Research Solutions, Inc.
(OTCQB:RSSS)

Research Solutions, Inc. (RSSS)

Derycz Scientific Reports Third Quarter 2011 Results

Q3 2011 Revenue Up 23% Year-Over-Year to $7.6 Million

Nine-Month Revenues Climb 19% to $22.1 Million

May 17, 2011

LOS ANGELES, May 17, 2011 /PRNewswire/ -- Derycz Scientific, Inc. (OTC BB: DYSC), a company pioneering a fresh way of facilitating information flow from content publishers to enterprise customers and their constituents, today announced its reported unaudited financial and operational results for the third quarter ended March 31, 2011.  Revenue in the third quarter of 2011 increased by 23% as compared to the prior year's quarter to $7,628,334 from $6,201,431, not including revenues from the recent acquisition of TAAG.

Peter Derycz, CEO and Founder commented, "We grew our company organically and with the acquisition of Techniques Appliquees aux Arts Graphiques, S.p.A. ("TAAG"), our new logistics arm in Europe, we have significantly advanced our global strategy of integrating digital information and logistics capabilities. We continue to see strong recurring growth from our existing customer base. With over 270 clients, many of whom are Fortune 100 global pharmaceutical and life science companies, we are on record pace and have distributed 5.4 million articles already this fiscal year to over 100 countries. We expect sales to our existing customers will grow as our services spread throughout the research and development, regulatory and marketing departments of our multinational clients. Assuming our current customers continue to increase their spending and TAAG's revenues continue at their current rate, our guidance is for revenue to increase to $10.6 to $11.2 million in Q4, resulting in $32.8 to $33.4 million of revenue for our fiscal 2011 (inclusive of our TAAG operations). In the coming 12 months, our goal is to double our sales force and enhance our current line of products, while developing new products. In the quarter ended March 31, 2011, we began deploying capital from our February financing to further these efforts. These enhancements and new products are built on our existing information platform and therefore are expected to have significantly higher margins. While we develop these new products, we are concentrating on increasing our margins on our current business by pre-paying for certain publisher content. These pre-payments would allow us to receive significantly more discounts from the publishers from whom we purchase media. We expect to see positive results from all of these efforts in the coming 12 months."

Q3 Financial Results

During Q3, the primary driver of our revenue increase was from the Company's new publisher agreements that it signed in Q1 of this fiscal year. Revenue of the Company's main operating company, Reprints Desk, increased 25% to $6,983,036 for the three months ended March 31, 2011 from $5,595,513 for the three months ended March 31, 2010. The Company's net loss from operations was $1,487,466 for the three months ended March 31, 2011, while the Adjusted Operating EBITDA, a non-GAAP metric which management has commenced using as a proxy for operating income in Q3 of 2011, was ($743,216) or ($.05) per fully diluted share. Adjusted Operating EBITDA excludes costs related to the acquisition costs of TAAG of $62,238, depreciation and amortization of $63,207 and one-time non-cash charges related to the increase in the fair value of warrants of $618,805.

Both the Company's operating income and Adjusted Operating EBITDA were also negatively affected by an additional $411,000, which was primarily due to an accounting method which requires the Company to amortize Certain Publisher Guaranteed Payments or its "CPGPs" on a straight-line basis over the life of the contracts, instead of accounting for them as a percentage of the revenue generated under the contracts. This accounting treatment results in higher amortized costs in the early periods of the agreements. In Q3, this additional cost contributed significantly to the decreased Gross Operating Margins, which fell from 21% of total sales in the prior year's quarter to 9% during Q3. The Company expects the revenue growth from its new publisher agreements to be greater than its straight-line amortization cost during the early part of its next fiscal year.

The Company's reported net loss for Q3 was ($1,520,647) or ($.10) per fully diluted share, compared to a net profit of $101,215 or $.01 per fully diluted share for the prior year's quarter.

The Company's pro forma combined Revenue, inclusive of TAAG's revenue for the quarter ended March 31, 2011, was $10,863,863 and our gross operating margin would have been 15%.

Nine Months Financial Results

During our first nine months of fiscal 2011, the primary driver of our revenue increase was generated from the Company's new publisher agreements that it signed in Q1 of this fiscal year. Revenue of the Company's main operating company, Reprints, increased 26% to $20,401,319 for the nine months ended March 31, 2011 from $16,198,106 for the nine months ended March 31, 2010. The Company's net loss from operations was $3,145,472 for the nine months ended March 31, 2011, while the Adjusted Operating EBITDA, a non-GAAP metric which management has commenced using as a proxy for operating income for the nine months ending March 31, 2011 was, ($1,826,835) or ($.13) per fully diluted share. Adjusted Operating EBITDA excludes costs related to the acquisition costs of TAAG of $62,238, depreciation and amortization of $189,132 and one-time non-cash charges related to the increase in the fair value of warrants of $1,067,267.

For the nine months ended March 31, 2011, both the Company's operating income and Adjusted Operating EBITDA were negatively affected by an additional $998,850, which was primarily due to an accounting method which requires the Company to amortize Certain Publisher Guaranteed Payments or its "CPGPs" on a straight-line basis over the life of the contracts, instead of accounting for them as a percentage of the revenue generated under the contracts. This accounting treatment results in higher amortized costs in the early periods of the agreements. This additional cost contributed significantly to the decreased Gross Operating Margins, which fell from 16.7% of total sales in the first nine months of fiscal 2010, to 9% during the first nine months of fiscal 2011. The Company expects the revenue growth from its new publisher agreements to be greater than its straight-line amortization cost during the early part of its next fiscal year.

The Company's reported net loss for the first nine months of fiscal 2011, was ($3,229,351) or ($.23) on a fully diluted basis, compared to a net profit of $25,256 or $.00 per share for the prior year's period.

The Company's pro forma combined Revenue, inclusive of TAAG's revenue for the nine months ended March 31, 2011, was $31,993,003 and our gross operating margin was 18%, as compared to the 2010 period of pro forma combined revenue of $33,139,399 and an operating margin of 21%.

Earnings Conference Call

Management will host a conference at 11:00 a.m. Eastern time (8:00 a.m. Pacific time) to discuss financial results for the quarter and provide a business update. Individuals interested in participating in the conference call may do so by dialing +1 (888) 549-7735 for U.S. domestic callers, or +1 (480) 629-9811 for international callers. For instructions and access for listening to the conference call live via the Internet, individuals can visit the company's website at www.deryczscientific.com. A telephone replay will be available for 48 hours following the conclusion of the call by dialing +1 (877) 870-5176 for U.S. domestic callers, or +1 (858) 384-5517 for international callers, and entering reservation code 4442044.  

Derycz Scientific, Inc.

Condensed Consolidated Balance Sheets



March 31,



June 30,




2011



2010




(unaudited)





ASSETS














CURRENT ASSETS







Cash and cash equivalents


$

3,753,921



$

1,852,231


Accounts receivable, net of allowance of $89,061 and $59,061



8,558,034




4,448,269


Inventory



811,380




6,628


Prepaid expenses



908,689




714,287


Deferred offering costs



175,815




-


Other current assets



247,262




84,470











TOTAL CURRENT ASSETS



14,455,101




7,105,885











PROPERTY AND EQUIPMENT, net of 

accumulated depreciation of $425,501 and $317,629



1,939,586




372,868











INTANGIBLE ASSETS









Intellectual property licenses, net of amortization of $438,900 and $297,887



714,301




674,779


Customer list



1,050,000




-











OTHER ASSETS 



399,018




-


GOODWILL



1,669,689




223,385











TOTAL ASSETS


$

20,227,695



$

8,376,917


LIABILITIES AND STOCKHOLDERS' EQUITY


















CURRENT LIABILITIES









Accounts payable


$

7,439,986



$

4,887,636


Line of credit



1,171,178




-


Capital lease obligation, current



905,370




33,682


Other current liabilities



363,898




97,824


TOTAL CURRENT LIABILITIES



9,880,432




5,019,142











CAPITAL LEASE OBLIGATIONS



1,442,007




43,514


OTHER LONG TERM DEBT



187,828




-


LIABILITY FOR ESTIMATED EARNOUT



621,985






DEFERRED TAX LIABILITIES



350,000




-


TOTAL LIABILITIES



12,482,252




5,062,656











COMMITMENTS AND CONTINGENCIES


















STOCKHOLDERS' EQUITY









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; 16,822,509 and 13,001,830 shares issued and outstanding



16,822




13,002


Additional paid-in capital



13,202,237




5,510,620


Accumulated deficit



(5,473,616)




(2,244,265)











TOTAL STOCKHOLDERS' EQUITY



7,745,443




3,279,357











NONCONTROLLING INTEREST



-




34,904


TOTAL EQUITY



7,745,443




3,314,261











TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY


$

20,227,695



$

8,376,917





Derycz Scientific, Inc.

Condensed Consolidated Statements of Operations

(unaudited)




Three Months Ended



Nine Months Ended




March 31,



March 31,




2011



2010



2011



2010















NET SALES


$

7,628,334



$

6,201,431



$

22,156,368



$

18,575,589



















COST OF SALES



6,967,975




4,902,409




20,112,574




15,467,120



















GROSS PROFIT



660,359




1,299,022




2,043,794




3,108,469



















OPERATING EXPENSES:

















General and administrative



1,921,882




1,094,937




4,587,544




2,832,163


Marketing and advertising



162,736




60,222




412,590




123,788


Depreciation and amortization



63,207




52,523




189,132




151,017



















TOTAL OPERATING EXPENSES



2,147,825




1,207,682




5,189,266




3,106,968



















INCOME (LOSS) FROM OPERATIONS



(1,487,466)




91,340




(3,145,472)




1,501



















Other Income (Expense)



-




6,101




(3,775)




19,361


Currency Gain (Loss)



(9,313)




-




(9,313)




-


Interest expense



(24,817)




(1,955)




(73,475)




(5,098)


Interest income



949




1,273




2,684




3,578



















INCOME (LOSS) BEFORE NONCONTROLLING INTEREST



(1,520,647)




96,759




(3,229,351)




19,342



















NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTEREST



-




4,456




-




5,914



















NET INCOME (LOSS) ATTRIBUTABLE TO DERYCZ SCIENTIFIC, INC.


$

(1,520,647)



$

101,215



$

(3,229,351)



$

25,256



















NET INCOME (LOSS) PER SHARE:

















BASIC AND DILUTED


$

(0.10)



$

0.01



$

(0.23)



$

0.00



















WEIGHTED AVERAGE SHARES OUTSTANDING:

















BASIC AND DILUTED



15,866,221




12,961,830




14,345,169




12,961,830





Derycz Scientific, Inc.


Condensed Consolidated Statement of Stockholders' Equity

For the nine months ended March 31, 2011

(unaudited)







Additional













Common stock



paid-in



Accumulated



Noncontrolling







Shares



Amount



Capital



Deficit



Interest



Total


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



-




-




84,559




-




-




84,559


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



-




-




986,815




-




-




986,815


Fair value of warrants issued to directors for services



-




-




80,652




-




-




80,652


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




336




1,212,579




-




-




1,212,915


Net loss for the period



-




-




-




(3,229,351)




-




(3,229,351)



























Balance, March 31, 2011



16,822,509



$

16,822



$

13,202,237



$

(5,473,616)




-



$

7,745,443





Derycz Scientific, Inc.


Condensed Consolidated Statements of Cash Flows

(unaudited)




Nine months ended




March 31,




2011



2010









CASH FLOWS FROM OPERATING ACTIVITIES:







Net income (loss)


$

(3,229,351)



$

19,342


Adjustment to reconcile net income (loss) to net cash provided by (used in) operating activities:









Depreciation and amortization



244,243




195,608


Fair value of vested stock options



84,559




-


Fair value of vested warrants issued for services



1,067,467




3,301


Fair value of common shares issued for services



76,123




-











Changes in assets and liabilities:









Accounts receivable



(1,876,631)




(638,611)


Inventory



(8,779)




196


Prepaid expenses



(370,217)




182,210


Other current assets



15,735




(43,846)


Accounts payable and accrued expenses



(960,559)




1,010,733


Other current liabilities



102,293




(40,779)


Income taxes payable



(600)




(3,659)











Net cash provided by (used in) operating activities



(4,855,717)




694,495











CASH FLOWS FROM INVESTING ACTIVITIES:









Purchase of furniture and equipment



(83,312)




(73,231)


Purchase of Intellectual Property licenses



(98,998)




(207,671)


Cash acquired upon acquisition of TAAG



645,688




-


Acquisition of remaining interest in Pools Press



(120,000)




-











Net cash provided by (used in) investing activities



343,378




(280,902)











CASH FLOWS FROM FINANCING ACTIVITIES:


















Payment of capital lease obligation



(25,368)




(18,919)


Issuance of shares upon exercise of warrants for cash



2,484,187




-


Issuance of common shares and warrants for cash



2,784,032




-


Advances under line of credit



1,171,178




-











Net cash provided by (used in) financing activities



6,414,029




(18,919)











NET INCREASE IN CASH AND CASH EQUIVALENTS



1,901,690




394,674











CASH AND CASH EQUIVALENTS, Beginning of period



1,852,231




1,854,093











CASH AND CASH EQUIVALENTS, End of period


$

3,753,921



$

2,248,767











SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:


















Taxes paid


$

-



$

-


Interest paid


$

73,475



$

32,853











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


$

-




42,640


Grant of common shares for acquisition


$

1,212,195




-


Liability for estimated earnout


$

621,985




-


Minority share of losses of subsidiary


$

-




(5,914)





The foregoing financial information and tables should be read in conjunction with the unaudited condensed consolidated financial statements of the Company and the footnotes thereto, set forth in Part I, Item 1 of the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 16, 2011.

About Derycz Scientific®

Derycz Scientific, Inc. develops companies, products, services and systems that 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.  Its subsidiary companies include Reprints Desk, Inc., Pools Press, Inc. and the newly acquired Techniques Appliquees aux Arts Graphiques, S.p.A. (TAAG).  Reprints Desk offers a one-stop solution for reprints, ePrints and single articles, and has delivered millions of articles worldwide.  Reprints Desk is an innovator in content retrieval and ePrint delivery, with services designed to help make effective use of published articles in a copyright-compliant manner.  Pools Press has excelled in the reprint market for more than 30 years.  It provides professionally printed articles from medical and technical journals; prints booklets, catalogs, pamphlets, direct mail pieces and newsletters; and works with publishers who wish to outsource a portion of or all of their reprints business.  TAAG offers printing, distribution and information logistics services, with core competencies in the professional production and distribution of clinical trial kits and clinical article reprints for the life sciences industry.  For more information, please visit www.deryczscientific.com.

About the Presentation of Adjusted Operating EBITDA: Management has commenced, as of this period the use of Adjusted Operating EBITDA as a proxy for operating income. Adjusted Operating EBITDA is not a financial measure calculated in accordance with U.S. generally accepted accounting principles (GAAP) and should not be considered in isolation, or as an alternative to net income, operating income or other financial measures reported under GAAP. The Company defines Adjusted Operating EBITDA as earnings before: non-cash derivative income/loss, non-cash stock based compensation; acquisition-related costs and integration expenses; impairment of property and equipment; merger and acquisition expenses; and depreciation and amortization. Other companies (including the Company's competitors) may define Adjusted Operating EBITDA differently. The Company presents Adjusted Operating EBITDA because it believes it to be an important supplemental measure of performance that is commonly used by securities analysts, investors and other interested parties in the evaluation of companies in a similar industry. Management may also use this information internally for forecasting, budgeting and performance-based executive compensation. It may not be indicative of the historical operating results of the Company nor is it intended to be predictive of potential future results.

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. The Company assumes no obligation to update the cautionary information in this release.

SOURCE Derycz Scientific, Inc.


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