Research Solutions, Inc. — FY2015 Form 10-K
Period: Fiscal year ended June 30, 2015, compared with fiscal 2014. Although the request metadata says “2014 Q4,” this filing reports annual results for FY2015 and includes quarterly data; it is not a standalone 2014 Q4 filing.
Business context
Research Solutions provides access to scientific, technical and medical content through Article Galaxy, a cloud-based article-delivery platform, and transactional reprints and ePrints services. Customers include life science companies, academic institutions and other research-intensive organizations.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $31.90 million | $28.48 million |
| Gross profit / margin | $6.18 million / 19.4% | $5.45 million / 19.1% |
| Operating loss | $494,452 | $1.05 million |
| Continuing-operations loss | $542,185 | $1.08 million |
| Net income (loss) | $774,219 | $(1.87) million |
| Adjusted EBITDA (non-GAAP) | $613,161 | $(463,500) |
| Operating cash flow | $(331,895) | $475,734 |
| Cash and cash equivalents at year-end | $1.35 million | $1.88 million |
- Revenue rose 12.0%: Article Galaxy grew 14.5% to $21.38 million, and reprints/ePrints grew 7.3% to $10.52 million. Management attributed growth primarily to increased orders from new and existing customers.
- Gross margin improved 0.3 percentage points to 19.4%. Cost of revenue was 80.6% of revenue, versus 80.9% in FY2014.
- FY2015 net income included a $1.71 million non-cash gain from deconsolidating former French subsidiary TAAG. Continuing operations remained loss-making.
- Working capital was $1.00 million and stockholders’ equity was $1.09 million at June 30, 2015. The company used $297,392 in operating cash from continuing operations; increased accounts receivable was a key use of cash.
- No borrowings were outstanding under the Silicon Valley Bank revolving line at year-end. The facility was the lesser of $4.0 million or 80% of eligible receivables; approximately $2.18 million of availability was unused. It matured October 31, 2015 and was secured by company assets.
Material changes and unusual items
- TAAG entered judicial liquidation in France; the company relinquished control effective September 15, 2014 and deconsolidated it. The filing presents TAAG as discontinued operations and restates comparative periods accordingly. Management, based on consultation with French counsel, considered liability for TAAG’s unsatisfied obligations remote and eliminated the related liability at year-end.
- FY2015 net income turned positive from a FY2014 loss, principally reflecting the TAAG deconsolidation gain and improved gross profit. Excluding discontinued operations, the company recorded a loss in both years.
- Stock-based compensation expense increased to $834,672 from $355,220. The filing also reports $53,632 of expense related to extending certain directors’ warrants.
- The company repurchased 53,300 shares under a $250,000 authorization for approximately $49,482; $200,518 remained authorized but unused at year-end.
Outlook, risks and contingencies
- Management said cash resources, borrowing availability and expected cash flow should fund operations for the next twelve months. No specific revenue, earnings or margin guidance was provided.
- Key risks include continued operating losses and negative cash flow, reliance on content suppliers, competition and free or pirated content, technology or security disruptions, and the need for additional capital. The three largest content suppliers represented approximately 38% of content costs in FY2015; the largest customer represented 13% of year-end receivables.
- The company was in compliance with its bank covenants at June 30, 2015, but disclosed prior covenant breaches that were addressed by amendments. The credit facility’s October 2015 maturity makes refinancing or replacement terms important to monitor.
- The company reported ordinary-course legal proceedings that management did not expect to materially affect the financial statements. It also remained obligated on a former printing-facility lease, partly offset by sublease income.
- Management assessed disclosure controls and internal control over financial reporting as effective at June 30, 2015. The auditor issued an unqualified opinion on the financial statements but was not engaged to audit internal controls.
Important facts for investors to verify
- How much of FY2015 reported net income depended on the non-cash TAAG deconsolidation gain, and what continuing-operations performance looks like without it.
- Whether operating cash flow improves as receivables grow, and whether cash plus available credit remains adequate.
- The status and terms of the bank facility after its October 31, 2015 maturity, including covenant compliance and borrowing availability.
- Retention of major content suppliers and the largest receivable customer, and any changes in supplier concentration or credit exposure.
- The potential dilution from outstanding options, warrants and restricted stock; the filing reports 2.47 million options and 305,000 warrants outstanding at June 30, 2015.