UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended: June 30, 2019
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)
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 every Interactive Data File required to be submitted 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 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. ☐
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 þ
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, 2018, the last business
day of the registrant’s most recently completed second fiscal quarter, was $19,317,128 based on the closing price of $2.45 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
Common Stock, $0.001 par value
Number of Shares Outstanding on September 13, 2019
24,470,255
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.
Item 16.
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
Form 10-K Summary
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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, 2019: 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.
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 sold to customers for an
annual subscription fee. 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.
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Transactions
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. STM content is sold to our customers on a transaction basis. 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 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. We are focused on rapidly developing an ecosystem of new interactive app-like gadgets for researchers that will deliver time
saving efficiencies in core research workflows and knowledge creation processes. 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.
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. 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.
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
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606),
("ASC 606"). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to
be collected. We adopted the guidance of ASC 606 on July 1, 2018. The implementation of ASC 606 had no impact on the consolidated financial statements
and no cumulative effect adjustment was recognized.
Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration
that we expect to receive in exchange for those goods or services. We derive our revenues from two sources: annual licenses that allow customers to access
and utilize certain premium features of our cloud based SaaS research intelligence platform (“Platforms”) and the transactional sale of STM content managed,
sourced and delivered through the Platform (“Transactions”).
We apply the following five steps in order to determine the appropriate amount of revenue to be recognized as we fulfill our obligations under each
of our agreements:
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identify the contract with a customer;
identify the performance obligations in the contract;
determine the transaction price;
allocate the transaction price to performance obligations in the contract; and
recognize revenue as the performance obligation is satisfied.
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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 provided all other revenue recognition criteria
have been met.
Customers and Suppliers
There were no customers that accounted for greater than 10% of our revenue for the years ended June 30, 2019 and 2018.
Approximately 39% and 38% of our content cost for the years ended June 30, 2019 and 2018, respectively, was derived from our three 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 efficiently acquire customers, we rely on marketing in close cooperation with value based selling to acquire new small, medium and large
geographically-dispersed enterprises. The promotional mix of tactics we utilize includes: search engine optimization and digital marketing, educational
content, advertising, events, direct response and integrated marketing campaigns, public relations and content publicity, thought leadership programs, channel
alliances training, and analyst relations. In addition, we focus on customer retention, which, we believe, increases total lifetime customer value and generates
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.
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.).
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Employees
As of September 13, 2019, we had 135 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, 2019 and 2018, we incurred a net loss of $959,958 and $1,678,741,
respectively. As of June 30, 2019, we had an accumulated deficit of $20,514,557. 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, 2019 and 2018. 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 39% and 38% of our content cost for the years ended June 30, 2019 and 2018, respectively, was derived from our three 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, 2019 and 2018. 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.
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.
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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.
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.
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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.
Our infrastructure may be vulnerable to physical or electronic break-ins, computer viruses, or similar disruptive problems. In addition to shutdowns,
our systems are subject to risks caused by misappropriation, misuse, leakage, falsification and accidental release or loss of information. We process, store, and
transmit data, including personally identifiable information and payment card industry data of our customers, and it is critical that this data remains secure and
is perceived by the marketplace to be secure.
Personal data is increasingly subject to legal and regulatory protections around the world, which vary widely in approach and which possibly conflict
with one another. In recent years, for example, U.S. legislators and regulatory agencies, such as the Federal Trade Commission, as well as U.S. states, have
increased their focus on protecting personal data by law and regulation, and have increased enforcement actions for violations of privacy and data protection
requirements. In May 2018 The European Commission approved and adopted the General Data Protection Regulation ("GDPR") in the European Union, a
new data protection law. These data protection laws and regulations are intended to protect the privacy and security of personal data, including credit card
information that is collected, processed and transmitted in or from the relevant jurisdiction. Implementation of and compliance with these laws and
regulations may be more costly or take longer than we anticipate, or could otherwise adversely affect our business operations, which could negatively impact
our financial position or cash flows. Our business could be materially adversely affected by our inability, or the inability of our vendors who receive personal
data from us, to comply with legal obligations regarding the use of personal data, new data handling requirements that conflict with or negatively impact our
business practices. In addition, our agreements with customers may also require that we indemnify the customer for liability arising from data breaches under
the terms of our agreements with these customers.
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.
We are exposed to risks associated with PCI compliance.
The PCI Data Security Standard (“PCI DSS”) is a specific set of comprehensive security standards required by credit card brands for enhancing
payment account data security, including but not limited to requirements for security management, policies, procedures, network architecture, and software
design. PCI DSS compliance is required in order to maintain credit card processing services. Compliance does not guarantee a completely secure environment
and notwithstanding the results of this assessment there can be no assurance that payment card brands will not request further compliance assessments or set
forth additional requirements to maintain access to credit card processing services. Compliance is an ongoing effort and the requirements evolve as new
threats are identified. In the event that we were to lose PCI DSS compliance status (or fail to renew compliance under a future version of the PCI DSS), we
could be exposed to increased operating costs, fines and penalties and, in extreme circumstances, may have our credit card processing privileges revoked,
which would have a material adverse effect on our business.
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 December 31, 2019, under which there were no outstanding borrowings as
of June 30, 2019. Our loan agreement contains, and any agreements to refinance our debt likely will contain, financial and restrictive covenants. We were in
compliance with these covenants as of June 30, 2019, however, 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 and data protection requirements,
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 13, 2019, Peter Victor Derycz, our President and Chief Executive Officer, had voting power equal to approximately 15% 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 13, 2019, 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 13, 2019, the
last reported sale price of our common stock on the OTCQB was $2.64. 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, 2019 we had issued and outstanding 24,375,948
shares of common stock and we had 5,709,581 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, 2019, we had no shares of preferred
stock issued and outstanding. Accordingly, as of June 30, 2019, we could issue up to 69,914,471 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, 2019:
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, 2018:
First Quarter (July 1 – September 30)
Second Quarter (October 1 – December 31)
Third Quarter (January 1 – March 31)
Fourth Quarter (April 1 – June 30)
13
High Bid
Low Bid
$
$
$
$
$
$
$
$
2.20 $
2.45 $
2.37 $
2.60 $
1.16 $
1.24 $
1.29 $
1.83 $
1.50
1.60
2.00
2.00
0.90
1.02
1.01
1.25
As of September 13, 2019, we had a total of 24,470,255 shares of our common stock outstanding and the closing sales price was $2.64 per share on
the OTCQB. According to the records of our transfer agent, we had 38 record holders of our common stock as of September 13, 2019. 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.
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
Effective as of February 8, 2018, the Compensation Committee of our Board of Directors authorized the repurchase, during calendar year 2018 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 $3.00 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.
Effective as of November 13, 2018, the Compensation Committee of our Board of Directors authorized the repurchase, during calendar year 2019 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 $3.00 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, 2019 and 2018, we repurchased 88,250 and 120,900 shares of our common stock under the repurchase plan at an
average price of approximately $2.27 and $1.26 per share, respectively, for an aggregate amount of $200,023 and $152,739, respectively. As of June 30, 2019,
$213,255 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
April 2019
May 2019
June 2019
Total
Total Number
of Shares
Purchased1
Average
Price Paid
per Share
-
-
17,750 $
17,750 $
-
-
2.30
2.30
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
- $
- $
- $
-
254,080
254,080
213,255
-
1 Consists of shares of common stock purchased from employees to satisfy tax obligations in connection with the vesting of stock incentive awards.
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.
14
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, 2019 and 2018 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, 2019: 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.
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 sold to customers for an
annual subscription fee. 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
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. STM content is sold to our customers on a transaction basis. 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 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.
15
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
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606),
("ASC 606"). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to
be collected. We adopted the guidance of ASC 606 on July 1, 2018. The implementation of ASC 606 had no impact on the consolidated financial statements
and no cumulative effect adjustment was recognized.
Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration
that we expect to receive in exchange for those goods or services. We derive our revenues from two sources: annual licenses that allow customers to access
and utilize certain premium features of our cloud based SaaS research intelligence platform (“Platforms”) and the transactional sale of STM content managed,
sourced and delivered through the Platform (“Transactions”).
We apply the following five steps in order to determine the appropriate amount of revenue to be recognized as we fulfill our obligations under each
of our agreements:
•
•
•
•
•
identify the contract with a customer;
identify the performance obligations in the contract;
determine the transaction price;
allocate the transaction price to performance obligations in the contract; and
recognize revenue as the performance obligation is satisfied.
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 provided all other revenue recognition criteria
have been met.
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 $100,175 and $115,040 as of June 30, 2019 and 2018, respectively.
16
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
Year Ended
June 30,
2019
2018
1.14
1.14
0.05
0.05
1.17
1.19
0.05
0.05
Quarterly Information (Unaudited)
The following table sets forth unaudited and quarterly financial data for the four quarters of fiscal years 2019 and 2018:
Revenue:
Platforms
Transactions
Total revenue
Cost of revenue:
Platforms
Transactions
Total cost of revenue
Gross profit:
Platforms
Transactions
Total gross profit
Operating expenses:
Sales and marketing
Technology and product dev.
General and administrative
Depreciation and amortization
Stock-based comp. expense
Foreign currency transaction loss (gain)
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)
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
June 30,
2019
Mar. 31,
2019
Dec. 31,
2018
Sept. 30,
2018
June 30,
2018
Mar. 31,
2018
Dec. 31,
2017
Sept. 30,
2017
$
$
803,917
6,670,685
7,474,602
748,726
6,629,231
7,377,957
$
$
667,545
6,321,297
6,988,842
$
589,013
6,363,508
6,952,521
$
528,581
6,637,292
7,165,873
489,219
6,792,289
7,281,508
$
$
413,404
6,409,816
6,823,220
387,945
6,359,895
6,747,840
142,368
5,104,629
5,246,997
661,549
1,566,056
2,227,605
659,108
549,198
1,060,269
8,351
126,903
7,193
2,411,022
27,289
(156,128)
-
84,275
(71,853)
134,672
5,063,624
5,198,296
614,054
1,565,607
2,179,661
542,641
537,685
1,129,461
9,617
131,072
2,302
2,352,778
22,393
(150,724)
-
33,044
(117,680)
122,077
4,878,526
5,000,603
545,468
1,442,771
1,988,239
445,879
553,272
1,180,599
9,733
453,288
10,025
2,652,796
16,322
(648,235)
-
55,698
(592,537)
108,259
4,896,307
5,004,566
480,754
1,467,201
1,947,955
431,417
499,795
1,118,611
11,115
115,909
4,980
2,181,827
14,264
(219,608)
-
41,720
(177,888)
101,370
5,118,851
5,220,221
103,185
5,259,959
5,363,144
90,362
4,996,988
5,087,350
83,987
4,914,414
4,998,401
427,211
1,518,441
1,945,652
386,034
1,532,330
1,918,364
323,042
1,412,828
1,735,870
303,958
1,445,481
1,749,439
455,250
454,053
1,062,981
32,731
75,089
14,589
2,094,693
12,615
(136,426)
-
51,216
(85,210)
522,894
436,672
1,091,928
32,768
114,340
(9,737)
2,188,865
5,238
(265,263)
-
69,277
(195,986)
524,587
454,507
1,098,795
46,330
314,565
(485)
2,438,299
(1,504)
(703,933)
-
79,353
(624,580)
678,963
452,816
1,131,402
40,568
286,242
(12,387)
2,577,604
(1,949)
(830,114)
-
57,149
(772,965)
$
$
$
-
-
-
$
$
$
-
-
-
$
$
$
(0.03) $
-
$
(0.03) $
(0.01) $
-
$
(0.01) $
(0.01) $
-
$
(0.01) $
(0.01) $
-
$
(0.01) $
(0.03) $
-
$
(0.03) $
(0.04)
-
(0.04)
23,987,137
23,845,798
23,787,836
23,644,787
23,560,781
23,498,796
23,455,654
23,380,437
$
$
$
-
-
-
$
$
$
-
-
-
$
$
$
(0.03) $
-
$
(0.03) $
(0.01) $
-
$
(0.01) $
(0.01) $
-
$
(0.01) $
(0.01) $
-
$
(0.01) $
(0.03) $
-
$
(0.03) $
(0.04)
-
(0.04)
23,987,137
23,845,798
23,787,836
23,644,787
23,560,781
23,498,796
23,455,654
23,380,437
17
Comparison of the Years Ended June 30, 2019 and 2018
Results of Operations
Year Ended June 30,
2019
2018
2019-2018
$ Change
2019-2018
% Change
Revenue:
Platforms
Transactions
Total revenue
Cost of revenue:
Platforms
Transactions
Total cost of revenue
Gross profit:
Platforms
Transactions
Total gross profit
Operating expenses:
Sales and marketing
Technology and product development
General and administrative
Depreciation and amortization
Stock-based compensation expense
Foreign currency transaction loss (gain)
Total operating expenses
Loss from operations
Other income (expenses):
Interest expense
Other income
Total other income
$
2,809,201 $
25,984,721
28,793,922
1,819,149 $
26,199,292
28,018,441
990,052
(214,571)
775,481
507,375
19,943,086
20,450,461
378,904
20,290,212
20,669,116
128,471
(347,126)
(218,655)
2,301,826
6,041,635
8,343,461
1,440,245
5,909,080
7,349,325
861,581
132,555
994,136
2,079,045
2,139,950
4,488,941
38,816
827,172
24,500
9,598,424
(1,254,963)
2,181,694
1,798,048
4,385,106
152,397
790,236
(8,020)
9,299,461
(1,950,136)
(102,649)
341,902
103,835
(113,581)
36,936
32,520
298,963
695,173
-
107,308
107,308
(4,000)
58,179
54,179
4,000
49,129
53,129
Loss from operations before provision for income taxes
Provision for income taxes
(1,147,655)
(27,040)
(1,895,957)
(39,779)
748,302
12,739
Loss from continuing operations
(1,174,695)
(1,935,736)
761,041
54.4%
(0.8)%
2.8%
33.9%
(1.7)%
(1.1)%
59.8%
2.2%
13.5%
(4.7)%
19.0%
2.4%
(74.5)%
4.7%
405.5%
3.2%
35.6%
100.0%
84.4%
98.1%
39.5%
32.0%
39.3%
Gain from sale of discontinued operations
214,737
256,995
(42,258)
(16.4)%
Net loss
$
(959,958) $
(1,678,741) $
718,783
42.8%
18
Revenue
Revenue:
Platforms
Transactions
Total revenue
Years Ended June 30,
2019
2018
2019-2018
$ Change
2019-2018
% Change
$
2,809,201 $
1,819,149 $
25,984,721 26,199,292
$ 28,793,922 $ 28,018,441 $
990,052
(214,571)
775,481
54.4%
(0.8)%
2.8%
Total revenue increased $775,481, or 2.8%, for the year ended June 30, 2019 compared to the prior year, due to the following:
Category
Platforms
Impact
↑
$
990,052
Transactions
↓
$
214,571
Key Drivers
Increased due to additional deployments to new and existing customers, and expansion from
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.
Decreased primarily due to a reduction in orders from existing customers, largely offset by
orders from new customers.
Cost of Revenue
Cost of Revenue:
Platforms
Transactions
Total cost of revenue
As a percentage of revenue:
Platforms
Transactions
Total
Years Ended June 30,
2019
2018
2019-2018
$ Change
2019-2018
% Change
$
507,375 $
378,904 $
19,943,086 20,290,212
$ 20,450,461 $ 20,669,116 $
128,471
(347,126)
(218,655)
33.9%
(1.7)%
(1.1)%
Years Ended June 30,
2019
2018
2019-2018
Change *
18.1%
76.7%
71.0%
20.8%
77.4%
73.8%
(2.7)%
(0.7)%
(2.8)%
* 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 2.8%, from 73.8% for the previous year to 71.0%, for the year ended June 30, 2019.
Category
Platforms
Transactions
Gross Profit
Gross Profit:
Platforms
Transactions
Total gross profit
Impact as percentage
of revenue
Key Drivers
↓
↓
2.7% Decreased primarily due to proportionally lower third-party data costs.
0.7% Decreased primarily due to proportionally lower personnel and copyright costs.
Years Ended June 30,
2019
2018
2019-2018
$ Change
2019-2018
% Change
$
$
2,301,826 $
6,041,635
8,343,461 $
1,440,245 $
5,909,080
7,349,325 $
861,581
132,555
994,136
59.8%
2.2%
13.5%
19
As a percentage of revenue:
Platforms
Transactions
Total
Years Ended June 30,
2019
2018
2019-2018
Change *
81.9%
23.3%
29.0%
79.2%
22.6%
26.2%
2.7%
0.7%
2.8%
* The difference between current and prior period gross profit as a percentage of revenue
Operating Expenses
Operating Expenses:
Sales and marketing
Technology and product development
General and administrative
Depreciation and amortization
Stock-based compensation expense
Foreign currency transaction loss (gain)
Total operating expenses
Years Ended June 30,
2019
2018
2019-2018
$ Change
2019-2018
% Change
$
$
2,079,045 $
2,139,950
4,488,941
38,816
827,172
24,500
9,598,424 $
2,181,694 $
1,798,048
4,385,106
152,397
790,236
(8,020)
9,299,461 $
(102,649)
341,902
103,835
(113,581)
36,936
32,520
298,963
(4.7)%
19.0%
2.4%
(74.5)%
4.7%
405.5%
3.2%
Category
Sales and marketing
Technology and product development
General and administrative
Impact
Key Drivers
↓
↑
↑
$
$
$
102,649 Decreased primarily due to lower personnel costs.
Increased primarily due to greater personnel costs.
341,902
Increased primarily due to greater personnel costs.
103,835
Interest Expense
For the year ended June 30, 2019, interest expense was $0, compared to $4,000 for the prior year, a decrease of $4,000.
Provision for Income Taxes
During the years ended June 30, 2019 and 2018, we recorded a provision for income taxes of $27,040 and $39,779, respectively, a decrease of
$12,739.
Net Income (Loss)
Net Income (Loss):
Loss from continuing operations
Income from discontinued operations
Total net loss
Year Ended June 30,
2019
2018
2019-2018
$ Change
2019-2018
% Change
$ (1,174,695) $ (1,935,736) $
214,737
256,995
(959,958) $ (1,678,741) $
$
761,041
(42,258)
718,783
39.3%
(16.4)%
42.8%
Loss from continuing operations decreased $761,041 or 39.3%, for the year ended June 30, 2019 compared to the prior year, primarily due to
increased gross profit, partially offset by increased operating expenses as described above.
Liquidity and Capital Resources
Consolidated Statements of Cash Flow Data:
Net cash provided by (used in) operating activities
Net cash used in investing activities
Net cash 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
20
Year Ended June 30,
2018
2019
(605,314)
(86,736)
(152,739)
576,446 $
(15,828)
(100,023)
(15,685)
444,910
4,908,180
5,353,090 $
(20,981)
(865,770)
5,773,950
4,908,180
$
$
Liquidity
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, 2019, we had working capital of $2,867,562 and stockholders’
equity of $3,031,715. For the year ended June 30, 2019, we recorded a net loss of $959,958, cash provided by operating activities was $576,446. 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, 2019, we had cash and cash equivalents of $5,353,090, compared to $4,908,180 as of June 30, 2018, an increase of $444,910. This
increase was primarily due to cash provided by operating activities.
Operating Activities
Net cash provided by operating activities was $576,446 for the year ended June 30, 2019 and resulted primarily from an increase in deferred revenue
of $644,460, a decrease in prepaid expenses and other current assets of $218,033 and an increase in accounts payable and accrued expenses of $175,949,
partially offset by an increase in accounts receivable of $241,918 and a decrease in lease liability of $119,786.
Net cash used in operating activities was $605,314 for the year ended June 30, 2018 and resulted primarily from net loss and reconciling items of
$882,509, and a decrease in accounts payable and accrued expenses of $1,756,110, partially offset by an increase in accounts receivable of $1,214,048, an
increase in prepaid royalties of $472,946, and an increase in deferred revenue of $330,271.
Investing Activities
Net cash used in investing activities was $15,828 for the year ended June 30, 2019 and resulted from the purchase of property and equipment.
Net cash used in investing activities was $86,736 for the year ended June 30, 2018 and resulted from the purchase of intangible assets and property
and equipment.
Financing Activities
Net cash used in financing activities was $100,023 for the year ended June 30, 2019 and resulted from the repurchase of common stock partially
offset by proceeds from the exercise of stock options.
Net cash used in financing activities was $152,739 for the year ended June 30, 2018 and resulted from the repurchase of common stock.
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 $2,500,000, or 80% of eligible accounts receivable. The line of credit matures on December 31, 2019, and is subject to certain
financial and performance covenants with which we were in compliance as of June 30, 2019. Financial covenants include maintaining an adjusted quick ratio
of unrestricted cash and net accounts receivable, divided by current liabilities plus debt less deferred revenue of at least 1.15 to 1.0, and maintaining tangible
net worth of $1,500,000, plus 50% of net income for the fiscal quarter ended from and after December 31, 2017, plus 50% of the dollar value of equity
issuances after October 1, 2017 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 adjusted quick ratio of 1.3 to 1.0 (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 6.75% as of June 30, 2019. The line of credit was secured by our consolidated assets.
There were no outstanding borrowings under the line as of June 30, 2019 and June 30, 2018, respectively. As of June 30, 2019, there was
approximately $2,215,000 of available credit.
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.
21
Set forth below is a reconciliation of Adjusted EBITDA to net income (loss) for the year ended June 30, 2019 and 2018:
Net loss
Add (deduct):
Interest expense
Other (income) expense
Foreign currency transaction loss (gain)
Provision for income taxes
Depreciation and amortization
Stock-based compensation
Gain on sale of discontinued operations
Adjusted EBITDA
Years Ended June 30,
2019
(959,958) $ (1,678,741) $
2018
$
2019-2018
$ Change
718,783
4,000
-
(58,179)
(107,308)
(8,020)
24,500
39,779
27,040
152,397
38,816
790,236
827,172
(214,737)
(256,995)
(364,475) $ (1,015,523) $
(4,000)
(49,129)
32,520
(12,739)
(113,581)
36,936
42,258
651,048
$
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.
22
Item 8. Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Research Solutions, Inc. and Subsidiaries
Encino, California
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Research Solutions, Inc. (the “Company”) and Subsidiaries as of June 30, 2019 and 2018,
the related statements of operations and other comprehensive loss, stockholders’ equity, and cash flows for the years then ended, and the related notes
(collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of
the Company as of June 30, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial
statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of
internal control over financial reporting 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.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2006.
/s/ Weinberg and Company, P.A
Los Angeles, California
September 19, 2019
23
Research Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
Current assets:
Cash and cash equivalents
Accounts receivable, net of allowance of $100,175 and $115,040, respectively
Prepaid expenses and other current assets
Prepaid royalties
Assets
Total current assets
Other assets:
Property and equipment, net of accumulated depreciation of $789,788 and $749,923, respectively
Deposits and other assets
Right of use asset, net of accumulated amortization of $270,777 and $155,698, respectively
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; 24,375,948 and 24,016,999 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
24
June 30,
2019
June 30,
2018
5,353,090 $
4,493,169
323,591
-
10,169,850
36,828
14,406
192,245
10,413,329 $
4,908,180
4,251,251
326,887
93,336
9,579,654
59,043
14,372
307,324
9,960,393
4,862,895 $
2,310,206
129,187
7,302,288
4,686,946
1,665,746
119,786
6,472,478
79,326
7,381,614
208,513
6,680,991
-
-
24,376
23,631,481
(20,514,557)
(109,585)
3,031,715
10,413,329 $
24,017
22,904,691
(19,554,599)
(94,707)
3,279,402
9,960,393
$
$
$
$
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
Total other income
Loss from operations before provision for income taxes
Provision for income taxes
Loss from continuing operations
Gain from sale of discontinued operations
Net loss
Other comprehensive loss:
Foreign currency translation
Comprehensive loss
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
25
Years Ended
June 30,
2019
2018
$
2,809,201 $
25,984,721
28,793,922
1,819,149
26,199,292
28,018,441
507,375
19,943,086
20,450,461
8,343,461
378,904
20,290,212
20,669,116
7,349,325
9,559,608
38,816
9,598,424
(1,254,963)
9,147,064
152,397
9,299,461
(1,950,136)
-
107,308
107,308
(4,000)
58,179
54,179
(1,147,655)
(27,040)
(1,895,957)
(39,779)
(1,174,695)
(1,935,736)
214,737
256,995
(959,958)
(1,678,741)
(14,878)
(974,836) $
(23,978)
(1,702,719)
(0.05) $
0.01 $
(0.04) $
23,815,761
(0.08)
0.01
(0.07)
23,473,105
$
$
$
$
Research Solutions, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
For the Years Ended June 30, 2019 and 2018
Balance, July 1, 2017
23,883,145
23,883 22,267,327 (17,875,858)
(70,729)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Other
Accumulated Comprehensive Stockholders'
Loss
Deficit
Total
Equity
4,344,623
Fair value of vested stock options
-
-
451,475
Fair value of vested restricted common stock
423,107
424
332,105
Forfeited restricted common stock
(214,324)
(214)
214
Repurchase and retirement of common stock
(120,900)
(121)
(152,618)
Modification cost of stock options
-
-
6,233
Common stock issued upon exercise of stock
options
45,971
45
(45)
-
-
-
-
-
-
-
451,475
-
332,529
-
-
-
(152,739)
-
6,233
-
-
Net loss
Foreign currency translation
-
-
-
-
-
(1,678,741)
-
(1,678,741)
-
-
(23,978)
(23,978)
Balance, June 30, 2018
24,016,999
24,017 22,904,691 (19,554,599)
(94,707)
3,279,402
Fair value of vested stock options
-
-
523,978
Fair value of vested restricted common stock
170,245
170
303,024
Repurchase and retirement of common stock
(88,250)
(88)
(199,935)
Common stock issued upon exercise of stock
options
237,954
238
99,762
Common stock issued upon exercise of warrants
39,000
39
(39)
-
-
-
-
-
-
523,978
-
303,194
-
(200,023)
-
100,000
-
-
Net loss
Foreign currency translation
-
-
-
-
-
(959,958)
-
(959,958)
-
-
(14,878)
(14,878)
Balance, June 30, 2019
24,375,948 $
24,376 $ 23,631,481 $ (20,514,557) $
(109,585) $
3,031,715
See notes to consolidated financial statements
26
Research Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended
June 30,
2019
2018
Cash flow from operating activities:
Net loss
Adjustment to reconcile net loss to net cash used in operating activities of continuing operations:
$
(959,958) $
(1,678,741)
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
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
Net cash used in investing activities
Cash flow from financing activities:
Common stock repurchase and retirement
Proceeds from the exercise of stock options
Net cash 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
See notes to consolidated financial statements
27
(214,737)
38,816
115,079
523,978
303,194
-
(241,918)
218,033
93,336
-
175,949
644,460
(119,786)
576,446
(256,995)
152,397
110,593
451,475
332,529
6,233
1,214,048
126,928
472,946
-
(1,756,110)
330,271
(110,888)
(605,314)
(15,828)
-
(15,828)
(29,284)
(57,452)
(86,736)
(200,023)
100,000
(100,023)
(15,685)
444,910
4,908,180
5,353,090 $
(152,739)
-
(152,739)
(20,981)
(865,770)
5,773,950
4,908,180
27,040 $
- $
39,779
4,000
$
$
$
RESEARCH SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2019 and 2018
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, 2019: 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.
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 sold to customers for an
annual subscription fee. 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
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. STM content is sold to our customers on a transaction basis. 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 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.
28
Note 2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“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, 2019 or 2018 under these requirements.
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 $100,175 and $115,040 as of June 30, 2019 and 2018,
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 $63,933 and $109,585 at June 30, 2019 and 2018, 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, 2019 and 2018.
The Company has no customers that accounted for greater than 10% of accounts receivable as of June 30, 2019 and 2018.
The following table summarizes our content costs from our vendors:
29
Vendor A
Vendor B
Vendor C
Property and equipment
Year Ended
June 30,
2019
2018
17%
12%
10%
15%
12%
11%
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, 2019 and 2018, the Company did not recognize any impairments for its property and equipment.
Revenue Recognition
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606),
("ASC 606"). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to
be collected. The Company adopted the guidance of ASC 606 on July 1, 2018. The implementation of ASC 606 had no impact on the consolidated financial
statements and no cumulative effect adjustment was recognized.
Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration
that the Company expects to receive in exchange for those goods or services. The Company derives its revenues from two sources: annual licenses that allow
customers to access and utilize certain premium features of our cloud based SaaS research intelligence platform (“Platforms”) and the transactional sale of
STM content managed, sourced and delivered through the Platform (“Transactions”).
The Company applies the following five steps in order to determine the appropriate amount of revenue to be recognized as it fulfills its obligations
under each of its agreements:
•
•
•
•
•
identify the contract with a customer;
identify the performance obligations in the contract;
determine the transaction price;
allocate the transaction price to performance obligations in the contract; and
recognize revenue as the performance obligation is satisfied.
30
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 provided all other revenue recognition criteria
have been met.
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 a loss of $24,500 and a
gain of $8,020, for the years ended June 30, 2019 and 2018, respectively. Cash denominated in Euros with a US Dollar equivalent of $63,933 and $109,585
at June 30, 2019 and 2018, 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
31
Year Ended
June 30,
2019
2018
1.14
1.14
0.05
0.05
1.17
1.19
0.05
0.05
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 shares of 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, 2019 potentially dilutive securities include options to acquire 3,287,335 shares of common stock, warrants to acquire 1,885,000 shares of common
stock and unvested restricted common stock of 311,535. At June 30, 2018 potentially dilutive securities include options to acquire 2,991,835 shares of
common stock, warrants to acquire 1,985,000 shares of common stock and unvested restricted common stock of 416,619. 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, 2019 and 2018 because all stock options, warrants, and
unvested restricted common stock are anti-dilutive.
Income taxes
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 June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting.” The ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from
nonemployees. The ASU also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2)
awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Revenue from Contracts with Customers
(Topic 606). The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is
permitted. The Company is currently assessing the effect that the ASU will have on our financial position, results of operations, and disclosures.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure
Requirements for Fair Value Measurement.” ASU 2018-13 amends certain disclosure requirements pertaining to fair value measurement, and is effective for
fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The adoption of ASU 2018-13 is not expected to have a
material impact on the Company’s financial position, results of operations, and cash flows.
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, 2019 and 2018:
Computer equipment
Software
Furniture and fixtures
Total
Less accumulated depreciation
Net, Property and equipment
June 30,
2019
June 30,
2018
504,652 $
282,080
39,884
826,616
(789,788)
36,828 $
489,540
279,817
39,609
808,966
(749,923)
59,043
$
$
Depreciation expense for the years ended June 30, 2019 and 2018 was $38,816 and $53,075, respectively.
32
Note 4. 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 $2,500,000, or 80% of eligible accounts receivable. The line of credit matures on December 31, 2019, and is subject
to certain financial and performance covenants with which we were in compliance as of June 30, 2019. Financial covenants include maintaining an adjusted
quick ratio of unrestricted cash and net accounts receivable, divided by current liabilities plus debt less deferred revenue of at least 1.15 to 1.0, and
maintaining tangible net worth of $1,500,000, plus 50% of net income for the fiscal quarter ended from and after December 31, 2017, plus 50% of the dollar
value of equity issuances after October 1, 2017 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 adjusted quick ratio of 1.3 to 1.0 (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 6.75% as of June 30, 2019. The line of credit is secured by the Company’s consolidated assets.
There were no outstanding borrowings under the line as of June 30, 2019 and June 30, 2018, respectively. As of June 30, 2019, there was
approximately $2,215,000 of available credit.
Note 5. 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%. During the twelve months ended June 30, 2019, the Company made payments of $119,786 towards the lease liability. As of
June 30, 2019 and 2018, lease liability amounted to $208,513 and $328,299, respectively. 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, 2019 and 2018 was $144,963 and $142,742, respectively. The right of use asset at June 30, 2018 was $307,324. During the
years ended June 30, 2019 and 2018, the Company reflected amortization of right of use asset of $115,079 and $110,593 related to this lease, respectively,
resulting in a net asset balance of $192,245 as of June 30, 2019.
Future minimum lease payments under the leases are as follows:
Years Ending June 30,
2020
2021
Total payments
Less: Amount representing interest
Present value of net minimum lease payments
Less: Current portion
Non-current portion
33
Amount
$
135,035
80,356
215,391
6,878
208,513
129,187
79,326
$
Note 6. Stockholders’ Equity
Stock Options
In December 2007, we established the 2007 Equity Compensation Plan (the “2007 Plan”) and in November 2017 we established the 2017 Omnibus
Incentive Plan (the “2017 Plan”), collectively (the “Plans”). The Plans were approved by our board of directors and stockholders. The purpose of the Plans is
to grant stock and options to purchase our common stock, and other incentive awards, 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 2007 Plan increased from 5,000,000 to
7,000,000. On November 21, 2017, the Company’s stockholders approved the adoption of the 2017 Plan (previously adopted by our board of directors on
September 14, 2017), which authorized a maximum of 1,874,513 shares of common stock that may be issued pursuant to awards granted under the 2017 Plan.
Upon adoption of the 2017 Plan we ceased granting incentive awards under the 2007 Plan and commenced granting incentive awards under the 2017 Plan.
The shares of our common stock underlying cancelled and forfeited awards issued under the 2017 Plan may again become available for grant under the 2017
Plan. Cancelled and forfeited awards issued under the 2007 Plan that were cancelled or forfeited prior to November 21, 2017 became available for grant under
the 2007 Plan. As of June 30, 2019, there were 537,246 shares available for grant under the 2017 Plan, and no shares were available for grant under the 2007
Plan. All incentive stock award grants prior to the adoption of the 2017 Plan on November 21, 2017 were made under the 2007 Plan, and all incentive stock
award grants after the adoption of the 2017 Plan on November 21, 2017 were made under the 2017 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
Weighted
Average
Exercise
Price
1.15
1.31
-
1.19
1.31
1.16
2.22
-
1.19
1.05
1.38
Weighted
Average
Exercise
Price
1.15
1.30
1.07
1.19
1.32
1.15
2.40
1.49
1.19
1.05
1.27
Weighted
Average
Exercise
Price
1.07
1.44
1.07
-
1.07
1.27
2.12
1.49
-
1.05
2.09
Shares
135,459
57,000
(74,333)
-
(11,667)
106,459
467,000
(105,042)
-
(8,333)
460,084 $
Shares
2,994,851
750,000
74,333
(462,766)
(471,042)
2,885,376
250,000
105,042
(396,500)
(16,667)
2,827,251 $
Shares
3,130,310
807,000
-
(462,766)
(482,709)
2,991,835
717,000
-
(396,500)
(25,000)
3,287,335 $
Outstanding at July 1, 2017
Granted
Options vesting
Exercised
Forfeited/Cancelled
Outstanding at June 30, 2018
Granted
Options vesting
Exercised
Forfeited/Cancelled
Outstanding at June 30, 2019
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, 2019 and 2018.
Expected dividend yield
Risk-free interest rate
Expected life (in years)
Expected volatility
Years Ended June 30,
2018
2019
0%
0%
2.82% - 3.00% 1.45% - 2.88%
5 - 6
68% - 69%
2.6 - 6.0
68% - 76%
The weighted average remaining contractual life of all options outstanding as of June 30, 2019 was 6.13 years. The remaining contractual life for
options vested and exercisable at June 30, 2018 was 6.39 years. Furthermore, the aggregate intrinsic value of options outstanding as of June 30, 2019 was
$4,588,211, and the aggregate intrinsic value of options vested and exercisable at June 30, 2019 was $4,268,743, in each case based on the fair value of the
Company’s common stock on June 30, 2019.
During the year ended June 30, 2019, the Company granted 717,000 options to employees and directors with a fair value of $881,860. The total fair
value of options that vested during the year ended June 30, 2019 was $523,978 and was included in selling, general and administrative expenses in the
accompanying statement of operations. As of June 30, 2019, the amount of unvested compensation related to the unvested options was $425,901 which will
be recorded as an expense in future periods as the options vest. During the year ended June 30, 2019, the Company issued 92,954 shares of common stock
upon the exercise of 221,500 options on a cashless basis and the Company issued 145,000 shares of common stock on the exercise of 175,000 for cash and
common stock, resulting in proceeds to the Company of $100,000.
During the year ended June 30, 2018, the Company granted 807,000 options to employees and directors with a fair value of $455,040. The total fair
value of options that vested during the year ended June 30, 2018 was $451,475 and was included in selling, general and administrative expenses in the
accompanying statement of operations. As of June 30, 2018, the amount of unvested compensation related to these options was $73,353 which will be
recorded as an expense in future periods as the options vest. During the year ended June 30, 2018, the Company issued 45,971 shares of common stock upon
the exercise of 462,766 options on a cashless basis.
34
On September 30, 2017, options originally issued to a former director to purchase an aggregate of 17,600 shares of the Company’s common stock
were modified to extend the exercise period from three months to approximately five years. Stock-based compensation cost of $6,233 was recorded during
the year ended June 30, 2018 as a result of the modification.
Additional information regarding stock options outstanding and exercisable as of June 30, 2019 is as follows:
Options
Outstanding
Remaining
Contractual
Life (in years)
Options
Exercisable
Option
Exercise
Price
$
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
1.59
1.75
1.80
1.85
1.95
1.97
2.40
2.50
Total
Warrants
The following table summarizes warrant activity:
Outstanding, June 30, 2017
Granted
Exercised
Expired/Cancelled
Outstanding, June 30, 2018
Granted
Exercised
Expired/Cancelled
Outstanding, June 30, 2019
Exercisable, June 30, 2018
Exercisable, June 30, 2019
8,150
5,000
6,150
225,000
59,500
16,000
25,667
6,000
28,249
227,000
422,529
53,898
151,165
105,000
3,674
209,400
352,414
32,000
243,000
195,000
35,000
1,067
134,050
24,000
295,000
1,422
402,000
20,000
3,287,335
35
3.00
3.00
3.00
6.44
4.26
6.15
4.81
3.00
4.43
1.43
7.11
3.30
6.44
6.01
3.00
5.12
8.08
3.63
2.68
3.38
8.87
3.00
3.89
3.59
9.02
3.00
9.38
9.89
8,150
5,000
6,150
225,000
59,500
16,000
25,667
6,000
28,249
227,000
419,446
53,898
151,165
105,000
3,674
209,400
343,247
32,000
243,000
195,000
14,583
1,067
134,050
24,000
39,583
1,422
250,000
-
2,827,251
Number of
Warrants
Weighted
Average
Exercise
Price
1,985,000 $
-
-
-
1,985,000
-
(100,000)
-
1,885,000 $
1,985,000 $
1,885,000 $
1.25
-
-
-
1.25
-
1.22
-
1.25
1.25
1.25
During the year ended June 30, 2018, the Company issued 39,000 shares of common stock upon the exercise of 100,000 warrants on a cashless basis.
The intrinsic value for all warrants outstanding as of June 30, 2019 was $2,887,050, based on the fair value of the Company’s common stock on June 30,
2019.
Additional information regarding warrants outstanding and exercisable as of June 30, 2019 is as follows:
Warrant
Exercise Price
Warrants
Outstanding
$
Total
1.19
1.25
100,000
1,835,000
1,885,000
Remaining
Contractual
Life (in years)
2.48
1.97
Warrants
Exercisable
100,000
1,835,000
1,885,000
Restricted Common Stock
Prior to July 1, 2017, the Company issued 1,573,197 shares of restricted common stock to employees valued at $1,563,074, of which $1,150,136 had
been recognized as an expense. As of June 30, 2017, 513,194 of these shares with a grant date fair value of $412,938 had not yet vested.
During the year ended June 30, 2018, the Company issued an additional 423,107 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 $467,952 based on the market price of our common stock ranging from $1.02 to $1.59 per share on the date of grant, which will be amortized
over the three-year vesting period.
During the year ended June 30, 2019, the Company issued an additional 170,245 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 $355,417 based on the market price of our common stock ranging from $1.99 to $2.50 per share on the date of grant, which will be amortized
over the three-year vesting period.
The total fair value of restricted common stock vested during the year ended June 30, 2019 and 2018 was $303,194 and $332,527, respectively, and
is included in selling, general and administrative expenses in the accompanying statements of operations. As of June 30, 2019, the amount of unvested
compensation related to issuances of restricted common stock was $412,383, 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.
The following table summarizes restricted common stock activity:
Non-vested, June 30, 2017
Granted
Vested
Forfeited
Non-vested, June 30, 2018
Granted
Vested
Forfeited
Non-vested, June 30, 2019
Common Stock Repurchase and Retirement
Number of
Shares
Fair Value
513,194 $
423,107
(305,358)
(214,324)
416,619
170,245
(275,329)
-
311,535 $
412,938 $
467,952
(332,527)
(188,203)
360,160
355,417
(303,194)
-
412,383 $
Weighted
Average
Grant Date
Fair Value
0.92
1.11
0.91
1.00
1.08
2.09
1.05
-
1.66
Effective as of February 8, 2018, the Compensation Committee of our Board of Directors authorized the repurchase, during calendar year 2018 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 $3.00 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.
36
Effective as of November 13, 2018, the Compensation Committee of our Board of Directors authorized the repurchase, during calendar year 2019 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 $3.00 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, 2019 and 2018, we repurchased 88,250 and 120,900 shares of our common stock under the repurchase plan at an
average price of approximately $2.27 and $1.26 per share, respectively, for an aggregate amount of $200,023 and $152,739, respectively. As of June 30, 2019,
$213,255 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 2017
December 2017
March 2018
June 2018
Year ended June 30, 2018
September 2018
December 2018
March 2019
June 2019
Year ended June 30, 2019
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
34,800 $
52,300 $
19,750 $
14,050 $
120,900 $
34,200 $
15,800 $
20,500 $
17,750 $
88,250 $
1.14
1.21
1.29
1.73
1.26
2.20
2.41
2.24
2.30
2.27
-
-
-
-
-
-
-
- $
- $
- $
-
-
-
-
-
-
-
254,080
213,255
213,255
1 Consists of shares of common stock purchased from employees to satisfy tax obligations in connection with the vesting of stock incentive awards.
Note 7. 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 8. Income Taxes
The provision for income taxes consists of the following for the years ended June 30, 2019 and 2018:
Current
Federal
State
Foreign (Mexico)
Deferred
Federal
Foreign
State
Provision for income tax expense
37
Years Ended June 30,
2018
2019
$
$
- $
2,088
24,952
-
-
-
27,040 $
-
2,629
37,150
-
-
-
39,779
During the year ended June 30, 2019, the Company recorded a provision for income tax expense of $27,040 which consisted of $2,088 in state
income tax payments and $24,952 in foreign (Mexico) income tax payments. During the year ended June 30, 2018, the Company recorded a provision for
income tax expense of $39,779 which consisted of $2,629 in state income tax payments and $37,150 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
Change in valuation allowance
Effective income tax rate
Years Ended June 30,
2019
2018
21.0%
(5.0)%
4.8%
(23.6)%
(2.8)%
34.0%
(5.0)%
2.8%
(34.1)%
(2.4)%
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,
2019 and 2018 are as follows:
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:
Fixed asset depreciation
Net deferred tax assets
Less valuation allowance
June 30,
2019
June 30,
2018
$
$
2,587,483 $
387,834
156,196
1,351,437
176,403
4,659,353
2,585,767
387,112
156,196
1,177,731
165,901
4,472,707
46,299
4,705,652
(4,705,652)
- $
40,248
4,512,955
(4,512,955)
-
The Company has provided a valuation allowance on the deferred tax assets at June 30, 2019 and 2018 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, 2019 was an increase of $192,695.
At June 30, 2019 and 2018, the Company had federal net operating loss (“NOL”) carryforwards of approximately $12,735,000 and $11,750,000,
respectively, and state NOL carryforwards of approximately $6,445,000 and $6,500,000, respectively. Federal NOLs could, if unused, completely expire in
2034. State NOLs, if unused, completely expire in 2039.
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, 2019 and 2018, 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, 2019 and 2018, the
Company has no accrued interest or penalties related to uncertain tax positions.
38
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 2015.
Note 9. 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, which amounted to $214,737 and $256,995 for the years
ended June 30, 2019 and 2018, respectively.
Note 10. Subsequent Events
Stock Options
On August 2, 2019, the Company issued 24,307 shares of common stock upon the exercise of 40,000 options on a cashless basis.
Restricted Common Stock
On August 1, 2019, the Company issued 70,000 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 $192,500 based on the
market price of our common stock of $2.75 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, 2019, 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.
39
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, 2019, 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, 2019.
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.
40
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 13, 2019:
Position
Date of Appointment
Name
Peter Victor Derycz
Alan Louis Urban
Scott Ahlberg
Marc Nissan
Rogier van Erkel
Yohann Georgel
John Regazzi (1)(3)
Gen. Merrill McPeak (1)(2)
Chad J. Cooper (1)(4)
Roy W. Olivier (1)
Age
57
50
56
43
44
33
71
83
49
60
Chief Executive Officer, President and Director
Chief Financial Officer and Secretary
Chief Operating Officer
Chief Technology Officer
Chief Sales Officer
Chief Marketing Officer
Chairman of the Board
Director
Director
Director
January 6, 2006
November 3, 2011
July 1, 2007
July 1, 2007
July 2, 2018
June 11, 2018
June 22, 2015
November 5, 2010
March 31, 2016
January 9, 2018
(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 served on the International 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 25 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).
Marc Nissan –Chief Technology Officer
Mr. Nissan has 15 years of experience in systems architecture and technology build-out. Mr. Nissan is an experienced software developer with strong
hands-on management and interpersonal skills. Mr. Nissan has performed full implementation and integration of custom software solutions for clients,
including interviewing users, gathering requirements, analysis, design, and documentation. During the past 15 years, Mr. Nissan has held various technology
architecture positions at Infotrieve, Ultralink, and MPDN.
Rogier van Erkel – Chief Sales Officer
Mr. van Erkel has 12 years of sales management experience at Elsevier, an information and analytics company, and one of the world's major
providers of scientific, technical and medical information. In his most recent role, he served as sales director, leading a global team and agent network. He
managed a diverse sales portfolio consisting of four product groups selling to businesses all over the world. In that role, he specialized in information
products, input for discovery tools and solutions to optimize and maximize customer workflow. He also served in other senior sales roles in Elsevier and
before that, managed sales and operations teams for five years at Renewi (formerly Van Gansewinkel), a leading waste management company operating
across Europe. Mr. van Erkel earned his Master’s degree from the University of Amsterdam and his Bachelor of Arts in Business Economics from Hanze
University of Applied Sciences Groningen. For charity, Mr. van Erkel coaches start-ups to improve their sales through his involvement in incubator firms
Rockstart and ACE.
41
Yohann Georgel – Chief Marketing Officer
Mr. Georgel has 12 years of marketing experience, most recently serving as senior director of digital marketing for PrimeSport for over six years.
PrimeSport is the leader in providing direct access to the biggest sporting events on the planet, offering tickets, travel and hospitality. Prior to that, he was a
director of digital marketing for OleOle, a social media platform for soccer fans worldwide. While there, he was in charge of marketing in 10 different
languages. Mr. Georgel's passion for data and algorithms led him to pursue a career in digital marketing, specifically search engine optimization and
marketing. Other areas of his expertise include data analysis, social media and user experience.
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 Convergered Security Solutions (CSS), both Akoya portfolio
companies. 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 Iovance Biotherapeutics (IOVA,
NASDAQ). 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.
Roy W. Olivier – Director
Mr. Olivier currently serves as president and CEO of ARI Network Services (formerly NASDAQ: ARIS), a provider of an award-winning suite of
SaaS tools and marketing services. Before joining ARI in 2006, Mr. Olivier was a consultant to start-up and small and medium-sized businesses. Prior to that,
he served as VP of sales and marketing for ProQuest Media Solutions, a business he founded in 1993 and sold to ProQuest in 2000. He previously held
various executive and managerial positions with other companies in the telecommunications and computer industries, including Multicom Publishing, Tandy
Corporation, BusinessLand and PacTel. In light of Mr. Olivier's executive and operational experience, our board of directors believes it to be in the
Company's best interests that Mr. Olivier 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.
42
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, 2019 indicates that all filing requirements applicable to our
officers, directors, and greater than ten percent beneficial owners were complied with except as follows: each of Messrs. Georgel, Nissan and van Erkel failed
to timely file a Form 3; each of Messrs. Derycz, Georgel, Urban and van Erkel failed to timely file a Form 4 reporting one transaction; Mr. Nissan failed to
timely file two Form 4s each reporting one transaction; and Mr. Ahlberg failed to timely file two Form 4s, the first reporting one transaction and the second
reporting two transactions.
Audit Committee Financial Expert
Our board of directors has a separately designated standing Audit Committee, comprised of Messrs. Cooper (Chairman), Regazzi, McPeak and
Olivier, 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.
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 $100,000 during such fiscal year ends.
Compensation of Executive Officers for Fiscal Years Ended June 30, 2019 and 2018
Name and principle
Position
Peter Victor Derycz
Chief Executive Officer and President
Salary
($)
Fiscal
Year
2019 350,200 84,988 106,462(1)
2018 340,000 119,367 108,910(2)
Bonus
($)
Stock
awards
($)
Alan Louis Urban
Chief Financial Officer and Secretary
2019 257,500 63,056 78,985(3)
2018 250,000 88,545 82,281(4)
Option
awards
($)
All other
compensation
($)
Total
($)
-
-
-
-
14,155 558,254
12,474 580,751
15,892 415,433
14,523 435,349
Scott Ahlberg
Chief Operating Officer
2019 226,600 63,056 78,985(3)
2018 220,000 88,545 77,186(5)
30,750(6)
16,021 384,662
14,768 431,249
(1) Represents the grant date fair value of 40,340 shares of restricted stock granted on August 9, 2018, 4,677 shares of restricted stock granted on
November 13, 2018, 3,766 shares of restricted stock granted on February 7, 2019, and 2,444 shares of restricted stock granted on May 17, 2019.
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 62,487 shares of restricted stock granted on August 22, 2017, 10,975 shares of restricted stock granted on
November 21, 2017, 12,185 shares of restricted stock granted on February 8, 2018, and 11,315 shares of restricted stock granted on May 10,
2018. 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 29,929 shares of restricted stock granted on August 9, 2018, 3,470 shares of restricted stock granted on
November 13, 2018, 2,794 shares of restricted stock granted on February 7, 2019, and 1,813 shares of restricted stock granted on May 17, 2019.
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 47,829 shares of restricted stock granted on August 22, 2017, 8,136 shares of restricted stock granted on
November 21, 2017, 9,030 shares of restricted stock granted on February 8, 2018, and 8,395 shares of restricted stock granted on May 10, 2018.
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.
43
(5) Represents the grant date fair value of 42,834 shares of restricted stock granted on August 22, 2017, 8,136 shares of restricted stock granted on
November 21, 2017, 9,030 shares of restricted stock granted on February 8, 2018, and 8,395 shares of restricted stock granted on May 10, 2018.
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.
(6) Represents the grant date fair value of options granted on September 30, 2017 to purchase 75,000 shares of common stock at an exercise price of
$1.50. The grant date fair value was estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:
risk-free interest rate of 1.45%; volatility of 76%; expected term of 2.6 years; and no dividend yield. The stock options vest over a three year
period, with a one year cliff vesting period, and expire on December 21, 2022.
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, 2019. 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, 2020. The agreement provides for a base salary of $360,700 per year. No part of Mr. Derycz’s salary is allocated to his
duties as a director of our company.
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 six (6) 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, 2019.
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, 2020. The agreement provides for a base salary of $265,225 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 six (6) 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, 2019. 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, 2020. The agreement provides for a base salary of $233,400 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 six (6) 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.
Marc Nissan
On July 1, 2013, we entered into an executive employment agreement with Mr. Nissan which was subsequently amended on June 30, 2019. Under
the terms of the executive employment agreement, Mr. Nissan has agreed to serve as Chief Technology Officer on an at-will basis. The term of the agreement
ends on June 30, 2020. The agreement provides for a base salary of $238,700 per year.
The agreement contains provisions that prohibit Mr. Nissan 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. Nissan 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.
Nissan will be eligible to receive an amount equal to six (6) months of his then-current base salary payable in the form of salary continuation if he is
terminated without cause. Mr. Nissan may terminate the agreement at any time, with or without reason, upon four weeks’ advance written notice.
44
Rogier van Erkel
On May 18, 2018, we entered into a consulting agreement with Mr. van Erkel. Under the terms of the consulting agreement, Mr. van Erkel has
agreed to serve as our Chief Sales Officer. The term of the agreement ends on July 2, 2021. The agreement provides for total compensation of approximately
$250,000 per year assuming certain performance targets are attained.
The agreement contains provisions that prohibit Mr. van Erkel from soliciting our customers or employees during his service with us. The agreement
also contains provisions that restrict disclosure by Mr. van Erkel of our confidential information and assign ownership to us of inventions related to our
business that are created by him during his service with us. After the first year we may terminate the agreement at any time, with or without cause. Mr. van
Erkel 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. After the first year Mr. van Erkel may terminate the agreement at any time, with or without reason, upon 60 days notice.
Yohann Georgel
On June 11, 2018, Mr. Georgel was hired and agreed to serve as our Chief Marketing Officer. On July 1, 2019, we entered into a consulting
agreement with Mr. Georgel. The agreement provides for total compensation of approximately $240,000 per year assuming certain performance targets are
attained
The agreement contains provisions that prohibit Mr. Georgel from soliciting our customers or employees during his service with us. The agreement
also contains provisions that restrict disclosure by Mr. Georgel of our confidential information and assign ownership to us of inventions related to our
business that are created by him during his service with us. Either party may terminate the agreement at any time, with or without reason, upon 30 days
notice.
Outstanding Equity Awards at Fiscal Year Ended June 30, 2019
The following table sets forth information regarding stock options, warrants and other stock awards (restricted stock) for each named executive
officer as of June 30, 2019.
Name
Peter Victor Derycz
Alan Louis Urban
Scott Ahlberg
Outstanding Equity Awards at Fiscal Year Ended June 30, 2019
Number of
securities
underlying
unexercised
options/warrants
exercisable (#)
Number of
securities
underlying
unexercised
options/warrants
unexercisable (#)
Option/
Warrant
exercise
price ($)
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 ($)
32,000
16,000
6,000
-
-
-
-
-
-
-
-
-
-
-
100,000
125,000
24,000
1,800
-
-
-
-
-
-
-
-
-
-
-
20,000
25,600
1,500
75,000
-
-
- $
- $
- $
-
-
-
-
-
-
-
-
-
-
-
- $
- $
- $
- $
-
-
-
-
-
-
-
-
-
-
-
- $
- $
- $
- $
-
-
1.25
1.85
1.25
-
-
-
-
-
-
-
-
-
-
-
1.02
1.30
1.15
1.25
-
-
-
-
-
-
-
-
-
-
-
1.02
1.15
1.25
1.50
-
-
2/13/2023
5/20/2023
6/23/2021
-
-
-
-
-
-
-
-
-
-
-
7/27/2020
3/5/2022
2/6/2023
6/23/2021
-
-
-
-
-
-
-
-
-
-
-
7/27/2020
2/6/2023
6/23/2021
12/21/2022
-
-
-
-
-
556(2) $
1,884(4) $
3,487(6) $
20,829(8) $
4,573(10) $
6,093(12) $
6,600(14) $
40,340(16) $
4,677(18) $
3,766(20) $
2,444(22) $
-
-
-
-
417(2) $
1,413(4) $
2,615(6) $
15,943(8) $
3,390(10) $
4,515(12) $
4,897(14) $
29,929(16) $
3,470(18) $
2,794(20) $
1,813(22) $
-
-
-
-
694(2) $
1,651(4) $
-
-
-
1,098(3)
2,335(5)
4,498(7)
21,246(9)
5,488(11)
7,006(13)
10,495(15)
80,277(17)
11,225(19)
8,850(21)
6,110(23)
-
-
-
-
437(3)
1,611(5)
2,615(7)
16,262(9)
4,068(11)
5,192(13)
7,786(15)
59,559(17)
8,328(19)
6,566(21)
4,533(23)
-
-
-
-
729(3)
1,882(5)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
45
-
-
-
-
-
-
-
-
-
( )
2,614(6) $
14,278(8) $
3,390(10) $
4,515(12) $
4,897(14) $
29,929(16) $
3,470(18) $
2,794(20) $
1,813(22) $
( )
2,614(7)
14,564(9)
4,068(11)
5,192(13)
7,786(15)
59,559(17)
8,328(19)
6,566(21)
4,533(23)
The restricted stock was granted on May 11, 2017 and vest over a three year period, with a one year cliff vesting period.
The restricted stock was granted on August 22, 2017 and vest over a three year period, with a one year cliff vesting period.
The restricted stock was granted on February 16, 2017 and vest over a three year period, with a one year cliff vesting period.
Stock options expire ten years from the grant date.
The restricted stock was granted on November 21, 2016 and vest over a three year period, with a one year cliff vesting period.
(1)
(2)
(3) Based on a market closing price per share of common stock of $1.05 on November 21, 2016.
(4)
(5) Based on a market closing price per share of common stock of $1.14 on February 16, 2017.
(6)
(7) Based on a market closing price per share of common stock of $1.00 on May 11, 2017.
(8)
(9) Based on a market closing price per share of common stock of $1.02 on August 22, 2017.
(10) The restricted stock was granted on November 21, 2017 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 $1.20 on November 21, 2017.
(12) The restricted stock was granted on February 8, 2018 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 $1.15 on February 8, 2018.
(14) The restricted stock was granted on May 10, 2018 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 $1.59 on May 10, 2018.
(16) The restricted stock was granted on August 9, 2018 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 $1.99 on August 9, 2018.
(18) The restricted stock was granted on November 13, 2018 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 $2.40 on November 13, 2018.
(20) The restricted stock was granted on February 7, 2019 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 $2.35 on February 7, 2019.
(22) The restricted stock was granted on May 17, 2019 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 $2.50 on May 17, 2019.
Compensation of Directors
The following table sets forth compensation awarded or paid to our directors for the last fiscal year for the services rendered by them to the
Company in all capacities.
Director Compensation for the Fiscal Years Ended June 30, 2019 and 2018
Name
(a)
John Regazzi (2)
Gen. Merrill McPeak (3)
Chad J. Cooper (4)
Roy W. Olivier (5)
Janice Peterson
Fiscal
Year
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
Fees
earned
or paid
in cash
($)
(b)
Stock
awards
($)
(c)
-
-
-
-
-
-
-
-
-
-
36,000
36,000
18,000
18,000
18,000
18,000
18,000
8,500
-
-
46
Warrant
and
Option
Awards
($)
(d)
128,000
100,500
64,000
50,250
64,000
50,250
64,000
39,650
-
-
All other
Compensation ($)
(g)
Total ($)
(h)
164,000
136,500
82,000
68,250
82,000
68,250
82,000
48,150
-
297,277
-
-
-
-
-
-
-
-
-
297,277(1)
(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), and other compensation in the amount of $5,349. The
grant date fair value of restricted stock 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.
(2) Outstanding equity awards as of June 30, 2019 consists of options to purchase 100,000 shares of common stock at $2.40 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, options to purchase 150,000 shares of common stock at an
exercise price of $1.05 per share, and options to purchase 150,000 shares of common stock at an exercise price of $1.20 per share.
(3) Outstanding equity awards as of June 30, 2019 consists of shares underlying warrants to purchase 50,000 shares of common stock at an
exercise price of $1.25 per share, shares underlying 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 $2.40 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, options to purchase 75,000 shares of common stock at an
exercise price of $0.70 per share, and options to purchase 75,000 shares of common stock at an exercise price of $1.20 per share.
(4) Outstanding equity awards as of June 30, 2019 consists of options to purchase 50,000 shares of common stock at $2.40 per share, options
to purchase 43,750 shares of common stock at an exercise price of $1.09 per share, options to purchase 75,000 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 $1.20 per share.
(5) Outstanding equity awards as of June 30, 2019 consists of options to purchase 50,000 shares of common stock at $2.40 per share, options
to purchase 65,000 shares of common stock at an exercise price of $1.15 per share.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information, as of September 13, 2019, 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 13, 2019. 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 24,470,255
shares of common stock outstanding as of September 13, 2019 plus, for each person, any securities that person has the right to acquire within 60 days of
September 13, 2019.
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 (4)
1345 Avenue of the Americas, 3rd Floor
New York, NY 10105
Directors and Executive Officers:
Peter Victor Derycz (5)
Alan Louis Urban (6)
Scott Ahlberg (7)
Marc Nissan (8)
Rogier van Erkel (9)
Yohann Georgel (10)
John Regazzi (11)
Gen. Merrill McPeak (12)
Chad J. Cooper (13)
Roy W. Olivier (14)
All Directors and Executive Officers as a group (10 persons) (15)
47
Shares
Beneficially
Owned
Percentage
of Shares
4,825,772
19.7%
4,445,339
17.6%
3,135,661
12.5%
1,350,000
3,765,581
587,086
485,659
803,246
83,333
37,500
793,500
684,608
838,250
115,000
8,193,763
5.5%
15.4%
2.4%
2.0%
3.2%
0.3%
0.2%
3.2%
2.7%
3.4%
0.5%
30.3%
(1)
(2)
(3)
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.
(4) Andrew N. Wiener, the sole managing member of Samjo Capital, LLC and Samjo Management, LLC, exercises voting and investment power over the
(5)
(6)
(7)
(8)
(11)
(12)
(13)
(14)
(15)
shares held by Samjo Capital, LLC.
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 95,248 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 71,196 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 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 70,045 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 100,000 shares of common stock at an exercise price of $1.50 per share, options to purchase 100,000
shares of common stock at an exercise price of $1.30 per share, options to purchase 50,000 shares of common stock at an exercise price of $1.02 per
share, options to purchase 28,800 shares of common stock at an exercise price of $1.15 per share, and warrants to purchase 3,000 shares of common
stock at an exercise price of $1.25 per share, and 75,045 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) Includes shares underlying options to purchase
83,333 shares of common stock at an exercise price of $1.95 per share. (10) Includes shares underlying options to purchase 37,500 shares of common
stock at an exercise price of $1.95 per share.
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, options to purchase 150,000 shares of common stock at an exercise price of $1.05 per share, options to purchase
150,000 shares of common stock at an exercise price of $1.20 per share, and options to purchase 100,000 shares of common stock at an exercise price
of $2.40 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, options to purchase
75,000 shares of common stock at an exercise price of $0.70 per share, options to purchase 75,000 shares of common stock at an exercise price of $1.20
per share, and options to purchase 50,000 shares of common stock at an exercise price of $2.40 per share..
Includes 323,000 shares of common stock held by the Cooper Family Trust Dated 8/1/2004 and 26,500 shares of common stock held by Mr. Cooper’s
IRA and 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, options to purchase 75,000 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 $1.20 per share, and options to purchase 50,000
shares of common stock at an exercise price of $2.40 per share. Mr. Cooper exercises voting and investment power over the shares held by the Cooper
Family Trust Dated 8/1/2004, and his IRA and SEP IRA.
Includes shares underlying options to purchase 65,000 shares of common stock at an exercise price of $1.15 per share, and options to purchase 50,000
shares of common stock at an exercise price of $2.40 per share.
Includes shares underlying warrants to purchase 337,300 shares of common stock, and shares underlying options to purchase 2,221,983 shares of
common stock.
48
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 “2007 Plan”) and in November 2017 we established the 2017 Omnibus
Incentive Plan (the “2017 Plan”), collectively (the “Plans”). The Plans were approved by our board of directors and stockholders. The purpose of the Plans is
to grant stock and options to purchase our common stock, and other incentive awards, 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 2007 Plan increased from 5,000,000 to
7,000,000. On November 21, 2017, the Company’s stockholders approved the adoption of the 2017 Plan (previously adopted by our board of directors on
September 14, 2017), which authorized a maximum of 1,874,513 shares of common stock that may be issued pursuant to awards granted under the 2017 Plan.
Upon adoption of the 2017 Plan we ceased granting incentive awards under the 2007 Plan and commenced granting incentive awards under the 2017 Plan.
The shares of our common stock underlying cancelled and forfeited awards issued under the 2017 Plan may again become available for grant under the 2017
Plan. Cancelled and forfeited awards issued under the 2007 Plan that were cancelled or forfeited prior to November 21, 2017 became available for grant under
the 2007 Plan. As of June 30, 2019, there were 537,246 shares available for grant under the 2017 Plan, and no shares were available for grant under the 2007
Plan. All incentive stock award grants prior to the adoption of the 2017 Plan on November 21, 2017 were made under the 2007 Plan, and all incentive stock
award grants after the adoption of the 2017 Plan on November 21, 2017 were made under the 2017 Plan. The following table provides information as of June
30, 2019 with respect to the Plans, which are the only compensation plans under which our equity securities are, or have been, 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)
5,453,884(2) $
200,000(3)
5,653,884
1.16
1.22
537,246
-
537,246
Plan category
Equity compensation plans
approved by stockholders (2007
Equity Compensation Plan, and
2017 Omnibus Incentive 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 3,287,335 shares of common stock and 2,166,549 shares of restricted common stock.
(3) Shares underlying warrants to purchase 200,000 shares of common stock.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Other than the transactions described herein, since July 1, 2016, 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, Cooper and Olivier. Our board of directors
has determined that Mr. Regazzi, Gen. McPeak, Mr. Cooper and Mr. Olivier are independent directors as that term is defined in the applicable rules for
companies traded on the NASDAQ Stock Market. Mr. Regazzi, Gen. McPeak, Mr. Cooper and Mr. Olivier 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.
49
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, 2019 and 2018.
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total
Year Ended
June 30, 2019
Year Ended
June 30, 2018
$
$
112,882 $
-
35,121
-
148,003 $
106,124
-
23,378
-
129,502
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, 2019 and 2018, 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.
Item 15. Exhibits, Financial Statement 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 19, 2019, 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.
Item 16. Form 10-K Summary
None.
50
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 19, 2019
Date: September 19, 2019
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
Title
Date
/s/ Peter Victor Derycz
Peter Victor Derycz
/s/ Alan Louis Urban
Alan Louis Urban
/s/ John Regazzi
John Regazzi
/s/ Roy W. Olivier
Roy W. Olivier
/s/ Merrill McPeak
Merrill McPeak
/s/ Chad J. Cooper
Chad J. Cooper
Chief Executive Officer (Principal Executive Officer),
September 19, 2019
President and Director
Chief Financial Officer (Principal Financial and Accounting
September 19, 2019
Officer) and Secretary
Chairman of the Board
September 19, 2019
Director
Director
Director
51
September 19, 2019
September 19, 2019
September 19, 2019
EXHIBIT INDEX
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
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.)
10.10
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.)++
10.11
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.)++
10.12
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.)++
10.13
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.)++
10.14
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.)++
10.15
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.)
10.16
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.)
10.17
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.)
10.18
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.)++
52
10.19
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.)++
10.20
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.)++
10.21
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.)++
10.22
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.)
10.23
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.)
10.24
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.)
10.25
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.)
10.26
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.) ++
10.27
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.) ++
10.28
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.)
10.29
Amendment to Employment Agreement dated June 30, 2017, between Research Solutions, Inc., Reprints Desk, Inc. and Peter Victor Derycz.
(Incorporated by reference to Exhibit 10.30 to the Registrant’s Annual Report on Form 10-K filed September 18, 2017.)++
10.30
Amendment to Employment Agreement dated June 30, 2017, between Research Solutions, Inc., Reprints Desk, Inc. and Janice Peterson.
(Incorporated by reference to Exhibit 10.31 to the Registrant’s Annual Report on Form 10-K filed September 18, 2017.)++
10.31
Amendment to Employment Agreement dated June 30, 2017, between Research Solutions, Inc., Reprints Desk, Inc. and Scott Ahlberg.
(Incorporated by reference to Exhibit 10.32 to the Registrant’s Annual Report on Form 10-K filed September 18, 2017.)++
10.32
Amendment to Employment Agreement dated June 30, 2017, between Research Solutions, Inc., Reprints Desk, Inc. and Alan Urban.
(Incorporated by reference to Exhibit 10.33 to the Registrant’s Annual Report on Form 10-K filed September 18, 2017.)++
10.33
Amendment to Employment Agreement dated June 30, 2017, between Research Solutions, Inc., Reprints Desk, Inc. and Ian Palmer.
(Incorporated by reference to Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K filed September 18, 2017.)++
10.34
10.35
10.36
10.37
10.38
Employment Agreement dated July 1, 2013, between Research Solutions, Inc., Reprints Desk, Inc. and Marc Nissan. ++
Amendment to Employment Agreement dated June 30, 2015, between Research Solutions, Inc., Reprints Desk, Inc. and Marc Nissan.++
Amendment to Employment Agreement dated June 30, 2017, between Research Solutions, Inc., Reprints Desk, Inc. and Marc Nissan.++
Agreement dated May 31, 2018, between Reprints Desk, Inc. and Rogier Van Erkel.++
Amendment to Employment Agreement dated June 30, 2019, between Research Solutions, Inc., Reprints Desk, Inc. and Peter Victor Derycz.
(Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed August 7, 2019.)++
10.39
Amendment to Employment Agreement dated June 30, 2019, between Research Solutions, Inc., Reprints Desk, Inc. and Alan Urban.
(Incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed August 7, 2019.)++
10.40
Amendment to Employment Agreement dated June 30, 2019, between Research Solutions, Inc., Reprints Desk, Inc. and Scott Ahlberg.
(Incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed August 7, 2019.)++
10.41
Amendment to Employment Agreement dated June 30, 2019, between Research Solutions, Inc., Reprints Desk, Inc. and Marc Nissan.
10.42
21
23
24
31.1
31.2
32.1
32.2
99.1
99.2
99.3
99.4
99.5
(Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed August 7, 2019.)++
Consulting Agreement dated July 1, 2019, between Research Solutions, Inc. and Yohann Georgel.++
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
Statement filed on September 26, 2016.)++
2017 Omnibus Incentive Plan. (Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy Statement filed on September
26, 2017.)++
101.INS
XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema
101.CAL
101.DEF
101.LAB
101.PRE
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.
53
Exhibit 10.42
CONSULTING AGREEMENT
This Consulting Agreement (“Agreement”) is entered into effective July 1, 2019 (“Effective Date”), by and between Reprints Desk, Inc., a Delaware
corporation located at 15821 Ventura Blvd., Suite 165, Encino, California 91436 (“Company”), and, Yohann Georgel, an individual residing at
_______________________________ (“Consultant”).
WHEREAS, Company and Consultant desire for Consultant to provide those consulting services set forth herein;
NOW, THEREFORE, for and in consideration of the promises, covenants and undertakings set forth in this Agreement, the compensation to be paid
as set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. The term of this Agreement is from the Effective Date until terminated.
2. Consultant will perform, consulting services when and where reasonably directed by Peter Derycz or other officials of Company. Consultant’s will
serve as the Company’s Chief Marketing Officer and will provide services typically associated with that of a Chief Marketing Officer.
3. For being available to render and actually rendering such consulting services, Company will pay Consultant as set out in the Compensation
Schedule attached to this Agreement on a monthly basis for base compensation and on a quarterly basis for bonus compensation, prorated as required.
Consultant will submit an invoice once per month detailing the hours worked and activities for the month within 10 days of the end of the month. Company
will pay undisputed invoices submitted by Consultant immediately upon receipt. Consultant will be reimbursed for reasonable and necessary travel and other
business expenses actually incurred in rendering requested services hereunder, in accordance with Company’s expense reimbursement policies.
4. Consultant understands and agrees that Consultant is not an employee of Company by virtue of this Agreement, and accordingly is not eligible
under this Agreement for vacation or any other benefits except those expressly provided for in Section 3 above.
5. Consultant warrants that Consultant and Consultant’s employees, agents and representatives shall not provide consulting or other services to any
other party that competes with the services provided by the Company during the term of this Agreement, and further warrants that Consultant’s entering into
this Agreement will not conflict with any obligations Consultant may have under any other contract.
6. Consultant also understands and agrees that all software, programs, programming documentation, disks, tapes, listings, drawings, designs,
computer hardware, reports, computations, calculations, working papers and documents of every kind prepared by Consultant and any of Consultant’s
employees, agents and representatives for the purposes set out under this Agreement will be and remain the sole property of Company. Company will have
full and unlimited right to use all of the same, including the unlimited right to make, use, and/or sell any pre-existing inventions owned by Company whether
patented or unpatented as incorporated in the same by Company without any claim or right for any additional compensation by Consultant or Consultant’s
officers, directors, employees, agents or representatives.
7. Consultant agrees that Consultant and Consultant’s employees, agents and representatives will not during the term of this Agreement serve any
interests or do any act or thing which will conflict with the interests of Company.
1
8. It is recognized that some work Consultant will be called upon to perform hereunder, as well as information furnished Consultant by Company in
connection therewith, is highly confidential to Company and/or third parties, including its business partners. Accordingly, any and all such information
developed or secured during the performance of services under this Agreement, including but not limited to, information regarding Company’s patents,
business partners, investors, customers, distributors, sales representatives, sales, suppliers, business and marketing strategies, accounts, negotiations with
potential customers, partners, ventures or acquisitions, product development, equipment and testing, heretofore or hereafter disclosed by or on behalf of
Company to Consultant, shall be considered by Consultant to be confidential and shall during the term of the Agreement or for one (1) year afterwards be
published, stated or used by Consultant for any purposes without Company’s prior written consent or unless ordered by any court or regulatory authority or
for the purposes of enforcement of this Agreement. In the event of a breach or threatened breach by Consultant or his employees, agents or representatives of
any provision of this paragraph, Company shall, in addition to any other available remedies, be entitled to any injunction restraining Consultant or
Consultant’s employees, agents or representatives from disclosing, in whole or in part, any such information or from rendering any services to any person,
firm or corporation to whom any of such information may be disclosed or is threatened to be disclosed.
9. The provisions of Section 8 of this Agreement shall continue to be binding upon Consultant and Consultant’s employees, agents and
representatives in accordance with their terms, notwithstanding the termination of this Agreement for any reason.
10. Consultant acknowledges and agrees that, as an independent contractor, Consultant is solely responsible for the payment of any taxes and/or
assessments imposed on account of the payment of compensation to or the performance of consulting services by Consultant and Consultant’s employees,
agents and representatives pursuant or prior to this Agreement, including, without limitation, any unemployment insurance tax, federal, state and local income
taxes, federal Social Security (FICA) payments, state disability insurance taxes and foreign taxes. Company shall not, by reason of Consultant’s status as an
independent contractor hereunder and the representations contained herein, make any withholdings or payments of said taxes or assessments from the
compensation due Consultant hereunder, and any such withholding shall be for Consultant’s account and shall not be reimbursed by Company to Consultant if
those taxes are paid to the competent authority. Consultant, if an unincorporated individual, expressly agrees to treat any compensation earned under this
Agreement as self-employment income for federal, state and local tax purposes, and to make all payments of federal, state and local income taxes,
unemployment insurance taxes, and disability insurance taxes when the same may become due and payable with respect to such self-employment
compensation earned under this Agreement. Consultant further agrees and undertakes to indemnify and hold harmless Company, its subsidiaries and
affiliates and their officers, directors, agents, employees and their successors or heirs and any of them, from any and all liability, loss, damages,
expenses, penalties and/or judgments arising out of any failure of Consultant to make any payment of taxes required to be made by Consultant
under this paragraph.
11. Not Used
12. Company shall fully indemnify, defend and hold Consultant harmless from any and all claims, causes of action, demands, liabilities, losses,
damages, costs, disbursements and expenses, including court costs and reasonable attorneys’ fees and expenses arising out of or relating to any such claim,
that arise from or relate to Consultant’s provision of services to Company under this Agreement. Notwithstanding anything to the contrary herein, Company
shall not be obligated pursuant to the terms of this Agreement to indemnify Consultant with respect to any claim if (i) Consultant did not act in good faith or
in a manner he reasonably believed to be in, or not opposed to, the best interests of Company with respect to such claim, or (ii) the claim is a criminal action
or proceeding, and Consultant had reasonable cause to believe his conduct was unlawful, or (iii) Consultant’s conduct constituted willful default, fraud or
dishonesty in the performance or nonperformance of Consultant’s duties, or (iv) Consultant shall have been adjudged to be fully liable to Company with
respect to such claim by a final and non-appealable order of a court of competent jurisdiction, (v) otherwise prohibited by applicable law; or (vi) Consultant
initiated or voluntarily brought such claim, (vii) Consultant’s conduct was in violation of a standing agreement with a previous employer or client (if
Consultant was a contractor). This clause 12 shall survive expiry or earlier termination of this Agreement.
2
13. Either party may terminate this Agreement with 30 days’ notice.
14. This Agreement supersedes all previous agreements, written or oral, relating to Consultant’s employment by or rendering services to Company
herein and shall not be changed orally, but only by a signed, written instrument to which both Company and Consultant are parties. This Agreement and the
rights and obligations hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs and legal
representatives, and shall also bind and inure to the benefit of any successor of Company, by merger or consolidation or any assignee of any or substantially
all of the properties or assets of any of them. This Agreement may be assigned by Company to an above successor or assignee and to any subsidiary or
affiliate of Company. Consultant is providing personal services hereunder, and Consultant shall not assign, transfer or subcontract Consultant’s obligations
hereunder without the prior written consent of Company.
15. This Agreement shall be construed in accordance with and governed by the laws of the State of California. Any controversy or claim arising out
of or relating to this Agreement, or the breach thereof, shall be settled by arbitration conducted in the State of California before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered the arbitrators may be
entered in any court having jurisdiction thereof.
CONSULTANT:
YOHANN GEORGEL
By:
COMPANY:
REPRINTS DESK, INC.
By:
Name:
Title:
3
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Exhibit 23
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 19, 2019, relating to the consolidated financial statements of Research Solutions, Inc.
and Subsidiaries as of June 30, 2019 and 2018 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, 2019 filed with the Securities and Exchange Commission on September 19, 2019.
/s/ Weinberg & Company, P.A.
September 19, 2019
Los Angeles, California
Exhibit 31.1
RULE 13a-14(a) CERTIFICATION
I, Peter Victor Derycz, certify that:
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 19, 2019
/s/ Peter Victor Derycz
Peter Victor Derycz
Chief Executive Officer (Principal Executive Officer)
Exhibit 31.2
RULE 13a-14(a) CERTIFICATION
I, Alan Louis Urban, certify that:
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 19, 2019
/s/ Alan Louis Urban
Alan Louis Urban
Chief Financial Officer (Principal Financial and Accounting Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Research Solutions, Inc. (the “Company”) on Form 10-K for the period ending June 30, 2019, 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 19, 2019
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Research Solutions, Inc. (the “Company”) on Form 10-K for the period ending June 30, 2019, 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 19, 2019