Derycz Scientific Reports Record Revenue for Fiscal Year 2012

Fiscal Year 2012 Results Include: $43 Million in Annual Revenue; 7 Point Increase in Gross Profit as a Percentage of Revenue; US Operations Well Positioned for Profitability in Fiscal Year 2013

ENCINO, Calif., Sept. 28, 2012 /PRNewswire/ -- Derycz Scientific, Inc. (OTC: DYSC), a leader in information logistics solutions and a pioneer in facilitating the flow of information from content publishers to enterprise customers in life science and other research intensive industries, today reported financial and operating results for the fiscal year 2012 (ended June 30, 2012).

Year-over-year highlights:

$43 million of revenue in fiscal year 2012, a 28% increase over fiscal year 2011 revenue of $33.5 million
18.8% gross profit as a percentage of revenue in fiscal year 2012, a 7 point increase over fiscal year 2011 gross profit as a percentage of revenue of 11.7%
Over 10 million articles delivered worldwide to over 1,000 accounts in more than 100 countries during fiscal year 2012
Total of $2.5M in one-time impairment charges in fiscal year 2012 related to the acquisition of TAAG, Pools Press, and intellectual property licenses
US Operations well positioned for profitability in fiscal year 2013 due to numerous gross margin improvements and expense reduction measures performed during the year
Current guidance of approximately $1M in adjusted EBITDA from US operations expected in fiscal year 2013

Management Commentary

"We can't be more excited about our growth. We delivered over 10 million scientific articles to over 1,000 accounts in more than 100 countries, which proves that what we are doing makes sense, a lot of sense, all over the world. It also proves that we have the team, systems and resources to scale and deliver solid solutions to organizations of any size anywhere in the world. The task ahead for us really lies in continuing to grow the customer base worldwide while continuing to innovate in the products and services we develop. Our main goal is customer happiness, and we delivered on that goal while at the same time dramatically improving our gross margins, reducing our operating expenses, continuing to innovate with new products and services for our global customers as well as improve our cash position. We expect our US operations to deliver approximately $1M in adjusted EBITDA for fiscal year 2013, which is approximately a $3 million improvement compared to fiscal year 2012," said Derycz Scientific President and CEO Peter Derycz. "In contrast to the success of our US operations (mainly the Reprints Desk brand), we've experienced continued difficulties in our TAAG operation. We have responded there by replacing the prior executive and accounting management as well as taking a one-time impairment charge in regards to that acquisition."

Alan Urban, Chief Financial Officer, added "About half way through fiscal year 2012 we completed numerous improvements in gross margin and as a result gross margin as a percentage of revenue increased 7 points to 18.8% for fiscal year 2012. This improvement, along with our ongoing initiatives related to expense reduction and optimization of business processes, and with the impairment charges related to the acquisition of TAAG, Pools Press, and intellectual property licenses behind us, leaves us well positioned for profitability from US operations going forward."

Conference Call

Derycz Scientific management will host an investment-community conference call on Tuesday, October 2, 2012 beginning at 4:15 p.m. Eastern time (1:15 p.m. Pacific time) to discuss these results and answer questions. To participate in the call please dial +1 (866) 516-3002 for domestic callers or +1 (253) 237-1159 for international callers, and enter passcode 36492176 when prompted.

The webcast will also be available from the Company's website at www.deryczscientific.com. Listening to the webcast requires Internet access and the Windows Media Player or other compatible streaming media player. A recorded replay will be available on the deryczscientific.com website for 60 days following the conclusion of the call.

Use of Non-GAAP Measure – Loss from Operations before Depreciation and Amortization, Stock-Based Compensation, and Impairment Charges

Derycz Scientific management evaluates and makes operating decisions using various financial metrics. In addition to the Company's GAAP results, management also considers the non-GAAP measure of Income from operations before depreciation and amortization, stock-based compensation, and impairment charges. Management believes that this non-GAAP measure provides useful information about the Company's operating results. The attached tables provide a reconciliation of this non-GAAP financial measure with the most directly comparable GAAP financial measure.

Reconciliation of Loss from Operations before Depreciation and Amortization, Stock-Based Compensation, and Impairment Charges to Loss from Operations

(Table amounts in 000's)

	US Operations Year Ended June 30, 2012	TAAG (France) Year Ended June 30, 2012	Total Year Ended June 30, 2012

Loss from operations	$ (3,602)	$ (3,050)	$ (6,652)
Add:
Depreciation and amortization	437	1,092	1,529
Stock-based compensation	204	-	204
Impairment charges	911	1,603	2,514
Loss from operations before depreciation and amortization, stock-based compensation, and impairment charges	$ (2,050)	$ (355)	$ (2,405)

The following financial information should be read in conjunction with the unaudited financial statements and accompanying notes thereto filed by the Company with the Securities and Exchange Commission on September 28, 2012 in its Annual Report on Form 10-K for the year ended June 30, 2012. The Annual Report can be viewed at www.sec.gov.

Derycz Scientific, Inc. and Subsidiaries
Consolidated Balance Sheets

	June 30,	June 30,
	2012	2011
Assets
Current assets:
Cash and cash equivalents	$ 3,150,978	$ 2,868,260
Accounts receivable:
Trade receivables, net of allowance of $163,455 and $223,298 , respectively	6,099,471	6,690,662
Due from factor	197,039	356,540
Inventory	363,641	759,507
Prepaid expenses	157,139	298,927
Prepaid royalties	415,339	1,245,872
Other current assets	18,084	18,320
Total current assets	10,401,691	12,238,088

Property and equipment, net of accumulated depreciation of $1,369,782 and $724,004 , respectively	1,294,517	1,666,462
Intangible assets, net of accumulated amortization of $189,783 and $641,698 , respectively	65,510	1,883,660
Goodwill	-	1,567,604
Deposits and other assets	244,202	308,721
Total assets	$ 12,005,920	$ 17,664,535

Liabilities and Stockholders' Equity (Deficiency)
Current liabilities:
Accounts payable and accrued expenses	$ 9,554,754	$ 7,045,535
Capital lease obligations, current	640,116	663,973
Notes payable, current	53,452	53,252
Due to factor	256,636	312,440
Due to related parties	-	71,902
Line of credit	1,000,000	1,436,233
Deferred revenue	68,901	158,240
Total current liabilities	11,573,859	9,741,575

Notes payable, long term	53,452	110,080
Capital lease obligations, long term	813,173	1,281,600
Liability for estimated earnout	-	359,338
Deferred tax liability	-	350,000
Total liabilities	12,440,484	11,842,593

Commitments and contingencies

Stockholders' equity (deficiency):
Preferred stock; $0.001 par value; 20,000,000 shares authorized; no shares issued and outstanding	-	-
Common stock; $0.001 par value; 100,000,000 shares authorized; 17,069,437 and 16,822,509 shares issued and outstanding, respectively	17,069	16,823
Accumulated other comprehensive income (loss)	60,654	(11,590)
Additional paid-in capital	13,671,873	13,468,580
Accumulated deficit	(14,184,160)	(7,651,871)
Total stockholders' equity (deficiency)	(434,564)	5,821,942
Total liabilities and stockholders' equity (deficiency)	$ 12,005,920	$ 17,664,535

Derycz Scientific, Inc. and Subsidiaries
Consolidated Statements of Operations and Other Comprehensive Loss

	Years ended
	June 30,
	2012	2011

Revenue	$ 42,818,541	$ 33,500,438
Cost of revenue	34,778,307	29,594,012
Gross profit	8,040,234	3,906,426

Operating expenses:
Selling, general and administrative	10,722,321	8,489,430
Depreciation and amortization	1,456,130	673,881
Impairment loss related to the acquisition of TAAG	1,602,638	-
Impairment loss on intangible assets related to intellectual property licenses	688,138	-
Impairment loss related to the acquisition of Pools Press	223,385	-
Total operating expenses	14,692,612	9,163,311
Loss from operations	(6,652,378)	(5,256,885)

Currency loss	(2,892)	(23,363)
Loss on sale of fixed asset	(315)	-
Other income	20,476	13,480
Interest expense	(220,665)	(144,069)
Interest income	1,379	3,231
Loss before provision for income taxes	(6,854,395)	(5,407,606)
Income tax benefit	322,106	-

Net loss	(6,532,289)	(5,407,606)
Other comprehensive income (loss): Foreign currency translation	72,244	(11,590)
Comprehensive loss	$ (6,460,045)	$ (5,419,196)

Net loss per share:
Basic and diluted	$ (0.38)	$ (0.36)

Weighted average shares outstanding:
Basic and diluted	17,045,824	14,964,504

Derycz Scientific, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity (Deficiency)
For the Years Ended June 30, 2012 and 2011

			Additional			Other	Total
	Common Stock		Paid-in	Accumulated	Noncontrolling	Comprehensive	Stockholders'
	Shares	Amount	Capital	Deficit	Interest	Income	Equity

Balance, July 1, 2010	13,001,830	$ 13,002	$ 5,510,620	$ (2,244,265)	$ 34,904	$ -	$ 3,314,261

Acquisition of remaining interest in Pools Press	-	-	(120,000)	-	-	-	(120,000)

Adjustment for noncontrolling interest in Pools Press	-	-	34,904	-	(34,904)	-	-

Fair value of common shares issued for services	38,565	39	76,084	-	-	-	76,123

Fair value of options issued to employees	-	-	121,643	-	-	-	121,643

Common shares issued upon exercise of warrants	2,170,193	2,170	2,482,017	-	-	-	2,484,187

Fair value of common shares issued for customer list	75,000	75	71,175	-	-	-	71,250

Fair value of warrants issued for services	-	-	1,175,748	-	-	-	1,175,748

Fair value of warrants issued to directors for services	-	-	120,978	-	-	-	120,978

Common shares issued for cash	1,200,000	1,200	2,782,832	-	-	-	2,784,032

Common shares issued for acquisition of TAAG	336,921	337	1,212,579	-	-	-	1,212,916

Net loss for the period	-	-	-	(5,407,606)	-	-	(5,407,606)

Foreign currency translation	-	-	-	-	-	(11,590)	(11,590)

Balance, June 30, 2011	16,822,509	16,823	13,468,580	(7,651,871)	-	(11,590)	5,821,942

Fair value of options issued to employees	-	-	175,951	-	-	-	175,951

Common shares issued upon exercise of warrants	246,928	246	(246)	-	-	-	-

Fair value of warrants issued for services	-	-	210,712	-	-	-	210,712

Adjustment to fair value of warrants granted to consultants	-	-	(447,838)	-	-	-	(447,838)

Fair value of warrant extensions	-	-	264,714	-	-	-	264,714

Net loss for the period	-	-	-	(6,532,289)	-	-	(6,532,289)

Foreign currency translation	-	-	-	-	-	72,244	72,244

Balance, June 30, 2012	17,069,437	$ 17,069	$ 13,671,873	$ (14,184,160)	$ -	$ 60,654	$ (434,564)

Derycz Scientific, Inc. and Subsidiaries
Consolidated Statements of Cash Flows

	Years Ended
	June 30,
	2012	2011

Cash flow from operating activities:
Net loss	$ (6,532,289)	$ (5,407,606)
Adjustment to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	1,529,222	750,190
Fair value of vested stock options	175,951	121,643
Fair value of warrants issued for services, net of adjustment	(237,126)	1,296,726
Fair value of common shares issued for services	-	76,123
Fair value of warrant extensions	264,714	-
Impairment loss related to the acquisition of TAAG	1,602,638	-
Impairment loss on intangible assets related to intellectual property licenses	688,138	-
Impairment loss related to the acquisition of Pools Press	223,385	-
Deferred income tax liability	(350,000)	-
Loss on sale of fixed asset	315	-

Changes in assets and liabilities:
Accounts receivable	591,191	(167,479)
Inventory	395,866	130,792
Due from factor	159,501	(71,932)
Prepaid expenses	141,788	(68,339)
Prepaid royalties	830,533	(531,585)
Other assets	64,755	(2,562)
Accounts payable and accrued expenses	2,509,219	(922,159)
Deferred revenue and other current liabilities	(89,339)	(296,233)
Income taxes payable	-	(600)
Net cash provided by (used in) operating activities	1,968,462	(5,093,021)

Cash flow from investing activities:
Purchase of property and equipment	(183,108)	(121,058)
Purchase of intangible assets	(227,599)	(245,925)
Cash acquired upon acquisition of TAAG	-	325,383
Acquisition of remaining interest in Pools Press	-	(120,000)
Proceeds from sale of fixed asset	750	-
Net cash used in investing activities	(409,957)	(161,600)

Cash flow from financing activities:
Issuance of shares upon exercise of warrants	-	2,484,187
Issuance of common shares and warrants	-	2,784,032
Advances (payments) to factor	256,636	-
Payment of notes payable	(56,428)	-
Payment of bank loans	-	(277,892)
Payment of capital lease obligations	(868,006)	(144,320)
Payment of related parties	(71,902)	-
Advances (payments) under line of credit	(748,673)	1,436,233
Net cash provided by (used in) financing activities	(1,488,373)	6,282,240
Effect of exchange rate changes	212,586	(11,590)
Net increase in cash and cash equivalents	282,718	1,016,029
Cash and cash equivalents, beginning of period	2,868,260	1,852,231
Cash and cash equivalents, end of period	$ 3,150,978	$ 2,868,260

Derycz Scientific, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (continued)

	Years Ended
	June 30,
	2012	2011


Supplemental disclosures of cash flow information:
Cash paid for income taxes	$ 27,894	$ -
Cash paid for interest	$ 220,665	$ 146,206

Supplemental disclosures of non-cash investing and financing activities:
Adjustment to additional paid in capital to reflect acquisition of remaining noncontrolling interest	$ -	$ 34,904
Acquisition of customer list through the issuance of common shares	$ -	$ 71,250
Capital lease obligation incurred for purchase of equipment	$ 375,722	$ -
Grant of common shares for acquisition	$ -	$ 1,212,195
Liability of estimated earnout	$ -	$ 359,338

About Derycz Scientific®
Derycz Scientific, Inc. is an information logistics company. The company and its subsidiaries develop products, services and systems to facilitate the re-use of published content in a manner that helps organizations achieve their marketing, communication and research goals effectively and in compliance with copyright law and regulatory rules. Subsidiary companies include Reprints Desk, Inc., and Techniques Appliquees aux Arts Graphiques, S.p.A. (TAAG). For more information, please visit www.deryczscientific.com.

Forward-Looking Statements
Certain matters discussed in this press release may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such matters involve risks and uncertainties that may cause actual results to differ materially, including the following: changes in economic conditions; general competitive factors; acceptance of the Company's products in the market; the Company's success in obtaining new customers; the Company's success in technology and product development; the Company's ability to execute its business model and strategic plans; the Company's success in integrating acquired entities and assets, and all the risks and related information described from time to time in the Company's filings with the Securities and Exchange Commission ("SEC"), including the financial statements and related information contained in the Company's Annual Report on Form 10-K and interim Quarterly Reports on Form 10-Q. Examples of forward-looking statements in this release include statements related to new products, anticipated revenue and profitability. The Company assumes no obligation to update the cautionary information in this release.

SOURCE Derycz Scientific, Inc.

Investors

News Releases