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Research Solutions, Inc. - Quarter Report: 2019 December (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

(Mark One)
   
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: December 31, 2019

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

 

Commission File No. 000-53501

RESEARCH SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada 11-3797644
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
16350 Ventura Blvd., Suite D #811, Encino, California 91436
(Address of principal executive offices) (Zip Code)

 

(310) 477-0354

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ   No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  þ   No  ¨

 

Indicate by check mark 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 ¨ Accelerated filer ¨
Non-accelerated filer þ Smaller reporting company þ
  Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨   No þ

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

 

Title of Class   Number of Shares Outstanding on February 7, 2020
Common Stock, $0.001 par value   24,547,223

 

 

 

 

 

TABLE OF CONTENTS

 

PART I — FINANCIAL INFORMATION   3
Item 1. Condensed Consolidated Financial Statements (unaudited)   3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   17
Item 3. Quantitative and Qualitative Disclosures About Market Risk   27
Item 4. Controls and Procedures   27
     
PART II — OTHER INFORMATION   27
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   27
Item 6. Exhibits   28
     
SIGNATURES   29

 

2

 

 

PART 1 — FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

 

Research Solutions, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

   December 31,   June 30, 
   2019   2019 
   (unaudited)     
Assets          
Current assets:          
Cash and cash equivalents  $6,769,128   $5,353,090 
Accounts receivable, net of allowance of $88,773 and $100,175, respectively   4,150,780    4,493,169 
Prepaid expenses and other current assets   315,774    323,591 
Prepaid royalties   301,110    - 
Total current assets   11,536,792    10,169,850 
           
Other assets:          
Property and equipment, net of accumulated depreciation of $804,971 and $789,788, respectively   22,629    36,828 
Deposits and other assets   6,327    14,406 
Right of use asset, net of accumulated amortization of $330,109 and $270,777, respectively   132,913    192,245 
Total assets  $11,698,661   $10,413,329 
           
Liabilities and Stockholders’ Equity          
Current liabilities:          
Accounts payable and accrued expenses  $5,856,740   $4,862,895 
Deferred revenue   2,873,415    2,310,206 
Lease liability, current portion   134,071    129,187 
Total current liabilities   8,864,226    7,302,288 
           
Long-term liabilities:          
Lease liability, long-term portion   11,444    79,326 
Total liabilities   8,875,670    7,381,614 
           
Commitments and contingencies          
           
Stockholders’ equity:          
Preferred stock; $0.001 par value; 20,000,000 shares authorized; no shares issued and outstanding   -    - 
Common stock; $0.001 par value; 100,000,000 shares authorized; 24,475,556 and 24,375,948 shares issued and outstanding, respectively   24,476    24,376 
Additional paid-in capital   24,098,311    23,631,481 
Accumulated deficit   (21,188,186)   (20,514,557)
Accumulated other comprehensive loss   (111,610)   (109,585)
Total stockholders’ equity   2,822,991    3,031,715 
Total liabilities and stockholders’ equity  $11,698,661   $10,413,329 

 

See notes to condensed consolidated financial statements

 

3

 

 

Research Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations and Other Comprehensive Loss

(Unaudited)

 

   Three Months Ended   Six Months Ended 
   December 31,   December 31, 
   2019   2018   2019   2018 
Revenue:                    
Platforms  $949,825   $667,545   $1,806,270   $1,256,558 
Transactions   6,580,613    6,321,297    13,319,281    12,684,805 
Total revenue   7,530,438    6,988,842    15,125,551    13,941,363 
                     
Cost of revenue:                    
Platforms   162,508    122,077    312,978    230,336 
Transactions   5,094,130    4,878,526    10,222,238    9,774,833 
Total cost of revenue   5,256,638    5,000,603    10,535,216    10,005,169 
Gross profit   2,273,800    1,988,239    4,590,335    3,936,194 
                     
Operating expenses:                    
Selling, general and administrative   2,976,107    2,643,063    5,411,787    4,813,775 
Depreciation and amortization   6,840    9,733    14,398    20,848 
Total operating expenses   2,982,947    2,652,796    5,426,185    4,834,623 
Loss from operations   (709,147)   (664,557)   (835,850)   (898,429)
                     
Other income (expenses):                    
Interest expense   -    -    -    - 
Other income   26,527    23,764    52,076    47,249 
Total other income   26,527    23,764    52,076    47,249 
                     
Loss from operations before provision for income taxes   (682,620)   (640,793)   (783,774)   (851,180)
Provision for income taxes   (806)   (7,442)   (7,300)   (16,663)
                     
Loss from continuing operations   (683,426)   (648,235)   (791,074)   (867,843)
                     
Gain from sale of discontinued operations   91,254    55,698    117,445    97,418 
                     
Net loss   (592,172)   (592,537)   (673,629)   (770,425)
                     
Other comprehensive income (loss):                    

Foreign currency translation

   1,543    (1,668)   (2,025)   (6,038)
Comprehensive loss  $(590,629)  $(594,205)  $(675,654)  $(776,463)
                     
Loss per common share:                    
Loss per share from continuing operations, basic and diluted  $(0.03)  $(0.03)  $(0.03)  $(0.04)
Income per share from discontinued operations, basic and diluted  $-   $-   $-   $0.01 
Net loss per share, basic and diluted  $(0.03)  $(0.03)  $(0.03)  $(0.03)
Weighted average common shares outstanding, basic and diluted   24,185,966    23,787,836    24,140,616    23,716,312 

 

See notes to condensed consolidated financial statements

 

4

 

 

Research Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

For the Six Months Ended December 31, 2019

(Unaudited)

  

   Common Stock   Additional
Paid-in
   Accumulated
   Other
Comprehensive

   Total
Stockholders'
 
   Shares   Amount   Capital   Deficit   Loss   Equity 
Balance, July 1, 2019   24,375,948   $24,376   $23,631,481   $(20,514,557)  $(109,585)  $3,031,715 
                               
Fair value of vested stock options   -    -    58,198    -    -    58,198 
                               
Fair value of vested restricted common stock   70,000    70    84,404    -    -    84,474 
                               
Repurchase of common stock   (28,750)   (28)   (71,847)   -    -    (71,875)
                               
Common stock issued upon exercise of stock options   24,307    24    (24)   -    -    - 
                               
Net loss for the period   -    -    -    (81,457)   -    (81,457)
                               
Foreign currency translation   -    -    -    -    (3,568)   (3,568)
                               
Balance, September 30, 2019   24,441,505    24,442    23,702,212    (20,596,014)   (113,153)   3,017,487 
                               
Fair value of vested stock options   -    -    437,992    -    -    437,992 
                               
Fair value of vested restricted common stock   13,978    14    85,626    -    -    85,640 
                               
Repurchase of common stock   (42,500)   (42)   (127,457)   -    -    (127,499)
                               
Common stock issued upon exercise of stock options   62,573    62    (62)   -    -    - 
                               
Net loss for the period   -    -    -    (592,172)   -    (592,172)
                               
Foreign currency translation   -    -    -    -    1,543    1,543 
                               
Balance, December 31, 2019   24,475,556   $24,476   $24,098,311   $(21,188,186)  $(111,610)  $2,822,991 

 

See notes to condensed consolidated financial statements

 

5

 

 

Research Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders' Equity

For the Six Months Ended December 31, 2018

(Unaudited)

 

   Common Stock   Additional
Paid-in
   Accumulated
   Other
Comprehensive
   Total
Stockholders'
 
   Shares   Amount   Capital   Deficit   Loss   Equity 
Balance, July 1, 2018   24,016,999   $24,017   $22,904,691   $(19,554,599)  $(94,707)  $3,279,402 
                               
Fair value of vested stock options   -    -    39,648    -    -    39,648 
                               
Fair value of vested restricted common stock   130,127    130    76,131    -    -    76,261 
                               
Repurchase of common stock   (34,200)   (34)   (75,166)   -    -    (75,200)
                               
Common stock issued upon exercise of stock options   3,750    4    (4)   -    -    - 
                               
Common stock issued upon exercise of warrants   39,000    39    (39)   -    -    - 
                               
Net loss for the period   -    -    -    (177,888)   -    (177,888)
    -                          
Foreign currency translation        -    -    -    (4,370)   (4,370)
                               
Balance, September 30, 2018   24,155,676    24,156    22,945,261    (19,732,487)   (99,077)   3,137,853 
                               
Fair value of vested stock options   -    -    375,795    -    -    375,795 
                               
Fair value of vested restricted common stock   20,087    20    77,473    -    -    77,493 
                               
Repurchase of common stock   (15,800)   (16)   (38,062)   -    -    (38,078)
                               
Common stock issued upon exercise of stock options   79,050    79    (79)   -    -    - 
                               
Common stock issued upon exercise of warrants   -    -    -    -    -    - 
                               
Net loss for the period   -    -    -    (592,537)   -    (592,537)
                               
Foreign currency translation   -    -    -    -    (1,668)   (1,668)
                               
Balance, December 31, 2018   24,239,013   $24,239   $23,360,388   $(20,325,024)  $(100,745)  $2,958,858 

  

See notes to condensed consolidated financial statements

 

6

 

 

Research Solutions, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   Six Months Ended
   December 31, 
   2019   2018 
Cash flow from operating activities:          
Net loss  $(673,629)  $(770,425)
Adjustment to reconcile net loss to net cash provided by (used in) operating activities:          
Gain from sale of discontinued operations   (117,445)   (97,418)
Depreciation and amortization   14,398    20,848 
Amortization of lease right   59,332    56,960 
Fair value of vested stock options   496,190    415,443 
Fair value of vested restricted common stock   170,114    153,754 
Changes in operating assets and liabilities:          
Accounts receivable   342,389    283,654 
Prepaid expenses and other current assets   125,262    6,468 
Prepaid royalties   (301,110)   (367,792)
Deposits and other assets   8,094    - 
Accounts payable and accrued expenses   993,845    (24,324)
Deferred revenue   563,209    358,489 
Lease liability   (62,998)   (58,376)
Net cash provided by (used in) operating activities   1,617,651    (22,719)
Cash flow from investing activities:          
Purchase of property and equipment   -    (4,154)
Net cash used in investing activities   -    (4,154)
Cash flow from financing activities:          
Common stock repurchase and retirement   (199,374)   (113,278)
Net cash used in financing activities   (199,374)   (113,278)
Effect of exchange rate changes   (2,239)   (6,501)
Net increase (decrease) in cash and cash equivalents   1,416,038    (146,652)
Cash and cash equivalents, beginning of period   5,353,090    4,908,180 
Cash and cash equivalents, end of period  $6,769,128   $4,761,528 
Supplemental disclosures of cash flow information:          
Cash paid for income taxes  $7,300   $16,663 

 

See notes to condensed consolidated financial statements 

 

7

 

 

 

 

RESEARCH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended December 31, 2019 and 2018 (Unaudited)

 

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: 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.

 

8

 

 

Basis of Presentation

 

The accompanying condensed consolidated financial statements are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019 filed with the SEC. The condensed consolidated balance sheet as of June 30, 2019 included herein was derived from the audited consolidated financial statements as of that date, but does not include all disclosures, including notes, required by GAAP.

 

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to fairly present the Company's financial position and results of operations for the interim periods reflected. Except as noted, all adjustments contained herein are of a normal recurring nature. Results of operations for the fiscal periods presented herein are not necessarily indicative of fiscal year-end results.

 

Note 2. Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates.

 

These estimates and assumptions include estimates for reserves of uncollectible accounts, accruals for potential liabilities, assumptions made in valuing equity instruments issued for services or acquisitions, and realization of deferred tax assets.

 

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 $66,307 and $63,933 at December 31, 2019 and June 30, 2019, respectively, was held by Reprints Desk in accounts at financial institutions located in Europe.

 

The Company has no customers that represent 10% of revenue or more for the three and six months ended December 31, 2019 and 2018.

 

The Company has no customers that accounted for greater than 10% of accounts receivable at December 31, 2019 and June 30, 2019.

 

The following table summarizes vendor concentrations:

 

  

Three Months Ended

December 31,

  

 

Six Months Ended

December 31,

 
   2019   2018   2019   2018 
Vendor A   22%   18%   21%   18%
Vendor B   12%   11%   12%   11%
Vendor C   11%   13%   *     12%

 

* Less than 10%

 

9

 

 

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 condensed 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.

 

Transactions

 

We charge a transactional service fee for the electronic delivery of single articles, and a corresponding copyright fee for the permitted use of the content. We recognize revenue from single article delivery services upon delivery to the customer provided all other revenue recognition criteria have been met.

 

Deferred Revenue

 

Customer deposits and billings or payments received in advance of revenue recognition are recorded as deferred revenue.

 

10

 

 

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 a gain of $5,456 and a loss of $10,025 for the three months ended December 31, 2019 and 2018, respectively and loss of $6,667 and $15,005 for the six months ended December 31, 2019 and 2018, respectively. Cash denominated in Euros with a US Dollar equivalent of $66,307 and $63,933 at December 31, 2019 and June 30, 2019, respectively, was held in accounts at financial institutions located in Europe.

 

The following table summarizes the exchange rates used:

 

   Six Months Ended
December 31,
   Year Ended
June 30,
 
   2019   2018   2019   2018 
Period end Euro : US Dollar exchange rate   1.12    1.14    1.14    1.17 
Average period Euro : US Dollar exchange rate   1.11    1.15    1.14    1.19 
                     
Period end Mexican Peso : US Dollar exchange rate   0.05    0.05    0.05    0.05 
Average period Mexican Peso : US Dollar exchange rate   0.05    0.05    0.05    0.05 

 

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Net Income (Loss) Per Share

 

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period, excluding shares of unvested restricted common stock. Shares of restricted stock are included in the basic weighted average number of common shares outstanding from the time they vest. Diluted earnings per share is computed by dividing the net income applicable to common stockholders 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 December 31, 2019 potentially dilutive securities include options to acquire 3,416,580 shares of common stock, warrants to acquire 1,885,000 shares of common stock and unvested restricted common stock of 254,283.  At December 31, 2018 potentially dilutive securities include options to acquire 3,465,335 shares of common stock, warrants to acquire 1,885,000 shares of common stock and unvested restricted common stock of 398,130. 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 three and six months ended December 31, 2019 and 2018 because all stock options, warrants, and unvested restricted common stock are anti-dilutive.

 

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.

 

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. 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, 2020, and is subject to certain financial and performance covenants with which we were in compliance as of December 31, 2019. Financial covenants include maintaining an adjusted quick ratio of unrestricted cash and net accounts receivable, divided by current liabilities plus debt less deferred revenue of at least 1.15 to 1.0, and maintaining tangible net worth of $1,500,000, plus 50% of net income for the fiscal quarter ended from and after December 31, 2017, plus 50% of the dollar value of equity issuances after October 1, 2017 and the principal amount of subordinated debt. The line of credit bears interest at the prime rate plus 2.25% for periods in which we maintain an adjusted quick ratio of 1.3 to 1.0 (the “Streamline Period”), and at the prime rate plus 5.25% when a Streamline Period is not in effect. The interest rate on the line of credit was 6.75% as of December 31, 2019. The line of credit is secured by the Company’s consolidated assets.

 

There were no outstanding borrowings under the line as of December 31, 2019 and June 30, 2019, respectively.  As of December 31, 2019, there was approximately $2,320,000 of available credit.

 

12

 

 

Note 4. 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 six months ended December 31, 2019, the Company made payments of $62,998 towards the lease liability. As of December 31, 2019 and June 30, 2019, lease liability amounted to $145,515 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 six months ended December 31, 2019 and 2018 was $83,324 and $72,688, respectively. The right of use asset at June 30, 2019 was $192,245. During the six months ended December 31, 2019, the Company reflected amortization of right of use asset of $59,332 related to this lease, resulting in a net asset balance of $132,913 as of December 31, 2019.

 

On October 8, 2019, the Company entered into an agreement to sublease its office facilities 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. The Company recorded rent income of $3,507 during the six months ended December 31, 2019, included in general and administrative expenses in the accompanying statements of operations.

 

Note 5. Stockholders’ Equity

 

Stock Options

 

In December 2007, we established the 2007 Equity Compensation Plan (the “2007 Plan”) and in November 2017 we established the 2017 Omnibus Incentive Plan (the “2017 Plan”), collectively (the “Plans”). The Plans were approved by our board of directors and stockholders. The purpose of the Plans is to grant stock and options to purchase our common stock, and other incentive awards, to our employees, directors and key consultants. On November 10, 2016, the maximum number of shares of common stock that may be issued pursuant to awards granted under the 2007 Plan increased from 5,000,000 to 7,000,000. On November 21, 2017, the Company’s stockholders approved the adoption of the 2017 Plan (previously adopted by our board of directors on September 14, 2017), which authorized a maximum of 1,874,513 shares of common stock that may be issued pursuant to awards granted under the 2017 Plan. 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 December 31, 2019, there were 665,268 shares available for grant under the 2017 Plan, and no shares were available for grant under the 2007 Plan. All incentive stock award grants prior to the adoption of the 2017 Plan on November 21, 2017 were made under the 2007 Plan, and all incentive stock award grants after the adoption of the 2017 Plan on November 21, 2017 were made under the 2017 Plan.

 

The majority of awards issued under the Plan vest immediately or over three years, with a one year cliff vesting period, and have a term of ten years. Stock-based compensation cost is measured at the grant date, based on the fair value of the awards that are ultimately expected to vest, and recognized on a straight-line basis over the requisite service period, which is generally the vesting period.

 

The following table summarizes vested and unvested stock option activity:

 

   All Options   Vested Options   Unvested Options 
   Shares  

Weighted

Average

Exercise

Price

   Shares  

Weighted

Average

Exercise

Price

   Shares  

Weighted

Average

Exercise

Price

 
Outstanding at June 30, 2019   3,287,335   $1.38    2,827,251   $1.27    460,084   $2.09 
Granted   308,000    3.03    250,000    3.13    58,000    2.58 
Options vesting   -    -    189,249    2.03    (189,249)   2.03 
Exercised   (158,755)   1.26    (158,755)   1.26    -    - 
Forfeited/Cancelled   (20,000)   1.95    (10,000)   1.95    (10,000)   1.95 
Outstanding at December 31, 2019   3,416,580   $1.53    3,097,745   $1.47    318,835   $2.20 

 

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The weighted average remaining contractual life of all options outstanding as of December 31, 2019 was 6.06 years. The remaining contractual life for options vested and exercisable at December 31, 2019 was 5.77 years. Furthermore, the aggregate intrinsic value of options outstanding as of December 31, 2019 was $7,055,848, and the aggregate intrinsic value of options vested and exercisable at December 31, 2019 was $6,608,114, in each case based on the fair value of the Company’s common stock on December 31, 2019.

 

During the six months ended December 31, 2019, the Company granted 308,000 options to employees with a fair value of $461,200.  The total fair value of options that vested during the six months ended December 31, 2019 was $496,190 and is included in selling, general and administrative expenses in the accompanying statement of operations.  As of December 31, 2019, the amount of unvested compensation related to stock options was $378,078 which will be recorded as an expense in future periods as the options vest. During the six months ended December 31, 2019, the Company issued 86,880 shares of common stock upon the exercise of 158,755 options on a cashless basis.

 

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 six months ended December 31, 2019 and 2018.

 

  

Six Months Ended

December 31,

 
   2019    2018 
Expected dividend yield   0%   0%
Risk-free interest rate   1.61% - 1.69 %   2.82% – 3.00  %
Expected life (in years)   5 - 6     5 - 6 
Expected volatility   64%   68 - 69%

 

Additional information regarding stock options outstanding and exercisable as of December 31, 2019 is as follows:

 

Option
Exercise
Price
  

Options

Outstanding

  

Remaining 

Contractual 

Life (in years)

   Options
Exercisable
 
$0.59    8,150    2.50    8,150 
 0.60    5,000    2.50    5,000 
 0.65    6,150    2.50    6,150 
 0.70    225,000    5.93    225,000 
 0.77    49,500    3.58    49,500 
 0.80    16,000    5.64    16,000 
 0.90    25,667    4.31    25,667 
 0.97    6,000    2.50    6,000 
 1.00    28,249    3.93    28,249 
 1.02    187,000    0.59    187,000 
 1.05    400,529    6.59    400,529 
 1.07    33,898    2.79    33,898 
 1.09    129,165    5.86    129,165 
 1.10    105,000    5.50    105,000 
 1.14    3,674    2.50    3,674 
 1.15    209,400    4.61    209,400 
 1.20    352,414    7.57    346,912 
 1.25    32,000    3.12    32,000 
 1.30    243,000    2.18    243,000 
 1.50    195,000    2.88    195,000 
 1.59    35,000    8.36    20,417 
 1.75    1,067    2.50    1,067 
 1.80    94,050    3.63    94,050 
 1.85    24,000    3.09    24,000 
 1.95    275,000    8.51    143,750 
 2.40    398,667    8.88    309,167 
 2.49    50,000    9.75    - 
 2.50    20,000    9.38    - 
 3.13    258,000    9.87    250,000 
 Total    3,416,580         3,097,745 

 

14

 

 

Warrants

 

The following table summarizes warrant activity:

 

   

Number of

Warrants

  

Weighted

Average

Exercise

Price

 
Outstanding, June 30, 2019    1,885,000   $1.25 
       Granted    -    - 
       Exercised    -    - 
       Expired/Cancelled    -    - 
Outstanding, December 31, 2019    1,885,000   $1.25 
            
Exercisable, June 30, 2019    1,885,000   $1.25 
Exercisable, December 31, 2019    1,885,000   $1.25 

 

The intrinsic value for all warrants outstanding as of December 31, 2019 was $2,547,750, based on the fair value of the Company’s common stock on December 31, 2019.

 

Additional information regarding warrants outstanding and exercisable as of December 31, 2019 is as follows:

 

Warrant
Exercise Price
  

Warrants

Outstanding

  

Remaining 

Contractual 

Life (in years)

   Warrants
Exercisable
 
$1.19    50,000    1.98    50,000 
 1.25    1,835,000    1.46    1,835,000 
 Total    1,885,000         1,885,000 

 

Restricted Common Stock

 

Prior to July 1, 2019, the Company issued 2,166,549 shares of restricted common stock to employees valued at $2,386,443, of which 1,640,690 shares have vested, 214,324 shares with fair value of $188,203 have been forfeited, and $1,785,857 has been recognized as an expense. The balance of the non-vested shares of restricted common stock was 311,535 at June 30, 2019.

 

During the six months ended December 31, 2019, the Company issued an additional 83,978 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 $236,251 based on the market price of our common stock price of $2.81 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 vesting during the six months ended December 31, 2019 was $170,114 and is included in selling, general and administrative expenses in the accompanying statements of operations. As of December 31, 2019, the amount of unvested compensation related to issuances of restricted common stock was $478,520, 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.

 

15

 

 

The following table summarizes restricted common stock activity:

 

   

Number of

Shares

   Fair Value  

Weighted

Average

Grant Date

Fair Value

 
Non-vested, June 30, 2019    311,535   $412,383   $1.66 
        Granted    83,978    236,251    2.81 
        Vested    (141,136)   (170,114)   1.59 
        Forfeited    -    -    - 
Non-vested, December 31, 2019    254,377   $478,520   $2.08 

 

Common Stock Repurchase and Retirement

 

Effective as of November 13, 2018, the Compensation Committee of our Board of Directors authorized the repurchase, during calendar year 2019 on the last day of each trading window and otherwise in accordance with our insider trading policies, of up to $300,000 of outstanding common stock (at prices no greater than $3.00 per share) from our employees to satisfy their tax obligations in connection with the vesting of stock incentive awards. The actual number of shares repurchased will be determined by applicable employees in their discretion, and will depend on their evaluation of market conditions and other factors.

 

During the six months ended December 31, 2019, the Company repurchased 71,250 shares of our common stock from employees at an average market price of approximately $2.80 per share for an aggregate amount of $199,374.

 

As of December 31, 2019, $13,880 remains available under the 2019 plan to repurchase common stock from its employees. The shares of common stock were surrendered by employees to cover tax withholding obligations with respect to the vesting of restricted stock. Shares repurchased are retired and deducted from common stock for par value and from additional paid in capital for the excess over par value.

 

Note 6. 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 pursuant to an Asset Purchase Agreement dated June 20, 2017. The aggregate net consideration for the sale included earn-out payments of 45% of gross margin over the 30-month period subsequent to the closing date. We have made a policy election to record the contingent consideration when the consideration is determined to be realizable (each 6-month period ending subsequent to the closing date). Realizable contingent consideration amounted to $117,445 for the six months ended December 31, 2019 and is recorded as a gain from the sale of discontinued operations. 

 

Note 7. Subsequent Events

On January 1, 2020, the Company issued 71,667 net shares of common stock upon the exercise of stock options underlying 100,000 shares of common stock for 28,333 shares of common stock used as payment.

 

16

 

 

 

Item 2. 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 three and six months ended December 31, 2019 and 2018 should be read in conjunction with our consolidated financial statements and related notes to those financial statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2019.

 

We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date hereof and, except as required by law, we assume no obligation to update any such forward-looking statements.

 

Overview

 

Research Solutions was incorporated in the State of Nevada on November 2, 2006, and is a publicly traded holding company with two wholly owned subsidiaries at June 30, 2019: Reprints Desk, Inc., a Delaware corporation and Reprints Desk Latin America S. de R.L. de C.V, an entity organized under the laws of Mexico.

 

  We provide two service offerings to our customers: annual licenses that allow customers to access and utilize certain premium features of our cloud based software-as-a-service (“SaaS”) research intelligence platform (“Platforms”) and the transactional sale of published scientific, technical, and medical (“STM”) content managed, sourced and delivered through the Platform (“Transactions”). Platforms and Transactions are packaged as a single solution that enable life science and other research intensive organizations to speed up research and development activities with faster, single sourced access and management of content and data used throughout the intellectual property development lifecycle.

 

Platforms

 

Our cloud-based SaaS research intelligence platform consists of proprietary software and Internet-based interfaces sold to customers for an annual subscription fee. Legacy functionality allows customers to initiate orders, route orders for the lowest cost acquisition, manage transactions, obtain spend and usage reporting, automate authentication, and connect seamlessly to in-house and third-party software systems. Customers can also enhance the information resources they already own or license and collaborate around bibliographic information.

 

Additional functionality has recently been added to our Platform in the form of interactive app-like gadgets. An alternative to manual data filtering, identification and extraction, gadgets are designed to gather, augment, and extract data across a variety of formats, including bibliographic citations, tables of contents, RSS feeds, PDF files, XML feeds, and web content. We are rapidly developing new gadgets in order to build an ecosystem of gadgets. Together, these gadgets will provide researchers with an “all in one” toolkit, delivering efficiencies in core research workflows and knowledge creation processes.

 

Our Platform is deployed as a single, multi-tenant system across our entire customer base. Customers securely access the Platform through online web interfaces and via web service APIs that enable customers to leverage Platform features and functionality from within in-house and third-party software systems. The Platform can also be configured to satisfy a customer’s individual preferences. We leverage our Platform’s efficiencies in scalability, stability and development costs to fuel rapid innovation and competitive advantage.

 

Transactions

 

Our Platform provides our customers with a single source to the universe of published STM content that includes over 70 million existing STM articles and over one million newly published STM articles each year. STM content is sold to our customers on a transaction basis. Researchers and knowledge workers in life science and other research-intensive organizations generally require single copies of published STM journal articles for use in their research activities. These individuals are our primary users.

 

Our Platform allows customers to find and download digital versions of STM articles that are critical to their research. Customers submit orders for the articles they need which we source and electronically deliver to them generally in under an hour. This service is generally known in the industry as single article delivery or document delivery. We also obtain the necessary permission licenses from the content publisher or other rights holder so that our customer’s use complies with applicable copyright laws. We have arrangements with hundreds of content publishers that allow us to distribute their content. The majority of these publishers provide us with electronic access to their content, which allows us to electronically deliver single articles to our customers often in a matter of minutes.

 

17

 

 

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 condensed consolidated financial statements and no cumulative effect adjustment was recognized.

 

Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. We derive our revenues from two sources: annual licenses that allow customers to access and utilize certain premium features of our cloud based SaaS research intelligence platform (“Platforms”) and the transactional sale of STM content managed, sourced and delivered through the Platform (“Transactions”).

 

 

We apply the following five steps in order to determine the appropriate amount of revenue to be recognized as we fulfill our obligations under each of our agreements:

 

·identify the contract with a customer;
·identify the performance obligations in the contract;
·determine the transaction price;
·allocate the transaction price to performance obligations in the contract; and
·recognize revenue as the performance obligation is satisfied.

 

Platforms

 

We charge a subscription fee that allows customers to access and utilize certain premium features of our Platform. Revenue is recognized ratably over the term of the subscription agreement, which is typically one year, provided all other revenue recognition criteria have been met. Billings or payments received in advance of revenue recognition are recorded as deferred revenue.

 

Transactions

 

We charge a transactional service fee for the electronic delivery of single articles, and a corresponding copyright fee for the permitted use of the content. We recognize revenue from single article delivery services upon delivery to the customer provided all other revenue recognition criteria have been met.

 

Stock-Based Compensation

 

We periodically issue stock options, warrants and restricted stock to employees and non-employees for services, in capital raising transactions, and for financing costs. We account for share-based payments under the guidance as set forth in the Share-Based Payment Topic 718 of the FASB Accounting Standards Codification, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. We estimate the fair value of stock option and warrant awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations. We estimate the fair value of restricted stock awards to employees and directors using the market price of our common stock on the date of grant, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations.

 

18

 

 

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.

 

Recent Accounting Pronouncements

 

Please refer to footnote 2 to the condensed consolidated financial statements contained elsewhere in this Form 10-Q for a discussion of Recent Accounting Pronouncements.

 

Quarterly Information (Unaudited)

 

The following table sets forth unaudited and quarterly financial data for the most recent eight quarters:

 

   Dec. 31,   Sept. 30,   June 30,   Mar. 31,   Dec. 31,   Sept. 30,   June 30,   Mar. 31, 
   2019   2019   2019   2019   2018   2018   2018   2018 
Revenue:                                        
Platforms  $949,825   $856,445   $803,917   $748,726   $667,545   $589,013   $528,581   $489,219 
Transactions   6,580,613    6,738,668    6,670,685    6,629,231    6,321,297    6,363,508    6,637,292    6,792,289 
Total revenue   7,530,438    7,595,113    7,474,602    7,377,957    6,988,842    6,952,521    7,165,873    7,281,508 
                                         
Cost of revenue:                                        
Platforms   162,508    150,470    142,368    134,672    122,077    108,259    101,370    103,185 
Transactions   5,094,130    5,128,108    5,104,629    5,063,624    4,878,526    4,896,307    5,118,851    5,259,959 
Total cost of revenue   5,256,638    5,278,578    5,246,997    5,198,296    5,000,603    5,004,566    5,220,221    5,363,144 
                                         
Gross profit:                                        
Platforms   787,317    705,975    661,549    614,054    545,468    480,754    427,211    386,034 
Transactions   1,486,483    1,610,560    1,566,056    1,565,607    1,442,771    1,467,201    1,518,441    1,532,330 
Total gross profit   2,273,800    2,316,535    2,227,605    2,179,661    1,988,239    1,947,955    1,945,652    1,918,364 
                                         
Operating expenses:                                        
Sales and marketing   638,837    550,349    659,108    542,641    445,879    431,417    455,250    522,894 
Technology and product dev.   548,719    499,191    549,198    537,685    553,272    499,795    454,053    436,672 
General and administrative   1,270,375    1,231,345    1,060,269    1,129,461    1,180,599    1,118,611    1,062,981    1,091,928 
Depreciation and amortization   6,840    7,558    8,351    9,617    9,733    11,115    32,731    32,768 
Stock-based comp. expense   523,632    142,672    126,903    131,072    453,288    115,909    75,089    114,340 
Foreign currency transaction loss (gain)   (5,456)   12,123    7,193    2,302    10,025    4,980    14,589    (9,737)
Total operating expenses   2,982,947    2,443,238    2,411,022    2,352,778    2,652,796    2,181,827    2,094,693    2,188,865 
Other income (expenses and income taxes)   25,721    19,055    27,289    22,393    16,322    14,264    12,615    5,238 
Loss from continuing operations   (683,426)   (107,648)   (156,128)   (150,724)   (648,235)   (219,608)   (136,426)   (265,263)
Gain on sale of discontinued operations   91,254    26,191    84,275    33,044    55,698    41,720    51,216    69,277 
Net income (loss)   (592,172)   (81,457)   (71,853)   (117,680)   (592,537)   (177,888)   (85,210)   (195,986)
                                         
Basic income (loss) per common share:                                        
Loss per share from continuing operations  $(0.03)  $-   $-   $-   $(0.03)  $(0.01)  $(0.01)  $(0.01)
Income per share from discontinued operations  $-   $-   $-   $-   $-   $-   $-   $- 
Net income (loss) per share  $(0.03)  $-   $-   $-   $(0.03)  $(0.01)  $(0.01)  $(0.01)
Basic weighted average common shares outstanding   24,185,966    24,095,266    23,987,137    23,845,798    23,787,836    23,644,787    23,560,781    23,498,796 
                                         
Diluted income (loss) per common share:                                        
Loss per share from continuing operations  $(0.03)  $-   $-   $-   $(0.03)  $(0.01)  $(0.01)  $(0.01)
Income per share from discontinued operations  $ -   $ -   $ -   $ -   $ -   $ -   $ -   $ - 
Net income (loss) per share  $(0.03)  $-   $-   $-   $(0.03)  $(0.01)  $(0.01)  $(0.01)
Diluted weighted average common shares outstanding   24,185,966    24,095,266    23,987,137    23,845,798    23,787,836    23,644,787    23,560,781    23,498,796 

 

19

 

 

Comparison of the Three and Six Months Ended December 31, 2019 and 2018

 

Results of Operations

 

   Three Months Ended December 31, 
   2019   2018  

2019-2018

$ Change

  

2019-2018

% Change

 
Revenue:                    
Platforms  $949,825   $667,545   $282,280    42.3%
Transactions   6,580,613    6,321,297    259,316    4.1%
Total revenue   7,530,438    6,988,842    541,596    7.7%
                     
Cost of revenue:                    
Platforms   162,508    122,077    40,431    33.1%
Transactions   5,094,130    4,878,526    215,604    4.4%
Total cost of revenue   5,256,638    5,000,603    256,035    5.1%
                     
Gross profit:                    
Platforms   787,317    545,468    241,849    44.3%
Transactions   1,486,483    1,442,771    43,712    3.0%
Total gross profit   2,273,800    1,988,239    285,561    14.4%
                     
Operating expenses:                    
Sales and marketing   638,837    445,879    192,958    43.3%
Technology and product development   548,719    553,272    (4,553)   (0.8)%
General and administrative   1,270,375    1,180,599    89,776    7.6%
Depreciation and amortization   6,840    9,733    (2,893)   (29.7)%
Stock-based compensation expense   523,632    453,288    70,344    15.5%
Foreign currency transaction loss (gain)   (5,456)   10,025    (15,481)   (154.4)%
Total operating expenses   2,982,947    2,652,796    330,151    12.4%
Loss from operations   (709,147)   (664,557)   (44,590)   (6.7)%
                     
Other income (expenses):                    
Other income   26,527    23,764    2,763    11.6%
Total other income   26,527    23,764    2,763    11.6%
                     
Loss from operations before provision for income taxes   (682,620)   (640,793)   (41,827)   (6.5)%
Provision for income taxes   (806)   (7,442)   6,636    89.2%
                     
Loss from continuing operations   (683,426)   (648,235)   (35,191)   (5.4)%
                     
Gain from sale of discontinued operations   91,254    55,698    35,556    63.8%
                     
Net loss  $(592,172)  $(592,537)  $365    0.1%

 

20

 

 

   Six Months Ended December 31, 
   2019   2018  

2019-2018

$ Change

  

2019-2018

% Change

 
Revenue:                    
Platforms  $1,806,270   $1,256,558   $549,712    43.7%
Transactions   13,319,281    12,684,805    634,476    5.0%
Total revenue   15,125,551    13,941,363    1,184,188    8.5%
                     
Cost of revenue:                    
Platforms   312,978    230,336    82,642    35.9%
Transactions   10,222,238    9,774,833    447,405    4.6%
Total cost of revenue   10,535,216    10,005,169    530,047    5.3%
                     
Gross profit:                    
Platforms   1,493,292    1,026,222    467,070    45.5%
Transactions   3,097,043    2,909,972    187,071    6.4%
Total gross profit   4,590,335    3,936,194    654,141    16.6%
                     
Operating expenses:                    
Sales and marketing   1,189,186    877,296    311,890    35.6%
Technology and product development   1,047,910    1,053,067    (5,157)   (0.5)%
General and administrative   2,501,720    2,299,210    202,510    8.8%
Depreciation and amortization   14,398    20,848    (6,450)   (30.9)%
Stock-based compensation expense   666,304    569,197    97,107    17.1%
Foreign currency transaction loss (gain)   6,667    15,005    (8,338)   (55.6)%
Total operating expenses   5,426,185    4,834,623    591,562    12.2%
Loss from operations   (835,850)   (898,429)   62,579    7.0%
                     
Other income (expenses):                    
Other income   52,076    47,249    4,827    10.2%
Total other income   52,076    47,249    4,827    10.2%
                     
Loss from operations before provision for income taxes   (783,774)   (851,180)   67,406    7.9%
Provision for income taxes   (7,300)   (16,663)   9,363    56.2%
                     
Loss from continuing operations   (791,074)   (867,843)   76,769    8.8%
                     
Gain from sale of discontinued operations   117,445    97,418    20,027    20.6%
                     
Net loss  $(673,629)  $(770,425)  $96,796    12.6%

 

Revenue

 

   Three Months Ended December 31, 
   2019   2018  

2019-2018

$ Change

  

2019-2018

% Change

 
Revenue:                    
Platforms  $949,825   $667,545   $282,280    42.3%
Transactions   6,580,613    6,321,297    259,316    4.1%
Total revenue  $7,530,438   $6,988,842   $541,596    7.7%

 

Total revenue increased $541,596, or 7.7%, for the three months ended December 31, 2019 compared to the prior year, due to the following:

 

Category Impact   Key Drivers
Platforms $ 282,280   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.
Transactions   $ 259,316   Increased primarily due to orders from new customers.

 

21

 

 

   Six Months Ended December 31, 
   2019   2018  

2019-2018

$ Change

  

2019-2018

% Change

 
Revenue:                    
Platforms  $1,806,270   $1,256,558   $549,712    43.7%
Transactions   13,319,281    12,684,805    634,476    5.0%
Total revenue  $15,125,551   $13,941,363   $1,184,188    8.5%

 

Total revenue increased $1,184,188, or 8.5%, for the six months ended December 31, 2019 compared to the prior year, due to the following:

 

Category Impact   Key Drivers
Platforms $ 549,712   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.
Transactions   $ 634,476   Increased primarily due to orders from new customers.

 

Cost of Revenue

 

   Three Months Ended December 31, 
   2019   2018  

2019-2018

$ Change

  

2019-2018

% Change

 
Cost of Revenue:                    
Platforms  $162,508   $122,077   $40,431    33.1%
Transactions   5,094,130    4,878,526    215,604    4.4%
Total cost of revenue  $5,256,638   $5,000,603   $256,035    5.1%

 

 

   Three Months Ended December 31, 
   2019   2018   2019-2018 Change * 
As a percentage of revenue:               
Platforms   17.1%   18.3%   (1.2)%
Transactions   77.4%   77.2%   0.2%
Total   69.8%   71.6%   (1.8)%

 

* The difference between current and prior period cost of revenue as a percentage of revenue

  

Total cost of revenue as a percentage of revenue decreased 1.8%, from 71.6% for the previous year to 69.8%, for the three months ended December 31, 2019.

 

Category Impact as percentage of revenue   Key Drivers
Platforms   1.2 %   Decreased primarily due to proportionally lower third-party data costs.
Transactions   0.2 %   Increased primarily due to proportionally higher personnel costs, and slightly offset by lower copyright costs.

 

Cost of Revenue

 

   Six Months Ended December 31, 
   2019   2018  

2019-2018

$ Change

  

2019-2018

% Change

 
Cost of Revenue:                    
Platforms  $312,978   $230,336   $82,642    35.9%
Transactions   10,222,238    9,774,833    447,405    4.6%
Total cost of revenue  $10,535,216   $10,005,169   $530,047    5.3%

 

22

 

 

   Six Months Ended December 31, 
   2019   2018  

2019-2018

Change *

 
As a percentage of revenue:               
Platforms   17.3%   18.3%   (1.0)%
Transactions   76.7%   77.1%   (0.4)%
Total    69.7%   71.8%   (2.1)%

 

* 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 2.1%, from 71.8% for the previous year to 69.7%, for the six months ended December 31, 2019.

 

Category Impact as percentage of revenue   Key Drivers
Platforms   1.0 %   Decreased primarily due to proportionally lower third-party data costs.
Transactions     0.4 %   Decreased primarily due to proportionally lower personnel and copyright costs.

 

Gross Profit

 

   Three Months Ended December 31, 
   2019   2018  

2019-2018

$ Change

  

2019-2018

% Change

 
Gross Profit:                    
Platforms  $787,317   $545,468   $241,849    44.3%
Transactions   1,486,483    1,442,771    43,712    3.0%
Total gross profit  $2,273,800   $1,988,239   $285,561    14.4%

 

   Three Months Ended December 31, 
   2019   2018  

2019-2018

Change *

 
As a percentage of revenue:               
Platforms   82.9%   81.7%   1.2%
Transactions   22.6%   22.8%   (0.2)%
Total    30.2%   28.4%   1.8%

 

* The difference between current and prior period gross profit as a percentage of revenue

 

Gross Profit

 

   Six Months Ended December 31, 
   2019   2018  

2019-2018

$ Change

  

2019-2018

% Change

 
Gross Profit:                    
Platforms  $1,493,292   $1,026,222   $467,070    45.5%
Transactions   3,097,043    2,909,972    187,071    6.4%
Total gross profit  $4,590,335   $3,936,194   $654,141    16.6%

 

   Six Months Ended December 31, 
   2019   2018  

2019-2018

Change *

 
As a percentage of revenue:               
Platforms   82.7%   81.7%   1.0%
Transactions   23.3%   22.9%   0.4%
Total    30.3%   28.2%   2.1%

 

* The difference between current and prior period gross profit as a percentage of revenue 

 

23

 

 

Operating Expenses

 

   Three Months Ended December 31, 
   2019   2018  

2019-2018

$ Change

  

2019-2018

% Change

 
Operating Expenses:                    
Sales and marketing  $638,837   $445,879   $192,958    43.3%
Technology and product development   548,719    553,272    (4,553)   (0.8)%
General and administrative   1,270,375    1,180,599    89,776    7.6%
Depreciation and amortization   6,840    9,733    (2,893)   (29.7)%
Stock-based compensation expense   523,632    453,288    70,344    15.5%
Foreign currency transaction loss (gain)   (5,456)   10,025    (15,481)   (154.4)%
Total operating expenses  $2,982,947   $2,652,796   $330,151    12.4%

 

Category Impact   Key Drivers
Sales and marketing   $ 192,958   Increased primarily due to greater personnel costs.
General and administrative   $ 89,776   Increased primarily due to greater professional service fees and personnel costs.

 

   Six Months Ended December 31, 
   2019   2018  

2019-2018

$ Change

  

2019-2018

% Change

 
Operating Expenses:                    
Sales and marketing  $1,189,186   $877,296   $311,890    35.6%
Technology and product development   1,047,910    1,053,067    (5,157)   (0.5)%
General and administrative   2,501,720    2,299,210    202,510    8.8%
Depreciation and amortization   14,398    20,848    (6,450)   (30.9)%
Stock-based compensation expense   666,304    569,197    97,107    17.1%
Foreign currency transaction loss (gain)   6,667    15,005    (8,338)   (55.6)%
Total operating expenses  $5,426,185   $4,834,623   $591,562    12.2%

 

Category Impact   Key Drivers
Sales and marketing   $ 311,890   Increased primarily due to greater personnel costs and advertising media spend.
General and administrative   $ 202,510   Increased primarily due to greater professional service fees and personnel costs.

 

Net Income (Loss)

 

   Three Months Ended December 31, 
   2019   2018  

2019-2018

$ Change

  

2019-2018

% Change

 
Net Income (Loss):                    
Loss from continuing operations  $(683,426)  $(648,235)  $(35,191)   (5.4)%
Income from discontinued operations   91,254    55,698    35,556    63.8%
Total net loss  $(592,172)  $(592,537)  $365    0.1%

 

Loss from continuing operations increased $35,191 or 5.4%, for the three months ended December 31, 2019 compared to the prior year, primarily due to increased operating expenses, partially offset by increased gross profit as described above.

 

   Six Months Ended December 31, 
   2019   2018  

2019-2018

$ Change

  

2019-2018

% Change

 
Net Income (Loss):                    
Loss from continuing operations  $(791,074)  $(867,843)  $76,769    8.8%
Income from discontinued operations   117,445    97,418    20,027    20.6%
Total net loss  $(673,629)  $(770,425)  $96,796    12.6%

 

24

 

 

 

 

Loss from continuing operations decreased $76,769 or 8.8%, for the six months ended December 31, 2019 compared to the prior year, primarily due to increased gross profit, partially offset by increased gross operating expenses as described above.

 

Liquidity and Capital Resources

 

   Six Months Ended December 31, 
   2019   2018 
Consolidated Statements of Cash Flow Data:          
Net cash provided by (used in) operating activities  $1,617,651   $(22,719)
Net cash used in investing activities   -    (4,154)
Net cash used in financing activities   (199,374)   (113,278)
           
Effect of exchange rate changes   (2,239)   (6,501)
Net increase (decrease) in cash and cash equivalents   1,416,038    (146,652)
Cash and cash equivalents, beginning of period   5,353,090    4,908,180 
Cash and cash equivalents, end of period  $6,769,128   $4,761,528 

 

Liquidity

 

Since our inception, we have funded our operations primarily through private sales of equity securities and the exercise of warrants, which have provided aggregate net cash proceeds to date of approximately $15,972,000. As of December 31, 2019, we had working capital of $2,672,566 and stockholders’ equity of $2,822,991. For the six months ended December 31, 2019, we recorded a net loss of $673,629, and cash provided by operating activities was $1,617,651. We may incur losses for an indeterminate period and may never sustain profitability. We may be unable to achieve and maintain profitability on a quarterly or annual basis. An extended period of losses and negative cash flow may prevent us from successfully operating and expanding our business.

 

As of December 31, 2019, we had cash and cash equivalents of $6,769,128, compared to $5,353,090 as of June 30, 2019, an increase of $1,416,038. This increase was primarily due to cash provided by operating activities.

 

Operating Activities

 

Net cash provided by operating activities was $1,617,651 for the six months ended December 31, 2019 and resulted primarily from an increase in accounts payable and accrued expenses of $993,845 and an increase in deferred revenue of $563,209, partially offset by a decrease in accounts receivable of $342,389.

 

Net cash used in operating activities was $22,719 for the six months ended December 31, 2018 and resulted primarily from a net loss of $770,425 and an increase in prepaid royalties of $367,792, partially offset by an increase in deferred revenue of $358,489.

 

Investing Activities

 

No cash was used in or provided by investing activities for the six months ended December 31, 2019.

 

Net cash used in investing activities was $4,154 for the six months ended December 31, 2018 and resulted from the purchase of property and equipment.

 

Financing Activities

 

Net cash used in financing activities was $199,374 for the six months ended December 31, 2019 and resulted from the repurchase of common stock.

 

Net cash used in financing activities was $113,278 for the six months ended December 31, 2018 and resulted from the repurchase of common stock.

 

We entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB”) on July 23, 2010, which, as amended, provides for a revolving line of credit for the lesser of $2,500,000, or 80% of eligible accounts receivable. The line of credit matures on February 14, 2020, and is subject to certain financial and performance covenants with which we were in compliance as of December 31, 2019. Financial covenants include maintaining an adjusted quick ratio of unrestricted cash and net accounts receivable, divided by current liabilities plus debt less deferred revenue of at least 1.15 to 1.0, and maintaining tangible net worth of $1,500,000, plus 50% of net income for the fiscal quarter ended from and after December 31, 2017, plus 50% of the dollar value of equity issuances after October 1, 2017 and the principal amount of subordinated debt. The line of credit bears interest at the prime rate plus 2.25% for periods in which we maintain an adjusted quick ratio of 1.3 to 1.0 (the “Streamline Period”), and at the prime rate plus 5.25% when a Streamline Period is not in effect. The interest rate on the line of credit was 6.75% as of December 31, 2019. The line of credit was secured by our consolidated assets.

 

There were no outstanding borrowings under the line as of December 31, 2019 and June 30, 2019, respectively.  As of December 31, 2019, there was approximately $2,320,000 of available credit.

 

25

 

 

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 three and six months ended December 31, 2019 and 2018:

 

   Three Months Ended December 31, 
   2019   2018  

2019-2018

$ Change

 
Net loss  $(592,172)  $(592,537)  $365 
Add (deduct):               
Other (income) expense   (26,527)   (23,764)   (2,763)
Foreign currency transaction loss (gain)   (5,456)   10,025    (15,481)
Provision for income taxes   806    7,442    (6,636)
Depreciation and amortization   6,840    9,733    (2,893)
Stock-based compensation   523,632    453,288    70,344 
Gain on sale of discontinued operations   (91,254)   (55,698)   (35,556)
Adjusted EBITDA  $(184,131)  $(191,511)  $7,380 

 

   Six Months Ended December 31, 
   2019   2018  

2019-2018

$ Change

 
Net loss  $(673,629)  $(770,425)  $96,796 
Add (deduct):               
Other (income) expense   (52,076)   (47,249)   (4,827)
Foreign currency transaction loss (gain)   6,667    15,005    (8,338)
Provision for income taxes   7,300    16,663    (9,363)
Depreciation and amortization   14,398    20,848    (6,450)
Stock-based compensation   666,304    569,197    97,107 
Gain on sale of discontinued operations   (117,445)   (97,418)   (20,027)
Adjusted EBITDA  $(148,481)  $(293,379)  $144,898 

 

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.

 

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Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not required.

 

Item 4. 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 Quarterly Report on Form 10-Q. 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 December 31, 2019, the end of the period covered by this report, our disclosure controls and procedures were effective at a reasonable assurance level.

 

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 Control Over Financial Reporting

 

In addition, our management with the participation of our principal executive officer and principal financial officer have determined that no change in our internal control over financial reporting (as that term is defined in Rules 13(a)-15(f) and 15(d)-15(f) of the Exchange Act) occurred during the quarter ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II — OTHER INFORMATION

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Effective as of November 13, 2018, the Compensation Committee of our Board of Directors authorized the repurchase, during calendar year 2019 on the last day of each trading window and otherwise in accordance with our insider trading policies, of up to $300,000 of outstanding common stock (at prices no greater than $3.00 per share) from our employees to satisfy their tax obligations in connection with the vesting of stock incentive awards. The actual number of shares repurchased will be determined by applicable employees in their discretion, and will depend on their evaluation of market conditions and other factors.

 

During the three months ended December 31, 2019, we repurchased 42,500 shares of our common stock from employees at an average market price of approximately $3.00 per share for an aggregate amount of $127,500.

 

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As of December 31, 2019, $13,880 remains available under the 2019 plan to repurchase common stock from our employees. The shares of common stock were surrendered by employees to cover tax withholding obligations with respect to the vesting of restricted stock. Shares repurchased are retired and deducted from common stock for par value and from additional paid in capital for the excess over par value.

 

The following table summarizes repurchases of our common stock on a monthly basis:

 

Period  Total Number of
Shares
Purchased
1
   Average Price
Paid per Share
   Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs
   Approximate Dollar Value of
Shares that May Yet Be
Purchased Under the
Plans or Programs
 
October 2019   -    -    -   $141,380 
November 2019   -    -    -   $141,380 
December 2019   42,500   $3.00    -   $13,880 
Total   42,500   $3.00    -    - 

1 Consists of shares of common stock purchased from an employee to satisfy tax obligations in connection with the vesting of stock incentive awards.

 

Item 6. Exhibits

 

See “Exhibit Index” on the page immediately following the signature page hereto for a list of exhibits filed as part of this report, which is incorporated herein by reference.

 

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SIGNATURES

 

Pursuant to the requirements 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.

 

  RESEARCH SOLUTIONS, INC.
   
  By: /s/ Peter Victor Derycz
     
    Peter Victor Derycz
Date: February 13, 2020   Chief Executive Officer (Principal Executive Officer)
 
  By: /s/ Alan Louis Urban
     
    Alan Louis Urban
Date: February 13, 2020   Chief Financial Officer (Principal Financial and Accounting Officer)

 

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EXHIBIT INDEX

 

Exhibit

Number

  Description
31.1   Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2   Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1   Section 1350 Certification of Chief Executive Officer *
32.2   Section 1350 Certification of Chief Financial Officer *
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema
101.CAL   XBRL Taxonomy Extension Calculation Linkbase
101.DEF   XBRL Taxonomy Extension Definition Linkbase
101.LAB   XBRL Taxonomy Extension Label Linkbase
101.PRE   XBRL Taxonomy Extension Presentation Linkbase
  * Furnished herewith
  ++ Indicates management contract or compensatory plan
         

 

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