UNITED
STATES


SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C.
20549


FORM 10-Q


(Mark
      One)þ
                    QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For
the quarterly period ended: September 30, 2009




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
No. 333-148392


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, California
                  90404(Address
      of principal executive offices)
                  (Zip
      Code)





(310)
477-0354


(Registrant’s
telephone number, including area code)





(Former
name, former address and former fiscal year, if changed since last
report)





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 (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period than the
registrant was required to submit and post such
files).  Yes oNo  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.





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





APPLICABLE
ONLY TO CORPORATE ISSUERS:





Indicate the number of shares
outstanding of each of the issuer’s classes of common stock as of the latest
practicable date: As of November 10, 2009, there were 12,961,830 shares of
common stock outstanding.








TABLE OF
CONTENTS





PART I — FINANCIAL
    INFORMATION
                  
                  3Item 1. Financial Statements
      (unaudited)
                  
                  3Item 2. Management’s Discussion and Analysis
      of Financial Condition and Results of Operations
                  
                  16Item 3. Quantitative and Qualitative
      Disclosures About Market Risk
                  
                  22Item 4. Controls and
      Procedures
                  
                  22PART II — OTHER INFORMATION
                  
                  22Item 1. Legal
    Proceedings
                  
                  22Item 1A. Risk Factors
                  
                  23Item 2. Unregistered Sales of Equity
      Securities and Use of Proceeds
                  
                  23Item 3. Defaults Upon Senior
      Securities
                  
                  23Item 4. Submission of Matters to a Vote of
      Security Holders
                  
                  23Item 5. Other
    Information
                  
                  23Item 6. Exhibits
                  
                  23SIGNATURES
                  
                  24




2


PART 1 — FINANCIAL
INFORMATION





Item 1. Financial
Statements





Derycz
Scientific, Inc.
 Condensed
Consolidated Balance Sheets
 
 September
      30,
                                          
                                          
                                          June
      30,2009
                                          
                                          
                                          2009(unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                                          
                                          $
                                          1,578,990
                                          
                                          
                                          $
                                          1,854,093Accounts
      receivable, net of allowance of $35,000
                                          
                                          
                                          4,049,946
                                          
                                          
                                          
                                          3,499,848Inventory
                                          
                                          
                                          8,520
                                          
                                          
                                          
                                          10,188Prepaid
      royalties
                                          
                                          
                                          45,180
                                          
                                          
                                          
                                          217,980Other
      current assets
                                          
                                          
                                          58,279
                                          
                                          
                                          
                                          37,890TOTAL
      CURRENT ASSETS
                                          
                                          
                                          5,740,915
                                          
                                          
                                          
                                          5,619,999PROPERTY
      AND EQUIPMENT, net of
                                            accumulated
      depreciation of $215,356 and  $188,266
                                          
                                          
                                          339,084
                                          
                                          
                                          
                                          340,776INTANGIBLE
      ASSETSCustomer
      lists, net of accumulated amortization of $47,222 and
    $43,056
                                          
                                          
                                          2,778
                                          
                                          
                                          
                                          6,944Intellectual
      property licenses, net of amortization of $193,825 and
      $163,209
                                          
                                          
                                          570,271
                                          
                                          
                                          
                                          600,887GOODWILL
                                          
                                          
                                          223,385
                                          
                                          
                                          
                                          223,385TOTAL
      ASSETS
                                          
                                          $
                                          6,876,433
                                          
                                          
                                          $
                                          6,791,991LIABILITIES
      AND STOCKHOLDERS' EQUITYCURRENT
      LIABILITIESAccounts
      payable
                                          
                                          $
                                          3,442,657
                                          
                                          
                                          $
                                          3,036,615Capital
      lease obligation, current
                                          
                                          
                                          18,323
                                          
                                          
                                          
                                          17,861Income
      tax payable
                                          
                                          
                                          -
                                          
                                          
                                          
                                          3,659Other
      current liabilities
                                          
                                          
                                          119,200
                                          
                                          
                                          
                                          116,769TOTAL
      CURRENT LIABILITIES
                                          
                                          
                                          3,580,180
                                          
                                          
                                          
                                          3,174,904CAPITAL
      LEASE OBLIGATIONS
                                          
                                          
                                          38,859
                                          
                                          
                                          
                                          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;
      12,961,830 shares issued and outstanding
                                          
                                          
                                          12,962
                                          
                                          
                                          
                                          12,962Additional
      paid-in capital
                                          
                                          
                                          5,450,223
                                          
                                          
                                          
                                          5,450,223Accumulated
      deficit
                                          
                                          
                                          (2,247,763
                                          )
                                          
                                          
                                          (1,937,072
                                          )TOTAL
      STOCKHOLDERS' EQUITY
                                          
                                          
                                          3,215,422
                                          
                                          
                                          
                                          3,526,113NONCONTROLLING
      INTEREST
                                          
                                          
                                          41,972
                                          
                                          
                                          
                                          47,357TOTAL
      EQUITY
                                          
                                          
                                          3,257,394
                                          
                                          
                                          
                                          3,573,470TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                          
                                          $
                                          6,876,433
                                          
                                          
                                          $
                                          6,791,991
 
 See notes
to condensed consolidated financial statements
  3
  Derycz
Scientific, Inc.
 Condensed
Consolidated Statements of Operations
 (unaudited)
 
 Three
      Months EndedSeptember 30,2009
                          
                          
                          2008NET
      SALES
                          
                          $
                          4,783,699
                          
                          
                          $
                          3,202,726COST
      OF SALES
                          
                          
                          3,885,778
                          
                          
                          
                          2,556,829GROSS
      PROFIT
                          
                          
                          897,921
                          
                          
                          
                          645,897OPERATING
      EXPENSES:General
      and administrative
                          
                          
                          1,127,050
                          
                          
                          
                          772,672Marketing
      and advertising
                          
                          
                          38,453
                          
                          
                          
                          14,163Depreciation
      and amortization
                          
                          
                          49,573
                          
                          
                          
                          65,073TOTAL
      OPERATING EXPENSES
                          
                          
                          1,215,076
                          
                          
                          
                          851,908LOSS
      FROM OPERATIONS
                          
                          
                          (317,155
                          )
                          
                          
                          (206,011
                          )Unrealized
      loss on marketable securities
                          
                          
                          -
                          
                          
                          
                          (18,150
                          )Other
      Income
                          
                          
                          1,069
                          
                          
                          
                          -Interest
      expense
                          
                          
                          (1,539
                          )
                          
                          
                          (15,240
                          )Interest
      income
                          
                          
                          1,549
                          
                          
                          
                          19,458LOSS
      BEFORE INCOME TAXES AND NONCONTROLLING INTEREST
                          
                          
                          (316,076
                          )
                          
                          
                          (219,943
                          )PROVISION
      FOR INCOME TAXES
                          
                          
                          -
                          
                          
                          
                          8,563NET
      LOSS BEFORE NONCONTROLLING INTEREST
                          
                          
                          (316,076
                          )
                          
                          
                          (228,506
                          )NET
      LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTEREST
                          
                          
                          5,385
                          
                          
                          
                          (4,160
                          )NET
      LOSS ATTRIBUTABLE TO DERYCZ SCIENTIFIC, INC.
                          
                          $
                          (310,691
                          )
                          
                          $
                          (232,666
                          )NET
      LOSS PER SHARE:BASIC
      AND DILUTED
                          
                          $
                          (0.02
                          )
                          
                          $
                          (0.02
                          )WEIGHTED
      AVERAGE SHARES OUTSTANDING:BASIC
      AND DILUTED
                          
                          
                          12,961,830
                          
                          
                          
                          12,895,161
 
 See notes
to condensed consolidated financial statements
  4
  Derycz
Scientific, Inc.
 
 Condensed
Consolidated Statement of Stockholders' Equity
 For
the three months ended September 30, 2009
 (unaudited)
  AdditionalCommon stock
                              
                              
                              paid-in
                              
                              
                              Accumulated
                              
                              
                              NoncontrollingShares
                              
                              
                              Amount
                              
                              
                              Capital
                              
                              
                              Deficit
                              
                              
                              Interest
                              
                              
                              TotalBalance,
      July 1, 2009
                              
                              
                              12,961,830
                              
                              
                              
                              12,962
                              
                              
                              
                              5,450,223
                              
                              
                              
                              (1,937,072
                              )
                              
                              
                              47,357
                              
                              
                              
                              3,573,470Net
      loss for the period
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              (310,691
                              )
                              
                              
                              (5,385
                              )
                              
                              
                              (316,076
                              )Balance,
      September 30, 2009
                              
                              
                              12,961,830
                              
                              
                              $
                              12,962
                              
                              
                              $
                              5,450,223
                              
                              
                              $
                              (2,247,763
                              )
                              
                              
                              41,972
                              
                              
                              $
                              3,257,394
 
 See notes
to condensed consolidated financial statements
  5
  Derycz
Scientific, Inc.
 
 Condensed
Consolidated Statements of Cash Flows
 (unaudited)
 
 Three
      months endedSeptember
      30,2009
                              
                              
                              2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                              
                              $
                              (310,691
                              )
                              
                              $
                              (232,666
                              )Adjustment
      to reconcile net loss to net cash provided by
                                (used
      in) operating activities:Depreciation
      and amortization
                              
                              
                              61,872
                              
                              
                              
                              77,755Fair
      value of vested stock options
                              
                              
                              -
                              
                              
                              
                              6,472Fair
      value of common stock warrant issued for services
                              
                              
                              -
                              
                              
                              
                              43,963Unrealized
      loss on investment
                              
                              
                              -
                              
                              
                              
                              18,150Changes
      in assets and liabilities:Accounts
      receivable
                              
                              
                              (550,098
                              )
                              
                              
                              781,043Accounts
      payable and accrued expenses
                              
                              
                              406,042
                              
                              
                              
                              (426,137
                              )Inventory
                              
                              
                              1,668
                              
                              
                              
                              4,630Prepaid
      royalties
                              
                              
                              172,800
                              
                              
                              
                              71,841Other
      current assets
                              
                              
                              (20,390
                              )
                              
                              
                              (40,739
                              )Other
      current liabilities
                              
                              
                              2,432
                              
                              
                              
                              (33,953
                              )Income
      taxes payable
                              
                              
                              (3,659
                              )
                              
                              
                              8,563Net
      (loss) income attributable to noncontrolling interest
                              
                              
                              (5,385
                              )
                              
                              
                              4,160Net
      cash provided by (used in) operating activities
                              
                              
                              (245,409
                              )
                              
                              
                              283,082CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of furniture and equipment
                              
                              
                              (25,398
                              )
                              
                              
                              (43,735
                              )Purchase
      of Intellectual Property licenses
                              
                              
                              -
                              
                              
                              
                              (87,450
                              )Investment
      in short term investments
                              
                              
                              -
                              
                              
                              
                              (13,481
                              )Net
      cash used in investing activities
                              
                              
                              (25,398
                              )
                              
                              
                              (144,666
                              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from the issuance of common stock
                              
                              
                              -
                              
                              
                              
                              600,025Capital
      lease obligation
                              
                              
                              (4,296
                              )
                              
                              
                              (3,879
                              )Advances
      under line of credit
                              
                              
                              -
                              
                              
                              
                              13,283Net
      cash provided by (used in) financing activities
                              
                              
                              (4,296
                              )
                              
                              
                              609,429NET
      INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                              
                              
                              (275,103
                              )
                              
                              
                              747,845CASH
      AND CASH EQUIVALENTS, Beginning of period
                              
                              
                              1,854,093
                              
                              
                              
                              849,834CASH
      AND CASH EQUIVALENTS, End of period
                              
                              $
                              1,578,990
                              
                              
                              $
                              1,597,679SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Taxes
      paid
                              
                              $
                              -
                              
                              
                              $
                              -Interest
      paid
                              
                              $
                              1,539
                              
                              
                              $
                              32,313SUPPLEMENTAL
      DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:Adjustment
      to Goodwill to reflect deferred tax assets and liabilities
                              
                              $
                              -
                              
                              
                              
                              121,832Adjustment
      to Goodwill to reflect minority interest of deferred tax
      liability
                              
                              $
                              -
                              
                              
                              
                              26,874Capital
      lease obligation
                              
                              $
                              -
                              
                              
                              
                              73,729
 
 See notes
to condensed consolidated financial statements
  6


DERYCZ
SCIENTIFIC, INC.
  NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 For
the Three Months Ended September 30, 2009 and 2008 (Unaudited)
 
 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 interim financial statements for the three months ended September
30, 2009 and 2008 are unaudited, but in the opinion of management, contain all
adjustments, which include normal recurring adjustments necessary to present
fairly the financial position at September 30, 2009 and the results of
operations and cash flows for the three months ended September 30, 2009 and
2008. The results of operations for the three months ended September 30, 2009
are not necessarily indicative of the results of operations to be expected for
the full fiscal year ending June 30, 2010. The financial statements presented
herein should be read in conjunction with the financial statements included in
the Company’s Annual Report on Form 10-K for the year ended June 30, 2009 filed
with the Securities and Exchange Commission.
 
 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 noncontrolling interest. Intercompany balances and transactions have been
eliminated in consolidation.
 
 7
  Note
2 — Summary of Significant Accounting Policies
  (a) Change in
Accounting Principle
 
 On
January 1, 2009, the Company adopted authoritative guidance of issued by
the Financial Accounting Standards (FASB) on noncontrolling interest in
consolicated financial statements.  This guidance establishes
accounting and reporting standards for a noncontrolling (minority) interest in a
subsidiary and for the deconsolidation of a subsidiary. This statement clarifies
that a noncontrolling interest in a subsidiary is an ownership in the
consolidated entity that should be reported as equity in the consolidated
financial statements. The adoption of this did not have any material impact on
the Company’s financial condition and results of operations. However, it did
impact the presentation and disclosure of noncontrolling (minority) interests in
the Company’s condensed consolidated financial statements. The presentation and
disclosure requirements were retrospectively applied to the condensed
consolidated financial statements.  As such, all prior periods
presented have been conformed to current year’s presentation.  The
noncontrolling (minority) interest relates to third party shareholders of Pools
Press, Inc., who own 20% of Pools Press as of September 30,
2009.
 (b) 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.
 
 (c) Fair
value of financial instruments
  The
carrying amounts of financial instruments, including cash, accounts receivables,
accounts payable and accrued liabilities approximate fair value because of their
short maturity. The carrying amounts of capital lease obligations approximate
fair value because the related effective interest rates on these instruments
approximate the rates currently available to the Company.
 
 (d)
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 28% of the revenues for the three months ended September
30, 2008, and one customer accounted for 14% of the revenue for the three months
ended September 30, 2009.
 
 As of
June 30, 2009, two customers accounted for 15% and 14% of accounts receivable,
and two customers accounted for 19% and 13% of accounts receivable at September
30, 2009.
  8
  (e)
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 $27,668 and
$43,091, respectively, for the three months ended September 30, 2009 and
2008.
 
 (f) Net
Income (Loss) per share
 
 The
Financial Accounting Standards Board 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 2,800,009 shares of common stock have been excluded from the
calculation of diluted net loss per share for the three months ended September
30, 2009 and 2008, and options to purchase 1,022,000 and 530,000 shares of
common stock outstanding as of September 30, 2009 and June 30, 2008,
respectively, have been excluded from the calculation as the effect would
have been anti-dilutive.
 
 (g)
Marketing and Advertising expenses
 
 Marketing
and advertising expenses are expensed as incurred and consist primarily of
various forms of media purchased from Internet-based marketers and search
engines as well as the costs associated with our participation in trade shows
and other advertising expenditures. Marketing and advertising expense amounted
to $38,453 and $14,163 for the three months ended September 30, 2009 and 2008,
respectively.
  9
 
 (h)
Recently issued accounting pronouncements
  In June
2009, the FASB issued authoritative guidance on accounting standards
codification and the hierarchy of generally accepted accounting principles.” The
FASB Accounting Standards Codification* (“Codification”) has become the source
of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
accordance with GAAP. All existing accounting standard documents are superseded
by the Codification and any accounting literature not included in the
Codification will not be authoritative. However, rules and interpretive releases
of the Securities Exchange Commission (“SEC”) issued under the authority of
federal securities laws will continue to be sources of authoritative GAAP for
SEC registrants. The FASB authoritative guidance is effective for interim and
annual reporting periods ending after September 15, 2009. Therefore, beginning
with our quarter ending September 30, 2009, all references made by it to GAAP in
its consolidated financial statements now use the new Codification numbering
system. The Codification does not change or alter existing GAAP and, therefore,
it does not have an impact on our financial position, results of operations and
cash flows.
 
 On July
1, 2009, the Company adopted authoritative guidance issued by the FASB on
business combinations. The guidance retains the fundamental requirements that
the acquisition method of accounting (previously referred to as the purchase
method of accounting) be used for all business combinations, but requires a
number of changes, including changes in the way assets and liabilities are
recognized and measured as a result of business combinations. It also requires
the capitalization of in-process research and development at fair value and
requires the expensing of acquisition-related costs as incurred. We have applied
this guidance to business combinations completed since July 1,
2009.  Adoption of the new guidance did not have a material impact on
our financial statements.
 
 In
October 2009, the FASB issued authoritative guidance on revenue recognition that
will become effective for the Company beginning July 1, 2010, with earlier
adoption permitted.  Under the new guidance on arrangements that
include software elements, tangible products that have software components that
are essential to the functionality of the tangible product will no longer be
within the scope of the software revenue recognition guidance, and
software-enabled products will now be subject to other relevant revenue
recognition guidance.  We believe adoption of this new guidance will
not have a material impact on our financial statements.
 
 In May
2009, the FASB issued new requirements for reporting subsequent events. These
requirements set forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. Disclosure of the date through which an
entity has evaluated subsequent events and the basis for that date is also
required.
 
 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 September 30 and June 30,
2009:
 
 September
      30, 2009
                          
                          
                          June
      30, 2009Computer
      equipment
                          
                          $
                          80,232
                          
                          
                          $
                          68,640Software
                          
                          
                          124,883
                          
                          
                          
                          112,570Printing
      equipment
                          
                          
                          286,452
                          
                          
                          
                          268,452Furniture
      and fixtures
                          
                          
                          58,873
                          
                          
                          
                          57,380Autos
      and vans
                          
                          
                          4,000
                          
                          
                          
                          4,000554,440
                          
                          
                          
                          529,042Less
      accumulated depreciation
                          
                          
                          (215,356
                          )
                          
                          
                          (188,266
                          )$
                          339,084
                          
                          
                          $
                          340,776
  10
  Printing
equipment includes $91,792 of equipment under capital lease and related
accumulated depreciation of $35,187 and $39,777 as of June 30, 2009 and
September 30, 2009, respectively.
 
 Depreciation
expense for the three months ended September 30, 2009 and 2008 was $27,090 and
$24,245, respectively.
 
 Note
4 — Intangible Assets
 
 Intangible
assets consist of the following at September 30 and June 30, 2009:
 
 September 30,
                    2009
                  
                  
                  June 30,
                    2009Customer
      list
                  
                  $
                  50,000
                  
                  
                  $
                  50,000Intellectual
      property licenses
                  
                  
                  764,096
                  
                  
                  
                  764,096Accumulated
      amortization
                  
                  
                  (241,047
                  )
                  
                  
                  (206,265
                  )$
                  573,049
                  
                  
                  $
                  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.
 
 Future
annual amortization under these intangible assets at September 30, 2009 is as
follows:
  Year  ending June
    30,
                    
                    Amount2010
                    
                    $
                    94,6252011
                    
                    
                    122,4632012
                    
                    
                    122,4632013
                    
                    
                    122,463Thereafter
                    
                    
                    111,034$
                    573,048
  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 three months ended
September 30, 2009 and 2008 was $36,473 and $30,024, 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. Rent, including real estate taxes, for the three
months ended September 30, 2009 was $15,600.
 
 The
Company also has a non-cancelable lease for machinery and equipment that is
accounted for as a capital lease that requires monthly payment of $1,945
including interest at a rate of 10.25% per annum through July 2012. Annual
future minimum rentals under operating and capital leases as of September 30,
2009 are as follows:
  11
  Fiscal Year
                    
                    Operating Leases
                    
                    
                    Capital Leases2010
                    
                    $
                    116,956
                    
                    
                    $
                    17,5042011
                    
                    
                    152,433
                    
                    
                    
                    23,3402012
                    
                    
                    60,687
                    
                    
                    
                    25,285Total
      minimum lease payments
                    
                    $
                    330,076
                    
                    
                    $
                    66,129Amounts
      representing interest
                    
                    
                    
                    
                    
                    
                    (8,947
                    )Total
                    
                    
                    
                    
                    
                    
                    57,182Less
      current portion
                    
                    
                    
                    
                    
                    
                    (18,323
                    )Long
      term
                    
                    
                    
                    
                    
                    $
                    38,859
  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.
  12
 
 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 $6,472 was recognized during the three
months ended September 30, 2009 and 2008, respectively, relating to the vesting
of such options. No future compensation expense related to these options
remains as of September 30, 2009.  As of September 30, 2009, these
options have no intrinsic value.
 
 At
September 30, 2009, options outstanding are as follows:
 
 Number of
                              Options
                            
                            
                            Weighted
                              Average
                              Exercise
                              PriceBalance
      at July 1, 2009
                            
                            
                            1,002,000
                            
                            
                            $
                            1.26Granted
                            
                            
                            —
                            
                            
                            $Exercised
                            
                            
                            —
                            
                            
                            
                            —Cancelled
                            
                            
                            —
                            
                            
                            $
                            —Balance
      at September 30, 2009
                            
                            
                            1,022,000
                            
                            
                            $
                            1.26
  Additional
information regarding options outstanding as of September 30, 2009 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
                          
                          
                          
                          9
                          
                          
                          $
                          1.26
                          
                          
                          
                          1,022,000
  Warrants
 
 At
September 30, 2009, warrants outstanding are as follows:
 
 Number of
                          Warrants
                        
                        
                        Weighted Average
                          Exercise PriceBalance,
      July 1, 2009
                        
                        
                        2,800,009
                        
                        
                        $
                        1.34Granted
                        
                        
                        —Exercised
                        
                        
                        —Balance
      at September 30, 2009
                        
                        
                        2,800,009
                        
                        
                        $
                        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.
  The above
warrants are fully vested and have a five year contractual
life.  There was no intrinsic value to these warrants as of September
30 and June 30, 2009.
  13
  Note
7 — 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 three months ended September 30, 2009 and 2008 were $0
and $5,481, respectively.
 
 Note
8 — Income Taxes
 
 The
provision (benefit) for income taxes consists of the following for the three
months ended September 30, 2009 and 2008:
 
 Three months ended
                        September 30, 2009
                      
                      
                      Three months ended
                        September 30, 2008CurrentFederal
                      
                      $
                      —
                      
                      
                      $
                      11,686State
                      
                      
                      —
                      
                      
                      
                      2,509DeferredFederal
                      
                      
                      —
                      
                      
                      
                      (3,093
                      )State
                      
                      
                      —
                      
                      
                      
                      (2,539
                      )Provision
      for income tax expense
                      
                      $
                      —
                      
                      
                      $
                      8,563
  The
reconciliation of the effective income tax rate to the federal statutory rate is
as follows:
 
 Three Months Ended September
      30,
                        (unaudited)2009
                      
                      
                      2008Federal
      income tax rate
                      
                      
                      (34.00
                      )%
                      
                      
                      (34.00
                      )%State
      tax, net of federal benefit
                      
                      
                      (3.17
                      )%
                      
                      
                      0.00
                      %Permanent
      differences
                      
                      
                      (0.07
                      )%
                      
                      
                      (0.01
                      )%Change
      in valuation allowance
                      
                      
                      9.70
                      %
                      
                      
                      0.00
                      %Benefit
      for interim period loss not recorded
                      
                      
                      27.54
                      %
                      
                      
                      37.90
                      %Effective
      income tax rate
                      
                      
                      0.00
                      %
                      
                      
                      3.89
                      %
  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.
 
 The
Company has provided a full valuation allowance on the deferred tax assets at
September 30, 2009 and June 30, 2009 to reduce such asset to zero 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.
  At
September 30, 2009 and June 30, 2009, the Company had federal net operating loss
(“NOL”) carryforwards of approximately $1,349,000 and state NOL carryforwards of
approximately $792,000. Federal NOLs could, if unused, expire in 2029. State
NOLs, if unused, could expire in 2019.
  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 September 30, 2009 and June 30, 2009, the
Company did not have a liability for unrecognized tax benefits, and no
adjustment was required at adoption.
  14
  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 September 30, 2009 and 2008, the Company has no
accrued interest or penalties related to uncertain tax positions. Additionally,
tax years 2006 through 2009 remain open to examination by the major taxing
jurisdictions to which the Company is subject.
  Note
9 — Subsequent Event
 
 The
Company has evaluated subsequent events occurring between the end of our fiscal
quarter, September 30, 2009 and November 16, 2009 which is the date the
financial statements were issued.  On October 8, 2009, the Company
issued warrants to purchase 55,000 shares of the Company’s common stock at an
exercise price of $1.50 per share at anytime prior to October 8, 2011, to two
individuals related to the Company’s investor relations
consultant.
  15




Item 2. Management’s Discussion and
Analysis of Financial Condition and Results of Operations





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 three months ended September 30, 2009 and 2008 should be read
in conjunction with the notes to those financial statements that are included in
Item 1 of Part 1 this Quarterly 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. 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 Quarterly 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.
  Derycz,
through Reprints and Pools, provides order
workflow software systems and reproductionsof 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. Regulatory
departments generally use content to help satisfy regulatory
requirements for intellectual property and government filings.Researchers generally order single copies of the content. Our systems,
products and services streamline workflow processes andalleviate the
need for our customers to contact any publisher or obtain permissions
themselves. We also offer reprints and eprint services to publishers, whereby we
are responsible for all aspects of reprint production, from taking orders to
final shipment. This service eliminates the need for the publishers to establish
a dedicated reprints sales force or arrange for delivery of reproduced
materials. Pools Press also offers other commercial printing products, such as
the production of business cards, and newsletters.
  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.
 
 16
  (a)
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 collectibility is reasonably assured.
  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.
  (b) Stock
based compensation
 The
Company adopted FASB guidelines that require that the cost resulting from all
share-based payment transactions be recognized in the financial statements. This
guidance establishes fair value as the measurement objective in accounting for
share-based payment arrangements and requires all entities to apply a fair-value
based measurement method in accounting for share-based payment transactions with
employees except for equity instruments held by employee share ownership plans.
Effective January 1, 2006, we adopted the fair value recognition provisions of
the current guidelines of the FASB, using the modified prospective method. Under
this method, the provisions of such guidance apply to all awards granted or
modified after the date of adoption and all previously granted awards not yet
vested as of the date of adoption.
 
 Determining
the appropriate fair value model and calculating the fair value of stock-based
payment awards require the input of highly subjective assumptions, including the
expected life of the stock-based payment awards and stock price volatility. We
use the Black-Scholes option-pricing model to value compensation expense. The
assumptions used in calculating the fair value of stock-based payment awards
represent management’s best estimates, but the estimates involve inherent
uncertainties and the application of management judgment. As a result, if
factors change and we use different assumptions, our stock-based compensation
expense could be materially different in the future.
  (c)
Goodwill and Intangible Assets
  As
required by the Financial Accounting Standards Board, 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.
  17
  In
accordance with guidance of the Financial Accounting Standards Board, management
tests goodwill for impairment at the reporting unit level.  The
Company has only one reporting unit.  At the time of goodwill
impairment testing, management determines fair value through the use of a
discounted cash flow valuation model incorporating discount rates commensurate
with the risks involved its reporting unit. If the calculated fair value is less
than the current carrying value, impairment of the Company may exist. The use of
a discounted cash flow valuation model to determine estimated fair value is
common practice in impairment testing in the absence of available domestic and
international transactional market evidence to determine the fair value. The key
assumptions used in the discounted cash flow valuation model for impairment
testing include discount rates, growth rates, cash flow projections and terminal
value rates.
  In
accordance with guidance of the Financial Accounting Standards Board, 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.
  18
  (d)
Recently issued accounting pronouncements
  In June
2009, the FASB issued authoritative guidance on accounting standards
codification and the hierarchy of generally accepted accounting principles.” The
FASB Accounting Standards Codification* (“Codification”) has become the source
of authoritative accounting principles recognized by the FASB to be applied by
nongovernmental entities in the preparation of financial statements in
accordance with GAAP. All existing accounting standard documents are superseded
by the Codification and any accounting literature not included in the
Codification will not be authoritative. However, rules and interpretive releases
of the Securities Exchange Commission (“SEC”) issued under the authority of
federal securities laws will continue to be sources of authoritative GAAP for
SEC registrants. The FASB authoritative guidance is effective for interim and
annual reporting periods ending after September 15, 2009. Therefore, beginning
with our quarter ending September 30, 2009, all references made by it to GAAP in
its consolidated financial statements now use the new Codification numbering
system. The Codification does not change or alter existing GAAP and, therefore,
it does not have an impact on our financial position, results of operations and
cash flows.
  On July
1, 2009, the Company adopted authoritative guidance issued by the FASB on
business combinations. The guidance retains the fundamental requirements that
the acquisition method of accounting (previously referred to as the purchase
method of accounting) be used for all business combinations, but requires a
number of changes, including changes in the way assets and liabilities are
recognized and measured as a result of business combinations. It also requires
the capitalization of in-process research and development at fair value and
requires the expensing of acquisition-related costs as incurred. We have applied
this guidance to business combinations completed since July 1,
2009.  Adoption of the new guidance did not have a material impact on
our financial statements.
  In
October 2009, the FASB issued authoritative guidance on revenue recognition that
will become effective for the Company beginning July 1, 2010, with earlier
adoption permitted.  Under the new guidance on arrangements that
include software elements, tangible products that have software components that
are essential to the functionality of the tangible product will no longer be
within the scope of the software revenue recognition guidance, and
software-enabled products will now be subject to other relevant revenue
recognition guidance.  We believe adoption of this new guidance will
not have a material impact on our financial statements.
  In May
2009, the FASB issued new requirements for reporting subsequent events. These
requirements set forth the period after the balance sheet date during which
management of a reporting entity should evaluate events or transactions that may
occur for potential recognition or disclosure in the financial statements, the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements, and
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. Disclosure of the date through which an
entity has evaluated subsequent events and the basis for that date is also
required.
  19
  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.
  Results
of Operations
  Three
Months Ended September 30, 2009 Compared to the Three Months Ended September 30,
2008:
  Sales
and Cost of Goods Sold
  Our
revenues increased significantly from the same period in 2008. We achieved
revenue of $4,783,699 for the three months ended September 30, 2009, compared to
revenue of $3,202,726 for the three months ended September 30, 2008, an increase
of 49%.
  The
revenue of our main operating company, Reprints, increased from $2,807,466 for
the three months ended September 30, 2008 to $4,025,667 for the three months
ended September 30, 2009, an increase of 43%. Pools Press contributed the
remainder of the revenue. We expect to continue with significant revenue growth
this year as we
continue to aggressively market our products and services.However,
the economic climate may significantly slow our sales growth.
  Our cost
of goods sold likewise increased from $2,556,829 for the three months ended
September 30, 2008 to $3,885,778 for the three months ended September 30, 2009,
which represents an increase of 52%. This percentage increase is roughly
equivalent to the increase in our revenues. However, the overall gross margin
percentage decreased from 20% of sales in the 2008 period to 19% in the 2009
period.  At Reprints, we only purchase articles when they have been
requested by our clients. We generally charge a margin over the actual cost to
us. While we
make efforts to obtain discounts, the publishers set the prices for each
order.  However, as the amount of our purchases from individual
publishers increases we expect we may be better able to obtain
discounts.   For the next year, we expect that our cost of goods
sold will keep pace with our revenue growth.
  Operating
Expenses
  General
and Administrative
  Our
general and administrative expenses increased 46% from $772,672 for the three
months ended September 30, 2008 to $1,127,050 for the three months ended
September 30, 2009. Pools’ share of these expenses was approximately $52,000 for
both periods. These expenses include Reprints’ salary costs, which were $405,894
in the 2008 period and $615,438 in the 2009 period, an increase of $209,544 or
52%. Both our sales and marketing team and our information technology team have
increased during the past year and we have added other additional employees as
needed.  We continue to attempt to contain the expansion of our
workforce. However, because of the expansion of our sales volume and in order to
continue to develop our computer system, we expect to add a small number of new
employees in the next year.  The 2008 figure also included
approximately $93,000 in investor relations expenses incurred in preparation for
the public trading of our common stock.  This figure included $43,963,
which is the value attributable to the issuance of a warrant to purchase 150,000
shares of the Company’s common stock.  Investor relations expenses for
the 2009 period were $9,215.
  Marketing
and Advertising
  Our
marketing and advertising expenses increased from $14,163 for the three months
ended September 30, 2008 to $38,453 for the three months ended September 30,
2009. These costs have become a more significant expense for us as a result of
increased participation in publishing industry trade shows and other advertising
and marketing efforts.
  Depreciation
and Amortization
  Our
depreciation and amortization expense decreased approximately 24% from $65,073
for three months ended September 30, 2008 to $49,573 for the three months ended
September 30, 2009. Pools’ share of these expenses in the 2008 period included
$13,750 related to the amortization of Pools’ customer list, which was fully
amortized during the fiscal year ending June 30, 2009. Reprints’ depreciation
and amortization expense of $51,122 for the 2008 period and $49,371 for the 2009
period was primarily attributable to amortization on software and intellectual
property licenses as well as amortization of customer lists.
  20
  Loss
on marketable securities
  We
recognized unrealized losses on our short-term investments of $18,150 and $0
during the three months ended September 30, 2008 and 2009,
respectively.  These investments consisted of corporate and municipal
debt and preferred stock auction rate securities held in an account with UBS
Financial Services, Inc., and the losses were based on valuations by
UBS.   In January 2009 we received cash for the par value of the
outstanding auction rate securities.
  Interest
Expense
  Interest
expense was $15,240 for the three months ended September 30, 2008 and $1,539 for
the three months ended September 30, 2009. The 2008 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.
  Interest
Income
  Interest
income was $19,458 for the three months ended September 30, 2008 and $1,549 for
the three months ended September 30, 2009.  The interest earned during
the 2008 period was primarily attributable to the interest earned on investments
in marketable securities.
  Net
Loss
  We
recorded a net loss of $232,666 for the three months ended September 30, 2008
compared to a net loss $310,691 in the 2009 period. While our revenues have
increased significantly, our general and administrative expenses have also
increased.  In the current difficult economic climate we have had to
decrease margins on some of our products as well as incur significant costs
related to sales efforts in order to continue to increase our
sales.  We hope to be modestly profitable in the near future, but as
we are still a new business, we do not expect profits to be significant for the
next year.
  Liquidity
and Capital Resources
  As of
September 30, 2009, we had cash and cash equivalents of $1,578,990, compared to
$1,854,093 as of June 30, 2009. This decrease is primarily attributable to a
decrease in accounts receivable of $550,098, partially offset by and increase in
accounts payable of $406,042.
  Net cash
used in operating activities was $245,409 for the three months ended September
30, 2009 compared to cash provided by operating activities of $283,082 for the
three months ended September 30, 2008. During the 2009 period, our accounts
receivable increased by $550,098 and our accounts payable increased by $406,042,
compared to decreases of $781,043 and $426,137, respectively, in the 2008
period. During the three months ended September 30, 2009, we used $172,800 of
prepaid royalties, compared to use of $71,841 in the 2008 period. Also, during
the 2008 period, we issued a common stock warrant for services with a value of
$43,963 and we amortized $6,472 for stock options vesting in December 2008. No
stock options vested in the 2009 period.
  Net cash
used in investing activities was $144,666 for the three months ended September
30, 2008 compared to net cash used in investing activities of $25,398 for the
three months ended September 30, 2009. This difference was primarily due to the
purchase of intellectual property licenses at Reprints in the 2008
period.
  Net cash
provided by financing activities was $609,429 for the three months ended
September 30, 2008 compared to net cash used in financing activities of $4,296
for the corresponding period in 2009. The cash provided by financing activities
for the 2008 period was primarily provided by the sale of common stock in July
2008.
  We
believe that our current cash resources will be sufficient to sustain our
current operations for at least one year. While we have not experienced any
significant losses from bad debts, we expect our accounts receivable to increase
as a result of increases in our sales. We also expect to continue to incur
significant investor relations expenses in conjunction with the listing of our
common stock. In addition, we may need to obtain additional cash resources
during the next year in order to acquire complementary businesses. The need for
cash tofinance
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. We have not made arrangements to obtain additional financing and we
can provide no assurance that additional financing will be available in an
amount or on terms acceptable to us, if at all.
  Off-Balance
Sheet Arrangements
  The
Company does not have any off-balance sheet arrangements.
  21





Item
3. Quantitative and Qualitative Disclosures About Market Risk





Not
required.





Item
4. Controls and Procedures





Evaluation
of Disclosure Controls and Procedures




We
carried out an evaluation, under the supervision and with the participation of
our management, including our principal executive officer and principal
financial officer, of the effectiveness of our disclosure controls and
procedures (as defined  in  Rules  13a-15(e) and
15d-15(e) of the  Exchange  Act (defined  below)).
Based upon that evaluation, our principal executive officer and principal
financial officer concluded that, as of the end of the period covered in this
report, our disclosure controls and procedures were effective to ensure that
information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed,
summarized and reported within the required time periods and is accumulated and
communicated to our management, including our principal executive officer and
principal financial officer, as appropriate to allow timely decisions regarding
required disclosure.





Our
management, including our principal executive officer and principal financial
officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all error or fraud. A control system, no matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the control system are met. Further, the design
of a control system must reflect the fact that there are resource constraints
and the benefits of controls must be considered relative to their costs. Due to
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, have been detected. Accordingly, management believes that the financial
statements included in this report fairly present in all material respects our
financial condition, results of operations and cash flows for the periods
presented.





Changes
in Internal Control Over Financial Reporting





In
addition, our management with the participation of our Principal Executive
Officer and Principal Financial Officer have determined that no change in our
internal control over financial reporting (as that term is defined in Rules
13(a)-15(f) and 15(d)-15(f) of the Securities Exchange Act of 1934) occurred
during or subsequent to the quarter ended September 30, 2009 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.





PART II — OTHER
INFORMATION





Item 1. Legal
Proceedings





There
have been no material developments during the quarter ended September 30, 2009
in any material pending legal proceedings to which the Company is a party or of
which any of our property is the subject.


22


Item
1A. Risk Factors





Not
required.





Item 2. Unregistered Sales of Equity
Securities and Use of Proceeds




None.





Item 3. Defaults Upon Senior
Securities





None.





Item 4. Submission of Matters to a
Vote of Security Holders





None.





Item 5. Other
Information





(a)
            None.





(b)
            There were no changes to the
      procedures by which security holders may recommend nominees to our board
      of directors.





Item
6. Exhibits





Exhibit No.
              
              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)4.2
              
              Form
      of Warrant (2)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
      Quarterly Report on Form 10-Q filed on November 19,
  2008
 (3)
              Filed
      herewith.




23


SIGNATURES





Pursuant
to the requirements 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:
      November 16, 2009
                                      
                                      Chief
      Executive OfficerBy:
                                      /s/
      Richard McKilliganRichard
      McKilliganDate:
      November 16, 2009
                                      
                                      Chief
      Financial
Officer


24