Document Security Systems, Inc. Announces 4th Quarter and 2010 Year-End Financial Results

-- 4th Quarter Revenue Increased 77%

-- 4th Quarter Gross Profit Increases 33%

-- 2010 Revenue Increased 35%

-- 2010 Operating Expenses Increase 3%

Mar 29, 2011, 16:00 ET from Document Security Systems, Inc.

ROCHESTER, N.Y., March 29, 2011 /PRNewswire/ -- Document Security Systems, Inc. (NYSE AMEX: DMC; "DSS"), a leader in patented protection against counterfeiting and unauthorized copying, scanning and photo imaging, reported results for the fourth quarter and year ended December 31, 2010.   Management will host a teleconference and web cast today at 4:30 pm ET to discuss the results with the investment community:

Investor Dial-in (Toll Free): (877) 407-8035

Investor Dial-In (International): (201) 689-8035

Live Web Cast: http://www.investorcalendar.com/IC/CEPage.asp?ID=163906

4th Quarter and 2010 Year-End Results

Fourth Quarter Financial Highlights

  • Sales of $4.1 million increased 77% compared to the fourth quarter of 2009, and increased 31% compared to the 3rd quarter of 2010.
    • Strong fourth quarter packaging division sales.
  • Gross profit of $1,076,000 increased by 33% compared to gross profit of $812,000 in fourth quarter of 2009.
  • Net Loss increased by $1,604,000 negatively impacted by one-time charges:
    • $376,000 intangible asset impairment expense
    • $260,000 note discount expense as a result of the conversion of $800,000 of debt into equity.
  • Adjusted EBITDA loss of $465,000 as compared to a loss of $412,000 in 2009.  (See Reconciliation of GAAP to Non-GAAP Financial Measures table)
  • Cash balance of $4.1 million as of December 31, 2010.

Full Year 2010 Financial Highlights

  • Sales of $13.4 million increased 35% compared to 2009.
  • Operating expenses increased by 3% compared to 2009.
  • Net Loss increased by 15% to $4.6 million compared to a net loss of $4.0 million in 2009.  
  • Net loss per share of $(0.26) compared to $(0.27) in 2009.
  • Adjusted EBITDA loss of $1,837,000 as compared to a loss of $1,974,000 in 2009.  (See Reconciliation of GAAP to Non-GAAP Financial Measures table)

Robert Fagenson, Chairman of the Board of Document Security Systems, stated: "We began 2010 with the acquisition of Premier Packaging which marked a significant expansion of our size and capabilities.   With this acquisition, our ability to sell and service our anti-counterfeiting and brand protection capabilities to major corporate buyers increased significantly.  During 2010, we continued to see the expansion of our secure coupon business with an impressive list of customers.  In addition, we advanced existing relationships and forged many new ones, including one with Kodak, which we are very excited about as it will allow our technologies to be presented throughout Kodak's worldwide sales channel.   The market is becoming increasingly aware of the solutions our technologies provide as evidence by our growing list of licensees, including ATL Label and most recently, Midwest Banknote in 2011."  

Document Security System's CEO Patrick White said, "We are pleased that we were able to end 2010 on a strong note.   Our fourth quarter sales met expectations of strong seasonal demand for our packaging division.  Furthermore, during the fourth quarter, we strengthened our sales and marketing team, and we expanded our intellectual property portfolio.  These ongoing initiatives provide the potential for further growth opportunities for our company.  Finally, the investment that was made in our company on December 31, 2010 will provide us with the resources to further expand our sales and marketing team and efforts, reduce operational costs through stronger material buying power, and help us reduce our equipment leasing costs, and lower our interest costs."

About Document Security Systems, Inc

Document Security Systems is a world leader in the development of optical deterrent technologies that help prevent counterfeiting and brand fraud from the use of the most advanced scanners, copiers and imaging systems in the market. The company's patented and patent-pending technologies protect valuable documents and printed products from counterfeiters and identity thieves. Document Security Systems' customers, which include international governments, major corporations and world financial institutions, use its covert and overt technologies to protect a number of applications including, but not limited to, currency, vital records, brand protection, ID Cards, internet commerce, passports and gift certificates. Document Security Systems' strategy is to become the world's leading producer of cutting-edge security technologies for paper, plastic and electronically generated printed assets.

Information about Document Security Systems, Inc. and their wholly-owned subsidiaries can be found by visiting:

Document Security Systems, Inc.: www.documentsecurity.com Plastic Printing Professional, Inc.: www.plasticprintingprofessionals.com Protected Paper: www.protectedpaper.com DPI of Rochester: www.dpirochester.com Premier Custom Packaging: www.premiercustompkg.com

For more information, contact:

Jody Janson Document Security Systems, Inc. Investor Relations Tel: (585) 232-5440 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, the potential sale of Legalstore.com, 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, 2009 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.

TABLES FOLLOW.

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

For the Years Ended December 31,

For the Three Months Ended December 31,

2010

2009

2010

2009

Revenue

Security and commercial printing

$

6,987,930

$

8,773,131

$

1,680,950

$

2,167,922

Packaging

5,752,601

-

2,300,495

-

Technology license royalties and digital solutions

641,050

783,453

148,998

164,545

Legal products

-

355,107

-

-

Total Revenue

13,381,581

9,911,691

4,130,443

2,332,467

Costs of revenue

Security and commercial printing

5,303,952

6,063,479

1,340,357

1,516,967

Packaging

4,386,829

-

1,713,374

-

Technology license royalties and digital solutions

5,476

14,028

-

3,507

Legal products

-

178,892

-

-

Total costs of revenue

9,696,257

6,256,399

3,053,731

1,520,474

Gross profit

3,685,324

3,655,292

1,076,712

811,993

Operating expenses:

Selling, general and administrative

6,136,152

5,733,908

1,694,329

1,594,157

Research and development

265,360

291,538

61,274

68,129

Impairment of intangible assets

376,481

-

376,481

-

Amortization of intangibles

803,468

1,342,105

183,801

371,037

        Operating expenses

7,581,461

7,367,551

2,315,885

2,033,323

Operating loss

(3,896,137)

(3,712,259)

(1,239,173)

(1,221,330)

Other income (expense):

Interest income

-

18,140

-

-

Loss on equity investment

(121,393)

-

-

-

Interest expense

(290,087)

(258,918)

(62,005)

(51,746)

Amortization of note discount

(420,385)

(250,102)

(298,189)

(60,891)

Gain on deconsolidation of Legalstore.com division

-

25,755

-

25,755

Litigation settlements

-

(115,101)

-

(115,101)

Registration rights penalties

-

(109,464)

-

(109,464)

Gain on foreign currency transactions

-

15,050

-

4,721

Other income

143,061

415,838

-

415,838

Loss before income taxes

(4,584,941)

(3,971,061)

(1,599,367)

(1,112,218)

Income tax expense

18,949

18,952

4,738

4,738

Net loss

$

(4,603,890)

$

(3,990,013)

$

(1,604,105)

$

(1,116,956)

Other comprehensive loss:

Interest rate swap loss

(25,834)

-

6,000

-

Comprehensive Loss

$

(4,629,724)

$

(3,990,013)

$

(1,598,105)

$

(1,116,956)

Dividend per share

$

0.01

$

-

$

-

$

-

Net loss per share -basic and diluted:

$

(0.26)

$

(0.27)

$

(0.11)

$

(0.07)

Weighted average common shares outstanding, basic and diluted

17,755,141

14,700,453

14,700,453

15,276,109

DOCUMENT SECURITY SYSTEMS, INC.  AND SUBSIDIARIES

Consolidated Balance Sheets

As of December 31,

2010

2009

ASSETS

Current assets:

Cash and cash equivalents

$

4,086,574

$

448,895

Accounts receivable, net of allowance

of  $66,000 ($66,000- 2009)

2,227,877

1,143,939

Inventory, net

601,359

184,174

Prepaid expenses and other current assets

231,190

91,310

      Total current assets

7,147,000

1,868,318

Equipment and leasehold improvements, net

2,543,494

1,286,226

Other assets

325,953

305,507

Investment

-

350,000

Goodwill

1,943,081

1,315,721

Other intangible assets, net

1,847,859

1,588,969

Total assets

$

13,807,387

$

6,714,741

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

1,828,138

$

1,673,901

Accrued expenses and other current liabilities

1,312,363

934,595

Revolving line of credit

614,833

-

Current portion of long-term debt

300,000

-

Current portion of capital lease obligations

88,776

78,167

      Total current liabilities

4,144,110

2,686,663

Revolving notes from related party

583,000

583,000

Long-term debt, net of unamortized discount of $0 in 2010 ($420,000 -2009)

1,578,242

954,616

Capital lease obligations

98,532

182,424

Deferred tax liability

89,779

70,830

Derivative liabilities

3,866,836

-

Commitments and contingencies

Stockholders' equity

Common stock, $.02 par value;  200,000,000 shares authorized,

19,391,319 shares issued and outstanding (16,397,887 in 2009)

387,825

327,957

Additional paid-in capital

44,178,569

38,399,033

Accumulated other comprehensive loss

(25,834)

-

Accumulated deficit

(41,093,672)

(36,489,782)

Total stockholders' equity

3,446,888

2,237,208

Total liabilities and stockholders' equity

$

13,807,387

$

6,714,741

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended December 31,

2010

2009

Cash flows from operating activities:

     Net loss

$

(4,603,890)

$

(3,990,013)

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

Depreciation and amortization

1,261,122

1,661,522

Stock based compensation

423,471

67,709

Stock based payments for legal settlements

-

115,101

Warrants issuable for registration rights penalty

-

109,464

Amortization of note discount

420,385

250,102

Gain on deconsolidation of division

-

(25,755)

Loss on equity investment

121,393

-

Intangible asset impairment

376,481

(Increase) decrease in assets:

Accounts receivable

200,339

109,108

Inventory

86,977

73,849

Prepaid expenses and other assets

(101,465)

(81,547)

Increase (decrease) in liabilities:

Accounts payable

(209,516)

276,070

Accrued expenses and other current liabilities

265,450

(160,711)

Net cash used by operating activities

(1,759,253)

(1,595,101)

Cash flows from investing activities:

Decrease in restricted cash

-

131,004

Purchase of equipment and leasehold improvements

(157,422)

(62,522)

Purchase of other intangible assets

(269,729)

(176,083)

Acquisition of business

(2,272,405)

-

Net used by investing activities

(2,699,556)

(107,601)

Cash flows from financing activities:

Net borrowing on revolving note- related parties

-

300,000

Net borrowings on revolving line of credit

614,833

-

Payments on short-term debt

-

(900,000)

Borrowings on long-term debt

1,553,242

575,000

Payments of long-term debt

(250,000)

-

Borrowings on long-term convertible notes

-

800,000

Payments of capital lease obligations

(73,283)

(86,124)

Issuance of common stock, net

6,251,696

1,374,901

Net cash provided by financing activities

8,096,488

2,063,777

Net increase in cash and cash equivalents

3,637,679

361,075

Cash and cash equivalents beginning of year

448,895

87,820

Cash and cash equivalents end of year

$

4,086,574

$

448,895

Adjusted EBITDA:  Non-GAAP Financial Performance Measure

Year Ended December 31,

Three Months Ended December 31,

2010

2009

% change

2010

2009

% change

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Net Loss

$    (4,604,000)

$    (3,990,000)

15%

$(1,604,000)

$(1,117,000)

44%

Add back:

  Depreciation

458,000

319,000

44%

128,000

69,000

86%

Amortization of Intangibles

803,000

1,342,000

-40%

183,000

371,000

-51%

Stock based compensation

423,000

68,000

522%

87,000

370,000

-76%

Loss on equity investment

121,000

-

-

-

-

-

Interest Income

-

(18,000)

-

-

-

-

Impairment of asset

376,000

-

-

376,000

-

-

Interest expense

290,000

259,000

12%

62,000

52,000

19%

Amortization of note discount

420,000

250,000

68%

298,000

61,000

389%

Gain on deconsolidation of Legalstore.com division

-

(26,000)

-

-

(26,000)

-

Litigation settlements

-

115,000

-

-

115,000

-

Registration rights penalties

-

109,000

-

-

109,000

-

Gain on foreign currency transactions

-

(5,000)

-

-

(5,000)

-

Other income

(143,000)

(416,000)

-

-

(416,000)

-

Income Taxes

19,000

19,000

-

5,000

5,000

-

Adjusted EBITDA

(1,837,000)

(1,974,000)

-7%

(465,000)

(412,000)

13%

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 deconsolidation, registration rights penalty expense, litigation settlement expense paid with equity instruments, gain or loss on foreign currency, and non-recurring tax credits. 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. Document Security Systems 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.

SOURCE Document Security Systems, Inc.



RELATED LINKS

http://www.documentsecurity.com