Document Finder’s Not Looking Good on Paper

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Research Solutions Inc. is applying to join the Nasdaq. To do so, it plans to do a reverse stock split. This piece of information was not what its investors were looking for.

Shares of the Encino document-finding company, which now trade over the counter, dropped 14 percent for the week ended April 9, making it one of the biggest losers on the LABJ Stock Index. (See page 54.)

In a Securities and Exchange Commission form filed April 4 announcing the company’s intention to list its shares on the Nasdaq, Research Solutions said that its board had approved a reverse split with the goal of getting the price at the $4 Nasdaq threshold. It could reduce the number of an investor’s shares by one-half or more, depending on the price at the time.

A reverse stock split is used to boost a company’s share price, and investors often don’t react well because it’s the company’s admission that the stock price has fallen. The Nasdaq requires listed companies to maintain a price of more than $4 at the time of listing. This is why Research Solutions, which closed at $1.72 on April 9, gave a wide range for the reverse split, said Peter Derycz, the company’s founder and chief executive.

“We had to have a range of stock splits, so that the day we go on the Nasdaq, we could do whatever it took to make sure that the stock price was where Nasdaq wanted it to be,” he said.

Research Solutions caters to corporate customers such as pharmaceutical companies, biotech businesses and law firms that request individual research papers on specific academic and scientific subjects. It provides both physical reprints as well as digital copies.

Derycz, who changed the company’s name from the eponymous Derycz Scientific to Research Solutions last year, told the Business Journal the Nasdaq listing would make the company’s stock easier to trade.

“We wanted to raise capital and just improve the quality of the stock our shareholders have,” said Derycz. “It is a better marketplace for our shares to trade in.”

In the filing, Research Solutions mentioned its lack of sustained profitability as one of the company’s main risk factors. The company reported net income of about $192,000 during the fiscal year ended June 30, 2013, compared with a net loss of $6.5 million for the year before. In the six months ended Dec. 31, 2013, the company had a net loss of $590,000.

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