Research Solutions, Inc. — Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2019, compared with fiscal 2018. Although the request metadata says “2018 Q4,” this filing is an annual report for fiscal 2019. It also presents unaudited quarterly data, including fiscal Q4 ended June 30, 2019.
Business context and financial performance
The company provides annual subscriptions to its research-intelligence SaaS platform and transaction-based delivery of scientific, technical and medical articles. The filing reports consolidated results for Research Solutions and its wholly owned subsidiaries.
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $28.79 million | $28.02 million |
| Gross profit / gross margin | $8.34 million / 29.0% | $7.35 million / 26.2% |
| Operating loss | $1.25 million | $1.95 million |
| Loss from continuing operations | $1.17 million | $1.94 million |
| Net loss | $960,000 | $1.68 million |
| Adjusted EBITDA (non-GAAP) | $(364,000) | $(1.02) million |
| Operating cash flow | $576,000 provided | $605,000 used |
| Cash and cash equivalents at year-end | $5.35 million | $4.91 million |
Platform revenue rose 54.4% to $2.81 million; transaction revenue declined 0.8% to $25.98 million. At June 30, 2019, working capital was $2.87 million and stockholders’ equity was $3.03 million. Total liabilities were $7.38 million, including $208,513 of lease liabilities; there were no borrowings on the bank credit line. The company reported approximately $2.215 million of available credit under its facility.
In fiscal Q4 2019, revenue was $7.47 million, gross profit was $2.23 million, and net loss was $71,853. The quarter included an $84,275 gain from the discontinued-business sale earn-out.
Changes versus prior year
- Revenue increased 2.8%, while gross profit increased 13.5% and gross margin improved 2.8 percentage points.
- Platform revenue growth more than offset a modest decrease in transaction revenue. Management attributed the platform increase to deployments and expansion with new and existing customers; transaction orders from existing customers fell, partly offset by new customers.
- Operating expenses increased 3.2% to $9.60 million, including a 19.0% rise in technology and product development costs, partly offset by lower sales and marketing expense and depreciation and amortization.
- Net loss narrowed 42.8%. The improvement included higher gross profit and a smaller loss from continuing operations, but also reflected earn-out gains from the sale of the Reprints and ePrints business.
- Operating cash flow improved from use of $605,000 to generation of $576,000, driven in part by higher deferred revenue and accounts payable and lower prepaid expenses. Cash increased by $445,000 during the year.
Outlook, risks and other notable items
- The filing provides no specific revenue, earnings or cash-flow guidance. Management describes growth plans focused on platform development, customer expansion, new market verticals and possible acquisitions, but cautions that profitability may not be sustained.
- The company reported net losses in both years and an accumulated deficit of $20.51 million. Management warns that continued losses or negative cash flow could constrain operations and growth.
- Three content suppliers represented approximately 39% of content costs in fiscal 2019. Losing a major supplier could materially affect the service and results. No customer accounted for more than 10% of revenue.
- The $2.5 million revolving facility, limited to the lesser of that amount or 80% of eligible receivables, matured December 31, 2019. It was secured by company assets; the company was covenant-compliant at June 30, 2019. Verify whether it was renewed or replaced after the filing date.
- Risks include competition and piracy, technology and cybersecurity disruptions, privacy and copyright regulation, foreign-exchange exposure (no hedging), and the need for additional capital. The company also identifies key-person dependence and potential dilution from outstanding equity awards.
- The company recognized $214,737 of fiscal 2019 earn-out consideration from the 2017 sale of its Reprints and ePrints business. It adopted ASC 606 with no financial-statement impact. The auditor issued an unqualified opinion; management reported effective disclosure controls and internal control over financial reporting.
Important facts for investors to verify
- Current status and terms of the credit facility that matured after fiscal year-end, and ongoing covenant compliance.
- Whether operating cash generation is repeatable, given its reliance on working-capital movements and deferred revenue.
- Platform subscription growth, transaction-order trends, gross-margin sustainability and progress toward profitability.
- Continuity of key publisher relationships and exposure to the three largest content suppliers.
- Potential dilution from options, warrants and restricted shares; the filing lists 5.65 million securities under equity compensation arrangements, including warrants.
- Governance and trading risks: the stock trades on OTCQB, and the filing describes thin trading, volatility and concentrated voting influence.