Research Solutions, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended December 31, 2014; comparative periods ended December 31, 2013. The company provides scientific, technical and medical information services through Article Galaxy and Reprints/ePrints.
Financial performance
| Metric | Three months ended Dec. 31, 2014 | Three months ended Dec. 31, 2013 | Six months ended Dec. 31, 2014 | Six months ended Dec. 31, 2013 |
|---|---|---|---|---|
| Revenue from continuing operations | $7.93 million | $7.38 million | $15.48 million | $14.00 million |
| Gross profit / margin | $1.51 million / 19.0% | $1.32 million / 17.8% | $3.01 million / 19.4% | $2.51 million / 18.0% |
| Operating loss | $62,355 | $453,879 | $50,106 | $543,040 |
| Loss from continuing operations | $94,176 | $467,604 | $101,112 | $564,654 |
| Net income (loss) | $(94,176) | $(446,556) | $1.05 million | $(589,503) |
| Operating cash flow, continuing operations | Not separately provided | Not separately provided | $212,881 | $(601,116) |
Quarter revenue rose 7.4%; six-month revenue rose 10.6%. Article Galaxy revenue increased 19.2% for the quarter and 18.0% for the six months, which management attributed primarily to new customers and increased orders. Reprints/ePrints revenue fell 8.6% and 1.7%, respectively, primarily due to lower orders from existing customers. Total gross margin improved as Article Galaxy’s lower content and production costs more than offset weaker Reprints/ePrints margins.
The six-month net profit is not representative of recurring operating performance: it includes a $1.55 million non-cash gain on deconsolidating former French subsidiary TAAG. TAAG’s discontinued operations contributed $1.16 million of revenue and a $395,344 loss before deconsolidation during the six-month period. Adjusted EBITDA, a non-GAAP measure, was $112,235 for the quarter and $304,291 for the six months; the six-month comparison was $(260,652).
Financial position and liquidity
- At December 31, 2014, cash was $1.80 million, total current assets were $7.04 million, and current liabilities were $6.32 million; working capital was $720,210. Stockholders’ equity was $813,056.
- Cash decreased $86,043 from June 30, 2014. Six-month consolidated operating cash flow was $178,378, investing cash outflow was $53,018, and financing cash outflow was $67,515. Foreign-exchange effects reduced cash by $143,888.
- No borrowings were outstanding under the secured Silicon Valley Bank revolving line. Approximately $2.245 million of availability was unused at December 31, 2014. The facility is capped at the lesser of $4 million or 80% of eligible receivables and matures October 31, 2015. The company reported compliance with its covenants.
- The company had recorded a $187,907 liability for specific obligations associated with TAAG. Management stated it was remote that the company would be generally liable for TAAG’s unsatisfied liabilities.
Material changes, outlook and risks
- TAAG entered French judicial liquidation after insolvency proceedings; the company relinquished control effective September 15, 2014 and deconsolidated TAAG. Prior-period presentation was recast to show TAAG as discontinued operations. TAAG represented 22.1% of consolidated revenue in fiscal 2014, according to the filing.
- Management said cash resources, borrowing availability and expected cash flow should support operations for the next 12 months. It also cautioned that the company may incur losses for an indeterminate period and may not achieve or sustain profitability. No specific revenue or earnings guidance was provided.
- Vendor concentration is notable: four vendors represented 11%–18% each of quarterly revenue-related purchases/costs as disclosed, and 10%–16% each for the six-month period. The filing also cites currency exposure in Mexican pesos and euros and says the company does not hedge currency risk.
- Management reported disclosure controls were effective at a reasonable-assurance level as of December 31, 2014, with no material change in internal control over financial reporting during the quarter.
Investor verification points
- Separate recurring continuing-operations results from the non-cash TAAG deconsolidation gain and discontinued-operation results.
- Track whether Article Galaxy growth continues and whether Reprints/ePrints orders and margins stabilize.
- Review operating cash generation, working capital, receivables and prepaid royalties, as well as the company’s ability to maintain bank covenants and renew or replace the credit facility before its October 2015 maturity.
- Verify the extent of any remaining TAAG-related obligations and monitor vendor concentration and unhedged foreign-currency exposure.