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.
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 .
For more information:
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.