Document Security Systems, Inc. Announces Preliminary Third Quarter 2012 Financial Results

   Document Security Systems, Inc. Announces Preliminary Third Quarter 2012
                              Financial Results

Will Hold Third Quarter Earnings Conference Call on November 13, 2012 at 4:30

PR Newswire

ROCHESTER, N.Y., Oct. 22, 2012

ROCHESTER, N.Y., Oct. 22, 2012 /PRNewswire/ --Document Security Systems, Inc.
(NYSE Amex: DSS; "DSS"), a leading developer and integrator of cloud computing
data security, Radio Frequency Identification ("RFID") systems and security
printing technologies which prevent product diversion, counterfeiting and
brand fraud, today announced preliminary third quarter 2012 results.

Revenues for Q3 2012 were $4.2 million, a 15% increase over Q3 2011. Revenues
for the nine months ended September 30, 2012 were $11.7 million, a 27%
increase from the first nine months of 2011 resulting from significant growth
in both the Packaging and Licensing and Digital Solutions divisions, which
grew by 54% and 41% respectively.

Gross profit for Q3 2012 was $1.5 million, a 20% increase over Q3 2011. Gross
profit for the nine months ended September 30, 2012 increased 36% from the
first nine months of 2011, due to an improved sales mix and a reduction in
production costs.

Operating expenses for Q3 2012 were $2.6 million, an increase of 20% which
included approximately $461,000 of professional fees incurred in conjunction
with the Company's Definitive Merger Agreement with Lexington Technology Group
the Company announced on October 1, 2012. As a result, net loss for Q3 2012
was $1,096,000 compared to $757,000 in Q3 2011.Absent the merger costs, net
loss for Q3 2012 would have decreased 19% from Q3 2011 to a loss of $635,000.

Document Security Systems also reached a significant financial milestone in
September, 2012, achieving the company's first month of operating
profitability as measured by adjusted EBITDA (earnings before interest, taxes,
depreciation, amortization, stock based compensation and other non-recurring
items). Overall, for Q3 2012, adjusted EBITDA was a loss of $522,000, a 7%
improvement from Adjusted EBITDA loss of $564,000 in Q3 2011. Excluding
non-recurring cost of $461,000 relating to the merger, adjusted EBITDA would
have been a loss of $61,000, an 89% improvement from Q3 2011.

Document Security System's CEO Patrick White said, "We are very pleased with
our third quarter results, where we saw strength in all of our business
divisions. As we enter the final quarter of 2012, we expect to continue to
build upon our revenue and gross profit growth that allowed us to reach the
important financial milestone of positive adjusted EBITDA in the month of
September."

The above description of the Company's preliminary financial results for the
quarter ending September 30, 2012 is a summary only and is qualified in its
entirety by the financial information that will be contained in the Company's
quarterly report on Form 10-Q for the quarter ended September 30, 2012, to be
filed with the SEC on or prior to November 14, 2012.

CONFERENCE CALL

Management will host a teleconference and web cast November 13, at 4:30 pm ET
to discuss the results with the investment community:

Time: 4:30 p.m. Eastern Time
Date: Tuesday, November 13, 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=170041

A replay of the teleconference will be available until November 27, 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 #402581 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.
Follow DSS on Facebook, click HERE.

For more information:

Investor Relations
Document Security Systems
(585) 325-3610
Email: ir@documentsecurity.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 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
(Unaudited)
                Three       Three               Nine Months Nine Months
                Months      Months     %        Ended       Ended       %
                Ended       Ended      change   September   September   change
                September   September           30, 2012    30, 2011
                30, 2012    30, 2011
Revenue
                $      $               $      $     
Printing                      -17%     2,214,000  2,342,000   -5%
                693,000    832,000
Packaging      2,188,000   1,576,000  39%      5,858,000   3,796,000   54%
Plastic IDs    774,000     757,000    2%       2,254,000   2,087,000   8%
and cards
 Licensing
and digital     509,000     451,000    13%      1,340,000   952,000     41%
solutions
                $      $               $       $     
Total Revenue                     15%      11,666,000 9,177,000   27%
                4,164,000   3,616,000
Costs of
revenue
                $      $               $      $     
Printing                      -39%     1,568,000  2,083,000   -25%
                429,000    699,000
Packaging      1,640,000   1,125,000  46%      4,471,000   2,763,000   62%
Plastic IDs    433,000     454,000    -5%      1,263,000   1,231,000   3%
and cards
 Licensing
and digital     139,000     68,000     104%     256,000     87,000      194%
solutions
Total cost of   2,641,000   2,346,000  13%      7,558,000   6,164,000   23%
revenue
Gross profit
Printing       264,000     133,000    98%      646,000     259,000     149%
Packaging      548,000     451,000    22%      1,387,000   1,033,000   34%
Plastic IDs    341,000     303,000    13%      991,000     856,000     16%
and cards
 Licensing
and digital     370,000     383,000    -3%      1,084,000   865,000     25%
solutions
Total gross     $      $               $      $     
profit                            20%      4,108,000  3,013,000   36%
                1,523,000   1,270,000
Gross profit    37%         35%        4%       35%         33%         7%
percentage
Operating
Expenses
Sales, general  $      $    
and                               -1%      $      $      18%
administrative  1,065,000   1,080,000          3,176,000  2,684,000
compensation
Professional    594,000     219,000    171%     968,000     582,000     66%
Fees
Sales and       67,000      127,000    -47%     231,000     413,000     -44%
marketing
Rent and        140,000     195,000    -28%     438,000     547,000     -20%
utilities
Other           207,000     212,000    -2%      699,000     575,000     22%
                2,073,000   1,833,000  13%      5,512,000   4,801,000   15%
Other
Operating
Expenses
Non-production
depreciation    33,000      31,000     6%       97,000      94,000      3%
and
amortization
Research and
development,
including
research and    173,000     83,000     108%     545,000     208,000     162%
development
costs paid by
equity
instruments
Stock based     197,000     114,000    73%      450,000     319,000     41%
compensation
Amortization    76,000      71,000     7%       228,000     205,000     11%
of intangibles
                479,000     299,000    60%      1,320,000   826,000     60%
 Total   $      $               $      $     
Operating                         20%      6,832,000  5,627,000   21%
Expenses        2,552,000   2,132,000
Operating loss  (1,029,000) (862,000)  19%      (2,724,000) (2,614,000) 4%
Other income
(expense):
Change in fair  $      $               $     
value of                    -              $      -100%
derivative        -                       -          361,000
liability                   -
Interest        (51,000)    (61,000)   -16%     (177,000)   (170,000)   4%
expense
Amortization
of note         (11,000)    -          100%     (249,000)   -           100%
discount
Other income    -           -                   -           -
Other income    $      $               $      $     
(expense), net                 2%                   191,000  -323%
                (62,000)   (61,000)           (426,000)
Loss before     (1,092,000) (923,000)  18%      (3,150,000) (2,423,000) 30%
income taxes
Income tax
(benefit)       5,000       (165,000)  -103%    13,000      (156,000)   -108%
expense,net
                $      $               $      $    
Net loss                          45%      (3,165,000) (2,267,000) 40%
                (1,096,000) (757,000)
Net loss per    $      $               $      $     
share, basic                 25%                       25%
and diluted     (0.05)                       (0.15)     (0.12)
                            (0.04)
Weighted
average common
shares          20,822,351  19,474,173 7%       20,536,448  19,435,930  6%
outstanding,
basic and
diluted

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
 As of
                                         September 30, 2012  December 31, 2011
ASSETS                                      (Unaudited)
Current assets:
 Cash                                    $  1,022,924        $  717,679
 Accounts receivable, net of allowance
 of $76,000 ($76,000- 2011)                1,659,145           1,595,750
 Inventory                                  1,115,550           783,442
 Prepaid expenses and other current         393,857             95,399
 assets
                                                                -
Total current assets                  4,191,476           3,192,270
Property, plant and equipment, net          3,758,828           4,019,829
Other assets                                234,057             244,356
Goodwill                                    3,322,799           3,322,799
Other intangible assets, net                1,918,703           2,043,212
Total assets                             $  13,425,863       $  12,822,466
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable                        $  1,849,192        $  1,666,963
 Accrued expenses and other current         1,131,342           1,142,629
 liabilities
 Revolving lines of credit                  542,956             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           25,026              88,172
 obligations
Total current liabilities             3,881,599           4,272,098
Long-term debt, net of unamortized          2,131,573           2,819,783
discount of $55,000 ($88,000-2011)
Interest rate swap hedging liabilities      138,359             110,688
Capital lease obligations                   -                   11,133
Deferred tax liability                      122,938             108,727
Commitments and contingencies (see Note
6)
Stockholders' equity
 Common stock, $.02 par value;
 200,000,000 shares authorized,
 20,872,316 shares issued and
 outstanding
 (19,513,132 in 2011)                      417,445             390,262
 Additional paid-in capital                 53,212,067          48,395,241
 Accumulated other comprehensive loss       (138,359)           (110,688)
 Accumulated deficit                        (46,339,759)        (43,174,778)
 Total stockholders' equity                 7,151,394           5,500,037
Total liabilities and stockholders'      $  13,425,863       $  12,822,466
equity



DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,
(Unaudited)
                                                2012             2011
Cash flows from operating activities:
 Net loss                                   $ (3,164,981)  $ (2,267,351)
 Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization                     598,010        534,292
Stock based compensation                          631,466        319,106
Amortization of note discount                     248,758        -
Change in fair value of derivative liability      -              (360,922)
Deferred tax benefit                              -              (169,131)
(Increase) decrease in assets:
Accounts receivable                               (63,395)       491,497
Inventory                                         (332,108)      (442,421)
Prepaid expenses and other assets                 (183,130)      110,208
Increase (Decrease) in liabilities:
Accounts payable                                  182,229        (300,291)
Accrued expenses and other liabilities            2,924          67,820
Net cash used by operating activities             (2,080,227)    (2,017,193)
Cash flows from investing activities:
Purchase of property, plant and equipment         (108,931)      (497,709)
Purchase of other intangible assets               (103,569)      (26,313)
Acquisition of business                           -              61,995
Net cash used by investing activities             (212,500)      (462,027)
Cash flows from financing activities:
Net (payments) borrowings on revolving lines      (220,780)      (11,883)
of credit
Payment of short-term loan from related party     (150,000)      -
Payments of long-term debt                        (257,998)      (245,183)
Payments of capital lease obligations             (74,279)       (72,927)
Issuance of common stock, net of issuance         3,301,029      (206,851)
costs
Net cash provided (used) by financing             2,597,972      (536,844)
activities
Net increase (decrease) in cash                   305,245        (3,016,064)
Cash beginning of period                          717,679        4,086,574
Cash end of period                              $ 1,022,924    $ 1,070,510

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.

Non-GAAP Financial
Performance Measure
              Three Months Ended September 30   Nine Months Ended September 30
              2012         2011        %        2012        2011         %
                                       change                            change
              (unaudited)  (unaudited)          (unaudited) (unaudited)
Net Loss      $           $        45%      $          $          40%
              (1,096,000) (757,000)            (3,165,000) (2,267,000)
Add back:

Depreciation  207,000      183,000     -28%     598,000     534,000      12%
&
Amortization
Stock based   300,000      113,000     165%     631,000     319,000      98%
compensation
Interest      51,000       61,000      -16%     177,000     170,000      4%
expense
Amortization
of note       11,000       -           100%     249,000     -            100%
discount
Change in
fair value
of            -            -           -        -           (361,000)    -
derivative
liability
Income Taxes  5,000        (164,000)   -        14,000      (155,000)    -
Adjusted      (522,000)    (564,000)   -7%      (1,496,000) (1,760,000)  -15%
EBITDA
Professional
fees
incurred in
conjunction
with the      $461,000     -           100%     $461,000    -            100%
proposed
Merger with
Lexington
Technology
Group
Adjusted
EBITDA, less  (61,000)     (564,000)   -89%     (1,035,000) (1,760,000)  -41%
merger cost

SOURCE Document Security Systems, Inc.

Website: http://www.DSSsecure.com
 
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