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, 2020
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.)
10624 S. Eastern Ave., Ste. A-614, Henderson, NV
(Address of principal executive offices)
89052
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
(310) 477-0354
(Registrant’s telephone number, including area code)
Title of each Class
Common stock, $0.001 par value
Trading Symbol(s)
RSSS
Name of each Exchange on which registered
The NASDAQ Stock Market LLC
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
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 ☒
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 ☒ 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 ☒ No ☐
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 ☒
Accelerated filer ☐
Smaller reporting company ☒
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of December 31, 2019, the last business
day of the registrant’s most recently completed second fiscal quarter, was $28,733,674 based on the closing price of $3.60 per share as reported on the
OTCQB as of that date.
Indicate the number of shares outstanding of each of the registrant’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 18, 2020
26,207,040
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 and 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, 2020: 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 many decades who has earned many accolades, 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. Although we do not have exclusive relationships with these content publishers, the aggregate
number of in place agreements are essential to our value proposition, market presence, and our ability to satisfy the requirements of our customers.
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.
Product Development
We seek to grow revenue through product differentiation, and the development of new products that are attractive to new and existing customers.
Our focus on product development leads us to continually explore options to strengthen and broaden our service offering portfolio.
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, 2020 and 2019.
Approximately 44% and 39% of our content cost for the years ended June 30, 2020 and 2019, 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.
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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.).
Employees
As of September 18, 2020, we had 139 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 report, 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 historically incurred significant losses, and may be unable to maintain profitability. If we continue to incur significant 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, 2020 and 2019, we incurred a net loss of $662,242 and
$959,958, respectively. As of June 30, 2020, we had an accumulated deficit of $21,176,799. 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, 2020 and 2019. 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 44% and 39% of our content cost for the years ended June 30, 2020 and 2019, 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, 2020 and 2019. In addition, we have made
prepayments to suppliers of content. While we have procedures to monitor and limit exposure to credit risk on our trade receivables as well as long-term
prepayments, there can be no assurance such procedures will effectively limit our credit risk and avoid losses, which could have a material adverse effect
on our results of operations.
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Our services, technology and industry relationships are key assets and competitive advantages of our company and our business may be
affected by how we are perceived in the marketplace.
Our services, technology and industry relationships are key assets that enable us to effectively compete in our industry. Our ability to attract and
retain customers is highly dependent upon external perceptions of the quality, efficacy, responsiveness and ease-of-use of our services and business
practices, and overall financial condition. Negative perceptions or publicity regarding these matters could damage our reputation with customers and the
public, which could make it difficult for us to attract and maintain customers. Adverse developments with respect to our industry may also, by association,
negatively impact our reputation. Negative perceptions or publicity could have a material adverse effect on our business and financial results.
Our business performance is dependent upon the effectiveness of our technology investments, the failure of which could materially impact our
business and financial results.
We have and will continue to undertake significant investments in our technology infrastructure to continually strengthen our position in research
and marketing solutions and improve our existing technology platform. We may fail to effectively invest such amounts, or we may invest significant
amounts in technologies that do not ultimately assist us in achieving our strategic goals. We may also fail to maintain our technology infrastructure in a
manner that allows us to readily meet our customers’ needs. If we experience any of these or similar failures related to our technology investments, we will
not achieve our expected revenue growth, or desired cost savings, and we could experience a significant competitive disadvantage in the marketplace,
which could have a material adverse effect on our business and financial results.
In addition, the failure to continue to invest in our business could result in a material adverse effect on our future financial results. Such
investments may include: executing on, and mitigating risks associated with, new product offerings and entrance into new geographic markets; and
ensuring continued compatibility of our new platforms and technologies with our customers’ networks and systems.
We may be subject to intellectual property rights claims by third parties, which are extremely costly to defend, could require us to pay
significant damages and could limit our ability to use certain technologies.
Third parties, including our content providers, may assert claims of infringement of intellectual property rights against us or our customers for
which we may be liable or have an indemnification obligation. Any claim of infringement by a third party, even those without merit, could cause us to incur
substantial costs defending against the claim and could distract our management from our business. Although third parties may offer a license to their
content, the terms of any offered license may not be acceptable and the failure to obtain a license or the costs associated with any license could cause our
business, results of operations or financial condition to be materially and adversely affected. In addition, our licenses are generally non-exclusive, and
therefore our competitors may have access to the same content licensed to us. Furthermore, a successful claimant could secure a judgment or we may agree
to a settlement that prevents us from providing certain content or that requires us to pay substantial damages, including treble damages if we are found to
have willfully infringed the claimant’s copyrights, royalties or other fees. Any of these events could seriously harm our business, operating results and
financial condition.
Our industry is subject to intense competition and rapid technological change, which may result in products or new solutions that are superior
to our products or solutions under development. If we are unable to anticipate or keep pace with changes in the marketplace and the direction of
technological innovation and customer demands, our products or solutions may become less useful or obsolete and our operating results will suffer.
The industry in which we operate in general is subject to intense and increasing competition and rapidly evolving technologies. Because our
products are expected to have long development cycles, we must anticipate changes in the marketplace and the direction of technological innovation and
customer demands. To compete successfully, we will need to demonstrate the advantages of our products and solutions.
Our future success will depend in large part on our ability to establish and maintain a competitive position in current and future technologies.
Rapid technological development may render our products under development, or any future solutions we may have, and related technologies obsolete.
Many of our competitors have or may have greater corporate, financial, operational, sales and marketing resources, and more experience in research and
development than we have. We cannot assure you that our competitors will not succeed in developing or marketing technologies or products that are more
effective or commercially attractive than our products or that would render our solutions and related technologies obsolete. We may not have or be able to
raise or develop the financial resources, technical expertise, or support capabilities to compete successfully in the future. Our success will depend in large
part on our ability to maintain a competitive position with our products and solutions.
Increased accessibility of free or relatively inexpensive information sources may reduce demand for our products and services.
In recent years, more public sources of free or relatively inexpensive information have become available, particularly through the Internet, and this
trend is expected to continue. For example, some governmental and regulatory agencies have increased the amount of information they make publicly
available at no cost. Public sources of free or relatively inexpensive information may reduce demand for our products and services. Our financial results
may be adversely affected if our customers choose to use these public sources as a substitute for our products or services.
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We depend on the services of Peter Victor Derycz and other key personnel, and may not be able to operate and grow our business effectively if
we lose their services or are unable to attract qualified personnel in the future.
Our success depends in part upon the continued service of Peter Victor Derycz, who is our President and Chief Executive Officer. Mr. Derycz is
critical to the overall management of our company as well as to the development of our technologies, our culture and our strategic direction and is
instrumental in developing and maintaining close ties with our customer base. We also rely heavily on our senior management team because they have
substantial experience with our diverse service offerings and business strategies. In addition, we rely on our senior management team to identify internal
expansion and external growth opportunities. Our ability to retain senior management and other key personnel is therefore very important to our future
success. We have employment agreements with our senior management, but these employment agreements do not ensure that they will not voluntarily
terminate their employment with us. In addition, our key personnel are subject to non-solicitation and confidential information restrictions. We do not have
key man insurance for any of our current management or other key personnel. The loss of any key personnel would require the remaining key personnel to
divert immediate attention to seeking a replacement. Competition for senior management personnel is intense, and fit is important to us. Our inability to
find a suitable replacement for any departing executive officer or key employee on a timely basis could adversely affect our ability to operate and grow our
business.
We rely on our proprietary software systems, and our websites and online networks, and a disruption, failure or security compromise of these
systems would disrupt our business, damage our reputation and adversely affect our revenue and profitability.
Our proprietary software systems are critical to our business because they enable the efficient and timely service of a large number of customer
orders. Similarly, we rely on our websites, online networks, and email systems to obtain content and deliver customer orders, and provide timely, relevant
and dependable business information to our customers. Therefore, network or system shutdowns caused by events such as computer hacking, sabotage,
dissemination of computer viruses, worms and other destructive or disruptive software, denial of service attacks and other malicious activity, as well as loss
of service from third parties, power outages, natural disasters and similar events, could affect our ability to store, handle and deliver data and services to our
customers. Any such interruption of our operations could negatively impact customer satisfaction and revenue.
Breaches of our data security systems or unintended disclosure of our customer data could result in large expenditures to repair or replace
such systems, to remedy any security breaches and to protect us from similar events in the future.
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.
9
We currently have a line of credit with Silicon Valley Bank, maturing on February 14, 2022, under which there were no outstanding borrowings as
of June 30, 2020. 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, 2020, 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.
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.
10
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.
The COVID-19 pandemic could negatively impact our future operations and results.
We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our
business is highly uncertain and difficult to predict, as the responses that we, other businesses and governments are taking continue to evolve. Furthermore,
capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local
and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy
as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
To date, we have not experienced any significant changes in our business that would have a significant negative impact on our consolidated
statements of operations or cash flows.
The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the
duration and severity of the pandemic and the extent and severity of the impact on our customers, service providers and suppliers, all of which are uncertain
and cannot be predicted. As of the date of issuance of our financial statements, the extent to which the COVID-19 pandemic may in the future materially
impact our financial condition, liquidity or results of operations is uncertain.
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.
11
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 18, 2020, Peter Victor Derycz, our President and Chief Executive Officer, had voting power equal to approximately 14% 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 18, 2020, voting power equal to approximately 13% 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.
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, 2020 we had issued and outstanding
26,032,263 shares of common stock and we had 4,335,009 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, 2020, we had no shares of
preferred stock issued and outstanding. Accordingly, as of June 30, 2020, we could issue up to 69,632,728 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.
12
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.
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
We operate in a virtual environment and do not have a physical office space or headquarters.
On October 8, 2019, we entered into an agreement to sublease our former office facilities located at 15821 Ventura Blvd., Suite 165, Encino,
California from November 1, 2019 through January 31, 2021, the end of the lease term, for $8,094 per month with one month of abated rent. 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.
13
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
As of March 23, 2020, our common stock is quoted on The NASDAQ Stock Market LLC’s Nasdaq Capital Market (the “NASDAQ”) under the
symbol "RSSS," and prior to that it was quoted on the OTCQB. The following table sets forth, for the periods indicated, the reported high and low bid
quotations for our common stock as reported on the NASDAQ or 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, 2020:
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, 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)
High Bid
Low Bid
$
$
$
$
$
$
$
$
2.75 $
3.52 $
3.52 $
3.09 $
2.20 $
2.45 $
2.37 $
2.60 $
2.07
2.16
2.25
1.98
1.50
1.60
2.00
2.00
As of September 18, 2020, we had a total of 26,207,040 shares of our common stock outstanding and the closing sales price was $2.29 per share
on the NASDAQ. According to the records of our transfer agent, we had 33 record holders of our common stock as of September 18, 2020. 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 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.
Effective as of February 11, 2020, the Compensation Committee of our Board of Directors authorized the repurchase, during calendar year 2020
on the last day of each trading window and otherwise in accordance with our insider trading policies, of up to $400,000 of outstanding common stock (at
prices no greater than $4.00 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, 2020 and 2019, we repurchased approximately 116,200 and 88,250 shares of our common stock under the
repurchase plan at an average price of approximately $2.77 and $2.27 per share, respectively, for an aggregate amount of $321,602 and $200,023,
respectively. As of June 30, 2020, $277,774 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.
14
The following table summarizes repurchases of our common stock on a monthly basis:
Period
April 2020
May 2020
June 2020
Total
Total Number
of Shares
Purchased1
-
-
19,800 $
19,800 $
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
-
-
2.68
2.68
- $
- $
- $
-
330,838
330,838
277,774
-
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.
15
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Notice Regarding Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations for the years ended June 30, 2020 and 2019 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, 2020: 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.
16
COVID-19
We are subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on our
business is highly uncertain and difficult to predict, as the responses that we, other businesses and governments are taking continue to evolve. Furthermore,
capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local
and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy
as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
To date, we have not experienced any significant changes in our business that would have a significant negative impact on our consolidated
statements of operations or cash flows.
The severity of the impact of the COVID-19 pandemic on our business will depend on a number of factors, including, but not limited to, the
duration and severity of the pandemic and the extent and severity of the impact on our customers, service providers and suppliers, all of which are uncertain
and cannot be predicted. As of the date of issuance of our financial statements, the extent to which the COVID-19 pandemic may in the future materially
impact our financial condition, liquidity or results of operations is uncertain.
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.
17
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. In prior periods through June 30, 2019, we
accounted 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.
On July 1, 2019, we adopted Accounting Standards Update (ASU) 2018-07 which expands the scope of Topic 718 to include share-based payment
transactions for acquiring goods and services from nonemployees. As a result, nonemployee share-based transactions will be measured by estimating the
fair value of the equity instruments at the grant date, taking into consideration the probability of satisfying performance conditions. The adoption of the
standard did not have a material impact on our financial statements.
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 $88,485 and $100,175 as of June 30, 2020 and 2019, respectively.
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
18
Year Ended
June 30,
2020
2019
1.12
1.14
0.04
0.05
1.14
1.14
0.05
0.05
Quarterly Information (Unaudited)
The following table sets forth unaudited and quarterly financial data for the four quarters of fiscal years 2020 and 2019:
June 30,
2020
Mar. 31,
Dec. 31,
Sept. 30,
2020
2019
2019
June 30,
2019
Mar. 31,
Dec. 31,
Sept. 30,
2019
2018
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
589,013
$ 1,066,630 $ 1,017,789 $
6,819,150 7,029,617 6,580,613 6,738,668 6,670,685 6,629,231 6,321,297 6,363,508
7,885,780 8,047,406 7,530,438 7,595,113 7,474,602 7,377,957 6,988,842 6,952,521
667,545 $
949,825 $
856,445 $
803,917 $
748,726 $
153,241
108,259
5,224,006 5,330,473 5,094,130 5,128,108 5,104,629 5,063,624 4,878,526 4,896,307
5,377,247 5,508,392 5,256,638 5,278,578 5,246,997 5,198,296 5,000,603 5,004,566
122,077
177,919
162,508
150,470
142,368
134,672
913,389
480,754
1,595,144 1,699,144 1,486,483 1,610,560 1,566,056 1,565,607 1,442,771 1,467,201
2,508,533 2,539,014 2,273,800 2,316,535 2,227,605 2,179,661 1,988,239 1,947,955
545,468
839,870
787,317
705,975
661,549
614,054
692,096
626,956
638,837
550,349
659,108
542,641
445,879
431,417
dev.
499,795
General and administrative 1,132,483 1,230,580 1,270,375 1,231,345 1,060,269 1,129,461 1,180,599 1,118,611
Depreciation and
537,830
553,272
536,238
548,719
499,191
549,198
537,685
3,746
143,054
5,510
142,237
6,840
523,632
7,558
142,672
8,351
126,903
9,617
131,072
9,733
453,288
11,115
115,909
amortization
Stock-based comp. expense
Foreign currency
transaction loss (gain)
4,980
Total operating expenses 2,513,423 2,550,169 2,982,947 2,443,238 2,411,022 2,352,778 2,652,796 2,181,827
12,123
10,025
(5,456)
2,302
8,648
4,214
7,193
Other income (expenses and
income taxes)
Loss from continuing
operations
Gain on sale of discontinued
operations
Net income (loss)
4,331
23,101
25,721
19,055
27,289
22,393
16,322
14,264
(559)
11,946
(683,426)
(107,648)
(156,128)
(150,724)
(648,235)
(219,608)
-
(559)
-
11,946
91,254
(592,172)
26,191
(81,457)
84,275
(71,853)
33,044
(117,680)
55,698
(592,537)
41,720
(177,888)
$
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
$
- $
- $
- $
- $
(0.03) $
- $
- $
- $
(0.03) $
- $
- $
- $
- $
- $
- $
- $
(0.03) $
(0.01)
- $
- $
-
- $
(0.03) $
(0.01)
25,815,163 24,960,394 24,185,966 24,095,266 23,987,137 23,845,798 23,787,836 23,644,787
- $
- $
- $
- $
(0.03) $
- $
- $
- $
(0.03) $
- $
- $
- $
- $
- $
- $
- $
(0.03) $
(0.01)
- $
- $
-
- $
(0.03) $
(0.01)
25,815,163 25,717,403 24,185,966 24,095,266 23,987,137 23,845,798 23,787,836 23,644,787
19
Comparison of the Years Ended June 30, 2020 and 2019
Results of Operations
Year Ended June 30,
2020
2019
$ Change
% 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
$
3,890,689 $
27,168,048
31,058,737
2,809,201 $
25,984,721
28,793,922
1,081,488
1,183,327
2,264,815
644,138
20,776,717
21,420,855
507,375
19,943,086
20,450,461
136,763
833,631
970,394
3,246,551
6,391,331
9,637,882
2,301,826
6,041,635
8,343,461
944,725
349,696
1,294,421
2,508,238
2,121,978
4,864,783
23,654
951,595
19,529
10,489,777
(851,895)
2,079,045
2,139,950
4,488,941
38,816
827,172
24,500
9,598,424
(1,254,963)
429,193
(17,972)
375,842
(15,162)
124,423
(4,971)
891,353
403,068
80,044
107,308
(27,264)
Loss from operations before provision for income taxes
Provision for income taxes
(771,851)
(7,836)
(1,147,655)
(27,040)
375,804
19,204
Loss from continuing operations
(779,687)
(1,174,695)
395,008
Gain from sale of discontinued operations
117,445
214,737
(97,292)
Net loss
$
(662,242) $
(959,958) $
297,716
20
38.5%
4.6%
7.9%
27.0%
4.2%
4.7%
41.0%
5.8%
15.5%
20.6%
(0.8)%
8.4%
(39.1)%
15.0%
(20.3)%
9.3%
32.1%
(25.4)%
32.7%
71.0%
33.6%
(45.3)%
31.0%
Revenue
Revenue:
Platforms
Transactions
Total revenue
2020
Years Ended June 30,
2020
$ Change
% Change
$
$
3,890,689 $
27,168,048
31,058,737 $
2,809,201 $
25,984,721
28,793,922 $
1,081,488
1,183,327
2,264,815
38.5%
4.6%
7.9%
Total revenue increased $2,264,815, or 7.9%, for the year ended June 30, 2020 compared to the prior year, due to the following:
Category
Platforms
Impact
$
1,081,488
h
Transactions
h
$
1,183,327
Cost of Revenue
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.
Increased primarily due to orders from new customers.
Cost of Revenue:
Platforms
Transactions
Total cost of revenue
2020
Years Ended June 30,
2019
$ Change
% Change
$
$
644,138 $
507,375 $
20,776,717
21,420,855 $
19,943,086
20,450,461 $
136,763
833,631
970,394
27.0%
4.2%
4.7%
As a percentage of revenue:
Platforms
Transactions
Total
Years Ended June 30,
2020
2019
% Change *
16.6%
76.5%
69.0%
18.1%
76.7%
71.0%
(1.5)%
(0.2)%
(2.0)%
* 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 2.0%, from 71.0% for the previous year to 69.0%, for the year ended June 30, 2020.
Category
Platforms
Transactions
Impact as percentage
of revenue
Key Drivers
i
i
1.5%
0.2%
Decreased primarily due to proportionally lower third-party data costs.
Decreased primarily due to proportionally lower copyright and personnel costs.
21
Gross Profit
Gross Profit:
Platforms
Transactions
Total gross profit
As a percentage of revenue:
Platforms
Transactions
Total
2020
Years Ended June 30,
2019
$ Change
% Change
$
$
3,246,551 $
6,391,331
9,637,882 $
2,301,826 $
6,041,635
8,343,461 $
944,725
349,696
1,294,421
41.0%
5.8%
15.5%
Years Ended June 30,
2020
% Change*
2020
83.4%
23.5%
31.0%
81.9%
23.3%
29.0%
1.5%
0.2%
2.0%
* 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
Total operating expenses
2020
Years Ended June 30,
2019
$ Change
% Change
$
2,508,238 $
2,121,978
4,864,783
23,654
951,595
19,529
$ 10,489,777 $
2,079,045 $
2,139,950
4,488,941
38,816
827,172
24,500
9,598,424 $
429,193
(17,972)
375,842
(15,162)
124,423
(4,971)
891,353
20.6%
(0.8)%
8.4%
(39.1)%
15.0%
(20.3)%
9.3%
Category
Sales and marketing
General and administrative
Impact
$
$
h
h
429,193
375,842
Key Drivers
Increased primarily due to greater personnel costs and advertising media spend.
Increased primarily due to greater personnel costs, professional service fees and
NASDAQ entry fee.
Provision for Income Taxes
During the years ended June 30, 2020 and 2019, we recorded a provision for income taxes of $7,836 and $27,040, respectively, a decrease of
$19,204.
Net Income (Loss)
Net Income (Loss):
Loss from continuing operations
Income from discontinued operations
Total net loss
2020
Year Ended June 30,
2019
$ Change
% Change
$
$
(779,687) $ (1,174,695) $
214,737
117,445
(959,958) $
(662,242) $
395,008
(97,292)
297,716
33.6%
(45.3)%
31.0%
Loss from continuing operations decreased $395,008 or 33.6%, for the year ended June 30, 2020 compared to the prior year, primarily due to
increased gross profit, partially offset by increased operating expenses as described above.
22
Liquidity and Capital Resources
Consolidated Statements of Cash Flow Data:
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Liquidity
Year Ended June 30,
2019
2020
2,418,465 $
-
1,553,399
576,446
(15,828)
(100,023)
(13,398)
3,958,466
5,353,090
9,311,556 $
(15,685)
444,910
4,908,180
5,353,090
$
$
As of June 30, 2020, we had cash and cash equivalents of $9,311,556, compared to $5,353,090 as of June 30, 2019, an increase of $3,958,466.
This increase was primarily due to cash provided by operating and investing activities.
Operating Activities
Net cash provided by operating activities was $2,418,465 for the year ended June 30, 2020 and resulted primarily from an increase in accounts
payable and accrued expenses of $1,486,950 and an increase in deferred revenue of $1,214,301, partially offset by an increase in prepaid royalties of
$720,367.
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.
Investing Activities
No cash was used in or provided by investing activities for the year ended June 30, 2020.
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.
Financing Activities
Net cash provided by financing activities was $1,553,399 for the year ended June 30, 2020 and resulted from the proceeds from the exercise of
warrants of $1,875,000, partially offset by the repurchase of common stock of $321,601.
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.
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 February 14, 2022, and is subject to certain
financial and performance covenants with which we were in compliance as of June 30, 2020. 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 an annual rate equal to the greater
of 1% above the prime rate and 5.5%. The interest rate on the line of credit was 5.5% as of June 30, 2020. The line of credit was secured by our
consolidated assets.
There were no outstanding borrowings under the line as of June 30, 2020 and June 30, 2019, respectively. As of June 30, 2020, there was
approximately $2,089,000 of available credit.
23
Non-GAAP Measure – Adjusted EBITDA
In addition to our GAAP results, we present Adjusted EBITDA as a supplemental measure of our performance. However, Adjusted EBITDA is
not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other
performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of liquidity. We define
Adjusted EBITDA as net income (loss), plus interest expense, other income (expense), foreign currency transaction loss, provision for income taxes,
depreciation and amortization, stock-based compensation, income from discontinued operations and gain on sale of discontinued operations. Management
considers our core operating performance to be that which our managers can affect in any particular period through their management of the resources that
affect our underlying revenue and profit generating operations that period. Non-GAAP adjustments to our results prepared in accordance with GAAP are
itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating
Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this
presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-
recurring items.
Set forth below is a reconciliation of Adjusted EBITDA to net income (loss) for the year ended June 30, 2020 and 2019:
Net loss
Add (deduct):
Other (income) expense
Foreign currency transaction loss
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) $
2020
(662,242) $
$ Change
297,716
(80,044)
19,529
7,836
23,654
951,595
(117,445)
142,883 $
(107,308)
24,500
27,040
38,816
827,172
(214,737)
(364,475) $
27,264
(4,971)
(19,204)
(15,162)
124,423
97,292
507,358
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.
24
Item 8. Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Research Solutions, Inc. and Subsidiaries
Henderson, Nevada
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, 2020 and
2019, 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, 2020 and 2019, 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 24, 2020
25
Research Solutions, Inc. and Subsidiaries
Consolidated Balance Sheets
Current assets:
Assets
Cash and cash equivalents
Accounts receivable, net of allowance of $88,485 and $100,175, respectively
Prepaid expenses and other current assets
Prepaid royalties
Total current assets
Other assets:
Property and equipment, net of accumulated depreciation of $804,999 and $789,788, respectively
Deposits and other assets
Right of use asset, net of accumulated amortization of $390,691 and $270,777, 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; 26,032,263 and 24,375,948 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
26
June 30,
2020
June 30,
2019
9,311,556 $
4,449,260
241,747
720,367
14,722,930
11,276
6,155
72,331
14,812,692 $
6,349,845 $
3,524,507
79,326
9,953,678
-
9,953,678
5,353,090
4,493,169
323,591
-
10,169,850
36,828
14,406
192,245
10,413,329
4,862,895
2,310,206
129,187
7,302,288
79,326
7,381,614
-
-
26,032
26,134,819
(21,176,799)
(125,038)
4,859,014
14,812,692 $
24,376
23,631,481
(20,514,557)
(109,585)
3,031,715
10,413,329
$
$
$
$
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
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
27
Years Ended
June 30,
2020
2019
$
3,890,689 $
27,168,048
31,058,737
2,809,201
25,984,721
28,793,922
644,138
20,776,717
21,420,855
9,637,882
10,466,123
23,654
10,489,777
(851,895)
507,375
19,943,086
20,450,461
8,343,461
9,559,608
38,816
9,598,424
(1,254,963)
80,044
107,308
(771,851)
(7,836)
(1,147,655)
(27,040)
(779,687)
(1,174,695)
117,445
214,737
(662,242)
(959,958)
(15,453)
(677,695) $
(14,878)
(974,836)
(0.03) $
- $
(0.03) $
24,760,790
(0.05)
0.01
(0.04)
23,815,761
$
$
$
$
Research Solutions, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
For the Years Ended June 30, 2020 and 2019
Additional
Other
Total
Balance, July 1, 2018
Common Stock
Shares Amount
24,017
24,016,999
Paid-in
Capital
22,904,691
Accumulated Comprehensive Stockholders'
Deficit
(19,554,599)
Loss
(94,707)
Equity
3,279,402
Fair value of vested stock options
-
-
523,978
Fair value of vested restricted common
stock
Repurchase and retirement of common
stock
Common stock issued upon exercise of
stock options
Common stock issued upon exercise of
warrants
Net loss
Foreign currency translation
170,245
170
303,024
(88,250)
(88)
(199,935)
237,954
238
99,762
39,000
39
(39)
-
-
-
-
-
-
-
-
-
-
-
(959,958)
-
-
-
-
-
-
523,978
303,194
(200,023)
100,000
-
(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
Fair value of vested stock options
-
-
610,634
Fair value of vested restricted common
stock
110,817
111
340,850
Repurchase of common stock
(116,200)
(115)
(321,486)
Common stock issued upon exercise of
stock options
Common stock issued upon exercise of
warrants
Net loss
Foreign currency translation
161,698
160
(160)
1,500,000
1,500
1,873,500
-
-
-
-
-
-
-
-
-
-
-
(662,242)
-
-
-
-
-
-
610,634
340,961
(321,601)
-
1,875,000
(662,242)
-
(15,453)
(15,453)
Balance, June 30, 2020
26,032,263 $
26,032 $ 26,134,819 $ (21,176,799) $
(125,038) $
4,859,014
See notes to consolidated financial statements
28
Research Solutions, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Cash flow from operating activities:
Net loss
Gain from sale of discontinued operations
Loss from continuing operations
Adjustment to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization
Amortization of lease right
Fair value of vested stock options
Fair value of vested restricted common stock
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 operating activities
Cash flow from investing activities:
Purchase of property and equipment
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 provided by (used in) financing activities
Effect of exchange rate changes
Net increase 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
See notes to consolidated financial statements
29
Years Ended
June 30,
2020
2019
$
(662,242) $
(117,445)
(779,687)
(959,958)
(214,737)
(1,174,695)
23,654
119,914
610,634
340,961
43,909
199,289
(720,367)
8,094
1,486,950
1,214,301
(129,187)
2,418,465
-
-
(321,601)
1,875,000
1,553,399
(13,398)
3,958,466
5,353,090
9,311,556 $
38,816
115,079
523,978
303,194
(241,918)
218,033
93,336
-
175,949
644,460
(119,786)
576,446
(15,828)
(15,828)
(200,023)
100,000
(100,023)
(15,685)
444,910
4,908,180
5,353,090
7,836 $
27,040
$
$
RESEARCH SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended June 30, 2020 and 2019
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, 2020: 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.
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.
30
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, 2020 or 2019 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 $88,485 and $100,175 as of June 30, 2020 and
2019, 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 $134,175 and $63,933 at June 30, 2020 and 2019, 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, 2020 and 2019.
The Company has no customers that accounted for greater than 10% of accounts receivable as of June 30, 2020 and 2019.
31
The following table summarizes our content costs from our vendors:
Vendor A
Vendor B
Vendor C
Property and equipment
Year Ended June 30,
2019
2020
21%
13%
10%
17%
12%
10%
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, 2020 and 2019, 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.
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.
32
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.
Revenue by Geographical Region
The following table summarizes revenue by geographical region:
United States
Europe
Rest of World
Total
Year Ended
June 30,
2020
2019
$
$
17,528,224
10,686,667
2,843,846
31,058,737
56.4% $
34.4%
9.2%
100% $
16,169,217
10,485,997
2,138,708
28,793,922
56.2%
36.4%
7.4%
100%
Accounts Receivable by Geographical Region
The following table summarizes accounts receivable by geographical region:
United States
Europe
Rest of World
Total
Deferred Revenue
Year Ended
June 30,
2020
2019
$
$
2,670,674
1,553,706
224,880
4,449,260
60.0% $
34.9%
5.1%
100% $
2,616,197
1,418,571
458,401
4,493,169
58.2%
31.6%
10.2%
100%
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. In prior periods through June 30, 2019, the Company accounted 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.
On July 1, 2019, the Company adopted Accounting Standards Update (ASU) 2018-07 which expands the scope of Topic 718 to include share-
based payment transactions for acquiring goods and services from nonemployees. As a result, nonemployee share-based transactions will be measured by
estimating the fair value of the equity instruments at the grant date, taking into consideration the probability of satisfying performance conditions. The
adoption of the standard did not have a material impact on our financial statements.
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 loss of
$19,529 and $24,500, for the years ended June 30, 2020 and 2019, respectively. Cash denominated in Euros with a US Dollar equivalent of $134,175 and
$63,933 at June 30, 2020 and 2019, respectively, was held in accounts at financial institutions located in Europe.
33
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
Net Income (Loss) Per Share
Year Ended
June 30,
2020
2019
1.12
1.14
0.04
0.05
1.14
1.14
0.05
0.05
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, 2020 potentially dilutive securities include options to acquire 3,327,580 shares of common stock, warrants to acquire 385,000 shares of
common stock and unvested restricted common stock of 191,855. 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. 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, 2020 and 2019 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 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.
In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a
forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including
trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company beginning January 1, 2023,
and early adoption is permitted. The Company does not believe the potential impact of the new guidance and related codification improvements will be
material to its 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, 2020 and 2019:
Computer equipment
Software
Furniture and fixtures
Total
Less accumulated depreciation
Net, Property and equipment
June 30,
2020
June 30,
2019
$
$
495,585 $
282,080
38,610
816,275
(804,999)
11,276 $
504,652
282,080
39,884
826,616
(789,788)
36,828
Depreciation expense for the years ended June 30, 2020 and 2019 was $23,654 and $38,816, respectively.
34
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 February 14, 2022, and is subject
to certain financial and performance covenants with which we were in compliance as of June 30, 2020. 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 an annual rate equal
to the greater of 1% above the prime rate and 5.5%. The interest rate on the line of credit was 5.5% as of June 30, 2020. The line of credit is secured by the
Company’s consolidated assets.
There were no outstanding borrowings under the line as of June 30, 2020 and June 30, 2019, respectively. As of June 30, 2020, there was
approximately $2,089,000 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 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, 2020, the Company made payments of $129,187 towards the lease liability. As of
June 30, 2020 and 2019, lease liability amounted to $79,326 and $208,513, 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, 2020 and 2019 was $111,746 and $144,963, respectively. The right of use asset at June 30, 2019 was $192,245.
During the years ended June 30, 2020 and 2019, the Company reflected amortization of right of use asset of $119,914 and $115,079 related to this lease,
respectively, resulting in a net asset balance of $72,331 as of June 30, 2020.
Future minimum lease payments under the leases are as follows:
Years Ending June 30,
2021
Total payments
Less: Amount representing interest
Present value of net minimum lease payments
Less: Current portion
Non-current portion
Note 6. Stockholders’ Equity
Stock Options
Amount
$
80,356
80,356
1,030
79,326
79,326
-
$
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. On November 12, 2019, the Company’s stockholders approved an increase in the maximum number of shares of common stock that may be
issued pursuant to awards granted under the 2017 Omnibus Incentive Plan from 1,874,513 to 2,374,513. 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,
2020, there were 622,429 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.
35
The following table summarizes vested and unvested stock option activity:
All Options
Vested Options
Unvested Options
Weighted
Average
Exercise
Price
1.16
2.22
-
1.19
1.05
1.38
3.04
-
1.16
1.95
1.56
Weighted
Average
Exercise
Price
1.15
2.40
1.49
1.19
1.05
1.27
3.13
2.05
1.16
1.95
1.50
Weighted
Average
Exercise
Price
1.27
2.12
1.49
-
1.05
2.09
2.72
2.05
-
1.95
2.34
Shares
106,459
467,000
(105,042)
-
(8,333)
460,084
74,000
(278,249)
-
(10,000)
245,835 $
Shares
2,885,376
250,000
105,042
(396,500)
(16,667)
2,827,251
250,000
278,249
(263,755)
(10,000)
3,081,745 $
Shares
2,991,835
717,000
-
(396,500)
(25,000)
3,287,335
324,000
-
(263,755)
(20,000)
3,327,580 $
Outstanding at July 1, 2018
Granted
Options vesting
Exercised
Forfeited/Cancelled
Outstanding at June 30, 2019
Granted
Options vesting
Exercised
Forfeited/Cancelled
Outstanding at June 30, 2020
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, 2020 and 2019.
Expected dividend yield
Risk-free interest rate
Expected life (in years)
Expected volatility
Years Ended June 30,
2020
0%
0.43% - 1.69%
5 - 6
62% - 64%
2019
0%
2.24% - 3.00%
5 - 6
68% - 69%
The weighted average remaining contractual life of all options outstanding as of June 30, 2020 was 5.75 years. The remaining contractual life for
options vested and exercisable at June 30, 2020 was 5.53 years. Furthermore, the aggregate intrinsic value of options outstanding as of June 30, 2020 was
$2,928,695, and the aggregate intrinsic value of options vested and exercisable at June 30, 2020 was $2,883,851, in each case based on the fair value of the
Company’s common stock on June 30, 2020.
During the year ended June 30, 2020, the Company granted 324,000 options to employees and directors with a fair value of $488,080 which
amount will be amortized over the vesting period. The total fair value of options that vested during the year ended June 30, 2020 was $610,634 and was
included in selling, general and administrative expenses in the accompanying statement of operations. As of June 30, 2020, the amount of unvested
compensation related to the unvested options was $290,515 which will be recorded as an expense in future periods as the options vest. During the year
ended June 30, 2020, the Company issued 161,698 net shares of common stock upon the exercise of 263,755 options on a cashless basis.
During the year ended June 30, 2019, the Company granted 717,000 options to employees and directors with a fair value of $881,860 which
amount will be amortized over the vesting period. 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. 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 options for cash and common stock, resulting in proceeds to the Company of $100,000.
36
Additional information regarding stock options outstanding and exercisable as of June 30, 2020 is as follows:
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
2.40
2.49
2.50
2.99
3.13
3.50
Total
Warrants
The following table summarizes warrant activity:
Outstanding, June 30, 2018
Granted
Exercised
Expired/Cancelled
Outstanding, June 30, 2019
Granted
Exercised
Expired/Cancelled
Outstanding, June 30, 2020
Exercisable, June 30, 2019
Exercisable, June 30, 2020
Options
Outstanding
Remaining
Contractual
Life (in years)
Options
Exercisable
8,150
5,000
6,150
225,000
49,500
16,000
25,667
6,000
28,249
87,000
400,529
33,898
124,165
105,000
3,674
209,400
352,414
32,000
243,000
195,000
35,000
1,067
94,050
24,000
275,000
398,667
50,000
20,000
8,000
258,000
8,000
3,327,580
2.00
2.00
2.00
5.43
3.08
5.14
3.81
2.00
3.43
0.12
6.09
2.29
5.34
5.00
2.00
4.11
7.08
2.62
1.68
2.38
7.87
2.00
3.13
2.59
8.01
8.38
9.25
8.88
9.87
9.38
9.62
8,150
5,000
6,150
225,000
49,500
16,000
25,667
6,000
28,249
87,000
400,529
33,898
124,165
105,000
3,674
209,400
350,580
32,000
243,000
195,000
26,250
1,067
94,050
24,000
189,583
334,500
-
8,333
-
250,000
-
3,081,745
Number of
Warrants
Weighted
Average
Exercise
Price
1,985,000 $
-
(100,000)
-
1,885,000
-
(1,500,000)
-
385,000 $
1,885,000 $
385,000 $
1.25
-
1.22
-
1.25
-
1.25
-
1.24
1.25
1.24
During the year ended June 30, 2020, certain holders of warrants to purchase shares of the Company’s common stock at a per share exercise price
of $1.25 exercised those warrants to purchase 1,500,000 shares, generating gross proceeds to the Company of $1,875,000. The intrinsic value for all
warrants outstanding as of June 30, 2020 was $434,200, based on the fair value of the Company’s common stock on June 30, 2020.
Additional information regarding warrants outstanding and exercisable as of June 30, 2020 is as follows:
Warrant
Exercise Price
Warrants
Outstanding
$
Total
1.19
1.25
50,000
335,000
385,000
Remaining
Contractual
Life (in years)
1.48
0.89
Warrants
Exercisable
50,000
335,000
385,000
37
Restricted Common Stock
Prior to July 1, 2018, the Company issued 1,996,304 shares of restricted common stock to employees valued at $1,563,074, of which $1,482,663
had been recognized as an expense. As of June 30, 2018, 416,619 of these shares with a grant date fair value of $360,160 had not yet vested.
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.
During the year ended June 30, 2020, the Company issued an additional 110,817 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 $322,875 based on the market price of our common stock ranging from $2.75 to $3.50 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, 2020 and 2019 was $340,961 and $303,194, respectively,
and is included in selling, general and administrative expenses in the accompanying statements of operations. As of June 30, 2020, the amount of unvested
compensation related to issuances of restricted common stock was $394,297, 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, 2018
Granted
Vested
Forfeited
Non-vested, June 30, 2019
Granted
Vested
Forfeited
Non-vested, June 30, 2020
Common Stock Repurchase and Retirement
Number of
Shares
Fair Value
416,619 $
170,245
(275,329)
-
311,535
110,817
(230,497)
-
191,855 $
360,160 $
355,417
(303,194)
-
412,383
322,875
(340,961)
-
394,297 $
Weighted
Average
Grant Date
Fair Value
1.08
2.09
1.05
-
1.66
2.91
1.56
-
2.51
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.
Effective as of February 11, 2020, the Compensation Committee of our Board of Directors authorized the repurchase, during calendar year 2020
on the last day of each trading window and otherwise in accordance with our insider trading policies, of up to $400,000 of outstanding common stock (at
prices no greater than $4.00 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, 2020 and 2019, we repurchased approximately 116,200 and 88,250 shares of our common stock under the
repurchase plan at an average price of approximately $2.77 and $2.27 per share, respectively, for an aggregate amount of $321,601 and $200,023,
respectively. As of June 30, 2020, $277,774 remains under the current authorization to repurchase our outstanding common stock from our employees.
Shares repurchased are retired and deducted from common stock for par value and from additional paid in capital for the excess over par
value. Direct costs incurred to acquire the shares are included in the total cost of the shares.
38
The following table summarizes repurchases of our common stock on a monthly basis:
Period
September 2018
December 2018
March 2019
June 2019
Year ended June 30, 2019
September 2019
December 2019
March 2020
June 2020
Year ended June 30, 2020
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
34,200 $
15,800 $
20,500 $
17,750 $
88,250 $
28,750 $
42,500 $
25,150 $
19,800 $
116,200 $
2.20
2.41
2.24
2.30
2.27
2.50
3.00
2.75
2.68
2.77
-
-
-
-
-
-
-
- $
- $
- $
-
-
-
-
-
-
-
330,838
277,774
277,774
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
COVID-19
The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic. The extent of the impact of the COVID-19 pandemic on
the Company’s business is highly uncertain and difficult to predict, as the responses that the Company, other businesses and governments are taking
continue to evolve. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is
possible that it could cause a local and/or global economic recession. Policymakers around the globe have responded with fiscal policy actions to support
the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
To date, we have not experienced any significant changes in our business that would have a significant negative impact on our consolidated
statements of operations or cash flows.
The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited
to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, service providers and suppliers, all of
which are uncertain and cannot be predicted. As of the date of issuance of Company’s financial statements, the extent to which the COVID-19 pandemic
may in the future materially impact the Company’s financial condition, liquidity or results of operations is uncertain.
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, 2020 and 2019:
Current
Federal
State
Foreign (Mexico)
Deferred
Federal
Foreign
State
Provision for income tax expense
39
Years Ended June 30,
2019
2020
$
$
- $
2,201
5,635
-
-
-
7,836 $
-
2,088
24,952
-
-
-
27,040
During the year ended June 30, 2020, the Company recorded a provision for income tax expense of $7,836 which consisted of $2,201 in state
income tax payments and $5,635 in foreign (Mexico) income tax payments. 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.
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,
2020
2019
21.0%
5.0%
3.2%
(30.4)%
(1.2)%
21.0%
5.0%
4.8%
(33.6)%
(2.8)%
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,
2020 and 2019 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,
2020
June 30,
2019
$
$
2,508,894 $
354,752
156,196
1,551,272
186,901
4,758,015
2,587,483
387,834
156,196
1,351,437
176,403
4,659,353
49,167
4,807,182
(4,807,182)
- $
46,299
4,705,652
(4,705,652)
-
The Company has provided a valuation allowance on the deferred tax assets at June 30, 2020 and 2019 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, 2020 was an increase of $101,530.
At June 30, 2020 and 2019, the Company had federal net operating loss (“NOL”) carryforwards of approximately $13,800,000 and $12,735,000,
respectively, and state NOL carryforwards of approximately $6,780,000 and $6,445,000, respectively. Federal NOLs could, if unused, completely expire in
2035. State NOLs, if unused, completely expire in 2040.
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, 2020 and 2019, 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, 2020 and 2019, the
Company has no accrued interest or penalties related to uncertain tax positions.
Company is subject to taxation in the United States and various states and Mexico. The Company is subject to United States federal or state
income tax examinations by tax authorities for fiscal years after 2016.
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 $117,445 and $214,737 for the
years ended June 30, 2020 and 2019, respectively. As of June 30, 2020, no further consideration will be due.
40
Note 10. Subsequent Events
Stock Options
In July 2020, the Company issued 54,777 shares of common stock upon the exercise of stock options underlying 90,000 shares of stock. On
September 17, 2020, the Company granted stock options underlying 173,000 shares of common stock to employees with a fair value of approximately
$235,000. The options vest over a three-year period, and have a term of ten years.
Restricted Common Stock
On August 3, 2020, the Company issued 120,000 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 $294,000 based on
the market price of our common stock of $2.45 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, 2020, the end of the
period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial
reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the
company's principal executive and principal financial officers and effected by the company's board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
(i)
(ii)
(iii)
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets
of the company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely
basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is
possible to design into the process safeguards to reduce, though not eliminate, this risk.
41
Management evaluated the effectiveness of our internal control over financial reporting as of June 30, 2020, 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, 2020.
Inherent Limitations on the Effectiveness of Controls
Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all
errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives
of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls
must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over
financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if
any, have been or will be detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple
error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override
of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls
effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the
degree of compliance with policies or procedures.
Changes in Internal Controls Over Financial Reporting
Management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, whether any changes in our internal
control over financial reporting that occurred during our last fiscal year have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting. Based on the evaluation we conducted, management has concluded that no such changes have occurred.
Item 9B. Other Information
None.
42
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The following table sets forth the name, age, position, and date of appointment of each of our directors and executive officers as of September 18,
2020:
Name
Peter Victor Derycz
Alan Louis Urban
Scott Ahlberg
Marc Nissan
Rogier van Erkel
Michiel van der Heijden
John Regazzi (1)(3)
Gen. Merrill McPeak (1)(2)
Chad J. Cooper (1)(4)
Roy W. Olivier (1)
Age
58
51
57
44
45
49
72
84
50
61
Position
Date of Appointment
Chief Executive Officer, President and Director
Chief Financial Officer and Secretary
Chief Operating Officer
Chief Technology Officer
Chief Sales Officer
Chief Product Officer
Chairman of the Board
Director
Director
Director
January 6, 2006
November 3, 2011
July 1, 2007
July 1, 2007
July 2, 2018
July 1, 2020
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.
43
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.
Michiel van der Heijden – Chief Product Officer
Mr. van der Heijden has over 15 years of experience in the STM publishing industry and has held various roles in product technology, product
development and business development. His most recent role at industry-leading publisher Springer Nature was VP Business Development, managing a
team of product owners, responsible for all institutional academic, government & corporate eBooks and journals business models, including one of the
most prestigious scientific journals: Nature. Prior, Mr. van der Heijden worked at another STM publishing giant, Elsevier in various product management
roles. He served as the Interim Head of the Central Public Services Department at the University Utrecht Library for 2 years, where he was responsible for
the development of the digital University Library. In his final year in University he was a founding partner of a Dutch web company focused on the design
and implementation of internet applications for customers in the Education and Cultural field. Mr. van der Heijden received his Masters in Industrial
Design Engineering in 1996 from the Technical University of Delft, The Netherlands, specializing in Business & Product Development.
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.
44
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 most recently served as president and CEO of ARI Network Services (formerly NASDAQ: ARIS), a provider of an award-winning
suite of SaaS tools and marketing services to OEMs and Dealers worldwide. 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 started and successfully sold tow software startup companies and held various executive and managerial positions with
other companies in the telecommunications and computer industries. 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
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.
Delinquent Section 16(a) Reports
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 to report transactions occurring during the fiscal year ended June 30, 2020 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. Cooper, Nissan and van Erkel failed to timely file a Form 4 reporting one transaction; each of Messrs. Ahlberg and Derycz failed to timely file two
Form 4s each reporting one transaction; Mr. Urban failed to timely file three Form 4s each reporting one transaction; and Mr. Cooper failed to timely file
one Form 4 reporting six transactions.
Audit Committee Financial Expert
Our board of directors has a separately designated standing Audit Committee, comprised of Messrs. Regazzi (Chairman), Cooper, 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 NASDAQ. 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.investorroom.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 $100,000 during such fiscal year ends.
45
Compensation of Executive Officers for Fiscal Years Ended June 30, 2020 and 2019
Name and principle
Position
Peter Victor Derycz
Chief Executive Officer and
President
Alan Louis Urban
Chief Financial Officer and
Secretary
Fiscal
Year
2020
Salary
($)
360,700
Bonus
($)
131,557
Stock
awards
($)
All other
compensation
($)
100,090(1)
17,066
Total
($)
609,414
2019
350,200
84,988
106,462(2)
14,155
555,805
2020
265,225
97,607
74,261(3)
17,724
454,818
2019
257,500
63,056
78,985(4)
15,892
415,433
Scott Ahlberg
Chief Operating Officer
2020
2019
233,400
226,600
97,607
63,056
74,261(3)
78,985(4)
17,889
16,021
423,158
384,662
(1) Represents the grant date fair value of 21,700 shares of restricted stock granted on August 1, 2019, 4,333 shares of restricted stock granted on
November 12, 2019, 3,875 shares of restricted stock granted on February 11, 2020, and 4,445 shares of restricted stock granted on May 12,
2020. 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 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.
(3) Represents the grant date fair value of 16,100 shares of restricted stock granted on August 1, 2019, 3,215 shares of restricted stock granted on
November 12, 2019, 2,875 shares of restricted stock granted on February 11, 2020, and 3,298 shares of restricted stock granted on May 12,
2020. 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 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.
46
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, 2020. 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, 2021. The agreement provides for a base salary of $371,520 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, 2020.
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, 2021. The agreement provides for a base salary of $273,180 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, 2020.
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, 2021. The agreement provides for a base salary of $240,400 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, 2020. 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, 2021. The agreement provides for a base salary of $245,860 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.
47
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 serving any interest or taking any action which might conflict with our
interests. 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.
Michiel van der Heijden
On July 1, 2020, we entered into a consulting agreement with Mr. van der Heijden. Under the terms of the consulting agreement, Mr. van der
Heijden has agreed to serve as our Chief Product Officer. The agreement provides for a base salary of approximately $220,000 per year and additional
bonus if certain performance targets are attained.
The agreement contains provisions that prohibit Mr. van der Heijden from serving any interest or taking any action which might conflict with our
interests. The agreement also contains provisions that restrict disclosure by Mr. van der Heijden of our confidential information and assign ownership to us
of inventions related to our business that are created by him during his service with us. After the first year we may terminate the agreement at any time,
with or without cause. Mr. van der Heijden will be eligible to receive an amount equal to four (4) months of his then-current base salary payable in the form
of salary continuation if he is terminated without cause. After the first year Mr. van der Heijden may terminate the agreement at any time, with or without
reason, upon 60 days’ notice.
48
Outstanding Equity at Fiscal Year Ended June 30, 2020
The following table sets forth information regarding stock options, warrants and other stock awards (restricted stock) for each named executive
officer as of June 30, 2020.
Outstanding Equity Awards at Fiscal Year Ended June 30, 2020
Name
Peter Victor Derycz
Alan Louis Urban
Scott Ahlberg
Number of
securities
underlying
unexercised
options/warrants
exercisable (#)
32,000
16,000
6,000
-
-
-
-
-
-
-
-
-
-
-
125,000
24,000
1,800
-
-
-
-
-
-
-
-
-
-
-
20,000
25,600
1,500
75,000
-
-
-
-
-
-
-
-
-
-
-
Number of
securities
underlying
unexercised
options/warrants
unexercisable (#)
Option/
Warrant
exercise
price ($)
Option/
Warrant
expiration
date (1)
Stock Awards:
Number of
shares of stock
that have not
vested (#)
Stock Awards:
Market value
of
shares of stock
that have not
vested ($)
1.25
1.85
1.25
-
-
-
-
-
-
-
-
-
-
-
1.30
1.15
1.25
-
-
-
-
-
-
-
-
-
-
-
1.02
1.15
1.25
1.50
-
-
-
-
-
-
-
-
-
-
-
2/13/2023
5/20/2023
6/23/2021
-
-
-
-
-
-
-
-
-
-
-
3/5/2022
2/6/2023
6/23/2021
-
-
-
-
-
-
-
-
-
-
-
7/27/2020
2/6/2023
6/23/2021
12/21/2022
-
-
-
-
-
-
-
-
-
-
-
- $
- $
- $
-
-
-
-
-
-
-
-
-
-
-
- $
- $
- $
-
-
-
-
-
-
-
-
-
-
-
- $
- $
- $
- $
-
-
-
-
-
-
-
-
-
-
-
49
-
-
-
915 (2) $
2,031 (4) $
2,829 (6) $
13,447 (8) $
1,949(10) $
1,883(12) $
1,426(14) $
21,700(16) $
4,333(18) $
3,875(20) $
4,445(22) $
-
-
-
678 (2) $
1,505 (4) $
2,099 (6) $
9,976 (8) $
1,446(10) $
1,397(12) $
1,058(14) $
16,100(16) $
3,215(18) $
2,875(20) $
3,298(22) $
-
-
-
-
678 (2) $
1,505 (4) $
2,099 (6) $
9,976 (8) $
1,446(10) $
1,397(12) $
1,058(14) $
16,100(16) $
3,215(18) $
2,875(20) $
3,298(22) $
-
-
-
1,098 (3)
2,335 (5)
4,498 (7)
26,759 (9)
4,677(11)
4,425(13)
3,564(15)
59,675(17)
13,562(19)
13,563(21)
13,291(23)
-
-
-
814 (3)
1,731 (5)
3,337 (7)
19,853 (9)
3,470(11)
3,283(13)
2,644(15)
44,275(17)
10,063(19)
10,063(21)
9,861(23)
-
-
-
-
814 (3)
1,731 (5)
3,337 (7)
19,853 (9)
3,470(11)
3,283(13)
2,644(15)
44,275(17)
10,063(19)
10,063(21)
9,861(23)
(1) Stock options expire ten years from the grant date.
(2) The restricted stock was granted on November 21, 2017 and vest over a three year period, with a one year cliff vesting period.
(3) Based on a market closing price per share of common stock of $1.20 on November 21, 2017.
(4) The restricted stock was granted on February 8, 2018 and vest over a three year period, with a one year cliff vesting period.
(5) Based on a market closing price per share of common stock of $1.15 on February 8, 2018.
(6) The restricted stock was granted on May 10, 2018 and vest over a three year period, with a one year cliff vesting period.
(7) Based on a market closing price per share of common stock of $1.59 on May 10, 2018.
(8) The restricted stock was granted on August 9, 2018 and vest over a three year period, with a one year cliff vesting period.
(9) Based on a market closing price per share of common stock of $1.99 on August 9, 2018.
(10) The restricted stock was granted on November 13, 2018 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 $2.40 on November 13, 2018.
(12) The restricted stock was granted on February 7, 2019 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 $2.35 on February 7, 2019.
(14) The restricted stock was granted on May 17, 2019 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 $2.50 on May 17, 2019.
(16) The restricted stock was granted on August 1, 2019 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 $2.75 on August 1, 2019.
(18) The restricted stock was granted on November 12, 2019 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 $3.13 on November 12, 2019.
(20) The restricted stock was granted on February 11, 2020 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 $3.50 on February 11, 2020.
(22) The restricted stock was granted on May 12, 2020 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 $2.99 on May 12, 2020.
Compensation of Directors
The following table sets forth compensation awarded or paid to our directors for the last fiscal year for the services rendered by them to the
Company in all capacities.
Director Compensation for the Fiscal Years Ended June 30, 2020 and 2019
Name
(a)
John Regazzi (1)
Gen. Merrill McPeak (2)
Chad J. Cooper (3)
Roy W. Olivier (4)
Fees
earned
or paid
in cash
($)
(b)
36,000
36,000
18,000
18,000
18,000
18,000
18,000
8,500
Warrant
and
Option
Awards
($)
(d)
153,000
128,000
76,500
64,000
76,500
64,000
76,500
64,000
Total ($)
(h)
189,000
164,000
94,500
82,000
94,500
82,000
94,500
82,000
Fiscal
Year
2020
2019
2020
2019
2020
2019
2020
2019
(1) Outstanding equity awards as of June 30, 2020 consists of options to purchase 100,000 shares of common stock at $3.13 per share 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.
(2) Outstanding equity awards as of June 30, 2020 consists of shares underlying warrants to purchase 50,000 shares of common stock at an
exercise price of $3.13 per share, 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.
50
(3) Outstanding equity awards as of June 30, 2020 consists of options to purchase 50,000 shares of common stock at an exercise price of $3.13
per share, 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.
(4) Outstanding equity awards as of June 30, 2020 consists of options to purchase 50,000 shares of common stock at an exercise price of $3.13
per share, 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 18, 2020, 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 18, 2020. 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., 10624 S. Eastern Ave., Ste. A-614, Henderson, NV 89052. Applicable percentage ownership in the following
table is based on 26,207,040 shares of common stock outstanding as of September 18, 2020 plus, for each person, any securities that person has the right to
acquire within 60 days of September 18, 2020.
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 Management LP (2)
90 Park Avenue, 41st Floor
New York, NY 10016
Richard H. Witmer, Jr.
16 Fort Hills Lane
Greenwich, CT 06831
Samjo Capital, LLC (3)
1345 Avenue of the Americas, 3rd Floor
New York, NY 10105
Directors and Executive Officers:
Peter Victor Derycz (4)
Alan Louis Urban (5)
Scott Ahlberg (6)
Marc Nissan (7)
Rogier van Erkel (8)
Michiel van der Heijden
John Regazzi (9)
Gen. Merrill McPeak (10)
Chad J. Cooper (11)
Roy W. Olivier (12)
All Directors and Executive Officers as a group (10 persons) (13)
Shares
Beneficially
Owned
Percentage
of Shares
3,492,966
5,547,076
2,508,448
1,323,482
3,780,584
537,990
478,252
822,384
165,000
-
893,500
734,608
693,250
165,000
8,270,568
13.3%
21.2%
9.6%
5.1%
14.4%
2.0%
1.8%
3.1%
0.6%
-%
3.3%
2.7%
2.6%
0.6%
28.7%
(1)
(2)
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.
Joel Ramin, the General Partner of 12 West Management LP, the investment manager of 12 West Capital Fund LP and 12 West Capital Offshore
Fund LP, exercises voting and investment power over the shares held by 12 West Capital Fund LP and 12 West Capital Offshore Fund LP, but
disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.
(3) Andrew N. Wiener, the sole managing member of Samjo Capital, LLC and Samjo Management, LLC, exercises voting and investment power over
(4)
the 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 58,831 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.
51
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
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 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 46,647 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 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 43,647 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 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 45,730 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 150,000 shares of common stock at an exercise price of $1.95 per share, and warrants to purchase
15,000 shares of common stock at an exercise price of $1.25 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, options to purchase 100,000 shares of common stock at an exercise
price of $2.40 per share, and options to purchase 50,000 shares of common stock at an exercise price of $3.13 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, options to purchase 50,000 shares of common stock at an exercise price of $2.40 per share, and options to purchase 50,000
shares of common stock at an exercise price of $3.13 per share.
Includes 223,000 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 100,000 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, options to
purchase 50,000 shares of common stock at an exercise price of $2.40 per share, and options to purchase 50,000 shares of common stock at an
exercise price of $3.13 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, options to purchase 50,000
shares of common stock at an exercise price of $2.40 per share, and options to purchase 50,000 shares of common stock at an exercise price of $3.13
per share.
Includes shares underlying warrants to purchase 257,300 shares of common stock, and shares underlying options to purchase 2,331,150 shares of
common stock.
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. On November 12, 2019, the maximum number of shares of common stock that may be issued pursuant to awards
granted under the 2017 Plan increased from 1,874,513 to 2,374,513. As of June 30, 2020, there were 622,429 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, 2020 with respect to the Plans, which are the only compensation plans under which our
equity securities are, or have been, authorized for issuance.
52
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
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)
5,604,946(2) $
200,000(3)
5,804,946
1.56
1.22
622,429
-
622,429
(1) The weighted average exercise price excludes restricted stock awards, which have no exercise price.
(2) Shares underlying options to purchase 3,327,580 shares of common stock and 2,277,366 shares of restricted common stock.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Other than the transactions described herein, since July 1, 2018, 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 more than
5% 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 NASDAQ. 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 NASDAQ’s independence
standards for members of such committees.
Item 14. Principal Accounting Fees and Services
Summary of Principal Accounting Fees for Professional Services Rendered
The following table presents the aggregate fees for professional audit services and other services rendered by Weinberg & Company, P.A., our
independent registered public accountants in the fiscal years ended June 30, 2020 and 2019.
Audit Fees
Audit-Related Fees
Tax Fees
All Other Fees
Total
Year Ended
June 30, 2020
$
Year Ended
June 30, 2019
112,882
-
35,121
-
148,003
118,524 $
-
27,373
-
145,897 $
$
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,
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.”
53
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, 2020 and 2019, 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 and 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 24, 2020, are incorporated by reference to Item 8 of this report.
(a)(2) and (c) Financial Statement Schedules
Not required.
(a)(3) and (b) Exhibits
EXHIBIT INDEX
Exhibit
Number
2
3.1.1
3.1.2
3.2
4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
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.)
Description of the registrant’s common stock.
Executive 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.)++
Executive 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.)++
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.)++
Executive 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 Executive Employment Agreement dated July 1, 2012, between Research Solutions, Inc., Reprints Desk, Inc. and Scott
Ahlberg. (Incorporated by reference to Exhibit 10.8 to the registrant’s Annual Report on Form 10-K filed on September 28, 2012.)++
Amendment to Executive 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.)++
54
Exhibit
Number
10.8
Description
Amendment to Executive 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.)++
10.9
Amendment to Executive 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.)++
10.10
Amendment to Executive Employment Agreement dated June 30, 2015, between Research Solutions, Inc., Reprints Desk, Inc. and
10.11
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.)++
Amendment to Executive 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.)++
10.12
Amendment to Executive Employment Agreement dated June 30, 2015, between Research Solutions, Inc., Reprints Desk, Inc. and
10.13
10.14
10.15
10.16
10.17
10.18
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.)++
Securities Purchase Agreement dated June 23, 2016, among Research Solutions, Inc. and the Investors signatory thereto. (Incorporated
by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed on June 28, 2016.)
Registration Rights Agreement dated June 24, 2016, among Research Solutions, Inc. and the Investors signatory thereto. (Incorporated
by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed on June 28, 2016.)
Form of Common Stock Purchase Warrant dated June 24, 2016. (Incorporated by reference to Exhibit 10.3 to the registrant’s Current
Report on Form 8-K filed on June 28, 2016.)
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.)
Amendment to Executive 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.)++
Amendment to Executive 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.)++
10.19
Amendment to Executive Employment Agreement dated June 30, 2017, between Research Solutions, Inc., Reprints Desk, Inc. and
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
Alan Urban. (Incorporated by reference to Exhibit 10.33 to the Registrant’s Annual Report on Form 10-K filed September 18,
2017.)++
Executive Employment Agreement dated July 1, 2013, between Research Solutions, Inc., Reprints Desk, Inc. and Marc Nissan.
(Incorporated by reference to Exhibit 10.35 to the Registrant’s Annual Report on Form 10-K filed September 20, 2018.)++
Amendment to Executive Employment Agreement dated June 30, 2015, between Research Solutions, Inc., Reprints Desk, Inc. and
Marc Nissan. (Incorporated by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K filed September 20,
2018.)++
Amendment to Executive Employment Agreement dated June 30, 2017, between Research Solutions, Inc., Reprints Desk, Inc. and
Marc Nissan. (Incorporated by reference to Exhibit 10.37 to the Registrant’s Annual Report on Form 10-K filed September 20,
2018.)++
Amended and Restated Loan and Security Agreement dated October 31, 2017, 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 10-Q filed February 14,
2018.)
Consulting Agreement dated May 31, 2018, between Reprints Desk, Inc. and Rogier Sales Consultancy. (Incorporated by reference to
Exhibit 10.38 to the Registrant’s Annual Report on Form 10-K filed September 20, 2018.)++
Amendment to Executive 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.)++
Amendment to Executive 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.)++
Amendment to Executive 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.)++
Amendment to Executive Employment Agreement dated June 30, 2019, between Research Solutions, Inc., Reprints Desk, Inc. and
Marc Nissan. (Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed August 7, 2019.)++
First Amendment to Amended and Restated Loan and Security Agreement, effective December 31, 2019, among Silicon Valley Bank,
Research Solutions, Inc. and Reprints Desk, Inc.
Second Amendment to Amended and Restated Loan and Security Agreement, dated February 14, 2020, among 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 May 14, 2020.)
55
Exhibit
Number
10.31
10.32
10.33
10.34
10.35
21
23
24
31.1
31.2
32.1
32.2
99.1
99.2
99.3
99.4
99.5
99.6
Description
Amendment to Executive Employment Agreement dated June 30, 2020, 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 September 2,
2020.)++
Amendment to Executive Employment Agreement dated June 30, 2020, 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 September 2, 2020.)++
Amendment to Executive Employment Agreement dated June 30, 2020, 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 September 2, 2020.)++
Amendment to Executive Employment Agreement dated June 30, 2020, between Research Solutions, Inc., Reprints Desk, Inc. and
Marc Nissan. (Incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed September 2, 2020.)++
Consulting Agreement dated July 1, 2020, between Reprints Desk, Inc. and Michiel van derHeijden BV.++
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.)++
Amendment No. 1 to 2017 Omnibus Incentive Plan. (Incorporated by reference to Appendix A to the Registrant’s Definitive Proxy
101.INS
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
Statement filed on September 21, 2019.)++
Inline XBRL Instance Document
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase
Inline XBRL Taxonomy Extension Definition Linkbase
Inline XBRL Taxonomy Extension Label Linkbase
Inline XBRL Taxonomy Extension Presentation Linkbase
*
++
Furnished herewith
Indicates management contract or compensatory plan.
Item 16. Form 10-K Summary
None.
56
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 24, 2020
Date: September 24, 2020
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), President and Director
September 24, 2020
Chief Financial Officer (Principal Financial
and Accounting Officer) and Secretary
September 24, 2020
Chairman of the Board
September 24, 2020
Director
Director
Director
September 24, 2020
September 24, 2020
September 24, 2020
DESCRIPTION OF REGISTRANT’S COMMON STOCK
Exhibit 4
The following is a summary of the material rights of our common stock, the sole class of our securities registered under Section 12 of the
Exchange Act. This summary does not purport to be complete and is qualified in its entirety by the provisions of our amended and restated certificate of
incorporation and amended and restated bylaws, copies of which are filed as exhibits to our Annual Report on Form 10-K.
The holders of our common stock are entitled to one vote per share on each matter submitted to a vote at a meeting of our stockholders, except to
the extent that the voting rights of shares of any class or series of our stock are determined and specified as greater or lesser than one vote per share in the
manner provided by our articles of incorporation. Our common stock does not entitle holders thereof to pre-emptive rights to acquire additional shares of
our common stock or other securities. Our common stock is not subject to redemption rights and carries no subscription or conversion rights. In the event
of liquidation of our company, the shares of our common stock are entitled to share equally in corporate assets after satisfaction of all liabilities. All shares
of our common stock now outstanding are fully paid and non-assessable. Our bylaws authorize the board of directors to declare dividends on our
outstanding shares.
FIRST AMENDMENT TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Exhibit 10.29
THIS FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this “Amendment”) is entered into
this ____ day of _______________, 201___, by and among SILICON VALLEY BANK, a California corporation (“Bank”), RESEARCH
SOLUTIONS, INC., a Nevada corporation (“Research Solutions”), and REPRINTS DESK, INC., a Delaware corporation (“Reprints”; together with
Research Solutions, individually and collectively, “Borrower”).
RECITALS
A. Bank and Borrower have entered into that certain Amended and Restated Loan and Security Agreement dated as of December 31, 2017
(as amended, modified, supplemented or restated from time to time, the “Loan Agreement”).
B. Bank has extended credit to Borrower for the purposes permitted in the Loan Agreement.
C. Borrower has requested that Bank amend the Loan Agreement to make certain revisions to the Loan Agreement as more fully set forth
herein.
D. Bank has agreed to so amend certain provisions of the Loan Agreement, but only to the extent, in accordance with the terms, subject to
the conditions and in reliance upon the representations and warranties set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, and intending to be legally bound, the parties hereto agree as follows:
1. Definitions. Capitalized terms used but not defined in this Amendment shall have the meanings given to them in the Loan Agreement.
2. Amendments to Loan Agreement.
2.1 Section 6.2 (Financial Statements, Reports, Certificates). Section 6.2 of the Loan Agreement is hereby amended by adding
the following clause (k) immediately after clause (j) thereof:
(k) a prompt written notice of any changes to the beneficial ownership information set out in the Beneficial Ownership
Information Disclosure Form. Borrower understands and acknowledges that Bank relies on such true, accurate and up-to-date beneficial
ownership information to meet Bank’s regulatory obligations to obtain, verify and record information about the beneficial owners of its legal
entity customers.
2.2 Section 6.8 (Accounts). Section 6.8(a) of the Loan Agreement is hereby amended by deleting it in its entirety and replacing it
with the following:
(a) Borrower and any Subsidiary of Borrower shall maintain account balances in any of its accounts at or through Bank
representing at least eighty-five percent (85%) of all deposit account balances of Borrower and such Subsidiary at any financial institution.
Borrower and any Subsidiary of Borrower shall obtain any business credit card and cash management services exclusively from Bank.
2.3 Section 13 (Definitions).
(a) The following defined term and its definition set forth in Section 13.1 of the Loan Agreement are hereby amended by deleting
them in their entirety and replacing them with the following:
“Revolving Line Maturity Date” is February 14, 2020.
(b) The following defined term is hereby added to Section 13.1 of the Loan Agreement in alphabetical order:
“Beneficial Ownership Information Disclosure Form” means the form attached hereto as Exhibit D.
2.4 Beneficial Ownership Information Disclosure Form. The Loan Agreement is hereby amended by adding the Beneficial
Ownership Information Disclosure Form attached hereto as Exhibit D to the Loan Agreement. From and after the date hereof, all references in the Loan
Agreement to the Beneficial Ownership Information Disclosure Form shall be deemed to refer to the Beneficial Ownership Information Disclosure
Form attached hereto as Exhibit D.
3. Limitation of Amendments.
3.1 The amendments set forth in Section 2, above, are effective for the purposes set forth herein and shall be limited precisely as
written and shall not be deemed to (a) be a consent to any amendment, waiver or modification of any other term or condition of any Loan Document, or
(b) otherwise prejudice any right or remedy which Bank may now have or may have in the future under or in connection with any Loan Document.
3.2 This Amendment shall be construed in connection with and as part of the Loan Documents and all terms, conditions,
representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein amended, are hereby ratified and confirmed and
shall remain in full force and effect.
3.3 In addition to those Events of Default specifically enumerated in the Loan Documents, the failure to comply with the terms of
any covenant or agreement contained herein shall constitute an Event of Default and shall entitle the Bank to exercise all rights and remedies provided to
the Bank under the terms of any of the other Loan Documents as a result of the occurrence of the same.
2
4. Representations and Warranties. To induce Bank to enter into this Amendment, Borrower hereby represents and warrants to Bank as
follows:
4.1 Immediately after giving effect to this Amendment (a) the representations and warranties contained in the Loan Documents are
true, accurate and complete in all material respects as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in
which case they are true and correct as of such date), and (b) no Event of Default has occurred and is continuing;
4.2 Borrower has the power and authority to execute and deliver this Amendment and to perform its obligations under the Loan
Agreement, as amended by this Amendment;
4.3 The organizational documents of Borrower delivered to Bank on the Effective Date remain true, accurate and complete and
have not been amended, supplemented or restated and are and continue to be in full force and effect;
4.4 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the
Loan Agreement, as amended by this Amendment, have been duly authorized;
4.5 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the
Loan Agreement, as amended by this Amendment, do not and will not contravene (a) any law or regulation binding on or affecting Borrower, (b) any
contractual restriction with a Person binding on Borrower, (c) any order, judgment or decree of any court or other governmental or public body or authority,
or subdivision thereof, binding on Borrower, or (d) the organizational documents of Borrower;
4.6 The execution and delivery by Borrower of this Amendment and the performance by Borrower of its obligations under the
Loan Agreement, as amended by this Amendment, do not require any order, consent, approval, license, authorization or validation of, or filing, recording or
registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on Borrower, except as already has been
obtained or made; and
4.7 This Amendment has been duly executed and delivered by Borrower and is the binding obligation of Borrower, enforceable
against Borrower in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation,
moratorium or other similar laws of general application and equitable principles relating to or affecting creditors’ rights.
5. Integration. This Amendment and the Loan Documents represent the entire agreement about this subject matter and supersede prior
negotiations or agreements. All prior agreements, understandings, representations, warranties, and negotiations between the parties about the subject matter
of this Amendment and the Loan Documents merge into this Amendment and the Loan Documents.
3
6. Counterparts. This Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be
deemed to constitute one and the same instrument.
7. Effectiveness. This Amendment shall be deemed effective as of December 31, 2019 upon (a) the due execution and delivery to Bank of
this Amendment by each party hereto, (b) the due execution and delivery to Bank of the Beneficial Ownership Information Disclosure Form, and (c)
payment of Bank’s legal fees and expenses in connection with the negotiation and preparation of this Amendment.
[Signature page follows.]
4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered as of the date first written above.
BANK
SILICON VALLEY BANK
By:
Name:
Title:
BORROWER
RESEARCH SOLUTIONS, INC.
By:
Name:
Title:
REPRINTS DESK, INC.
By:
Name:
Title:
[Signature Page to First Amendment to Amended and Restated Loan and Security Agreement]
EXHIBIT D
BENEFICIAL OWNERSHIP INFORMATION DISCLOSURE FORM
Company: RESEARCH SOLUTIONS, INC.
1. Is the Company any of the following:
(i)
(ii)
(iii)
(iv)
a public company or an issuer of securities that are registered with the Securities and Exchange Commission under
Section 12 of the Securities Exchange Act of 1934 or that is required to file reports under Section 15(d) of that Act;
an investment company registered with the Securities and Exchange Commission under the Investment Company Act
of 1940;
an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of
1940; or
a pooled investment vehicle operated or advised by a regulated financial institution (including an SEC-registered
investment adviser)?
Yes ☒ No ☐
If yes, skip to signature. If no, continue to 2:
2. Is the Company a pooled investment vehicle that is not operated or advised by a regulated financial institution?
Yes ☐ No ☐
If yes, skip to 4 below. If no, continue to 3:
3. Does any individual, directly or indirectly (for example, if applicable, through such individual’s equity interests in the Company’s parent
entity), through any contract, arrangement, understanding, relationship or otherwise, own 25% or more of the equity interests of the Company:
Yes ☐ No ☐
If yes, complete the following information. If no, continue to 4 below.
Name
Date of
birth
Residential
address
For Non-US
Persons: Type
of ID, ID
number,
country of
issuance,
expiration date
Percentage
of
ownership
(if indirect
ownership,
explain
structure)
For US
Persons,
Social
Security
Number:
(non-US
persons
should
provide SSN
if available)
1
2
3
4
4. Identify one individual with significant responsibility for managing the Company, i.e., an executive officer or senior manager (e.g., Chief
Executive Officer, President, Vice President, Chief Financial Officer, Treasurer, Chief Operating Officer, Managing Member or General Partner) or any
other individual who regularly performs similar functions. If appropriate, an individual listed in Section 1 above may also be listed here.
Name
Date of
birth
Residential
address
1
For US Persons,
Social Security
Number:
(non-US persons
should provide SSN
if available)
For Non-US
Persons:
Type of
ID, ID number,
country of
issuance,
expiration date
The undersigned hereby certifies, to the best of his or her knowledge, that the information set out in this Beneficial Ownership Information
Disclosure Form is true, complete and correct.
Date: _______________, 201__
By:
Name:
Title:
Email:
Phone:
BENEFICIAL OWNERSHIP INFORMATION DISCLOSURE FORM
Company: REPRINTS DESK, INC.
1. Is the Company any of the following:
(i)
(ii)
(iii)
(iv)
a public company or an issuer of securities that are registered with the Securities and Exchange Commission under
Section 12 of the Securities Exchange Act of 1934 or that is required to file reports under Section 15(d) of that Act;
an investment company registered with the Securities and Exchange Commission under the Investment Company Act
of 1940;
an investment adviser registered with the Securities and Exchange Commission under the Investment Advisers Act of
1940; or
a pooled investment vehicle operated or advised by a regulated financial institution (including an SEC-registered
investment adviser)?
Yes ☒ No ☐
If yes, skip to signature. If no, continue to 2:
2. Is the Company a pooled investment vehicle that is not operated or advised by a regulated financial institution?
Yes ☐ No ☐
If yes, skip to 4 below. If no, continue to 3:
3. Does any individual, directly or indirectly (for example, if applicable, through such individual’s equity interests in the Company’s parent
entity), through any contract, arrangement, understanding, relationship or otherwise, own 25% or more of the equity interests of the Company:
Yes ☐ No ☐
If yes, complete the following information. If no, continue to 4 below.
Name
Date of
birth
Residential
address
For Non-US
Persons: Type
of ID, ID
number,
country of
issuance,
expiration date
Percentage
of
ownership
(if indirect
ownership,
explain
structure)
For US
Persons,
Social
Security
Number:
(non-US
persons
should
provide SSN
if available)
1
2
3
4
4. Identify one individual with significant responsibility for managing the Company, i.e., an executive officer or senior manager (e.g., Chief
Executive Officer, President, Vice President, Chief Financial Officer, Treasurer, Chief Operating Officer, Managing Member or General Partner) or any
other individual who regularly performs similar functions. If appropriate, an individual listed in Section 1 above may also be listed here.
Name
Date of
birth
Residential
address
For US Persons,
Social Security
Number:
(non-US persons
should provide SSN
if available)
For Non-US
Persons: Type of
ID, ID number,
country of
issuance,
expiration date
1
The undersigned hereby certifies, to the best of his or her knowledge, that the information set out in this Beneficial Ownership Information
Disclosure Form is true, complete and correct.
Date: _______________, 201__
By:
Name:
Title:
Email:
Phone:
CONSULTING AGREEMENT
Exhibit 10.35
This Consulting Agreement (“Agreement”) is entered into effective July 1, 2020 (“Effective Date”), by and between Reprints Desk, Inc., a Delaware
corporation located at 16350 Ventura Blvd. Suite D #811, Encino, California 91436 (“Company”), and Michiel van derHeijden BV, whose address
is_________________________________________________________________ (“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 begins on the Effective Date and ends when terminated by the Consultant, or the Company subject to paragraph 13 of
this agreement.
2. Consultant will perform consulting services as Chief Product Officer, with a focus on fulfilling the commercial and strategic direction of the
Company, as determined by the Chief Executive Officer of Company or other officials of Company from time to time. Consultant’s services will generally
consist of product management consulting services. The exact topics or subjects of Consultant’s consulting services and the time to be devoted thereto is to
be determined in accordance with the requirements, as set out in fulfilling commercial and strategic initiatives as determined by the Chief Executive Officer
of Company or other officials of Company from time to time. Company understands and recognizes that Consultant resides in Amsterdam and will work
remotely from the Netherlands, but will come to Los Angeles as reasonably required to meet with the Company’s Board of Directors, management and/or
staff, upon mutual agreement of the timing of such meetings and with reasonable notice.
3. For rendering such consulting services Company will pay Consultant pursuant to the Compensation Schedule attached to this Agreement as
Appendix 1. Consultant will submit an invoice to the Company in a timely manner on a monthly basis. The Company will pay undisputed invoices
submitted by Consultant immediately upon receipt and no later than 10 days after Consultant delivers his invoice to Company by way of wire payment
upon wiring instructions provided by Consultant to Company. Moreover, Company will pay for bank related transaction costs associated with all such
payments. If the Company disputes an invoice it must notify Consultant within 5 days of receipt of such invoice and explain in writing the basis for the
dispute. Consultant will be reimbursed for reasonable, necessary travel and other business expenses actually incurred in rendering requested services
hereunder. Expenses will be reimbursed monthly upon presentment of invoice Consultant (including all required receipts).
Page 1 of 5
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 any other benefits except those expressly provided for in Section 3 above.
5. Consultant is allowed to take on other clients upon notice and consultation with Company and if agreed upon, the fee and compensation schedule
will be adjusted accordingly pursuant to a further agreement between Consultant and Company. Consultant warrants that Consultant 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 received or prepared by Consultant and any of
Consultant’s employees, agents and representatives under the term of this Agreement will be and remain the sole property of Company and will be
delivered to Company upon request and in any event, upon expiration or termination of this Agreement. 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. Consultant and Company expressly exclude any phone or computer, which will be supplied by Consultant.
Consultant’s computer hardware, software, and computer usage will have to meet certain security requirements as determined by the Company.
7. Consultant agrees that Consultant will not during the term of this Agreement serve any interests or do any act or thing which might conflict with
the interests of Company or any of its subsidiaries or affiliates. (The determination by Company of its interests and those of its subsidiaries or affiliates, and
any conflict therewith, to be final and conclusive). Nothing in this agreement however otherwise precludes Consultant from servicing other clients.
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, venturers 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 not now or at any time hereafter be published, stated or used by
Consultant for any purposes without Company’s prior written consent. 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 Sections 6 and 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.
Page 2 of 5
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. Company is in turn responsible for its own tax related penalties and obligations.
11. Waiver of Workers Compensation Coverage - In the event Consultant is determined or alleged to be an employee of Company covered by the
California Workers’ Compensation Act, as amended from time to time, rather than an independent contractor under said Act, Consultant hereby notifies
Company that Consultant waives coverage under said Act and that Consultant retains all rights of action under common law.
12. Company shall 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 liable to Company with respect
to such claim, (v) otherwise prohibited by applicable law; or (vi) Consultant initiated or voluntarily brought such claim, or (vii) Consultants entering into
this Agreement conflicts with any obligations Consultant may have under any other contracts.
13. Except under the circumstances contemplated under section 16 of this Agreement, neither Consultant or Company may terminate this Agreement
within the first-year period after Consultant commences his consulting services. Thereafter, Consultant may terminate this Agreement with 60 days notice
to the Company, and Company may terminate this Agreement and Consultant will continue to be paid for four (4) months after termination, consistent with
the base compensation payment rates in the Compensation Schedule attached to this Agreement as Appendix 1. However, Company may terminate this
Agreement immediately with no notice and no payment continuation for “good cause.” Termination for “good cause” shall include, without limitation, the
following causes:
Page 3 of 5
(a)
(b)
(c)
(d)
(e)
Consultant by reason of injury or illness being incapable for more than thirty (30) consecutive days of satisfactorily performing Consultant’s duties
as a consultant under this Agreement;
Death of Consultant;
Consultant being charged with a crime punishable by imprisonment;
Consultant engaging in any activity that would in the reasonable opinion of the Board of Directors of Company constitute a conflict of interest
with Company; however, before such termination, Consultant will be provided written notice of the conflict in question and 7 business days to
respond in writing to the notice. Additionally, if possible Consultant will have the opportunity to correct or resolve such conflict and/or respond to
the Board before a final decision is made by the Board; or
Consultant negligently performing Consultant’s duties hereunder, or otherwise failing to comply with any terms or conditions of this Agreement,
and such negligent performance or failure to comply remaining uncured for more than fourteen (14) days after receipt of written 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. The Agreement may be executed in counterparts and signatures on this Agreement sent by email
or in pdf, format will be treated as if original signatures.
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 Los Angeles, 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.
Page 4 of 5
16. Consultant and Company both agree that if the Consultant’s prior employer for any reason in any way contests or seeks to cease the Consultant’s
performance of consulting services under this Agreement the Consultant and Company will both mutually terminate this agreement in which case
Consultant will continue to be paid for two (2) months consistent with the base compensation payment rates in the Compensation Schedule attached to this
Agreement as Appendix 1.
CONSULTANT:
Michiel van der Heyden
By:
Name:
Title:
COMPANY:
REPRINTS DESK, INC.
By:
Name:
Title:
Page 5 of 5
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the previously filed Registration Statements of Research Solutions, Inc. on Form S-8 (File Nos.
333-169823, 333-185059, 333-200656 and 333-235261) of our report dated September 24, 2020, relating to the consolidated financial statements of
Research Solutions, Inc. and Subsidiaries as of June 30, 2020 and 2019 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, 2020 filed with the Securities and Exchange Commission on September 24, 2020.
Exhibit 23
/s/ Weinberg & Company, P.A.
September 24, 2020
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 24, 2020
/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 24, 2020
/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, 2020, 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 24, 2020
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, 2020, 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)
(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/ Alan Louis Urban
Alan Louis Urban
Chief Financial Officer (Principal Financial and Accounting Officer)
September 24, 2020