Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Cautionary Notice Regarding Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations for the years ended June 30, 2024 and 2023 should be read in conjunction with our consolidated financial statements and related notes to those financial statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under “Risk Factors” and elsewhere in this report.
We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. All forward-looking statements included in this report are based on information available to us on the date hereof and, except as required by law, we assume no obligation to update any such forward-looking statements.
Overview
Research Solutions was incorporated in the State of Nevada on November 2, 2006, and is a publicly traded holding company with 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 R.L. de C.V., an entity organized under the laws of Mexico, and RESSOL LA, S. DE R.L. DE C.V., an entity organized under the laws of Mexico.
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. manage). 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.
Platforms
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
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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.
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. 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 efficiencies in scalability, stability and development costs to fuel rapid innovation and to gain a competitive advantage.
Transactions
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 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 most cases under one minute. 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. 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.
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Inflation Risk
We do not believe that inflation has had a material effect on its operations to date, other than its impact on the general economy. However, there is a risk that our operating costs could become subject to inflationary and interest rate pressures in the future, which would have the effect of increasing our operating costs, and which would put additional stress on our working capital resources.
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
We account for revenue in accordance with 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.
Revenues are recognized when control of the promised goods or services are transferred to a customer, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. We derive our revenues from two sources: annual licenses that allow customers to access and utilize certain premium features of our cloud-based SaaS research intelligence platform (“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:
● identify the contract with a customer;
● identify the performance obligations in the contract;
● determine the transaction price;
● allocate the transaction price to performance obligations in the contract; and
● recognize revenue as the performance obligation is satisfied.
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Platforms
We charge a subscription fee that allows customers to access and utilize certain premium features of our Platform. Revenue is recognized ratably over the term of the subscription agreement, which is typically one year, provided all other revenue recognition criteria have been met. Billings or payments received in advance of revenue recognition are recorded as deferred revenue.
Transactions
We charge a transactional service fee for the electronic delivery of single articles, and a corresponding copyright fee for the permitted use of the content. We recognize revenue from single article delivery services upon delivery to the customer provided all other revenue recognition criteria have been met.
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.
Under ASC 718, Repurchase or Cancellation of equity awards, the amount of cash or other assets transferred (or liabilities incurred) to repurchase an equity award shall be charged to equity, to the extent that the amount paid does not exceed the fair value of the equity instruments repurchased at the repurchase date. Any excess of the repurchase price over the fair value of the instruments repurchased shall be recognized as additional compensation cost.
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. In circumstances where we become aware of a specific customer’s inability to meet its financial obligations to us, we estimate and record a specific reserve for bad debts, which reduces the recognized receivable to the estimated amount we believe will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on our historical losses and an overall assessment of past due trade accounts receivable outstanding. We established an allowance for doubtful accounts of $68,579 and $85,051 as of June 30, 2024 and 2023, respectively.
Foreign Currency
The accompanying consolidated financial statements are presented in United States dollars, the functional currency of our company. Capital accounts of foreign subsidiaries are translated into US dollars from foreign currencies at their historical exchange rates when the capital transactions occurred. Assets and liabilities are translated at the exchange rate as of the balance sheet date. Income and expenditures are translated at the average exchange rate of the period. Although the majority of our revenue and costs are in US dollars, the costs of Reprints Desk Latin America and ResSol LA 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.
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The following table summarizes the exchange rates used:
Year Ended
June 30,
2024
2023
Period end Euro : US Dollar exchange rate
1.07
1.09
Average period Euro : US Dollar exchange rate
1.08
1.05
Period end GBP : US Dollar exchange rate
1.26
1.27
Average period GBP : US Dollar exchange rate
1.26
1.20
Period end Mexican Peso : US Dollar exchange rate
0.05
0.06
Average period Mexican Peso : US Dollar exchange rate
0.06
0.05
Quarterly Information (Unaudited)
The following table sets forth unaudited and quarterly financial data for the four quarters of fiscal years 2024 and 2023:
June 30,
Mar. 31,
Dec. 31,
Sept. 30,
June 30,
Mar. 31,
Dec. 31,
Sept. 30,
2024
2024
2023
2023
2023
2023
2022
2022
Revenue:
Platforms
$
4,277,338
$
3,953,403
$
3,125,584
$
2,600,192
$
2,303,375
$
2,249,632
$
2,110,272
$
2,019,967
Transactions
7,856,176
8,162,269
7,188,158
7,460,779
7,656,342
8,092,794
6,606,394
6,664,676
Total revenue
12,133,514
12,115,672
10,313,742
10,060,971
9,959,717
10,342,426
8,716,666
8,684,643
Cost of revenue:
Platforms
627,051
571,352
486,185
382,615
275,110
268,630
253,073
230,473
Transactions
5,863,596
6,062,388
5,343,755
5,646,791
5,764,064
6,046,523
5,059,766
5,104,922
Total cost of revenue
6,490,647
6,633,740
5,829,940
6,029,406
6,039,174
6,315,153
5,312,839
5,335,395
Gross profit:
Platforms
3,650,287
3,382,051
2,639,399
2,217,577
2,028,265
1,981,002
1,857,199
1,789,494
Transactions
1,992,580
2,099,881
1,844,403
1,813,988
1,892,278
2,046,271
1,546,628
1,559,754
Total gross profit
5,642,867
5,481,932
4,483,802
4,031,565
3,920,543
4,027,273
3,403,827
3,349,248
Operating expenses:
Sales and marketing
830,195
1,122,365
804,927
685,016
455,030
642,624
666,608
521,216
Technology and product dev.
1,489,491
1,371,754
1,336,558
1,244,579
991,093
953,677
922,132
875,290
General and administrative
1,917,908
2,027,073
2,023,848
2,542,868
1,649,333
1,871,590
1,613,664
1,519,424
Depreciation and amortization
311,004
309,898
155,749
59,620
22,163
18,332
6,342
5,812
Stock-based comp. expense
426,190
541,002
596,455
591,814
585,384
480,458
608,703
175,361
Foreign currency transaction loss (gain)
6,336
22,177
(13,738)
6,620
(37,743)
(72,547)
(84,179)
72,516
Total operating expenses
4,981,124
5,394,269
4,903,799
5,130,517
3,665,260
3,894,134
3,733,270
3,169,619
Other income (expenses and income taxes)
(3,482,970)
(11,362)
366,369
110,909
120,463
103,703
73,913
34,936
Net income (loss)
$
(2,821,227)
$
76,301
$
(53,628)
$
(988,043)
$
375,746
$
236,842
$
(255,530)
$
214,565
Basic income (loss) per common share:
Net income (loss) per share
$
(0.09)
$
-
$
-
$
(0.04)
$
0.01
$
0.01
$
(0.01)
$
0.01
Basic weighted average common shares outstanding
30,314,522
30,020,652
28,092,945
27,052,445
26,981,813
26,929,314
26,816,550
26,718,171
Diluted income (loss) per common share:
Net income (loss) per share
$
(0.09)
$
-
$
-
$
(0.04)
$
0.01
$
0.01
$
(0.01)
$
0.01
Diluted weighted average common shares outstanding
30,314,522
33,511,242
28,092,945
27,052,445
30,058,791
29,791,719
26,815,550
27,779,841
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Comparison of the Years Ended June 30, 2024 and 2023
Results of Operations
Year Ended June 30,
2024
2023
$ Change
% Change
Revenue:
Platforms
$
13,956,517
$
8,683,246
$
5,273,271
60.7
%
Transactions
30,667,382
29,020,206
1,647,176
5.7
%
Total revenue
44,623,899
37,703,452
6,920,447
18.4
%
Cost of revenue:
Platforms
2,067,203
1,027,286
1,039,917
101.2
%
Transactions
22,916,530
21,975,275
941,255
4.3
%
Total cost of revenue
24,983,733
23,002,561
1,981,172
8.6
%
Gross profit:
Platforms
11,889,314
7,655,960
4,233,354
55.3
%
Transactions
7,750,852
7,044,931
705,921
10.0
%
Total gross profit
19,640,166
14,700,891
4,939,275
33.6
%
Operating expenses:
Sales and marketing
3,442,503
2,285,478
1,157,025
50.6
%
Technology and product development
5,442,382
3,742,192
1,700,190
45.4
%
General and administrative
8,511,697
6,654,011
1,857,686
27.9
%
Depreciation and amortization
836,271
52,649
783,622
1,488.4
%
Stock-based compensation expense
2,155,461
1,849,906
305,555
16.5
%
Foreign currency transaction loss (gain)
21,395
(121,953)
143,348
117.5
%
Total operating expenses
20,409,709
14,462,283
5,947,426
41.1
%
Income (loss) from operations
(769,543)
238,608
(1,008,151)
(422.5)
%
Other income
333,088
338,617
(5,529)
(1.6)
%
Change in fair value of contingent earnout liability
(3,237,071)
—
(3,237,071)
—
%
Income (loss) from operations before provision for income taxes
(3,673,526)
577,225
(4,250,751)
(736.4)
%
Provision for income taxes
(113,071)
(5,602)
(107,469)
(1,918.4)
%
Net income (loss)
$
(3,786,597)
$
571,623
$
(4,358,220)
(762.4)
%
Revenue
Years Ended June 30,
2024
2023
$ Change
% Change
Revenue:
Platforms
$
13,956,517
$
8,683,246
$
5,273,271
60.7
%
Transactions
30,667,382
29,020,206
1,647,176
5.7
%
Total revenue
$
44,623,899
$
37,703,452
$
6,920,447
18.4
%
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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:
Category
Impact
Key Drivers
Platforms
↑
$
5,273,271
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.
Transactions
↑
$
1,647,176
Increased primarily due to organic higher paid order volume and additional paid order volume due to the FIZ asset acquisition.
Cost of Revenue
Years Ended June 30,
2024
2023
$ Change
% Change
Cost of Revenue:
Platforms
$
2,067,203
$
1,027,286
$
1,039,917
101.2
%
Transactions
22,916,530
21,975,275
941,255
4.3
%
Total cost of revenue
$
24,983,733
$
23,002,561
$
1,981,172
8.6
%
Years Ended June 30,
2024
2023
% Change *
As a percentage of revenue:
Platforms
14.8
%
11.8
%
3.0
%
Transactions
74.7
%
75.7
%
(1.0)
%
Total
56.0
%
61.0
%
(5.0)
%
*
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 5.0%, from 61.0% for the previous year to 56.0%, for the year ended June 30, 2024.
Impact as percentage
Category
of revenue
Key Drivers
Platforms
↑
3.0
%
Increased primarily due to proportionally greater hosting costs from ResoluteAI.
Transactions
↓
1.0
%
Decreased primarily due to higher copyright margins.
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Gross Profit
Years Ended June 30,
2024
2023
$ Change
% Change
Gross Profit:
Platforms
$
11,889,314
$
7,655,960
$
4,233,354
55.3
%
Transactions
7,750,852
7,044,931
705,921
10.0
%
Total gross profit
$
19,640,166
$
14,700,891
$
4,939,275
33.6
%
Years Ended June 30,
2024
2023
% Change*
As a percentage of revenue:
Platforms
85.2
%
88.2
%
(3.0)
%
Transactions
25.3
%
24.3
%
1.0
%
Total
44.0
%
39.0
%
5.0
%
*
The difference between current and prior period gross profit as a percentage of revenue
Operating Expenses
Years Ended June 30,
2024
2023
$ Change
% Change
Operating Expenses:
Sales and marketing
$
3,442,503
$
2,285,478
$
1,157,025
50.6
%
Technology and product development
5,442,382
3,742,192
1,700,190
45.4
%
General and administrative
8,511,697
6,654,011
1,857,686
27.9
%
Depreciation and amortization
836,271
52,649
783,622
1,488.4
%
Stock-based compensation expense
2,155,461
1,849,906
305,555
16.5
%
Foreign currency transaction loss (gain)
21,395
(121,953)
143,348
117.5
%
Total operating expenses
$
20,409,709
$
14,462,283
$
5,947,426
41.1
%
Category
Impact
Key Drivers
Sales and marketing
↑
$
1,157,025
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
↑
$
1,700,190
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
↑
$
1,857,686
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, 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.
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Net Income (Loss)
Year Ended June 30,
2024
2023
$ Change
% Change
Net Income (Loss):
Net income (loss):
$
(3,786,597)
$
571,623
$
(4,358,220)
(762.4)
%
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
Year Ended June 30,
2024
2023
Consolidated Statements of Cash Flow Data:
Net cash provided by operating activities
$
3,550,954
$
3,383,847
Net cash used in investing activities
(10,095,256)
(344,659)
Net cash used in financing activities
(905,851)
(97,259)
Effect of exchange rate changes
4,851
229
Net increase (decrease) in cash and cash equivalents
(7,445,302)
2,942,158
Cash and cash equivalents, beginning of period
13,545,333
10,603,175
Cash and cash equivalents, end of period
$
6,100,031
$
13,545,333
Liquidity
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.
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.
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Financing Activities
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 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
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) 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. Non-GAAP adjustments to our results prepared in accordance with GAAP are itemized below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis. In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
Set forth below is a reconciliation of Adjusted EBITDA to net income (loss) for the year ended June 30, 2024 and 2023:
Years Ended June 30,
2024
2023
$ Change
% Change
Net income (loss)
$
(3,786,597)
$
571,623
$
(4,358,220)
(762.4)
%
Add (deduct):
Other (income) expense
2,903,983
(338,617)
3,242,600
957.6
%
Foreign currency transaction loss (gain)
21,395
(121,953)
143,348
117.5
%
Provision for income taxes
113,071
5,602
107,469
1,918.4
%
Depreciation and amortization
836,271
52,649
783,622
1,488.4
%
Stock-based compensation
2,155,461
1,849,906
305,555
16.5
%
Adjusted EBITDA
$
2,243,584
$
2,019,210
$
224,374
11.1
%
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We present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. In addition, we use Adjusted EBITDA in developing our internal budgets, forecasts and strategic plan; in analyzing the effectiveness of our business strategies in evaluating potential acquisitions; and in making compensation decisions and in communications with our board of directors concerning our financial performance. Adjusted EBITDA has limitations as an analytical tool, which includes, among others, the following:
● Adjusted EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
● Adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
● Adjusted EBITDA does not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on our debts; and
● although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recently Issued Accounting Pronouncements
For information about recently issued accounting standards, refer to Note 2 to our Consolidated Financial Statements appearing elsewhere in this report.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not required.
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