Document Security Systems, Inc. Announces Preliminary Third Quarter 2012
Financial Results
Will Hold Third Quarter Earnings Conference Call on November 13, 2012 at 4:30
ROCHESTER, N.Y., Oct. 22, 2012 /PRNewswire via COMTEX/ -- Document Security
Systems, Inc. (DSS), a leading developer and integrator of cloud computing data
security, Radio Frequency Identification ("RFID") systems and security printing
technologies which prevent product diversion, counterfeiting and brand fraud,
today announced preliminary third quarter 2012 results.
Revenues for Q3 2012 were $4.2 million, a 15% increase over Q3 2011. Revenues for
the nine months ended September 30, 2012 were $11.7 million, a 27% increase from
the first nine months of 2011 resulting from significant growth in both the
Packaging and Licensing and Digital Solutions divisions, which grew by 54% and
41% respectively.
Gross profit for Q3 2012 was $1.5 million, a 20% increase over Q3 2011. Gross
profit for the nine months ended September 30, 2012 increased 36% from the first
nine months of 2011, due to an improved sales mix and a reduction in production
costs.
Operating expenses for Q3 2012 were $2.6 million, an increase of 20% which
included approximately $461,000 of professional fees incurred in conjunction with
the Company's Definitive Merger Agreement with Lexington Technology Group the
Company announced on October 1, 2012. As a result, net loss for Q3 2012 was
$1,096,000 compared to $757,000 in Q3 2011. Absent the merger costs, net loss for
Q3 2012 would have decreased 19% from Q3 2011 to a loss of $635,000.
Document Security Systems also reached a significant financial milestone in
September, 2012, achieving the company's first month of operating profitability
as measured by adjusted EBITDA (earnings before interest, taxes, depreciation,
amortization, stock based compensation and other non-recurring items). Overall,
for Q3 2012, adjusted EBITDA was a loss of $522,000, a 7% improvement from
Adjusted EBITDA loss of $564,000 in Q3 2011. Excluding non-recurring cost of
$461,000 relating to the merger, adjusted EBITDA would have been a loss of
$61,000, an 89% improvement from Q3 2011.
Document Security System's CEO Patrick White said, "We are very pleased with our
third quarter results, where we saw strength in all of our business divisions. As
we enter the final quarter of 2012, we expect to continue to build upon our
revenue and gross profit growth that allowed us to reach the important financial
milestone of positive adjusted EBITDA in the month of September."
The above description of the Company's preliminary financial results for the
quarter ending September 30, 2012 is a summary only and is qualified in its
entirety by the financial information that will be contained in the Company's
quarterly report on Form 10-Q for the quarter ended September 30, 2012, to be
filed with the SEC on or prior to November 14, 2012.
CONFERENCE CALL
Management will host a teleconference and web cast November 13, at 4:30 pm ET to
discuss the results with the investment community:
Time: 4:30 p.m. Eastern Time Date: Tuesday, November 13, 2012 Investor Dial In
(Toll Free): 877-407-9205 Investor Dial In (International): 201-689-8054
Live Webcast URL: investorcalendar.com
A replay of the teleconference will be available until November 27, 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
#402581 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
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 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
(Unaudited)
Three Months Ended September 30, 2012 Three Months Ended September 30, 2011 % changeNine Months Ended September 30, 2012 Nine Months Ended September 30, 2011 % change
Revenue
Printing$693,000$832,000-17%$2,214,000$2,342,000-5%
Packaging2,188,0001,576,00039%5,858,0003,796,00054%
Plastic IDs and cards774,000757,0002%2,254,0002,087,0008%
Licensing and digital solutions509,000451,00013%1,340,000952,00041%
Total Revenue$4,164,000$3,616,00015%$11,666,000$9,177,00027%
Costs of revenue
Printing$429,000$699,000-39%$1,568,000$2,083,000-25%
Packaging1,640,0001,125,00046%4,471,0002,763,00062%
Plastic IDs and cards433,000454,000-5%1,263,0001,231,0003%
Licensing and digital solutions139,00068,000104%256,00087,000194%
Total cost of revenue2,641,0002,346,00013%7,558,0006,164,00023%
Gross profit
Printing264,000133,00098%646,000259,000149%
Packaging548,000451,00022%1,387,0001,033,00034%
Plastic IDs and cards341,000303,00013%991,000856,00016%
Licensing and digital solutions370,000383,000-3%1,084,000865,00025%
Total gross profit$1,523,000$1,270,00020%$4,108,000$3,013,00036%
Gross profit percentage37%35%4%35%33%7%
Operating Expenses
Sales, general and administrative compensation$1,065,000$1,080,000-1%$3,176,000$2,684,00018%
Professional Fees594,000219,000171%968,000582,00066%
Sales and marketing67,000127,000-47%231,000413,000-44%
Rent and utilities140,000195,000-28%438,000547,000-20%
Other207,000212,000-2%699,000575,00022%
2,073,0001,833,00013%5,512,0004,801,00015%
Other Operating Expenses
Non-production depreciation and amortization33,00031,0006%97,00094,0003%
Research and development, including research and development costs paid by equity instruments173,00083,000108%545,000208,000162%
Stock based compensation197,000114,00073%450,000319,00041%
Amortization of intangibles76,00071,0007%228,000205,00011%
479,000299,00060%1,320,000826,00060%
Total Operating Expenses$2,552,000$2,132,00020%$6,832,000$5,627,00021%
Operating loss(1,029,000)(862,000)19%(2,724,000)(2,614,000)4%
Other income (expense):
Change in fair value of derivative liability$-$--$-$361,000-100%
Interest expense(51,000)(61,000)-16%(177,000)(170,000)4%
Amortization of note discount(11,000)-100%(249,000)-100%
Other income----
Other income (expense), net$(62,000)$(61,000)2%$(426,000)$191,000-323%
Loss before income taxes(1,092,000)(923,000)18%(3,150,000)(2,423,000)30%
Income tax (benefit) expense, net5,000(165,000)-103%13,000(156,000)-108%
Net loss$(1,096,000)$(757,000)45%$(3,165,000)$(2,267,000)40%
Net loss per share, basic and diluted$(0.05)$(0.04)25%$(0.15)$(0.12)25%
Weighted average common shares outstanding, basic and diluted20,822,35119,474,1737%20,536,44819,435,9306%
DOCUMENT SECURITY SYSTEMS, INC.AND SUBSIDIARIES
Consolidated Balance Sheets
As of
September 30, 2012December 31, 2011
ASSETS(Unaudited)
Current assets:
Cash$1,022,924$717,679
Accounts receivable, net of allowance
of$76,000 ($76,000- 2011)1,659,1451,595,750
Inventory1,115,550783,442
Prepaid expenses and other current assets393,85795,399
-
Total current assets4,191,4763,192,270
Property, plant and equipment, net3,758,8284,019,829
Other assets234,057244,356
Goodwill3,322,7993,322,799
Other intangible assets, net1,918,7032,043,212
Total assets$13,425,863$12,822,466
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable$1,849,192$1,666,963
Accrued expenses and other current liabilities1,131,3421,142,629
Revolving lines of credit542,956763,736
Short-term loan from related party-150,000
Current portion of long-term debt333,083460,598
Current portion of capital lease obligations25,02688,172
Total current liabilities3,881,5994,272,098
Long-term debt, net of unamortized discount of $55,000 ($88,000-2011)2,131,5732,819,783
Interest rate swap hedging liabilities138,359110,688
Capital lease obligations-11,133
Deferred tax liability122,938108,727
Commitments and contingencies (see Note 6)
Stockholders' equity
Common stock, $.02 par value;200,000,000 shares authorized, 20,872,316 shares issued and outstanding
(19,513,132 in 2011)417,445390,262
Additional paid-in capital53,212,06748,395,241
Accumulated other comprehensive loss(138,359)(110,688)
Accumulated deficit(46,339,759)(43,174,778)
Total stockholders' equity7,151,3945,500,037
Total liabilities and stockholders' equity$13,425,863$12,822,466
DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,
(Unaudited)
20122011
Cash flows from operating activities:
Net loss$(3,164,981)$ (2,267,351)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization598,010534,292
Stock based compensation631,466319,106
Amortization of note discount248,758-
Change in fair value of derivative liability-(360,922)
Deferred tax benefit-(169,131)
(Increase) decrease in assets:
Accounts receivable(63,395)491,497
Inventory(332,108)(442,421)
Prepaid expenses and other assets(183,130)110,208
Increase (Decrease) in liabilities:
Accounts payable182,229(300,291)
Accrued expenses and other liabilities2,92467,820
Net cash used by operating activities(2,080,227)(2,017,193)
Cash flows from investing activities:
Purchase of property, plant and equipment(108,931)(497,709)
Purchase of other intangible assets(103,569)(26,313)
Acquisition of business-61,995
Net cash used by investing activities(212,500)(462,027)
Cash flows from financing activities:
Net (payments) borrowings on revolving lines of credit(220,780)(11,883)
Payment of short-term loan from related party(150,000)-
Payments of long-term debt(257,998)(245,183)
Payments of capital lease obligations(74,279)(72,927)
Issuance of common stock, net of issuance costs3,301,029(206,851)
Net cash provided (used) by financing activities2,597,972(536,844)
Net increase (decrease) in cash305,245(3,016,064)
Cash beginning of period717,6794,086,574
Cash end of period$1,022,924$ 1,070,510
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.
Non-GAAP Financial Performance Measure
Three Months Ended September 30Nine Months Ended September 30
20122011% change20122011% change
(unaudited)(unaudited)(unaudited)(unaudited)
Net Loss$(1,096,000) $(757,000) 45%$(3,165,000) $(2,267,000) 40%
Add back:
Depreciation & Amortization207,000183,000-28%598,000534,00012%
Stock based compensation300,000113,000165%631,000319,00098%
Interest expense51,00061,000-16%177,000170,0004%
Amortization of note discount11,000-100%249,000-100%
Change in fair value of derivative liability----(361,000)-
Income Taxes5,000(164,000)-14,000(155,000)-
Adjusted EBITDA(522,000)(564,000)-7%(1,496,000)(1,760,000)-15%
Professional fees incurred in conjunction with the proposed Merger with Lexington Technology Group$461,000-100%$461,000-100%
Adjusted EBITDA, less merger cost(61,000)(564,000)-89%(1,035,000)(1,760,000)-41% |
