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.