Derycz Scientific Reports Record Revenue for Fiscal Year 2012

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