RSSS 10-K & 10-Q changes, risk factors and insider trading

Historically, we have relied upon cash from financing activities to fund substantially all of the cash requirements of our activities and have incurred significant losses and experienced negative cash flow. ThoughFor our fiscal years ended June 30, 2026 and 2025, we earned a net income of $1,265,553$2,822,068 forand our$1,265,553, fiscal year ended June 30, 2025, we incurred a net loss of $3,786,597 for our fiscal year ended June 30, 2024.respectively. As of June 30, 2025,2026, we had an accumulated deficit of $25,043,693.$22,221,625. We cannot predict if we will continue to be profitable. We may continue to incur losses for an indeterminate period of time and may be unable to sustain profitability. An extended period of losses and negative cash flow may prevent us from successfully operating and expanding our business. We may be unable to sustain or increase our profitability on a quarterly or annual basis.

Enterprise use of generative artificial intelligence (GenAI) technologies may result in access to and processing of sensitive information, intellectual property, source code, trade secrets, and other data, through direct user input or the API, including customer or private information and confidential information. Sending confidential and private data outside of our own servers could trigger legal and compliance exposure, as well as risks of information exposure, including unauthorized acquisition, use, or other processing. Such exposure can result from contractual (for example, with customers) or regulatory obligations (such as CCPA, GDPR, HIPAA). Furthermore, if the GenAI platform's own systems and infrastructure are not secure, data breaches or incidents may occur and lead to the exposure of sensitive information such as customer data, financial information, and proprietary business information, or it may be believed or asserted that one or more of these has occurred. Threat actors could also use GenAI for malicious purposes, increasing the frequency of their attacks and the complexity level some are currently capable of, e.g. phishing attacks, fraud, social engineering, and other possible malicious use, such as with writing malware. Code generated by GenAI could potentially be used and deployed without a proper security audit or code review to find vulnerable or malicious components. This could cause widespread deployment of vulnerable code within the organizationorganization’s systems.

We currently have a line of credit with PNC Bank, National Association,Association (“PNC”), maturing on April 15, 2026,2027, under which there were no outstanding borrowings as of June 30, 2025.2026. Our loan agreement contains, and any agreements to refinance our debt likely will contain, financial and restrictive covenants. We were in compliance with these covenants as of June 30, 2025,2026, however, our failure to comply with these covenants in the future may result in an event of default, which if not cured or waived, could result in the bank preventing us from accessing availability under our line of credit and requiring us to repay any outstanding borrowings. There can be no assurance that we will be able to obtain waivers of future covenant violations or that such waivers will be available on commercially acceptable terms.

Our prior acquisitions have resulted in significant impairment charges and some have operated at losses. We can provide no assurance that future acquisitions, joint ventures or strategic relationships will be accretive to our business overall or will result in profitable operations.

We have an operational and administrative support organization in Mexico,Mexico and sell our services worldwide. Foreign operations are subject to various risks which could have a material adverse effect on those operations, the costs of those operations, and our business as a whole, including: exposure to local economic and employment conditions; exposure to local taxes and employment regulations, political conditions; currency exchange rate fluctuations; reliance of local management; and additional potential costs of complying with rules and regulations, and potential changes to those rule and regulations, of foreign jurisdictions. Any adverse consequence resulting from the materialization of the foregoing risks would adversely affect our financial performance and results of operations.

The failure of any bank in which we deposit our funds could reduce the amount of cash we have available for our operations or delay our ability to access such funds. Any such failure may increase the possibility of a sustained deterioration of financial market liquidity, or illiquidity at clearing, cash management and/or custodial financial institutions. In the event we have a commercial relationship with a bank that has failed or is otherwise distressed, we may experience delays or other issues in meeting our financial obligations. If other banks and financial institutions fail or become insolvent in the future in response to financial conditions affecting the banking system and financial markets, our ability to access our cash and cash equivalents and investments may be threatened, which could have a material adverse effect on our business, operations, operating results and financial condition as well as the price of our common stock.

We have never paid cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. In addition, our Loan and Security Agreement with PNC Bank, National Association (“PNC”) prohibits us from paying cash dividends.dividends on or after the occurrence of an event of default or if an event of default would occur as a result thereof. The payment of dividends on our common stock will depend on our earnings, financial condition and other business and economic factors affecting us at such time as the board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment might only occur if the market price of our common stock appreciates.

We produce our financial statements in accordance with accounting principles generally accepted in the United States, or GAAP. Effective internal controls are necessary for us to provide reliable financial reportsreports, to help mitigate the risk of fraud and to operate successfully as a publicly traded company. As a public company, we are required to document and test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404. Further, Section 404 requires annual management assessments of the effectiveness of our internal controls over financial reporting.

AI models are integral to powering the unique insights our platforms provide as well as the user experience customers enjoy. Natural language processing (“NLP”) and AI models are used to enhance metadata, define connections between topics and content items as well as to generate data and metrics employed to enable users to rapidly identify and understand the value of content they need for their research. We also use state of the art AI models, such as Largelarge Languagelanguage Modelsmodels (“LLMs”) to include Generativegenerative AI “assistants” in several parts of the research workflow today and will continually add capability as we move forward. Today we employ Generativegenerative AI technologies as a basis for our recommendation engine in our Discovery Tools, Access, and Manage Platform solutions. In addition, Generativegenerative AI based “assistants” in some of our solutions allow the researcher to ask questions about articles, groups of articles (folders), and more. We also have the capability to provide near full text search on STM content in the Scite.ai solution where the publisher gives us the rights to do so. The ability to not only mine an article’s full text but also show snippets of full text is unique to our Company and allows our Generativegenerative AI assistants to provide highly accurate results with a very low incidence of hallucinations as part of a Retrievalretrieval Augmentedaugmented Generationgeneration framework focused just on STM content. We planintend to releasecontinue several new Platform solutions to enhance the research workflows described above and add new solutions to support the analysis functions that existinvesting in our typicalplatforms customerand base.in our integrations with third-party AI applications, through new product enhancements and expanded dataset coverage.

The accounting estimates and assumptions discussed in this section are those that we consider to be the most critical to an understanding of our consolidated financial statements because they inherently involve significant judgments and uncertainties.

We account for revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“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.

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 Financial Accounting Standards Board (“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. Depending on the type of restricted stock award, the fair value of our restricted stock is estimated based on the market price of our common stock on the date of grant or with the assistance of a valuation specialist, using the Monte Carlo simulations on a binomial model with a derived service period. We recognize compensation expense on the straight-line basis over the requisite service period for awards subject to time vesting conditions and the graded tranche basis for awards subject to market vesting conditions. Forfeitures are accounted for as they occur. We recognize stock-based compensation within the consolidated statements of operations and comprehensive income (loss) with classification depending on the nature of the services rendered.

Our trade accounts receivable are recorded at amounts billed to customers and presented on the consolidated balance sheetsheets net of the allowance for estimated credit losses, and typically due within 30 days. 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, our forecast and an overall assessment of trade accounts receivable outstanding. We established an allowance for doubtful accounts of $182,324$103,217 and $68,579$182,324 as of June 30, 20252026 and 2024,2025, respectively. We addedrecorded provisionsa andcredit reserveto adjustmentsbad debt expense of approximately $163,000$23,000 in the year ended June 30, 2026 and $99,000a bad debt expense of approximately $141,000 in the year ended June 30, 2025. We had write-offs of approximately $56,000 and $49,000 in the years ended June 30, 20252026 and 2024,2025, respectively.respectively, Wewhich hadreduced write-offsour ofallowance approximatelyfor $49,000doubtful and $80,000 in the years ended June 30, 2025 and 2024, respectively.accounts.

Total revenue increaseddecreased $4,434,082,$751,024 or 9.9%,1.5%, for the year ended June 30, 20252026 compared to the prior year, due to the following:

During the years ended June 30, 20252026 and 20242025, we recorded a provision for income taxes of $82,811$133,042 and $113,071,$82,811, respectively, aan decreaseincrease of $30,260,$50,231, which was largely due to aan decreaseincrease in state income tax related to our ResSol LA subsidiary.taxes.

Net income increased $5,052,150$1,556,515, or 133.4%,123%, for the year ended June 30, 20252026 compared to the prior year, primarily due to increaseda grossfiscal profit,year partially offset by2025 increase in salesthe andestimated marketingfair expensesvalue andrelated a decrease into the net estimatedScite earn out liability associatedresulting within thehigher Sciteexpense acquisitionrecognized completedduring that fiscal year as well as increased gross margin and decreased operating expenses recognized in fiscal year 2024,2026 dueas todescribed change of estimated fair value.above.

As of June 30, 2025,2026, we had cash and cash equivalents of $12,227,312$12,630,283 compared to $6,100,031$12,227,312 as of June 30, 2024,2025, an increase of $6,127,281.$402,971. This increase was primarily due to cash provided by operating activities partially offset by cash used in financing activities.

Net cash provided by operating activities was $3,550,954$5,274,420 for the year ended June 30, 20242026 and resulted primarily from restrictednet commonincome stockof $2,822,068, accreted interest expense of $1,994,362,$1,040,293 and an increase in deferred revenue of $921,879$782,957, andpartially anoffset increaseby a decrease in accounts payable and accrued expenses of $560,027, partially offset by an increase in accounts receivable of $344,020.$1,262,918.

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 (loss),income, income (loss) 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),income, plus interest expense, other (income) expense including anyaccreted interest expense and change in fair value of contingent earnout liability, foreign currency transaction loss (gain), provision for income taxes, depreciation and amortization, and stock-based compensation, when applicable. 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, 20252026 and 20242025:

The following discussion and analysis of our financial condition and results of operations for the three and sixnine months ended DecemberMarch 31, 20252026 and 20242025 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” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2025.

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 DecemberMarch 31, 20252026: 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.

AI models are integral to powering the unique insights our platforms provide as well as the user experience customers enjoy. Natural language processing (“NLP”) and AI models are used to enhance metadata, define connections between topics and content items as well as to generate data and metrics employed to enable users to rapidly identify and understand the value of content they need for their research. We also use state of the art AI models, such as large language models (“LLP”) to include generative AI “assistants” in several parts of the research workflow today and will continually add capability as we move forward. Today we employ generative AI technologies as a basis for our recommendation engine in our Discovery Tools, Access, and Manage Platform solutions. In addition, generative AI based “assistants” in some of our solutions allow the researcher to ask questions about articles, groups of articles (folders), and more. We also have the capability to provide near full text search on STM content in the Scite.ai solution where the publisher gives us the rights to do so. The ability to not only mine an article’s full text but also show snippets of full text is unique to our Company and allows our generative AI assistants to provide highly accurate results with a very low incidence of hallucinations as part of a retrieval augmented generation framework focused just on STM content. We planintend to releasecontinue several new Platform solutions to enhance the research workflows described above and add new solutions to support the analysis functions that existinvesting in our typicalplatforms customerand base.in our integrations with third-party AI applications, through new product enhancements and expanded dataset coverage.

Our trade accounts receivable are recorded at amounts billed to customers and presented on the consolidated balance sheet net of the allowance for estimated credit losses, and typically due within 30 days. 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, our forecast and an overall assessment of trade accounts receivable outstanding. We established an allowance for doubtful accounts of $79,869$94,234 and $182,234$182,324 as of DecemberMarch 31, 20252026 and June 30, 2025, respectively.

Comparison of the Three and SixNine Months Ended DecemberMarch 31, 20252026 and 20242025

Total revenue decreased $121,568,$539,802, or 1.0%,4.3%, for the three months ended DecemberMarch 31, 20252026 compared to the prior year, due to the following:

Total revenue increaseddecreased $146,135,$393,667, or 0.6%,1.1%, for the sixnine months ended DecemberMarch 31, 20252026 compared to the prior year, due to the following:

Total cost of revenue as a percentage of revenue decreased 3.5%,2.2%, from 51.1%50.5% for the prior year to 47.6%,48.3%, for the three months ended DecemberMarch 31, 2025.2026.

Total cost of revenue as a percentage of revenue decreased 3.1%,2.7%, from 51.6%51.2% for the prior year to 48.5%, for the sixnine months ended DecemberMarch 31, 2025.2026.

Net income increased $2,527,153,$643,736, or 127.6%,297.4%, for the three months ended DecemberMarch 31, 20252026 compared to the prior year, primarily due to a fiscal year 2024 increase in the estimated fair value related to the Scite earn out liability, increased gross profit and a decrease in operating expenses as described above.

Net income increased $2,607,536,$3,251,272, or 198.9%,297%, for the sixnine months ended DecemberMarch 31, 20252026 compared to the prior year, primarily due to a fiscal year 20242025 increase in the estimated fair value related to the Scite earn out liability, increased gross profit and a decrease in operating expenses as described above.

As of DecemberMarch 31, 2025,2026, we had cash and cash equivalents of $12,262,780,$12,050,396, compared to $12,227,312 as of June 30, 2025, ana increasedecrease of $35,468.$176,916. This increasedecrease was primarily due to cash providedused byin operatingfinancing activities partially offset by cash usedprovided inby financingoperating activities.

Net cash provided by operating activities was $2,491,176$3,499,149 for the sixnine months ended DecemberMarch 31, 20252026 and resulted primarily from net income of $1,296,306,$2,156,512, an adjustmentaccreted tointerest contingent earnout liabilityexpense of $596,603$843,129 and aan decreaseincrease in accountsdeferred receivablerevenue of $1,530,063,$459,660, partially offset by a decrease in accounts payable and accrued expenses of $1,035,903 and a decrease in deferred revenue of $785,267.$724,921.

Net cash provided by operating activities was $1,871,493$4,764,251 for the sixnine months ended DecemberMarch 31, 20242025 and resulted primarily from an adjustment to the contingent earnout liability of $2,406,886$2,812,796, an increase in deferred revenue of $1,331,920 and arestricted decreasecommon instock prepaid royaltiesexpense of $478,169,$1,400,199, partially offset by a decrease in accounts payable and accrued expenses of $737,670 and an increase in accounts receivable of $266,255.$754,258.

Net cash used in investing activities was $24,561$28,609 for the sixnine months ended DecemberMarch 31, 20252026 and resulted from the purchase of property and equipment.

Net cash used in investing activities was $5,404$11,571 for the sixnine months ended DecemberMarch 31, 20242025 and resulted from the purchase of property and equipment.

Net cash used in financing activities was $2,436,443$3,656,148 for the sixnine months ended DecemberMarch 31, 20252026 and resulted from the payment of $3,766,263 in contingent acquisition consideration of $2,554,394 and the repurchase of common stock$47,385 of $39,549,Company common stock, partially offset by proceeds from the exercise of stock options of $157,500.

Net cash used in financing activities was $267,838$999,567 for the sixnine months ended DecemberMarch 31, 20242025 and resulted from the repurchase of $908,393 of Company common stock and the payment of $91,174 in contingent acquisition consideration of $62,560 and the repurchase of common stock of $205,278.consideration.

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, 20262027 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 DecemberMarch 31, 2026 and June 30, 2025.

Set forth below is a reconciliation of Adjusted EBITDA to net income for the three and sixnine months ended DecemberMarch 31, 20252026 and 20242025: