflows
and knowledge creation processes.
Our Platform is deployed as a single, multi-tenant system across our entire customer base. Customers securely access the Platform through
online web interfaces and via web service APIs that enable customers to leverage Platform features and functionality from within in-house and third-
party software systems. The Platform can also be configured to satisfy a customer’s individual preferences. We leverage our Platform’s efficiencies
in scalability, stability and development costs to fuel rapid innovation and competitive advantage.
Transactions
Researchers and knowledge workers in life science and other research-intensive organizations generally require single copies of published
STM journal articles for use in their research activities. These individuals are our primary users. Our Platform provides our customers with a single
source to the universe of published STM content that includes over 70 million existing STM articles and over one million newly published STM
articles each year.
Our Platform allows customers to find and download digital versions of STM articles that are critical to their research. Customers submit
orders for the articles they need which we source and electronically deliver to them generally in under an hour. This service is generally known in the
industry as single article delivery or document delivery. We also obtain the necessary permission licenses from the content publisher or other rights
holder so that our customer’s use complies with applicable copyright laws. We have arrangements with hundreds of content publishers that allow us
to distribute their content. The majority of these publishers provide us with electronic access to their content, which allows us to electronically
deliver single articles to our customers often in a matter of minutes.
Principles of Consolidation
The accompanying financial statements are consolidated and include the accounts of the Company and its wholly-owned subsidiaries. Intercompany
balances and transactions have been eliminated in consolidation.
29
Note 2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue
and expenses during the reporting periods. Actual results could differ from these estimates.
These estimates and assumptions include estimates for reserves of uncollectible accounts, analysis of impairments of recorded intangibles, accruals
for potential liabilities, assumptions made in valuing equity instruments issued for services or acquisitions, and realization of deferred tax assets.
Cash and cash equivalents
For purposes of the statements of cash flows, the Company defines cash equivalents as all highly liquid debt instruments purchased with an original
maturity of three months or less.
Fair value of financial instruments
Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurements and
Disclosures, fair value is defined as the price at which an asset could be exchanged or a liability transferred in a transaction between knowledgeable, willing
parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices or parameters
or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models are applied. A fair value hierarchy
prioritizes the inputs used in measuring fair value into three broad levels as follows:
Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs, other than the quoted prices in active markets, are observable either directly or indirectly.
Level 3 – Unobservable inputs based on the Company's assumptions.
The Company is required to use observable market data if such data is available without undue cost and effort. The Company has no fair value items
required to be disclosed as of June 30, 2017 or 2016.
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable and accounts payable, approximate
their fair values because of the short maturity of these instruments.
Allowance for doubtful accounts
The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company
becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded,
which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer
identification of potential bad debts, bad debt charges are recorded based on the Company’s historical losses and an overall assessment of past due trade
accounts receivable outstanding. The Company established an allowance for doubtful accounts of $119,536 and $52,084 as of June 30, 2017 and 2016,
respectively.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash and cash equivalents and accounts
receivable. The Company places its cash with high quality financial institutions and at times may exceed the FDIC $250,000 insurance limit. The Company
does not anticipate incurring any losses related to these credit risks. The Company extends credit based on an evaluation of the customer's financial condition,
generally without collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its
exposure for credit losses and intends to maintain allowances for anticipated losses, as required.
Cash denominated in Euros with a US Dollar equivalent of $93,359 and $76,793 at June 30, 2017 and 2016, respectively, was held in accounts at
financial institutions located in Europe.
The Company has no customers that represent 10% of revenue or more for the years ended June 30, 2017 and 2016.
The Company has no customers that accounted for greater than 10% of accounts receivable as of June 30, 2017 and 2016.
The following table summarizes vendor concentrations:
30
Vendor A
Vendor B
* Less than 10%
Property and equipment
Year Ended
June 30,
2017
2016
16%
11%
14%
12%
Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives of 3 to 7 years.
Leasehold improvements are amortized over the shorter of the useful lives of the related assets, or the lease term. Expenditures for maintenance and repairs
are charged to operations as incurred while renewals and betterments are capitalized. Gains and losses on disposals are included in the consolidated
statements of operations.
Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value
may not be recoverable. If there is indication of impairment, management prepares an estimate of future cash flows expected to result from the use of the
asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset
to its estimated fair value. For the years ended June 30, 2017 and 2016, the Company did not recognize any impairments for its property and equipment.
Intangible Assets
Management performs impairment tests of indefinite-lived intangible assets at least annually, or whenever an event occurs or circumstances change
that indicates impairment has more likely than not occurred.
The Company reviews intangible assets subject to amortization at least annually to determine if any adverse conditions exist or a change in
circumstances has occurred that would indicate impairment or a change in the remaining useful life. If the carrying value of an asset exceeds its undiscounted
cash flows, the Company writes down the carrying value of the intangible asset to its fair value in the period identified. If the carrying value of assets is
determined not to be recoverable, the Company records an impairment loss equal to the excess of the carrying value over the fair value of the assets. The
Company’s estimate of fair value is based on the best information available, in the absence of quoted market prices. The Company generally calculates fair
value as the present value of estimated future cash flows that the Company expects to generate from the asset using a discounted cash flow income approach
as described above. If the estimate of an intangible asset’s remaining useful life is changed, the Company amortizes the remaining carrying value of the
intangible asset prospectively over the revised remaining useful life.
As of June 30, 2017 and 2016, the Company determined that there were no indicators of impairment of its recorded intangible assets.
Revenue Recognition
The Company’s policy is to recognize revenue when services have been performed, risk of loss and title to the product transfers to the customer, the
selling price is fixed or determinable, and collectability is reasonably assured. We generate revenue by providing two service offerings to our customers:
annual licenses that allow customers to access and utilize certain premium features of our cloud based SaaS research intelligence platform (“Platforms”) and
the transaction sale of STM content managed, sourced and delivered through the Platform (“Transactions”).
Platforms
We charge a subscription fee that allows customers to access and utilize certain premium features of our Platform. Revenue is recognized
ratably over the term of the subscription agreement, which is typically one year, provided all other revenue recognition criteria have been met.
Billings or payments received in advance of revenue recognition are recorded as deferred revenue.
31
Transactions
We charge a transactional service fee for the electronic delivery of single articles, and a corresponding copyright fee for the permitted use of
the content. We recognize revenue from single article delivery services upon delivery to the customer only when the selling price is fixed or
determinable, and collectability is reasonably assured.
Deferred Revenue
Customer deposits and billings or payments received in advance of revenue recognition are recorded as deferred revenue.
Cost of Revenue
Platforms
Cost of Platform revenue consists primarily of personnel costs of our operations team, and to a lesser extent managed hosting providers and
other third-party service and data providers.
Transactions
Cost of Transaction revenue consists primarily of the respective copyright fee for the permitted use of the content, less a discount in most
cases, and to a much lesser extent, personnel costs of our operations team and third-party service providers.
Stock-Based Compensation
The Company periodically issues stock options, warrants and restricted stock to employees and non-employees for services, in capital raising
transactions, and for financing costs. The Company accounts for share-based payments under the guidance as set forth in the Share-Based Payment Topic 718
of the FASB Accounting Standards Codification, which requires the measurement and recognition of compensation expense for all share-based payment
awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. The Company estimates the
fair value of stock option and warrant awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of
the award that is ultimately expected to vest is recognized as expense over the required service period in the Company's Statements of Operations. The
Company estimates the fair value of restricted stock awards to employees and directors using the market price of the Company’s common stock on the date of
grant, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in the Company's
Statements of Operations. The Company accounts for share-based payments to non-employees in accordance with Topic 505 of the FASB Accounting
Standards Codification, whereby the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a
performance commitment is reached, or b) the date at which the necessary performance to earn the equity instruments is complete. Stock-based compensation
is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, as necessary,
in subsequent periods if actual forfeitures differ from those estimates.
Foreign Currency
The accompanying consolidated financial statements are presented in United States dollars, the functional currency of the Company. Capital
accounts of foreign subsidiaries are translated into US Dollars from foreign currency at their historical exchange rates when the capital transactions occurred.
Assets and liabilities are translated at the exchange rate as of the balance sheet date. Income and expenditures are translated at the average exchange rate of
the period. Although the majority of our revenue and costs are in US dollars, the costs of Reprints Desk Latin America are in Mexican Pesos. As a result,
currency exchange fluctuations may impact our revenue and the costs of our operations. We currently do not engage in any currency hedging activities.
Gains and losses from foreign currency transactions, which result from a change in exchange rates between the functional currency and the currency
in which a foreign currency transaction is denominated, are included in selling, general and administrative expenses and amounted to $20,865 and $5,287, for
the years ended June 30, 2017 and 2016, respectively. Cash denominated in Euros with a US Dollar equivalent of $93,359 and $76,793 at June 30, 2017 and
2016, respectively, was held in accounts at financial institutions located in Europe.
The following table summarizes the exchange rates used:
Period end Euro : US Dollar exchange rate
Average period Euro : US Dollar exchange rate
Period end Mexican Peso : US Dollar exchange rate
Average period Mexican Peso : US Dollar exchange rate
32
Year Ended
June 30,
2017
2016
1.09
1.09
0.05
0.05
1.11
1.11
0.05
0.06
Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the
period, excluding unvested restricted common stock. Shares of restricted stock are included in the basic weighted average number of common shares
outstanding from the time they vest. Diluted earnings per share is computed by dividing the net income applicable to common stock holders by the weighted
average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential
common shares had been issued, using the treasury stock method. Shares of restricted stock are included in the diluted weighted average number of common
shares outstanding from the date they are granted. Potential common shares are excluded from the computation when their effect is antidilutive. At June 30,
2017 potentially dilutive securities include options to acquire 3,130,310 shares of common stock and warrants to acquire 1,985,000 shares of common
stock. At June 30, 2016 potentially dilutive securities include options to acquire 2,717,193 shares of common stock and warrants to acquire 1,990,000 shares
of common stock. The dilutive effect of potentially dilutive securities is reflected in diluted net income per share if the exercise prices were lower than the
average fair market value of common shares during the reporting period.
Basic and diluted net loss per common share is the same for the years ended June 30, 2017 and 2016 because all stock options, warrants, and
unvested restricted common stock are anti-dilutive.
The calculation of basic and diluted net income (loss) per share is presented below:
Numerator:
Loss from continuing operations
Income from discontinued operations
Net loss
Denominator:
Weighted average shares outstanding (basic)
Effect of dilutive unvested restricted common stock
Effect of dilutive stock options and warrants
Weighted average shares outstanding (diluted)
Loss per share from continuing operations:
Basic and diluted
Income per share from discontinued operations:
Basic and diluted
Net loss per share:
Basic and diluted
Income taxes
Year Ended
June 30,
2017
2016
(3,108,204) $
814,641
(2,293,563) $
(1,363,880)
866,022
(497,858)
23,241,572
-
-
23,241,572
17,769,827
-
-
17,769,827
(0.14) $
(0.08)
0.04 $
0.05
(0.10) $
(0.03)
$
$
$
$
$
The Company accounts for income taxes using the asset and liability method whereby deferred tax assets are recognized for deductible temporary
differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 will
eliminate transaction- and industry-specific revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for
determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they
occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from
customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU
2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods
beginning after December 15, 2016, including interim periods therein. Entities can transition to the standard either retrospectively or as a cumulative-effect
adjustment as of the date of adoption. Management is currently assessing the impact the adoption of ASU 2014-09 and has not determined the effect of the
standard on our ongoing financial reporting.
33
In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding
lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods
beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating
leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients
available. The Company adopted ASU No. 2016-02 for a new lease entered into during the period.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public
Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company's present or
future consolidated financial statements.
Note 3. Property and Equipment
Property and equipment consists of the following as of June 30, 2017 and 2016:
Computer equipment
Software
Furniture and fixtures
Total
Less accumulated depreciation
Net, Property and equipment
June 30,
2017
June 30,
2016
473,731 $
271,057
40,370
785,158
(699,421)
85,737 $
428,657
258,924
36,677
724,258
(642,051)
82,207
$
$
Depreciation expense for the years ended June 30, 2017 and 2016 was $56,660 and $57,772, respectively.
Note 4. Intangible Assets
Intangible assets consist of customer lists, which are amortized over an estimated useful life of two years. As of June 30, 2017 and 2016, the
Company determined that there were no indicators of impairment of its recorded intangible assets.
Intangible assets consist of the following as of June 30, 2017 and 2016:
Customer lists
Intellectual property licenses
Total
Less accumulated amortization
Net, Intangible assets
June 30,
2017
June 30,
2016
649,159 $
16,425
665,584
(623,714)
41,870 $
635,102
16,425
651,527
(546,679)
104,848
$
$
Amortization expense for the years ended June 30, 2017 and 2016 was $77,034 and $33,074, respectively.
Note 5. Line of Credit
The Company entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB”) on July 23, 2010, which, as amended, provides for a
revolving line of credit for the lesser of $4,000,000, or 80% of eligible accounts receivable. The line of credit matures on October 31, 2017, and is subject to
certain financial and performance covenants with which we were in compliance as of June 30, 2017. Financial covenants include maintaining a ratio of quick
assets to current liabilities of at least 0.8 to 1.0, and maintaining tangible net worth of $600,000, plus 50% of net income for the fiscal quarter ended from and
after December 31, 2015, plus 50% of the dollar value of equity issuances after October 1, 2015 and the principal amount of subordinated debt. The line of
credit bears interest at the prime rate plus 2.25% for periods in which we maintain an account balance with SVB (less all indebtedness owed to SVB) of at
least $800,000 at all times during the prior calendar month (the “Streamline Period”), and at the prime rate plus 5.25% when a Streamline Period is not in
effect. The interest rate on the line of credit was 6.50% as of June 30, 2017. The line of credit is secured by the Company’s consolidated assets.
There were no outstanding borrowings under the line as of June 30, 2017 and June 30, 2016, respectively. As of June 30, 2017 and June 30, 2016,
approximately $3,277,000 and $3,390,000, respectively, of available credit was unused.
34
Note 6. Lease Obligations
On December 30, 2016, the Company entered into a 48 month non-cancellable lease for its office facilities that will require monthly payments
ranging from $10,350 to $11,475 through January 2021. In accounting for the lease, the Company adopted ASU 2016-02, Leases which requires a lessee to
record a right-of-use asset and a corresponding lease liability at the inception of the lease initially measured at the present value of the lease payments. The
Company classified the lease as an operating lease and determined that the fair value of the lease assets and liability at the inception of the lease was $463,000
using a discount rate of 3.75%. ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease
is allocated over the lease term, generally on a straight-line basis. Rent expense, including real estate taxes, for the years ended June 30, 2017 and 2016 was
$121,565 and $78,469, respectively. During the year ended June 30, 2017 the Company reflected amortization of right of use asset of $45,105 related to this
lease.
Future minimum lease payments under the leases are as follows:
Years Ending June 30,
2018
2019
2020
2021
Total payments
Less: Amount representing interest
Present value of net minimum lease payments
Less: Current portion
Non-current portion
Note 7. Stockholders’ Equity
Stock Options
Amount
126,057
130,469
135,035
80,356
471,917
32,730
439,187
110,888
328,299
$
$
In December 2007, we established the 2007 Equity Compensation Plan (the “Plan”). The Plan was approved by our board of directors and
stockholders. The purpose of the Plan is to grant stock and options to purchase our common stock to our employees, directors and key consultants. On
November 10, 2016, the maximum number of shares of common stock that may be issued pursuant to awards granted under the Plan increased from
5,000,000 to 7,000,000, as approved by our board of directors and stockholders. Cancelled and forfeited stock options and stock awards may again become
available for grant under the Plan. There were 2,161,160 shares available for grant under the Plan as of June 30, 2017. All stock option grants are made under
the 2007 Equity Compensation Plan.
The majority of awards issued under the Plan vest immediately or over three years, with a one year cliff vesting period, and have a term of ten years.
Stock-based compensation cost is measured at the grant date, based on the fair value of the awards that are ultimately expected to vest, and recognized on a
straight-line basis over the requisite service period, which is generally the vesting period.
The following table summarizes vested and unvested stock option activity:
All Options
Vested Options
Unvested Options
Outstanding at July 1, 2015
Granted
Options vesting
Exercised
Forfeited/Cancelled
Outstanding at June 30, 2016
Granted
Options vesting
Exercised
Forfeited/Cancelled
Outstanding at June 30, 2017
Shares
2,466,836 $
520,982
-
-
(270,625)
2,717,193
630,117
-
-
(217,000)
3,130,310 $
Weighted
Average
Exercise
Price
1.22
0.83
-
-
1.04
1.16
1.11
-
-
1.23
1.15
35
Weighted
Average
Exercise
Price
1.21
0.77
0.87
-
1.03
1.17
1.12
1.04
-
1.23
1.15
Weighted
Average
Exercise
Price
1.29
0.68
0.87
-
1.80
1.06
1.05
1.04
-
-
1.07
Shares
210,582 $
221,232
(226,798)
-
(5,156)
199,860
88,117
(152,518)
-
-
135,459 $
Shares
2,256,254 $
299,750
226,798
-
(265,469)
2,517,333
542,000
152,518
-
(217,000)
2,994,851 $
The following table presents the assumptions used to estimate the fair values based upon a Black-Scholes option pricing model of the stock options
granted during the years ended June 30, 2017 and 2016.
Expected dividend yield
Risk-free interest rate
Expected life (in years)
Expected volatility
Years Ended June 30,
2017
2016
0%
1.27% - 2.06%
5 - 6
76.9% - 81.4%
0%
1.17% - 1.87%
5 - 6
80% - 84%
The weighted average remaining contractual life of all options outstanding as of June 30, 2017 was 5.11 years. The remaining contractual life for
options vested and exercisable at June 30, 2017 was 4.93 years. Furthermore, the aggregate intrinsic value of options outstanding as of June 30, 2017 was
$91,111, and the aggregate intrinsic value of options vested and exercisable at June 30, 2017 was $91,111, in each case based on the fair value of the
Company’s common stock on June 30, 2017.
During the year ended June 30, 2017, the Company granted 630,117 options to employees and directors with a fair value of $362,531. The total fair
value of options that vested during the year ended June 30, 2017 was $375,244, of which $263,870 is included in selling, general and administrative expenses,
and $111,374 is included as a reduction to the gain on sale of discontinued operations in the accompanying statement of operations. As of June 30, 2017, the
amount of unvested compensation related to these options was $77,487 which will be recorded as an expense in future periods as the options vest.
During the year ended June 30, 2016, the Company granted 520,982 options to employees and directors with a fair value of $256,256. The total fair
value of options that vested during the year ended June 30, 2016 was $305,734 and was included in selling, general and administrative expenses in the
accompanying statement of operations.
On June 30, 2017, options originally issued to employees to purchase an aggregate of 173,237 shares of the Company’s common stock were
modified in connection with the sale of the Reprints and ePrints business line to extend the exercise period from three months to five years and immediately
vest 40,387 unvested options. The Company calculated the fair value of the options before and after the modification and recorded a change of $82,430
relating to the modification. This cost was recorded as an offset to the gain on sale of discontinued operations during the year ended June 30, 2017.
On December 4, 2015, options originally issued to former directors to purchase an aggregate of 250,000 shares of the Company’s common stock
were modified to extend the exercise period from three months to two years. Stock-based compensation cost of $29,815 was recorded during the year ended
June 30, 2016 as a result of the modification.
Additional information regarding stock options outstanding and exercisable as of June 30, 2017 is as follows:
Option
Exercise
Price
$
Options
Outstanding
Remaining
Contractual
Life (in years)
Options
Exercisable
0.59
0.60
0.65
0.70
0.77
0.80
0.90
0.97
1.00
1.02
1.05
1.07
1.09
1.10
1.14
1.15
1.20
1.25
1.30
1.50
1.75
1.80
1.85
1.97
Total
8,150
5,000
6,150
225,000
59,500
16,000
25,667
6,000
375,249
287,000
507,529
53,898
166,165
255,000
3,674
228,000
31,414
32,000
263,000
380,000
1,067
169,425
24,000
1,422
3,130,310
36
5.00
5.00
5.00
8.44
6.26
8.15
6.81
5.00
2.87
3.36
8.27
5.30
8.48
3.50
5.00
4.41
6.69
5.63
4.68
1.75
5.00
5.96
5.59
5.00
8,150
5,000
6,150
225,000
59,500
16,000
25,667
6,000
372,747
287,000
435,530
53,898
105,207
255,000
3,674
228,000
31,414
32,000
263,000
380,000
1,067
169,425
24,000
1,422
2,994,851
Warrants
The following table summarizes warrant activity:
Outstanding, June 30, 2015
Granted
Exercised
Expired/Cancelled
Outstanding, June 30, 2016
Granted
Exercised
Expired/Cancelled
Outstanding, June 30, 2017
Exercisable, June 30, 2016
Exercisable, June 30, 2017
Number of
Warrants
Weighted
Average
Exercise
Price
305,000 $
1,785,000
-
(100,000)
1,990,000
-
-
(5,000)
1,985,000 $
1,990,000 $
1,985,000 $
1.26
1.25
-
1.22
1.25
-
-
3.75
1.25
1.25
1.25
There was no intrinsic value for all warrants outstanding as of June 30, 2017, based on the fair value of the Company’s common stock on June 30,
2017.
Additional information regarding warrants outstanding and exercisable as of June 30, 2017 is as follows:
Warrant
Exercise Price
Warrants
Outstanding
$
1.19
1.25
Total
100,000
1,885,000
1,985,000
Remaining
Contractual
Life (in years)
4.48
3.95
Warrants
Exercisable
100,000
1,885,000
1,985,000
Restricted Common Stock
Prior to July 1, 2015, the Company issued 889,321 shares of restricted common stock to employees valued at $971,897, of which $405,504 had been
recognized as an expense.
During the year ended June 30, 2016, the Company issued 414,366 shares of restricted stock to employees. These shares vest over a three year
period, with a one year cliff vesting period, and remain subject to forfeiture if vesting conditions are not met. The aggregate fair value of the stock awards was
$314,577 based on the market price of our common stock ranging from $0.59 to $1.09 per share on the date of grant, which will be amortized over the three-
year vesting period.
During the year ended June 30, 2017, the Company issued an additional 269,510 shares of restricted stock to employees. These shares vest over a
three year period, with a one year cliff vesting period, and remain subject to forfeiture if vesting conditions are not met. The aggregate fair value of the stock
awards was $276,600 based on the market price of our common stock ranging from $0.97 to $1.14 per share on the date of grant, which will be amortized
over the three-year vesting period. Restricted common stock grants are made under the 2007 Equity Compensation Plan.
The total fair value of restricted common stock vested during the year ended June 30, 2017 was $366,291 and is included in selling, general and
administrative expenses in the accompanying statements of operations. As of June 30, 2017, the amount of unvested compensation related to issuances of
restricted common stock was $412,938, which will be recognized as an expense in future periods as the shares vest. When calculating basic net income (loss)
per share, these shares are included in weighted average common shares outstanding from the time they vest. When calculating diluted net income per share,
these shares are included in weighted average common shares outstanding as of their grant date.
37
The following table summarizes restricted common stock activity:
Non-vested, June 30, 2015
Granted
Vested
Forfeited
Non-vested, June 30, 2016
Granted
Vested
Forfeited
Non-vested, June 30, 2017
Issuance of Common Stock
Number of
Shares
Fair Value
736,747 $
414,366
(444,471)
-
706,642
269,510
(462,958)
-
513,194 $
566,393
314,577
(378,341)
-
502,629
276,600
(366,291)
-
412,938 $
Weighted
Average
Grant Date
Fair Value
0.96
0.76
0.99
-
0.82
1.03
0.82
-
0.92
On June 23, 2016, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an institutional investor, each
member of our board of directors and certain of our executive officers (collectively, the “Investors”) pursuant to which we sold to the Investors, on June 24,
2016, an aggregate of 5,200,000 units (the “Units”) at $1.00 per Unit (the “Purchase Price”) for gross proceeds of $5,200,000. Each Unit consists of one share
of our common stock (the “Shares”), and one warrant having a term of five years to purchase three-tenths of one share of our common stock at an exercise
price of $1.25 per share (the “Warrants”). Net proceeds to the Company was $4,783,830 after payment of broker fees and other direct costs of the offering.
In connection with the financing we entered into a Registration Rights Agreement with the Investors (the “Registration Rights Agreement”) on June
24, 2016, pursuant to which we agreed to register for resale by the Investors the Shares, the shares of common stock issuable upon exercise of the Warrants
and the shares of common stock issuable upon exercise of the Placement Agent Warrants (as defined below). We committed to file the registration statement
no later than July 24, 2016 and to cause the registration statement to become effective no later than October 22, 2016. On July 22, 2016, we filed a
registration statement with the SEC pursuant to the Registration Rights Agreement, and the registration statement was declared effective on October 19, 2016
Common Stock Repurchase and Retirement
On March 10, 2015, the Compensation Committee of our Board of Directors authorized the repurchase, over a 12-month period on the last day of
each trading window and otherwise in accordance with our insider trading policies, of up to $139,181 of outstanding common stock (at prices no greater than
$1.60 per share) from our employees to satisfy their tax obligations in connection with the vesting of stock incentive awards. The actual number of shares
repurchased will be determined by applicable employees in their discretion, and will depend on their evaluation of market conditions and other factors.
On May 24, 2016, the Compensation Committee of our Board of Directors authorized the repurchase, over a 12-month period on the last day of each
trading window and otherwise in accordance with our insider trading policies, of up to $100,000 of outstanding common stock (at prices no greater than $1.60
per share) from our employees to satisfy their tax obligations in connection with the vesting of stock incentive awards. The actual number of shares
repurchased will be determined by applicable employees in their discretion, and will depend on their evaluation of market conditions and other factors.
On February 16, 2017, the Compensation Committee of our Board of Directors authorized the repurchase, over a 12-month period on the last day of
each trading window and otherwise in accordance with our insider trading policies, of up to $300,000 of outstanding common stock (at prices no greater than
$2.00 per share) from our employees to satisfy their tax obligations in connection with the vesting of stock incentive awards. The actual number of shares
repurchased will be determined by applicable employees in their discretion, and will depend on their evaluation of market conditions and other factors.
During the years ended June 30, 2017 and 2016, we repurchased 195,958 and 46,898 shares of our common stock under the repurchase plan at an
average price of approximately $1.02 and $0.80 per share, respectively, for an aggregate amount of $199,323 and $37,747, respectively. As of June 30, 2017,
$175,050 remains under the current authorization to repurchase our outstanding common stock from our employees.
Shares repurchased are retired and deducted from common stock for par value and from additional paid in capital for the excess over par
value. Direct costs incurred to acquire the shares are included in the total cost of the shares.
38
The following table summarizes repurchases of our common stock on a monthly basis:
Period
September 2015
December 2015
June 2016
Year ended June 30, 2016
September 2016
December 2016
March 2017
June 2017
Year ended June 30, 2017
Total Number
of Shares
Purchased 1
Average
Price Paid
per Share
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
Approximate Dollar Value
of Shares that May Yet Be
Purchased Under the
Plans or Programs
1,848 $
27,450 $
17,600 $
46,898 $
25,508 $
54,200 $
7,250 $
109,000 $
195,958 $
0.95
0.67
1.00
0.80
1.04
1.03
1.10
1.00
1.02
-
-
-
-
-
-
- $
- $
- $
-
-
-
-
-
-
292,025
175,050
175,050
1 Consists of shares of common stock purchased from employees to satisfy tax obligations in connection with the vesting of stock incentive awards.
Note 8. Contingencies and Commitments
Legal Proceedings
The Company is involved in legal proceedings in the ordinary course of its business. Although management of the Company cannot predict the
ultimate outcome of these legal proceedings with certainty, it believes that the ultimate resolution of the Company’s legal proceedings, including any amounts
it may be required to pay, will not have a material effect on the Company’s consolidated financial statements.
Note 9. Income Taxes
The provision for income taxes consists of the following for the years ended June 30, 2017 and 2016:
Current
Federal
State
Foreign (Mexico)
Deferred
Federal
Foreign
State
Provision for income tax expense
Years Ended June 30,
2017
2016
$
$
- $
5,943
29,552
-
-
-
35,495 $
-
3,796
24,366
-
-
-
28,162
During the year ended June 30, 2017, the Company recorded a provision for income tax expense of $35,495 which consisted of $5,943 in state
income tax payments and $29,552 in foreign (Mexico) income tax payments. During the year ended June 30, 2016, the Company recorded a provision for
income tax expense of $28,162 which consisted of $3,796 in state income tax payments and $24,366 in foreign (Mexico) income tax payments
The reconciliation of the effective income tax rate to the federal statutory rate is as follows:
Federal income tax rate
State tax, net of federal benefit
Permanent differences
Effect of reversal of deferred tax liability
Change in valuation allowance
Other
Effective income tax rate
Years Ended June 30,
2017
2016
34.0%
(5.0)%
1.6%
-%
(32.2)%
-%
(1.6)%
34.0%
(5.0)%
(5.6)%
-%
(29.6)%
-%
(6.2)%
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial
statement purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at June 30,
2017 and 2016 are as follows:
39
Deferred tax assets:
Federal net operating loss carryforward
State net operating loss carryforward
Intangibles amortization
Stock based compensation
Other
Total deferred tax assets
Deferred tax liability:
Intangible Assets
Fixed asset depreciation
Net deferred tax assets
Less valuation allowance
June 30,
2017
June 30,
2016
$
$
2,447,315 $
527,342
244,620
1,638,123
234,602
5,092,002
-
57,318
5,149,320
(5,149,320)
- $
2,016,304
415,279
243,929
1,378,602
200,602
4,254,716
-
48,252
4,302,968
(4,302,968)
-
The Company has provided a valuation allowance on the deferred tax assets at June 30, 2017 and 2016 to reduce such asset to zero, since there is no
assurance that the Company will generate future taxable income to utilize such asset. Management will review this valuation allowance requirement
periodically and make adjustments as warranted. The net change in the valuation allowance for the year ended June 30, 2017 was an increase of $846,352.
At June 30, 2017 and 2016, the Company had federal net operating loss (“NOL”) carryforwards of approximately $11,619,000 and $10,351,000,
respectively, and state NOL carryforwards of approximately $7,254,000 and $5,986,000, respectively. Federal NOLs could, if unused, completely expire in
2032. State NOLs, if unused, completely expire in 2037.
Effective January 1, 2007, the Company adopted FASB guidelines that address the determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial statements. Under this guidance, we may recognize the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.
The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty
percent likelihood of being realized upon ultimate settlement. This guidance also provides guidance on derecognition, classification, interest and penalties on
income taxes, accounting in interim periods and requires increased disclosures. At the date of adoption, and as of June 30, 2017 and 2017, the Company did
not have a liability for unrecognized tax benefits, and no adjustment was required at adoption.
The Company’s policy is to record interest and penalties on uncertain tax provisions as income tax expense. As of June 30, 2017 and 2016, the
Company has no accrued interest or penalties related to uncertain tax positions.
Company is subject to taxation in the United States and various states and Mexico. The Company is subject to United States federal or state income
tax examinations by tax authorities for fiscal years after 2013.
Note 10. Gain from Sale of Discontinued Operations (Reprints and ePrints business line)
On June 30, 2017, we sold the intangible assets of our Reprints and ePrints business line, but specifically excluding billed accounts receivable and
respective liabilities, pursuant to an Asset Purchase Agreement dated June 20, 2017. The aggregate net consideration for the sale is comprised of $450,000
paid on the closing date, and earn-out payments of 45% of gross margin over the 30 month period subsequent to the closing date. We have made a policy
election to record the contingent consideration when the consideration is determined to be realizable (each 6-month period ending subsequent to the closing
date).
The gain from sale of discontinued operations consists of the following:
Description
Net cash paid on the closing date
Less:
Stock compensation - issuance of stock options
Stock compensation - modification of stock options
Legal fees
Total
Amount
$
450,000
(111,374)
(82,430)
(15,000)
241,196
$
The current assets and liabilities related to the Reprints and ePrints business line were $1,281,598 and $1,806,901 as of June 30, 2017, and
$1,474,748 and $1,770,064 as of June 30, 2016, respectively. In addition, revenue and expenses from discontinued operations were as follows:
40
Revenue
Cost of revenue
Income from discontinued operations
Note 11. Subsequent Events
Restricted Common Stock
Year Ended
June 30,
2017
$
$
7,936,379 $
7,362,934
573,445 $
Year Ended
June 30,
2016
10,271,834
9,405,812
866,022
On August 22, 2017, the Company issued 286,647 shares of restricted stock to employees. These shares vest over a three year period, with a one
year cliff vesting period, and remain subject to forfeiture if vesting conditions are not met. The aggregate value of the stock award was $292,380 based on the
market price of our common stock of $1.02 per share on the date of grant, which will be amortized over the three-year vesting period.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
There were no changes in or disagreements with our accountants on accounting and financial disclosure during the last two fiscal years.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. For purposes of this section, the term disclosure controls
and procedures means controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the
reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and
communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.
Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2017, the end of the period
covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial
reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the company's
principal executive and principal financial officers and effected by the company's board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America and includes those policies and procedures that:
(i)
(ii)
(iii)
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of
the company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the
inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.
Management evaluated the effectiveness of our internal control over financial reporting as of June 30, 2017, using the framework set forth in the
report of the Treadway Commission’s Committee of Sponsoring Organizations (“COSO”), “2013 Internal Control - Integrated Framework.” Based upon that
evaluation, management believes our internal control over financial reporting was effective as of June 30, 2017.
41
Inherent Limitations on the Effectiveness of Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all
errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of
the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must
be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial
reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have
been or will be detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple
error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override
of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls
effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree
of compliance with policies or procedures.
Changes in Internal Controls Over Financial Reporting
Management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, whether any changes in our internal
control over financial reporting that occurred during our last fiscal year have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting. Based on the evaluation we conducted, management has concluded that no such changes have occurred.
Item 9B. Other Information
None.
42
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The following table sets forth the name, age, position, and date of appointment of each of our directors and executive officers as of September 11, 2017:
Name
Peter Victor Derycz
Alan Louis Urban
Scott Ahlberg
Janice Peterson
Ian Palmer
John Regazzi (1)(3)
Gen. Merrill McPeak (1)(2)
Chad J. Cooper (1)(4)
Age
55
48
54
69
42
69
81
47
Position
Date of Appointment
Chief Executive Officer, President and Director
Chief Financial Officer and Secretary
Chief Operating Officer
Chief Publisher Relations Officer and Director
Chief Sales and Marketing Officer
Chairman of the Board
Director
Director
January 6, 2006
November 3, 2011
July 1, 2007
July 1, 2006
July 1, 2013
June 22, 2015
November 5, 2010
March 31, 2016
(1) Member of Audit Committee, Compensation Committee, and Nominating and Governance Committee
(2) Chairman of the Compensation Committee
(3) Chairman of the Audit Committee
(4) Chairman of the Nominating and Governance Committee
Peter Victor Derycz – Chief Executive Officer and President, Director
Mr. Derycz founded Reprints Desk and has served as its Chief Executive Officer and President since January 6, 2006. Mr. Derycz also served as
Chairman of the Board from January 6, 2006 through August 19, 2015. Mr. Derycz was a founder of Infotrieve, Inc. in 1989 and served as its President from
February 2003 until September 2003. He served as the Chief Executive Officer of Puerto Luperon, Ltd. (Bahamas), a real estate development company, from
January 2004 until December 2005. He currently serves on the Internation Advisory Board of the San Jose State University School of Information, and served
as a member of the board of directors of Insignia Systems, Inc. (NASDAQ:ISIG), a consumer products advertising company from 2006 to 2014. Mr. Derycz
received a B.A. in Psychology from the University of California at Los Angeles. Our board of directors believes that Mr. Derycz’ familiarity with our day-to-
day operations, his strategic vision for our business and his past leadership and management experience make him uniquely qualified to serve as a director.
Alan Louis Urban – Chief Financial Officer and Secretary
Mr. Urban joined Research Solutions in 2011 and has over 20 years of experience in corporate finance and accounting. Mr. Urban has previously
served in numerous senior management positions, including: Vice President of Finance and Treasurer for Infotrieve from 2000 to 2004; Chief Financial
Officer of a leading online poker company from 2005 to 2006; and Chief Financial Officer of ReachLocal (NASDAQ:RLOC) from 2007 to 2009, an internet
marketing company that ranked #1 on Deloitte’s Tech Fast 500 List. Mr. Urban has also held positions as an audit and tax manager in public accounting, and
as an internal auditor. He holds a B.S. in Business, with a concentration in Accounting Theory and Practice, from California State University, Northridge and
has been a Certified Public Accountant (currently inactive) since 1998.
Scott Ahlberg – Chief Operating Officer
Mr. Ahlberg has effectively served as the Chief Operating Officer since July 1, 2007, and has many years of experience in content and startup
businesses. Mr. Ahlberg started with Dynamic Information (EbscoDoc) in the 1980s, then went on to lead Sales and Marketing at Infotrieve, Inc. After
leaving Infotrieve in 2005 Mr. Ahlberg provided consulting services to ventures in professional networking and medical podcasting. He joined Reprints Desk
in 2006. His areas of expertise include strategic planning, operational innovation, copyright and content licensing, and quality management. Mr. Ahlberg has
degrees from Stanford University (B.A., 1984) and the University of London (M.A., 1990).
Janice Peterson –Chief Publisher Relations Officer, Director
Ms. Peterson has served as the Chief Publisher Relations Officer and as a Director since July 1, 2006. She was Vice President for Content
Development at Infotrieve, Inc. from 2000 to 2006 and Vice President for Publisher Relations and Content Development at RoweCom, formerly
Faxon/Dawson, from 1997 to 2000. Ms. Peterson was at Academic Press (now Elsevier) for 14 years, where her last position was Fulfillment Director. Ms.
Peterson is Past Chair of the board of directors for the National Information Standards Organization (NISO), and she is the past chair of the International
Committee for EDI in Serials (ICEDIS). She has a degree in History from Whittier College and an M.A. in Asian Studies from California State College, San
Diego. She joined Reprints Desk in 2006. Our board of directors believes that Ms. Peterson should serve as a director due to her extensive industry-specific
knowledge and business experience, including a familiarity with our day-to-day operations.
Ian Palmer –Chief Sales and Marketing Officer
Mr. Palmer joined Research Solutions in 2008 and has served as our Chief Sales and Marketing Officer since July 1, 2013. He drives our growth
through customer retention and acquisition. He has two decades of sales, marketing and communications experience in industries such as online information,
high tech and business services. Most recently, Mr. Palmer was responsible for managing enterprise marketing at Safari Books Online, a joint venture of
publishers O’Reilly Media, Inc., and Pearson Technology Group, a division of Pearson Education. Previously, Mr. Palmer held senior-level positions at
Infotrieve, Inc., Hydra Worldwide Corporation, Singular Publishing Group, Inc., and Impinj, Inc., a previous winner of the Red Herring Top 100 Private
Companies of North America Award. Mr. Palmer is from the Pacific Northwest and earned a Bachelor’s Degree in Communications from the University of
Washington.
43
John Regazzi – Chairman of the Board
Mr. Regazzi was appointed to our board of directors on June 22, 2015 and was appointed Chairman of the Board effective August 20, 2015. Mr.
Regazzi is an information services and IT industry innovator, with more than four decades of experience. He is currently managing director of Akoya Capital
Partners, a sector-focused private investment firm, where for the last few years he has served as its professional information services sector leader. He has also
been a professor at the Long Island University’s College of Education, Information and Technology since 2005, and has served as dean of LIU’s College of
Information and Computer Science. Before joining Akoya Capital Partners, Mr. Regazzi served for several years as CEO of Elsevier Inc. and managing
director of the NYSE-listed Reed Elsevier, the world’s largest publisher and information services company for journal and related scientific, technical and
medical content. At Reed Elsevier, he oversaw its expansive electronic publishing portfolio, with a program staff of 3,000 and revenues exceeding $1 billion.
He was previously CEO of Engineering Information, which he helped turn around before being acquired by Reed Elsevier. As a recognized industry thought
leader, Mr. Regazzi has designed, launched, and managed some of the most innovative and well-known information services in the professional communities,
including the Engineering Village, Science Direct, Scirus and Scopus, as well as numerous other electronic information services dating back to the early days
of the online and CD-ROM industries. Mr. Regazzi has served on a variety of corporate and industry boards, including the British Standards Institute Group
and the American Institute of Physics, and he recently was appointed and serves as chairman of the board of National Technical Information Service, a
division of the U.S. Department of Commerce. He currently serves as chairman of DiSTI and Inflexxion, both Akoya portfolio companies, and as a member
of the board of managers and Treasurer of AIP Publishing. Mr. Regazzi earned his B.S. from St. Johns University, M.A. from University of Iowa, M.S. from
Columbia University, and Ph.D. in Information Science from Rutgers University. Our board of directors concluded that Mr. Regazzi should serve as a director
in light of his extensive experience in the information services industry.
General Merrill McPeak – Director
Gen. McPeak was appointed to our Board of directors on November 5, 2010. He is President of McPeak and Associates, a company he founded in
1995. From 1990 until his retirement from active military service in late-1994, he was chief of staff of the U.S. Air Force. During this period, he was the
senior officer responsible for organization, training and equipage of a combined active duty, National Guard, Reserve and civilian work force of over 850,000
people serving at 1,300 locations in the United States and abroad. As a member of the Joint Chiefs of Staff, he and the other service chiefs were military
advisors to the Secretary of Defense and the President. Gen. McPeak has served on the board of directors of several publicly traded companies, including long
service with Trans World Airlines, Inc. and with the test and measurement company, Tektronix, Inc. He was for many years Chairman of the Board of ECC
International Corp., until that company was acquired by Cubic Corporation. Currently, Gen. McPeak is a director of Aerojet Rocketdyne (NYSE: AJRD),
Lilis Energy (NASDAQ: LLEX) and Lion Biotechnologies, Inc. (NASDAQ: LBIO). He is a director of Valence Surface Technologies, the country’s largest
privately held provider of metal processing and finishing services. General McPeak was a founding investor, director and chairman of Ethicspoint, Inc., a
software-as-a-service provider of secure, confidential employee reporting systems, that was acquired by private equity at a return making it one of Oregon’s
most successful business startups in decades. Our board of directors concluded that Gen. McPeak should serve as a director in light of his demonstrated
leadership abilities and years of experience serving on the boards of directors of numerous publicly traded corporations.
Chad J. Cooper – Director
Mr. Cooper has more than 15 years of experience in the financial markets. He has served in various capacities, including investment management,
investment banking and capital markets. Mr. Cooper served as a Board member at ARI Networks (NASDAQ: ARIS) from 2014 to 2017, until True Wind
Capital Management took the company private in August 2017. Mr. Cooper currently serves on the Board of YouMail, Inc., and Wings for Crossover, a
501(c)3 non-profit organization. Mr. Cooper has a B.A. in International Relations from the University of Southern California and M.B.A. from Georgetown
University. In light of Mr. Cooper's financial and executive experience, our board of directors believes it to be in the Company's best interests that Mr.
Cooper serve as a director.
Term of Office and Family Relationships
Each director serves until our next annual meeting or until his or her successor is duly elected and qualified. Each executive officer is elected by our
board of directors and serves at its discretion.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers, directors, and persons who own more than ten percent of a registered class of our equity
securities to file reports of ownership and changes in ownership with the SEC and to furnish the Company with copies of all Section 16(a) forms they file.
Our review of copies of the Section 16(a) reports filed during the fiscal year ended June 30, 2017 indicates that all filing requirements applicable to our
officers, directors, and greater than ten percent beneficial owners were complied with.
Audit Committee Financial Expert
Our board of directors has a separately designated standing Audit Committee, comprised of Messrs. Cooper (Chairman), Regazzi and McPeak, each
of whom our board of directors has determined to be an independent director as that term is defined in the applicable rules for companies traded on the
NASDAQ Stock Market. Our board of directors has determined that Mr. Regazzi qualifies as an “audit committee financial expert” as defined under SEC
rules.
44
Code of Ethics
Our board of directors has adopted a Code of Ethical Conduct that applies to all of our employees, officers and directors, including our Chief
Executive Officer, Chief Financial Officer and other executive and senior financial officers. The code is available in the Corporate Governance – Code of
Ethical Conduct section of our website, www.researchsolutions.com.
Item 11. Executive Compensation
Compensation of Executive Officers
The following table summarizes all compensation for the last two fiscal years awarded to, earned by, or paid to our Chief Executive Officer
(principal executive officer) and our two most highly compensated executive officers other than our CEO who were serving as executive officers at the end of
our last completed fiscal year, whose total compensation exceeded $100,000 during such fiscal year ends.
Compensation of Executive Officers for Fiscal Years Ended June 30, 2017 and 2016
Name and principle
Position
Peter Victor Derycz
Chief Executive Officer and
President
Alan Louis Urban
Chief Financial
Officer and Secretary
Fiscal
Year
2017
Salary
($)
330,095
Bonus
($)
96,327
Stock
awards
($)
54,997(1)
2016
317,400
60,000
66,222(2)
2017
240,700
73,210
41,249(3)
2016
231,440
45,000
49,671(4)
Scott Ahlberg
Chief Operating Officer
2017
2016
213,125
204,930
73,210
45,000
46,368(5)
49,671(4)
Option
awards
($)
All other
compensation
($)
Total
($)
497,236
15,817
-
-
-
-
-
-
14,237
457,859
14,061
369,220
11,617
337,728
14,168
12,180
346,871
311,781
(1) Represents the grant date fair value of 21,818 shares of restricted stock granted on August 23, 2016, 6,666 shares of restricted stock granted on
November, 2016, 11,305 shares of restricted stock granted on February 16, 2017, and 13,947 shares of restricted stock granted on May 11, 2017.
The grant date fair value was estimated using the market price of our common stock at the date of grant. The restricted stock vests over a three-
year period, with a one year cliff vesting period, and remains subject to forfeiture if vesting conditions are not met.
(2) Represents the grant date fair value of 32,000 shares of restricted stock granted on August 4, 2015, 17,143 shares of restricted stock granted on
February 8, 2016, 28,755 shares of restricted stock granted on February 25, 2016, and 9,333 shares of restricted stock granted on May 24, 2016.
The grant date fair value was estimated using the market price of our common stock at the date of grant. The restricted stock vests over a three-
year period, with a one year cliff vesting period, and remains subject to forfeiture if vesting conditions are not met.
(3) Represents the grant date fair value of 16,364 shares of restricted stock granted on August 23, 2016, 5,000 shares of restricted stock granted on
November 21, 2016, 8,479 shares of restricted stock granted on February 16, 2017, and 10,460 shares of restricted stock granted on May 11,
2017. The grant date fair value was estimated using the market price of our common stock at the date of grant. The restricted stock vests over a
three-year period, with a one year cliff vesting period, and remains subject to forfeiture if vesting conditions are not met.
(4) Represents the grant date fair value of 24,000 shares of restricted stock granted on August 4, 2015, 12,857 shares of restricted stock granted on
February 8, 2016, 21,570 shares of restricted stock granted on February 25, 2016, and 7,000 shares of restricted stock granted on May 24, 2016.
The grant date fair value was estimated using the market price of our common stock at the date of grant. The restricted stock vests over a three-
year period, with a one year cliff vesting period, and remains subject to forfeiture if vesting conditions are not met.
(5) Represents the grant date fair value of 16,364 shares of restricted stock granted on August 23, 2016, 8,333 shares of restricted stock granted on
November 21, 2016, 9,903 shares of restricted stock granted on February 16, 2017, and 10,456 shares of restricted stock granted on May 11,
2017. The grant date fair value was estimated using the market price of our common stock at the date of grant. The restricted stock vests over a
three-year period, with a one year cliff vesting period, and remains subject to forfeiture if vesting conditions are not met.
Employment Agreements
Peter Victor Derycz
On July 1, 2010, we entered into an executive employment agreement with Mr. Derycz which was subsequently amended on June 30, 2017. Under
the terms of the executive employment agreement, Mr. Derycz has agreed to serve as our Chief Executive Officer and President on an at-will basis. The term
of the agreement ends on June 30, 2019. The agreement provides for a base salary of $340,000 per year. No part of Mr. Derycz’s salary is allocated to his
duties as a director of our company.
45
The agreement contains provisions that prohibit Mr. Derycz from soliciting our customers or employees during his employment with us and for one
year afterward. The agreement also contains provisions that restrict disclosure by Mr. Derycz of our confidential information and assign ownership to us of
inventions related to our business that are created by him during his employment. We may terminate the agreement at any time, with or without cause. Mr.
Derycz will be eligible to receive an amount equal to three (3) months of his then-current base salary payable in the form of salary continuation if he is
terminated without cause. Mr. Derycz may terminate the agreement at any time, with or without reason, upon four weeks’ advance written notice.
Alan Louis Urban
On November 3, 2011, we entered into an executive employment agreement with Mr. Urban which was subsequently amended on June 30, 2017.
Under the terms of the executive employment agreement, Mr. Urban has agreed to serve as our Chief Financial Officer on an at-will basis. The term of the
agreement ends on June 30, 2019. The agreement provides for a base salary of $250,000 per year.
The agreement contains provisions that prohibit Mr. Urban from soliciting our customers or employees during his employment with us and for one
year afterward. The agreement also contains provisions that restrict disclosure by Mr. Urban of our confidential information and assign ownership to us of
inventions related to our business that are created by him during his employment. We may terminate the agreement at any time, with or without cause. Mr.
Urban will be eligible to receive an amount equal to three (3) months of his then-current base salary payable in the form of salary continuation if he is
terminated without cause. Mr. Urban may terminate the agreement at any time, with or without reason, upon four weeks’ advance written notice.
Scott Ahlberg
On July 1, 2010, we entered into an executive employment agreement with Mr. Ahlberg which was subsequently amended on June 30, 2017. Under
the terms of the executive employment agreement, Mr. Ahlberg has agreed to serve as Chief Operating Officer on an at-will basis. The term of the agreement
ends on June 30, 2019. The agreement provides for a base salary of $220,000 per year.
The agreement contains provisions that prohibit Mr. Ahlberg from soliciting our customers or employees during his employment with us and for one
year afterward. The agreement also contains provisions that restrict disclosure by Mr. Ahlberg of our confidential information and assign ownership to us of
inventions related to our business that are created by him during his employment. We may terminate the agreement at any time, with or without cause. Mr.
Ahlberg will be eligible to receive an amount equal to three (3) months of his then-current base salary payable in the form of salary continuation if he is
terminated without cause. Mr. Ahlberg may terminate the agreement at any time, with or without reason, upon four weeks’ advance written notice.
Janice Peterson
On July 1, 2010, we entered into an executive employment agreement with Ms. Peterson which was subsequently amended on June 30, 2017. Under
the terms of the executive employment agreement, Ms. Peterson has agreed to serve as Chief Publisher Relations Officer on an at-will basis. The term of the
agreement ends on June 30, 2019. The agreement provides for a base salary of $200,000 per year. No part of Ms. Peterson's salary is allocated to her duties as
a director of our company.
The agreement contains provisions that prohibit Ms. Peterson from soliciting our customers or employees during her employment with us and for
one year afterward. The agreement also contains provisions that restrict disclosure by Ms. Peterson of our confidential information and assign ownership to us
of inventions related to our business that are created by her during her employment. We may terminate the agreement at any time, with or without cause. Ms.
Peterson will be eligible to receive an amount equal to three (3) months of her then-current base salary payable in the form of salary continuation if she is
terminated without cause. Ms. Peterson may terminate the agreement at any time, with or without reason, upon four weeks’ advance written notice.
Ian Palmer
On July 1, 2013, we entered into an executive employment agreement with Mr. Palmer which was subsequently amended on June 30, 2017. Under
the terms of the executive employment agreement, Mr. Palmer has agreed to serve as our Chief Sales and Marketing Officer on an at-will basis. The term of
the agreement ends on June 30, 2019. The agreement provides for a base salary of $200,000 per year.
The agreement contains provisions that prohibit Mr. Palmer from soliciting our customers or employees during his employment with us and for one
year afterward. The agreement also contains provisions that restrict disclosure by Mr. Palmer of our confidential information and assign ownership to us of
inventions related to our business that are created by him during his employment. We may terminate the agreement at any time, with or without cause. Mr.
Palmer will be eligible to receive an amount equal to three (3) months of his then-current base salary payable in the form of salary continuation if he is
terminated without cause. Mr. Palmer may terminate the agreement at any time, with or without reason, upon four weeks’ advance written notice.
46
Outstanding Equity Awards at Fiscal Year Ended June 30, 2017
The following table sets forth information regarding stock options, warrants and other stock awards (restricted stock) for each named executive
officer as of June 30, 2017.
Outstanding Equity Awards at Fiscal Year Ended June 30, 2017
Name
Peter Victor Derycz
Alan Louis Urban
Scott Ahlberg
Number of
securities
underlying
unexercised
options/warrants
exercisable (#)
32,000
16,000
6,000
-
-
-
-
-
-
-
-
-
-
-
100,000
125,000
24,000
1,800
-
-
-
-
-
-
-
-
-
-
-
75,000
75,000
20,000
25,600
1,500
-
-
-
-
-
-
-
-
-
-
-
Number of
securities
underlying
unexercised
options/warrants
unexercisable (#)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Option/
Warrant
exercise
price ($)
Option/
Warrant
expiration
date (1)
Stock Awards:
Number of
shares of stock
that have not
vested (#)
Stock Awards:
Market value of
shares of stock
that have not
vested ($)
$
$
$
$
$
$
$
$
$
$
$
$
1.25
1.85
1.25
-
-
-
-
-
-
-
-
-
-
-
1.02
1.30
1.15
1.25
-
-
-
-
-
-
-
-
-
-
-
1.50
1.00
1.02
1.15
1.25
-
-
-
-
-
-
-
-
-
-
-
2/13/2023
5/20/2023
6/23/2021
-
-
-
-
-
-
-
-
-
-
-
7/27/2020
3/5/2022
2/6/2023
6/23/2021
-
-
-
-
-
-
-
-
-
-
-
12/21/2017
5/28/2019
7/27/2020
2/6/2023
6/23/2021
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,905(2) $
5,556(4) $
6,209(6) $
10,667(8) $
7,143(10) $
14,378(12) $
5,444(14) $
21,818(16) $
6,666(18) $
11,305(20) $
13,947(22) $
-
-
-
-
1,428(2)
4,167(4)
4,656(6)
8,000(8)
5,357(10)
10,785(12)
4,083(14)
16,364(16)
5,000(18)
8,479(20)
10,460(22)
-
-
-
-
-
1,428(2)
4,167(4)
4,656(6)
8,000(8)
5,357(10)
10,785(12)
4,083(14)
16,364(16)
8,333(18)
9,903(20)
10,456(22)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
-
-
-
1,238(3)
5,556(5)
6,519(7)
9,600(9)
4,286(11)
8,483(13)
5,934(15)
21,163(17)
6,999(19)
12,888(21)
13,947(23)
-
-
-
-
928(3)
4,167(5)
4,889(7)
7,200(9)
3,214(11)
6,363(13)
4,451(15)
15,873(17)
5,250(19)
9,666(21)
10,460(23)
-
-
-
-
-
928(3)
4,167(5)
4,889(7)
7,200(9)
3,214(11)
6,363(13)
4,451(15)
15,873(17)
8,750(19)
11,289(21)
10,456(23)
(1) Stock options expire ten years from the grant date.
(2) The restricted stock was granted on November 7, 2014 and vest over a three year period, with a one year cliff vesting period.
(3) Based on a market closing price per share of common stock of $0.65 on November 7, 2014.
(4) The restricted stock was granted on March 10, 2015 and vest over a three year period, with a one year cliff vesting period.
(5) Based on a market closing price per share of common stock of $1.00 on March 10, 2015.
(6) The restricted stock was granted on May 22, 2015 and vest over a three year period, with a one year cliff vesting period.
(7) Based on a market closing price per share of common stock of $1.05 on May 22, 2015.
(8) The restricted stock was granted on August 4, 2015 and vest over a three year period, with a one year cliff vesting period.
(9) Based on a market closing price per share of common stock of $0.90 on August 4, 2015.
(10) The restricted stock was granted on February 8, 2016 and vest over a three year period, with a one year cliff vesting period.
(11) Based on a market closing price per share of common stock of $0.60 on February 8, 2016.
(12) The restricted stock was granted on February 25, 2016 and vest over a three year period, with a one year cliff vesting period.
(13) Based on a market closing price per share of common stock of $0.59 on February 25, 2016.
(14) The restricted stock was granted on May 24, 2016 and vest over a three year period, with a one year cliff vesting period.
(15) Based on a market closing price per share of common stock of $1.09 on May 24, 2016.
(16) The restricted stock was granted on August 23, 2016 and vest over a three year period, with a one year cliff vesting period.
(17) Based on a market closing price per share of common stock of $0.97 on August 23, 2016.
(18) The restricted stock was granted on November 21, 2016 and vest over a three year period, with a one year cliff vesting period.
(19) Based on a market closing price per share of common stock of $1.05 on November 21, 2016.
(20) The restricted stock was granted on February 16, 2017 and vest over a three year period, with a one year cliff vesting period.
(21) Based on a market closing price per share of common stock of $1.14 on February 16, 2017.
(22) The restricted stock was granted on May 11, 2017 and vest over a three year period, with a one year cliff vesting period.
(23) Based on a market closing price per share of common stock of $1.00 on May 11, 2017.
47
Compensation of Directors
The following table sets forth compensation awarded or paid to our directors for the last fiscal year for the services rendered by them to the
Company in all capacities.
Director Compensation for the Fiscal Years Ended June 30, 2017 and 2016
Name
(a)
John Regazzi (5)
Gen. Merrill McPeak (6)
Chap J. Cooper (7)
Janice Peterson (8)
Gregory Suess, former
Director (9)
Scott Ogilvie, former
Director (10)
Paul Kessler, former
Director (11)
Fees
earned
or paid
in cash
($)
(b)
27,000
22,500
13,500
12,000
13,500
3,000
-
-
-
4,000
-
12,000
-
4,000
Fiscal
Year
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Warrant
and
Option
Awards
($)
(d)
Stock
awards
($)
(c)
All other
Compensation ($)
(g)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
90,000
67,200
45,000
30,000
45,000
27,563
-
-
-
-
-
30,000
-
-
-
-
-
-
-
-
Total ($)
(h)
117,000
89,700
58,500
42,000
58,500
30,563
315,412(1) 315,412
287,175(2) 287,175
-
24,873
-
42,000
-
12,942
-
20,873(3)
-
-
-
8,942(4)
(1) Ms. Peterson received no compensation for her services as a director of the Company. Other compensation represents the following amounts paid to
Ms. Peterson for her services as an employee of the Company: salary in the amount of $195,605, bonus in the amount of $73,209, grant date fair
value of restricted stock of $41,249 (represents the grant date fair value of 16,364 shares of restricted stock granted on August 23, 2016, 5,000
shares of restricted stock granted on November 21, 2016, 8,479 shares of restricted stock granted on February 16, 2017, and 10,460 shares of
restricted stock granted on May 11, 2017.). The grant date fair value was estimated using the market price of the Company’s common stock at the
date of grant. The restricted stock vests over a three year period, with a one year cliff vesting period, and remain subject to forfeiture if vesting
conditions are not met, and other compensation in the amount of $5,349.
(2) Ms. Peterson received no compensation for her services as a director of the Company. Other compensation represents the following amounts paid to
Ms. Peterson for her services as an employee of the Company: salary in the amount of $188,080, bonus in the amount of $45,000, grant date fair
value of restricted stock of $49,671 (represents the grant date fair value of 24,000 shares of restricted stock granted on August 4, 2015, 12,857
shares of restricted stock granted on February 8, 2016, 21,570 shares of restricted stock granted on February 25, 2016, and 7,000 shares of restricted
stock granted on May 24, 2016). The grant date fair value was estimated using the market price of the Company’s common stock at the date of
grant. The restricted stock vests over a three year period, with a one year cliff vesting period, and remain subject to forfeiture if vesting conditions
are not met, and other compensation in the amount of $4,424.
(3) On December 4, 2015, stock options to purchase an aggregate of 175,000 shares of the Company’s common stock were modified to extend the
amount of time allowed to exercise the stock options after separation from three months to twenty four months.
(4) On December 4, 2015, stock options to purchase 75,000 shares of the Company’s common stock were modified to extend the amount of time
allowed to exercise the stock options after separation from three months to twenty four months.
(5) Outstanding equity awards as of June 30, 2017 consists of options to purchase 30,000 shares of common stock at $1.10 per share, options to
purchase 16,000 shares of common stock at $0.80 per share, options to purchase 150,000 shares of common stock at $0.70 per share, and options to
purchase 150,000 shares of common stock at an exercise price of $1.05 per share.
(6) Outstanding equity awards as of June 30, 2017 consists of shares underlying warrants to purchase 50,000 shares of common stock at an exercise
price of $1.25 per share, warrants to purchase 50,000 shares of common stock at an exercise price of $1.19 per share, options to purchase 50,000
shares of common stock at an exercise price of $1.15 per share, options to purchase 125,000 shares of common stock at an exercise price of $1.05
per share, options to purchase 75,000 shares of common stock at an exercise price of $1.10 per share, and options to purchase 75,000 shares of
common stock at an exercise price of $0.70 per share.
(7) Outstanding equity awards as of June 30, 2017 consists of options to purchase 43,750 shares of common stock at an exercise price of $1.09 per
share, and options to purchase 75,000 shares of common stock at an exercise price of $1.05 per share.
(8) Outstanding equity awards as of June 30, 2017 consists of options to purchase 85,000 shares of common stock at an exercise price of $1.50 per
share, options to purchase 75,000 shares of common stock at an exercise price of $1.00 per share, options to purchase 40,000 shares of common
stock at an exercise price of $1.02 per share, options to purchase 17,600 shares of common stock at an exercise price of $1.15 per share, and 78,780
shares of unvested restricted stock. The restricted stock vests over a three year period, with a one year cliff vesting period, and remains subject to
forfeiture if vesting conditions are not met.
(9) Outstanding equity awards as of June 30, 2017 consists of shares underlying warrants to purchase 50,000 shares of common stock at an exercise
price of $1.25 per share, warrants to purchase 50,000 shares of common stock at an exercise price of $1.19 per share, options to purchase 50,000
shares of common stock at an exercise price of $1.15 per share, options to purchase 50,000 shares of common stock at an exercise price of $1.05 per
share, and options to purchase 75,000 shares of common stock at an exercise price of $1.10 per share.
(10) Outstanding equity awards as of June 30, 2017 consist of 25,000 shares of common stock.
(11) Outstanding equity awards as of June 30, 2017 consist of options to purchase 75,000 shares of common stock at an exercise price of $1.10 per share.
48
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information, as of September 11, 2017, with respect to the holdings of (1) each person who is the beneficial
owner of more than five percent of our common stock, (2) each of our directors, (3) each named executive officer, and (4) all of our directors and executive
officers as a group.
Beneficial ownership of the common stock is determined in accordance with the rules of the Securities and Exchange Commission and includes any
shares of common stock over which a person exercises sole or shared voting or investment powers, or of which a person has a right to acquire ownership at
any time within 60 days of September 11, 2017. Except as otherwise indicated, and subject to applicable community property laws, the persons named in this
table have sole voting and investment power with respect to all shares of common stock held by them. The address of each director and officer is c/o Research
Solutions, Inc., 15821 Ventura Blvd., Suite 165, Encino, California 91436. Applicable percentage ownership in the following table is based on 24,169,792
shares of common stock outstanding as of September 11, 2017 plus, for each person, any securities that person has the right to acquire within 60 days of
September 11, 2017.
Name and Address of Beneficial Owner
Greater than 5% Shareholder:
Bristol Investment Fund, Ltd. (1)
662 N. Sepulveda Blvd., Suite 300
Los Angeles, CA 90049
12 West Capital Fund Ltd. (2)
90 Park Avenue, 41st Floor
New York, NY 10016
12 West Capital Offshore Fund LP (3)
90 Park Avenue, 41st Floor
New York, NY 10016
Samjo Capital, LLC (13)
1345 Avenue of the Americas, 3rd Floor
New York, NY 10105
Directors and Executive Officers:
Peter Victor Derycz (4)
Alan Louis Urban (5)
Scott Ahlberg (6)
Janice Peterson (7)
Ian Palmer (8)
John Regazzi (9)
Gen. Merrill McPeak (10)
Chad J. Cooper (11)
All Directors and Executive Officers as a group (8 persons) (12)
Shares
Beneficially
Owned
Percentage
of Shares
4,825,772
20.0%
4,883,119
19.5%
3,437,881
13.9%
1,219,344
3,762,429
551,269
480,292
461,911
299,600
493,500
559,608
690,750
7,299,359
5.0%
15.5%
2.3%
2.0%
1.9%
1.2%
2.0%
2.3%
2.8%
28.0%
(1)
(2)
(3)
(4)
(5)
(6)
Paul Kessler exercises voting and investment power over the shares held by Bristol Investment Fund, Ltd. and is the brother-in-law of Peter Victor
Derycz. Mr. Kessler previously served as a member of our board of directors from August 18, 2014 through November 6, 2015.
Includes shares underlying warrants to purchase 880,500 shares of common stock at an exercise price of $1.25 per share. Joel Ramin, the General
Partner of 12 West Management LP, the investment manager of 12 West Capital Fund LP, exercises voting and investment power over the shares held
by 12 West Capital Fund LP but disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.
Includes shares underlying warrants to purchase 619,500 shares of common stock at an exercise price of $1.25 per share. Joel Ramin, the General
Partner of 12 West Management LP, the investment manager of 12 West Capital Offshore Fund LP, exercises voting and investment power over the
shares held by 12 West Capital Offshore Fund LP but disclaims beneficial ownership of such shares except to the extent of his pecuniary interest
therein.
Includes shares underlying options to purchase 32,000 shares of common stock at an exercise price of $1.25 per share, options to purchase 16,000
shares of common stock at an exercise price of $1.85 per share, and warrants to purchase 6,000 shares of common stock at an exercise price of $1.25
per share, and 144,411 shares of unvested restricted stock. The restricted stock vests over a three year period, with a one year cliff vesting period, and
remains subject to forfeiture if vesting conditions are not met.
Includes 5,000 shares owned by the wife of Mr. Urban, 5,000 shares owned by each of the three children of Mr. Urban, shares underlying options to
purchase 100,000 shares of common stock at an exercise price of $1.02 per share, options to purchase 125,000 shares of common stock at an exercise
price of $1.30 per share, options to purchase 24,000 shares of common stock at an exercise price of $1.15 per share, and warrants to purchase 1,800
shares of common stock at an exercise price of $1.25 per share, and 109,274 shares of unvested restricted stock. The restricted stock vests over a three
year period, with a one year cliff vesting period, and remains subject to forfeiture if vesting conditions are not met.
Includes shares underlying options to purchase 75,000 shares of common stock at an exercise price of $1.50 per share, options to purchase 75,000
shares of common stock at an exercise price of $1.00 per share, options to purchase 20,000 shares of common stock at an exercise price of $1.02 per
share, options to purchase 25.600 shares of common stock at an exercise price of $1.15 per share, and warrants to purchase 1,500 shares of common
stock at an exercise price of $1.25 per share, and 109,032 shares of unvested restricted stock. The restricted stock vests over a three year period, with a
one year cliff vesting period, and remains subject to forfeiture if vesting conditions are not met.
49
(7)
(8)
(9)
(10)
(11)
(12)
Includes shares underlying options to purchase 85,000 shares of common stock at an exercise price of $1.50 per share, options to purchase 75,000
shares of common stock at an exercise price of $1.00 per share, options to purchase 40,000 shares of common stock at an exercise price of $1.02 per
share, options to purchase 17,600 shares of common stock at an exercise price of $1.15 per share, and warrants to purchase 1,200 shares of common
stock at an exercise price of $1.25 per share, and 109,274 shares of unvested restricted stock. The restricted stock vests over a three year period, with a
one year cliff vesting period, and remains subject to forfeiture if vesting conditions are not met.
Includes shares underlying options to purchase 10,000 shares of common stock at an exercise price of $1.00 per share, options to purchase 20,000
shares of common stock at an exercise price of $1.02 per share, options to purchase 20,000 shares of common stock at an exercise price of $1.30 per
share, options to purchase 16,000 shares of common stock at an exercise price of $1.15 per share, and warrants to purchase 1,500 shares of common
stock at an exercise price of $1.25 per share, and 109,032 shares of unvested restricted stock. The restricted stock vests over a three year period, with a
one year cliff vesting period, and remains subject to forfeiture if vesting conditions are not met.
Includes shares underlying warrants to purchase 22,500 shares of common stock at an exercise price of $1.25 per share, options to purchase 30,000
shares of common stock at $1.10 per share, options to purchase 16,000 shares of common stock at $0.80 per share, options to purchase 150,000 shares
of common stock at $0.70 per share, and options to purchase 150,000 shares of common stock at an exercise price of $1.05 per share.
Includes shares underlying warrants to purchase 50,000 shares of common stock at an exercise price of $1.25 per share, warrants to purchase 50,000
shares of common stock at an exercise price of $1.19 per share, warrants to purchase 7,500 shares of common stock at an exercise price of $1.25 per
share, options to purchase 50,000 shares of common stock at an exercise price of $1.15 per share, options to purchase 125,000 shares of common stock
at an exercise price of $1.05 per share, options to purchase 75,000 shares of common stock at an exercise price of $1.10 per share, and options to
purchase 75,000 shares of common stock at an exercise price of $0.70 per share.
Includes 315,500 shares of common stock held by DO Capital Management, Inc., 11,500 shares of common stock held by Mr. Cooper’s SEP IRA, and
shares underlying warrants to purchase 195,000 shares of common stock at an exercise price of $1.25 per share, and options to purchase 43,750 shares
of common stock at an exercise price of $1.09 per share, and options to purchase 75,000 shares of common stock at an exercise price of $1.05 per
share. Mr. Cooper exercises voting and investment power over the shares held by DO Capital Management, Inc. and his SEP IRA.
Includes shares underlying options to purchase 1,565,950 shares of common stock and warrants to purchase 337,000 shares of common stock, and
581,025 shares of unvested restricted stock.
(13) Andrew N. Wiener, the sole managing member of Samjo Capital, LLC and Samjo Management, LLC, exercises voting and investment power over the
shares held by Samjo Capital, LLC.
Change of Control
To the knowledge of management, there are no present arrangements or pledges of securities of our company that may result in a change in control
of our company.
Equity Compensation Plan Information
In December 2007, we established the 2007 Equity Compensation Plan (the “Plan”). The Plan was approved by our board of directors and
stockholders. The purpose of the Plan is to grant stock and options to purchase our common stock to our employees, directors and key consultants. On
November 10, 2016, the maximum number of shares of common stock that may be issued pursuant to awards granted under the Plan increased from
5,000,000 to 7,000,000, as approved by our board of directors and stockholders. Cancelled and forfeited stock options and stock awards may again become
available for grant under the Plan. There were 2,161,160 shares available for grant under the Plan as of June 30, 2017. All stock option grants are made under
the 2007 Equity Compensation Plan. The following table provides information as of June 30, 2017 with respect to the Plan, which is the only compensation
plan under which our equity securities are authorized for issuance.
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
Weighted average
exercise price of
outstanding options,
warrants and rights (1)
(b)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in column (a))
(c)
4,703,507(2) $
200,000(3)
4,903,507
1.15
1.22
2,161,160
-
2,161,160
Plan category
Equity compensation plans approved by
stockholders (2007 Equity Compensation
Plan)
Equity compensation plans not approved by
stockholders
Total
(1) The weighted average exercise price excludes restricted stock awards, which have no exercise price.
(2) Shares underlying options to purchase 3,130,310 shares of common stock and 1,573,197 shares of restricted common stock.
(3) Shares underlying warrants to purchase 200,000 shares of common stock.
50
Item 13. Certain Relationships and Related Transactions, and Director Independence
Other than the transactions described herein, since July 1, 2013, there has not been, nor is there currently proposed, any transaction or series of
similar transactions to which we were or will be a party in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our
total assets at year end for the last two completed fiscal years; and in which any director, executive officer, shareholder who beneficially owns 5% or more of
our common stock or any member of their immediate family had or will have a direct or indirect material interest.
Director Independence
Our board of directors currently consists of five members: Messrs. Regazzi (Chairman), Derycz, McPeak and Cooper, and Ms. Peterson. Our board
of directors has determined that Mr. Regazzi, Gen. McPeak, and Mr. Cooper are independent directors as that term is defined in the applicable rules for
companies traded on the NASDAQ Stock Market. Mr. Regazzi, Gen. McPeak, and Mr. Cooper are each members of the Audit Committee, Compensation
Committee and Nominating and Governance Committee of our board of directors, and each of them meets the NASDAQ Stock Market’s independence
standards for members of such committees.
Item 14. Principal Accounting Fees and Services
Summary of Principal Accounting Fees for Professional Services Rendered
The following table presents the aggregate fees for professional audit services and other services rendered by Weinberg & Company, P.A., our
independent registered public accountants in the fiscal years ended June 30, 2017 and 2016.
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total
Year Ended
June 30, 2017
$
$
88,140 $
-
24,198
-
112,338 $
Year Ended
June 30, 2016
98,801
-
24,541
-
123,342
Audit Fees consist of amounts billed for professional services rendered for the audit of our annual consolidated financial statements included in our
Annual Reports on Form 10-K, and reviews of our interim consolidated financial statements included in our Quarterly Reports on Form 10-Q and our
Registration Statement on Form S-1, including amendments thereto.
Audit-Related Fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our
consolidated financial statements but are not reported under “Audit Fees.”
Tax Fees consist of fees for professional services for tax compliance activities, including the preparation of federal and state tax returns and related
compliance matters.
All Other Fees consists of amounts billed for services other than those noted above.
The audit committee of our board of directors has considered whether the provision of the services described above for the fiscal years ended June
30, 2017 and 2016, is compatible with maintaining the auditor’s independence.
All audit and non-audit services that may be provided by our principal accountant to us shall require pre-approval by the audit committee of our
board of directors. Further, our auditor shall not provide those services to us specifically prohibited by the SEC, including bookkeeping or other services
related to the accounting records or financial statements of the audit client; financial information systems design and implementation; appraisal or valuation
services, fairness opinion, or contribution-in-kind reports; actuarial services; internal audit outsourcing services; management functions; human resources;
broker-dealer, investment adviser, or investment banking services; legal services and expert services unrelated to the audit; and any other service that the
Public Company Accounting Oversight Board determines, by regulation, is impermissible.
51
Item 15. Exhibits and Financial Statements Schedules
(a)(1) Financial Statements.
PART IV
The financial statements of Research Solutions, Inc. and its subsidiaries and the independent registered public accounting firm’s
report dated September 18, 2017, are incorporated by reference to Item 8 of this report.
(a)(2) and (c) Financial Statement Schedules
Not required.
(a)(3) and (b) Exhibits
See the "Exhibit Index" beginning on the page immediately following the signature page hereto for the list of exhibits filed as part
of this report, which list is incorporated herein by reference.
52
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: September 18, 2017
Date: September 18, 2017
RESEARCH SOLUTIONS, INC.
By:
/s/ Peter Victor Derycz
Peter Victor Derycz
Chief Executive Officer (Principal
Executive Officer)
By:
/s/ Alan Louis Urban
Alan Louis Urban
Chief Financial Officer (Principal
Financial and Accounting Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Peter Victor Derycz and
Alan Urban, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution for him or her, and in his or her name
in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with exhibits thereto and other documents
in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary to be done therewith, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, and any of them or his or her substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature
/s/ Peter Victor Derycz
Peter Victor Derycz
/s/ Alan Louis Urban
Alan Louis Urban
/s/ John Regazzi
John Regazzi
/s/ Jan Peterson
Jan Peterson
/s/ Merrill McPeak
Merrill McPeak
/s/ Chad J. Cooper
Chad J. Cooper
Title
Date
Chief Executive Officer (Principal Executive
Officer), President and Director
September 18, 2017
Chief Financial Officer (Principal Financial
and Accounting Officer) and Secretary
September 18, 2017
Chairman of the Board
September 18, 2017
Director
Director
Director
53
September 18, 2017
September 18, 2017
September 18, 2017
Exhibit
Number
2
3.1.1
3.1.2
3.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
EXHIBIT INDEX
Description
Share Exchange Agreement between Research Solutions, Inc. and Reprints Desk Inc. dated November 13, 2006. (Incorporated by
reference to Exhibit 2.1 to the registrant’s Registration Statement on Form SB-2 filed on December 28, 2007.)
Articles of Incorporation. (Incorporated by reference to Exhibit 3.1 to the registrant’s Registration Statement on Form SB-2 filed on
December 28, 2007.)
Articles of Merger Effective March 4, 2013. (Incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed
on March 6, 2013.)
Amended and Restated Bylaws. (Incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on Form 8-K filed on October
17, 2012.)
Employment Agreement dated July 1, 2010, between Research Solutions, Inc., Reprints Desk, Inc. and Peter Victor Derycz. (Incorporated
by reference to Exhibit 10.3 to the registrant’s Annual Report on Form 10-K filed on September 28, 2010.)++
Employment Agreement dated July 1, 2010, between Research Solutions, Inc., Reprints Desk, Inc. and Janice Peterson. (Incorporated by
reference to Exhibit 10.6 to the registrant’s Annual Report on Form 10-K filed on September 28, 2010.)++
Employment Agreement dated July 1, 2010, between Research Solutions, Inc., Reprints Desk, Inc. and Scott Ahlberg. (Incorporated by
reference to Exhibit 10.5 to the registrant’s Annual Report on Form 10-K filed on September 28, 2010.)++
Loan and Security Agreement dated July 23, 2010, between Silicon Valley Bank, Research Solutions, Inc., Reprints Desk, Inc. and Pools
Press, Inc. (Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on July 28, 2010.)
Form of Common Stock Purchase Warrant dated November 5, 2010. (Incorporated by reference to Exhibit 4.1 to the registrant’s Current
Report on Form 8-K filed on November 12, 2010.)++
Amendment to Loan and Security Agreement dated October 31, 2011, between Silicon Valley Bank, Research Solutions, Inc., Reprints
Desk, Inc. and Pools Press, Inc. (Incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q filed on
November 14, 2011.)
Employment Agreement dated November 3, 2011, between Research Solutions, Inc., Reprints Desk, Inc. and Alan Louis Urban.
(Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on November 9, 2011.)++
Form of Common Stock Purchase Warrant dated December 19, 2011. (Incorporated by reference to Exhibit 10.10 to the registrant’s
Registration Statement on Form S-1 filed on July 22, 2016)++
Amendment to Loan and Security Agreement dated February 8, 2012, between Silicon Valley Bank, Research Solutions, Inc. and Reprints
Desk, Inc. (Incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q filed on February 14, 2012.)
Amendment to Employment Agreement dated July 1, 2012, between Research Solutions, Inc., Reprints Desk, Inc. and Scott Ahlberg.
(Incorporated by reference to Exhibit 10.8 to the registrant’s Annual Report on Form 10-K filed on September 28, 2012.)++
Amendment to Employment Agreement dated July 26, 2013, between Research Solutions, Inc., Reprints Desk, Inc. and Peter Victor
Derycz. (Incorporated by reference to Exhibit 10.10 to the registrant’s Annual Report on Form 10-K filed on September 30, 2013.)++
Amendment to Employment Agreement dated July 26, 2013, between Research Solutions, Inc., Reprints Desk, Inc. and Janice Peterson.
(Incorporated by reference to Exhibit 10.11 to the registrant’s Annual Report on Form 10-K filed on September 30, 2013.)++
Amendment to Employment Agreement dated July 26, 2013, between Research Solutions, Inc., Reprints Desk, Inc. and Scott Ahlberg.
(Incorporated by reference to Exhibit 10.12 to the registrant’s Annual Report on Form 10-K filed on September 30, 2013.)++
Amendment to Employment Agreement dated July 26, 2013, between Research Solutions, Inc., Reprints Desk, Inc. and Alan Louis Urban.
(Incorporated by reference to Exhibit 10.13 to the registrant’s Annual Report on Form 10-K filed on September 30, 2013.)++
Amendment to Loan and Security Agreement dated September 18, 2013, between Silicon Valley Bank, Research Solutions, Inc. and
Reprints Desk, Inc. (Incorporated by reference to Exhibit 10.17 to the registrant’s Registration Statement on Form S-1 (File No. 333-
195045) filed on April 4, 2014.)
Amendment to Loan and Security Agreement dated October 31, 2013, between Silicon Valley Bank, Research Solutions, Inc. and Reprints
Desk, Inc. (Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on November 7, 2013.)
Amendment to Loan and Security Agreement dated March 29, 2014, between Silicon Valley Bank, Research Solutions, Inc. and Reprints
Desk, Inc. (Incorporated by reference to Exhibit 10.19 to the registrant’s Registration Statement on Form S-1 (File No. 333-195045) filed
on April 4, 2014.)
Amendment to Employment Agreement dated June 30, 2015, between Research Solutions, Inc., Reprints Desk, Inc. and Peter Victor
Derycz. (Incorporated by reference to Exhibit 10.23 to the registrant’s Annual Report on Form 10-K filed on September 8, 2015.)++
54
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
21
23
24
31.1
31.2
32.1
32.2
99.1
99.2
99.3
99.4
Amendment to Employment Agreement dated June 30, 2015, between Research Solutions, Inc., Reprints Desk, Inc. and Janice Peterson.
(Incorporated by reference to Exhibit 10.24 to the registrant’s Annual Report on Form 10-K filed on September 8, 2015.)++
Amendment to Employment Agreement dated June 30, 2015, between Research Solutions, Inc., Reprints Desk, Inc. and Scott Ahlberg.
(Incorporated by reference to Exhibit 10.25 to the registrant’s Annual Report on Form 10-K filed on September 8, 2015.)++
Amendment to Employment Agreement dated June 30, 2015, between Research Solutions, Inc., Reprints Desk, Inc. and Alan Louis
Urban. (Incorporated by reference to Exhibit 10.26 to the registrant’s Annual Report on Form 10-K filed on September 8, 2015.)++
Amendment to Loan and Security Agreement dated November 4, 2015, between Silicon Valley Bank, Research Solutions, Inc. and
Reprints Desk, Inc. (Incorporated by reference to Exhibit 10.1 to the registrant’s Quarterly Report on Form 10-Q filed on November 16,
2015.)
Securities Purchase Agreement dated June 23, 2016, among Research Solutions, Inc. and the Investors signatory thereto. (Incorporated by
reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on June 28, 2016.)
Registration Rights Agreement dated June 24, 2016, among Research Solutions, Inc. and the Investors signatory thereto. (Incorporated by
reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on June 28, 2016.)
Form of Common Stock Purchase Warrant dated June 24, 2016. (Incorporated by reference to Exhibit 10.3 to the registrant’s Current
Report on Form 8-K filed on June 28, 2016.)
Employment Agreement dated July 1, 2013, between Research Solutions, Inc., Reprints Desk, Inc. and Ian Palmer. (Incorporated by
reference to Exhibit 10.32 to the registrant’s Annual Report on Form 10-K filed on September 20, 2016.) ++
Amendment to Employment Agreement dated June 30, 2015, between Research Solutions, Inc., Reprints Desk, Inc. and Ian Palmer.
(Incorporated by reference to Exhibit 10.33 to the registrant’s Annual Report on Form 10-K filed on September 20, 2016.) ++
Office Lease dated December 29, 2016 between Research Solutions, Inc. and Douglas Emmett 2014, LLC. (Incorporated by reference to
Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed January 6, 2017.)
Asset Purchase Agreement dated June 20, 2017, between Research Solutions, Inc., Reprints Desk, Inc. and Copyright Clearance Center,
Inc. (Incorporated by reference to the registrant’s Current Report on Form 8-K filed June 26, 2017.)
Amendment to Employment Agreement dated June 30, 2017, between Research Solutions, Inc., Reprints Desk, Inc. and Peter Victor
Derycz.++
Amendment to Employment Agreement dated June 30, 2017, between Research Solutions, Inc., Reprints Desk, Inc. and Janice
Peterson.++
Amendment to Employment Agreement dated June 30, 2017, between Research Solutions, Inc., Reprints Desk, Inc. and Scott Ahlberg.++
Amendment to Employment Agreement dated June 30, 2017, between Research Solutions, Inc., Reprints Desk, Inc. and Alan Urban.++
Amendment to Employment Agreement dated June 30, 2017, between Research Solutions, Inc., Reprints Desk, Inc. and Ian Palmer.++
List of Subsidiaries. (Incorporated by reference to Exhibit 21 to the registrant’s Annual Report on Form 10-K filed on September 8, 2015.)
Consent of Independent Registered Pubic Accounting Firm.
Power of Attorney. (Incorporated by reference to the signature page hereto.)
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
Section 1350 Certification of Chief Executive Officer *
Section 1350 Certification of Chief Financial Officer *
2007 Equity Compensation Plan. (Incorporated by reference to Exhibit 10.1 to the registrant’s Registration Statement on Form SB-2 filed
on December 28, 2007.)++
Amendment No. 1 to 2007 Equity Compensation Plan. (Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy
Statement filed on October 29, 2012.)++
Amendment No. 2 to 2007 Equity Compensation Plan. (Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy
Statement filed on October 13, 2014.)++
Amendment No. 3 to 2007 Equity Compensation Plan. (Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Statement filed on September 26, 2016.)++
XBRL Instance Document
XBRL Taxonomy Extension Schema
XBRL Taxonomy Extension Calculation Linkbase
XBRL Taxonomy Extension Definition Linkbase
XBRL Taxonomy Extension Label Linkbase
XBRL Taxonomy Extension Presentation Linkbase
*
++
Furnished herewith
Indicates management contract or compensatory plan.
55
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
Exhibit 10.30
This Amendment To Executive Employment Agreement (“Amendment”), dated June 30, 2017, hereby amends the Executive Employment
Agreement (the “Agreement”) dated the July 1, 2013 between Reprints Desk, Inc., a Delaware corporation (the “Company”), Research Solutions, Inc., a
Nevada corporation (“Research Solutions”), and Peter Derycz (“Executive”), an individual.
WHEREAS, the parties have complied with the terms of the Agreement until the date hereof; and
WHEREAS, Reprints Desk and Executive wish to amend the terms of the Agreement.
NOW THEREFORE, for the mutual promises and other consideration described herein, the parties hereto agree as follows:
1. Section 1(d) Term is amended as follows:
Term. The term of employment of Executive by the Company pursuant to this Employment Agreement shall be for the period commencing on the
Commencement Date and ending on June 30, 2019, or such earlier date that Employee’s employment is terminated in accordance with the provisions
of this Employment Agreement.
2. Section 2(a) Base Salary is amended as follows:
Base Salary. In consideration of the services to be rendered under this Agreement, the Company shall pay Executive a salary at the rate of Three
Hundred Forty Thousand Dollars ($340,000) per year (“Base Salary”). The Base Salary shall be paid in accordance with the Company’s regularly
established payroll practice. Executive’s Base Salary will be reviewed from time to time in accordance with the established procedures of the
Company for adjusting salaries for similarly situated employees and may be adjusted in the sole discretion of the Company.
Except as expressly amended or modified herein, all terms and conditions of the Agreement are hereby ratified, confirmed and approved and shall
remain in full force and effect. In the event of any conflict or inconsistency between this Amendment and the Agreement, this Amendment shall govern.
This Amendment and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and
interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.
This Amendment may be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have duly executed this Amendment as of the date first written above.
REPRINTS DESK, INC.:
By:
RESEARCH SOLUTIONS, INC.:
By:
EXECUTIVE:
By:
Name and Title:
Alan Urban, CFO
Name and Title:
Alan Urban, CFO
Name:
Peter Derycz
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment To Executive Employment Agreement (“Amendment”), dated June 30, 2017, hereby amends the Executive Employment
Agreement (the “Agreement”) dated the July 1, 2013 between Reprints Desk, Inc., a Delaware corporation (the “Company”), Research Solutions, Inc., a
Nevada corporation (“Research Solutions”), and Jan Peterson (“Executive”), an individual.
Exhibit 10.31
WHEREAS, the parties have complied with the terms of the Agreement until the date hereof; and
WHEREAS, Reprints Desk and Executive wish to amend the terms of the Agreement.
NOW THEREFORE, for the mutual promises and other consideration described herein, the parties hereto agree as follows:
1. Section 1(d) Term is amended as follows:
Term. The term of employment of Executive by the Company pursuant to this Employment Agreement shall be for the period commencing on the
Commencement Date and ending on June 30, 2019, or such earlier date that Employee’s employment is terminated in accordance with the provisions
of this Employment Agreement.
2. Section 2(a) Base Salary is amended as follows:
Base Salary. In consideration of the services to be rendered under this Agreement, the Company shall pay Executive a salary at the rate of Two
Hundred Thousand Dollars ($200,000) per year (“Base Salary”). The Base Salary shall be paid in accordance with the Company’s regularly
established payroll practice. Executive’s Base Salary will be reviewed from time to time in accordance with the established procedures of the
Company for adjusting salaries for similarly situated employees and may be adjusted in the sole discretion of the Company.
Except as expressly amended or modified herein, all terms and conditions of the Agreement are hereby ratified, confirmed and approved and shall
remain in full force and effect. In the event of any conflict or inconsistency between this Amendment and the Agreement, this Amendment shall govern.
This Amendment and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and
interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.
This Amendment may be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have duly executed this Amendment as of the date first written above.
REPRINTS DESK, INC.:
By:
RESEARCH SOLUTIONS, INC.:
By:
EXECUTIVE:
By:
Address:
Name and Title:
Peter Derycz, CEO
Name and Title:
Peter Derycz, CEO
Name:
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment To Executive Employment Agreement (“Amendment”), dated June 30, 2017, hereby amends the Executive Employment
Agreement (the “Agreement”) dated the July 1, 2013 between Reprints Desk, Inc., a Delaware corporation (the “Company”), Research Solutions, Inc., a
Nevada corporation (“Research Solutions”), and Scott Ahlberg (“Executive”), an individual.
Exhibit 10.32
WHEREAS, the parties have complied with the terms of the Agreement until the date hereof; and
WHEREAS, Reprints Desk and Executive wish to amend the terms of the Agreement.
NOW THEREFORE, for the mutual promises and other consideration described herein, the parties hereto agree as follows:
1. Section 1(d) Term is amended as follows:
Term. The term of employment of Executive by the Company pursuant to this Employment Agreement shall be for the period commencing on the
Commencement Date and ending on June 30, 2019, or such earlier date that Employee’s employment is terminated in accordance with the provisions
of this Employment Agreement.
2. Section 2(a) Base Salary is amended as follows:
Base Salary. In consideration of the services to be rendered under this Agreement, the Company shall pay Executive a salary at the rate of Two
Hundred and Twenty Thousand Dollars ($220,000) per year (“Base Salary”). The Base Salary shall be paid in accordance with the Company’s
regularly established payroll practice. Executive’s Base Salary will be reviewed from time to time in accordance with the established procedures of
the Company for adjusting salaries for similarly situated employees and may be adjusted in the sole discretion of the Company.
Except as expressly amended or modified herein, all terms and conditions of the Agreement are hereby ratified, confirmed and approved and shall
remain in full force and effect. In the event of any conflict or inconsistency between this Amendment and the Agreement, this Amendment shall govern.
This Amendment and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and
interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.
This Amendment may be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have duly executed this Amendment as of the date first written above.
REPRINTS DESK, INC.:
By:
RESEARCH SOLUTIONS, INC.:
By:
EXECUTIVE:
By:
Address:
Name and Title:
Peter Derycz, CEO
Name and Title:
Peter Derycz, CEO
Name:
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment To Executive Employment Agreement (“Amendment”), dated June 30, 2017, hereby amends the Executive Employment
Agreement (the “Agreement”) dated the July 1, 2013 between Reprints Desk, Inc., a Delaware corporation (the “Company”), Research Solutions, Inc., a
Nevada corporation (“Research Solutions”), and Alan Urban (“Executive”), an individual residing at 3725 Terrace View Drive, Encino, California 91436.
Exhibit 10.33
WHEREAS, the parties have complied with the terms of the Agreement until the date hereof; and
WHEREAS, Reprints Desk and Executive wish to amend the terms of the Agreement.
NOW THEREFORE, for the mutual promises and other consideration described herein, the parties hereto agree as follows:
1. Section 1(d) Term is amended as follows:
Term. The term of employment of Executive by the Company pursuant to this Employment Agreement shall be for the period commencing on the
Commencement Date and ending on June 30, 2019, or such earlier date that Employee’s employment is terminated in accordance with the provisions
of this Employment Agreement.
2. Section 2(a) Base Salary is amended as follows:
Base Salary. In consideration of the services to be rendered under this Agreement, the Company shall pay Executive a salary at the rate of Two
Hundred Fifty Thousand Dollars ($250,000) per year (“Base Salary”). The Base Salary shall be paid in accordance with the Company’s regularly
established payroll practice. Executive’s Base Salary will be reviewed from time to time in accordance with the established procedures of the
Company for adjusting salaries for similarly situated employees and may be adjusted in the sole discretion of the Company.
Except as expressly amended or modified herein, all terms and conditions of the Agreement are hereby ratified, confirmed and approved and shall
remain in full force and effect. In the event of any conflict or inconsistency between this Amendment and the Agreement, this Amendment shall govern.
This Amendment and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and
interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.
This Amendment may be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have duly executed this Amendment as of the date first written above.
REPRINTS DESK, INC.:
By:
RESEARCH SOLUTIONS, INC.:
By:
EXECUTIVE:
By:
Name and Title:
Peter Derycz, CEO
Name and Title:
Peter Derycz, CEO
Name:
Alan Urban
AMENDMENT TO EXECUTIVE EMPLOYMENT AGREEMENT
This Amendment To Executive Employment Agreement (“Amendment”), dated June 30, 2017, hereby amends the Executive Employment
Agreement (the “Agreement”) dated the July 1, 2013 between Reprints Desk, Inc., a Delaware corporation (the “Company”), Research Solutions, Inc., a
Nevada corporation (“Research Solutions”), and Ian Palmer (“Executive”), an individual.
Exhibit 10.34
WHEREAS, the parties have complied with the terms of the Agreement until the date hereof; and
WHEREAS, Reprints Desk and Executive wish to amend the terms of the Agreement.
NOW THEREFORE, for the mutual promises and other consideration described herein, the parties hereto agree as follows:
1. Section 1(d) Term is amended as follows:
Term. The term of employment of Executive by the Company pursuant to this Employment Agreement shall be for the period commencing on the
Commencement Date and ending on June 30, 2019, or such earlier date that Employee’s employment is terminated in accordance with the provisions
of this Employment Agreement.
2. Section 2(a) Base Salary is amended as follows:
Base Salary. In consideration of the services to be rendered under this Agreement, the Company shall pay Executive a salary at the rate of Two
Hundred Thousand Dollars ($200,000) per year (“Base Salary”). The Base Salary shall be paid in accordance with the Company’s regularly
established payroll practice. Executive’s Base Salary will be reviewed from time to time in accordance with the established procedures of the
Company for adjusting salaries for similarly situated employees and may be adjusted in the sole discretion of the Company.
Except as expressly amended or modified herein, all terms and conditions of the Agreement are hereby ratified, confirmed and approved and shall
remain in full force and effect. In the event of any conflict or inconsistency between this Amendment and the Agreement, this Amendment shall govern.
This Amendment and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and
interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.
This Amendment may be executed and delivered by facsimile signature and in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have duly executed this Amendment as of the date first written above.
REPRINTS DESK, INC.:
By:
RESEARCH SOLUTIONS, INC.:
By:
EXECUTIVE:
By:
Address:
Name and Title:
Peter Derycz, CEO
Name and Title:
Peter Derycz, CEO
Name:
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the previously filed Registration Statements of Research Solutions, Inc. on Form S-8 (File Nos. 333-
169823, 333-185059 and 333-200656) of our report dated September 18, 2017, relating to the consolidated financial statements of Research Solutions, Inc.
and Subsidiaries as of June 30, 2017 and 2016 and for the years then ended which appear in Research Solutions, Inc.’s Annual Report on Form 10-K for the
fiscal year ended June 30, 2017 filed with the Securities and Exchange Commission on September 18, 2017.
Exhibit 23
/s/ Weinberg & Company, P.A.
September 18, 2017
Los Angeles, California
Exhibit 31.1
I, Peter Victor Derycz, certify that:
RULE 13a-14(a) CERTIFICATION
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Research Solutions, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: September 18, 2017
/s/ Peter Victor Derycz
Peter Victor Derycz
Chief Executive Officer (Principal
Executive Officer)
Exhibit 31.2
I, Alan Louis Urban, certify that:
RULE 13a-14(a) CERTIFICATION
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Research Solutions, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations, and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–
15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially
affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control
over financial reporting.
Date: September 18, 2017
/s/ Alan Louis Urban
Alan Louis Urban
Chief Financial Officer (Principal Financial
and Accounting Officer)
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of Research Solutions, Inc. (the “Company”) on Form 10-K for the period ending June 30, 2017, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Peter Victor Derycz, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
(2)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Peter Victor Derycz
Peter Victor Derycz
Chief Executive Officer (Principal Executive Officer)
September 18, 2017
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of Research Solutions, Inc. (the “Company”) on Form 10-K for the period ending June 30, 2017, as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), I, Alan Louis Urban, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Alan Louis Urban
Alan Louis Urban
Chief Financial Officer (Principal Financial and Accounting Officer)
September 18, 2017