Document Security Systems Reports First Quarter of 2014 Financial Results

  Document Security Systems Reports First Quarter of 2014 Financial Results

PR Newswire

ROCHESTER, N.Y., May 13, 2014

ROCHESTER, N.Y., May 13, 2014 /PRNewswire/ --Document Security Systems, Inc.
(NYSE MKT: DSS), (DSS), a leader in anti-counterfeiting and authentication
solutions, reported results for the first quarter ending March 31, 2014.

Q1 2014 Operational Highlights

  oCompleted consolidation of printing and packaging facilities into a single
    location, which resulted in cost savings beginning in the first quarter of
    2014.
  oReceived $3.0 million in financing from an intellectual property funding
    source, which the company used in part to fund the purchase of
    complementary IP assets that supports roll-out of AuthentiGuard.
  oReceived nationwide coverage of AuthentiGuard^® on Fox Television during a
    guest spot and live demonstration on Fox and Friends.
  oFiled a patent infringement lawsuit against Samsung Electronics Co.,
    Taiwan Semiconductor Corporation, and NEC Corporation of America and
    others, alleging infringement of patents related to semiconductor
    manufacturing. DSS acquired these patents in 2013 to support development
    of proprietary hardware and peripherals, including devices running
    AuthentiGuard, its patented iPhone application for authentication.

Q1 2014 Financial Highlights
Revenue for the first quarter of 2014 totaled $3.6 million versus $3.8 million
for the same year-ago quarter. The decrease was primarily due to the timing of
several packaging orders that slipped from March to April.

Printed product revenue, which includes sales of packaging, printing and
plastics, totaled $3.2 million, a decrease of 4% from $3.3 million in the same
year-ago period. Technology sales, services and licensing revenues totaled
$464,000, a decrease of 5% from $491,000 in the year-ago period.

Cost of goods sold, excluding depreciation and amortization, totaled $2.2
million, which was flat with the year-ago period.

Operating expenses totaled $6.6 million, an increase of 36% from $4.8 million
in the same year-ago period. The increase was primarily due to higher
compensation costs, professional fees and amortization expenses related to the
company's Technology Management division from the acquisition of Lexington
Technology Group (LTG) in July 2013. The Technology Management expenses were
not a component of the comparable year-ago period.

Adjusted EBITDA  loss, a non-GAAP metric the company defines as earnings
before interest, taxes, depreciation, amortization, and stock based
compensation, as well as other non-recurring items, including professional
fees and stock-based compensation related to the company's merger with LTG,
totaled $1.1 million compared to an adjusted EBITDA loss of $398,000 in the
first quarter of 2013 (see further discussion about the use of adjusted
EBITDA, below).

Net Loss  totaled $3.1 million or $(0.07) per basic and diluted share, as
compared to a net loss of $1.1 million or $(0.05) per basic and diluted share
in the first quarter of 2013. The increase was primarily due the company's
higher expense base as a result of its merger with LTG.

As of March 31, 2014, the company had $3.4 million in cash and restricted cash
compared to $2.5 million at the end of the prior quarter. The increase
reflects the receipt of $3.0 million in third-party funding, offset by
$750,000 in IP investments along with the use of cash for operations.

Management Commentary
"While first quarter revenue was lower than expected due to the timing of a
several packaging orders that slipped from March to April, our expectations
for our Printed Products group in 2014 remain intact," noted Jeff Ronaldi, CEO
of DSS. "Despite this timing issue, our Printed Products group continued to
produce strong positive adjusted EBITDA results, which is an integral
component of our corporate strategy."

"During the first quarter we also continued to make progress with our IP
strategy," continued Ronaldi. "We raised capital by leveraging the strength of
our existing patent assets. In addition to bolstering our balance sheet with
these proceeds, we were then able to acquire another strategic and robust
patent portfolio in April. This new portfolio significantly expands our
hardware IP, while providing additional freedom to advance the roll-out of
AuthentiGuard.

"Our progress with product sales and IP activities highlights the benefits of
our multi-tiered business model, which is designed to provide a stable stream
of revenue and profits from product sales as we pursue numerous opportunities
for IP monetization."

Conference Call
DSS management will hold a conference call later today (Tuesday, May 13, 2014)
to discuss these results. The company's CEO Jeff Ronaldi and CFO Phil Jones
will host the presentation, followed by a question and answer period.

Date: Tuesday, May 13, 2014
Time: 4:30 p.m. Eastern time (1:30 p.m. Pacific time)
U.S. dial-in: (877) 407-9210
International dial-in: (201) 689-8049
Conference ID: 13582144

The conference call will be broadcast simultaneously and available for replay
via the investor section of the company's website at www.dsssecure.com.

Please call the conference telephone number 10 minutes prior to the start
time. An operator will register your name and organization. If you have any
difficulty connecting with the conference call, please contact Liolios Group
at (949) 574-3860.

A replay of the call will be available after 7:30 p.m. Eastern time on the
same day through May 27, 2014.

U.S. replay dial-in: (877) 660-6853
International replay dial-in: (201) 612-7415
Replay ID: 13582144

About Document Security Systems
Document Security Systems, Inc.'s (NYSE MKT: DSS) products and solutions are
used by governments, corporations and financial institutions to defeat fraud
and to protect brands and digital information from the expanding world-wide
counterfeiting problem. DSS technologies help ensure the authenticity of both
digital and physical financial instruments, identification documents,
sensitive publications, brand packaging and websites.

DSS continually invests in research and development to meet the ever-changing
security needs of its clients and offers licensing of its patented
technologies through its subsidiary, DSS Technology Management, Inc.

For more information on the AuthentiGuard Suite, please visit
www.AuthentiGuard.com.
For more information on DSS and its subsidiaries, please visit
www.DSSsecure.com.
To follow DSS on Facebook, click here.

For More Information
Investor Relations
Document Security Systems
(585) 325-3610
Email: ir@documentsecurity.com

Forward-Looking Statements
Forward-looking statements that may be contained in this press release,
including, without limitation, statements related to the Company's plans,
strategies, objectives, expectations, potential value, intentions and adequacy
of resources, are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act and contain words such as "believes,"
"anticipates," "expects," "plans," "intends" and similar words and phrases.
These forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from the results projected in
any forward-looking statement. In addition to the factors specifically noted
in the forward-looking statements, other important factors, risks and
uncertainties that could result in those differences include, but are not
limited to, those disclosed in the "Risk Factors" section of the Company's
Annual Report on Form 10-K for the year ended December 31, 2013, filed with
the Securities and Exchange Commission. Forward-looking statements that may be
contained in this press release are being made as of the date of its release,
and the Company assumes no obligation to update the forward-looking
statements, or to update the reasons why actual results could differ from
those projected in the forward-looking statements.

FINANCIAL TABLES FOLLOW



DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
                                  Three Months      Three Months

                                  Ended March 31,   Ended March       % change

                                  2014              31, 2013
Revenue
Printed products                  $            $            -4%
                                  3,164,000         3,279,000
Technology sales, services and    464,000           491,000           -5%
licensing
Total revenue                     $            $            -4%
                                  3,628,000         3,770,000
Costs and expenses
Cost of goods sold, exclusive     $            $     
of depreciation and               2,198,000         2,208,000         0%
amortization
Sales, general and                1,290,000         1,135,000         14%
administrative compensation
Depreciation and amortization     1,313,000         225,000           484%
Professional fees                 540,000           414,000           30%
Stock based compensation          547,000           341,000           60%
Sales and marketing               171,000           82,000            109%
Rent and utilities                184,000           157,000           17%
Other operating expenses          212,000           222,000           -5%
Research and development          114,000           58,000            97%
 Total costs and           $            $            36%
expenses                          6,569,000         4,842,000
Operating loss                    (2,942,000)       (1,072,000)       174%
Other expenses
Interest expense                  (75,000)          (44,000)          70%
Amortizaton of note discount      (17,000)          (11,000)          55%
Foreign currency translation      (16,000)          -                 100%
loss
Other expense, net                (108,000)         (55,000)          96%
Loss before income taxes          (3,050,000)       (1,125,000)       171%
Deferred tax expense, net         5,000             5,000             0%
Net loss                          $             $             170%
                                  (3,055,000)       (1,132,000)
Earnings per share:
Basic                             $         $         40%
                                  (0.07)           (0.05)
Diluted                           $         $         40%
                                  (0.07)           (0.05)
Shares used in computing
earnings per share:
Basic                             41,923,987        21,708,550        93%
Diluted                           41,923,987        21,708,550        93%



DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
 As of
                                            March 31, 2014   December 31, 2013
ASSETS                                        (Unaudited)
Current assets:
 Cash                                       $ 2,941,874      $  1,977,031
 Restricted cash                              500,000           500,000
 Accounts receivable, net of allowance
 of $60,000 ($60,000- 2013)                  1,151,504         2,149,123
 Inventory                                    1,221,345         834,979
 Prepaid expenses and other current assets    546,469           403,107
 Deferred tax asset, net                      223,323           223,323
Total current assets                    6,584,515         6,087,563
Property, plant and equipment, net            5,330,474         5,157,852
Investments and other assets                  12,284,289        11,448,008
Goodwill                                      15,046,197        15,046,197
Other intangible assets, net                  28,489,633        29,602,591
Total assets                                $ 67,735,108     $  67,342,211
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
 Accounts payable                           $ 1,335,305      $  1,421,765
 Accrued expenses and other current           1,356,249         1,455,629
 liabilities
 Revolving lines of credit                    -                 158,087
 Short-term debt                              -                 824,857
 Current portion of long-term debt, net       596,699           613,488
Total current liabilities               3,288,253         4,473,826
Long-term debt, net                           6,680,423         3,087,358
Other long-term liabilities                   346,509           27,566
Deferred tax liability, net                   1,369,184         1,364,447
Commitments and contingencies
Stockholders' equity
 Common stock, $.02 par value;
 200,000,000 shares authorized, 49,503,954
 shares issued and outstanding
 (49,411,486 on December 31, 2013)           990,079           988,230
 Additional paid-in capital                   99,335,399        97,790,426
 Accumulated other comprehensive loss         (37,509)          (27,566)
 Accumulated deficit                          (47,917,230)      (44,862,076)
 Non-controlling interest in subsidiary       3,680,000         4,500,000
 Total stockholders' equity                   56,050,739        58,389,014
Total liabilities and stockholders' equity  $ 67,735,108     $  67,342,211



DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
(Unaudited)
                                                2014             2013
Cash flows from operating activities:
 Net loss                                   $ (3,055,154)  $ (1,131,585)
 Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization                     1,313,371      225,121
Stock based compensation                          547,142        340,601
Amortization of note discount and note            17,367         11,058
premium, net
Change in deferred tax provision                  4,737          4,737
Foreign currency translation loss                 16,420         -
Decrease (increase) in assets:
Accounts receivable                               997,619        315,074
Inventory                                         (386,366)      (51,886)
Prepaid expenses and other assets                 (183,468)      (131,885)
Increase (decrease) in liabilities:
Accounts payable                                  (86,453)       26,176
Accrued expenses and other liabilities            326,700        45,258
Net cash used by operating activities             (488,086)      (347,331)
Cash flows from investing activities:
Purchase of equipment and building                (134,373)      (17,527)
improvements
Purchase of investments                           (750,000)      -
Purchase of intangible assets                    (39,126)       -
Net cash used by investing activities             (923,499)      (17,527)
Cash flows from financing activities:
Net payments on revolving lines of credit         (158,087)      (238,240)
Payments of long-term debt                        (156,485)      (83,387)
Borrowings of long-term debt                      2,691,000      -
Payments of capital lease obligations             -              (4,710)
Net cash provided (used) by financing             2,376,428      (326,337)
activities
Net increase (decrease) in cash                  964,843        (691,195)
Cash beginning of period                          1,977,031      1,887,163
Cash end of period                              $ 2,941,874    $ 1,195,968



About the Presentation of Adjusted EBITDA
The Company uses Adjusted EBITDA as a non-GAAP financial performance
measurement. Adjusted EBITDA is calculated by the Company 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 costs related to the Company's merger with
Lexington Technology Group. Adjusted EBITDA is provided to investors to
supplement the results of operations reported in accordance with GAAP.
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
and non-recurring items such as costs related to the Company's merger with
Lexington Technology Group, 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 and 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 March 31
                                          2014          2013          % change
                                          (unaudited)   (unaudited)
Net Loss                                  $         $         170%
                                          (3,055,000)  (1,132,000)
Add back:
Depreciation & Amortization               1,313,000     225,000       484%
Stock based compensation                  547,000       341,000       60%
Interest expense                          75,000        44,000        70%
Amortization of note discount & foreign   34,000        11,000        209%
currency translation loss
Income Taxes                              5,000         5,000         0%
Professional fees and other costs
incurred in conjunction with the Merger  -             108,000       -100%
with Lexington Technology Group
Adjusted EBITDA                           (1,081,000)   (398,000)     -172%
Adjusted EBITDA, by group (unaudited)
Printed Products                          $       $       -11%
                                          283,000      318,000
Technology Management                     (468,000)     (188,000)     149%
Corporate, less Merger costs              (896,000)     (528,000)     70%
                                          (1,081,000)   (398,000)     -172%



SOURCE Document Security Systems, Inc.

Website: http://www.dsssecure.com
 
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