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

ROCHESTER, N.Y., Aug. 14, 2012 /PRNewswire/ -- Document Security Systems, Inc. (NYSE MKT: DSS; "DSS"), a leading developer and integrator of cloud computing data security, Radio Frequency Identification ("RFID") systems and security printing technologies which prevent counterfeiting, product diversion and brand fraud,  today announced second quarter 2012 revenues of $3.7 million, a 27% increase over Q2 2011.  Revenue for the six months ended June 30, 2012 has increased 35% from the first six months of 2011.

Gross profit for Q2 2012 was $1.3 million, a 65% increase over Q2 2011.  Gross profit for the six months ended June 30, 2012 has increased 48% from the first six months of 2011, primarily due to the improved sales mix and reduced production costs.

Operating expenses for the Q2 2012 increased 22% which included a 201% increase research and development costs and a 24% increase in compensation primarily due to the personnel additions at the Company's digital division, which was acquired in May of 2011.  Operating expenses for the six months ended June 30, 2012 increased 22% from the first six months of 2011 for primarily the same reasons cited above. 

Net loss for Q2 2012 was $995,000 compared to $1,112,000 in Q2 2011.   The decrease in net loss was due to the significant increase in gross profit, offset by increase in operating expense primarily due to the addition of costs associated with the significant increase in research and development costs.  Net loss for the first six months of 2012 increased 37% from the first six months of 2011 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 Q2 2012 was a loss of $493,000, a 37% decrease from Adjusted EBITDA loss of $777,000 in Q2 2011.  The Adjusted EBITDA losses improvement reflects the impact of the significant increase in stock based compensation charges during Q2 2012.  Adjusted EBITDA loss for the six months ended June 30, 2012 decreased 17% from the first six months of 2011, primarily due to the increase in gross profits in 2012 only partially offset by the increases in compensation costs and research and development expenses.

As of June 30, 2012, the Company had approximately $1.5 million in cash.

Document Security System's CEO Patrick White said, "Our revenue and gross profit growth in the second quarter of 2012 continues the momentum of the first quarter and are especially pleased with the performance of our printing group.  In addition, during the quarter our packaging group entered into a three year, approximately $9 million agreement which lays a solid foundation for that group.   In addition, we continued to bolster our research and development efforts during the quarter, which negatively affect the bottom line in the short-term, but are expected to significantly increase our technology and patent portfolio in the future, especially for our digital solutions."

The above description of the Company's financial results for the quarter ending June 30, 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 June 30, 2012, filed earlier today.

CONFERENCE CALL

Management will host a teleconference and web cast today at 4:15 pm ET to discuss the results with the investment community:

Time: 4:15 p.m. Eastern Time
Date: Tuesday, August 14, 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=169509

A replay of the teleconference will be available until August 21, 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 #398897 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 Document Security Systems, Inc. on LinkedIn, Facebook, Twitter and WordPress

For more information:
Investor Relations:
CenturyIR.com 
Phone:  212-776-1030

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

(Unaudited)











For The Three Months Ended June 30, 



For The Six Months Ended June 30, 


2012


2011



2012


2011











Revenue


















Printing


$

852,115



$

789,232




$

1,521,743



$

1,510,996


Packaging



1,574,450




1,183,249





3,669,845




2,219,651


Plastic IDs and cards



799,188




636,727





1,479,370




1,329,706


Licensing and digital solutions



433,635




266,319





831,251




500,415






































Total revenue



3,659,388




2,875,527





7,502,209




5,560,768




















Costs of revenue


















Printing



632,512




754,032





1,139,220




1,384,095


Packaging



1,200,617




919,681





2,831,099




1,637,968


Plastic IDs and cards



429,842




374,718





829,713




777,147


Licensing and digital solutions



61,821




19,099





117,012




19,099






































Total costs of revenue



2,324,792




2,067,530





4,917,044




3,818,309




















Gross profit



1,334,596




807,997





2,585,165




1,742,459




















Operating expenses:


















Selling, general and administrative



1,959,622




1,720,621





3,757,932




3,235,875


Research and development



223,436




73,818





371,133




125,111


Amortization of intangibles



76,026




62,076





152,052




134,040




















        Operating expenses



2,259,084




1,856,515





4,281,117




3,495,026




















Operating loss



(924,488)




(1,048,518)





(1,695,952)




(1,752,567)




















Other income (expense):


















Change in fair value of derivative liability



-




-





-




360,922


Interest expense



(54,673)




(59,225)





(125,605)




(109,179)


Amortization of note discount



(11,058)




-





(237,700)




-




















Loss before income taxes



(990,219)




(1,107,743)





(2,059,257)




(1,500,824)




















Income tax expense



4,737




4,737





9,474




9,474




















Net loss


$

(994,956)



$

(1,112,480)




$

(2,068,731)



$

(1,510,298)






































Other comprehensive loss:


















Interest rate swap (loss) gain



(45,134)




-





(22,492)




3,678




















Comprehensive loss


$

(1,040,090)



$

(1,112,480)




$

(2,091,223)



$

(1,506,620)






































Net loss per share -basic and diluted:


$

(0.05)



$

(0.06)




$

(0.10)



$

(0.08)




















Weighted average common shares outstanding, basic and diluted



20,711,026




19,420,780





20,391,926




19,416,786




















 

DOCUMENT SECURITY SYSTEMS, INC.  AND SUBSIDIARIES

Consolidated Balance Sheets


As of 




June 30, 2012


December 31, 2011

ASSETS



(Unaudited)
















Current assets:










Cash


$

1,517,916



$

717,679



Accounts receivable, net of allowance 










of  $76,000 ($76,000- 2011)



1,647,923




1,595,750



Inventory



752,271




783,442



Prepaid expenses and other current assets



344,331




95,399












      Total current assets



4,262,441




3,192,270












Property, plant and equipment, net



3,886,779




4,019,829


Other assets



234,057




244,356


Goodwill



3,322,799




3,322,799


Other intangible assets, net



1,997,935




2,043,212












Total assets


$

13,704,011



$

12,822,466












LIABILITIES AND STOCKHOLDERS' EQUITY
















Current liabilities:










Accounts payable


$

1,602,897



$

1,666,963



Accrued expenses and other current liabilities



971,343




1,142,629



Revolving lines of credit



767,894




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



44,077




88,172












      Total current liabilities



3,719,294




4,272,098






















Long-term debt, net of unamortized discount of $66,000 ($88,000-2011)



2,203,736




2,819,783


Interest rate swap hedging liabilities



133,180




110,688


Capital lease obligations



-




11,133


Deferred tax liability



118,201




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



52,492,069




48,395,241



Accumulated other comprehensive loss



(133,180)




(110,688)



Accumulated deficit



(45,243,509)




(43,174,778)













Total stockholders' equity



7,529,600




5,500,037












Total liabilities and stockholders' equity


$

13,704,011



$

12,822,466






















 

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Six months Ended June 30, 

(Unaudited)


















 

2012

 

2011










Cash flows from operating activities:









     Net loss


$

(2,068,731)


$

(1,510,298)



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









Depreciation and amortization



390,884



351,548



Stock based compensation



331,526



201,543



Amortization of note discount



237,700



-



Change in fair value of derivative liability



-



(360,922)



(Increase) decrease in assets:









Accounts receivable



(52,173)



773,970



Inventory



31,171



(315,331)



Prepaid expenses and other assets



(73,469)



34,760



Decrease in liabilities:









Accounts payable



(64,066)



(610,130)



Accrued expenses and other liabilities



(161,812)



(457,137)



Net cash (used) provided by operating activities



(1,428,970)



(1,891,997)












Cash flows from investing activities:









Purchase of property, plant and equipment



(105,782)



(4,509)



Purchase of other intangible assets



(106,775)



(24,472)



Acquisition of business



-



61,995



Net cash (used) provided by investing activities



(212,557)



33,014












Cash flows from financing activities:









Net (payments) borrowings on revolving lines of credit



4,158



(349,911)



Payment of short-term loan from related party



(150,000)



-



Payments of long-term debt



(185,835)



(150,000)



Payments of capital lease obligations



(55,228)



(55,204)



Issuance of common stock, net of issuance costs



2,828,669



(160,315)



Net cash provided (used) by financing activities



2,441,764



(715,430)












Net increase (decrease) in cash



800,237



(2,574,413)



Cash beginning of period



717,679



4,086,574












Cash end of period


$

1,517,916


$

1,512,161





















 

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 June 30



Six Months Ended June 30



2012

2011

% change



2012

2011

% change



(unaudited)

(unaudited)




(unaudited)

(unaudited)












Net Loss


$        (994,956)

$      (1,112,480)

-11%



$    (2,091,223)

$        (1,510,298)

38%

Add back:










  Depreciation & Amortization


197,942

170,670

16%



390,884

351,548

11%

 Stock based compensation


233,045

100,668

131%



331,526

201,543

64%

 Interest expense


54,673

59,225

-8%



125,605

109,179

15%

 Amortization of note discount


11,058

-

100%



237,700

-

100%

 Change in fair value of derivative liability


-

-

-



-

(360,922)

-

 Income Taxes


4,737

4,737

-



9,474

9,474

-











Adjusted EBITDA


(493,501)

(777,180)

-37%



(996,034)

(1,199,476)

-17%

SOURCE Document Security Systems, Inc.



RELATED LINKS
http://www.documentsecurity.com

More by this Source


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

 

PR Newswire Membership

Fill out a PR Newswire membership form or contact us at (888) 776-0942.

Learn about PR Newswire services

Request more information about PR Newswire products and services or call us at (888) 776-0942.