Document Security Systems, Inc. Reports Third Quarter 2011 Financial Results

-The Company also discusses a restatement of 2010 financial results which resulted in a decrease($1.1 million) in net loss for 2010 as a result of a correction to business combination accounting and related tax valuation reserve amounts

Nov 14, 2011, 10:30 ET from Document Security Systems, Inc.

ROCHESTER, N.Y., Nov. 14, 2011 /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, reported results for the third quarter ended September 30, 2011.  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:  Monday, November 14th, 2011

Investor Dial-in (Toll Free):  877-407-9205

Investor Dial-In (International):  201-689-8054

Live Web Cast URL:  http://www.investorcalendar.com/IC/CEPage.asp?ID=166566

A replay of the teleconference will be available until November 28, 2011, 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 #383172 to access the replay.  The webcast will be available for replay within the Investor Relations "Events & Presentations" section of the DSS home page located at www.DSSsecure.com.

Third Quarter 2011 Highlights

  • Sales of $3.6 million up 26% from the second quarter of 2011, up 15% from the third quarter of 2010.
  • Gross profit of $1.3 million up 57% from the second quarter of 2011, up 44% from the third quarter of 2010.
  • Gross margin percentage of 35% up from 28% in the second quarter of 2011 and the third quarter of 2010.
  • Operating expenses increased 15% from the second quarter of 2011, up 34% from the third quarter of 2010.
  • Lower net loss of $757,000, a decrease of 32% from the second quarter of 2011, and a decrease of 14% from the third quarter of 2010.
  • Lower net loss per share of $(0.04), compared to a net loss per share of $(0.06) during the second quarter of 2011, and  a net loss per share of $(0.05) during the third quarter of 2010.

Year to Date 2011 Highlights

  • Sales of $9.2 million down 1% from the first nine months of 2010.
  • Gross profit of $3.0 million up 15% from the first nine months of 2010.
  • Gross margin percentage of 33% up from 28% in the first nine months of 2010.
  • Operating expenses up 7% from the first nine months of 2010.
  • Net loss of $2.3 million, an increase of 22% from the first nine months of 2010 (as restated).
  • Net loss per share of $(0.12) compared to $(0.11) in the first nine months of 2010 (as restated).

Patrick White, DSS's CEO, stated: "We are very pleased with the third quarter results.  The sales and gross profit increases reflect the success of our investment in sales and marketing coupled with our reduction of production costs made over the past several quarters.  DSS is growing its margins as our product mix shifts.  We believe that our concentration on high margin, long-term customer opportunities continues to build the value of our Company.  We are excited by the strength in our plastic ID group and in particular, the inroads they are having in the RFID market, and our packaging division, which was able to surpass last year's strong 3rd quarter performance.  In addition, the newly formed digital division has delivered strong results and has strengthened our financial performance.  We also are continuing to cultivate relationships with large Fortune 500 companies which enables DSS to pursue the numerous, global opportunities that exist for our anti-counterfeiting, brand protection technologies and services that could have the ability to significantly change the size and financial performance of our Company."

2010 Restatement:

The Company also reported today on Form 8-K that it had filed a restatement of its 2010 financial statements to change the amounts recorded related to the Company's acquisition of Premier Packaging in February 2010.  The Company determined that it had understated goodwill and a deferred tax benefit in conjunction with the transaction.  As a result of the change, goodwill as of December 31, 2010 increased by approximately $1,141,000 and net loss for the year ended December 31, 2010 decreased by $1,141,000 due to the recognition of a deferred tax benefit.  The correction of this error had no impact on previously disclosed revenue, cost of sales, gross profit, operating expenses, other income and expense, or total net cash flows for any of the periods restated.  Along with the Form 8-K, the Company filed today the Amended 10-K for the year ended December 31, 2010, along with the quarterly reports on Form 10-Q for the periods ended March 31, 2011 and June 30, 2011 to reflect the changes.

Patrick White, noted, "The impact of these changes to our 2010 results is positive as it lowers our net loss and increases our net assets by approximately $1.1 million.  Furthermore, we continue to reap the benefits of the acquisition of our packaging division as displayed by its strong third quarter performance."

Additional information regarding the restatement is included in a Form 8-K filed today by the Company with the U.S. Securities and Exchange Commission.

About DSS (Document Security Systems, Inc.)

DSS is comprised of four core operating groups, DSS Plastics Group, DSS Secure 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, 2010 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

(Unaudited)

Three Months Ended September 30, 2011

Three Months Ended September 30, 2010

% change

Nine Months Ended September 30, 2011

Nine Months Ended September 30, 2010 (Restated)

% change

Three Months Ended June 30, 2011

% change

Revenue

Printing

$               832,000

$           1,056,000

-21%

$           2,342,000

$          3,488,000

-33%

$       789,000

5%

Packaging

1,576,000

1,382,000

14%

3,796,000

3,452,000

10%

1,183,000

33%

Plastic IDs and cards

757,000

564,000

34%

2,087,000

1,822,000

15%

637,000

19%

   Licensing and digital solutions

451,000

149,000

203%

952,000

489,000

95%

266,000

70%

Total Revenue

$             3,616,000

$           3,151,000

15%

$           9,177,000

$          9,251,000

-1%

$    2,875,000

26%

Costs of revenue

Printing

$               699,000

$              865,000

-19%

$           2,083,000

$          2,821,000

-26%

$       754,000

-7%

Packaging

1,125,000

1,056,000

7%

2,763,000

2,673,000

3%

920,000

22%

Plastic IDs and cards

453,000

345,000

31%

1,231,000

1,143,000

8%

375,000

21%

   Licensing and digital solutions

68,000

-

100%

87,000

5,000

1640%

19,000

258%

Total cost of revenue

2,345,000

2,266,000

3%

6,164,000

6,642,000

-7%

2,068,000

13%

Gross profit

Printing

133,000

191,000

-30%

259,000

667,000

-61%

35,000

280%

Packaging

451,000

326,000

38%

1,033,000

779,000

33%

263,000

71%

Plastic IDs and cards

304,000

219,000

39%

856,000

679,000

26%

262,000

16%

   Licensing and digital solutions

383,000

149,000

157%

865,000

484,000

79%

247,000

55%

Total gross profit

$             1,271,000

$              885,000

44%

$           3,013,000

$          2,609,000

15%

$       807,000

57%

Operating Expenses

Sales, general and administrative compensation

$             1,080,000

$              870,000

24%

$           2,684,000

$          2,561,000

5%

$       845,000

28%

Professional Fees

219,000

92,000

138%

582,000

437,000

33%

163,000

34%

Sales and marketing

127,000

46,000

176%

413,000

172,000

140%

162,000

-22%

Research and development

83,000

72,000

15%

208,000

205,000

1%

74,000

12%

Rent and utilities

195,000

170,000

15%

547,000

478,000

14%

188,000

4%

     Other

212,000

(10,000)

2220%

575,000

361,000

59%

231,000

-8%

1,916,000

1,240,000

55%

5,009,000

4,214,000

19%

1,663,000

15%

Other Operating Expenses

     Depreciation and software amortization

31,000

34,000

-9%

94,000

96,000

-2%

31,000

0%

     Stock based compensation

114,000

130,000

-12%

319,000

336,000

-5%

101,000

13%

Amortization of intangibles

71,000

189,000

-62%

205,000

620,000

-67%

62,000

15%

216,000

353,000

-39%

618,000

1,052,000

-41%

194,000

11%

        Total Operating Expenses

$             2,132,000

$           1,593,000

34%

$           5,627,000

$          5,266,000

7%

$    1,857,000

15%

Operating loss

(861,000)

(708,000)

22%

(2,614,000)

(2,657,000)

-2%

(1,050,000)

-18%

Other income (expense):

Change in fair value of derivative liability

$                        -

$                      -

0%

$              361,000

$                     -

0%

$               -

0%

Interest expense

(61,000)

(79,000)

-23%

(170,000)

(228,000)

-25%

(59,000)

3%

Amortization of note discount

-

(41,000)

-100%

-

(122,000)

-100%

-

0%

Loss in equity investment

-

(50,000)

-100%

-

(121,000)

-100%

-

0%

Other income

-

-

0%

-

143,000

-100%

-

0%

Other income (expense), net

$                (61,000)

$             (170,000)

-64%

$              191,000

$            (328,000)

-158%

$       (59,000)

3%

Loss before income taxes

(922,000)

(878,000)

5%

(2,423,000)

(2,985,000)

-19%

(1,109,000)

-17%

Income taxes (benefit) expense

(165,000)

5,000

-3400%

(156,000)

(1,127,000)

-86%

5,000

-3400%

Net loss

$              (757,000)

$             (883,000)

-14%

$          (2,267,000)

$         (1,891,000)

22%

$   (1,112,000)

-32%

Net loss per share, basic and diluted

$                    (0.04)

$                  (0.05)

-20%

$                  (0.12)

$                 (0.11)

9%

$           (0.06)

-33%

Weighted average common shares outstanding, basic and diluted

19,474,173

18,008,012

8%

19,435,930

17,599,410

10%

19,420,780

0%

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

As of

September 30, 2011

December 31, 2010

ASSETS

(Unaudited)

(Restated)

Current assets:

Cash

$

1,070,510

$

4,086,574

Accounts receivable, net of allowance

of  $66,000 ($66,000- 2010)

1,805,735

2,227,877

Inventory

1,043,780

601,359

Prepaid expenses and other current assets

98,102

231,190

-

      Total current assets

4,018,127

7,147,000

Property, plant & equipment, net

4,147,327

2,543,494

Other assets

244,356

325,953

Goodwill

3,322,799

3,084,121

Other intangible assets, net

2,076,508

1,847,859

Total assets

$

13,809,117

$

14,948,427

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$

1,595,952

$

1,828,138

Accrued expenses and other current liabilities

1,181,767

1,312,363

Revolving lines of credit

842,109

614,833

Short-term loan from related party

150,000

-

Current portion of long-term debt

447,645

300,000

Current portion of capital lease obligations

97,683

88,776

      Total current liabilities

4,315,156

4,144,110

Revolving note from related party

-

583,000

Long-term debt

3,035,414

1,578,242

Capital lease obligations

16,698

98,532

Deferred tax liability

103,990

89,779

Derivative liabilities

-

3,866,836

Commitments and contingencies

Stockholders' equity

Common stock, $.02 par value;  200,000,000 shares authorized, 19,503,132 shares issued and outstanding

(19,391,319 in 2010)

390,062

387,825

Additional paid-in capital

48,189,936

44,178,569

Accumulated other comprehensive loss

(22,156)

(25,834)

Accumulated deficit

(42,219,983)

(39,952,632)

Total stockholders' equity

6,337,859

4,587,928

Total liabilities and stockholders' equity

$

13,809,117

$

14,948,427

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30,

(Unaudited)

2011

2010

Cash flows from operating activities:

(Restated)

     Net loss

$

(2,267,351)

$

(1,858,714)

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

Depreciation and amortization

534,292

949,683

Stock based compensation

319,106

336,111

Amortization of note discount

-

122,196

Loss on equity investment

-

121,393

Change in fair value of derivative liability

(360,922)

-

Deferred tax benefit

(169,131)

(1,141,040)

(Increase) decrease in assets:

Accounts receivable

491,497

593,122

Inventory

(442,421)

(125,381)

Prepaid expenses and other assets

110,208

(59,881)

Increase (decrease) in liabilities:

Accounts payable

(300,291)

(406,598)

Accrued expenses and other current liabilities

67,821

207,614

Net cash used by operating activities

(2,017,193)

(1,261,495)

Cash flows from investing activities:

Purchase of property, plant and equipment

(497,709)

(138,640)

Purchase of other intangible assets

(26,313)

(118,999)

Acquisition of business

61,995

(2,272,405)

Net cash used by investing activities

(462,027)

(2,530,044)

Cash flows from financing activities:

Net (payments) borrowings on revolving lines of credit

(11,883)

285,705

Borrowings on long-term debt

-

1,500,000

Payments of long-term debt

(245,183)

(175,000)

Payments of capital lease obligations

(72,927)

(69,424)

Issuance of common stock, net of issuance costs

(206,851)

2,209,445

Net cash (used) provided by financing activities

(536,844)

3,750,726

Net decrease in cash

(3,016,064)

(40,813)

Cash beginning of period

4,086,574

448,895

Cash end of period

$

1,070,510

$

408,082

SOURCE Document Security Systems, Inc.



RELATED LINKS

http://www.DSSsecure.com