8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 15, 2011

DOCUMENT SECURITY SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

New York	1-32146	16-1229730
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

First Federal Plaza, Suite 1525 28 East Main Street Rochester, NY	14614
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (585) 325-3610

Not Applicable

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

On August 15, 2011, Document Security Systems, Inc. (“Company”) issued a press release announcing the financial results for the second quarter ended June 30, 2011. A copy of the Company’s press release is attached as Exhibit 99.1 to this current report on Form 8-K.

The information furnished pursuant to this Item 2.02 and the exhibit hereto shall not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934, as amended (the “Exchange Act”), and shall not be deemed to be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act except as shall be expressly set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

99.1 Press Release dated August 15, 2011

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	DOCUMENT SECURITY SYSTEMS, INC.
Dated: August 16, 2011	By:	/s/ Patrick A. White
		Patrick A. White
		Chief Executive Officer

Exhibit Index

Exhibit No.	Description
99.1	Press Release dated August 15, 2011

EX-99.1

Document Security Systems, Inc. Reports Second Quarter 2011 Financial Results

ROCHESTER, NY—August 15, 2011— Document Security Systems, Inc. (NYSE Amex: DSS; "DSS"), a world-wide developer and manufacturer of security and authentication solutions which prevent counterfeiting and brand fraud, reported results for the second quarter ended June 30, 2011.   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:  Monday, August 15th, 2011

Investor Dial-in (Toll Free):  877-407-9210

Investor Dial-In (International):  201-689-8049

Live Web Cast URL:  http://www.investorcalendar.com/IC/CEPage.asp?ID=165625

A replay of the teleconference will be available until August 29, 2011, 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 #377482 to access the replay.  The webcast will be available for replay within the Investor Relations “Events & Presentations” section of the DSS home page located at www.DSSsecure.com.

Second Quarter 2011 Highlights

§ Sales of $2.9 million up 7% from first quarter of 2011, down 14% from the second quarter 2010.

§ Gross margin percentage of 28% up from 26% in the second quarter of 2010.

§ Operating expenses increased 13% from the first quarter of 2011, up 8% from the second quarter 2010. The bulk of this increase was due to an increase in sales and marketing related expenses, the acquisition of a cloud computing company called Extradev, Inc. and a major re-branding project the company recently completed.

§ Net loss of $1,112,000, an increase of 12% from the second quarter of 2010.

§ Net loss per share of $(0.06), flat with the net loss per share in the second quarter of 2010.

First Half 2011 Highlights

§ Sales of $5.6 million down 9% from the first half of 2010.

§ Gross profit up 1% from the first half of 2010.

§ Gross margin percentage of 31% up from 28% in the first half of 2010.

§ Operating expenses decreased 5% from the first half of 2010.

§ Net loss of $1,510,000, a decrease of 29% from the first half of 2010 loss.

§ Net loss per share of $(0.08) compared to $(0.12) in the first half of 2010.

- MORE -

Patrick White, DSS’s CEO, stated: “ Unfortunately, the positive 2nd quarter results from four of our five operating divisions were overshadowed by the continuing struggles in our non-core commercial printing unit, and expense increases from a front loading of sales and marketing costs and costs associated with our successful re-branding project we completed during the quarter..  We are excited about the solid financial performances of our core business divisions, (security licensing and printing, plastics, packaging and digital) achieved during the quarter.

It is important to note that Management is weighing certain options for the non-core commercial printing component of our business.

Furthermore, during the second quarter we formed our new Digital Division based on our acquisition of ExtraDev, Inc. which joined DSS in the second quarter.   This new group adds an exciting new business line to our Company as it provides a delivery system for our various digital security products.  Our targeted sales and marketing efforts, including the launch during the second quarter of our new marketing identity, logo and website, has allowed DSS to make inroads with potentially significant customers, as well as increased our recognition in the industry.  The opportunities that exist for our security products continue to be immense, and we are confident that we are very well positioned to capitalize on the opportunities.”

About DSS (Document Security Systems, Inc.)

DSS is comprised of four core operating groups, DSS Plastics Group, DSS Secure 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 .

Follow DSS on Facebook, clickHERE.

For more information:

BPC Financial Marketing

John Baldissera

800-368-1217

Email: ir@documentsecurity.com

2

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, 2010 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.

3

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended June 30, 2011			Three Months Ended June 30, 2010			% change			Six Months Ended June 30, 2011			Six Months Ended June 30, 2010			% change			Three Months Ended March 31, 2011			% change
Revenue
Printing	$	789,000		$	1,172,000			-33	%	$	1,511,000		$	2,432,000			-38	%	$	722,000			9	%
Packaging		1,183,000			1,330,000			-11	%		2,220,000			2,071,000			7	%		1,036,000			14	%
Plastic IDs and cards		637,000			656,000			-3	%		1,330,000			1,258,000			6	%		693,000			-8	%
Licensing and digital solutions		266,000			168,000			58	%		500,000			340,000			47	%		234,000			14	%
Total Revenue		2,875,000			3,326,000			-14	%		5,561,000			6,101,000			-9	%		2,685,000			7	%
Costs of revenue
Printing	$	754,000		$	1,004,000			-25	%	$	1,384,000		$	1,956,000			-29	%	$	631,000			19	%
Packaging		920,000			1,058,000			-13	%		1,638,000			1,617,000			1	%		718,000			28	%
Plastic IDs and cards		375,000			386,000			-3	%		777,000			798,000			-3	%		402,000			-7	%
Licensing and digital solutions		19,000			-			100	%		19,000			5,000			280	%		-			100	%
Total cost of revenue		2,068,000			2,448,000			-16	%		3,818,000			4,376,000			-13	%		1,751,000
Gross profit
Printing		35,000			168,000			-79	%		127,000			476,000			-73	%		91,000			-62	%
Packaging		263,000			272,000			-3	%		582,000			454,000			28	%		318,000			-17	%
Plastic IDs and cards		262,000			270,000			-3	%		553,000			460,000			20	%		291,000			-10	%
Licensing and digital solutions		247,000			168,000			47	%		481,000			335,000			44	%		234,000			6	%
Total gross profit		807,000			878,000			-8	%		1,743,000			1,725,000			1	%		934,000			-14	%
Operating Expenses
Sales, general and administrative compensation		843,000			859,000			-2	%		1,604,000			1,691,000			-5	%		759,000			11	%
Professional Fees		163,000			133,000			23	%		364,000			345,000			6	%		200,000			-19	%
Sales and marketing		162,000			57,000			184	%		286,000			126,000			127	%		124,000			31	%
Research and development		74,000			67,000			10	%		125,000			133,000			-6	%		51,000			45	%
Rent and utilities		188,000			166,000			13	%		354,000			308,000			15	%		166,000			13	%
Other		231,000			163,000			42	%		364,000			372,000			-2	%		133,000			74	%
		1,661,000			1,445,000			15	%		3,097,000			2,975,000			4	%		1,433,000			16	%
Other Operating Expenses
Depreciation and software amortization		31,000			31,000			0	%		63,000			62,000			2	%		32,000			-3	%
Stock based compensation		101,000			65,000			55	%		202,000			205,000			-1	%		101,000			0	%
Amortization of intangibles		62,000			184,000			-66	%		134,000			430,000			-69	%		72,000			-14	%
		194,000			280,000			-31	%		399,000			697,000			-43	%		205,000			-5	%
Total Operating Expenses		1,855,000			1,725,000			8	%		3,496,000			3,672,000			-5	%		1,638,000			13	%
Operating loss		(1,048,000	)		(847,000	)		24	%		(1,753,000	)		(1,947,000	)		-10	%		(704,000	)		49	%
Other income (expense):
Change in fair value of derivative liability		-			-			0	%		361,000			-			100	%		361,000			-100	%
Interest expense		(59,000	)		(84,000	)		-30	%		(109,000	)		(150,000	)		-27	%		(50,000	)		18	%
Amortizaton of note discount		-			(41,000	)		-100	%		-			(82,000	)		-100	%		-			0	%
Loss in equity investment		-			(20,000	)		-100	%		-			(72,000	)		-100	%		-			0	%
Other income		-			-			0	%		-			143,000			-100	%		-			0	%
Other income (expense), net		(59,000	)		(145,000	)		-59	%		252,000			(161,000	)		-257	%		311,000
Loss before income taxes		(1,107,000	)		(992,000	)		12	%		(1,501,000	)		(2,108,000	)		-29	%		(392,000	)
Income taxes		5,000			5,000			0	%		9,000			9,000			0	%		5,000
Net loss	$	(1,112,000	)	$	(997,000	)		12	%	$	(1,510,000	)	$	(2,117,000	)		-29	%	$	(398,000	)		179	%
Net loss per share, basic and diluted	$	(0.06	)	$	(0.06	)		0	%	$	(0.08	)	$	(0.12	)		-33	%	$	(0.02	)		200	%
Weighted average common shares outstanding, basic and diluted		19,420,780			17,769,726			9	%		19,416,786			17,390,570			12	%		19,413,232			0	%

###

DOCUMENT SECURITY SYSTEMS, INC.  AND SUBSIDIARIES

Consolidated Balance Sheets

As of

	June 30, 2011			December 31, 2010
	(Unaudited)
ASSETS
Current assets:
Cash	$	1,512,161		$	4,086,574
Accounts receivable, net of allowance of $66,000 ($66,000- 2010)		1,523,261			2,227,877
Inventory		916,690			601,359
Prepaid expenses and other current assets		140,784			231,190
Total current assets		4,092,896			7,147,000
Equipment and leasehold improvements, net		2,415,495			2,543,494
Other assets		315,299			325,953
Goodwill		2,012,628			1,943,081
Other intangible assets, net		2,146,074			1,847,859
Total assets	$	10,982,392		$	13,807,387
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	1,286,391		$	1,828,138
Accrued expenses and other current liabilities		657,029			1,312,363
Revolving lines of credit		504,081			614,833
Current portion of long-term debt		424,432			300,000
Current portion of capital lease obligations		94,618			88,776
Total current liabilities		2,966,551			4,144,110
Revolving note from related party		-			583,000
Long-term debt		1,953,810			1,578,242
Capital lease obligations		37,486			98,532
Deferred tax liability		99,253			89,779
Derivative liabilities		-			3,866,836
Commitments and contingencies
Stockholders' equity
Common stock, $.02 par value;  200,000,000 shares authorized, 19,420,780 shares issued and outstanding (19,391,319 in 2010)		388,415			387,825
Additional paid-in capital		48,163,003			44,178,569
Accumulated other comprehensive loss		(22,156	)		(25,834	)
Accumulated deficit		(42,603,970	)		(41,093,672	)
Total stockholders' equity		5,925,292			3,446,888
Total liabilities and stockholders' equity	$	10,982,392		$	13,807,387

###

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Six Months Ended June 30,

(Unaudited)

	2011			2010
Cash flows from operating activities:
Net loss	$	(1,510,298	)	$	(2,117,225	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization		351,548			641,548
Stock based compensation		201,543			204,961
Amortization of note discount		-			81,464
Loss on equity investment		-			71,679
Change in fair value of derivative liability		(360,922	)		-
(Increase) decrease in assets:
Accounts receivable		773,970			889,660
Inventory		(315,331	)		201,010
Prepaid expenses and other assets		34,760			(17,923	)
Increase (decrease) in liabilities:
Accounts payable		(610,132	)		(424,409	)
Accrued expenses and other current liabilities		(457,137	)		140,594
Net cash used by operating activities		(1,891,997	)		(328,641	)
Cash flows from investing activities:
Purchase of equipment and leashold improvements		(4,509	)		(85,400	)
Purchase of other intangible assets		(24,472	)		(43,137	)
Acquisition of business		61,995			(2,272,405	)
Net cash provided (used) by investing activities		33,014			(2,400,942	)
Cash flows from financing activities:
Net borrowings on related party revolving line of credit		-			100,000
Net payments on revolving line of credit		(349,911	)
Borrowings on long-term debt		-			1,500,000
Payments of long-term debt		(150,000	)		(100,000	)
Payments of capital lease obligations		(55,204	)		(44,344	)
Issuance of common stock, net of issuance costs		(160,315	)		1,134,005
Net cash (used) provided by financing activities		(715,430	)		2,589,661
Net decrease in cash		(2,574,413	)		(139,922	)
Cash beginning of period		4,086,574			448,895
Cash end of period	$	1,512,161		$	308,973

###