- Sales Revenue increase 53% - Operating expenses decrease by 24% -
Net loss decreases 64% ROCHESTER, N.Y., Nov. 16
/PRNewswire-FirstCall/ -- 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 third quarter ended September 30,
2009. Revenue for the third quarter of 2009 was $2.6 million, an
increase of 52.6% over the third quarter of 2008, primarily due to
security and commercial print sales, which increased 68.4% during
the quarter and reflects the impact of the Company's acquisition of
DPI Secuprint, a commercial printer, in December, 2008. Third
Quarter Financial Highlights -- Sales of $2.6 million increased
52.6% compared to the third quarter of 2008. -- Sales increased
13.6% sequentially over the second quarter of 2009. -- Third
quarter gross profit margins at 38.3% compared to 56.6% in the
third quarter of 2008. -- Operating expenses decreased by 24.3%
compared to the third quarter of 2008. -- Net Loss decreased by
64.2% to $955,000 compared to $2,663,000 in the third quarter of
2008. -- Net loss per share of $(0.06) compared to $(0.19) in the
third quarter of 2008. -- Adjusted EBITDA. (See Reconciliation of
GAAP to Non-GAAP Financial Measures table) loss of $407,000 as
compared to a loss of $348,000 in the third quarter of 2008. First
Nine Months Financial Highlights -- Sales of $7.6 million increased
42.2% compared to the first nine months of 2008. -- Gross profit of
$2.8 million compared to $3.0 million in the first nine months of
2008, a decrease of 6.3%. -- Operating expenses decreased by 33.7%
compared to the first nine months of 2008. -- Net Loss decreased by
53.5% to $2,873,000 compared to the $6,182,000 in the first nine
months of 2008. -- Net loss per share of $(0.20) compared to
$(0.45) in the third quarter of 2008. -- Adjusted EBITDA. (See
Reconciliation of GAAP to Non-GAAP Financial Measures table) loss
of $1,339,000 as compared to a loss of $1,526,000 in first nine
months of 2008. Other Corporate Developments -- DSS's AuthentiGuard
DeterX(TM) Security Paper approved as an "HP Indigo Certified
Substrate". -- Completion of first step of spin-off and planned
stock dividend of Legalstore.com division. -- Completed $1,491,000
private placement in October. -- Signed 4 year distribution deal
with Samsung S1 Corporation, Seoul, South Korea. -- Produced 4
million secure financial instruments containing our
anti-counterfeiting technologies since January 1, 2009 - none have
been reported counterfeited. -- We have attracted 5 new large
fortune 500 clients for whom we manufacture print products
containing our security technologies. Robert Fagenson, Chairman of
the Board of Document Security Systems, stated "During the third
quarter of 2009, we saw a rebound of customer demand as sales grew
14% from the second quarter of this year. While still below levels
we are targeting, we are encouraged by the results." Document
Security System's CEO Patrick White said, "The third quarter
financial results further point to the improvement of our business
over 2008. We are involved in several new significant revenue
opportunities which could quickly improve our financial results.
Based on our new cost structure and revenue opportunity pipeline we
believe that we are very well positioned for future success." 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. More information about
Document Security Systems, Inc can be found at
http://www.documentsecurity.com/ and
http://www.plasticprintingprofessionals.com/,
http://www.legalstore.com/, http://www.protectedpaper.com/ and
http://www.dpirochester.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, 2008 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 http://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. DOCUMENT SECURITY SYSTEMS, INC. AND
SUBSIDIARIES Consolidated Statements of Operations (unaudited)
Three Months Three Months Ended Ended September September 30, 2009
30, 2008 % change ------------ ------------ -------- Revenue
Security and commercial printing $2,247,000 $1,334,000 68.4%
Technology license royalties and digital solutions 204,000 189,000
7.9% Legal products 102,000 150,000 -32.0% ------- ------- -----
Total Revenue 2,553,000 1,673,000 52.6% Costs of revenue Security
and commercial printing $1,516,000 $636,000 138.4% Technology
license royalties and digital solutions 4,000 4,000 0.0% Legal
products 56,000 86,000 -34.9% ------ ------ ----- Total cost of
revenue 1,576,000 726,000 117.1% Gross profit Security and
commercial printing 731,000 698,000 4.7% Technology license
royalties and digital solutions 200,000 185,000 8.1% Legal products
46,000 64,000 -28.1% ------ ------ ----- Total gross profit 977,000
947,000 3.2% Gross profit margin 38.3% 56.6% Operating Expenses
Sales, general and administrative compensation $855,000 $539,000
58.6% Professional Fees 147,000 206,000 -28.6% Sales and marketing
34,000 204,000 -83.3% Research and development 61,000 73,000 -16.4%
Rent and utilities 129,000 122,000 5.7% Other 197,000 197,000 0.0%
------- ------- --- $1,423,000 $1,341,000 6.1% Other Operating
Expenses Depreciation and amortization 36,000 42,000 -14.3% Stock
based payments 38,000 480,000 -92.1% Impairment of patent defense
costs - - 0.0% Amortization of intangibles 324,000 541,000 -40.1%
------- ------- ----- 398,000 1,063,000 -62.6% Total Operating
Expenses 1,821,000 2,404,000 -24.3% Operating loss (844,000)
(1,457,000) -42.1% Other income (expense): Interest income 18,000 -
0.0% Gain/(Loss) on foreign currency adjustments (1,000) 8,000
-112.5% Interest expense (58,000) (41,000) 41.5% Amortizaton of
note discount (64,000) - Loss on sale of patent assets -
(1,170,000) Other income - - - - Other income (expense), net
(105,000) (1,203,000) -92.8% Loss before income taxes (949,000)
(2,660,000) -65.0% Income taxes 5,000 5,000 - Net loss $(954,000)
$(2,664,000) -64.9% ========= ============ ===== Net loss per
share, basic and diluted $(0.06) $(0.19) -68.4% Weighted average
common shares outstanding, basic and diluted 14,711,105 14,286,192
3.0% ========== ========== === Nine Months Nine Months Ended Ended
September September 30, 2009 30, 2008 % change -----------
----------- -------- Revenue Security and commercial printing
$6,605,000 $3,421,000 93.1% Technology license royalties and
digital solutions 619,000 1,427,000 -56.6% Legal products 355,000
483,000 -26.5% ------- ------- ----- Total Revenue 7,579,000
5,331,000 42.2% Costs of revenue Security and commercial printing
$4,547,000 $2,028,000 124.2% Technology license royalties and
digital solutions 11,000 11,000 0.0% Legal products 179,000 258,000
-30.6% ------- ------- ----- Total cost of revenue 4,737,000
2,297,000 106.2% Gross profit Security and commercial printing
2,058,000 1,393,000 47.7% Technology license royalties and digital
solutions 608,000 1,416,000 -57.1% Legal products 176,000 225,000
-21.8% ------- ------- ----- Total gross profit 2,842,000 3,034,000
-6.3% Gross profit margin 37.5% 56.9% Operating Expenses Sales,
general and administrative compensation $2,713,000 $1,622,000 67.3%
Professional Fees 434,000 780,000 -44.4% Sales and marketing
105,000 892,000 -88.2% Research and development 223,000 322,000
-30.7% Rent and utilities 399,000 322,000 23.9% Other 452,000
580,000 -22.1% ------- ------- ----- $4,326,000 $4,518,000 -4.2%
Other Operating Expenses Depreciation and amortization 116,000
126,000 -7.9% Stock based payments (79,000) 1,506,000 -105.2%
Impairment of patent defense costs - 292,000 0.0% Amortization of
intangibles 971,000 1,605,000 -39.5% ------- --------- -----
1,008,000 3,529,000 -71.4% Total Operating Expenses 5,334,000
8,047,000 -33.7% Operating loss (2,492,000) (5,013,000) -50.3%
Other income (expense): Interest income 18,000 - Gain/(Loss) on
foreign currency adjustments 10,000 (17,000) -158.8% Interest
expense (207,000) (95,000) 117.9% Amortizaton of note discount
(189,000) - 0.0% Loss on sale of patent assets - (1,170,000) Other
income - 126,000 0.0% --- ------- --- Other income (expense), net
(368,000) (1,156,000) -68.2% Loss before income taxes (2,860,000)
(6,169,000) -53.6% Income taxes 14,000 10,000 - Net loss
$(2,873,000) $(6,182,000) -53.5% ============ ============ =====
Net loss per share, basic and diluted $(0.20) $(0.45) -55.6%
Weighted average common shares outstanding, basic and diluted
14,510,056 13,879,891 4.5% ========== ========== === DOCUMENT
SECURITY SYSTEMS, INC. AND SUBSIDIARIES Consolidated Balance Sheets
As of September 30, December 31, 2009 2008 (unaudited) ASSETS
Current assets: Cash and cash equivalents $423,076 $87,820
Restricted cash - 131,004 Accounts receivable, net of allowance of
$36,000 ($50,000- 2008) 1,341,464 1,284,208 Inventory 237,623
359,034 Loans to employees - 67,781 Prepaid expenses and other
current assets 125,129 75,066 ------- ------ - Total current assets
2,127,292 2,004,913 Assets held for sale 255,372 - Fixed assets,
net 1,349,020 1,517,357 Other assets 315,508 264,529 Goodwill
1,315,721 1,396,734 Other intangible assets, net 1,972,375
2,873,789 --------- --------- Total assets $7,335,288 $8,057,322
========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities: Accounts payable $1,779,018 $1,411,942 Accrued
expenses & other current liabilities 933,951 1,312,745 Deferred
revenue & customer deposits 25,273 30,193 Revolving notes from
related parties 3,033,000 - Short-term debt, net of discount of
$58,000 ($247,000 -2008) 841,722 652,511 Current portion of capital
lease obligations 75,721 78,367 ------ ------ Total current
liabilities 6,688,685 3,485,758 Liabilities held for sale 24,036 -
Revolving notes from related parties - 2,283,000 Capital lease
obligations 206,956 210,365 Deferred tax liability 66,092 51,878
Commitments and contingencies Stockholders' equity Common stock,
$.02 par value; 200,000,000 shares authorized, 14,974,062 shares
issued and outstanding (14,369,764 in 2008) (325,000 subscribed in
2008) 299,481 287,395 Additional paid-in capital 35,422,864
35,538,695 Common stock subscriptions receivable - (1,300,000)
Accumulated deficit (35,372,826) (32,499,769) ---------- ----------
Total stockholders' equity 349,519 2,026,321 ------- ---------
Total liabilities and stockholders' equity $7,335,288 $8,057,322
========== ========== Adjusted EBITDA: Non-GAAP Financial
Performance Measure Three Months Ended Nine Months Ended September
30, September 30, 2009 2008 % 2009 2008 % (unaudited) (unaudited)
change (unaudited) (unaudited) change Net Loss $(955,000)
$(2,664,000) -64% $(2,873,000) $(6,182,000) -54% Add back:
Depreciation 77,000 79,000 -3% 250,000 237,000 5% Amortization of
Intangibles 324,000 541,000 -40% 971,000 1,605,000 -40% Stock based
payments 38,000 480,000 -92% (79,000) 1,536,000 -105% Impairment of
patent defense costs - 1,170,000 - 1,170,000 Interest Income
(18,000) - 0% (18,000) (1,000) 1700% Interest Expense 58,000 41,000
41% 207,000 95,000 118% Amortization of bond discount 64,000
189,000 - 0% Income Taxes 5,000 5,000 - 14,000 14,000 - ----- -----
--- ------ ------ --- Adjusted EBITDA (407,000) (348,000) 17%
(1,339,000) (1,526,000) -12% ======= ======= == ========= =========
=== 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. 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 SFAS 123(R) 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. Document Security
Systems 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. Contact:
Document Security Systems, Inc. Shareholder Relations Jody Janson
Tel: (585) 232-5440 Email: DATASOURCE: Document Security Systems,
Inc. CONTACT: Jody Janson, Document Security Systems, Inc.,
Shareholder Relations, +1-585-232-5440, Web Site:
http://www.documentsecurity.com/
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