Company Quick10K Filing
Quick10K
Research Solutions
10-Q 2018-12-31 Quarter: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-K 2018-06-30 Annual: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-K 2017-06-30 Annual: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-K 2016-06-30 Annual: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-K 2015-06-30 Annual: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-K 2014-06-30 Annual: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2018-11-13 Shareholder Vote
8-K 2018-01-08 Officers, Exhibits
8-K 2017-12-28 Enter Agreement
NTNX Nutanix 7,480
EGHT 8X8 2,140
RVI Retail Value 636
FSB Franklin Financial Network 410
LEAF Leaf Group 232
MNLO Menlo Therapeutics 172
CGIX Cancer Genetics 15
RHIS Reliant Holdings 0
ATXG Addentax Group 0
LWEL Luckwel Pharmaceuticals 0
RSSS 2018-12-31
Part 1 &Mdash; Financial Information
Item 1. Condensed Consolidated Financial Statements
Note 1. Organization, Nature of Business and Basis of Presentation
Note 2. Summary of Significant Accounting Policies
Note 3. Line of Credit
Note 4. Lease Obligations
Note 5. Stockholders' Equity
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II &Mdash; Other Information
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 6. Exhibits
EX-31.1 tv512233_ex31-1.htm
EX-31.2 tv512233_ex31-2.htm
EX-32.1 tv512233_ex32-1.htm
EX-32.2 tv512233_ex32-2.htm

Research Solutions Earnings 2018-12-31

RSSS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 tv512233_10q.htm 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, 2018

 

¨ 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.)
   
15821 Ventura Blvd., Suite 165, 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)

 

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 8, 2019
Common Stock, $0.001 par value   24,239,013

 

 

 

 

 

 

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 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk 26
Item 4. Controls and Procedures 26
   
PART II — OTHER INFORMATION 26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 26
Item 6. Exhibits 27
   
SIGNATURES 28

 

 2 

 

 

PART 1 — FINANCIAL INFORMATION

 

Item 1. Condensed Consolidated Financial Statements

 

Research Solutions, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

 

   December 31,   June 30, 
   2018   2018 
   (unaudited)    
Assets          
Current assets:          
Cash and cash equivalents  $4,761,528   $4,908,180 
Accounts receivable, net of allowance of $99,706 and $115,040, respectively   3,967,597    4,251,251 
Prepaid expenses and other current assets   417,837    326,887 
Prepaid royalties   461,128    93,336 
Total current assets   9,608,090    9,579,654 
           
Other assets:          
Property and equipment, net of accumulated depreciation of $771,038 and $749,923, respectively   42,798    59,043 
Deposits and other assets   14,386    14,372 
Right of use asset, net of accumulated amortization of $212,658 and $155,698, respectively   250,364    307,324 
Total assets  $9,915,638   $9,960,393 
           
Liabilities and Stockholders’ Equity          
Current liabilities:          
Accounts payable and accrued expenses  $4,662,622   $4,686,946 
Deferred revenue   2,024,235    1,665,746 
Lease liability, current portion   124,409    119,786 
Total current liabilities   6,811,266    6,472,478 
           
Long-term liabilities:          
Lease liability, long-term portion   145,514    208,513 
Total liabilities   6,956,780    6,680,991 
           
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; 24,239,013 and 24,016,999  shares issued and outstanding, respectively   24,239    24,017 
Additional paid-in capital   23,360,388    22,904,691 
Accumulated deficit   (20,325,024)   (19,554,599)
Accumulated other comprehensive loss   (100,745)   (94,707)
Total stockholders’ equity   2,958,858    3,279,402 
Total liabilities and stockholders’ equity  $9,915,638   $9,960,393 

 

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
December 31,
   Six Months Ended
December 31,
 
   2018   2017   2018   2017 
                     
Revenue:                    
Platforms  $667,545   $413,404   $1,256,558   $801,349 
Transactions   6,321,297    6,409,816    12,684,805    12,769,711 
Total revenue   6,988,842    6,823,220    13,941,363    13,571,060 
                     
Cost of revenue:                    
Platforms   122,077    90,362    230,336    174,349 
Transactions   4,878,526    4,996,988    9,774,833    9,911,402 
Total cost of revenue   5,000,603    5,087,350    10,005,169    10,085,751 
Gross profit   1,988,239    1,735,870    3,936,194    3,485,309 
                     
Operating expenses:                    
Selling, general and administrative   2,643,063    2,391,969    4,813,775    4,929,005 
Depreciation and amortization   9,733    46,330    20,848    86,898 
Total operating expenses   2,652,796    2,438,299    4,834,623    5,015,903 
Loss from operations   (664,557)   (702,429)   (898,429)   (1,530,594)
                     
Other income (expenses):                    
Interest expense   -    (3,000)   -    (6,000)
Other income   23,764    11,312    47,249    24,114 
Total other income   23,764    8,312    47,249    18,114 
                     
Loss from operations before provision for income taxes   (640,793)   (694,117)   (851,180)   (1,512,480)
Provision for income taxes   (7,442)   (9,816)   (16,663)   (21,567)
                     
Loss from continuing operations   (648,235)   (703,933)   (867,843)   (1,534,047)
                     
Gain from sale of discontinued operations   55,698    79,353    97,418    136,502 
                     
Net loss   (592,537)   (624,580)   (770,425)   (1,397,545)
Other comprehensive income (loss):                    

Foreign currency translation

   (1,668)   (6,715)   (6,038)   (15,666)
Comprehensive loss  $(594,205)  $(631,295)  $(776,463)  $(1,413,211)
                     
Loss per common share:                    
Loss per share from continuing operations, basic and diluted  $(0.03)  $(0.03)  $(0.04)  $(0.07)
Income per share from discontinued operations, basic and diluted  $-   $-   $0.01   $0.01 
Net loss per share, basic and diluted  $(0.03)  $(0.03)  $(0.03)  $(0.06)
Weighted average common shares outstanding, basic and diluted   23,787,836    23,455,654    23,716,312    23,418,046 

 

 

See notes to condensed consolidated financial statements

 

 4 

 

 

Research Solutions, Inc. and Subsidiaries

Condensed Consolidated Statement 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

 

 5 

 

  

Research Solutions, Inc. and Subsidiaries

Condensed Consolidated Statement of Stockholders' Equity

For the Six Months Ended December 31, 2017

(Unaudited)

 

   Common Stock   Additional Paid-in   Accumulated   Other Comprehensive   Total Stockholders' 
   Shares   Amount   Capital   Deficit   Loss   Equity 
                         
Balance, July 1, 2017   23,883,145   $23,883   $22,267,327   $(17,875,858)  $(70,729)  $4,344,623 
                               
Fair value of vested stock options   -    -    176,983    -    -    176,983 
                               
Fair value of vested restricted common stock   286,647    287    102,739    -    -    103,026 
                               
Repurchase of common stock   (34,800)   (35)   (39,637)   -    -    (39,672)
                               
Modification cost of stock options   -    -    6,233    -    -    6,233 
                               
Net loss for the period   -    -    -    (772,965)   -    (772,965)
    -                          
Foreign currency translation        -    -    -    (8,951)   (8,951)
                               
Balance, September 30, 2017   24,134,992    24,135    22,513,645    (18,648,823)   (79,680)   3,809,277 
                               
Fair value of vested stock options   -    -    212,253    -    -    212,253 
                               
Fair value of vested restricted common stock   51,655    52    102,261    -    -    102,313 
                               
Repurchase of common stock   (52,300)   (52)   (63,231)   -    -    (63,283)
                               
Common stock issued upon exercise of stock options   13,235    13    (13)   -    -    - 
                               
Net loss for the period   -    -    -    (624,580)   -    (624,580)
                               
Foreign currency translation   -    -    -    -    (6,715)   (6,715)
                               
Balance, December 31, 2017   24,147,582   $24,148   $22,764,915   $(19,273,403)  $(86,395)  $3,429,265 

 

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, 
   2018    2017 
         
Cash flow from operating activities:          
Net loss  $(770,425)  $(1,397,545)
Adjustment to reconcile net loss to net cash used in operating activities of operations:          
Gain from sale of discontinued operations   (97,418)   (136,502)
Depreciation and amortization   20,848    86,898 
Amortization of lease right   56,960    54,759 
Fair value of vested stock options   415,443    389,236 
Fair value of vested restricted common stock   153,754    205,339 
Modification cost of stock options   -    6,233 
Changes in operating assets and liabilities:          
Accounts receivable   283,654    1,726,200 
Prepaid expenses and other current assets   6,468    17,416 
Prepaid royalties   (367,792)   (169,863)
Accounts payable and accrued expenses   (24,324)   (1,389,286)
Deferred revenue   358,489    (29,046)
Lease liability   (58,376)   (54,000)
Net cash used in operating activities   (22,719)   (690,161)
           
Cash flow from investing activities:          
Purchase of property and equipment   (4,154)   (29,284)
Purchase of intangible assets   -    (14,252)
Net cash used in investing activities   (4,154)   (43,536)
           
Cash flow from financing activities:          
Common stock repurchase and retirement   (113,278)   (102,955)
Net cash used in financing activities   (113,278)   (102,955)
           
Effect of exchange rate changes   (6,501)   (12,678)
Net decrease in cash and cash equivalents   (146,652)   (849,330)
Cash and cash equivalents, beginning of period   4,908,180    5,773,950 
Cash and cash equivalents, end of period  $4,761,528   $4,924,620 
           
Supplemental disclosures of cash flow information:          
Cash paid for income taxes  $16,663   $21,567 
Cash paid for interest  $-   $6,000 

 

See notes to condensed consolidated financial statements 

 

 7 

 

 

RESEARCH SOLUTIONS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended December 31, 2018 and 2017 (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. Legacy functionality allows customers to initiate orders, route orders for the lowest cost acquisition, manage transactions, obtain spend and usage reporting, automate authentication, and connect seamlessly to in-house and third-party software systems. Customers can also enhance the information resources they already own or license and collaborate around bibliographic information.

 

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

 

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

 

Transactions

 

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

 

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

 

Principles of Consolidation

 

The accompanying financial statements are consolidated and include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation.

 

 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, 2018 filed with the SEC. The condensed consolidated balance sheet as of June 30, 2018 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 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, 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 $89,294 and $109,585 at December 31, 2018 and June 30, 2018, 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, 2018 and 2017.

 

The Company has no customers that accounted for greater than 10% of accounts receivable at December 31, 2018 and June 30, 2018.

 

The following table summarizes vendor concentrations:

 

   Three Months Ended
December 31,
   Six Months Ended
December 31,
 
   2018   2017   2018   2017 
Vendor A   18%   15%   18%   15%
Vendor B   11%   12%   11%   12%
Vendor C   13%   12%   12%   12%

 

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”).

 

 

 9 

 

 

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 only when the selling price is fixed or determinable, and collectability is reasonably assured.

 

Deferred Revenue

 

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

 

Cost of Revenue

 

Platforms

 

Cost of Platform revenue consists primarily of personnel costs of our operations team, and to a lesser extent managed hosting providers and other third-party service and data providers.

 

Transactions

 

Cost of Transaction revenue consists primarily of the respective copyright fee for the permitted use of the content, less a discount in most cases, and to a much lesser extent, personnel costs of our operations team and third-party service providers.

 

Stock-Based Compensation

 

The Company periodically issues stock options, warrants and restricted stock to employees and non-employees for services, in capital raising transactions, and for financing costs. The Company accounts for share-based payments under the guidance as set forth in the Share-Based Payment Topic 718 of the FASB Accounting Standards Codification, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. The Company estimates the fair value of stock option and warrant awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in the Company's Statements of Operations. The Company estimates the fair value of restricted stock awards to employees and directors using the market price of the Company’s common stock on the date of grant, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in the Company's Statements of Operations. The Company accounts for share-based payments to non-employees in accordance with Topic 505 of the FASB Accounting Standards Codification, whereby the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) the date at which the necessary performance to earn the equity instruments is complete. Stock-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, as necessary, in subsequent periods if actual forfeitures differ from those estimates. 

 

 10 

 

 

Foreign Currency

 

The accompanying consolidated financial statements are presented in United States dollars, the functional currency of the Company. Capital accounts of foreign subsidiaries are translated into US Dollars from foreign currency at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rate as of the balance sheet date. Income and expenditures are translated at the average exchange rate of the period. Although the majority of our revenue and costs are in US dollars, the costs of Reprints Desk Latin America are in Mexican Pesos. As a result, currency exchange fluctuations may impact our revenue and the costs of our operations. We currently do not engage in any currency hedging activities.

 

Gains and losses from foreign currency transactions, which result from a change in exchange rates between the functional currency and the currency in which a foreign currency transaction is denominated, are included in selling, general and administrative expenses and amounted to a loss of $10,025 and $15,005, for the three and six months ended December 31, 2018, respectively and a gain of $485 and $12,872, for the three and six months ended December 31, 2017. Cash denominated in Euros with a US Dollar equivalent of $89,294 and $109,585 at December 31, 2018 and June 30, 2018, 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,
 
   2018   2017   2018   2017 
Period end Euro : US Dollar exchange rate   1.15    1.20    1.17    1.14 
Average period Euro : US Dollar exchange rate   1.15    1.17    1.19    1.09 
                     
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 

 

Net Income (Loss) Per Share

 

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period, excluding unvested restricted common stock. Shares of restricted stock are included in the basic weighted average number of common shares outstanding from the time they vest. Diluted earnings per share is computed by dividing the net income applicable to common stock holders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Shares of restricted stock are included in the diluted weighted average number of common shares outstanding from the date they are granted. Potential common shares are excluded from the computation when their effect is antidilutive. At 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.  At December 31, 2017 potentially dilutive securities include options to acquire 3,185,435 shares of common stock, warrants to acquire 1,985,000 shares of common stock and unvested restricted common stock of 658,160. 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, 2018 and 2017 because all stock options, warrants, and unvested restricted common stock are anti-dilutive.

 

Recently Issued Accounting Pronouncements

 

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” The ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The ASU also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Revenue from Contracts with Customers (Topic 606). The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Early adoption is permitted. The Company is currently assessing the effect that the ASU will have on our financial position, results of operations, and disclosures.

 

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 December 31, 2019, and is subject to certain financial and performance covenants with which we were in compliance as of December 31, 2018. 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, 2018. The line of credit is secured by the Company’s consolidated assets.

 

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There were no outstanding borrowings under the line as of December 31, 2018 and June 30, 2018, respectively.  As of December 31, 2018, there was approximately $2,153,000 of available credit.

 

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 fair value of the lease assets and liability at the inception of the lease was $463,000 using a discount rate of 3.75%. During the six months ended December 31, 2018, the Company made payments of $58,376 towards the lease liability. As of December 31, 2018 and June 30, 2018, lease liability amounted to $269,923 and $328,299, respectively. ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. Rent expense, including real estate taxes, for the six months ended December 31, 2018 and 2017 was $72,688 and $70,491, respectively. The right of use asset at June 30, 2018 was $307,324. During the six months ended December 31, 2018, the Company reflected amortization of right of use asset of $56,960 related to this lease, resulting in a net asset balance of $250,364 as of December 31, 2018.

 

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. 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, 2018, there were 577,277 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, 2018   2,991,835    1.16    2,885,376    1.15    106,459    1.27 
Granted   697,000    2.21    250,000    2.40    447,000    2.10 
Options vesting   -    -    33,167    1.11    (33,167)   1.11 
Exercised   (198,500)   1.34    (198,500)   1.34    -    - 
Forfeited/Cancelled   (25,000)   1.05    (16,667)   1.05    (8,333)   1.05 
Outstanding at December 31, 2018   3,465,335   $1.36    2,953,376   $1.24    511,959   $2.01 

 

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, 2018 and 2017.

 

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   Six Months Ended
 December 31,
 
   2018     2017 
Expected dividend yield  0%    0%
Risk-free interest rate  2.82% - 3.00  %     1.45% - 2.23  %
Expected life (in years)  5 - 6      2.6 - 6 
Expected volatility  68% - 69  %     75% - 76 %

 

The weighted average remaining contractual life of all options outstanding as of December 31, 2018 was 6.10 years. The remaining contractual life for options vested and exercisable at December 31, 2018 was 5.71 years. Furthermore, the aggregate intrinsic value of options outstanding as of December 31, 2018 was $3,786,241, and the aggregate intrinsic value of options vested and exercisable at December 31, 2018 was $3,561,340, in each case based on the fair value of the Company’s common stock on December 31, 2018.

 

During the six months ended December 31, 2018, the Company granted 697,000 options to employees with a fair value of $854,260.  The total fair value of options that vested during the six months ended December 31, 2018 was $415,443 and is included in selling, general and administrative expenses in the accompanying statement of operations.  During the six months ended December 31, 2018, the Company issued 82,800 shares of common stock upon the exercise of 198,500 options on a cashless basis.

 

As of December 31, 2018, the amount of unvested compensation related to stock options was $506,837 which will be recorded as an expense in future periods as the options vest.

 

Additional information regarding stock options outstanding and exercisable as of December 31, 2018 is as follows:

 

Option
Exercise
Price
   Options
Outstanding
   Remaining
Contractual 
Life (in years)
   Options
Exercisable
 
$0.59    8,150    3.50    8,150 
 0.60    5,000    3.50    5,000 
 0.65    6,150    3.50    6,150 
 0.70    225,000    6.93    225,000 
 0.77    59,500    4.76    59,500 
 0.80    16,000    6.64    16,000 
 0.90    25,667    5.31    25,667 
 0.97    6,000    3.50    6,000 
 1.00    215,249    1.00    215,249 
 1.02    227,000    1.93    227,000 
 1.05    422,529    7.61    413,278 
 1.07    53,898    3.79    53,898 
 1.09    156,165    6.95    148,290 
 1.10    105,000    6.50    105,000 
 1.14    3,674    3.50    3,674 
 1.15    209,400    2.82    209,400 
 1.20    352,414    8.57    339,581 
 1.25    32,000    4.12    32,000 
 1.30    243,000    3.18    243,000 
 1.50    195,000    3.88    195,000 
 1.59    35,000    9.36    - 
 1.75    1,067    3.50    1,067 
 1.80    140,050    4.40    140,050 
 1.85    24,000    4.09    24,000 
 1.95    295,000    9.51    - 
 1.97    1,422    3.50    1,422 
 2.40    402,000    9.88    250,000 
 Total    3,465,335         2,953,376 

 

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Warrants

 

The following table summarizes warrant activity:

 

   Number of
Warrants
   Weighted
Average
Exercise
Price
 
Outstanding, June 30, 2018   1,985,000    1.25 
Granted   -    - 
Exercised   (100,000)   1.22 
Expired/Cancelled   -    - 
Outstanding, December 31, 2018   1,885,000   $1.25 
Exercisable, June 30, 2018   1,985,000   $1.25 
Exercisable, December 31, 2018   1,885,000   $1.25 

 

The intrinsic value for all warrants outstanding as of December 31, 2018 was $2,265,000, based on the fair value of the Company’s common stock on December 31, 2018. During the six months ended December 31, 2018, the Company issued 39,000 shares of common stock upon the exercise of 100,000 warrants on a cashless basis.

 

Additional information regarding warrants outstanding and exercisable as of December 31, 2018 is as follows:

 

Warrant
Exercise Price
   Warrants
Outstanding
  

Remaining 

Contractual 

Life (in years)

   Warrants
Exercisable
 
$1.19    50,000    3.23    50,000 
 1.25    1,835,000    2.71    1,835,000 
 Total    1,885,000         1,885,000 

 

Restricted Common Stock

 

Prior to July 1, 2018, the Company issued 1,996,304 shares of restricted common stock to employees valued at $2,031,026, of which 1,365,361 shares have vested, 214,324 shares with fair value of $188,203 have been forfeited, and $1,482,663 has been recognized as an expense.

 

During the six months ended December 31, 2018, the Company issued an additional 150,214 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 $307,162 based on the market price of our common stock ranging from $1.99 to $2.40 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, 2018 was $153,754 and is included in selling, general and administrative expenses in the accompanying statements of operations. As of December 31, 2018, the amount of unvested compensation related to issuances of restricted common stock was $513,568, 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:

 

   Number of
Shares
   Fair Value   Weighted
Average
Grant Date
Fair Value
 
Non-vested, June 30, 2018   416,619    360,160    1.08 
Granted   150,214    307,162    2.04 
Vested   (168,703)   (153,754)   0.99 
Forfeited   -    -    - 
Non-vested, December 31, 2018   398,130   $513,568   $1.48 

 

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Common Stock Repurchase and Retirement

 

Effective as of February 8, 2018, the Compensation Committee of our Board of Directors authorized the repurchase, over a 12-month period on the last day of each trading window and otherwise in accordance with our insider trading policies, of up to $300,000 of outstanding common stock (at prices no greater than $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.

 

As of June 30, 2018, 33,800 shares had been repurchased from the employees for an aggregate amount of $49,785. During the six months ended December 31, 2018, the Company repurchased 50,000 shares of our common stock from employees at an average market price of approximately $2.27 per share for an aggregate amount of $113,278. As of December 31, 2018, $136,898 remains under the 2018 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 $97,418 for the six months ended December 31, 2018 and is recorded as a gain from the sale of discontinued operations. 

 

 15 

 

 

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, 2018 and 2017 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, 2018.

 

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: 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. Legacy functionality allows customers to initiate orders, route orders for the lowest cost acquisition, manage transactions, obtain spend and usage reporting, automate authentication, and connect seamlessly to in-house and third-party software systems. Customers can also enhance the information resources they already own or license and collaborate around bibliographic information.

 

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

 

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

 

Transactions

 

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

 

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

 

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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 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.

 

We recognize revenue when control of promised goods or services is transferred to customers, in an amount that reflects the consideration we expect to be entitled to 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 only when the selling price is fixed or determinable, and collectability is reasonably assured.

 

Stock-Based Compensation

 

We periodically issue stock options, warrants and restricted stock to employees and non-employees for services, in capital raising transactions, and for financing costs. We account for share-based payments under the guidance as set forth in the Share-Based Payment Topic 718 of the FASB Accounting Standards Codification, which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including employee stock options, based on estimated fair values. We estimate the fair value of stock option and warrant awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations. We estimate the fair value of restricted stock awards to employees and directors using the market price of our common stock on the date of grant, and the value of the portion of the award that is ultimately expected to vest is recognized as expense over the required service period in our Statements of Operations. We account for share-based payments to non-employees in accordance with Topic 505 of the FASB Accounting Standards Codification, whereby the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) the date at which the necessary performance to earn the equity instruments is complete. Stock-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, as necessary, in subsequent periods if actual forfeitures differ from those estimates. 

 

 17 

 

 

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, 
   2018   2018   2018   2018   2017   2017   2017   2017 
Revenue:                                        
Platforms  $667,545   $589,013   $528,581   $489,219   $413,404   $387,945   $318,194   $270,920 
Transactions   6,321,297    6,363,508    6,637,292    6,792,289    6,409,816    6,359,895    6,521,313    6,372,679 
Total revenue   6,988,842    6,952,521    7,165,873    7,281,508    6,823,220    6,747,840    6,839,507    6,643,599 
                                         
Cost of revenue:                                        
Platforms   122,077    108,259    101,370    103,185    90,362    83,987    71,097    58,367 
Transactions   4,878,526    4,896,307    5,118,851    5,259,959    4,996,988    4,914,414    5,060,500    4,997,842 
Total cost of revenue   5,000,603    5,004,566    5,220,221    5,363,144    5,087,350    4,998,401    5,131,597    5,056,209 
                                         
Gross profit:                                        
Platforms   545,468    480,754    427,211    386,034    323,042    303,958    247,097    212,553 
Transactions   1,442,771    1,467,201    1,518,441    1,532,330    1,412,828    1,445,481    1,460,813    1,374,837 
Total gross profit   1,988,239    1,947,955    1,945,652    1,918,364    1,735,870    1,749,439    1,707,910    1,587,390 
                                         
Operating expenses:                                        
Sales and marketing   445,879    431,417    455,250    522,894    524,587    678,963    682,455    698,346 
Technology and product dev.   553,272    499,795    454,053    436,672    454,507    452,816    413,249    396,765 
General and administrative   1,180,599    1,118,611    1,062,981    1,091,928    1,098,795    1,131,402    1,220,056    1,120,480 
Depreciation and amortization   9,733    11,115    32,731    32,768    46,330    40,568    36,893    33,906 
Stock-based comp. expense   453,288    115,909    75,089    114,340    314,565    286,242    112,151    112,326 
Foreign currency transaction loss (gain)   10,025    4,980    14,589    (9,737)   (485)   (12,387)   (6,362)   6,272 
Total operating expenses   2,652,796    2,181,827    2,094,693    2,188,865    2,438,299    2,577,604    2,458,442    2,368,095 
Other income (expenses and income taxes)   16,322    14,264    12,615    5,238    (1,504)   (1,949)   (6,425)   1,599 
Loss from continuing operations   (648,235)   (219,608)   (136,426)   (265,263)   (703,933)   (830,114)   (756,957)   (779,106)
Income from discontinued operations   -    -    -    -    -    -    113,314    141,616 
Gain on sale of discontinued operations   55,698    41,720    51,216    69,277    79,353    57,149    241,196    - 
Net income (loss)   (592,537)   (177,888)   (85,210)   (195,986)   (624,580)   (772,965)   (402,447)   (637,490)
                                         
Basic income (loss) per common share:                                        
Loss per share from continuing operations  $(0.03)  $(0.01)  $(0.01)  $(0.01)  $(0.03)  $(0.04)  $(0.03)  $(0.03)
Income per share from discontinued operations  $-   $-   $-   $-   $-   $-   $0.01   $- 
Net income (loss) per share  $(0.03)  $(0.01)  $(0.01)  $(0.01)  $(0.03)  $(0.04)  $(0.02)  $(0.03)
Basic weighted average common shares outstanding   23,787,836    23,644,787    23,560,781    23,498,796    23,455,654    23,380,437    23,369,727    23,265,939 
                                         
Diluted income (loss) per common share:                                        
Loss per share from continuing operations  $(0.03)  $(0.01)  $(0.01)  $(0.01)  $(0.03)  $(0.04)  $(0.03)  $(0.03)
Income per share from discontinued operations  $-   $-   $-   $-   $-   $-   $0.01   $- 
Net income (loss) per share  $(0.03)  $(0.01)  $(0.01)  $(0.01)  $(0.03)  $(0.04)  $(0.02)  $(0.03)
Diluted weighted average common shares outstanding   23,787,836    23,644,787    23,560,781    23,498,796    23,455,654    23,380,437    23,369,727    23,265,939 

 

 18 

 

 

Comparison of the Three and Six Months Ended December 31, 2018 and 2017

 

Results of Operations

 

   Three Months Ended December 31, 
   2018   2017   2018-2017
$ Change
  

2018-2017

% Change

 
                 
Revenue:                    
Platforms  $667,545   $413,404   $254,141    61.5%
Transactions   6,321,297    6,409,816    (88,519)   (1.4)%
Total revenue   6,988,842    6,823,220    165,622    2.4%
                     
Cost of revenue:                    
Platforms   122,077    90,362    31,715    35.1%
Transactions   4,878,526    4,996,988    (118,462)   (2.4)%
Total cost of revenue   5,000,603    5,087,350    (86,747)   (1.7)%
                     
Gross profit:                    
Platforms   545,468    323,042    222,426    68.9%
Transactions   1,442,771    1,412,828    29,943    2.1%
Total gross profit   1,988,239    1,735,870    252,369    14.5%
                     
Operating expenses:                    
Sales and marketing   445,879    524,587    (78,708)   (15.0)%
Technology and product development   553,272    454,507    98,765    21.7%
General and administrative   1,180,599    1,098,795    81,804    7.4%
Depreciation and amortization   9,733    46,330    (36,597)   (79.0)%
Stock-based compensation expense   453,288    314,565    138,723    44.1%
Foreign currency transaction loss (gain)   10,025    (485)   10,510    2,167%
Total operating expenses   2,652,796    2,438,299    214,497    8.8%
Loss from operations   (664,557)   (702,429)   37,872    5.4%
                     
Other income (expenses):                    
Interest expense   -    (3,000)   3,000    100.0%
Other income   23,764    11,312    12,452    110.1%
Total other income   23,764    8,312    15,452    185.9%
                     
Loss from operations before provision for income taxes   (640,793)   (694,117)   53,324    7.7%
Provision for income taxes   (7,442)   (9,816)   2,374    24.2%
                     
Loss from continuing operations   (648,235)   (703,933)   55,698    7.9%
                     
Gain from sale of discontinued operations   55,698    79,353    (23,655)   (29.8)%
                     
Net loss  $(592,537)  $(624,580)  $32,043    5.1%

 

 19 

 

 

   Six Months Ended December 31, 
   2018   2017  

 

2018-2017
$ Change

  

2018-2017
% Change

 
                 
Revenue:                    
Platforms  $1,256,558   $801,349   $455,209    56.8%
Transactions   12,684,805    12,769,711    (84,906)   (0.7)%
Total revenue   13,941,363    13,571,060    370,303    2.7%
                     
Cost of revenue:                    
Platforms   230,336    174,349    55,987    32.1%
Transactions   9,774,833    9,911,402    (136,569)   (1.4)%
Total cost of revenue   10,005,169    10,085,751    (80,582)   (0.8)%
                     
Gross profit:                    
Platforms   1,026,222    627,000    399,222    63.7%
Transactions   2,909,972    2,858,309    51,663    1.8%
Total gross profit   3,936,194    3,485,309    450,885    12.9%
                     
Operating expenses:                    
Sales and marketing   877,296    1,203,550    (326,254)   (27.1)%
Technology and product development   1,053,067    907,323    145,744    16.1%
General and administrative   2,299,210    2,230,197    69,013    3.1%
Depreciation and amortization   20,848    86,898    (66,050)   (76.0)%
Stock-based compensation expense   569,197    600,807    (31,610)   (5.3)%
Foreign currency transaction loss (gain)   15,005    (12,872)   27,877    216.6%
Total operating expenses   4,834,623    5,015,903    (181,280)   (3.6)%
Loss from operations   (898,429)   (1,530,594)   632,165    41.3%
                     
Other income (expenses):                    
Interest expense   -    (6,000)   6,000    100.0%
Other income   47,249    24,114    23,135    95.9%
Total other income   47,249    18,114    29,135    160.8%
                     
Loss from operations before provision for income taxes   (851,180)   (1,512,480)   661,300    43.7%
Provision for income taxes   (16,663)   (21,567)   4,904    22.7%
                     
Loss from continuing operations   (867,843)   (1,534,047)   666,204    43.4%
                     
Gain from sale of discontinued operations   97,418    136,502    (39,084)   (28.6)%
                     
Net loss  $(770,425)  $(1,397,545)  $627,120    44.9%

 

 Revenue

 

   Three Months Ended December 31, 
   2018   2017   2018-2017
$ Change
   2018-2017
% Change
 
Revenue:                    
Platforms  $667,545   $431,404   $254,141    61.5%
Transactions   6,321,297    6,409,816    (88,519)   (1.4)%
Total revenue  $6,988,842   $6,823,220   $165,622    2.4%
                     

 

Total revenue increased $165,622, or 2.4%, for the three months ended December 31, 2018 compared to the prior year, due to the following:

 

Category   Impact   Key Drivers
Platforms   $ 254,141   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   $ 88,519   Decreased primarily due to a reduction in orders from existing customers, largely offset by orders from new customers.

 

 20 

 

 

 

   Six Months Ended December 31, 
   2018   2017  

2018-2017

$ Change

  

2018-2017

% Change

 
Revenue:                    
Platforms  $1,256,558   $801,349   $455,209    56.8%
Transactions   12,684,805    12,769,711    (84,906)   (0.7)%
Total revenue  $13,941,363   $13,571,060   $370,303    2.7%

 

Total revenue increased $370,303, or 2.7%, for the six months ended December 31, 2018 compared to the prior year, due to the following:

 

Category   Impact   Key Drivers
Platforms   $ 455,209   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   $ 84,906   Decreased primarily due to a reduction in orders from existing customers, largely offset by orders from new customers.

 

 Cost of Revenue

 

   Three Months Ended December 31, 
   2018   2017   2018-2017
$ Change
   2018-2017
% Change
 
Cost of Revenue:                    
Platforms  $122,077   $90,362   $31,715    35.1%
Transactions   4,878,526    4,996,988    (118,462)   (2.4)%
Total cost of revenue  $5,000,603   $5,087,350   $(86,747)   (1.7)%

 

   Three Months Ended December 31, 
   2018   2017   2018-2017
Change *
 
As a percentage of revenue:            
Platforms   18.3%   21.9%   (3.6)%
Transactions   77.2%   78.0%   (0.8)%
Total   71.6%   74.6%   (3.0)%

 

* 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 3.0%, from 74.6% for the previous year to 71.6%, for the three months ended December 31, 2018.

 

Category   Impact as percentage
of revenue
  Key Drivers
Platforms     3.6 %   Decreased primarily due to proportionally lower third-party data costs.
Transactions     0.8 %   Decreased primarily due to proportionally lower personnel costs.

 

 

   Six Months Ended December 31, 
   2018   2017   2018-2017
$ Change
   2018-2017
% Change
 
Cost of Revenue:                    
Platforms  $230,336   $174,349   $55,987    32.1%
Transactions   9,774,833    9,911,402    (136,569)   (1.4)%
Total cost of revenue  $10,005,169   $10,085,751   $(80,582)   (0.8)%

 

 21 

 

 

 

   Six Months Ended December 31, 
   2018   2017   2018-2017
Change *
 
As a percentage of revenue:            
Platforms   18.3%   21.8%   (3.5)%
Transactions   77.1%   77.6%   (0.5)%
Total   71.8%   74.3%   (2.5)%

 

* 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 2.5%, from 74.3% for the previous year to 71.8%, for the six months ended December 31, 2018.

 

Category   Impact as percentage
of revenue
  Key Drivers
Platforms     3.5 %   Decreased primarily due to proportionally lower third-party data costs.
Transactions     0.5 %   Decreased primarily due to proportionally lower personnel costs, partially offset by a proportional increase in copyright costs.

 

Gross Profit

 

   Three Months Ended December 31, 
   2018   2017   2018-2017
$ Change
   2018-2017
% Change
 
Gross Profit:                    
Platforms  $545,468   $323,042   $222,426    68.9%
Transactions   1,442,771    1,412,828    29,943    2.1%
Total gross profit  $1,988,239   $1,735,870   $252,369    14.5%

 

   Three Months Ended December 31, 
   2018   2017   2018-2017
Change *
 
As a percentage of revenue:               
Platforms   81.7%   78.1%   3.6%
Transactions   22.8%   22.0%   0.8%
Total   28.4%   25.4%   3.0%

 

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

 

   Six Months Ended December 31, 
   2018   2017   2018-2017
$ Change
   2018-2017
% Change
 
Gross Profit:                    
Platforms  $1,026,222   $627,000   $399,222    63.7%
Transactions   2,909,972    2,858,309    51,663    1.8%
Total gross profit  $3,936,194   $3,485,309   $450,885    12.9%

 

   Six Months Ended December 31, 
   2018   2017   2018-2017
Change *
 
As a percentage of revenue:            
Platforms   81.7%   78.2%   3.5%
Transactions   22.9%   22.4%   0.5%
Total   28.2%   25.7%   2.5%

 

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

 

 22 

 

 

Operating Expenses

 

   Three Months Ended December 31, 
   2018   2017   2018-2017
$ Change
   2018-2017
% Change
 
Operating Expenses:                    
Sales and marketing  $445,879   $524,587   $(78,708)   (15.0)%
Technology and product development   553,272    454,507    98,765    21.7%
General and administrative   1,180,599    1,098,795    81,804    7.4%
Depreciation and amortization   9,733    46,330    (36,597)   (79.0)%
Stock-based compensation expense   453,288    314,565    138,723    44.1%
Foreign currency transaction loss (gain)   10,025    (485)   10,510    2,167%
Total operating expenses  $2,652,796   $2,438,299   $214,497    8.8%

 

Category   Impact   Key Drivers
Sales and marketing   $ 78,708   Decreased primarily due to lower personnel costs.
Technology and product development   $ 98,765   Increased primarily due to greater personnel costs.
General and administrative   $ 81,804   Increased primarily due to greater personnel costs.

 

   Six Months Ended December 31, 
   2018   2017   2018-2017
$ Change
   2018-2017
% Change
 
Operating Expenses:                    
Sales and marketing  $877,296   $1,203,550   $(326,254)   (27.1)%
Technology and product development   1,053,067    907,323    145,744    16.1%
General and administrative   2,299,210    2,230,197    69,013    3.1%
Depreciation and amortization   20,848    86,898    (66,050)   (76.0)%
Stock-based compensation expense   569,197    600,807    (31,610)   (5.3)%
Foreign currency transaction loss (gain)   15,005    (12,872)   27,877    216.6%
Total operating expenses  $4,834,623   $5,015,903   $(181,280)   (3.6)%

 

 

Category   Impact   Key Drivers
Sales and marketing   $ 326,254   Decreased primarily due to lower personnel costs.
Technology and product development   $ 145,744   Increased primarily due to greater personnel costs.
General and administrative   $ 69,013   Increased primarily due to greater personnel costs.

 

Net Income (Loss)

 

   Three Months Ended December 31, 
   2018   2017   2018-2017
$ Change
   2018-2017
% Change
 
Net Income (Loss):                    
Loss from continuing operations  $(648,235)  $(703,933)  $55,698    7.9%
Income from discontinued operations   55,698    79,353    (23,655)   (29.8)%
Total net loss  $(592,537)  $(624,580)  $32,043    5.1%

 

Loss from continuing operations decreased $55,698 or 7.9%, for the three months ended December 31, 2018 compared to the prior year, primarily due to increased gross profit, partially offset by increased operating expenses as described above.

 

   Six Months Ended December 31, 
   2018   2017   2018-2017
$ Change
   2018-2017
% Change
 
Net Income (Loss):                    
Loss from continuing operations  $(867,843)  $(1,534,047)  $666,204    43.4%
Income from discontinued operations   97,418    136,502    (39,084)   (28.6)%
Total net loss  $(770,425)  $(1,397,545)  $627,120    44.9%

 

 23 

 

 

Loss from continuing operations decreased $666,204 or 43.4%, for the six months ended December 31, 2018 compared to the prior year, primarily due to increased gross profit and decreased operating expenses as described above.

 

Liquidity and Capital Resources

 

   Six Months Ended December 31, 
Consolidated Statements of Cash Flow Data:   2018    2017 
Net cash used in operating activities  $(22,719)  $(690,161)
Net cash used in investing activities   (4,154)   (43,536)
Net cash used in financing activities   (113,278)   (102,955)
           
Effect of exchange rate changes   (6,501)   (12,678)
Net decrease in cash and cash equivalents   (146,652)   (849,330)
Cash and cash equivalents, beginning of period   4,908,180    5,773,950 
Cash and cash equivalents, end of period  $4,761,528   $4,924,620 

 

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, 2018, we had working capital of $2,796,824 and stockholders’ equity of $2,958,858. For the six months ended December 31, 2018, we recorded a net loss of $770,425, and cash used in operating activities was $22,719. 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, 2018, we had cash and cash equivalents of $4,761,528, compared to $4,908,180 as of June 30, 2018, a decrease of $146,652. This decrease was primarily due to cash used in financing activities.

 

Operating Activities

 

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.

 

Net cash used in operating activities was $690,161 for the six months ended December 31, 2017 and resulted primarily from a net loss of $1,397,545 and a decrease in accounts payable and accrued expenses of $1,389,286, partially offset by a decrease in accounts receivable of $1,726,200.

 

Investing Activities

 

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.

 

Net cash used in investing activities was $43,536 for the six months ended December 31, 2017 and resulted from the purchase of intangible assets and property and equipment.

 

Financing Activities

 

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.

 

Net cash used in financing activities was $102,955 for the six months ended December 31, 2017 and resulted from the repurchase of common stock.

 

We entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB”) on July 23, 2010, which, as amended, provides for a revolving line of credit for the lesser of $2,500,000, or 80% of eligible accounts receivable. The line of credit matures on December 31, 2019, and is subject to certain financial and performance covenants with which we were in compliance as of December 31, 2018. 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, 2018. The line of credit was secured by our consolidated assets.

 

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There were no outstanding borrowings under the line as of December 31, 2018 and June 30, 2018, respectively.  As of December 31, 2018, there was approximately $2,153,000 of available credit.

 

Non-GAAP Measure – Adjusted EBITDA

 

In addition to our GAAP results, we present Adjusted EBITDA as a supplemental measure of our performance. However, Adjusted EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of liquidity. We define Adjusted EBITDA as net income (loss), plus interest expense, other income (expense), foreign currency transaction loss, provision for income taxes, depreciation and amortization, stock-based compensation, 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, 2018 and 2017:

 

   Three Months Ended December 31, 
   2018   2017   2018-2017
$ Change
 
Net loss  $(592,537)  $(624,580)  $32,043 
Add (deduct):               
Interest expense   -    3,000    (3,000)
Other (income) expense   (23,764)   (11,312)   (12,452)
Foreign currency transaction loss (gain)   10,025    (485)   10,510 
Provision for income taxes   7,442    9,816    (2,374)
Depreciation and amortization   9,733    46,330    (36,597)
Stock-based compensation   453,288    314,565    138,723 
Gain on sale of discontinued operations   (55,698)   (79,353)   23,655 
Adjusted EBITDA  $(191,511)  $(342,019)  $150,508 

 

   Six Months Ended December 31, 
   2018   2017   2018-2017
$ Change
 
Net loss  $(770,425)  $(1,397,545)  $627,120 
Add (deduct):               
Interest expense   -    6,000    (6,000)
Other (income) expense   (47,249)   (24,114)   (23,135)
Foreign currency transaction loss (gain)   15,005    (12,872)   27,877 
Provision for income taxes   16,663    21,567    (4,904)
Depreciation and amortization   20,848    86,898    (66,050)
Stock-based compensation   569,197    600,807    (31,610)
Gain on sale of discontinued operations   (97,418)   (136,502)   39,084 
Adjusted EBITDA  $(293,379)  $(855,761)  $562,382 

 

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, 2018, 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, 2018 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 February 8, 2018, the Compensation Committee of our Board of Directors authorized the repurchase, over a 12-month period on the last day of each trading window and otherwise in accordance with our insider trading policies, of up to $300,000 of outstanding common stock (at prices no greater than $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, 2018, we repurchased 50,000 shares of our common stock under the repurchase plan at an average market price of approximately $2.27 per share for an aggregate amount of $113,278. As of December 31, 2018, $136,898 remains under the current authorization to repurchase our outstanding common stock from our employees.

 

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Shares repurchased are retired and deducted from common stock for par value and from additional paid in capital for the excess over par value. Direct costs incurred to acquire the shares are included in the total cost of the shares.

 

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

 

Period  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
 
January 2018   -    -    -    - 
February 2018   -    -    -   $300,000 
March 2018   19,750   $1.29    -   $274,523 
April 2018   -    -    -   $274,523 
May 2018   -    -    -   $274,523 
June 2018   14,050   $1.73    -   $250,216 
July 2018   -    -    -   $250,216 
August 2018   -    -    -   $250,216 
September 2018   34,200   $2.20    -   $174,976 
October 2018   -    -    -   $174,976 
November 2018   -    -    -   $174,976 
December 2018   15,800   $2.41    -   $136,898 
Total   83,800   $1.95    -    - 

 

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 14, 2019   Chief Executive Officer (Principal Executive Officer)

 

  By: /s/ Alan Louis Urban
     
    Alan Louis Urban
Date: February 14, 2019   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

 

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