Research Solutions(RSSS) - 2024 Q1 - Quarterly Report

PART I Item 1. Condensed Consolidated Financial Statements (unaudited) For the three months ended September 30, 2023, the company reported a net loss of $988,043, a reversal from prior year's net income, driven by increased operating expenses from the ResoluteAI acquisition despite a 15.8% revenue increase Condensed Consolidated Balance Sheets Total assets increased to $23.7 million as of September 30, 2023, driven by the ResoluteAI acquisition's goodwill and intangible assets, while cash decreased to $9.9 million Balance Sheet Summary | Balance Sheet Items | Sep 30, 2023 (unaudited) | Jun 30, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $9,882,064 | $13,545,333 | | Total current assets | $17,823,842 | $21,301,414 | | Goodwill (provisional) | $3,238,794 | $0 | | Intangible assets, net | $2,528,259 | $462,068 | | Total assets | $23,683,254 | $21,834,727 | | Liabilities & Equity | | | | Total current liabilities | $14,929,034 | $14,504,240 | | Contingent earnout liability | $1,867,043 | $0 | | Total liabilities | $16,796,077 | $14,504,240 | | Total stockholders' equity | $6,887,177 | $7,330,487 | - The balance sheet includes provisional amounts for goodwill ($3.2 million) and intangible assets ($2.1 million) from the ResoluteAI acquisition, which occurred on July 28, 2023[12][87][91] Condensed Consolidated Statements of Operations Total revenue grew 15.8% to $10.1 million for the three months ended September 30, 2023, but a 61.9% surge in operating expenses led to a net loss of $988,043 Statements of Operations Summary | Metric | Q1 2024 (ended Sep 30, 2023) | Q1 2023 (ended Sep 30, 2022) | YoY Change | | :--- | :--- | :--- | :--- | | Total Revenue | $10,060,971 | $8,684,643 | +15.8% | | Platforms Revenue | $2,600,192 | $2,019,967 | +28.7% | | Transactions Revenue | $7,460,779 | $6,664,676 | +11.9% | | Gross Profit | $4,031,565 | $3,349,248 | +20.4% | | Total Operating Expenses | $5,130,517 | $3,169,619 | +61.9% | | Income (Loss) from Operations | ($1,098,952) | $179,629 | -711.8% | | Net Income (Loss) | ($988,043) | $214,565 | -560.5% | | Diluted EPS | ($0.04) | $0.01 | N/A | Condensed Consolidated Statements of Cash Flows Net cash decreased by $3.7 million to $9.9 million for the first quarter of fiscal 2024, primarily due to $2.8 million used for the ResoluteAI acquisition and a shift to cash used in operating activities Cash Flow Summary | Cash Flow Activity | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash from operating activities | ($755,571) | $108,879 | | Net cash from investing activities | ($2,752,078) | ($301,131) | | Net cash from financing activities | ($156,325) | ($18,062) | | Net decrease in cash | ($3,663,269) | ($215,486) | | Cash at end of period | $9,882,064 | $10,387,689 | - The primary use of cash in investing activities was a $2.7 million payment for an acquisition, net of cash acquired, which corresponds to the ResoluteAI transaction[17] Notes to Condensed Consolidated Financial Statements The notes detail the company's Platforms and Transactions business, the $4.6 million ResoluteAI acquisition, and a subsequent forbearance agreement regarding loan defaults with FCB - The company's business consists of two main offerings: cloud-based SaaS research platforms (Platforms) and the transactional sale of scientific, technical, and medical (STM) content (Transactions)[19] - On July 28, 2023, the company acquired 100% of Resolute Innovation, Inc. (ResoluteAI), an advanced search platform powered by AI and NLP technologies[87] ResoluteAI Acquisition Details | Acquisition Details | Amount | | :--- | :--- | | Total Purchase Consideration (net of cash) | ~$4.6 million | | Initial Payment | $2.7 million | | Contingent Earnout (Fair Value) | $1.9 million | - Subsequent to the quarter end, the company was notified by FCB (successor to SVB) of certain defaults under its loan agreement, primarily related to diversifying cash holdings after the SVB collapse, and a forbearance agreement was reached on November 14, 2023, waiving the defaults provided the company regains compliance by January 30, 2024[94] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 fiscal 2024 revenue growth to platform deployments and transaction volumes, but a 61.9% surge in operating expenses led to a net loss and negative Adjusted EBITDA Results of Operations Total revenue increased by 15.8% to $10.1 million, but a 61.9% rise in operating expenses, driven by acquisition and personnel costs, resulted in a net loss of $988,043 Results of Operations Summary | Item | Q1 2024 (ended Sep 30, 2023) | Q1 2023 (ended Sep 30, 2022) | % Change | | :--- | :--- | :--- | :--- | | Total Revenue | $10,060,971 | $8,684,643 | 15.8% | | Gross Profit | $4,031,565 | $3,349,248 | 20.4% | | Total Operating Expenses | $5,130,517 | $3,169,619 | 61.9% | | Net Income (Loss) | ($988,043) | $214,565 | -560.5% | - Platform revenue growth was driven by new customer deployments, expansion from existing customers, and sales from the ResoluteAI transaction[118] - The increase in operating expenses was primarily due to greater personnel costs (including from ResoluteAI), higher legal expenses (including proxy-related and acquisition costs), and separation costs paid to a former officer[123] Liquidity and Capital Resources Cash and cash equivalents decreased by $3.7 million to $9.9 million due to the ResoluteAI acquisition, with the company subsequently entering a forbearance agreement for loan defaults with FCB - Cash and cash equivalents decreased by $3,663,269 during the quarter, from $13.5 million to $9.9 million, primarily due to cash used in investing activities for the ResoluteAI acquisition[126][127] - The company has a revolving line of credit with no outstanding borrowings as of September 30, 2023, and the available credit was approximately $2,355,000[134] - Post-quarter, the company was informed of defaults under its SVB loan agreement related to diversifying cash after the SVB collapse, and a forbearance agreement was signed with the successor bank, FCB, on November 14, 2023[136] Non-GAAP Measure – Adjusted EBITDA Adjusted EBITDA for the three months ended September 30, 2023, was a loss of $440,898, a significant decline from the prior year's positive $433,318, primarily due to the operating loss Adjusted EBITDA Reconciliation | Reconciliation Item | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net income (loss) | ($988,043) | $214,565 | | Other (income) expense | ($140,311) | ($39,069) | | Foreign currency transaction loss (gain) | $6,620 | $72,516 | | Provision for income taxes | $29,402 | $4,133 | | Depreciation and amortization | $59,620 | $5,812 | | Stock-based compensation | $591,814 | $175,361 | | Adjusted EBITDA | ($440,898) | $433,318 | Item 3. Quantitative and Qualitative Disclosures About Market Risk This section is not required for smaller reporting companies - The company has indicated that this disclosure is not required[142] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level[144] - No material changes to the internal control over financial reporting were identified during the quarter ended September 30, 2023[149] PART II — OTHER INFORMATION Item 1A. Risk Factors The company states that there have been no material changes from the risk factors disclosed in its Annual Report on Form 10-K for the fiscal year ended June 30, 2023 - There have been no material changes to the risk factors previously disclosed in the company's Form 10-K for the year ended June 30, 2023[150] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 18,603 shares of common stock for $46,135 during the quarter to cover employee tax obligations, with $104,960 remaining under authorization - The company has a stock repurchase program to allow employees to cover tax obligations from vested stock awards, authorized through fiscal year 2024[151] Stock Repurchase Activity | Repurchase Activity | Value | | :--- | :--- | | Shares Repurchased (Q1 FY24) | 18,603 | | Average Price Paid per Share | ~$2.48 | | Total Cost | $46,135 | | Remaining Authorization | $104,960 | Item 6. Exhibits This section lists exhibits filed with Form 10-Q, including CEO and CFO certifications and the ResoluteAI merger agreement incorporated by reference - The exhibit list includes CEO and CFO certifications as required by Sarbanes-Oxley Sections 302 and 905[157] - The merger agreement for the Resolute Innovation, Inc. acquisition is included by reference to a prior Form 8-K filing[157]