Loading, Please Wait...

CST: 20/07/2019 06:36:20   

Document Security Systems, Inc. Reports Fourth Quarter and Full Year 2018 Financial Results

123 Days ago

ROCHESTER, N.Y., March 18, 2019 (GLOBE NEWSWIRE) -- Document Security Systems, Inc. (NYSE American: DSS), (“DSS”), a leader in anti-counterfeit, authentication, and diversion protection technologies whose products and solutions are used by governments, corporations and financial institutions to defeat fraud and to help ensure the authenticity of both digital and physical financial instruments, identification documents, sensitive publications, brand packaging and websites, today announced its financial results for the fourth quarter and year ended December 31, 2018.

“During the fourth quarter of 2018, we saw our efforts with AuthentiGuard begin to show a meaningful impact on our revenue results.  We are seeing the benefits of this business opportunity that establishes a deep and lasting relationship with our customers as they rely on us to help solve their brand and product protection issues,” stated Jeff Ronaldi, CEO of DSS. “For 2018, we were very pleased that we were able to bring to completion an agreement entered into in 2014 with one of our third-party funding partners relating to our intellectual property (“IP”) monetization business that resulted in a net gain to the Company of approximately $3.5 million.  The agreement covered a four-year financing arrangement that terminated in February of 2018, which supported our IP monetization efforts relating to a portfolio of semiconductor patents owned by one of our subsidiaries, DSS Technology Management.  The resolution of this agreement favorably impacted our net income for the year and helped significantly improve our working capital position as we enter 2019,” added Ronaldi.

Fourth Quarter 2018 Financial Highlights

  • Revenue for the fourth quarter of 2018 increased 12% to $5.96 million from $5.83 million in the fourth quarter of 2017. During the quarter, the Company saw revenue of printed products grow by 1% and technology sales, services and licensing revenue grow by 24%, which primarily reflected an increase in sales of the Company’s AuthentiGuard™ products and services.
     
  • Costs and expenses for the fourth quarter totaled $6.1 million, an increase of 9% from $5.6 million during the same period of 2017, primarily reflecting an increase direct costs of goods sold at the Company’s printed products groups, an increase of corporate professional fees associated with increased legal activity, and an increase in sales and marketing expenses, primarily associated with an increase in activity in AuthentiGuard business development, including an increase in international sales and development efforts.
     
  • The Company recorded a net loss during the fourth quarter of 2018 of approximately $404,000 ($0.02 per share), compared to a net income of $148,000 ($0.01 per share) during the fourth quarter of 2017.  Impacting the fourth quarter 2018 results was a $160,000 impairment of investment expense recorded by the Company. 
     
  • Adjusted EBITDA1 for the fourth quarter of 2018 was approximately $116,000 as compared to $585,000 for the fourth quarter of 2017, an 80% decrease.  The decline in adjusted EBITDA was mostly driven by decreases in printed products groups results which were impacted by a general increase in direct costs of goods sold, and an increase in adjusted EBITDA losses for the Company’s technology groups due to the increased sales and development efforts for AuthentiGuard.

Full Year 2018 Financial Highlights

  • Revenue for the year of 2018 decreased 1% to $18.5 million from $18.7 million in 2017.  During the year, printed products revenue decreased 1% as compared to 2017, driven by an increase in the sales of printing and packaging products of 3% offset by a decrease in sales of plastic card products of 11%.  Technology sales, services and licensing revenues decreased 4%, as a result of declines in licensing royalties and recurring IT services, offset by an approximately 51% increase in AuthentiGuard sales.
     
  • Costs and expenses for 2018 totaled $20.2 million, an increase of 7% from $18.9 million in 2017, primarily reflecting an increase direct costs of goods sold at the Company’s printed products groups, an increase of corporate professional fees associated with increased legal activity, and an increase in sales and marketing expenses, primarily associated with an increase in activity in AuthentiGuard business development, including an increase in international sales and development efforts.
     
  • The Company recorded a net income during 2018 of approximately $1.5 million ($0.09 per share), compared to a net loss of $578,000 ($0.04 per share) during 2017.  The net income for the year primarily reflects the impact of net gain from extinguishment of liabilities of approximately $3.5 million that the Company recognized in the second quarter of 2018, offset partially by an operating loss during 2018 of $1.7 million.
     
  • Adjusted EBITDA1 for 2018 was approximately $3.2 million as compared to Adjusted EBITDA of $1.4 million in 2017, a 131% increase.  The increase in adjusted EBITDA was primarily driven by net gain from extinguishment of liabilities of approximately $3.5 million that the Company recognized in the second quarter of 2018.

ABOUT DOCUMENT SECURITY SYSTEMS, INC.
For over 15 years, Document Security Systems, Inc. (“DSS”) has protected corporations, financial institutions, and governments from sophisticated and costly fraud. DSS' innovative anti-counterfeit, authentication, and brand protection solutions are deployed to prevent attacks which threaten products, digital presence, financial instruments, and identification.  AuthentiGuard™, the Company's flagship product, provides authentication capability through a smartphone application so businesses can empower a wide range of employees, supply chain personnel, and consumers to track their brands and verify authenticity. For more information on DSS and its subsidiaries, visit www.dsssecure.com, http://dssplasticsgroup.com and www.premiercustompkg.com.  

Keep up-to-date on DSS events and developments, join our online communities at Facebook, Twitter and LinkedIn

Contact Information: 
Investor Relations  
Document Security Systems, Inc. 
Tel: (585) 232-5440 
Email: ir@dsssecure.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, our ability to continue the growth in sales of AuthentiGuard and manage our expenses, as well as those risks disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission on March 15, 2019. 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. 

 

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES  
Condensed Consolidated Statements of Operations  
   
      Three Months
Ended December
31, 2018
Three Months
Ended December
31, 2017
%
change
  Year Ended
December 31,
2018
Year Ended
December 31,
2017
%
change
 
Revenue                    
Printed products     $   5,508,000   $   5,473,000   1 %   $   16,940,000   $   17,026,000   -1 %  
Technology sales, services and licensing         448,000       360,000   24 %       1,575,000       1,636,000   -4 %  
                     
Total revenue     $   5,956,000   $   5,833,000   2 %   $   18,515,000   $   18,662,000   -1 %  
                     
Costs and expenses                    
Costs of goods sold, exclusive of depreciation and
amortization
    $   3,964,000   $   3,629,000   9 %   $   11,853,000   $   11,009,000   8 %  
Sales, general and administrative compensation         997,000       1,099,000   -9 %       3,615,000       3,758,000   -4 %  
Depreciation and amortization         279,000       372,000   -25 %       1,282,000       1,414,000   -9 %  
Professional fees         245,000       57,000   330 %       1,073,000       613,000   75 %  
Stock based compensation         25,000       12,000   108 %       132,000       215,000   -39 %  
Sales and marketing         217,000       109,000   99 %       559,000       401,000   39 %  
Rent and utilities         167,000       172,000   -3 %       655,000       634,000   3 %  
Other operating expenses         211,000       177,000   19 %       909,000       738,000   23 %  
Research and development         39,000       4,000   875 %       146,000       106,000   38 %  
                     
                     
  Total costs and expenses     $   6,144,000   $   5,631,000   9 %   $   20,224,000   $   18,888,000   7 %  
                     
Operating loss         (188,000 )     202,000   -193 %       (1,709,000 )     (226,000 ) 656 %  
                     
Other income and expense                    
Interest income     $   -    $   4,000   N/A   $   9,000   $   4,000   125 %  
Interest expense         (33,000 )     (52,000 ) -37 %       (145,000 )     (223,000 ) -35 %  
Amortization of deferred financing  costs and debt
discount
        (6,000 )     (41,000 ) -85 %       (46,000 )     (154,000 ) -70 %  
Impairment of investment         (160,000 )     -    100 %       (160,000 )     -    100 %  
Gain on extinguishment of liabilities, net         -        -    0 %       3,533,000       -    N/A  
  Total other income and expense     $   (199,000 ) $   (89,000 ) 124 %   $   3,191,000   $   (373,000 ) 955 %  
                     
                     
                     
Income (loss) before income taxes         (387,000 )     113,000   -442 %       1,482,000       (599,000 ) -347 %  
                     
Income tax expense (benefit)         17,000       (35,000 ) -149 %       17,000       (21,000 ) -181 %  
                     
Net income (loss)     $   (404,000 ) $   148,000   -373 %   $   1,465,000   $   (578,000 ) 353 %  
                     
Income (loss) per common share:                    
Basic     $   (0.02 ) $   0.010   -300 %   $   0.09   $   (0.04 ) 325 %  
Diluted     $   (0.02 ) $   0.004   -667 %   $   0.09   $   (0.04 ) 325 %  
                     
Shares used in computing income (loss) per common
share:
               
Basic       16,907,805       14,424,344   17 %       16,724,376       14,424,344   16 %  
Diluted       16,907,805       14,424,344   17 %       16,930,805       14,424,344   17 %  

 

DOCUMENT SECURITY SYSTEMS, INC.  AND SUBSIDIARIES  
Consolidated Balance Sheets  
As of  
   
      December 31, 2018   December 31, 2017  
             
ASSETS                  
                     
Current assets:                  
  Cash   $  2,317,659       $  4,188,623      
  Restricted cash      130,326          256,005      
  Accounts receivable, net of $50,000 allowance for
doubtful accounts
     2,217,877          2,025,284      
  Inventory      1,563,593          1,651,246      
  Prepaid expenses and other current assets      285,580          261,324      
                     
          Total current assets      6,515,035          8,382,482      
                     
Property, plant and equipment, net      5,014,494          4,805,640      
Investment      324,930          484,930      
Other assets      90,319          83,376      
Goodwill      2,453,597          2,453,597      
Other intangible assets, net      881,411          1,220,752      
                     
Total assets   $ 15,279,786       $ 17,430,777      
                     
LIABILITIES AND STOCKHOLDERS' EQUITY            
                     
Current liabilities:                  
  Accounts payable   $ 1,347,491        $ 728,652      
  Accrued expenses and deferred revenue     1,106,346         989,154      
  Other current liabilities     2,255,942         2,953,629      
  Short-term debt      -           3,645,760      
  Current portion of long-term debt, net      713,427          966,506      
                     
          Total current liabilities     5,423,206         9,283,701      
                     
                     
Long-term debt, net      1,721,936          1,734,171      
Other long-term liabilities      391,325          1,501,064      
Deferred tax liability, net     168,986         125,982      
                     
Commitments and contingencies (Note 12)                  
                     
Stockholders' equity                  
  Common stock, $.02 par value; 200,000,000
shares authorized, 17,425,858 shares issued and
outstanding (16,599,327 on December 31, 2017)
    348,517         331,987      
  Additional paid-in capital     107,624,666         106,633,708      
  Subscription receivable, net      -           (300,000 )    
  Accumulated other comprehensive loss      (7,052 )        (23,069 )    
  Accumulated deficit      (100,391,798 )        (101,856,767 )    
  Total stockholders' equity     7,574,333         4,785,859      
                     
Total liabilities and stockholders' equity   $ 15,279,786       $ 17,430,777      
                     


DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31,
 
                 
    2018     2017    
               
Cash flows from operating activities:                
  Net income (loss)   $  1,464,969     $  (578,156 )    
  Adjustments to reconcile net income (loss) to net cash used by operating activities:                
Depreciation and amortization      1,281,634        1,413,838      
Stock based compensation      131,733        214,862      
Paid in-kind interest      12,000        72,000      
Change in deferred tax provision      9,673        80,363      
Amortization of deferred financing costs and debt discount      46,251        154,142      
Gain on settlement of legal expenses      -         (219,364 )    
Gain on extinguishment of liabilities, net      (3,532,659 )      -       
Impairment of investment      160,000        -       
Decrease (increase) in assets:                
  Accounts receivable      (192,593 )      (134,303 )    
  Inventory      87,653        (444,869 )    
  Prepaid expenses and other current assets      (31,198 )      51,409      
Increase (decrease) in liabilities:                
  Accounts payable      618,836        (893,431 )    
  Accrued expenses      (113,793 )      (60,791 )    
  Other liabilities      (1,325,427 )      (944,834 )    
Net cash used by operating activities      (1,382,921 )      (1,289,134 )    
                 
Cash flows from investing activities:                
Purchase of property, plant and equipment      (1,003,413 )      (958,819 )    
Purchase of intangible assets      (100,138 )      (11,552 )    
Net cash used by investing activities      (1,103,551 )      (970,371 )    
                 
Cash flows from financing activities:                
Payments of long-term debt      (1,188,081 )      (818,332 )    
Borrowings from equipment lines of credit, net      502,155        522,000      
Issuances of common stock, net of issuance costs      887,755        951,118      
Receipt of subscription receivable, net of issuance costs      288,000        -       
Net cash provided by financing activities      489,829        654,786      
                 
Net decrease in cash      (1,996,643 )      (1,604,719 )    
Cash and restricted cash at beginning of year     4,444,628       6,049,347      
                 
Cash and restricted cash at end of year   $ 2,447,985     $ 4,444,628      
                 

1 ADJUSTED EBITDA
The Company uses Adjusted EBITDA as a non-GAAP financial performance measurement. The Company calculates Adjusted EBITDA by adding back to net income (loss): interest, income taxes, depreciation and amortization expense, and impairment charges 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 that Adjusted EBITDA provides an additional tool for investors to use in comparing the Company’s 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, stock-based compensation and impairment charges, 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 establish internal budgets and goals, and evaluate performance of its business units and management, and evaluate potential acquisitions. 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 goodwill impairments, each of which impact the Company's profitability and operating cash flows, as well as depreciation, amortization, impairment charges 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 income (loss) to Adjusted EBITDA: 

    Three Months Ended December 31,     Years Ended December 31,  
      2018     2017   % change       2018     2017   % change
    (unaudited) (unaudited)       (unaudited) (unaudited)  
                   
Net income (loss):   $   (404,000 ) $   147,000   -375 %     $   1,465,000   $   (578,000 ) -353 %
Add backs:                  
  Depreciation & amortization       279,000       372,000   -25 %         1,282,000       1,414,000   -9 %
  Stock based compensation       25,000       12,000   108 %         132,000       215,000   -39 %
  Interest, net       33,000       48,000   -31 %         136,000       219,000   -38 %
  Amortization of deferred financing  costs and
  debt discount
    6,000       41,000   -85 %         46,000       154,000   -70 %
  Impairment of investment       160,000       -    100 %         160,000       -    100 %
  Income tax expense (benfit)       17,000       (35,000 ) -149 %         17,000       (21,000 ) -181 %
                   
                   
Adjusted EBITDA   $   116,000   $   585,000   -80 %     $   3,238,000   $   1,403,000   131 %
                   
                   
Adjusted EBITDA, by  group (unaudited)                  
  Printed Products   $   661,000   $   899,000   -26 %     $   1,868,000   $   2,745,000   -32 %
  Technology       (302,000 )     (47,000 ) -543 %         2,237,000       (374,000 ) 698 %
  Corporate       (243,000 )     (262,000 ) -7 %         (867,000 )     (968,000 ) -10 %
                   
        116,000       590,000   -80 %         3,238,000       1,403,000   131 %
                   

Is your business listed correctly on America’s largest city directory network of 1,000 portals?