UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





(Mark
One):




x
            ANNUAL REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934


For
the fiscal year ended June 30, 2010


OR


o
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
      OF 1934


For
the transition period from 
to ____________________





Commission
File Number 000-53501





DERYCZ
SCIENTIFIC, INC.


(Exact
Name of Registrant as Specified in its Charter)


Nevada
              
              11-3797644(State
      or other jurisdiction
                of
      incorporation or organization)
              
              (I.R.S.
      Employer
                Identification
      No.)





1524
      Cloverfield Blvd., Suite E, Santa Monica, CA
              
              90404(Address
      of principal executive offices)
              
              (Zip
      Code)





Registrant's
telephone number, including area code: (310) 447-0354





Securities
registered pursuant to Section 12(b) of the Act: None





Securities
registered pursuant to Section 12(g) of the Act: common stock, par
value $0.001 per share





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes  o     No 
þ





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes  o     No 
þ





Indicate
by check mark whether the registrant: (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes   þ     No 
o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).  Yes  o     No 
o





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendments to this Form 10-K.   o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check
one):





Large accelerated filer 
      o
              Accelerated filer 
      oNon-accelerated filer 
      o   (Do not check if a smaller reporting company)
              Smaller reporting company 
      þ





Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes  o     No 
þ





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter. $2,283,191.00 (based on the closing price of $0.50 as reported on the
OTC Bulletin Board as of that date).





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date.  As of September 23, 2010,
there were 13,021,223 shares of the registrant’s common stock
outstanding.











Table of
Contents





PART IItem
       1.
              Business
              2Item 
      1A.
              Risk
      Factors
              4Item 
      1B.
              Unresolved
      Staff Comments
              4Item 
      2.
              Properties
              4Item 
      3.
              Legal
      Proceedings
              4Item 
      4.
              [Removed
      and Reserved]PART IIItem 
      5.
              Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
              5Item
       6.
              Selected
      Financial Data
              5Item 
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              6Item
       7A.
              Quantitative
      and Qualitative Disclosures About Market Risk
              11Item 
      8.
              Financial
      Statements and Supplementary Data
              12Item 
      9.
              Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
              27Item 
      9A.
              Controls
      and Procedures
              27Item
       9B.
              Other
      Information
              28PART
       IIIItem
       10.
              Directors,
      Executive Officers and Corporate Governance
              29Item 
      11.
              Executive
      Compensation
              31Item 
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              33Item 
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              35Item
       14.
              Principal
      Accounting Fees and Services
              35PART IVItem 
      15.
              Exhibits,
      Financial Statement Schedules
              37





i





PART
I





Item
1. Business





Company
Overview




Derycz
Scientific, Inc. (“Derycz,” “Derycz Scientific,” “we” or the “Company”) is
a publicly traded holding company with one wholly owned subsidiary,
Reprints Desk, Inc. (“Reprints” or “Reprints Desk”) and one majority owned
subsidiary, Pools Press, Inc. (“Pools” or “Pools Press”). Derycz, through
Reprints and Pools, provides its customers with copies of published content,
such as articles from published journals, in either electronic or hard copy
form. Our customers use this content for marketing, regulatory or research
purposes. Generally, marketing departments order large quantities of printed
copies that they distribute to their customers, and electronic copies for
distribution through the Internet and other electronic mechanisms. Researchers
and regulatory personnel generally order single copies or small quantities of
the content. Our service alleviates the need for our customers to contact
multiple publishers or obtain permissions themselves. In addition, we ensure
that we have obtained the necessary permissions from the owners of the content’s
copyrights so that the reproduction complies with copyright laws. We also offer
services to publishers, whereby we are responsible for all aspects of reprint
and eprint production, from taking orders to final delivery. This service
eliminates the need for the publishers to establish a dedicated reprints sales
force or arrange for delivery of reprinted materials. Pools Press also offers
other commercial printing products, such as the production of booklets and
newsletters.




We
aggregate published materials and charge a fee for copies of them. When
possible, we obtain exclusive licenses and discounts from content producers,
such as publishers. We have a fixed pricing structure for single copy orders and
variable pricing for orders of multiple copies. For single copies of an article
we charge a fee above the cost of the article as well as a shipping fee if the
article is sent in hard copy form. For multiple copies of an article, we
generally obtain a price from the publisher and then add a service fee, which is
dependent on the customer, the size of the order, the complexity of the order
and other considerations. When possible we obtain the right to print the
reprints from the holder of the copyright and we print and ship the reprints
ourselves. However, many publishers have exclusive agreements with particular
printers and we are required to use those printers. By purchasing the reprints
or the rights to print from the publisher we are able to ensure our customers
that they have proper rights under copyright laws to use the content, provided
that they use the content only as specified in the order they placed with
us.




While our
overall revenue grew 70% during fiscal 2010, Reprints Desk’s customer base grew
from approximately 150 customers at June 30, 2009 to over 250 customers on June
30, 2010.  In 2008, the last time the survey was conducted, our
services were ranked first in all four categories in the 2008 Document Delivery
Scorecard, a customer satisfaction survey conducted by Outsell, an information
industry analyst.  Reprints Desk was also named to KMWorld’s “100
knowledge management companies that matter” (one of the youngest companies ever
to have achieved that distinction) and it earned a 97% customer satisfaction
rating from the Dun & Bradstreet 2009 Open Ratings evaluation, relative to
other companies with similar classifications.





Publishers
typically produce their content in order to generate subscription and
advertising sales. The re-sale of published content generates additional
revenues at little or no additional cost to the publisher. As an example, if an
article contains a favorable mention of a chemical compound, the manufacturer of
that compound may want to send its customers and potential customers copies of
the article. These copies are called “reprints” or
“eprints.”  Reprints and eprints have traditionally been used
primarily in the pharmaceutical, biotechnology and medical device industries
both for research purposes and for marketing purposes. We expect that the use of
reprints will gain in popularity in other industries due to society’s increasing
sophistication and desire for information. Published articles are useful
marketing and information dissemination tools because they provide a third
party, unbiased mention of a company, product or service. Articles can
effectively describe the science behind a product or its effectiveness more
thoroughly than traditional advertising. Published content is also used
effectively for internal corporate training and education, as well as for
research and regulatory needs.




During
fiscal 2010 we entered into agreements with several publishers which gave us the
ability to acquire their content electronically, making it easier and faster for
us to deliver the content to our customers.




The
Industry




The size
of the reprint and eprint market is difficult to estimate because it is a small
part of the larger publishing industry and little financial information relating
specifically to the market for reprints or eprints is available. As a new
business, we believe we have a small fraction of that market. However, we
believe that we are able to compete with larger providers based on our ability
to aggregate content from multiple publishers and integrate that with
transaction management and delivery systems as well as by relying on our
customer service. In addition, we have capabilities to internally print
materials and produce eprints. As a result, we are often able to substantially
reduce the time it takes to deliver the reprints and eprints to our customers.




2




Growth
Strategy




Organic Growth.
  The Company attempts to reach customers through the use of targeted
selling and marketing campaigns consisting of sales calls on potential
customers, supported by innovative technological systems, aggressive pricing and
excellent service.  We have also submitted several proposals to
potential customers in response to Requests For Proposals, or
RFPs.  As we are a new company with limited operating history, we have
not been successful in all of these efforts.  We have committed more
resources to our sales efforts in fiscal year 2010, which has increased our
operating expenses, but we expect it will also provide additional
sales.  We have invested heavily in our operations to ensure that they
will be capable of supporting future growth.




Publisher Agreements.
  We regularly contact publishers directly and attempt to negotiate
agreements with them under which the publisher would give us access to part or
all of their content and would agree to a price list. Once we have access and a
price list, when we receive an order for a particular article we can access the
article electronically, print or eprint the required number of copies and
provide it to the customer within a few days. These agreements eliminate the
need to contact the publisher and obtain the rights for each individual order.
Because this step is eliminated, we attempt to negotiate for discounts on the
publisher’s existing price list. In a few cases, we are the exclusive producer
of reprints for a publisher, allowing the publisher to eliminate the need for a
reprints and eprints operation internally, and we continue to aggressively
market that service.  In some cases, a publisher may require certain
guarantees regarding revenues.




Acquisitions.   The
Company may attempt to acquire companies in the industry that bring revenue,
profitability, growth potential and additional products, services, operations
and/or geographic capabilities to the Company. The Company has targeted several
potential acquisition opportunities. We intend to implement acquisitions
primarily through stock transactions, supplemented only when necessary with a
cash component. While we have entered into preliminary discussions with three
potential targets, we have not entered into any letter of intent or other
agreement relating to any target nor have we determined the financial terms of
any potential acquisition. We are continuing to evaluate whether or not to
pursue any opportunity further.




International Expansion.
  The Company operates primarily in the U.S. market, but has expanded
internationally through sales to companies located abroad, particularly in
Europe, and we hope to continue that growth through partnerships or acquisition
opportunities.




Our
Products and Services




Reprints, ePrints and Article
Distribution Systems.   The Company has developed services that
provide reprints, ePrints and single copies of articles to its customers. We
accept orders electronically, by email or phone.  We have developed an
internet-based ordering system that allows customers to initiate orders, at any
time, by specifying the citation or other identifying information related to the
particular article they need. In some cases, we are able to fulfill the order
without the need for action on the part of our employees. In addition, we have
internal printing and eprinting capability. Because of this, if we are able to
obtain the right from the publisher to print the reprint ourselves, rather than
purchasing the printed reprints through the publisher, we are generally able to
substantially reduce the time it takes to deliver the reprints to our customers.
However, we are currently only able to obtain such print rights on a limited
number of our orders.  We are currently implementing a program to
systematically obtain such rights from additional copyright owners.




Publisher Outsourced Reprint
Management.   Derycz Scientific helps publishers grow and
manage their reprints and eprints business by providing services whereby we are
responsible for all aspects of reprint and eprint production, from taking orders
to final delivery. This service eliminates the need for the publishers to
establish a dedicated reprints and eprints sales force or arrange for delivery
of reprinted materials. While we do not charge the publishers for this service,
we generate revenue by selling participating publishers’ reprints to
customers.  In some cases, a publisher may require certain guarantees
regarding revenues.




Print on Demand.
  The Company has begun to provide a print on demand service to some
customers. By using this service, a customer can print one or more hard copies
or send an electronic copy of a frequently used article without having to place
a separate order for each use of the article with the publisher. Uses could
include article reprints, course-packs, custom books, and other content re-use
printing that requires strict adherence to copyright law in the printing
process.




Logistics.   The
Company is developing a service which will allow a customer to procure a large
quantity of reprints and/or eprints at one time and store them with us. We will
then send them to the customer as they need them. We also have technology which
allows us to monitor the number of times an electronic copy of an article has
been viewed or printed. This technology allows a customer to order a large
quantity of electronic copies and use them as needed while providing assurance
to the publisher that the customer will not exceed the number of views that were
sold.




Sales
and Marketing




Derycz
identifies target customers and communicates with them directly, offering our
various services through traditional cold-calling and targeted marketing
efforts. We also attempt to increase our awareness to the market through
attendance at publishing industry fairs and conferences.





3





Item
1A.  Risk Factors.





Not
required.





Item
1B.  Unresolved Staff Comments.





Not
required.





Item
2.  Properties.




We
currently lease approximately 2,000 square feet of office space at 1524
Cloverfield Blvd., Suite E, Santa Monica, California for $5,200 per
month.  The lease expires in May 2012.  Until May 31, 2009
we sublet approximately 1,000 square feet of office space at 10990 Wilshire
Blvd., Suite 1410, Los Angeles, California from Bristol Capital Advisors, LLC
for $2,740.40 per month. Bristol Capital Advisers, LLC is the investment manager
of Bristol Investment Fund, Ltd., which holds a significant equity stake in the
Company and our Chief Financial Officer is also a director of Bristol Investment
Fund, Ltd. (see section entitled “Certain Relationships and Related
Transactions”).




Our
majority owned subsidiary, Pools Press, leases 13,000 square feet of office
space at 3455-3501 Commercial Avenue, Northbrook, Illinois for $8,000 per month
from an unrelated third party. The lease expires on May 31, 2011.





Item
3.  Legal Proceedings.




Derycz is
not presently a party to any pending legal proceedings.





Item
4.    [Removed and Reserved].





4





PART
II





Item 5.   Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.




Market
Information




Our
common stock is quoted on the OTC Bulletin Board ("OTCBB") under the symbol
"DYSC."  The following table sets forth, for the periods indicated,
the reported high and low closing bid quotations for our common stock as
reported on the OTCBB.  The bid prices reflect inter-dealer
quotations, do not include retail markups, markdowns, or commissions, and do not
necessarily reflect actual transactions.





Quarter
      Ended
                    
                    High Bid
                    
                    
                    Low BidJune
      30, 2010
                    
                    $
                    1.02
                    
                    
                    $
                    0.60March
      31, 2010
                    
                    $
                    0.60
                    
                    
                    $
                    0.50December
      31, 2009
                    
                    $
                    0.51
                    
                    
                    $
                    0.50September
      30, 2009
                    
                    $
                    0.83
                    
                    
                    $
                    0.51June
      30, 2009
                    
                    $
                    1.00
                    
                    
                    $
                    0.30March
      31, 2009
                    
                    $
                    *
                    
                    
                    $
                    *December
      31, 2008
                    
                    $
                    *
                    
                    
                    $
                    *September
      30, 2008
                    
                    $
                    *
                    
                    
                    $
                    *









* Our
common stock had no active trading market until May 11, 2009.




As of
September 23, 2010, we had a total of 13,021,223 shares of our common stock
outstanding.  On September 23, 2010, the closing sales price for
shares of our common stock was $0.94 per share on the OTCBB.




Holders




We
currently have 20 record holders of our common stock.




Dividends




We have
not paid any cash dividends and we currently intend to retain any future
earnings to fund the development and growth of our business. Any future
determination to pay dividends on our common stock will depend upon our results
of operations, financial condition and capital requirements, applicable
restrictions under any credit facilities or other contractual arrangements and
such other factors deemed relevant by our Board of Directors.




Equity
Compensation Plan Information




Information
relating to compensation plans under which our equity securities are authorized
for issuance is set forth in Item 12 of this report under “Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters.”




Recent
Sales of Unregistered Securities





During
the year ended June 30, 2010, we sold the following equity securities of the
Company that were not registered under the Securities Act of 1933, as amended
(the “Act”), and that were not previously disclosed in a quarterly report on
Form 10-Q or on a current report on Form 8-K.  In each case, we relied
upon the exemption from registration under the Act found in Section 4(2) of the
Act because the investors took the securities for investment purposes and
without a view distribution and were provided access to information regarding
the Company, and because there was no general solicitation or advertising for
the purchase of the shares.




On May
13, 2010, we issued 40,000 shares of common stock to a consultant in exchange
for services.


On July
27, 2010, we granted options to purchase an aggregate of 379,000 shares of
common stock at $1.02 per share to thirteen employees, which expire on July 27,
2020.





On August
13, 2010, we issued 19,393 shares of common stock to a consultant in exchange
for services.





Item
6. Selected Financial Data





Not
required.





5





Item
7.  Management's Discussion and Analysis of Financial Condition and
Results of Operations




The
following discussion and analysis of our results of operations and financial
condition for the years ended June 30, 2010 and 2009 should be read in
conjunction with our financial statements and the notes to those financial
statements that are included elsewhere in this report. Our discussion includes
forward-looking statements based upon current expectations that involve risks
and uncertainties, such as our plans, objectives, expectations and intentions.
Actual results and the timing of events could differ materially from those
anticipated in these forward-looking statements as a result of a number of
factors, including those set forth under the “Business” section and elsewhere in
this report. We use words such as “anticipate,” “estimate,” “plan,” “project,”
“continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,”
“could,” and similar expressions to identify forward-looking statements. All
forward-looking statements included in this report are based on information
available to us on the date hereof and, except as required by law, we assume no
obligation to update any such forward-looking statements.




Overview




Derycz
Scientific, Inc. (the “Company” or “Derycz”) was incorporated in the State of
Nevada on November 2, 2006. In November 2006 the Company entered into a Share
Exchange Agreement with Reprints Desk, Inc. (“Reprints”). At the closing of the
transaction contemplated by the Share Exchange Agreement, the Company acquired
all of the outstanding shares of Reprints from the shareholders of Reprints and
issued 8,000,003 of its common shares to the shareholders. Following completion
of the exchange transaction, Reprints became a wholly owned subsidiary of the
Company.




On
February 28, 2007, the Company entered into an agreement with Pools Press, Inc.
(“Pools”) of Northbrook, Illinois, a privately held company, pursuant to which
the Company acquired 75% of the issued and outstanding common stock of Pools for
consideration of $616,080. Pools is a commercial printer, specializing in
reprints of copyrighted articles. The results of Pools Press’ operations have
been included in the consolidated financial statements since March 1,
2007.  On August 31, 2010, the Company purchased the remaining shares
of Pools for $120,000.




Derycz,
through Reprints and Pools, provides copies of published content, such as
articles from published journals, in either electronic or hard copy form. Our
customers use this content for marketing, regulatory or research purposes.
Generally, marketing departments order large quantities of printed copies that
they distribute to their customers and electronic copies for distribution
through the Internet and other electronic mechanisms.  Researchers and
regulatory personnel generally order single copies or small quantities of the
content. Our service alleviates the need for our customers to contact multiple
publishers or obtain permissions themselves. In addition, we ensure that we have
obtained the necessary permissions from the owners of the content’s copyrights
so that the reproduction complies with copyright laws. We also offer services to
publishers, whereby we are responsible for all aspects of reprint and eprint
production, from taking orders to final delivery. This service eliminates the
need for the publishers to establish a dedicated reprints sales force or arrange
for delivery of reprinted materials. Pools Press also offers other commercial
printing products, such as the production of booklets and
newsletters.




Results
of Operations




Year
Ended June 30, 2010 Compared to the Year Ended June 30, 2009:




Sales
and Cost of Goods Sold




We
achieved revenues of $24,935,473 for the year ended June 30, 2010, compared to
revenue of $14,653,374 for the year ended June 30, 2009, an increase of
70%.  Our revenues for last ten fiscal quarters have been $6,359,884,
$6,201,431, $7,590,459, $4,783,699, $4,205,195, $3,818,500, $3,426,953,
$3,202,726, $4,143,157 and $2,910,183, respectively.  These revenues
have increased each quarter compared to the prior quarter, with the exception of
the quarters ending March 31, 2010 and September 30, 2008 as a result of a very
strong second quarter in the 2010 fiscal year and a strong fourth quarter in the
2008 fiscal year.  We expect revenues to continue to increase during
the 2011 fiscal year.




The
revenue of our main operating company, Reprints, increased from $13,196,956 for
the year ended June 30, 2009, to $22,031,639 for the year ended June 30, 2010,
an increase of 67%. Pools Press contributed the remainder of the
revenue.




Our cost
of goods sold increased from $12,142,967 for the year ended June 30, 2009, to
$21,019,225 for the year ended June 30, 2010, which represents an increase of
73%.




Our gross
margin decreased from 17% during the year ended June 30, 2009 to 15% for the
year ended June 30, 2010.  This has been a result of higher sales
of lower margin products as well as some aggressive pricing of our
products.  We expect our gross margin percentage to remain relatively
stable, but it will depend on the relative sales of various products, which have
differing margins.




We
anticipate that our sales will increase significantly during the 2011 fiscal
year.  Because our customers are spending cautiously we will have to
rely heavily on new customer acquisition and new products and services to
achieve that growth.  We expect our cost gross margin to remain the
same or decline slightly due to the need for aggressive pricing in order to
continue to increase our revenues.  While we continue to develop and
market higher margin products we face price competition in our core markets for
document delivery and reprints as well as commercial printing.  Most
of our costs are determined by the publishers from whom we purchase media for
each individual order and they do not generally grant significant
discounts.




6




Operating Expenses




General
and Administrative




Our
general and administrative expenses increased 9% from $3,289,642 for the year
ended June 30, 2009 to $3,590,933 for the year ended June 30, 2010. These
expenses include Reprints’ administrative salary costs, which were $1,261,632 in
the 2009 fiscal year and $1,943,935 in the 2010 fiscal year, an increase of
$682,303 or 54%.  These costs included $344,443 and $282,222 for the
years ended June 30, 2010 and 2009, respectively, paid to our information
technology staff who work primarily on new products and enhancements to existing
projects.





We also
incurred investor relations expenses totaling $184,131 during the 2010 fiscal
year compared to $571,445 in the 2009 period, a decrease of $387,314 or
68%.  We will continue to incur significant expenses related to
investor relations as a result of being a publicly traded
company.  Also included in this figure is the expense related to stock
option grants of $0 in the 2010 year and $161,271 in fiscal
2009.




Marketing
and Advertising




Our
marketing and advertising expenses increased from $158,524 for the year ended
June 30, 2009, to $439,877, an increase of $281,353 or 177%.  We
expanded our marketing efforts during the 2010 fiscal year and we expect our
marketing costs will increase to approximately $500,000 during fiscal
2011.




Depreciation
and Amortization




Our
depreciation and amortization expense decreased from $235,660 for the year ended
June 30, 2009, to $206,616 during the year ended June 30, 2010, a decrease of
$29,044 or 12%. Pools’ share of these expenses was $37,471 in the 2009 period
and included $36,667 related to the amortization of Pools’ customer list, which
has been fully depreciated as of June 30, 2009.




Realized
gains on marketable securities




We
recognized realized gains on marketable securities of $33,668 during the year
ended June 30, 2009.  These investments consisted of preferred stock
auction rate securities held in an account with UBS Financial Services, Inc.,
and the gains were based on the proceeds from the sale of those
securities.  In January 2009, we received cash for the par value of
the outstanding auction rate securities.




Interest
Expense




Interest
expense was $34,993 for the year ended June 30, 2009, and $6,919 for the year
ended June 30, 2010, a decrease of $28,074 or 80%. This interest expense was
primarily attributable to the interest paid on a credit line with UBS that was
secured by marketable securities.  This credit line was cancelled in
January 2009 when we liquidated our position in the marketable
securities.  In July 2010 we entered into a loan agreement with
Silicon Valley Bank which provides a $3 million credit line secured by all of
the assets of the Company.  We expect to incur significantly higher
interest costs during the 2011 fiscal year as we expect to utilize the credit
line.




Interest
Income




Interest
income was $39,527 for the year ended June 30, 2009, and decreased to $4,169 for
the year ended June 30, 2010, a decrease of $35,358 or 89%. This interest income
was primarily attributable to the interest earned on investments in marketable
securities, which were liquidated in January 2009.




Other
Income




The
Company earned $98,605 in other income during the year ended June 30, 2009, and
$5,415 during the year ended June 30, 2010, a decrease of $93,190 or
95%.  This income represents income we receive from publishers and
customers for miscellaneous services.




Net
Loss




We had a
net loss of $1,066,041 for the year ended June 30, 2009 compared to a net loss
of $307,193 for the year ended June 30, 2010. Investor relations expenses of
$571,445 represented over half of the net loss for 2009. We anticipate that our
revenues will continue to grow as we aggressively market our products and
services and we do not anticipate to generate significant profits during the
fiscal year ending June 30, 2011.




7






Liquidity
and Capital Resources





Since our
inception, we have funded our operations primarily through private sales of
equity securities. Reprints Desk’s initial investors were Bristol Capital, LLC,
which is owned by Paul Kessler and Diana Derycz-Kessler, Bristol Investment
Fund, Ltd., over which Paul Kessler has investment and voting control, and three
employees of Bristol Capital, LLC, including the current Chief Financial Officer
of Derycz, Richard McKilligan. These initial investors purchased 275,000 shares
of Reprints Desk for a total of $275,000. Their 275,000 shares were converted
into a total of 4,000,003 common shares of Derycz Scientific in November 2006.
Peter Derycz, as the founder of Reprints Desk, paid $275 for his 275,000 shares
of Reprints Desk, which were exchanged for 4,000,000 common shares of Derycz
Scientific. On December 22, 2006, we sold units consisting of 4,500,000 shares
of common stock and warrants to purchase 2,250,000 shares of common stock at an
exercise price of $1.25 per share to 45 accredited investors in a private
transaction. We received $4,500,000 in proceeds from this
transaction.




On July
17, 2008, we sold 400,017 shares of common stock and warrants to purchase
200,009 shares of common stock at an exercise price of $2.00 per share at
anytime prior to July 17, 2011 for an aggregate purchase price of $600,025.
These shares and warrants were sold to a total of 4 investors.




As of
June 30, 2010, we had cash of $1,852,231.




Net cash
provided by operating activities was $233,767 for the year ended June 30, 2009
compared to net cash provided by operating activities of $352,441 for the year
ended June 30, 2010. The $118,674 increase in cash provided by operating
activities was due primarily to an increase in accounts receivable of $948,421
and an increase in accounts payable of $1,851,021 which offset the net loss of
$319,646 and the increase in prepaid royalties of $496,307.




Net cash
provided by investing activities was $1,478,452 for the year ended June 30, 2009
compared to net cash used in investing activities of $327,381 for the year ended
June 30, 2010. The $1,805,833 difference in cash flows from investing activities
was due to the proceeds from the sale of our short term investments of
$1,770,298 in the 2009 period.




Net cash
used in financing activities was $707,960 for the year ended June 30, 2009
compared to net cash used in financing activities of $26,922 for the year ended
June 30, 2010. The decrease in cash used in financing activities was due
primarily to our repayment of our credit line associated with our short term
investments of $1,291,855 during the 2009 period. We made no sales of our common
stock during the years ended June 30, 2010 or June 30, 2009.




We
believe that our current cash resources will be sufficient to sustain our
current operations for at least one year.  However, we may need to obtain
additional cash resources during the next year if we are able to acquire
complementary businesses. The need for cash to finance acquisitions will depend
on the businesses acquired and we cannot predict those needs with any certainty.
In the event such funds are needed, we may engage in additional sales of debt or
equity securities. The sale of additional equity or convertible debt securities
would result in additional dilution to our shareholders. The issuance of
additional debt would result in increased expenses and could subject us to
covenants that may have the effect of restricting our operations.  Should
we need to raise additional debt or equity capital, we can provide no assurance
that additional financing will be available in an amount or on terms acceptable
to us, if at all.




Critical
Accounting Policies




Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements and accompanying notes, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenue and expenses, and related disclosure of contingent
assets and liabilities. When making these estimates and assumptions, we consider
our historical experience, our knowledge of economic and market factors and
various other factors that we believe to be reasonable under the circumstances.
Actual results may differ under different estimates and
assumptions.




The
accounting estimates and assumptions discussed in this section are those that we
consider to be the most critical to an understanding of our financial statements
because they inherently involve significant judgments and
uncertainties.




Use
of Estimates




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from these
estimates.




Revenue
Recognition




The
Company's primary source of revenue is from information and printing
services.  The Company recognizes revenue when the sales process is deemed
complete and associated revenue has been earned.  The Company's policy is
to recognize revenue when services have been performed, risk of loss and title
to the product transfers to the customer, the selling price is fixed and
determinable and collectability is reasonably assured.


8





The
Company recognizes revenues from printing services when services have been
rendered and accepted by the customer while revenues from the re-use of
published articles and rights management services are recognized upon shipment
or electronic delivery to the customer.





The
Company applies the provisions of the Securities and Exchange Commission (“SEC”)
Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition in Financial
Statements,” which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB No. 104
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosure related to revenue recognition policies. In general, the
Company recognizes revenue when (i) persuasive evidence of an arrangement
exists, (ii) shipment of products has occurred or services have been rendered,
(iii) the sales price charged is fixed or determinable and (iv) collection is
reasonably assured.




Included
in revenues are fees charged to customers for shipping, handling and delivery
services.




Impairment
of Long-lived Assets





The
Company reviews and evaluates its long-lived assets for impairment when events
or changes in circumstances indicate that the related carrying amounts may not
be recoverable. Impairment is considered to exist if the total estimated future
cash flows on an undiscounted basis are less than the carrying amount of the
assets, including goodwill, if any. An impairment loss is measured and recorded
based on discounted estimated future cash flows. In estimating future cash
flows, assets are grouped at the lowest level for which there are identifiable
cash flows that are largely independent of future cash flows from other asset
groups.





Based
upon management's assessment, there were no indicators of impairment of the
Company's long lived assets as of June 30, 2010 or 2009.





Stock-Based
Compensation




The
Company periodically issues stock options and warrants to employees and
non-employees in capital raising transactions, for services and for financing
costs The Company accounts for share-based payments under the guidance as set
forth in the Share-Based
Payment Topic of the Financial Accounting Standards Board
(the “FASB”) Accounting Standards Codification, which requires the
measurement and recognition of compensation expense for all share-based payment
awards made to employees, officers, directors, and consultants, including
employee stock options based on estimated fair values. The Company estimates the
fair value of share-based payment awards to employees and directors on the date
of grant using an option-pricing model, and the value of the portion of the
award that is ultimately expected to vest is recognized as expense over the
required service period in the Company's Statements of Operations.  The
Company accounts for stock option and warrant grants issued and vesting to
non-employees in accordance with the authoritative guidance whereas the value of
the stock compensation is based upon the measurement date as determined at
either a) the date at which a performance commitment is reached, or b) the date
at which the necessary performance to earn the equity instruments is
complete.  Stock-based compensation is based on awards ultimately expected
to vest and is reduced for estimated forfeitures. Forfeitures are estimated at
the time of grant and revised, as necessary, in subsequent periods if actual
forfeitures differ from those estimates.





We
estimate the fair value of stock options using the Black-Scholes option-pricing
model, which was developed for use in estimating the fair value of options that
have no vesting restrictions and are fully transferable. This model requires the
input of subjective assumptions, including the expected price volatility of the
underlying stock and the expected life of stock options. Projected data related
to the expected volatility of stock options is based on the average volatility
of the trading prices of comparable companies and the expected life of stock
options is based upon the average term and vesting schedules of the options.
Changes in these subjective assumptions can materially affect the fair value of
the estimate, and therefore the existing valuation models do not provide a
precise measure of the fair value of our employee stock options.





Goodwill
and Intangible Assets





Management
performs impairment tests of goodwill and indefinite-lived intangible assets
whenever an event occurs or circumstances change that indicate impairment has
more likely than not occurred. Also, management performs impairment testing of
goodwill and indefinite-lived intangible assets at least annually.




The
Company accounts for acquisition of a business in accordance with guidance
issued by the FASB, which may result in the recognition of goodwill. Goodwill is
related to the Company's acquisition of 75% majority interest in Pools
Press in February 2007.   Goodwill is not amortized. Rather,
goodwill is assessed for impairment at least annually.  Management tests
goodwill for impairment at the reporting unit level.  The Company has two
reporting units. The Company tests goodwill by using a two-step process. In the
first step, the fair value of the reporting unit is compared with the carrying
amount of the reporting unit, including goodwill. If the carrying amount of the
reporting unit exceeds its fair value, goodwill is considered impaired and a
second step is performed to measure the amount of impairment loss, if
any.


9




The
Company reviews intangible assets subject to amortization at least annually to
determine if any adverse conditions exist or a change in circumstances has
occurred that would indicate impairment or a change in the remaining useful
life.  If the carrying value of an asset exceeds its undiscounted cash
flows, the Company writes down the carrying value of the intangible asset to its
fair value in the period identified.  If the carrying value of assets is
determined not to be recoverable, the Company records an impairment loss equal
to the excess of the carrying value over the fair value of the assets.  The
Company’s estimate of fair value is based on the best information available, in
the absence of quoted market prices.  The Company generally calculates fair
value as the present value of estimated future cash flows that the Company
expects to generate from the asset using a discounted cash flow income approach
as described above.  If the estimate of an intangible asset’s remaining
useful life is changed, the Company amortizes the remaining carrying value of
the intangible asset prospectively over the revised remaining useful
life.




Based
upon management's assessment, there were no indicators of impairment of the
Company's goodwill or intangible assets as of June 30, 2010
or 2009.




Recent
Accounting Pronouncements




In
April 2010, the FASB issued new accounting guidance in applying the
milestone method of revenue recognition to research or development arrangements.
Under this guidance management may recognize revenue contingent upon the
achievement of a milestone in its entirety, in the period in which the milestone
is achieved, only if the milestone meets all the criteria within the guidance to
be considered substantive. This standard is effective on a prospective basis for
research and development milestones achieved in fiscal years, beginning on or
after June 15, 2010. Early adoption is permitted; however, adoption of this
guidance as of a date other than January 1, 2011 will require the Company
to apply this guidance retrospectively effective as of January 1, 2010 and
will require disclosure of the effect of this guidance as applied to all
previously reported interim periods in the fiscal year of adoption. As the
Company plans to implement this standard prospectively, the effect of this
guidance will be limited to future transactions. The Company does not expect
adoption of this standard to have a material impact on its financial position or
results of operations as it has no material research and development
arrangements which will be accounted for under the milestone
method.





In
January 2010, the FASB issued new accounting guidance which requires new
disclosures regarding transfers in and out of Level 1 and Level 2 fair value
measurements, as well as requiring presentation on a gross basis of information
about purchases, sales, issuances and settlements in Level 3 fair value
measurements. The guidance also clarifies existing disclosures regarding level
of disaggregation, inputs and valuation techniques. The new guidance is
effective for interim and annual reporting periods beginning after
December 15, 2009.  Disclosures about purchases, sales, issuances and
settlements in the roll forward of activity in Level 3 fair value measurements
are effective for fiscal years beginning after December 15, 2010.  As
this guidance requires only additional disclosure, there should be no impact on
the consolidated financial statements of the Company upon adoption.





In
October 2009, a new accounting consensus was issued for
multiple-deliverable revenue arrangements. This consensus amends existing
revenue recognition accounting standards. This consensus provides accounting
principles and application guidance on whether multiple deliverables exist, how
the arrangement should be separated and the consideration allocated. This
guidance eliminates the requirement to establish the fair value of undelivered
products and services and instead provides for separate revenue recognition
based upon management’s estimate of the selling price for an undelivered item
when there is no other means to determine the fair value of that undelivered
item. Previously the existing accounting consensus required that the fair value
of the undelivered item be the price of the item either sold in a separate
transaction between unrelated third parties or the price charged for each item
when the item is sold separately by the vendor. Under the existing accounting
consensus, if the fair value of all of the elements in the arrangement was not
determinable, then revenue was deferred until all of the items were delivered or
fair value was determined. This new approach is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. The Company is in the process of
evaluating whether the adoption of this standard will have a material effect on
its financial position, results of operations or cash flows.





Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not or are not believed by
management to have a material impact on the Company's present or future
consolidated financial statements.




The
Company does not believe that the adoption of the above recent pronouncements
will have a material effect on the Company’s consolidated results of operations,
financial position, or cash flows.


10




Off-Balance Sheet
Arrangements





At June
30, 2010, we had no obligations that would require disclosure as off-balance
sheet arrangements.





Item
7A. Quantitative and Qualitative Disclosures About Market
Risk.





Not
required.




11




Item
8.  Financial Statements.




REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors


Derycz
Scientific, Inc. and Subsidiaries


Santa
Monica, California




We have
audited the consolidated balance sheets of Derycz Scientific, Inc. (the
“Company”) and Subsidiaries as of June 30, 2010 and 2009, and the related
consolidated statements of operations, stockholders’ equity and cash flows for
the years then ended.  These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.




We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance whether the consolidated
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.




In our
opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Derycz
Scientific, Inc. and Subsidiaries as of June 30, 2010 and 2009 and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with accounting principles generally accepted in the United
States of America.




Weinberg
and Company, P.A




September
27, 2010


Los
Angeles, California


12




Derycz
Scientific, Inc.


Consolidated
Balance Sheets





June 30,
                      
                      
                      June 30,2010
                      
                      
                      2009ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                      
                      $
                      1,852,231
                      
                      
                      $
                      1,854,093Accounts
      receivable, net of allowance of $59,061 and $35,000,
      respectively
                      
                      
                      4,448,269
                      
                      
                      
                      3,499,848Inventory
                      
                      
                      6,628
                      
                      
                      
                      10,188Prepaid
      royalties
                      
                      
                      714,287
                      
                      
                      
                      217,980Other
      current assets
                      
                      
                      84,470
                      
                      
                      
                      37,890TOTAL
      CURRENT ASSETS
                      
                      
                      7,105,885
                      
                      
                      
                      5,619,999PROPERTY
      AND EQUIPMENT, net of accumulated depreciation of $317,629
      and  $188,266
                      
                      
                      372,868
                      
                      
                      
                      340,776INTANGIBLE
      ASSETSCustomer
      lists, net of accumulated amortization of $50,000 and
    $43,056
                      
                      
                      -
                      
                      
                      
                      6,944Intellectual
      property licenses, net of accumulated amortization of $297,887 and
      $163,209
                      
                      
                      674,779
                      
                      
                      
                      600,887GOODWILL
                      
                      
                      223,385
                      
                      
                      
                      223,385TOTAL
      ASSETS
                      
                      $
                      8,376,917
                      
                      
                      $
                      6,791,991LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                      
                      $
                      4,887,636
                      
                      
                      $
                      3,036,615Capital
      lease obligation, current
                      
                      
                      33,682
                      
                      
                      
                      17,861Income
      tax payable
                      
                      
                      600
                      
                      
                      
                      3,659Other
      current liabilities
                      
                      
                      97,224
                      
                      
                      
                      116,769TOTAL
      CURRENT LIABILITIES
                      
                      
                      5,019,142
                      
                      
                      
                      3,174,904CAPITAL
      LEASE OBLIGATIONS, LONG TERM
                      
                      
                      43,514
                      
                      
                      
                      43,617COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      EQUITYPreferred
      stock; $0.001 par value; 20,000,000 shares authorized; no shares issued
      and outstandingCommon
      stock; $0.001 par value; 100,000,000 shares authorized; 13,001,830 and
      12,961,830 shares issued and outstanding
                      
                      
                      13,002
                      
                      
                      
                      12,962Additional
      paid-in capital
                      
                      
                      5,510,620
                      
                      
                      
                      5,450,223Accumulated
      deficit
                      
                      
                      (2,244,265
                      )
                      
                      
                      (1,937,072
                      )TOTAL
      STOCKHOLDERS' EQUITY
                      
                      
                      3,279,357
                      
                      
                      
                      3,526,113NONCONTROLLING
      INTEREST
                      
                      
                      34,904
                      
                      
                      
                      47,357TOTAL
      EQUITY
                      
                      
                      3,314,261
                      
                      
                      
                      3,573,470TOTAL
      LIABILITIES AND EQUITY
                      
                      $
                      8,376,917
                      
                      
                      $
                      6,791,991





See notes
to consolidated financial statements


13


Derycz
Scientific, Inc.


Consolidated
Statements of Operations





Years endedJune 30,2010
                    
                    
                    2009NET
      SALES
                    
                    $
                    24,935,473
                    
                    
                    $
                    14,653,374COST
      OF SALES
                    
                    
                    21,019,225
                    
                    
                    
                    12,142,967GROSS
      PROFIT
                    
                    
                    3,916,248
                    
                    
                    
                    2,510,407OPERATING
      EXPENSES:General
      and administrative
                    
                    
                    3,590,933
                    
                    
                    
                    3,289,642Marketing
      and advertising
                    
                    
                    439,877
                    
                    
                    
                    158,524Depreciation
      and amortization
                    
                    
                    206,616
                    
                    
                    
                    235,660TOTAL
      OPERATING EXPENSES
                    
                    
                    4,237,426
                    
                    
                    
                    3,683,826LOSS
      FROM OPERATIONS
                    
                    
                    (321,178
                    )
                    
                    
                    (1,173,419
                    )Gain
      on marketable securities
                    
                    
                    -
                    
                    
                    
                    33,668Other
      Income
                    
                    
                    5,415
                    
                    
                    
                    98,605Interest
      expense
                    
                    
                    (6,919
                    )
                    
                    
                    (34,993
                    )Interest
      income
                    
                    
                    4,169
                    
                    
                    
                    39,527LOSS
      BEFORE INCOME TAXES AND NONCONTROLLING INTEREST
                    
                    
                    (318,513
                    )
                    
                    
                    (1,036,612
                    )PROVISION
      FOR INCOME TAXES
                    
                    
                    (1,133
                    )
                    
                    
                    (32,174
                    )NET
      LOSS
                    
                    
                    (319,646
                    )
                    
                    
                    (1,068,786
                    )NET
      LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
                    
                    
                    12,453
                    
                    
                    
                    2,745NET
      LOSS ATTRIBUTABLE TO DERYCZ SCIENTIFIC, INC.
                    
                    $
                    (307,193
                    )
                    
                    $
                    (1,066,041
                    )NET
      LOSS PER SHARE:BASIC
      AND DILUTED
                    
                    $
                    (0.02
                    )
                    
                    $
                    (0.08
                    )WEIGHTED
      AVERAGE SHARES OUTSTANDING:BASIC
      AND DILUTED
                    
                    
                    12,966,830
                    
                    
                    
                    12,945,163





See notes
to consolidated financial statements


14




Derycz
Scientific, Inc.





Consolidated
Statement of Stockholders' Equity


For
the years ended June 30, 2010 and 2009








Additional
                    
                    
                    
                    
                    
                    
                    
                    
                    TotalCommon stock
                    
                    
                    paid-in
                    
                    
                    Accumulated
                    
                    
                    Noncontrolling
                    
                    
                    stockholders'Shares
                    
                    
                    Amount
                    
                    
                    capital
                    
                    
                    Deficit
                    
                    
                    Interest
                    
                    
                    equityBalance,
      July 1, 2008
                    
                    
                    12,561,813
                    
                    
                    $
                    12,562
                    
                    
                    $
                    4,645,364
                    
                    
                    $
                    (871,031
                    )
                    
                    $
                    50,102
                    
                    
                    $
                    3,836,997Fair
      value of vested options issued to employees
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    161,271
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    161,271Issuance
      of warrant for services
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    43,963
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    43,963Issuance
      of common stock for cash
                    
                    
                    400,017
                    
                    
                    
                    400
                    
                    
                    
                    599,625
                    
                    
                    
                    -
                    
                    
                    
                    
                    
                    
                    
                    600,025Net
      loss for the period
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (1,066,041
                    )
                    
                    
                    (2,745
                    )
                    
                    
                    (1,068,786
                    )Balance,
      July 1, 2009
                    
                    
                    12,961,830
                    
                    
                    
                    12,962
                    
                    
                    
                    5,450,223
                    
                    
                    
                    (1,937,072
                    )
                    
                    
                    47,357
                    
                    
                    
                    3,573,470Fair
      value of shares issued for services
                    
                    
                    40,000
                    
                    
                    
                    40
                    
                    
                    
                    45,960
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    46,000Fair
      value of warrants issued for services
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    14,437
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    14,437Net
      loss for the period
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (307,193
                    )
                    
                    
                    (12,453
                    )
                    
                    
                    (319,646
                    )Balance,
      June 30, 2010
                    
                    
                    13,001,830
                    
                    
                    $
                    13,002
                    
                    
                    $
                    5,510,620
                    
                    
                    $
                    (2,244,265
                    )
                    
                    $
                    34,904
                    
                    
                    $
                    3,314,261




See notes
to consolidated financial statements


15




Derycz
Scientific, Inc.





Consolidated
Statements of Cash Flows






Yearsended June 30,2010
                        
                        
                        2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                        
                        $
                        (319,646
                        )
                        
                        $
                        (1,068,786
                        )Adjustment
      to reconcile net loss to net cash provided by operating
      activities:Depreciation
      and amortization
                        
                        
                        270,981
                        
                        
                        
                        283,583Fair
      value of vested stock options
                        
                        
                        14,437
                        
                        
                        
                        161,271Fair
      value of common stock warrant issued for services
                        
                        
                        46,000
                        
                        
                        
                        43,963Realized
      gain on investment
                        
                        
                        -
                        
                        
                        
                        (33,668
                        )Changes
      in assets and liabilities:Accounts
      receivable
                        
                        
                        (948,421
                        )
                        
                        
                        (380,690
                        )Inventory
                        
                        
                        3,560
                        
                        
                        
                        5,768Prepaid
      royalties
                        
                        
                        (496,307
                        )
                        
                        
                        108,097Other
      current assets
                        
                        
                        (46,581
                        )
                        
                        
                        42,850Accounts
      payable and accrued expenses
                        
                        
                        1,851,021
                        
                        
                        
                        1,039,382Other
      current liabilities
                        
                        
                        (19,544
                        )
                        
                        
                        28,338Income
      taxes payable
                        
                        
                        (3,059
                        )
                        
                        
                        3,659Net
      cash provided by operating activities
                        
                        
                        352,441
                        
                        
                        
                        233,767CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of furniture and equipment
                        
                        
                        (118,811
                        )
                        
                        
                        (76,524
                        )Purchase
      of Intellectual Property licenses
                        
                        
                        (208,570
                        )
                        
                        
                        (181,122
                        )Additional
      investment in Pools Press
                        
                        
                        -
                        
                        
                        
                        (34,200
                        )Proceeds
      from sale of short term investments
                        
                        
                        -
                        
                        
                        
                        1,770,298Net
      cash provided by (used in) investing activities
                        
                        
                        (327,381
                        )
                        
                        
                        1,478,452CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from the issuance of common stock
                        
                        
                        -
                        
                        
                        
                        600,025Capital
      lease obligation
                        
                        
                        (26,922
                        )
                        
                        
                        (16,130
                        )Payments
      on line of credit
                        
                        
                        -
                        
                        
                        
                        (1,291,855
                        )Net
      cash used in financing activities
                        
                        
                        (26,922
                        )
                        
                        
                        (707,960
                        )NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                        
                        
                        (1,862
                        )
                        
                        
                        1,004,259CASH
      AND CASH EQUIVALENTS, Beginning of period
                        
                        
                        1,854,093
                        
                        
                        
                        849,834CASH
      AND CASH EQUIVALENTS, End of period
                        
                        $
                        1,852,231
                        
                        
                        $
                        1,854,093SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Taxes
      paid
                        
                        $
                        32,174
                        
                        
                        $
                        -Interest
      paid
                        
                        $
                        6,919
                        
                        
                        $
                        34,500SUPPLEMENTAL
      DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:Minority
      share of losses in subsidiary
                        
                        $
                        12,453
                        
                        
                        
                        2,745Capital
      lease obligation
                        
                        $
                        42,640
                        
                        
                        
                        -


16




DERYCZ
SCIENTIFIC, INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


For
the Years Ended June 30, 2010 and 2009





Note
1 — Organization, Nature of Business and Basis of
Presentation





(a)
Organization





Derycz
Scientific, Inc. was incorporated in the State of Nevada on November 2, 2006. On
November 2, 2006 the Company entered into a Share Exchange Agreement with
Reprints Desk, Inc., a Delaware corporation formed on January 6, 2006. Derycz
was formed to facilitate a holding company structure. At the closing of the
transaction contemplated by the Share Exchange Agreement, the Company acquired
all of the 550,000 outstanding shares of Reprints from the shareholders of
Reprints and issued 8,000,003 of its common shares to the shareholders of
Reprints. As the intention behind forming Derycz was the creation of a holding
company structure and Derycz had no appreciable assets prior to the acquisition
of Reprints, the exchange ratio was determined arbitrarily and was not based on
any determination of the value of shares of Derycz common stock as compared to
Reprints shares acquired. As each former Reprints shareholder acquired a
percentage interest in Derycz equal to the percentage interest such shareholder
held in Reprints immediately prior to the transaction, there was no dilution of
the interest of any former Reprints shareholder. Following completion of the
exchange transaction, Reprints became a wholly owned subsidiary of the Company.
The transaction was accounted as a statutory merger of companies under common
control. As such, the historical financial statements of the Company are
combined with the operations of Reprints since its inception, and the merger
shares are accounted for as a stock split as of the inception of Reprints for
financial reporting purposes.





(b)
Nature of business




Reprints
is a content repurposing and rights management company, with a focus on content
re-use services and products. The Company operates within the periodicals
publishing industry which is a large and growing market. The Company has
developed products in the following areas:





•
            Reprints, ePrints and Article
      Distribution Systems


•
            Commercial Printing
      Services


•
            Publisher Outsourced Reprint
      Management


•
            Print-on-Demand Services for
      copyright and regulatory sensitive
  documents





(c) Basis
of Presentation





The
accompanying financial statements are consolidated and include the accounts of
the Company and its wholly and majority owned subsidiaries. The consolidated
accounts include 100% of assets and liabilities of our majority owned
subsidiary, and the ownership interests of minority investors are recorded as a
minority interest. Intercompany balances and transactions have been eliminated
in consolidation.





Note
2 — Summary of Significant Accounting Policies





(a) Use
of estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from these
estimates.


The more
significant items subject to such estimates and assumptions include fair value
of our equity securities, carrying amount and useful lives of property and
equipment, goodwill, other intangible assets, valuations of accounts
receivable and accounting for income taxes.


(b) Fair
value of financial instruments




Effective
January 1, 2008, fair value measurements are determined by the Company's
adoption of authoritative guidance issued by the Financial Accounting Standards
Board (the “FASB”), with the exception of the application of the statement to
non-recurring, non-financial assets and liabilities as permitted. The adoption
of the authoritative guidance did not have a material impact on the Company's
fair value measurements. Fair value is defined in the authoritative guidance as
the price that would be received to sell an asset or paid to transfer a
liability in the principal or most advantageous market for the asset or
liability in an orderly transaction between market participants at the
measurement date. A fair value hierarchy was established, which prioritizes the
inputs used in measuring fair value into three broad levels as
follows:


Level 1 – Quoted
prices in active markets for identical assets or liabilities.


Level 2 – Inputs,
other than the quoted prices in active markets, are observable either directly
or indirectly.


17





Level 3 – Unobservable
inputs based on the Company's assumptions.





The
Company is required to use observable market data if such data is available
without undue cost and effort. The Company has no fair value items required to
be disclosed as of June 30, 2010 or 2009.





(c) Cash
and cash equivalents





For
purposes of the statements of cash flows, the Company defines cash equivalents
as all highly liquid debt instruments purchased with a maturity of three months
or less.





(d)
Allowance for doubtful accounts





The
Company regularly reviews the accounts receivable aging and applies various
expected loss percentages to certain accounts receivable categories based upon
historical bad debt experience in order to determine whether an allowance for
doubtful accounts resulting from the inability, failure or refusal of customers
to make required payments, is appropriate.  The Company established an
allowance for doubtful accounts of $59,061 and $35,000 as of June 30, 2010 and
June 30, 2009, respectively.





(e)
Concentration of credit risk





Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist of cash and cash equivalents and accounts receivables. The Company
places its cash with high quality financial institutions and at times may exceed
the FDIC $250,000 insurance limit. The Company does not anticipate incurring any
losses related to these credit risks. The Company extends credit based on an
evaluation of the customer's financial condition, generally without collateral.
Exposure to losses on receivables is principally dependent on each customer's
financial condition. The Company monitors its exposure for credit losses and
intends to maintain allowances for anticipated losses, as required.





One
customer accounted for 22% of the revenues for the year ended June 30, 2010 and
one customer accounted for 16% of the revenue for the year ended June 30,
2009.





As of
June 30, 2010, three customers accounted for 14%, 13% and 12% of accounts
receivable, and two customers accounted for 15% and 14% of accounts receivable
at June 30, 2009.




During
the years ended June 30, 2010 and 2009 the Company's purchases from one vendor
represented 23% and 16%, respectively, of our content costs.


(f)
Property and equipment





Property
and equipment are stated at cost and are depreciated using the straight-line
method over their estimated useful lives of 3-5 years. Expenditures for
maintenance and repairs are charged to operations as incurred while renewals and
betterments are capitalized. Gains and losses on disposals are included in the
results of operations.





(g)
Intellectual property licenses





The
Company has purchased licenses to use certain intellectual property. These
licenses are amortized on the straight-line method over their estimated useful
lives of 7 years.





(h)
Customer lists





From time
to time, the Company purchases customer lists. These lists are amortized using
an accelerated method that management presently estimates matches the
utilization of those lists over an estimated useful life of 2
years.





(i)
Revenue recognition





The
Company's primary source of revenue is from the
re-use of published articles and rights management services as well as which
occurs when services have been rendered and the printed materials have been
delivered to the customer.





The
Company recognizes revenues from the re-use of published articles and rights
management services are recognized upon shipment or electronic delivery to the
customer.




18


(j)
Impairment of long-lived assets




The
Company reviews and evaluates its long-lived assets for impairment when events
or changes in circumstances indicate that the related carrying amounts may not
be recoverable. Impairment is considered to exist if the total estimated future
cash flows on an undiscounted basis are less than the carrying amount of the
assets, including goodwill, if any. An impairment loss is measured and recorded
based on discounted estimated future cash flows. In estimating future cash
flows, assets are grouped at the lowest level for which there are identifiable
cash flows that are largely independent of future cash flows from other asset
groups.





Based
upon management's assessment, there were no indicators of impairment of the
Company's long lived assets as of June 30, 2010 or 2009.





(k)
Stock-based compensation





The
Company periodically issues stock options and warrants to employees and
non-employees in capital raising transactions, for services and for financing
costs. The Company accounts for share-based payments under the guidance as set
forth in the Share-Based
Payment Topic of the FASB Accounting Standards
Codification, which requires the measurement and recognition of
compensation expense for all share-based payment awards made to employees,
officers, directors, and consultants, including employee stock options based on
estimated fair values. The Company estimates the fair value of share-based
payment awards to employees and directors on the date of grant using an
option-pricing model, and the value of the portion of the award that is
ultimately expected to vest is recognized as expense over the required service
period in the Company's Statements of Operations.  The Company accounts for
stock option and warrant grants issued and vesting to non-employees in
accordance with the authoritative guidance whereas the value of the stock
compensation is based upon the measurement date as determined at either a) the
date at which a performance commitment is reached, or b) the date at which the
necessary performance to earn the equity instruments is complete. 
Stock-based compensation is based on awards ultimately expected to vest and is
reduced for estimated forfeitures. Forfeitures are estimated at the time of
grant and revised, as necessary, in subsequent periods if actual forfeitures
differ from those estimates.




(l)
Goodwill and intangible assets





Management
performs impairment tests of goodwill and indefinite-lived intangible assets
whenever an event occurs or circumstances change that indicate impairment has
more likely than not occurred. Also, management performs impairment testing of
goodwill and indefinite-lived intangible assets at least annually.




The
Company accounts for acquisition of a business in accordance with guidance
issued by the FASB, which may result in the recognition of goodwill. Goodwill is
related to the Company's acquisition of 75% majority interest in Pools
Press in February 2007.   Goodwill is not amortized. Rather,
goodwill is assessed for impairment at least annually.  Management tests
goodwill for impairment at the reporting unit level.  The Company has two
reporting units. The Company tests goodwill by using a two-step process. In the
first step, the fair value of the reporting unit is compared with the carrying
amount of the reporting unit, including goodwill. If the carrying amount of the
reporting unit exceeds its fair value, goodwill is considered impaired and a
second step is performed to measure the amount of impairment loss, if
any.





The
Company reviews intangible assets subject to amortization at least annually to
determine if any adverse conditions exist or a change in circumstances has
occurred that would indicate impairment or a change in the remaining useful
life.  If the carrying value of an asset exceeds its undiscounted cash
flows, the Company writes down the carrying value of the intangible asset to its
fair value in the period identified.  If the carrying value of assets is
determined not to be recoverable, the Company records an impairment loss equal
to the excess of the carrying value over the fair value of the assets.  The
Company’s estimate of fair value is based on the best information available, in
the absence of quoted market prices.  The Company generally calculates fair
value as the present value of estimated future cash flows that the Company
expects to generate from the asset using a discounted cash flow income approach
as described above.  If the estimate of an intangible asset’s remaining
useful life is changed, the Company amortizes the remaining carrying value of
the intangible asset prospectively over the revised remaining useful
life.




Based
upon management's annual assessment at June 30, there were no indicators of
impairment of the Company's goodwill or intangible assets as of June 30, 2010 or
2009.





(m)
Shipping and handling costs





The
Company includes shipping and handling charges billed to its customers in its
revenues, and classifies shipping and handling costs of the sale of its products
as a component of cost of sales. Those costs were approximately $323,107 and
$151,544, respectively, for the years ended June 30, 2010 and
2009.


19




(n)
Income taxes





The
Company accounts for income taxes using the asset and liability method whereby
deferred tax assets are recognized for deductible temporary differences, and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.





(o) Net
Income (Loss) per share





The FASB
requires presentation of basic earnings per share (“Basic EPS”) and diluted
earnings per share (“Diluted EPS”).   Basic net income (loss) per
share is computed by dividing the net income (loss) by the weighted average
number of common shares available. Weighted average number of shares outstanding
reflects the equivalent number of shares received as a result of the exchange
transaction as if these shares had been outstanding as of the beginning of the
earliest period presented. Diluted income (loss) per share is computed similar
to basic income (loss) per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common
shares were dilutive. Warrants to purchase 2,855,009 and 2,800,009 shares of
common stock have been excluded from the calculation of diluted net loss per
share for the years ended June 30, 2010 and 2009, respectively, and options to
purchase 1,022,000 shares of common stock outstanding as of June 30, 2010 and
June 30, 2009, have been excluded from the calculation as the effect would
have been anti-dilutive.





(p)
Marketing and advertising expenses





Marketing and advertising expenses are
expensed as incurred and consist primarily of various forms of media purchased
from Internet-basedmarketers and search engines. Marketing and
advertising expense amounted to $439,877 and $158,524 for the years ended June
30, 2010 and 2009, respectively.





(q)
Reclassifications





The
Company has reclassified $729,423 of costs previously included in
general administrative costs in 2009 to costs of sales to conform to 2010
presentation.





(r)  Recently
issued accounting pronouncements




In
April 2010, the FASB issued new accounting guidance in applying the
milestone method of revenue recognition to research or development arrangements.
Under this guidance management may recognize revenue contingent upon the
achievement of a milestone in its entirety, in the period in which the milestone
is achieved, only if the milestone meets all the criteria within the guidance to
be considered substantive. This standard is effective on a prospective basis for
research and development milestones achieved in fiscal years, beginning on or
after June 15, 2010. Early adoption is permitted; however, adoption of this
guidance as of a date other than January 1, 2011 will require the Company
to apply this guidance retrospectively effective as of January 1, 2010 and
will require disclosure of the effect of this guidance as applied to all
previously reported interim periods in the fiscal year of adoption. As the
Company plans to implement this standard prospectively, the effect of this
guidance will be limited to future transactions. The Company does not expect
adoption of this standard to have a material impact on its financial position or
results of operations as it has no material research and development
arrangements which will be accounted for under the milestone
method.





In
January 2010, the FASB issued new accounting guidance which requires new
disclosures regarding transfers in and out of Level 1 and Level 2 fair value
measurements, as well as requiring presentation on a gross basis of information
about purchases, sales, issuances and settlements in Level 3 fair value
measurements. The guidance also clarifies existing disclosures regarding level
of disaggregation, inputs and valuation techniques. The new guidance is
effective for interim and annual reporting periods beginning after
December 15, 2009.  Disclosures about purchases, sales, issuances
and settlements in the roll forward of activity in Level 3 fair value
measurements are effective for fiscal years beginning after December 15,
2010.  As this guidance requires only additional disclosure, there
should be no impact on the consolidated financial statements of the Company upon
adoption.


20


In
October 2009, a new accounting consensus was issued for
multiple-deliverable revenue arrangements. This consensus amends existing
revenue recognition accounting standards. This consensus provides accounting
principles and application guidance on whether multiple deliverables exist, how
the arrangement should be separated and the consideration allocated. This
guidance eliminates the requirement to establish the fair value of undelivered
products and services and instead provides for separate revenue recognition
based upon management’s estimate of the selling price for an undelivered item
when there is no other means to determine the fair value of that undelivered
item. Previously the existing accounting consensus required that the fair value
of the undelivered item be the price of the item either sold in a separate
transaction between unrelated third parties or the price charged for each item
when the item is sold separately by the vendor. Under the existing accounting
consensus, if the fair value of all of the elements in the arrangement was not
determinable, then revenue was deferred until all of the items were delivered or
fair value was determined. This new approach is effective prospectively for
revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010. The Company is in the process of
evaluating whether the adoption of this standard will have a material effect on
its financial position, results of operations or cash flows.
 
 Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the Securities Exchange Commission did not or
are not believed by management to have a material impact on the Company's
present or future consolidated financial statements.
  The
Company does not believe that the adoption of the above recent pronouncements
will have a material effect on the Company’s consolidated results of operations,
financial position, or cash flows.
 
 Note
3 — Property and Equipment
 
 Property
and equipment consists of the following as of June 30, 2010 and
2009:
 
 June 30,
                      2010
                    
                    
                    June 30,
                      2009Computer
      equipment
                    
                    $
                    122,687
                    
                    
                    $
                    68,640Software
                    
                    
                    176,586
                    
                    
                    
                    112,570Printing
      equipment
                    
                    
                    329,092
                    
                    
                    
                    286,452Furniture
      and fixtures
                    
                    
                    58,132
                    
                    
                    
                    57,380Autos
      and vans
                    
                    
                    4,000
                    
                    
                    
                    4,000690,497
                    
                    
                    
                    529,042Less
      accumulated depreciation
                    
                    
                    (317,629
                    )
                    
                    
                    (188,266
                    )$
                    372,868
                    
                    
                    $
                    340,776
  Printing
equipment includes $91,792 of equipment under capital lease and related
accumulated depreciation of $53,545 and $35,187 as of June 30, 2010 and June 30,
2009, respectively.
 
 Depreciation
expense for the years ended June 30, 2010 and 2009 was $129,363 and $98,555,
respectively.
 
 Note
4 — Intangible Assets
 
 Intangible
assets consist of the following at June 30, 2010 and 2009:
 
 June 30,
                      2010
                    
                    
                    June 30,
                      2009Customer
      list
                    
                    $
                    -
                    
                    
                    $
                    50,000Intellectual
      property licenses
                    
                    
                    972,666
                    
                    
                    
                    764,096Accumulated
      amortization
                    
                    
                    (297,887
                    )
                    
                    
                    (206,265
                    )$
                    674,779
                    
                    
                    $
                    607,831
  Customer
lists are amortized using an accelerated method that management presently
estimates matches the utilization of those lists over an estimated useful life
of 2 years.
 
 The
Company has purchased licenses to use certain intellectual property, including
computer software. These licenses are depreciated using the straight-line method
over their estimated useful lives of 7 years.
  21
 
 Future
annual amortization under these intangible assets at June 30, 2010 is as
follows:
  Year  ending June
    30,
                    
                    Amount2011
                    
                    $
                    140,3562012
                    
                    
                    136,6062013
                    
                    
                    136,6062014
                    
                    
                    134,641Thereafter
                    
                    
                    126,570$
                    674,779
  Note
5 — Leases
 
 The
Company leases space in Northbrook, Illinois in accordance with the terms of a
non-cancelable operating lease agreement. The lease requires monthly payments
between $7,750 and $8,000 through May 2011 and is being accounted for by the
Company on a straight-line basis over the term of the lease. In addition to
monthly rentals, the lease requires the payment of real estate taxes and
maintenance. Rent, including real estate taxes, for the years ended June 30,
2010 and 2009 was $141,339 and $143,727, respectively.
 
 The
Company leases space in Santa Monica, California in accordance with the terms of
a non-cancelable operating lease agreement. The lease requires monthly payments
between $5,200 and $5,517 through May 2012 and is being accounted for by the
Company on a straight-line basis over the term of the lease. In addition to
monthly rentals, after June 1, 2010, the lease requires the payment of any
increases in real estate taxes. The Company also leases space in North
Hollywood, California and Bethesda, Maryland, in accordance with the terms of
non-cancelable operating lease agreements which require monthly payments of
$1,200 and $625, respectively, through January 31, 2011, and April 1, 2012,
respectively. Rent, including real estate taxes, for the years ended June 30,
2010 and 2009 was $94,563 and $5,200, respectively.
 
 The
Company also has two non-cancelable leases for machinery and equipment that are
accounted for as capital leases that require monthly payments of $1,945
including interest at a rate of 10.25% per annum through July 2012 and $1,275
including interest at a rate of 5.13% per annum through October 2012,
respectively. Annual future minimum rentals under operating and capital leases
as of June 30, 2010 are as follows:
 
 Fiscal Year
                    
                    Operating
                      Leases
                    
                    
                    Capital
                      Leases2011
                    
                    $
                    155,806
                    
                    
                    $
                    38,6402012
                    
                    
                    152,433
                    
                    
                    
                    38,6402013
                    
                    
                    60,687
                    
                    
                    
                    7,045Total
      minimum lease payments
                    
                    $
                    368,926
                    
                    
                    $
                    84,325Amounts
      representing interest
                    
                    
                    
                    
                    
                    
                    (7,129
                    )Total
                    
                    
                    
                    
                    
                    
                    77,196Less
      current portion
                    
                    
                    
                    
                    
                    
                    (33,682
                    )Long
      term
                    
                    
                    
                    
                    
                    $
                    43,514
  Note
6 — Stockholders’ Equity
 
 Stock
Options
 
 On
December 21, 2007, the Company established the 2007 Equity Compensation Plan
(the “Plan”). The Plan was approved by our Board of Directors and security
holders holding a majority of the shares of our common stock outstanding. The
total amount of shares subject to the Plan is 1,500,000 shares. On December 21,
2007, we granted options to purchase 530,000 shares of common stock at $1.50 per
share to eight employees and one consultant, which expire on December 21, 2017.
The options were valued at $112,000 using a Black-Scholes valuation model and
will be amortized over the vesting period.  The exercise price for the
options was $1.50 per share and was based on the fair value of the shares on the
date of issuance. For the Black-Scholes calculation, the Company assumed no
dividend yield, a risk free interest rate of 4.18%, expected volatility of 25%
and an expected term for the options of 7 years.
  On May
28, 2009, we granted options to purchase 492,000 shares of common stock at $1.00
per share to nine employees, which expire on May 28, 2019. The options were
valued at $148,327 using a Black-Scholes valuation model and were expensed on
the grant date as the options all vested immediately. The exercise price for the
options was $1.00 per share and was based on the fair value of the shares on the
date of issuance. For the Black-Scholes calculation, the Company assumed no
dividend yield, a risk free interest rate of 3.67%, expected volatility of 83%
and an expected term for the options of 10 years.
 
 Stock-based
compensation expense of $0 and $161,271 was recognized during the years ended
June 30, 2010 and 2009, respectively, relating to the vesting of such options.
No future compensation expense related to these options remains as of June
30, 2010.  As of June 30, 2010, these options have no intrinsic
value.
  22
 
 At June
30, 2010 options outstanding are as follows:
 
 Number of
                      Options
                    
                    
                    Weighted
                      Average
                      Exercise
                      PriceBalance
      at July 1, 2008
                    
                    
                    530,000
                    
                    
                    $
                    1.50Granted
                    
                    
                    492,000
                    
                    
                    $
                    1.00Exercised
                    
                    
                    —
                    
                    
                    
                    —Cancelled
                    
                    
                    —
                    
                    
                    $
                    —Balance
      at June 30, 2009
                    
                    
                    1,022,000
                    
                    
                    $
                    1.26Granted
                    
                    
                    —
                    
                    
                    $
                    —Exercised
                    
                    
                    —
                    
                    
                    
                    —Cancelled
                    
                    
                    —
                    
                    
                    $
                    —Balance
      at June 30, 2010
                    
                    
                    1,022,000
                    
                    
                    $
                    1.26
  23
 
 Additional
information regarding options outstanding as of June 30, 2010 is as
follows:
  Options Outstanding
                  
                  
                  Options
                    ExercisableWeighted Average Exercise
                    Price
                  
                  
                  Number
                    Outstanding
                  
                  
                  Weighted Average
                    Remaining Contractual Life
                    (Years)
                  
                  
                  Weighted
                    Average
                    Exercise Price
                  
                  
                  Number
                    Exercisable$
                  1.26
                  
                  
                  
                  1,022,000
                  
                  
                  
                  8
                  
                  
                  $
                  1.26
                  
                  
                  
                  1,022,000
  Warrants
 
 At June
30, 2010 warrants outstanding are as follows:
 
 Number of
                      Warrants
                    
                    
                    Weighted
                      Average
                      Exercise
                      PriceBalance
      at July 1, 2008
                    
                    
                    2,450,000
                    
                    
                    $
                    1.25Granted
                    
                    
                    350,009
                    
                    
                    
                    2.00Exercised
                    
                    
                    —Cancelled
                    
                    
                    —Balance,
      June 30, 2009
                    
                    
                    2,800,009
                    
                    
                    $
                    1.34Granted
                    
                    
                    55,000
                    
                    
                    $
                    2.00Exercised
                    
                    
                    -Balance
      at June 30, 2010
                    
                    
                    2,855,009
                    
                    
                    $
                    1.34
  On July
1, 2008, the Company issued warrants to acquire 150,000 shares of our stock at
an exercise price of $2.00 per share and a life of five years to a
consultant.  The warrants were valued at $43,693 using a Black-Scholes
pricing model with the following assumptions; no dividend yield, risk free
interest rate of 4.5%, expected volatility of 25%, and an expected term of the
warrants of five years.
  On
October 8, 2009, the Company issued warrants to acquire 55,000 shares of our
stock to a consultant at an exercise price of $1.50 per share and with a life of
five years and which vest over a period of one year.  The fair market value
of the warrants amortized during the year was $14,437 using a Black-Scholes
pricing model with the following assumptions; no dividend yield, risk free
interest rate of 4.5%, expected volatility of 25%, and an expected term of the
warrants of five years.
  The above
warrants are fully vested, except for the 55,000 warrants issued on October 8,
2009, and have a five year contractual life.  There was no intrinsic value
to these warrants as of June 30, 2010 and 2009 based on
the trading price of the Company’s common stock on June 30, 2010 and
2009.
 
 Shares
issued for services
 
 During
the year ended June 30, 2010, the Company issued 40,000 shares of its common
stock valued at $46,000 based on
the trading price of the Company’s common stock on the date of the grantto a consultant.  Such costs are included in operating expenses in
our accompanying statement of operations for the year ended June 30,
2010.
 
 Note
7 — Contingencies and Commitments
 
 The
Company has long-term contractual commitments with several vendors to purchase
content during the next several fiscal years.  These commitments total
in aggregate $4,650,000, $4,350,000, $4,650,000, $5,000,000, $5,400,000, and
$2,800,000 for the fiscal years ending June 30, 2011, 2012, 2013, 2014, 2015 and
2016, respectively.
 
 Note
8 — Related Party Transactions
 
 The
Company leased furniture and office space on a month-to-month basis from a
stockholder of the Company until May 31, 2009. The total rent expense paid to
the stockholder for the years ended June 30, 2010 and 2009 was $0 and $27,404,
respectively.
  24
 
 Note
9 — Income Taxes
 
 The
provision for income taxes consists of the following for the years ended June
30, 2010 and 2009:
 
 June 30,
                      2010
                    
                    
                    June 30,
                      2009CurrentFederal
                    
                    $
                    326
                    
                    
                    $
                    21,007State
                    
                    
                    807
                    
                    
                    
                    11,167DeferredFederalState
                    
                    
                    —
                    
                    
                    
                    —Provision
      for income tax expense
                    
                    $
                    1,133
                    
                    
                    $
                    32,174
  25
 
 The
reconciliation of the effective income tax rate to the federal statutory rate is
as follows:
 
 Years Ended June 30,2010
                      
                      
                      2009Federal
      income tax rate
                      
                      
                      (34.00
                      )%
                      
                      
                      (34.00
                      )%State
      tax, net of federal benefit
                      
                      
                      (9.57
                      )%
                      
                      
                      (3.00
                      )%Permanent
      differences
                      
                      
                      2.12
                      %
                      
                      
                      5.53
                      %Change
      in valuation allowance
                      
                      
                      43.85
                      %
                      
                      
                      33.98
                      %Other
                      
                      
                      (1.97
                      )%
                      
                      
                      0.59
                      %Effective
      income tax rate
                      
                      
                      0.43
                      %
                      
                      
                      3.10
                      %
  Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial statement purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities at June 30, 2010 and 2009 are as
follows:
  June 30,
                      2010
                    
                    
                    June 30,
                      2009Deferred
      tax assets:Federal
      net operating loss
                    
                    $
                    496,900
                    
                    
                    $
                    458,540State
      net operating loss
                    
                    
                    62,845
                    
                    
                    
                    45,139Intangibles
                    
                    
                    105,655
                    
                    
                    
                    79,976Stock
      based compensation
                    
                    
                    22,566
                    
                    
                    
                    16,345Other
                    
                    
                    13,602
                    
                    
                    
                    845Total
      deferred tax assets
                    
                    
                    701,568
                    
                    
                    
                    600,845Deferred
      tax liabilityFixed
      asset depreciation
                    
                    
                    (76,056
                    )
                    
                    
                    (91,778
                    )Net
      deferred tax assets
                    
                    
                    625,512
                    
                    
                    
                    509,067Less
      valuation allowance
                    
                    
                    (624,604
                    )
                    
                    
                    (509,067
                    )$
                    908
                    
                    
                    $
                    —
  The
Company has provided a valuation allowance on the deferred tax assets at June
30, 2010 and 2009 to reduce such asset to $908 and zero, respectively, since
there is no assurance that the Company will generate future taxable income to
utilize such asset. Management will review this valuation allowance requirement
periodically and make adjustments as warranted.  The net change in the
valuation allowance for the year ended June 30, 2010 was an increase of
$115,537.
  At June
30, 2010 and 2009, the Company had federal net operating loss (“NOL”)
carryforwards of approximately $1,461,470 and $1,349,000, respectively, and
state NOL carryforwards of approximately $1,093,932 and $792,000, respectively.
Federal NOLs could, if unused, expire in 2030. State NOLs, if unused, could
expire in 2020.
  Effective
January 1, 2007, the Company adopted FASB guidelines that address the
determination of whether tax benefits claimed or expected to be claimed on a tax
return should be recorded in the financial statements. Under this guidance, we
may recognize the tax benefit from an uncertain tax position only if it is more
likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax
benefits recognized in the financial statements from such a position should be
measured based on the largest benefit that has a greater than fifty percent
likelihood of being realized upon ultimate settlement. This guidance also
provides guidance on derecognition, classification, interest and penalties on
income taxes, accounting in interim periods and requires increased disclosures.
At the date of adoption, and as of June 30, 2010 and 2009, the Company did not
have a liability for unrecognized tax benefits, and no adjustment was required
at adoption.
  26
 
 The
Company files income tax returns in the U.S. federal jurisdiction and various
states. The Company is subject to U.S. federal or state income tax examinations
by tax authorities for years after 2006.
 
 The
Company’s policy is to record interest and penalties on uncertain tax provisions
as income tax expense. As of June 30, 2010 and 2009, the Company has no accrued
interest or penalties related to uncertain tax positions. Additionally, tax
years 2006 through 2010 remain open to examination by the major taxing
jurisdictions to which the Company is subject.
  Note 10 — Subsequent
events
 
 On July
27, 2010, the Company issued options to purchase 379,000 shares of the Company’s
common stock to several employees under the 2007 Equity Compensation Plan, at an
exercise price of $1.02.  These option vest over 3 years, with
one-twelfth of the grant vesting on the last day of each calendar quarter though
September 30, 2013.
 
 On August
13, 2010, the Company granted 19,393 shares of the Company’s common stock valued
at $17,648 to a consultant in exchange for services.
 On August
31, 2010, the Company purchased the remaining 20% of Pools Press, Inc. that it
did not already own for a purchase price of $120,000.
  Item
9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
  There
were no changes in or disagreements with our accountants on accounting and
financial disclosure during the last two fiscal years.
 
 Item
9A.  Controls and Procedures.
 
 Evaluation
of Disclosure Controls and Procedures
 
 The
Company’s management, with the participation of its Chief Executive Officer and
Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure
controls and procedures as of the end of the period covered by this Annual
Report on Form 10-K. For purposes of this section, the term disclosure controls and proceduresmeans controls and other procedures of an issuer that are designed to
ensure that information required to be disclosed by the issuer in the reports
that it files or submits under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), is recorded, processed, summarized and reported within the
time periods specified in the SEC’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the issuer's management, including its principal executive and principal
financial officers, or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
 
 Based on
this evaluation, the Company’s Chief Executive Officer and Chief Financial
Officer have concluded that as of June 30, 2010, the Company’s disclosure
controls and procedures were effective to ensure that information it is required
to disclose in reports that it files or submits under the Exchange Act is
accumulated and communicated to the Company’s management, including its
principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure, and that such information is
recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms.
 
 Management’s
Report on Internal Control over Financial Reporting
 
 Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting. Internal control over financial reporting is
defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange
Act of 1934 as a process designed by, or under the supervision of, the company's
principal executive and principal financial officers and effected by the
company's board of directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
accounting principles generally accepted in the United States of America and
includes those policies and procedures that:
 
 * Pertain
to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of the assets of the
company;
 * Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
 * Provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the company's assets that could have a
material effect on the financial statements.
  27
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. All internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Because of the inherent
limitations of internal control, there is a risk that material misstatements may
not be prevented or detected on a timely basis by internal control over
financial reporting. However, these inherent limitations are known features of
the financial reporting process. Therefore, it is possible to design into the
process safeguards to reduce, though not eliminate, this risk.
 
 As of
June 30, 2010 management assessed the effectiveness of our internal control over
financial reporting based on the criteria for effective internal control over
financial reporting established in Internal Control—Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
and SEC guidance on conducting such assessments. Based on that evaluation, they
concluded that, during the period covered by this Annual Report, such internal
controls and procedures were not effective to detect the inappropriate
application of US GAAP rules as more fully described below. This was due to
deficiencies that existed in the design or operation of our internal controls
over financial reporting that adversely affected our internal controls and that
may be considered to be material weaknesses.
 
 The
matters involving internal controls and procedures that our management
considered to be material weaknesses under the standards of the Public Company
Accounting Oversight Board were the lack of a functioning audit committee due to
a lack of a majority of independent members and a lack of a majority of outside
directors on our board of directors, resulting in ineffective oversight in the
establishment and monitoring of required internal controls and procedures. This
material weakness was identified by our Chief Executive Officer in connection
with the review of our financial statements as of June 30, 2010.
 
 Management
believes that the lack of a functioning audit committee and the lack of a
majority of outside directors on our board of directors results in ineffective
oversight in the establishment and monitoring of required internal controls and
procedures, which could result in a material misstatement in our financial
statements in future periods.
 
 Management’s
Remediation Initiatives
 
 In an
effort to remediate the identified material weaknesses and other deficiencies
and enhance our internal controls, we are in the process of seeking outside
directors and we expect to have appointed outside directors to our board before
December 31, 2010.  We also intend to appoint outside directors to a
fully functioning audit committee which will undertake the oversight in the
establishment and monitoring of required internal controls and procedures such
as reviewing and approving estimates and assumptions made by
management.
 
 Management
believes that the appointment of outside directors, who shall be appointed to a
fully functioning audit committee, will remedy the lack of a functioning audit
committee and a lack of a majority of outside directors on our
Board.
 
 Changes
in Internal Controls Over Financial Reporting
 
 There has
been no change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recently
completed fiscal quarter that has materially affected, or is reasonably likely
to materially affect, our internal control over financial
reporting.
 
 Item
9B.  Other Information.
 
 None.
  28
 
 PART
III
 
 Item
10.  Directors, Executive Officers and Corporate
Governance
  The
following table identifies our current executive officers and directors, their
respective offices and positions, and their respective dates of election or
appointment:
 
 Name
              
              Age
              
              Position
              
              Date of AppointmentPeter
      Derycz
              
              48
              
              Chief
      Executive Officer, President and Chairman of the Board
              
              January
      6, 2006Richard
      McKilligan
              
              47
              
              Chief
      Financial Officer, Secretary and General Counsel
              
              January
      1, 2007Scott
      Ahlberg
              
              47
              
              Director,
      Head of Corporate Services of Reprints Desk
              
              February
      6, 2006Jan
      Peterson
              
              62
              
              Director,
      Head of Publisher Relations of Reprints Desk
              
              July
      1, 2006
  All
directors hold office until the next annual meeting of stockholders and the
election and qualification of their successors. Officers are elected annually by
the Board of Directors and serve at the discretion of the Board.
  Business
Experience Descriptions
  Peter
Derycz – Chief Executive Officer, President and Chairman
  Peter
Derycz founded Reprints as its President in 2006. Mr. Derycz was a founder of
Infotrieve, Inc. in 1989 and served as its President from February 2003 until
September 2003. He served as the Chief Executive Officer of Puerto Luperon, Ltd.
(Bahamas) from January 2004 until December 2005. In January 2006, he was
appointed to, and currently serves as a member of, the board of directors of
Insignia Systems, Inc. Mr. Derycz received a B.A. in Psychology from the
University of California at Los Angeles.
  Richard
McKilligan – Chief Financial Officer, Secretary and General
Counsel
  Richard
McKilligan earned his law degree from Cornell Law School, his MBA from the
University of Chicago and his undergraduate degree in Accountancy from the
University of Illinois at Urbana-Champaign. He joined Derycz in January 2007.
Mr. McKilligan is also a director of Bristol Investment Fund, Ltd., which holds
a significant equity stake in the Company, and Chief Financial Officer and a
director of Genesis Biopharma, Inc., of which Bristol Investment Fund, Ltd. also
holds a significant equity stake. He was an associate with Morgan, Lewis &
Bockius, LLP in their New York and London offices from 2000 until January 2006.
He is a member of the State Bar of California, the New York State Bar
Association and the Florida Bar.
  Scott
Ahlberg – Head of Corporate Services of Reprints Desk
  Scott
Ahlberg has degrees from Stanford University (BA, 1984) and the University of
London (MA, 1990). Mr. Ahlberg was Vice President of Infotrieve, Inc. from 1991
until 2001 and Executive Vice President from 2001 until May 2005. From May 2005
until February 2006, Mr. Ahlberg provided consulting services to ventures in
professional networking and medical podcasting. He joined Reprints Desk in
2006.
  Jan
Peterson – Head of Publisher Relations of Reprints Desk
  Jan
Peterson was Vice President for Content Development at Infotrieve, Inc. from
2000 to 2006 and Vice President for Publisher Relations and Content Development
at RoweCom, formerly Faxon/Dawson, from 1997 to 2000. Ms. Peterson was at
Academic Press (now Elsevier) for 14 years, where her last position was
Fulfillment Director. Ms. Peterson is Past Chair of the Board of Directors for
the National Information Standards Organization (NISO), and she is the past
chair of the International Committee for EDI in Serials (ICEDIS). She has a
degree in History from Whittier College and an M.A. in Asian Studies from
California State College, San Diego. She joined Reprints in 2006.
  Family
Relationships
  There are
no family relationships among any of our executive officers or
directors.
  Involvement
in Certain Legal Proceedings
  None of
the directors or executive officers have, during the past ten
years:
  29
 
 ·
              Had any petition under the
      federal bankruptcy laws or any state insolvency law filed by or against,
      or had a receiver, fiscal agent, or similar officer appointed by a court
      for the business or property of such person, or any partnership in which
      he was a general partner at or within two years before the time of such
      filing, or any corporation or business association of which he was an
      executive officer at or within two years before the time of such
      filing;
 
 ·
              Been convicted in a criminal
      proceeding or a named subject of a pending criminal proceeding (excluding
      traffic violations and other minor
  offenses);
 
 ·
              Been the subject of any order,
      judgment, or decree, not subsequently reversed, suspended, or vacated, of
      any court of competent jurisdiction, permanently or temporarily enjoining
      him from, or otherwise limiting, the following
      activities:
 
 (i)
              Acting as a futures commission
      merchant, introducing broker, commodity trading advisor, commodity pool
      operator, floor broker, leverage transaction merchant, any other person
      regulated by the Commodity Futures Trading Commission, or an associated
      person of any of the foregoing, or as an investment adviser, underwriter,
      broker or dealer in securities, or as an affiliated person, director or
      employee of any investment company, bank, savings and loan association or
      insurance company, or engaging in or continuing any conduct or practice in
      connection with such
activity;
 
 (ii)
              Engaging in any type of business
      practice; or
 
 (iii)
              Engaging in any activity in
      connection with the purchase or sale of any security or commodity or in
      connection with any violation of federal or state securities laws or
      federal commodities laws;
 
 ·
              Been the subject of any order,
      judgment, or decree, not subsequently reversed, suspended, or vacated, of
      any federal or state authority barring, suspending, or otherwise limiting
      for more than 60 days the right of such person to engage in any activity
      described in (i) above, or to be associated with persons engaged in any
      such activity;
 
 ·
                        Been
      found by a court of competent jurisdiction in a civil action or by the SEC
      to have violated any federal or state securities law, where the judgment
      in such civil action or finding by the SEC has not been subsequently
      reversed, suspended, or vacated ;·
                        Been found by a court of
      competent jurisdiction in a civil action or by the Commodity Futures
      Trading Commission to have violated any federal commodities law, where the
      judgment in such civil action or finding by the Commodity Futures Trading
      Commission has not been subsequently reversed, suspended, or
      vacated;·
                        Been the subject of, or a party
      to, any federal or state judicial or administrative order, judgment,
      decree, or finding, not subsequently reversed, suspended or vacated,
      relating to an alleged violation of:
 
 (i)
                Any
      federal or state securities or commodities law or regulation;
      or
 
 (ii)
                Any
      law or regulation respecting financial institutions or insurance companies
      including, but not limited to, a temporary or permanent injunction, order
      of disgorgement or restitution, civil money penalty or temporary or
      permanent cease-and-desist order, or removal or prohibition order;
      or
 
 (iii)
                Any
      law or regulation prohibiting mail or wire fraud or fraud in connection
      with any business entity; or
 ·
                  Been the subject of, or a party
      to, any sanction or order, not subsequently reversed, suspended or
      vacated, of any self-regulatory organization (as defined in Section
      3(a)(26) of the Exchange Act), any registered entity (as defined in
      Section 1(a)(29) of the Commodity Exchange Act), or any equivalent
      exchange, association, entity or organization that has disciplinary
      authority over its members or persons associated with a
      member.
 Compliance with Section 16(a) of the
Exchange Act
 
 Section
16(a) of the Exchange Act requires our officers, directors, and persons who own
more than ten percent of a registered class of our equity securities to file
reports of ownership and changes in ownership with the SEC and to furnish the
Company with copies of all Section 16(a) forms they file. Our review of copies
of the Section 16(a) reports filed during the fiscal year ended June 30, 2010
indicates that all filing requirements applicable to our officers, directors,
and greater than ten percent beneficial owners were complied with. However, our
review of copies of the Section 16(a) reports filed subsequent to June 30, 2010
indicates that Mr. McKilligan, Mr. Ahlberg and Ms. Peterson did not timely file
their respective reports on Form 4 pertaining to transactions involving each of
them that occurred on May 28, 2009 and July 27, 2010. Each of the relevant
reports was filed on August 12, 2010.
  30
 
 Code
of Ethics
 
 We have
not yet adopted a written code of ethics that applies to our Chief Executive
Officer, Chief Financial Officer, principal accounting officer or persons
performing similar functions. We currently are considering the terms of such a
code and expect to adopt a code of ethics during the current fiscal
year.
 
 Item
11.  Executive Compensation.
 
 Executive
Compensation
 
 The
following table summarizes all compensation for the fiscal years ended June 30,
2010 and June 30, 2009 awarded to, earned by or paid to our Chief Executive
Officer and the Company's two most highly compensated executive officers who
earned more than $100,000 in fiscal year 2010.  The following table
summarizes all compensation for the last two fiscal years awarded to, earned by
or paid to (i) our Chief Executive Officer (principal executive officer), (ii)
two most highly compensated executive officers other than our CEO who were
serving as executive officers at the end of our last completed fiscal year,
whose total compensation exceeded $100,000 during such fiscal year ends, and
(iii) up to two additional individuals for whom disclosure would have been
provided but for the fact that the individual was not serving as an executive
officer at the end of our last completed fiscal year, whose total compensation
exceeded $100,000 during such fiscal year ends.
  31
 
 SUMMARY
COMPENSATION TABLE FOR FISCAL YEARS ENDED JUNE 30, 2010 AND 2009
 
 Name and principle
                                                    Position
                                                  
                                                  Year
                                                  
                                                  Salary
                                                    ($)
                                                  
                                                  
                                                  Bonus
                                                    ($)
                                                  
                                                  
                                                  Stock
                                                    awards
                                                    ($)
                                                  
                                                  
                                                  Option
                                                    awards
                                                    ($)
                                                  
                                                  
                                                  Non-equity
                                                    incentive
                                                    plan
                                                    compensation
                                                    ($)
                                                  
                                                  
                                                  Nonqualified
                                                    deferred
                                                    compensation
                                                    earnings
                                                    ($)
                                                  
                                                  
                                                  All other
                                                    compensation
                                                    ($)
                                                  
                                                  
                                                  Total
                                                    ($)(a)
                                                  
                                                  (b)
                                                  
                                                  (c)
                                                  
                                                  
                                                  (d)
                                                  
                                                  
                                                  (e)
                                                  
                                                  
                                                  (f)
                                                  
                                                  
                                                  (g)
                                                  
                                                  
                                                  (h)
                                                  
                                                  
                                                  (i)
                                                  
                                                  
                                                  (j)Peter
      Derycz
                                                  
                                                  2010
                                                  
                                                  
                                                  270,000
                                                  (1)
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  270,000Chief Executive Officer
                                                  
                                                  2009
                                                  
                                                  
                                                  240,000
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  240,000Richard
      McKilligan
                                                  
                                                  2010
                                                  
                                                  
                                                  155,000
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  155,000Chief
      Financial Officer
                                                  
                                                  2009
                                                  
                                                  
                                                  111,000
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  27,133
                                                  (2)
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  138,133
 
 (1)
              Includes a bonus of $30,000 paid
      on July 30, 2010 for services performed during the fiscal year ended June
      30, 2010 and accrued as as an expense at June 30,
    2010.
  (2)
              Represents a grant made on May
      28, 2009, of options to purchase 90,000 common shares which vested
      immediately.
 
 The
following table sets forth, at June 30, 2010, information regarding unexercised
options for each named executive officer.  There were no stock awards
outstanding at June 30, 2010.
 
 OUTSTANDING
EQUITY AWARDS AT 2010 FISCAL YEAR-END
 
 Name
                            
                            Number of
                              securities
                              underlying
                              unexercised
                              options
                              (#)
                              exercisable
                            
                            
                            Number of
                              securities
                              underlying
                              unexercised
                              options
                              (#)
                              unexercisable
                            
                            
                            Equity incentive
                              plan awards:
                              Number of
                              securities
                              underlying
                              unexercised
                              unearned options
                              (#)
                            
                            
                            Option
                              exercise price
                              ($)
                            
                            
                            Option
                              expiration
                              date(a)
                            
                            (b)
                            
                            
                            (c)
                            
                            
                            (d)
                            
                            
                            (e)
                            
                            
                            (f)Peter
      Derycz
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            -Richard
                            
                            
                            95,000
                            (1)
                            
                            
                            -
                            
                            
                            
                            
                            
                            
                            $
                            1.50
                            
                            
                            12/21/17McKilligan
                            
                            
                            90,000
                            (2)
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            1.00
                            
                            
                            5/28/19
 
 (1)
                Options vested immediately upon
      grant on December 21, 2007.
 (2)
                Options vested immediately upon
      grant on May 28, 2009.
  32
 
 The
following table sets forth, for the year ended June 30, 2010, the
compensation earned by our directors for the services rendered by them to the
Company in all capacities.
 
 DIRECTOR
COMPENSATION FOR THE FISCAL YEAR ENDED JUNE 30, 2010
 
 Name
                    
                    Fees
                      earned
                      or paid
                      in cash
                      ($)
                    
                    
                    Stock
                      awards
                      ($)
                    
                    
                    Option
                      awards
                      ($)
                    
                    
                    Non-equity
                      incentive plan
                      compensation
                      ($)
                    
                    
                    Nonqualified
                      deferred
                      compensation
                      earnings
                      ($)
                    
                    
                    All other
                      compensation
                      ($)
                    
                    
                    Total
                      ($)(a)
                    
                    (b)
                    
                    
                    (c)
                    
                    
                    (d)
                    
                    
                    (e)
                    
                    
                    (f)
                    
                    
                    (g)
                    
                    
                    (h)Scott
      Ahlberg
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    174,000
                    (1)
                    
                    
                    174,000Janice
      Peterson
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    100,000
                    (2)
                    
                    
                    100,000
 
 (1)
              Mr. Ahlberg received no
      compensation for his services as a director of the Company. Other
      compensation represents the following amounts paid to Mr. Ahlberg for his
      services as an employee of the Company: salary in the amount of
      $60,000 and a cash bonus in the amount of
  $114,000.
 (2)
              Ms. Peterson received no
      compensation for her services as a director of the Company. Other
      compensation represents the following amounts paid to Ms. Peterson for her
      services as an employee of the Company: salary in the amount of $68,500,
      and a cash bonus in the amount of
  $32,500.
 
 Employment
Agreements
 
 Peter
Derycz
 
 Mr.
Derycz's employment contract as Chief Executive Officer and as a director of the
Company has a three year term beginning July 1, 2010. The contract provides an
annual salary of $240,000.  No part of Mr. Derycz's salary is
allocated to his duties as a director of the Company. The contract contains no
incentive bonus structure.
 
 Richard
McKilligan
 
 Mr.
McKilligan's employment contract as Chief Financial Officer and General Counsel
has a three year term beginning July 1, 2010. The contract provides an annual
salary of $155,000.  The contract contains no incentive bonus
structure.
 
 Scott
Ahlberg
 
 Mr.
Ahlberg's employment contract as Head of Corporate Services of Reprints Desk and
as a director of the Company has a three year term beginning July 1, 2010. The
contract provides an annual base salary of $60,000 and an annual guaranteed
bonus of $40,000. The contract sets out bonuses of between $20,000 and $220,000
available to Mr. Ahlberg if the Company achieves certain levels of revenues from
its document delivery product from $1,000,000 to in excess of $20,000,000. No
part of Mr. Ahlberg's salary is allocated to his duties as a director of the
Company. The contract contains no other incentive bonus structure.
 
 Janice
Peterson
 
 Ms.
Peterson's employment contract as Head of Publisher Relations of Reprints Desk
and as a director of the Company has a three year term beginning July 1, 2010.
The contract provided an annual base salary of $100,000. No part of Ms.
Peterson's salary is allocated to her duties as a director of the Company. The
contract contains no other incentive bonus structure.
 
 Director
Compensation
 
 We intend
to compensate non-management directors through stock option and/or restricted
stock granted under our 2007 Equity Compensation Plan. At this time, no
directors receive compensation for their services as directors.
 
 Item
12.  Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters.
 
 The
following table sets forth certain information, as of September 23, 2010, with
respect to the holdings of (1) each person who is the beneficial owner of more
than five percent of our common stock, (2) each of our directors, (3) the CEO
and each named executive officer, and (4) all of our directors and executive
officers as a group.
  33
 
 Beneficial
ownership of the common stock is determined in accordance with the rules of the
Securities and Exchange Commission and includes any shares of common stock over
which a person exercises sole or shared voting or investment powers, or of which
a person has a right to acquire ownership at any time within 60 days of
September 23, 2010. Except as otherwise indicated, and subject to applicable
community property laws, the persons named in this table have sole voting and
investment power with respect to all shares of common stock held by them.
Applicable percentage ownership in the following table is based on 13,021,223
shares of common stock outstanding as of September 23, 2010 plus, for each
person, any securities that person has the right to acquire within 60 days of
September 23, 2010.
 
 Unless
otherwise indicated below, the address of each of the principal shareholders is
c/o Derycz Scientific, Inc., 1524 Cloverfield Blvd., Suite E, Santa Monica,
California 90404.
 
 Name and Address
                  
                  Shares
                    Beneficially
                    Owned
                  
                  
                  Percentage
                    of ClassBristol
      Investment Fund, Ltd. (1)
      (2)
                  
                  
                  2,750,000
                  
                  
                  
                  20.7
                  %Bristol
      Capital, LLC (1)
      (3)
                  
                  
                  1,810,910
                  
                  
                  
                  13.9
                  %Peter
      Derycz
                  
                  
                  4,000,000
                  
                  
                  
                  30.7
                  %Richard
      McKilligan (4)
                  
                  
                  261,062
                  
                  
                  
                  2.0
                  %Scott
      Ahlberg (5)
                  
                  
                  163,477
                  
                  
                  
                  1.2
                  %Jan
      Peterson (6)
                  
                  
                  163,334
                  
                  
                  
                  1.2
                  %All
      Directors and Executive Officers as a group (4 persons)
                  
                  
                  4,587,873
                  
                  
                  
                  33.9
                  %
  (1)
              Paul Kessler exercises investment
      and voting control over the shares held by Bristol Investment Fund, Ltd.
      and Bristol Capital, LLC.
 
 (2)
              Includes warrants to purchase
      250,000 shares of common stock at an exercise price of $1.25 per
      share.
 
 (3)
                          Diana Derycz-Kessler is a member
      of Bristol Capital, LLC, the spouse of Paul Kessler and the sibling of
      Peter Derycz.(4)
                          Includes
      options to purchase 95,000 shares of common stock at an exercise price of
      $1.50, options to purchase 90,000 shares of common stock at an exercise
      price of $1.00 and options to purchase 3,334 shares of common stock at an
      exercise price of $1.02.(5)
                          Includes
      options to purchase 75,000 shares of common stock at an exercise price of
      $1.50, options to purchase 75,000 shares of common stock at an exercise
      price of $1.00 and options to purchase 1,667 shares of common stock at an
      exercise price of $1.02.(6)
                          Includes
      options to purchase 85,000 shares of common stock at an exercise price of
      $1.50, options to purchase 75,000 shares of common stock at an exercise
      price of $1.00 and options to purchase 3,334 shares of common stock at an
      exercise price of
$1.02.
 Change
of Control
 
 To the
knowledge of management, there are no present arrangements or pledges of
securities of our company that may result in a change in control of the
Company.
 
 Equity
Compensation Plan Information
 
 In
December 2007, we established the 2007 Equity Compensation Plan (the “Plan”).
The Plan was approved by our Board of Directors and security holders holding a
majority of the shares of our common stock outstanding. The purpose of the Plan
is to grant stock and stock options to purchase our common stock to our
employees and key consultants. The total amount of shares subject to the Plan is
1,500,000 shares. As of September 25, 2010, we had granted 1,401,000 options
under the Plan. The following table provides information as of June 30, 2010
with respect to the Plan, which is the only compensation plan under which our
equity securities are authorized for issuance.
 
 Plan category
                          
                          Number of securities to be
                            issued upon exercise of
                            outstanding options,
                            warrants and rights
                          
                          
                          Weighted-average
                            exercise price of
                            outstanding options,
                            warrants and rights
                          
                          
                          Number of securities
                            remaining available
                            for future issuance
                            under equity
                            compensation plans
                            (excluding securities
                            reflected in column (a))(a)
                          
                          
                          (b)
                          
                          
                          (c)Equity
      compensation plans approved by security holders
                          
                          
                          1,500,000
                          
                          
                          $
                          1.26
                          
                          
                          
                          478,000Equity
      compensation plans not approved by security holders
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Total
                          
                          
                          1,500,000
                          
                          
                          
                          
                          
                          
                          
                          478,000
  34
 
 Item
13.  Certain Relationships and Related Transactions, and Director
Independence.
 
 Described
below are certain transactions or series of transactions since July 1, 2008
between us and our subsidiaries and our executive officers, directors and the
beneficial owners of five percent or more of our common stock, on an as
converted basis, and certain persons affiliated with or related to these
persons, including family members, in which they had or will have a direct or
indirect material interest in an amount that exceeds the lesser of $120,000 or
one percent of the average of our total assets at year end for the last two
completed fiscal years, other than compensation arrangements that are otherwise
required to be described under “Executive Compensation.”
 
 Richard
McKilligan, our Chief Financial Officer, is also a director of Bristol
Investment Fund, Ltd., which holds 2,750,000 shares, or 20.7%, of the Company’s
common stock.  Mr. McKilligan is also the Chief Financial Officer and
a director of Genesis Biopharma, Inc., of which Bristol Investment Fund, Ltd. is
a shareholder.
 
 Until May
31, 2009, the Company sublet its office space from Bristol Capital Advisors, LLC
pursuant to a lease agreement. The office space is approximately 1,000 square
feet and the cost was $2,740.40 per month, which rate is equivalent on a per
square foot basis to the amount Bristol Capital Advisors, LLC paid under its
lease agreement and was comparable to the terms of a lease between unaffiliated
parties. The sublease agreement was a month-to-month tenancy which could be
terminated at any time. Bristol Capital Advisors, LLC is the investment manager
of Bristol Investment Fund, Ltd., which holds a significant equity stake in the
Company.
 
 A
familial relationship exists between management and certain equity holders of
the Company. Paul Kessler and Diana Derycz-Kessler are married and are the
owners of Bristol Capital, LLC, which holds 1,810,910 shares, or 13.9%, of the
Company’s common stock. Paul Kessler has investment and voting control over the
shares held by Bristol Investment Fund, Ltd., which holds 2,750,000 shares, or
20.7%, of the Company’s common stock. Diana Derycz-Kessler and Peter Derycz, the
Company’s Chief Executive Officer, are siblings.
 
 Director
Independence
 
 None of
the members of the Company’s Board of Directors are independent directors as
that term is defined by NYSE Rule 303A.02(a).  The Company currently
does not have an audit committee. None of the members of the Company’s Board of
Directors meet the NYSE’s independence standards for members of such
committees.  The Company does not have a separate audit committee or
any other committees as the entire board undertakes and considers matters
generally left to such committees.
 
 Item
14.  Principal Accounting Fees and Services.
 
 Summary
of Principal Accounting Fees for Professional Services Rendered
 
 The
following table presents the aggregate fees for professional audit services and
other services rendered by Weinberg & Company, P.A., our independent
registered public accountants in the fiscal years ended June 30, 2010 and
2009.
 
 Year Ended June 30, 2010
                    
                    
                    Year Ended June 30, 2009Audit
      Fees
                    
                    $
                    83,418
                    
                    
                    
                    89,339Audit-Related
      Fees
                    
                    
                    -
                    
                    
                    
                    -Tax
      Fees
                    
                    
                    -
                    
                    
                    
                    -All
      Other Fees
                    
                    
                    -
                    
                    
                    
                    -$
                    83,418
                    
                    
                    
                    89,339
  35
  
 Audit Fees consist of fees
billed for the annual audit of our financial statements and other audit services
including the provision of consents and the review of documents filed with the
SEC.
 
 We do not
have an independent audit committee and the full Board of Directors, therefore,
serves as the audit committee for all purposes relating to communication with
our auditors and responsibility for our audit. Our Board of Directors has
considered whether the provision of the services described above for the fiscal
years ended June 30, 2009 and 2010, is compatible with maintaining the auditor’s
independence.
 
 All audit
and non-audit services that may be provided by our principal accountant to us
shall require pre-approval by the Board of Directors. Further, our auditor shall
not provide those services to us specifically prohibited by the SEC, including
bookkeeping or other services related to the accounting records or financial
statements of the audit client; financial information systems design and
implementation; appraisal or valuation services, fairness opinion, or
contribution-in-kind reports; actuarial services; internal audit outsourcing
services; management functions; human resources; broker-dealer, investment
adviser, or investment banking services; legal services and expert services
unrelated to the audit; and any other service that the Public Company Accounting
Oversight Board determines, by regulation, is impermissible.
  36
 
 PART
IV
 
 Item
15.  Exhibits, Financial Statements Schedules.
 
 (a)
Documents filed as a part of this report
 
 (1) Financial
Statements
 
 The
financial statements of Derycz Scientific, Inc. and its subsidiaries and
Weinberg & Company, P.A.’s report dated September 27, 2010, are incorporated
by reference to Item 8 of this report.
 
 (2) Financial Statement
Schedules
 
 Not
required.
 
 (b)
Exhibits
 
 Exhibit
                Number
              
              Description2.1
              
              Share
      Exchange Agreement between Derycz and Reprints Desk dated November 13,
      2006 (1)3.1
              
              Articles
      of Incorporation (1)3.2
              
              Bylaws
      (1)4.1
              
              Form
      of Warrant (1)10.1
              
              2007
      Equity Compensation Plan (1)10.2
              
              Lease
      agreement between Pools Press and JJ Properties (1)10.3
              
              Peter
      Derycz employment agreement (3)10.4
              
              Richard
      McKilligan employment agreement (3)10.5
              
              Scott
      Ahlberg employment agreement (3)10.6
              
              Janice
      Peterson employment agreement (3)10.7
              
              Matt
      Sampson employment agreement (1)10.8
              
              CapCas
      License Agreement (1)10.9
              
              Dainippon
      Equipment Purchase Agreement (1)10.10
              
              Form
      of Subscription Agreement (2)21.1
              
              List
      of subsidiaries (1)31.1
              
              Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive Officer (3)31.2
              
              Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial Officer (3)32.1
              
              Section
      1350 Certification of Chief Executive Officer (3)32.2
              
              Section
      1350 Certification of Chief Financial Officer (3)
 
 (1)
              Incorporated by reference to the
      exhibit of the same number to the registrant’s Registration Statement on
      Form SB-2 filed on December 28,
2007.
 (2)
              Incorporated by reference to the
      exhibit of the same number to the registrant’s Registration Statement on
      Form S-1/A (Amendment No. 1) filed on February 27,
      2008.
 (3)
              Filed
      herewith.
  37
 
 SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
 
 DERYCZ
      SCIENTIFIC, INC.By:
              /s/
      Peter DeryczPeter
      DeryczDate:
      September 28, 2010
              
              Chief
      Executive Officer (Principal
                Executive
      Officer)By:
              /s/
      Richard McKilliganRichard
      McKilliganDate:
      September 28, 2010
              
              Chief
      Financial Officer (Principal
                Financial
      and Accounting Officer)
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
 
 Signature
              
              Title
              
              Date/s/ Peter DeryczPeter
      Derycz
              
              Chief
      Executive Officer (Principal Executive
                Officer)
      and Chairman of the Board
              
              September
      28, 2010/s/ Richard McKilligan
              
              Chief
      Financial Officer (Principal FinancialRichard
      McKilligan
              
              and
      Accounting Officer), Secretary and
              
              September
      28, 2010General
      Counsel/s/ Scott AhlbergScott
      Ahlberg
              
              Director
              
              September
      28, 2010/s/ Jan PetersonJan
      Peterson
              
              Director
              
              September
      28, 2010
  38
 
 EXHIBIT
INDEX
 
 Exhibit
                  Number
                
                Description2.1
                
                Share
      Exchange Agreement between Derycz and Reprints Desk dated November 13,
      2006 (1)3.1
                
                Articles
      of Incorporation (1)3.2
                
                Bylaws
      (1)4.1
                
                Form
      of Warrant (1)10.1
                
                2007
      Equity Compensation Plan (1)10.2
                
                Lease
      agreement between Pools Press and JJ Properties (1)10.3
                
                Peter
      Derycz employment agreement (3)10.4
                
                Richard
      McKilligan employment agreement (3)10.5
                
                Scott
      Ahlberg employment agreement (3)10.6
                
                Janice
      Peterson employment agreement (3)10.7
                
                Matt
      Sampson employment agreement (1)10.8
                
                CapCas
      License Agreement (1)10.9
                
                Dainippon
      Equipment Purchase Agreement (1)10.10
                
                Form
      of Subscription Agreement (2)21.1
                
                List
      of subsidiaries (1)31.1
                
                Rule
      13a-14(a)/15d-14(a) Certification of Chief Executive Officer (3)31.2
                
                Rule
      13a-14(a)/15d-14(a) Certification of Chief Financial Officer (3)32.1
                
                Section
      1350 Certification of Chief Executive Officer (3)32.2
                
                Section
      1350 Certification of Chief Financial Officer (3)
 
 (1)
              Incorporated by reference to the
      exhibit of the same number to the registrant’s Registration Statement on
      Form SB-2 filed on December 28,
2007.
 (2)
              Incorporated by reference to the
      exhibit of the same number to the registrant’s Registration Statement on
      Form S-1/A (Amendment No. 1) filed on February 27,
      2008.
 (3)
              Filed
      herewith.
  39