Document Security Systems, Inc. Announces First Quarter 2012 Financial Results

ROCHESTER, N.Y., May 15, 2012 /PRNewswire/ -- Document Security Systems, Inc. (NYSE Amex: DSS; "DSS"), a world-wide developer and manufacturer of security and authentication solutions which prevent counterfeiting and brand fraud, today announced first quarter 2012 revenues of $3.8 million, a 43% increase over Q1 2011 .  

Gross profit for Q1 2012 was $1.3 million, a 34% increase over Q1 2011, driven by strength in the Company's packaging division.   Operating expenses increased 24% driven by a significant increase in research and development costs, along with the increase costs associated with the Company's digital group acquired in May 2011.

Net loss for Q1 2012 was $1.1 million compared to $.4 million in Q1 2011.   Increase in net loss primarily due to two significant non-recurring items:  1) a $221,000 charge for the amortization of note discount expense as the result of the conversion of debt to equity during Q1 2012; and 2) a $361,000 gain from the change in the fair value of derivative liability realized in Q1 2011.    Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, stock based compensation and other non-recurring items) for Q1 2012 was a loss of $480,000, a 14% increase from Adjusted EBITDA loss of $422,000 in Q1 2011.    The Adjusted EBITDA losses reflect the significant increase of approximately $100,000 in research and development in Q1 2012, along with year-end audit fees of approximately $80,000 in Q1 2012, and $90,000 in Q1 2011, that typically negatively impact first quarter results.

As of March 31, 2012, the Company had approximately $2.8 million in cash.

Document Security System's CEO Patrick White said, "Our revenue and gross profit growth in the first quarter of 2012 continued the positive trend we saw at the end of 2011.    We continue to see many exciting opportunities for all of our production divisions that are the foundation of our Company.  In addition, I am very excited about the research and development efforts made during the quarter.  While negatively affecting our bottom line in the short-term, I believe the investments we are making in this area will significantly strengthen our competitive position going forward, especially in the digital security marketplace."

The above description of the Company's financial results for the quarter ending March 31, 2012 is a summary only and is qualified in its entirety by the financial information contained in the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2012, filed earlier today.

CONFERENCE CALL

Management will host a teleconference and web cast today at 4:30 pm ET to discuss the results with the investment community:

Time: 4:30 p.m. Eastern Time
Date: Tuesday, May 15th, 2012
Investor Dial In (Toll Free): 877-407-9205
Investor Dial In (International): 201-689-8054

Live Webcast URL: http://www.investorcalendar.com/IC/CEPage.asp?ID=168543

A replay of the teleconference will be available until May 29, 2012, which can be accessed by dialing (877) 660-6853 if calling within the U.S. or (201) 612-7415 if calling internationally. Please enter account #286 and conference ID #394356 to access the replay. 

About DSS (Document Security Systems, Inc.)

DSS is comprised of four operating groups, DSS Plastics Group, DSS Printing Group, DSS Packaging Group and DSS Digital Group.  Through these divisions, DSS provides counterfeit prevention and comprehensive brand and digital information protection solutions to corporations, governments, and financial institutions around the world. DSS develops and manufactures products and services containing patented and patent pending optical deterrent technologies that help prevent counterfeiting and brand fraud from the use of the most advanced scanners and copiers in the market.

The Company owns numerous patented and patent-pending technologies and products.  DSS uses its covert and overt technologies to protect a wide range of documents including, but not limited to, consumer packaging, vital records, ID Cards/RFID, smart cards, passports, gift certificates, checks and coupons.  The Company also protects digital information via secure cloud computing and disaster recovery services.  Furthermore, DSS uses its extensive knowledgebase to provide comprehensive brand protection solutions to its customers. From risk analysis and vulnerability assessment, to systems integration and monitoring, DSS offers the advanced tools and knowledgebase needed to protect the world's most valuable and at-risk brands. DSS's customized solutions are designed to protect against product diversion, counterfeit, and other costly and damaging occurrences. In addition, DSS offers commercial printing services.

For more information on DSS and its subsidiaries, please visit www.DSSsecure.com.  

Follow DSS on Facebook, click HERE.

For more information:

Investor Relations
Document Security Systems
(585) 325-3610
Email: ir@documentsecurity.com

Safe Harbor Statement

The statements contained in this press release that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, and are intended to be covered by the safe harbors created thereby. These forward-looking statements include, but are not limited to, statements regarding expectations for future financial performance, potential sales from new and existing customers, expected benefits from the Company's cost cutting efforts and/or statements preceded by, followed by or that include the words "believes," "could," "expects," "anticipates," "estimates," "intends," "plans," "projects," "seeks," or similar expressions, all of which involve uncertainty and risk. Many of these risks and uncertainties are discussed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed with the Securities and Exchange Commission (the "SEC"), and in any subsequent reports filed with the SEC, all of which are available at the SEC's website at www.sec.gov. It is possible the company's future financial performance may differ from expectations due to a variety of factors including, but not limited to, the risks referred to above, and changes in economic and business conditions in the world, increased competitive activity, achieving sales levels to fulfill revenue expectations, consolidation among its competitors and customers, technology advancements, unexpected costs and charges, adequate funding for plans, changes in interest and foreign exchange rates, regulatory and other approvals and failure to implement all plans, for whatever reason. It is not possible to foresee or identify all such factors. Any forward-looking statements in this report are based on current conditions; expected future developments and other factors it believes are appropriate in the circumstances. Prospective investors are cautioned that such statements are not a guarantee of future performance and actual results or developments may differ materially from those projected. The company makes no commitment to update any forward-looking statement included herein, or disclose any facts, events or circumstances that may affect the accuracy of any forward-looking statement.

 

FINANCIAL TABLES FOLLOW

 

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES











Consolidated Statements of Operations and Comprehensive Loss

For the Three Months Ended March 31, 


(Unaudited)







2012

2011








Revenue










Printing


$

669,628



$

721,763



Packaging



2,095,395




1,036,402



Plastic IDs and cards



680,182




692,980



Licensing and digital solutions



397,616




234,096













Total revenue



3,842,821




2,685,241













Costs of revenue










Printing



506,708




630,063



Packaging



1,630,482




718,287



Plastic IDs and cards



399,871




402,429



Licensing and digital solutions



55,191




-













Total costs of revenue



2,592,252




1,750,779













Gross profit



1,250,569




934,462













Operating expenses:










Selling, general and administrative



1,798,310




1,515,254



Research and development



147,697




51,293



Amortization of intangibles



76,026




71,964













        Operating expenses



2,022,033




1,638,511













Operating loss



(771,464)




(704,049)













Other income (expense):










Change in fair value of derivative liability



-




360,922



Interest expense



(70,932)




(49,955)



Amortization of note discount



(226,642)




-



Loss before income taxes



(1,069,038)




(393,082)













Income tax expense



4,737




4,737













Net loss


$

(1,073,775)



$

(397,819)























Other comprehensive loss:










Interest rate swap gain



22,642




3,678













Comprehensive loss


$

(1,051,133)



$

(394,141)























Net loss per share -basic and diluted:


$

(0.05)



$

(0.02)













Weighted average common shares outstanding, basic and diluted



20,074,170




19,413,232













DOCUMENT SECURITY SYSTEMS, INC.  AND SUBSIDIARIES

Consolidated Balance Sheets


As of 




March 31, 2012 (unaudited)


December 31, 2011







ASSETS



(Unaudited)
















Current assets:










Cash


$

2,769,351



$

717,679



Accounts receivable, net of allowance 










of  $76,000 ($76,000- 2011)



1,496,078




1,595,750



Inventory



718,677




783,442



Prepaid expenses and other current assets



345,481




95,399












      Total current assets



5,329,587




3,192,270












Property, plant and equipment, net



3,952,393




4,019,829


Other assets



239,506




244,356


Goodwill



3,322,799




3,322,799


Other intangible assets, net



1,967,186




2,043,212












Total assets


$

14,811,471



$

12,822,466












LIABILITIES AND STOCKHOLDERS' EQUITY
















Current liabilities:










Accounts payable


$

1,441,016



$

1,666,963



Accrued expenses and other current liabilities



1,278,132




1,142,629



Revolving lines of credit



793,182




763,736



Short-term loan from related party



-




150,000



Current portion of long-term debt



333,083




460,598



Current portion of capital lease obligations



81,117




88,172












      Total current liabilities



3,926,530




4,272,098






















Long-term debt, net of unamortized discount of $77,000 ($88,000-2011)



2,275,826




2,819,783


Interest rate swap hedging liabilities



88,046




110,688


Capital lease obligations



-




11,133


Deferred tax liability



113,464




108,727


Commitments and contingencies





























Stockholders' equity










Common stock, $.02 par value;  200,000,000 shares authorized, 20,711,026 shares issued and outstanding










 (19,513,132 in 2011)



414,220




390,262



Additional paid-in capital



52,329,984




48,395,241



Accumulated other comprehensive loss



(88,046)




(110,688)



Accumulated deficit



(44,248,553)




(43,174,778)













Total stockholders' equity



8,407,605




5,500,037












Total liabilities and stockholders' equity


$

14,811,471



$

12,822,466






















 

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Three Months Ended March 31, 

(Unaudited)












2012



2011











Cash flows from operating activities:









     Net loss


$

(1,073,775)


$

(397,819)



     Adjustments to reconcile net loss to net cash used by operating activities:









Depreciation and amortization



192,942



180,878



Stock based compensation



98,481



100,875



Amortization of note discount



226,642



-



Change in fair value of derivative liability



-



(360,922)



(Increase) decrease in assets:









Accounts receivable



99,672



693,926



Inventory



64,765



(512,737)



Prepaid expenses and other assets



(18,133)



(87,979)



Increase (decrease) in liabilities:









Accounts payable



(225,947)



(502,888)



Accrued expenses and other current liabilities



140,240



(10,126)



Net cash used by operating activities



(495,113)



(896,792)












Cash flows from investing activities:









Purchase of property, plant and equipment



(49,480)



(4,509)



Purchase of other intangible assets



-



(9,068)



Net cash used by investing activities



(49,480)



(13,577)












Cash flows from financing activities:









Net (payments) borrowings on revolving lines of credit



29,446



(246,988)



Payment of short-term loan from related party



(150,000)



-



Payments of long-term debt



(102,629)



(75,000)



Payments of capital lease obligations



(18,188)



(27,980)



Issuance of common stock, net of issuance costs



2,837,636



(105,315)



Net cash provided (used) by financing activities



2,596,265



(455,283)












Net increase (decrease) in cash



2,051,672



(1,365,652)



Cash beginning of period



717,679



4,086,574












Cash end of period


$

2,769,351


$

2,720,922





















Adjusted EBITDA:  Non-GAAP Financial Performance Measure

The Company uses Adjusted EBITDA as a non-GAAP financial performance measurement. Adjusted EBITDA is calculated by adding back to net income (loss) interest, income taxes, depreciation and amortization expense as further adjusted to add back stock-based compensation expense and non-recurring items, such as gain on the change in fair value of derivative liability.  Adjusted EBITDA is provided to investors to supplement the results of operations reported in accordance with GAAP.  Management believes Adjusted EBITDA is useful to help investors analyze the operating trends of the business before and after the adoption of FASB ASC 718 and to assess the relative underlying performance of businesses with different capital and tax structures. Management believes that Adjusted EBITDA provides an additional tool for investors to use in comparing its financial results with other companies in the industry, many of which also use Adjusted EBITDA in their communications to investors. By excluding non-cash charges such as amortization, depreciation and stock-based compensation, as well as non-operating charges for interest and income taxes, investors can evaluate the Company's operations and its ability to generate cash flows from operations and can compare its results on a more consistent basis to the results of other companies in the industry. Management also uses Adjusted EBITDA to evaluate potential acquisitions, establish internal budgets and goals, and evaluate performance of its business units and management.  The Company considers Adjusted EBITDA to be an important indicator of the Company's operational strength and performance of its business and a useful measure of the Company's historical and prospective operating trends. However, there are significant limitations to the use of Adjusted EBITDA since it excludes interest income and expense and income taxes, all of which impact the Company's profitability and operating cash flows, as well as depreciation, amortization and stock based compensation. The Company believes that these limitations are compensated by clearly identifying the difference between the two measures. Consequently, Adjusted EBITDA should not be considered in isolation or as a substitute for net income (loss) presented in accordance with GAAP. Adjusted EBITDA as defined by the Company may not be comparable with similarly named measures provided by other entities.   The following is a reconciliation of Net Loss to Adjusted EBITDA loss.

 



Three Months Ended March 31




2012

2011

% change




(unaudited)

(unaudited)









Net Loss


$      (1,073,775)

$         (397,819)

170%


Add back:






  Depreciation & Amortization


192,942

180,878

7%


Stock based compensation


98,481

100,875

-2%


Interest expense


71,000

49,955

42%


Amortization of note discount


227,000

-



Change in fair value of derivative liability


-

(360,922)



Income Taxes


4,737

4,737

-








Adjusted EBITDA


(479,615)

(422,296)

14%








SOURCE Document Security Systems, Inc.



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