Research Solutions(RSSS) - 2023 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents Research Solutions, Inc.'s unaudited condensed consolidated financial statements and detailed notes for the periods ended December 31, 2022 and 2021 Item 1. Condensed Consolidated Financial Statements (unaudited) This section provides the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity changes, and cash flows, with explanatory notes Condensed Consolidated Balance Sheets This section presents the unaudited condensed consolidated balance sheets for Research Solutions, Inc. as of December 31, 2022, and June 30, 2022 Condensed Consolidated Balance Sheets | Metric | Dec 31, 2022 (unaudited) | Jun 30, 2022 | | :----------------------------------- | :----------------------- | :----------- | | Assets | | | | Cash and cash equivalents | $11,262,564 | $10,603,175 | | Accounts receivable, net | $5,243,386 | $5,251,545 | | Total current assets | $16,890,795 | $16,977,398 | | Total assets | $17,244,334 | $17,026,276 | | Liabilities & Stockholders' Equity | | | | Accounts payable and accrued expenses | $5,629,101 | $6,604,032 | | Deferred revenue | $5,967,525 | $5,538,526 | | Total current liabilities | $11,596,626 | $12,142,558 | | Total stockholders' equity | $5,647,708 | $4,883,718 | | Total liabilities and stockholders' equity | $17,244,334 | $17,026,276 | Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss) This section presents the unaudited condensed consolidated statements of operations and other comprehensive income (loss) for the three and six months ended December 31, 2022 and 2021 Condensed Consolidated Statements of Operations and Other Comprehensive Income (Loss) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :---------------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Total revenue | $8,716,666 | $7,872,287 | $17,401,309 | $15,614,791 | | Total cost of revenue | $5,312,839 | $5,034,627 | $10,648,234 | $10,116,756 | | Gross profit | $3,403,827 | $2,837,660 | $6,753,075 | $5,498,035 | | Total operating expenses | $3,733,270 | $3,319,509 | $6,902,889 | $6,346,392 | | Loss from operations | $(329,443) | $(481,849) | $(149,814) | $(848,357) | | Net loss | $(255,530) | $(481,585) | $(40,965) | $(853,587) | | Net loss per share, basic and diluted | $(0.01) | $(0.02) | $0.00 | $(0.03) | Condensed Consolidated Statements of Changes in Stockholders' Equity This section presents the unaudited condensed consolidated statements of changes in stockholders' equity for the periods ended December 31, 2022 and 2021 Condensed Consolidated Statements of Changes in Stockholders' Equity | Metric | Balance, Sep 30, 2022 | Balance, Dec 31, 2022 | | :-------------------------------- | :-------------------- | :-------------------- | | Common Stock Shares | 27,330,878 | 29,154,737 | | Common Stock Amount | $27,331 | $29,155 | | Additional Paid-in Capital | $28,298,171 | $28,874,383 | | Accumulated Deficit | $(22,879,707) | $(23,135,237) | | Total Stockholders' Equity | $5,318,678 | $5,647,708 | | Metric | Balance, Jul 1, 2022 | Balance, Dec 31, 2022 | | :-------------------------------- | :------------------- | :-------------------- | | Common Stock Shares | 27,075,648 | 29,154,737 | | Common Stock Amount | $27,076 | $29,155 | | Additional Paid-in Capital | $28,072,855 | $28,874,383 | | Accumulated Deficit | $(23,094,272) | $(23,135,237) | | Total Stockholders' Equity | $4,883,718 | $5,647,708 | - For the three months ended December 31, 2022, the company issued 1,800,000 shares of restricted common stock and 40,000 shares upon exercise of stock options, while repurchasing 16,141 shares[14] - For the six months ended December 31, 2022, the company issued 2,022,334 shares of restricted common stock and 46,046 shares upon exercise of stock options, while repurchasing 25,800 shares[14] Condensed Consolidated Statements of Cash Flows This section presents the unaudited condensed consolidated statements of cash flows for the six months ended December 31, 2022 and 2021 Condensed Consolidated Statements of Cash Flows | Metric | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :------------------------------------------ | :---------------------------- | :---------------------------- | | Net cash provided by (used in) operating activities | $1,023,585 | $(316,899) | | Net cash used in investing activities | $(316,326) | $(26,991) | | Net cash provided by (used in) financing activities | $(48,729) | $22,359 | | Net increase (decrease) in cash and cash equivalents | $659,389 | $(324,623) | | Cash and cash equivalents, end of period | $11,262,564 | $10,679,714 | Notes to Condensed Consolidated Financial Statements This section provides detailed notes explaining the company's organization, significant accounting policies, and specific financial activities Note 1. Organization, Nature of Business and Basis of Presentation This note describes Research Solutions, Inc.'s corporate structure, business model, and the basis for financial statement presentation - Research Solutions, Inc. was incorporated in Nevada on November 2, 2006, operating as a publicly traded holding company with three wholly-owned subsidiaries[18] - The company offers two main services: a cloud-based SaaS research platform ('Platforms') sold via annual license agreements, and the transactional sale of scientific, technical, and medical ('STM') content as individual articles ('Transactions')[19][92] - The Platform provides proprietary software and internet-based interfaces for annual subscription fees, offering functionalities like order initiation, cost-effective acquisition, transaction management, reporting, authentication, and integration with other systems, with recent additions including interactive app-like components for data gathering and extraction[20][21][93][94] - The Transactions service provides access to over 80 million existing and one million newly published STM articles annually, delivered electronically, often within minutes, with necessary copyright licenses[23][24][25][97][98] Note 2. Summary of Significant Accounting Policies This note outlines the critical accounting policies and estimates used in preparing the condensed consolidated financial statements - The financial statements are unaudited and prepared in accordance with GAAP and SEC interim financial reporting rules, with certain disclosures condensed or omitted[27] - Management makes estimates and assumptions affecting reported amounts, including reserves for uncollectible accounts, accruals for liabilities, valuation of equity instruments, and realization of deferred tax assets[29][30] - The company's financial instruments, cash and accounts receivable, are subject to credit risk, with cash held in high-quality financial institutions, sometimes exceeding FDIC limits, and foreign currency cash holdings in Euros and British Pounds amounted to $1,406,009 at December 31, 2022[31][32] - No single customer represented 10% or more of revenue or accounts receivable for the periods presented[34] Vendor Concentrations | Vendor | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Vendor A | 21 % | 21 % | 21 % | 20 % | | Vendor B | 13 % | 14 % | 12 % | 13 % | - Revenue is recognized under ASC 606: Platform revenue is recognized ratably over the subscription term (typically one year), and Transaction revenue is recognized upon electronic delivery of articles[36][37][38][39][106][107][108][109] Revenue by Geographical Region (Three Months Ended December 31) | Region | 2022 Revenue | 2022 % | 2021 Revenue | 2021 % | | :----------- | :----------- | :----- | :----------- | :----- | | United States | $5,061,779 | 58.1 % | $4,603,421 | 58.5 % | | Europe | $2,963,155 | 34.0 % | $2,717,935 | 34.5 % | | Rest of World | $691,732 | 7.9 % | $550,931 | 7.0 % | | Total | $8,716,666 | 100 % | $7,872,287 | 100 % | Accounts Receivable by Geographical Region (As of December 31, 2022) | Region | Amount | % | Jun 30, 2022 Amount | Jun 30, 2022 % | | :----------- | :----------- | :-- | :------------------ | :------------- | | United States | $3,068,940 | 58.5 % | $3,255,976 | 62.0 % | | Europe | $1,645,037 | 31.4 % | $1,665,111 | 31.7 % | | Rest of World | $529,409 | 10.1 % | $330,458 | 6.3 % | | Total | $5,243,386 | 100 % | $5,251,545 | 100 % | - Deferred revenue, primarily from cloud-based software subscriptions billed in advance, is recorded as a current liability[42][43] - Cost of Platform revenue includes personnel costs and third-party service/data providers, while Cost of Transaction revenue primarily consists of copyright fees and, to a lesser extent, personnel costs[44][45] - Stock-based compensation is measured at grant date fair value and recognized over the vesting period, with foreign currency translation gains/losses included in selling, general and administrative expenses[46][49] Foreign Currency Exchange Rates (Period End) | Currency | Dec 31, 2022 | Dec 31, 2021 | Jun 30, 2022 | Jun 30, 2021 | | :--------- | :----------- | :----------- | :----------- | :----------- | | Euro : US Dollar | 1.07 | 1.13 | 1.05 | 1.19 | | GBP : US Dollar | 1.21 | 1.35 | 1.21 | 1.38 | | Mexican Peso : US Dollar | 0.05 | 0.05 | 0.05 | 0.05 | - Basic and diluted net loss per common share were the same for the periods presented due to all potentially dilutive securities being anti-dilutive[54] - The company does not expect ASU 2016-13 (CECL) to have a material impact on its financial position, results of operations, and cash flows, effective July 1, 2023[55] Note 3. Line of Credit This note details the company's revolving line of credit, including terms, availability, and outstanding balances - The company has a revolving line of credit with Silicon Valley Bank for the lesser of $2,500,000 or 80% of eligible accounts receivable, maturing February 28, 2024[57][138] - As of December 31, 2022, there were no outstanding borrowings, and approximately $2,342,000 of credit was available, with an interest rate of 8.5%[58][139] Note 4. Stockholders' Equity This note provides information on the company's equity compensation plans, stock option activity, restricted common stock, and share repurchases - The company has two equity compensation plans (2007 Plan and 2017 Plan) for employees, directors, and consultants, with 1,763,262 shares available for grant under the 2017 Plan as of December 31, 2022[59][61] Stock Option Activity (Six Months Ended December 31, 2022) | Category | Shares | Weighted Average Exercise Price | | :-------------------------- | :------- | :------------------------------ | | Outstanding at June 30, 2022 | 3,182,872 | $1.79 | | Granted | 200,000 | $2.15 | | Options vesting | — | — | | Exercised | (162,648) | $1.40 | | Forfeited | (150,000) | $1.81 | | Outstanding at December 31, 2022 | 3,070,224 | $1.84 | - The weighted average remaining contractual life of all outstanding options was 5.68 years as of December 31, 2022, with an aggregate intrinsic value of $1,050,934[63] - During the six months ended December 31, 2022, 200,000 options were granted to directors, fully expensed due to immediate vesting, and total vested options fair value was $301,737[64] Black-Scholes Option Pricing Model Assumptions (Six Months Ended December 31) | Assumption | 2022 | 2021 | | :-------------------- | :----- | :--------- | | Expected dividend yield | — % | — % | | Risk-free interest rate | 3.76 % | 0.92 - 1.01 % | | Expected life (in years) | 5 | 6 | | Expected volatility | 56 % | 56 % | Restricted Common Stock Activity (Six Months Ended December 31, 2022) | Category | Number of Shares | Fair Value | | :-------------------------- | :--------------- | :----------- | | Non-vested, June 30, 2022 | 400,092 | $775,453 | | Granted | 2,022,334 | $2,958,528 | | Vested | (122,143) | $(482,327) | | Non-vested, December 31, 2022 | 2,300,283 | $3,251,654 | - 1,800,000 shares of restricted common stock were granted under the Long-Term Equity Bonus Program (LTEBP) to key management, vesting based on 30-day volume weighted average price (VWAP) targets ranging from $3.00 to $6.00 per share over 5 years[69][72][76] - The fair value of LTEBP awards was determined using Monte Carlo simulations, and unvested compensation related to restricted common stock was $3,251,654 as of December 31, 2022[73] - The Compensation Committee authorized repurchases of up to $400,000 of common stock from employees to satisfy tax obligations related to stock incentive awards, extended through fiscal year 2023[75][155] - During the six months ended December 31, 2022, the company repurchased 25,800 shares for $48,729, with $206,616 remaining under the authorization as of December 31, 2022[78][157] Note 5. Non-refundable Deposit for Asset Acquisition This note describes a non-refundable deposit made for the acquisition of certain STM content contracts - Reprints Desk entered an asset purchase agreement with FIZ Karlsruhe to acquire certain STM content contracts, effective January 1, 2023[80] - A non-refundable deposit of $297,450 (€300,000) was paid on September 30, 2022, with potential contingent consideration of up to an additional $248,000 (€250,000) and a bonus amount based on future service fees[80] Note 6. Contingencies This note addresses potential risks and uncertainties, including the impacts of the COVID-19 pandemic and inflation - The company acknowledges risks and uncertainties from the COVID-19 pandemic, but has not experienced significant negative impacts on operations or cash flows to date[81][82][83] - Inflation has not materially affected operations to date, but future inflationary and interest rate pressures could increase operating costs and stress working capital[84] Note 7. Subsequent Events This note discloses significant events that occurred after the balance sheet date, including stock issuances and forfeitures - In January 2023, the company issued 12,722 net shares and 12,515 net shares upon cashless exercise of stock options, and 50,000 shares for $57,500 cash[86][87] - On January 31, 2023, 65,165 shares of restricted common stock were retired due to forfeiture prior to vesting[86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and operational results, covering revenue, costs, expenses, liquidity, and Adjusted EBITDA for the periods presented Overview This overview describes Research Solutions, Inc.'s business model, including its SaaS platform and transactional content services, and discusses general economic impacts - Research Solutions, Inc. is a publicly traded holding company providing cloud-based SaaS research platforms ('Platforms') and transactional sales of scientific, technical, and medical ('STM') content ('Transactions')[91][92] - The Platforms offer proprietary software for annual subscription fees, enabling customers to manage transactions, access reporting, and integrate with other systems, with recent additions of interactive app-like components[93][94][95][96] - The Transactions service provides access to over 80 million STM articles, delivered electronically, often within minutes, with copyright compliance[97][98] - The company has not experienced significant negative impacts from the COVID-19 pandemic to date, but acknowledges potential future risks to transactional orders and platform subscriptions[99][100][101] - Inflation has not materially affected operations, but future inflationary and interest rate pressures could increase operating costs[102] Critical Accounting Policies and Estimates This section highlights key accounting policies and estimates that significantly impact the financial statements, such as revenue recognition and stock-based compensation - The preparation of financial statements requires management to make estimates and assumptions that affect reported amounts, with actual results potentially differing[103][104] - Revenue recognition follows ASC 606, with Platform revenue recognized ratably over the subscription term and Transaction revenue recognized upon delivery of single articles[106][107][108][109] - Stock-based compensation fair value is estimated using the Black-Scholes-Merton Option Pricing model, with assumptions that could materially affect future compensation expense[110][112] - The company refers to Footnote 2 for a discussion of recent accounting pronouncements, including the expected non-material impact of ASU 2016-13 (CECL)[113][55] Quarterly Information (Unaudited) This section presents unaudited quarterly financial data, including revenue, gross profit, operating expenses, and net income (loss) per share Quarterly Financial Data (Unaudited) | Metric | Dec 31, 2022 | Sep 30, 2022 | Jun 30, 2022 | Mar 31, 2022 | Dec 31, 2021 | Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | | :-------------------------------- | :----------- | :----------- | :----------- | :----------- | :----------- | :----------- | :----------- | :----------- | | Platforms Revenue | $2,110,272 | $2,019,967 | $1,886,845 | $1,786,224 | $1,604,829 | $1,509,874 | $1,429,160 | $1,344,183 | | Transactions Revenue | $6,606,394 | $6,664,676 | $6,675,164 | $6,971,128 | $6,267,458 | $6,232,630 | $6,788,494 | $6,996,349 | | Total Revenue | $8,716,666 | $8,684,643 | $8,562,009 | $8,757,352 | $7,872,287 | $7,742,504 | $8,217,654 | $8,340,532 | | Total Gross Profit | $3,403,827 | $3,349,248 | $3,283,142 | $3,238,497 | $2,837,660 | $2,660,375 | $2,742,216 | $2,702,640 | | Total Operating Expenses | $3,733,270 | $3,169,619 | $3,726,756 | $3,578,442 | $3,319,509 | $3,026,883 | $2,831,228 | $2,652,570 | | Net income (loss) | $(255,530) | $214,565 | $(438,267) | $(340,530) | $(481,585) | $(372,002) | $(88,876) | $49,748 | | Basic EPS | $(0.01) | $0.01 | $(0.02) | $(0.01) | $(0.02) | $(0.01) | $0.00 | $0.00 | | Diluted EPS | $(0.01) | $0.01 | $(0.02) | $(0.01) | $(0.02) | $(0.01) | $0.00 | $0.00 | Comparison of the Three and Six Months Ended December 31, 2022 and 2021 This section provides a detailed comparison of financial performance for the three and six months ended December 31, 2022 and 2021 Revenue This section analyzes the changes in Platform and Transaction revenue for the three and six months ended December 31, 2022 and 2021 Revenue Comparison (Three Months Ended December 31) | Category | 2022 | 2021 | $ Change | % Change | | :----------- | :----------- | :----------- | :--------- | :--------- | | Platforms | $2,110,272 | $1,604,829 | $505,443 | 31.5 % | | Transactions | $6,606,394 | $6,267,458 | $338,936 | 5.4 % | | Total revenue | $8,716,666 | $7,872,287 | $844,379 | 10.7 % | Revenue Comparison (Six Months Ended December 31) | Category | 2022 | 2021 | $ Change | % Change | | :----------- | :----------- | :----------- | :--------- | :--------- | | Platforms | $4,130,239 | $3,114,703 | $1,015,536 | 32.6 % | | Transactions | $13,271,070 | $12,500,088 | $770,982 | 6.2 % | | Total revenue | $17,401,309 | $15,614,791 | $1,786,518 | 11.4 % | - Platform revenue increased due to additional deployments to new and existing customers and expansion from existing customers[119] - Transaction revenue increased primarily due to higher paid order volume and pricing initiatives[119] Cost of Revenue This section examines the changes in Platform and Transaction cost of revenue and their percentages relative to revenue Cost of Revenue Comparison (Three Months Ended December 31) | Category | 2022 | 2021 | $ Change | % Change | | :----------- | :----------- | :----------- | :--------- | :--------- | | Platforms | $253,073 | $231,668 | $21,405 | 9.2 % | | Transactions | $5,059,766 | $4,802,959 | $256,807 | 5.3 % | | Total | $5,312,839 | $5,034,627 | $278,212 | 5.5 % | Cost of Revenue as a Percentage of Revenue (Three Months Ended December 31) | Category | 2022 % | 2021 % | % Change | | :----------- | :----- | :----- | :------- | | Platforms | 12.0 % | 14.4 % | (2.4)% | | Transactions | 76.6 % | 76.6 % | - % | | Total | 61.0 % | 64.0 % | (3.0)% | Cost of Revenue Comparison (Six Months Ended December 31) | Category | 2022 | 2021 | $ Change | % Change | | :----------- | :----------- | :----------- | :--------- | :--------- | | Platforms | $483,546 | $477,324 | $6,222 | 1.3 % | | Transactions | $10,164,688 | $9,639,432 | $525,256 | 5.4 % | | Total | $10,648,234 | $10,116,756 | $531,478 | 5.3 % | Cost of Revenue as a Percentage of Revenue (Six Months Ended December 31) | Category | 2022 % | 2021 % | % Change | | :----------- | :----- | :----- | :------- | | Platforms | 11.7 % | 15.3 % | (3.6)% | | Transactions | 76.6 % | 77.1 % | (0.5)% | | Total | 61.2 % | 64.8 % | (3.6)% | - Platform cost of revenue as a percentage of revenue decreased due to lower software expense and personnel costs[123][124] - Transaction cost of revenue as a percentage of revenue decreased primarily due to proportionally lower personnel costs[124] Gross Profit This section details the changes in gross profit and gross profit margins for both Platforms and Transactions segments Gross Profit Comparison (Three Months Ended December 31) | Category | 2022 | 2021 | $ Change | % Change | | :----------- | :----------- | :----------- | :--------- | :--------- | | Platforms | $1,857,199 | $1,373,161 | $484,038 | 35.2 % | | Transactions | $1,546,628 | $1,464,499 | $82,129 | 5.6 % | | Total | $3,403,827 | $2,837,660 | $566,167 | 20.0 % | Gross Profit as a Percentage of Revenue (Three Months Ended December 31) | Category | 2022 % | 2021 % | % Change | | :----------- | :----- | :----- | :------- | | Platforms | 88.0 % | 85.6 % | 2.4 % | | Transactions | 23.4 % | 23.4 % | - % | | Total | 39.0 % | 36.0 % | 3.0 % | Gross Profit Comparison (Six Months Ended December 31) | Category | 2022 | 2021 | $ Change | % Change | | :----------- | :----------- | :----------- | :--------- | :--------- | | Platforms | $3,646,693 | $2,637,379 | $1,009,314 | 38.3 % | | Transactions | $3,106,382 | $2,860,656 | $245,726 | 8.6 % | | Total | $6,753,075 | $5,498,035 | $1,255,040 | 22.8 % | Gross Profit as a Percentage of Revenue (Six Months Ended December 31) | Category | 2022 % | 2021 % | % Change | | :----------- | :----- | :----- | :------- | | Platforms | 88.3 % | 84.7 % | 3.6 % | | Transactions | 23.4 % | 22.9 % | 0.5 % | | Total | 38.8 % | 35.2 % | 3.6 % | Operating Expenses This section analyzes the changes in sales and marketing, technology, general and administrative, depreciation, stock-based compensation, and foreign currency expenses Operating Expenses Comparison (Three Months Ended December 31) | Expense Category | 2022 | 2021 | $ Change | % Change | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Sales and marketing | $666,608 | $518,357 | $148,251 | 28.6 % | | Technology and product development | $922,132 | $868,236 | $53,896 | 6.2 % | | General and administrative | $1,613,664 | $1,616,135 | $(2,471) | (0.2)% | | Depreciation and amortization | $6,342 | $4,260 | $2,082 | 48.9 % | | Stock-based compensation expense | $608,703 | $300,539 | $308,164 | 102.5 % | | Foreign currency transaction loss (gain) | $(84,179) | $11,982 | $(96,161) | (802.5)% | | Total operating expenses | $3,733,270 | $3,319,509 | $413,761 | 12.5 % | Operating Expenses Comparison (Six Months Ended December 31) | Expense Category | 2022 | 2021 | $ Change | % Change | | :-------------------------------- | :----------- | :----------- | :--------- | :--------- | | Sales and marketing | $1,187,824 | $1,041,308 | $146,516 | 14.1 % | | Technology and product development | $1,797,422 | $1,689,696 | $107,726 | 6.4 % | | General and administrative | $3,133,088 | $3,113,358 | $19,730 | 0.6 % | | Depreciation and amortization | $12,154 | $7,156 | $4,998 | 69.8 % | | Stock-based compensation expense | $784,064 | $471,649 | $312,415 | 66.2 % | | Foreign currency transaction loss (gain) | $(11,663) | $23,225 | $(34,888) | (150.2)% | | Total operating expenses | $6,902,889 | $6,346,392 | $556,497 | 8.8 % | - Sales and marketing expenses increased due to higher personnel costs and marketing spend, partially offset by lower consulting expenses[128] - Technology and product development expenses rose due to increased software development personnel costs, partially offset by lower consulting and recruiting expenses[128] - General and administrative expenses saw a slight increase (six months) or decrease (three months) due to a mix of higher personnel costs and lower accounting/consulting expenses[128] - Stock-based compensation expense significantly increased by 102.5% (three months) and 66.2% (six months) due to vesting of awards[116][118] - Foreign currency transaction loss turned into a gain for the three and six months ended December 31, 2022, significantly impacting the change[116][118] Net Income (Loss) This section discusses the changes in net income (loss) for the three and six months ended December 31, 2022 and 2021 Net Income (Loss) Comparison (Three Months Ended December 31) | Metric | 2022 | 2021 | $ Change | % Change | | :----------- | :----------- | :----------- | :--------- | :--------- | | Net loss | $(255,530) | $(481,585) | $226,055 | 46.9 % | Net Income (Loss) Comparison (Six Months Ended December 31) | Metric | 2022 | 2021 | $ Change | % Change | | :----------- | :----------- | :----------- | :--------- | :--------- | | Net loss | $(40,965) | $(853,587) | $812,622 | 95.2 % | - Net loss decreased by 46.9% for the three months and 95.2% for the six months ended December 31, 2022, primarily due to increased gross profit, partially offset by increased operating expenses[129][130] Liquidity and Capital Resources This section assesses the company's cash flows, capital resources, and ability to meet short-term and long-term obligations Consolidated Statements of Cash Flow Data (Six Months Ended December 31) | Metric | 2022 | 2021 | | :------------------------------------------ | :----------- | :----------- | | Net cash provided by (used in) operating activities | $1,023,585 | $(316,899) | | Net cash used in investing activities | $(316,326) | $(26,991) | | Net cash provided by (used in) financing activities | $(48,729) | $22,359 | | Net increase (decrease) in cash and cash equivalents | $659,389 | $(324,623) | | Cash and cash equivalents, end of period | $11,262,564 | $10,679,714 | - Cash and cash equivalents increased by $659,389 to $11,262,564 as of December 31, 2022, primarily driven by cash provided by operating activities[133] - Operating activities provided $1,023,585 in cash for the six months ended December 31, 2022, mainly due to decreases in prepaid royalties and increases in deferred revenue and fair value of vested restricted common stock, partially offset by a decrease in accounts payable[134] - Investing activities used $316,326, primarily for a non-refundable deposit for asset acquisition[136] - Financing activities used $48,729, resulting from common stock repurchases[137] - The company has an available revolving line of credit of approximately $2,342,000 with Silicon Valley Bank, with no outstanding borrowings as of December 31, 2022[138][139] Non-GAAP Measure – Adjusted EBITDA This section presents Adjusted EBITDA as a non-GAAP measure, reconciling it to net income (loss) and explaining its relevance - Adjusted EBITDA is presented as a supplemental non-GAAP measure to compare performance across reporting periods by excluding items not indicative of core operating performance[140][141] Adjusted EBITDA Reconciliation to Net Income (Loss) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Six Months Ended Dec 31, 2022 | Six Months Ended Dec 31, 2021 | | :-------------------------- | :------------------------------ | :------------------------------ | :---------------------------- | :---------------------------- | | Net income (loss) | $(255,530) | $(481,585) | $(40,965) | $(853,587) | | Other (income) expense | $(74,695) | $(264) | $(113,764) | $(540) | | Foreign currency transaction loss (gain) | $(84,179) | $11,982 | $(11,663) | $23,225 | | Provision for income taxes | $782 | $0 | $4,915 | $5,770 | | Depreciation and amortization | $6,342 | $4,260 | $12,154 | $7,156 | | Stock-based compensation | $608,703 | $300,539 | $784,064 | $471,649 | | Adjusted EBITDA | $201,423 | $(165,068) | $634,741 | $(346,327) | - Adjusted EBITDA increased significantly to $201,423 for the three months and $634,741 for the six months ended December 31, 2022, compared to negative figures in the prior year, reflecting improved core operating performance[141] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that quantitative and qualitative disclosures about market risk are not required for the company - The company is not required to provide quantitative and qualitative disclosures about market risk[144] Item 4. Controls and Procedures This section evaluates the effectiveness of the company's disclosure controls and internal control over financial reporting, acknowledging inherent limitations Evaluation of Disclosure Controls and Procedures This section presents management's conclusion on the effectiveness of the company's disclosure controls and procedures - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2022[145][146] Inherent Limitations on the Effectiveness of Controls This section acknowledges that control systems provide reasonable, not absolute, assurance and are subject to inherent limitations - Management acknowledges that control systems provide only reasonable, not absolute, assurance and cannot prevent or detect all errors or fraud due to inherent limitations like resource constraints, faulty judgments, individual acts, collusion, or management override[147][150] Changes in Internal Control Over Financial Reporting This section reports on any material changes in internal control over financial reporting during the quarter - No changes in internal control over financial reporting occurred during the quarter ended December 31, 2022, that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[151] PART II — OTHER INFORMATION This section provides additional information not covered in the financial statements, including risk factors, equity sales, and exhibits Item 1A. Risk Factors This section outlines potential risks that could materially impact the company's business and financial performance, particularly those related to the COVID-19 pandemic COVID-19 Pandemic Impact This section discusses the significant risks and uncertainties posed by the COVID-19 pandemic to the company's operations and financial results - The COVID-19 pandemic presents significant risks and uncertainties, potentially reducing transactional article orders or platform subscriptions, which could materially and adversely impact the business and financial performance[152][153] - The severity of the pandemic's future impact is uncertain and depends on its duration, severity, and effects on customers, service providers, and suppliers[154] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchase program, including authorization, shares repurchased, and remaining authorization Common Stock Repurchases This section provides information on the company's common stock repurchases, including the number of shares and average price - The Compensation Committee authorized repurchases of up to $400,000 of common stock from employees to satisfy tax obligations related to stock incentive awards, extended through fiscal year 2023[155] Common Stock Repurchases (Three Months Ended December 31, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Approximate Dollar Value of Shares that May Yet Be Purchased | | :---------------- | :----------------------------- | :--------------------------- | :----------------------------------------------------------- | | Oct 1-31, 2022 | — | — | $237,283 | | November 1-30, 2022 | — | — | $237,283 | | December 1-31, 2022 | 16,141 | $1.90 | $206,616 | | Total | 16,141 | $1.90 | — | - During the three months ended December 31, 2022, 16,141 shares were repurchased for $30,667 at an average price of $1.90 per share, with $206,616 remaining under the repurchase authorization as of December 31, 2022[157][159] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, certifications, and XBRL data files - Exhibits include Articles of Incorporation, Amended and Restated Bylaws, Rule 13a-14(a)/15d-14(a) Certifications of CEO and CFO, Section 1350 Certifications, and various XBRL Taxonomy Extension files[161] SIGNATURES This section contains the official signatures of the registrant's authorized officers, certifying the report's submission - The report was signed by Roy W. Olivier, Chief Executive Officer and President, and William Nurthen, Chief Financial Officer, on February 10, 2023[165]