 Document Security Systems, Inc. 585.325.3610 | News Release |
For Immediate Release
Document Security Systems, Inc. Reports 4th Quarter and 2009 Year End Financial Results
— 4th Quarter Sales Revenue increased 78%
— 4th Quarter Gross Profit increases 40%
— 4th Quarter Net Loss decreases 47%
— 2009 Sales Revenue increased 49%
— 2009 Operating Expenses decrease 31%
— 2009 Net loss decreases 52%
ROCHESTER, NY, March 24, 2010 — 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, 2009. 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) 407-9210
Investor Dial-In (International): (201) 689-8049
Live Web Cast: http://www.investorcalendar.com/IC/CEPage.asp?ID=156727
4th Quarter and 2009 Year-End Results
Fourth Quarter Financial Highlights
| · | Sales of $2.3 million increased 78% compared to the fourth quarter of 2008. |
| · | Operating expenses decreased by 21% compared to the fourth quarter of 2008. |
| · | Net Loss decreased by 47% to $1.1 million compared to $2.1 million in the fourth quarter of 2008. |
| · | Net loss per share of $(0.07) compared to $(0.15) in the fourth quarter of 2008. |
| · | Adjusted EBITDA. (See Reconciliation of GAAP to Non-GAAP Financial Measures table) loss of $189,000 as compared to a loss of $857,000 in the fourth quarter of 2008. |
| · | Improved balance sheet from refinancing of $3.9 million of short-term debt to $2.0 million of equity and $1.9 million of long-term debt. |
2009 Financial Highlights
| · | Sales of $9.9 million increased 49% compared to 2008. |
| · | Gross profit of $3.7 million compared to $3.6 million in 2008, an increase of 1%. |
| · | Operating expenses decreased by 31% compared to 2008. |
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| · | Net Loss decreased by 52% to $4.0 million compared to a net loss of $8.3 million in 2008. |
| · | Net loss per share of $(0.27) compared to $(0.59) in 2008. |
| · | Adjusted EBITDA. (See Reconciliation of GAAP to Non-GAAP Financial Measures table) loss of $1,527,000 as compared to a loss of $2,119,000 in 2008. |
Robert Fagenson, Chairman of the Board of Document Security Systems, stated: “As we entered 2009, our goals included expanding our sales and product offerings, leveraging our expanded production capacity to attract major end-user customers, continuing to streamline our cost structure and seeking strategic acquisitions. As we enter 2010, believe we have achieved many of those goals. Our recent purchase of Premier Packaging in February 2010 offers significant opportunity to expand use of our technology and positions us in the brand packaging protection market. Furthermore, during the fourth quarter of 2009, we successfully refinanced and converted $3.9 million of short-term debt to equity or longer term debt on more favorable terms significantly improving our balance sheet and working capital position.”
Document Security System’s CEO Patrick White said, “Despite a difficult economic environment for our business partners and licensee’s we still continued to grow and strengthen our business. Our valuable intellectual property holdings continued to grow and show value which further advanced our position in the anti-counterfeiting market that has resulted in wins with well known customers during the year. During 2009, we initiated our entrance into the brand packaging market that culminated in the acquisition of Premier Packaging in February 2010, commenced the divestiture of our Legalstore.com division, strengthened our relationship with a key licensee, and achieved sales successes with several large consumer product companies. Due to these accomplishments along with our lower cost structure the company is well positioned in 2010 and beyond.”
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 www.documentsecurity.com and www.plasticprintingprofessionals.com, www.protectedpaper.com, www.dpirochester.com. and www.premiercustompkg.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.
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DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months Ended | Year Ended | |||||||||||||||||||||||
December 31, 2009 | December 31, 2008 | % Change | December 31, 2009 | December 31, 2008 | % Change | |||||||||||||||||||
| Revenue | ||||||||||||||||||||||||
| Security and commercial printing | $ | 2,168,000 | $ | 966,000 | 124 | % | $ | 8,773,000 | $ | 4,386,000 | 100 | % | ||||||||||||
| Technology license royalties and digital solutions | 165,000 | 220,000 | -25 | % | 783,000 | 1,647,000 | -52 | % | ||||||||||||||||
| Legal products | - | 127,000 | -100 | % | 355,000 | 610,000 | -42 | % | ||||||||||||||||
| Total Revenue | 2,333,000 | 1,313,000 | 78 | % | 9,911,000 | 6,643,000 | 49 | % | ||||||||||||||||
| Costs of revenue | ||||||||||||||||||||||||
| Security and commercial printing | 1,517,000 | 635,000 | 139 | % | 6,063,000 | 2,663,000 | 128 | % | ||||||||||||||||
| Digital solutions | 4,000 | 4,000 | 0 | % | 14,000 | 14,000 | 0 | % | ||||||||||||||||
| Legal products | - | 94,000 | -100 | % | 179,000 | 352,000 | -49 | % | ||||||||||||||||
| Total cost of revenue | 1,521,000 | 733,000 | 108 | % | 6,256,000 | 3,029,000 | 107 | % | ||||||||||||||||
| Gross profit | ||||||||||||||||||||||||
| Security and commercial printing | 651,000 | 331,000 | 97 | % | 2,710,000 | 1,723,000 | 57 | % | ||||||||||||||||
| Technology license royalties | 161,000 | 216,000 | -25 | % | 769,000 | 1,633,000 | -53 | % | ||||||||||||||||
| Legal products | - | 33,000 | -100 | % | 176,000 | 258,000 | -32 | % | ||||||||||||||||
| Total gross profit | 812,000 | 580,000 | 40 | % | 3,655,000 | 3,614,000 | 1 | % | ||||||||||||||||
| 35 | % | 44 | % | -21 | % | 37 | % | 54 | % | -32 | % | |||||||||||||
| Operating Expenses | ||||||||||||||||||||||||
| General and administrative compensation | 915,000 | 708,000 | 29 | % | 3,638,000 | 2,966,000 | 23 | % | ||||||||||||||||
| Professional Fees | 105,000 | 116,000 | -9 | % | 539,000 | 896,000 | -40 | % | ||||||||||||||||
| Sales and marketing | 66,000 | 63,000 | 5 | % | 154,000 | 340,000 | -55 | % | ||||||||||||||||
| Research and development | 68,000 | 111,000 | -39 | % | 292,000 | 432,000 | -32 | % | ||||||||||||||||
| Other | 331,000 | 434,000 | -24 | % | 1,187,000 | 1,316,000 | -10 | % | ||||||||||||||||
| Total selling, general and administrative | 1,485,000 | 1,432,000 | 4 | % | 5,810,000 | 5,950,000 | -2 | % | ||||||||||||||||
| Depreciation and amortization | 32,000 | 42,000 | -24 | % | 148,000 | 167,000 | -11 | % | ||||||||||||||||
| Stock based payments | 146,000 | 241,000 | -39 | % | 68,000 | 1,747,000 | -96 | % | ||||||||||||||||
| Impairment of patent defense costs and other intangible assets | - | 505,000 | 0 | % | - | 797,000 | ||||||||||||||||||
| Amortization of intangibles | 371,000 | 367,000 | 1 | % | 1,342,000 | 1,972,000 | -32 | % | ||||||||||||||||
| Total other operating expenses | 549,000 | 1,155,000 | -52 | % | 1,558,000 | 4,683,000 | -67 | % | ||||||||||||||||
| Total Operating Expenses | 2,034,000 | 2,587,000 | -21 | % | 7,368,000 | 10,633,000 | -31 | % | ||||||||||||||||
| Other income (expense): | ||||||||||||||||||||||||
| Interest income | - | - | 18,000 | 1,000 | 1700 | % | ||||||||||||||||||
| Gain/(Loss) on foreign currency transactions | 5,000 | (42,000 | ) | -112 | % | 15,000 | (59,000 | ) | -125 | % | ||||||||||||||
| Interest expense | (52,000 | ) | (49,000 | ) | 6 | % | (259,000 | ) | (136,000 | ) | 90 | % | ||||||||||||
| Amortizaton of note discount | (61,000 | ) | 0 | % | (250,000 | ) | (8,000 | ) | 3025 | % | ||||||||||||||
| Loss on sale of patent assets | - | - | 0 | % | - | (1,170,000 | ) | -100 | % | |||||||||||||||
| Other income | 442,000 | - | 0 | % | 442,000 | 126,000 | 251 | % | ||||||||||||||||
| Income tax | (5,000 | ) | (5,000 | ) | 0 | % | (19,000 | ) | (19,000 | ) | 0 | % | ||||||||||||
| Other expense- equity based payments | (224,000 | ) | - | 0 | % | (224,000 | ) | - | 0 | % | ||||||||||||||
| Total other income (loss), net | 105,000 | (96,000 | ) | -209 | % | (277,000 | ) | (1,265,000 | ) | -78 | % | |||||||||||||
| Net loss | $ | (1,117,000 | ) | $ | (2,103,000 | ) | -47 | % | $ | (3,990,000 | ) | $ | (8,285,000 | ) | -52 | % | ||||||||
| Net loss per share, basic and diluted | (0.07 | ) | (0.15 | ) | -50 | % | (0.27 | ) | (0.59 | ) | -54 | % | ||||||||||||
| Weighted average common shares outstanding, basic and diluted | 15,276,109 | 14,364,473 | 6 | % | 14,700,453 | 14,002,034 | 5 | % | ||||||||||||||||
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DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31,
| 2009 | 2008 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 448,895 | $ | 87,820 | ||||
| Restricted cash | - | 131,004 | ||||||
| Accounts receivable, net of allowance of $66,000 ($50,000- 2008) | 1,143,939 | 1,284,208 | ||||||
| Inventory | 184,174 | 359,034 | ||||||
| Loans to employees | - | 67,781 | ||||||
| Prepaid expenses and other current assets | 91,310 | 75,066 | ||||||
| Total current assets | 1,868,318 | 2,004,913 | ||||||
| Assets held for sale | - | - | ||||||
| Fixed assets, net | 1,286,226 | 1,517,357 | ||||||
| Other assets | 305,507 | 264,529 | ||||||
| Investment | 350,000 | - | ||||||
| Goodwill | 1,315,721 | 1,396,734 | ||||||
| Other intangible assets, net | 1,588,969 | 2,873,789 | ||||||
| Total assets | $ | 6,714,741 | $ | 8,057,322 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,673,901 | $ | 1,411,942 | ||||
| Accrued expenses & other current liabilities | 909,432 | 1,312,745 | ||||||
| Deferred revenue & customer deposits | 25,163 | 30,193 | ||||||
| Short-term debt, net of unamortized discount of $247,000 -2008 | - | 652,511 | ||||||
| Current portion of capital lease obligations | 78,167 | 78,367 | ||||||
| Total current liabilities | 2,686,663 | 3,485,758 | ||||||
| Revolving notes from related parties | 583,000 | 2,283,000 | ||||||
| Long term debt, net of unamortized discount of $420,000 ($0 -2008) | 954,616 | - | ||||||
| Capital lease obligations | 182,424 | 210,365 | ||||||
| Deferred tax liability | 70,830 | 51,878 | ||||||
| Stockholders' equity | ||||||||
| Common stock, $.02 par value; 200,000,000 shares authorized, 16,397,887 shares issued and outstanding (14,369,764 in 2008) (325,000 subscribed in 2008) | 327,957 | 287,395 | ||||||
| Additional paid-in capital | 38,399,033 | 35,538,695 | ||||||
| Common stock subscriptions receivable | - | (1,300,000 | ) | |||||
| Accumulated deficit | (36,489,782 | ) | (32,499,769 | ) | ||||
| Total stockholders' equity | 2,237,208 | 2,026,321 | ||||||
| Total liabilities and stockholders' equity | $ | 6,714,741 | $ | 8,057,322 | ||||
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DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31,
| 2009 | 2008 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (3,990,013 | ) | $ | (8,285,142 | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
| Depreciation and amortization | 1,661,522 | 2,288,061 | ||||||
| Stock based compensation | 67,709 | 1,747,368 | ||||||
| Stock based payments for legal settlements | 115,101 | - | ||||||
| Warrants issuable for registration rights penalty | 109,464 | - | ||||||
| Impairment of patent defense costs and other intangible assets | - | 797,143 | ||||||
| Amortization of note discount | 250,102 | 8,227 | ||||||
| Gain on deconsolidation of division | (25,755 | ) | ||||||
| Loss of sale of patent assets | - | 1,169,947 | ||||||
| Decrease in restricted cash for foreign currency loss | - | 46,341 | ||||||
| (Increase) decrease in assets: | ||||||||
| Accounts receivable | 109,108 | 209,399 | ||||||
| Inventory | 73,849 | (32,342 | ) | |||||
| Prepaid expenses and other assets | (81,547 | ) | (36,653 | ) | ||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | 276,070 | 31,096 | ||||||
| Accrued expenses and other liabilities | (155,681 | ) | 383,884 | |||||
| Deferred revenue and customer deposits | (5,030 | ) | (718,100 | ) | ||||
| Net cash used by operating activities | (1,595,101 | ) | (2,390,771 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of fixed assets | (62,522 | ) | (334,800 | ) | ||||
| Decrease in restricted cash | 131,004 | - | ||||||
| Acquisition of business | - | (1,082,537 | ) | |||||
| Proceeds from the sale of patent assets | - | 500,000 | ||||||
| Purchase of other intangible assets | (176,083 | ) | (1,348,666 | ) | ||||
| Net cash used by investing activities | (107,601 | ) | (2,266,003 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Borrowing on revolving note- related parties | 1,030,000 | 1,983,000 | ||||||
| Repayment on revolving note- related parties | (730,000 | ) | - | |||||
| Borrowings on short-term credit facility | - | 500,000 | ||||||
| Repayment on short-term credit facility | - | (500,000 | ) | |||||
| Borrowings on short- term debt | - | 900,000 | ||||||
| Payments on short-term debt | (900,000 | ) | - | |||||
| Borrowings on long-term debt | 575,000 | - | ||||||
| Borrowings on long-term convertible notes | 800,000 | - | ||||||
| Payments of capital lease obligations | (86,124 | ) | (86,037 | ) | ||||
| Issuance of common stock, net | 1,374,901 | 1,205,163 | ||||||
| Net cash provided by financing activities | 2,063,777 | 4,002,126 | ||||||
| Net increase (decrease) in cash and cash equivalents | 361,075 | (654,648 | ) | |||||
| Cash and cash equivalents beginning of period | 87,820 | 742,468 | ||||||
| Cash and cash equivalents end of period | $ | 448,895 | $ | 87,820 | ||||
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Adjusted EBITDA: Non-GAAP Financial Performance Measure
DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Adjusted EBITDA
| Three Months Ended | Year Ended | |||||||||||||||||||||||
| December 31, 2009 | December 31, 2008 | % Change | December 31, 2009 | December 31, 2008 | % Change | |||||||||||||||||||
| Net Loss | $ | (1,117,000 | ) | $ | (2,103,000 | ) | -47 | % | $ | (3,990,000 | ) | $ | (8,284,000 | ) | -52 | % | ||||||||
| Add back: | ||||||||||||||||||||||||
| Depreciation | 69,000 | 79,000 | -13 | % | 319,000 | 316,000 | 1 | % | ||||||||||||||||
| Amortization of Intangibles | 371,000 | 367,000 | 1 | % | 1,342,000 | 1,972,000 | -32 | % | ||||||||||||||||
| Stock based payments | 370,000 | 241,000 | 54 | % | 292,000 | 1,747,000 | -83 | % | ||||||||||||||||
| Impairment of patent defense costs and other intangible assets | - | 505,000 | -100 | % | - | 797,000 | ||||||||||||||||||
| Loss on sale of patent assets | - | - | 0 | % | - | 1,170,000 | ||||||||||||||||||
| Interest Income | - | - | 0 | % | (18,000 | ) | (1,000 | ) | 1700 | % | ||||||||||||||
| Interest Expense | 52,000 | 41,000 | 27 | % | 259,000 | 145,000 | 79 | % | ||||||||||||||||
| Amortization of bond discount | 61,000 | 8,000 | 663 | % | 250,000 | |||||||||||||||||||
| Income Taxes | 5,000 | 5,000 | 0 | % | 19,000 | 19,000 | 0 | % | ||||||||||||||||
| Adjusted EBITDA | (189,000 | ) | (857,000 | ) | -78 | % | (1,527,000 | ) | (2,119,000 | ) | -28 | % | ||||||||||||
| Adjusted EBITDA loss per share, basic and diluted | (0.01 | ) | (0.09 | ) | -87 | % | (0.10 | ) | (0.15 | ) | -31 | % | ||||||||||||
| Weighted average common shares outstanding, basic and diluted | 15,276,109 | 14,364,473 | 6 | % | 14,700,453 | 14,002,034 | 5 | % | ||||||||||||||||
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 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.
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.
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