EX-99.1 2 v083694_ex99-1.htm Unassociated Document
News Release
Document Security Systems, Inc.
Robin Pedace
Document Security Systems, Inc.
202.885.5536
robin@documentsecurity.com
Investor contact:
Bryan Kobel
Hayden Communications, Inc.
646.383.7621
bryan@haydenir.com
Media contact:
Kim Waver
Dixon Schwabl Advertising
585.899.3273
kim@dixonschwabl.com
 
For Immediate Release
 
Document Security Systems Reports Second
Quarter 2007 Financial Results
 
 
·
Revenue increases 10%
 
 
·
Gross profit increases 22%
 
 
·
Gross profit margin increased to 50%
 
ROCHESTER, NY, August 9, 2007 — Document Security Systems, Inc. (AMEX: DMC; "DSS"), a leader in proven, patented protection against counterfeiting and unauthorized copying, scanning and photo imaging, today reported results for the second quarter and six-month period ended June 30, 2007.
 
Revenue from continuing operations for the quarter was $1.3 million, up 10% compared to the $1.2 million reported for the comparable quarter of 2006. Gross profit from continuing operations for the second quarter increased 22% to $653,000 compared with $536,000 in 2006. Gross profit margin increased to 50% compared with 46% in the second quarter of 2006.
 
Mr. Patrick White, Chairman and CEO of DSS, commented, “I am happy to report that we continue to see growth in opportunities and demand for our product lines. During the second quarter, growth in revenue from continuing operations was 10% over the second quarter 2006. Based on our pipeline and the anticipated national release of our new “AuthentiGuard® On-Demand TM” product suite together with our Premier Partner, The Ergonomic Group, we continue to expect that we will see positive results and revenue generation from these sources during 2007 that will help us reach our goal of a positive earnings period during the remainder of 2007 and beyond.”
 
He continued, “We do acknowledge that our second quarter growth in revenue was below our expectations as several of our premier partner’s revenue projects were delayed. In addition, we spent significant time and effort on the continued European Central Bank patent litigation. During the second quarter, DSS defended its European patent’s validity at trial in France, filed an appeal against the English Court decision and made several filings in the ongoing proceedings in other jurisdictions. I note that our victory in the Germany validity lawsuit will ensure that we have a valid patent, regardless of the results of the validity cases in other European courts. In spite of these issues we were able to build significant long-term relationships with several new and very large clients, partners, and integrators that we believe will be the source of significant revenue for our company over the long-term.”
 
 
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Document Security Systems Reports Second Quarter 2007 Results
August 9, 2007
Page 2 of 8
 
SECOND QUARTER HIGHLIGHTS
 
 
·
Collaborated with The Ergonomic Group for the September 2007 roll-out of the “AuthentiGuard® On-DemandTM” product suite including the development of www.authenticate-360.com, a comprehensive resource for information and solutions for anti-counterfeiting, brand protection and a myriad of other related topics;
 
·
Announced an initial pilot agreement with Graphic Packaging International (NYSE: GPK) for the use of DSS’ AuthentiGuard® PhantomTM in consumer packaging to enhance brand impact and to provide counterfeiting protection;
 
·
Established and trained DSS Germany sales office to capitalize on interest generated by victory in German intellectual property court;
 
·
Initiated move of Document Security Systems’ plastic printing division, P3, into a 25,000 square foot secure facility to significantly expand its production capabilities;
 
·
Established an agreement with a new Premier Partner to offer comprehensive technology solutions in Mexico;
 
·
Expanded our South East Asia partner relationship to support greater sales outreach and broaden customer relationships;
 
·
Completed Patent Invalidity trial in France - decision expected in September, 2007;
 
·
Due to procedural errors, the European Central Bank abandoned its patent invalidity suit in Luxembourg. It should be noted that the ECB has the option of re-filing this suit at a later time; and
 
·
Filed an appeal against the English Court’s decision.
 
OPERATING RESULTS
 
Operating expenses for continuing operations for the second quarter were $2.4 million compared with $1.7 million in 2006, an increase of 36%. The increase in operating expenses includes an increase of approximately $165,000 in amortization of intangible assets associated with the Company’s patent and intangible asset portfolio, and an increase of approximately $156,000 or 74%, for sales and marketing expenses as compared to the second quarter of 2006.
 
The second quarter 2007 Adjusted EBITDA was a loss of $951,000, or $(0.07) per basic and diluted share, compared with a loss of $635,000, or $(0.05) per basic and diluted share, for the comparable period in 2006, an increase of 50%. (See Reconciliation of GAAP to Non-GAAP Financial Measures table).
 
In the second quarter of 2007, the net loss was $1.7 million, or $(0.12) per basic and diluted share compared with a net loss of $1.2 million or $(0.09) per basic and diluted share for the second quarter of 2006.
 
Year-to-date, the Company reported revenue from continuing operations of $2.9 million, a 56% increase compared to revenue from continuing operations of $1.9 million for the first six months of 2006. Driving the growth was significant increases in licensing revenue and early sales from DSS' new On-Demand digital solutions product suite. Year to date gross profit from continuing operations was $1.6 million, an increase of 103.0% compared to gross profit of $0.8 million for the first half of last year. Gross profit margin increased to 56% compared with 43% in the first half of 2006. Operating expenses for continuing operations for the period were $4.6 million compared with $3.0 million in 2006, an increase of 55%, including a 135% increase in sales and marketing expenses, including the expansion of the Company’s direct sales force, and a 20% increase in research and development expenses as the Company continues to focus on innovation. The Adjusted EBITDA for the first half of 2007 was a loss of $1.5 million, or $(0.11) per basic and diluted share, compared with a loss of $1.3, or $(0.10) per basic and diluted share, for the comparable period in 2006, an increase of 9%. (See Reconciliation of GAAP to Non-GAAP Financial Measures table). For the first half of 2007, the net loss was $2.9 million, or $(0.21) per basic and diluted share, compared with a net loss of $2.2 million or $(0.17) per basic and diluted share, for the first six months of 2006.
 
 
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Document Security Systems Reports Second Quarter 2007 Results
August 9, 2007
Page 3 of 8
 
 
EARLY THIRD QUARTER HIGHLIGHTS AND OUTLOOK
 
 
·
Aggressive bidding on projects with worldwide Premier Partners including Mexico, Southeast Asia, and the Dominican Republic;
 
·
Expansion of the Indra relationship incorporating On-DemandTM to issuance of Passports and Visas;
 
·
Growth in card sales for P3 as well as with Premier Partners IDI, Assa Abloy HID and UK-based Bristol distributors;
 
·
AuthentiGuard® On-DemandTM partnership and website launch scheduled for September 18, 2007;
 
·
Washington, DC focus on sales and partnerships with core integrators such as Raytheon (NYSE:RTN) and SAIC (NYSE:SAI); and
 
·
Expansion of direct sales force with new hires focused on key verticals and account management and growth.
 
 
TELECONFERENCE
 
The Company invites you to second quarter earnings teleconference and webcast will occur on Thursday, August 9, 2007 at 4:30 p.m. Eastern Time. To access the call you may dial, toll free 1-866-225-8754 and toll/international 1-480-293-1744.

It is recommended that you dial in approximately 10 to 15 minutes prior to the scheduled start time. Alternatively, you may listen to a live webcast of the call on the Company’s website: www.documentsecurity.com.
 
A replay of the call will be available until August 16, 2007 at midnight Eastern Time by dialing, toll free 1-800-406-7325, and toll/international 1-303-590-3030 and typing in the pin number 3765065. The archive will be made available on the DSS website for approximately 60 days.
 
 
About Document Security Systems, Inc.
A rapidly growing security technology Company, 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 can be found at its websites: www.documentsecurity.com and www.plasticprintingprofessionals.com.
 
 
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Document Security Systems Reports Second Quarter 2007 Results
August 9, 2007
Page 4 of 8
 
Safe Harbor Statement
 
This release contains forward-looking statements regarding expectations for future financial performance, which involve uncertainty and risk. It is possible the Company's future financial performance may differ from expectations due to a variety of factors including, but not limited to, 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 Reports Second Quarter 2007 Results
August 9, 2007
Page 5 of 8

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
   
 Three Months Ended  
 
 Six Months Ended  
 
 
 
 June 30,  
 
 June 30,  
 
 June 30,  
 
 June 30,  
 
 
 
 2007  
 
 2006  
 
 2007  
 
 2006  
  
Revenue  
    
   
   
   
 
Security printing  
  
$
826,734
  
$
970,572
  
$
1,818,382
  
$
1,462,655
  
Royalties  
    
294,157
    
60,081
    
592,953
    
96,695
  
Digital solutions  
    
11,969
    
-
    
174,771
    
-
  
Legal products  
    
161,663
    
145,028
    
337,345
    
315,086
  
Total Revenue  
    
1,294,523
    
1,175,681
    
2,923,451
    
1,874,436
  
                           
Costs of revenue  
                          
Security printing  
    
547,575
    
562,548
    
1,055,538
    
889,854
  
Digital solutions  
    
3,507
    
-
    
37,014
    
-
  
Legal products  
    
90,593
    
76,791
    
193,767
    
179,508
  
Total costs of revenue  
    
641,675
    
639,339
    
1,286,319
    
1,069,362
  
                           
Gross profit  
    
652,848
    
536,342
    
1,637,132
    
805,074
  
                           
Operating expenses:  
                          
Selling, general and administrative  
    
1,811,586
    
1,370,558
    
3,608,732
    
2,311,953
  
Research and development  
    
108,889
    
96,282
    
203,297
    
168,884
  
Amortization of intangibles  
    
433,090
    
268,275
    
778,729
    
488,275
  
Operating expenses  
    
2,353,565
    
1,735,115
    
4,590,758
    
2,969,112
  
                           
Operating loss  
    
(1,700,717
)
  
(1,198,773
)
  
(2,953,626
)
  
(2,164,038
)
                           
Other income (expense):  
                          
Interest income  
    
34,179
    
17,242
    
74,987
    
44,138
  
Gain/(loss) on foreign currency adjustments 
    
(945
)
  
-
    
(4,291
)
  
-
  
Interest expense 
    
(1,296
)
  
(5,381
)
  
(2,449
)
  
(10,844
)
Loss before income taxes and discontinued operations
    
(1,668,779
)
  
(1,186,912
)
  
(2,885,379
)
  
(2,130,744
)
                           
Income taxes  
    
4,738
    
-
    
9,476
    
-
  
                           
Loss from continuing operations  
    
(1,673,517
)
  
(1,186,912
)
  
(2,894,855
)
  
(2,130,744
)
Loss from discontinued operations  
    
26,821
    
19,625
    
15,426
    
70,355
  
Net loss  
  
$
(1,700,338
)
$
(1,206,537
)
$
(2,910,281
)
$
(2,201,099
)
                           
Net loss per share -basic and diluted:  
                          
Continuing operations  
    
(0.12
)
  
(0.09
)
  
(0.21
)
  
(0.17
)
Discontinued operations  
    
(0.00
)
  
(0.00
)
  
(0.00
)
  
(0.00
)
Net Loss  
    
(0.12
)
  
(0.09
)
  
(0.21
)
  
(0.17
)
                           
Weighted average common shares outstanding, basic and diluted  
    
13,625,408
    
12,850,491
    
13,605,327
    
12,824,935
  
 
 
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Document Security Systems Reports Second Quarter 2007 Results
August 9, 2007
Page 6 of 8
 
DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

   
 June 30,  
  
 December 31,  
  
 
  
 2007  
  
 2006  
  
 
  
 (unaudited)  
  
 (audited)  
  
ASSETS  
    
   
 
               
Current assets:  
              
Cash and cash equivalents  
  
$
3,251,094
  
$
5,802,615
  
Accounts receivable, net of allowance of $39,000 ($74,000 -2006)  
    
693,797
    
618,622
  
Inventory  
    
301,159
    
239,416
  
Prepaid expenses and other current assets  
    
397,152
    
224,782
  
Assets held for sale  
    
38,000
    
-
  
               
Total current assets  
    
4,681,202
    
6,885,435
  
               
Fixed assets, net  
    
578,919
    
637,732
  
Other assets  
    
146,935
    
156,734
  
Goodwill  
    
1,396,734
    
1,396,734
  
Other intangible assets, net  
    
6,773,529
    
5,389,564
  
               
Total Assets  
  
$
13,577,319
  
$
14,466,199
  
               
LIABILITIES AND STOCKHOLDERS' EQUITY  
              
               
Current liabilities:  
              
Accounts payable  
  
$
1,595,559
  
$
1,283,503
  
Accrued expenses & other current liabilities  
    
540,007
    
877,261
  
Deferred revenue  
    
677,827
    
564,439
  
Current portion of capital lease obligations  
    
31,336
    
34,814
  
               
Total current liabilities  
    
2,844,729
    
2,760,017
  
               
Long-term capital lease obligations 
    
35,780
    
50,417
  
               
Long-term deferred revenue  
    
189,188
    
466,875
  
               
Commitments and contingencies  
              
               
Stockholders' equity  
              
Common stock, $.02 par value; 200,000,000 shares authorized, 13,676,030 shares issued and outstanding (13,544,724 in 2006)  
    
273,521
    
270,894
  
Additional paid-in capital  
    
30,371,801
    
28,145,793
  
Accumulated deficit 
    
(20,137,700
)
  
(17,227,797
)
Total stockholders' equity
    
10,507,622
    
11,188,890
  
Total Liabilities and Stockholders' Equity
  
$
13,577,319
  
$
14,466,199
  

 
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Document Security Systems Reports Second Quarter 2007 Results
August 9, 2007
Page 7 of 8

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended June 30,

 
   
 2007  
  
 2006  
  
 
  
 (unaudited)  
  
 (unaudited)  
  
Cash flows from operating activities: 
  
 
  
 
  
Net loss  
  
$
(2,910,281
)
$
(2,201,099
)
               
Adjustments to reconcile net loss to net cash used by operating activities:
             
Depreciation and amortization expense  
    
870,247
   
607,410
 
Stock based compensation  
    
633,040
   
280,450
 
(Increase) decrease in assets: 
              
Accounts receivable 
    
(75,175
)
  
(362,012
)
Inventory 
    
(61,743
)
  
(57,600
)
Prepaid expenses and other assets 
    
(238,656
)
  
(8,385
)
Increase (decrease) in liabilities: 
              
Accounts payable 
    
360,023
   
293,126
 
Accrued expenses 
    
(49,754
)
  
(69,096
)
Deferred revenue 
    
(164,299
)
  
-
  
               
Net cash used by operating activities 
    
(1,636,598
)
  
(1,517,206
)
               
Cash flows from investing activities: 
              
Purchase of fixed assets 
    
(70,705
)
  
(69,887
)
Acquisition 
    
-
    
(1,301,670
)
Purchase of other intangible assets 
    
(661,709
)
  
(77,841
)
               
Net cash used by investing activities 
    
(732,414
)
  
(1,449,398
)
               
Cash flows from financing activities: 
              
Repayment of long-term debt 
    
-
    
(25,075
)
Repayment of capital lease obligations 
    
(18,115
)
  
(16,333
)
Payment of stock issuance costs 
    
(519,619
)
  
-
  
Issuance of common stock, net 
    
355,225
   
757,770
 
               
Net cash (used by) provided by financing activities 
    
(182,509
)
  
716,362
 
               
Net increase (decrease) in cash and cash equivalents 
    
(2,551,521
)
  
(2,250,242
)
Cash and cash equivalents beginning of period
   
5,802,615
   
3,953,482
 
Cash and cash equivalents end of period
 
$
3,251,094
  
$
1,703,240
  

 
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Document Security Systems Reports Second Quarter 2007 Results
August 9, 2007
Page 8 of 8


 
   
Three Months Ended June 30, 2007
  
Six Months Ended June 30, 2007
  
 
      
% change vs. 3
      
% change vs. 6
  
 
      
months ended June
      
months ended June
  
 
  
$
  
30, 2006
  
 $
  
30, 2006
  
Net Loss  
  
$
(1,700,000
)
  
41
%
$
(2,910,000
)
  
32
%
                           
Add back: 
                          
                           
Depreciation  
    
47,000
   
-25
%
  
91,000
   
-24
%
Amortization of Intangibles  
    
433,000
   
62
%
  
779,000
   
60
%
Stock based payments  
    
297,000
   
17
%
  
633,000
   
126
%
Interest Income  
    
(34,000
)
  
100
%
  
(75,000
)
  
70
%
Interest Expense  
    
1,000
   
-80
%
  
2,000
   
-82
%
Income Taxes  
    
5,000
         
9,000
       
                           
Adjusted EBITDA
   
(951,000
)
  
50
%
  
(1,471,000
)
  
9
%
 
 
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