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Item 7. Management’s Discussion and Analysis

2024-09-20 compared with 2023-09-15 · 71 added, 54 removed, 200 unchanged (38% of the section changed)

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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.

Research Solutions was incorporated in the State of Nevada on November 2, 2006, and is a publicly traded holding company with three wholly owned subsidiaries as of June 30, 2023:

Reprints Desk, Inc., a Delaware corporation, Reprints Desk Latin America S.

Research Solutions was incorporated in the State of Nevada on November 2, 2006, and is a publicly traded holding company with five wholly owned subsidiaries as of June 30, 2024:

Reprints Desk, Inc., a Delaware corporation, including its wholly owned subsidiary Resolute Innovation, Inc., a Delaware corporation, Scite, LLC, a Delaware limited liability company, Reprints Desk Latin America S.

de C.V., an entity organized under the laws of Mexico, and RESSOL LA, S.

DE C.V., an entity organized under the laws of Mexico.

We provide two service offerings to our customers:

a cloud-based software-as-a-service (“SaaS”) research platform (“Platforms”) typically sold via annual auto-renewing license agreements and the sale of published scientific, technical, and medical (“STM”) content sold as individual articles (“Transactions”) either stand alone or via the Platform.

When customers utilize the Platform to purchase Transactions it is packaged as a single solution that enables life science and other research-intensive organizations to accelerate their research and development activities with faster, access and management of STM articles used throughout the intellectual property development lifecycle.

The Platform typically delivers a ROI to the customer via more effectively managing Transaction costs and saving researchers time during the research process.

Our cloud-based SaaS research Platform consists of proprietary software and Internet-based interfaces sold to customers for an annual subscription fee.

Legacy functionality allows customers to initiate orders, route orders for the lowest cost acquisition, manage transactions, obtain spend and usage reporting, automate authentication, and connect seamlessly to in-house and third-party software systems.

Customers can also enhance the information resources they already own or license and collaborate around bibliographic information.

Additional functionality has recently been added to our Platform in the form of interactive app-like components.

An alternative to manual data filtering, identification and extraction, the apps 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 continue to develop new apps in order to build an ecosystem of apps.

Together, these apps will provide researchers with an “all in one” toolkit, delivering efficiencies in core research workflows and knowledge creation processes.

We provide software and related services to help research intensive organizations save time and money.

We offer various software platforms (“Platform” or “Platforms”) that are typically sold to corporate, academic, government and individual researchers as cloud-based software-as-a-service (“SaaS”) via auto-renewing license agreements.

Corporate, academic, and government customers typically sign up under annual agreements.

Individual researchers can sign up under an annual or a month-to-month agreement and are typically billed monthly.

Our Platforms also facilitate the sale of published scientific, technical, and medical (“STM”) content sold as individual articles (“Transactions”) either stand alone or via one or more of the research Platform solutions we provide.

When one or more of the Platform solutions are used to purchase Transactions, customers pay for those transactions through monthly billing or via credit card for individual researchers.

Our Platforms enable life science and other research-intensive organizations to accelerate their research and development activities through our advanced discovery tools (i.e.

search), tools to access and buy STM articles required to support their research (i.e.

acquire), as well as tools that manage that content across the enterprise and on an individual basis (i.e.

The Platforms typically deliver an ROI to the customer by reducing the amount of time it takes a research organization to find, acquire and manage content, in addition to also driving down the ultimate cost per article over time.

Our cloud-based SaaS Platforms consist of proprietary software and Internet-based interfaces sold to customers through an annual or monthly subscription fee.

Legacy functionality falls into three areas.

Discover – These solutions facilitate search (discovery) across virtually all STM articles available.

The solutions we offer include free (basic) search solutions and advanced search tools like the Resolute.ai and scite.ai products.

These tools allow for searching and identifying relevant research and then purchasing that research through one of our other solutions.

In addition, these tools increasingly enable users to find insights in other datasets adjacent to STM content, such as Clinical Trial, Patent, Life Science & MedTech Regulatory information, Competitor and Technology landscape insights in addition to searching the customer’s internal datasets.

The advanced search solutions are sold through a seat, enterprise, or individual license.

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.

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.

Our Platform provides our customers with a single source to the universe of published STM content that includes over 80 million existing STM articles and over one million newly published STM articles each year.

STM content is sold to our customers on a transaction basis.

Acquire – Our Article Galaxy® (“AG”) solution allows for research organizations to load their entitlements (subscriptions, discount or token packages, and their existing library of articles) and AG manages those entitlements in the background enabling the researchers to focus on acquiring articles they need quickly and efficiently at the lowest possible cost.

When used in conjunction with our discovery Platforms, customers can initiate orders, route orders based on the lowest cost to acquire, obtain spend and usage reporting, automate authentication, and connect seamlessly to in-house and third-party software systems.

Manage – Our References solution allows users to access the article inside the Platform including setting up personal folders or team folders and allows researchers to markup and take notes on the articles in a supported browser on a desktop or tablet.

We use Artificial Intelligence (“AI”) in several parts of the research workflow today and will continually add capability as we move forward.

Today we offer an AI based recommendation engine in our Discover, Acquire, and Manage Platform solutions.

We also offer an AI based “assistant” in some of our solutions to allow the researcher to ask questions about articles, groups of articles (folders), and more.

We also have the capability to provide full text search on STM content in the scite.ai Platform where the publisher gives us the rights to do so.

Using Resolute.ai and scite.ai technology, we plan to release several new Platform solutions to enhance the research workflows described above and add new solutions to support the analysis functions that exist in our typical customer base.

Our Platforms are deployed as a single, multi-tenant system across our entire customer base.

The Platform can also be configured to satisfy a customer’s individual preferences.

We leverage our Platform efficiencies in scalability, stability and development costs to fuel rapid innovation and to gain a competitive advantage.

We provide our researchers with a single source to the universe of published STM content that includes over 100 million existing STM articles and over 2 to 4 million newly published STM articles each year.

STM content is sold to our customers on a per transaction basis.

Researchers and knowledge workers in life science and other research-intensive organizations generally require single copies of published STM journal articles for use in their research activities.

These individuals are our primary users.

Our Platform allows customers to find and download digital versions of STM articles that are critical to their research.

These individuals are our primary users and while they typically purchase the articles via one of our Platform solutions, we do have some customers that just order articles from us on behalf of end-users in their organizations.

Core to many of our Platform solutions is providing our customers with ways 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;

in many cases under one minute.

in most cases under one minute.

This service is generally known in the industry as single article delivery or document delivery.

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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.

While a vast majority of the articles are available in electronic form, the Company also has workflows to deliver older paper-based articles through relationships we have built with libraries around the world.

Inflation Risk

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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”).

annual licenses that allow customers to access and utilize certain premium features of our cloud-based SaaS research intelligence platform (“Platform” and “Platforms”) and the transactional sale of STM content managed, sourced and delivered through the Platform (“Transactions”).

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

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Any excess of the repurchase price over the fair value of the instruments repurchased shall be recognized as additional compensation cost.

Allowance for doubtful accounts

Allowance for Credit Losses

Our trade accounts receivable are recorded at amounts billed to customers and presented on the balance sheet net of the allowance for estimated credit losses.

We evaluate the collectability of our trade accounts receivable based on a number of factors.

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Income (loss) from operations

Change in fair value of contingent earnout liability

Income (loss) from operations before provision for income taxes

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Total revenue increased $6,920,447, or 18.4%, for the year ended June 30, 2024 compared to the prior year, due to the following:

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.

Increased due to additional deployments to new and existing customers, expansion from existing customers and additional revenue from the ResoluteAI and Scite acquisitions.

Revenue is recognized ratably over the term of the subscription agreement, which is typically one year for commercial customers and monthly for individual subscribers, provided all other revenue recognition criteria have been met.

Billings or payments received in advance of revenue recognition are recorded as deferred revenue.

Increased due to higher paid order volume and pricing initiatives, including additional paid order volume due to the FIZ asset acquisition which was effective January 1, 2023.

Increased primarily due to organic higher paid order volume and additional paid order volume due to the FIZ asset acquisition.

Cost of Revenue

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Impact as percentage

Decreased primarily due to lower software expense and proportionally lower personnel costs.

Decreased primarily due to lower personnel costs and expansion in copyright margins.

Increased primarily due to proportionally greater hosting costs from ResoluteAI.

Decreased primarily due to higher copyright margins.

Years Ended June 30,

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Sales and marketing

Increased primarily due to greater personnel costs and marketing discretionary spend mostly offset by lower consulting expenses.

Increased primarily due to greater personnel costs, including costs from the ResoluteAI and Scite transactions, and marketing discretionary spend partially offset by lower consulting expenses.

Technology and product development

Increased due to greater software development personnel costs partially offset by lower consulting and recruiting expenses.

Increased due to greater software development personnel costs, primarily from the onboarding personnel from ResoluteAI and Scite, but also due to organic growth in personnel cost.

General and administrative

Increased due to greater recruiting, legal and travel expenses and personnel costs partially offset by lower accounting and consulting expenses.

Increased due to greater personnel costs, primarily from the onboarding of Resolute AI and Scite and greater legal expenses, partially offset by lower recruiting expenses.

Greater legal expenses include proxy-related and acquisition-related costs.

Greater personnel costs include separation costs paid to a former officer as result of the resolution of the proxy matter.

Provision for Income Taxes

During the years ended June 30, 2023 and 2022 we recorded a provision for income taxes of $5,602 and $7,622, respectively, a decrease of $2,020.

During the years ended June 30, 2024 and 2023 we recorded a provision for income taxes of $113,071 and $5,602, respectively, an increase of $107,469, which was largely due to an increase in income tax related to our ResSol LA subsidiary.

Net Income (Loss)

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Net income (loss):

Net loss decreased $2,204,007 or 135%, for the year ended June 30, 2023 compared to the prior year, primarily due to increased gross profit, partially offset by increased operating expenses as described above.

Net income decreased $4,358,220 or 762.4%, for the year ended June 30, 2024 compared to the prior year, due to increased operating expenses, primarily in intangibles amortization and depreciation expenses associated with our acquisition accounting, and charges on our other income line related to increasing the estimated earn out liability associated with the acquisitions completed in fiscal year 2024.

Liquidity and Capital Resources

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Consolidated Statements of Cash Flow Data:

Net cash provided by (used in) operating activities

Net cash provided by operating activities

Net cash used in investing activities

Net cash provided by (used in) financing activities

Net cash used in financing activities

Effect of exchange rate changes

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Cash and cash equivalents, end of period

As of June 30, 2023, we had cash and cash equivalents of $13,545,333, compared to $10,603,175 as of June 30, 2022, an increase of $2,942,158.

This increase was primarily due to cash provided by operating activities.

As of June 30, 2024, we had cash and cash equivalents of $6,100,031 compared to $13,543,333 as of June 30, 2023, a decrease of $7,445,302.

This decrease was primarily due to cash used in investing activities, primarily related to the acquisitions completed in fiscal year 2024.

Operating Activities

Net cash provided by operating activities was $3,550,954 for the year ended June 30, 2024 and resulted primarily from an increase in fair value of vested restricted common stock of $1,994,362, an increase in deferred revenue of $921,879 and an increase in accounts payable and accrued expenses of $560,027, partially offset by an increase in accounts receivable of $344,020.

Net cash provided by operating activities was $3,383,847 for the year ended June 30, 2023 and resulted primarily from an increase in net income, the fair value of vested restricted common stock of $1,418,718, an increase in accounts payable and accrued expenses of $1,337,056 and an increase in deferred revenue of $886,198, partially offset by an increase in accounts receivable of $901,518.

Net cash used in operating activities was $417,200 for the year ended June 30, 2022 and resulted primarily from an increase in deferred revenue of $734,175 and a decrease in prepaid royalties of $58,269, partially offset by an increase in accounts receivable of $534,092.

Investing Activities

Net cash used in investing activities was $10,095,256 for the year ended June 30, 2024 and resulted primarily from the payment for the Scite acquisition of $7,305,493 and the payment for the ResoluteAI acquisition of $2,718,253.

Net cash used in investing activities was $344,659 for the year ended June 30, 2023 and primarily from the payment for non-refundable deposit for asset acquisition of $297,450.

Net cash used in investing activities was $44,288 for the year ended June 30, 2022 and resulted from the purchase of property and equipment.

Financing Activities

Net cash used in financing activities was $97,259 for the year ended June 30, 2023 and resulted from the repurchase of common stock of $104,250 and the payment of contingent acquisition consideration of $50,509, partially offset by the proceeds from the exercise of options of $57,500.

Net cash provided by financing activities was $63,270 for the year ended June 30, 2022 and resulted from the proceeds from the exercise of options of $97,688 and the proceeds from the exercise of warrants of $59,500, partially offset by the repurchase of common stock of $93,918.

Net cash used in financing activities was $905,851 for the year ended June 30, 2024 and resulted from repurchase of common stock of $554,202 and the payment of contingent acquisition consideration of $351,649 pertaining to FIZ acquisition.

Net cash used in financing activities was $97,259 for the year ended June 30, 2023 and resulted from the repurchase of common stock of $104,250 and the payment of contingent acquisition consideration of $50,509 pertaining to FIZ acquisition, partially offset by the proceeds from the exercise of options of $57,500.

We entered into a Loan and Security Agreement with Silicon Valley Bank (“SVB”) on July 23, 2010, which, as amended, provides for a revolving line of credit for the lesser of $2,500,000, or 80% of eligible accounts receivable.

The line of credit matures on February 28, 2024, and is subject to certain financial and performance covenants with which we

were in compliance as of June 30, 2023.

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.

The line of credit bears interest at an annual rate equal to the greater of 1% above the prime rate and 5.0%.

The interest rate on the line of credit was 9.25% as of June 30, 2023.

The line of credit was secured by our consolidated assets.

There were no outstanding borrowings under the line as of June 30, 2023 and June 30, 2022, respectively.

As of June 30, 2023, there was approximately $2,264,000 of available credit.

On March 27, 2023, First Citizens BancShares, Inc entered into an agreement with the Federal Deposit Insurance Corporation (FDIC) to purchase all of the assets and liabilities of SVB.

We have confirmed that the Loan and Security Agreement remains in effect post this transaction and that, in addition to having access to all of our deposits with SVB, we continue to have access to the revolving line of credit.

On March 28, 2023, we announced that we are continuing to evaluate the Loan and Security Agreement and relationship with SVB and that we have opened accounts with two additional banks as part of exploring an overall banking diversification strategy as well as additional access to lending facilities.

The line of credit matured on February 28, 2024 and was not renewed.

There were no outstanding borrowings on the line of credit at maturity and all security interests and liens related to the Loan and Security Agreement have been released.

On April 15, 2024, we entered into a Loan Agreement (the “PNC Loan Agreement”) with PNC Bank, National Association (“PNC”), as lender.

Pursuant to the PNC Loan Agreement, we entered into a Revolving Line of Credit Note (the “PNC Note”) with PNC, which provides for a $500,000 secured revolving line of credit that matures on April 15, 2025 and bears interest annually at the daily SOFR rate plus 2.5%, with accrued interest due and payable monthly.

The PNC Note contains customary events of default including, among other things, payment defaults, material misrepresentations, breaches of covenants, revocation of guarantee, certain bankruptcy and insolvency events.

There were no outstanding borrowings under the line of credit as of June 30, 2024.

Non-GAAP Measure – Adjusted EBITDA

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However, Adjusted EBITDA is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of liquidity.

We define Adjusted EBITDA as net income (loss), plus interest expense, other income (expense), foreign currency transaction loss, provision for income taxes, depreciation and amortization, stock-based compensation, income from discontinued operations and gain on sale of discontinued operations.

We define Adjusted EBITDA as net income (loss), plus interest expense, other income (expense) including any change in fair value of contingent earnout liability, foreign currency transaction loss, provision for income taxes, depreciation and amortization, stock-based compensation, income from discontinued operations and gain on sale of discontinued operations.

Management considers our core operating performance to be that which our managers can affect in any particular period through their management of the resources that affect our underlying revenue and profit generating operations that period.

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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.

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:

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis