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 12, 2014
DOCUMENT SECURITY SYSTEMS, INC.
(Exact name of registrant as specified
in its charter)
| New York |
|
001-32146 |
|
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 12, 2014,
Document Security Systems, Inc. (“Company”) issued a press release disclosing the Company’s unaudited financial
results for the second quarter ended June 30, 2014. A copy of the Company’s press release is attached as Exhibit 99.1 to
this Current Report on Form 8-K.
The information in
this Item 2.02 (including Exhibit 99.1) shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange
Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated
by reference in any filing under the Securities Act of 1933 or the Exchange Act, except as expressly set forth by specific reference
in such a filing.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits
| Exhibit No. |
|
Description |
| |
|
|
| 99.1 |
|
Document Security Systems, Inc. Press Release dated August 12, 2014. |
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 12, 2014 |
|
By: |
|
/s/ Jeffrey Ronaldi |
| |
|
|
|
Jeffrey Ronaldi |
| |
|
|
|
Chief Executive Officer |
Exhibit 99.1
Document Security Systems Reports Second
Quarter of 2014 Financial Results
ROCHESTER, NY — August 12, 2014 — Document Security
Systems, Inc. (NYSE MKT: DSS) (DSS), a leader in anti-counterfeiting and authentication solutions, reported results for the
second quarter ending June 30, 2014.
Q2 2014 Operational Highlights
| · | Delivered
first fully-integrated AuthentiGuard customer for DSS’ secure digital application
and labeling. |
| · | Filed
a patent infringement lawsuit against Lenovo (United States), Inc. in the District Court
for the Eastern District of Texas, with the case currently in the pleadings stage. |
| · | Acquired
approximately 90 active patents covering certain methods and processes in the semiconductor
industry, bringing the company's patent portfolio to more than 120 active patents issued
in the U.S. and abroad, and 25 patent applications pending. |
| · | At
quarter end, the company had seven active disputes at various stages of the monetization
process. |
Q2 2014 Financial Highlights
Revenue for the second quarter of 2014 increased 14% to $4.9
million from $4.3 million in the same year-ago quarter. Printed product revenue, which includes sales of packaging, printing and
plastics, increased 15% to $4.4 million from $3.8 million in the same year-ago period. Technology sales, services and licensing
revenues increased 4% to $476,000 from $458,000 in the year-ago period.
Costs of goods and expenses totaled $7.1 million, an increase
of 16% from $6.1 million in the same year-ago period. The increase primarily reflected depreciation and amortization costs of
$1.3 million for Q2 2014 compared to $229,000 in the same year-ago period. This increase was partially offset by a 69% decrease
in stock-based compensation expense during Q2 2014.
Cost of goods sold, excluding depreciation and amortization,
increased 26% to $3.2 million compared to $2.5 million in the same year-ago period, driven by a higher percentage of packaging
sales as a percentage of total printed products sales in the second quarter of 2014.
Adjusted EBITDA loss, a non-GAAP metric defined as earnings
before interest, taxes, depreciation, amortization, and stock-based compensation, as well as other non-recurring items, totaled
$633,000 compared to an adjusted EBITDA loss of $171,000 in the same year-ago period (see further discussion about the use of
adjusted EBITDA, below). The increase in adjusted EBITDA loss reflected higher professional fees incurred for the company’s
IP monetization business in Q2 2014 compared to the year-ago quarter, where the majority of the professional fees were incurred
from the company’s merger with Lexington Technology Group (LTG) in July 2013.
Net Loss totaled $2.3 million or $(0.06) per basic and
diluted share, as compared to a net loss of $1.9 million or $(0.09) per basic and diluted share in the second quarter of 2013.
Management Commentary
“We saw a particularly strong sequential increase in
revenue in the second quarter, driven by demand for our printed products, including the timing of certain packaging orders that
slipped from Q1 to Q2,” said Jeff Ronaldi, the company’s CEO. “Looking at our results on a comparative first
half basis, revenue was a record overall for the first six months of the year, up 6% from the same period a year ago.
“Q2 was also highlighted by our first fully-integrated
AuthentiGuard sale to a customer for printing and hosting, along with the customized mobile application. This win reaffirms the
strong value proposition of our AuthentiSuite platform, especially when integrated with our secure printing and packaging capabilities.
“Along those lines, our sales team has been effectively
building and expanding our AuthentiGuard pipeline of prospective customers. We are currently in varying stages with several national
brands about implementing our AuthentiGuard technology.
“AuthentiGuard is an ideal representation of our business
model, which involves developing and acquiring IP that enables us to bring innovative product and service offerings to market,
while actively licensing our IP portfolio.
“A major goal for us this year and going forward is to
grow and diversify our intellectual property portfolio. Since 2012, we have systematically expanded our patent portfolio from
15 issued patents to more than 120 active patents today, along with seven active cases on file. Looking ahead, we expect to have
10 cases on file by yearend and at least 15 by the end of 2015. Our expectations for the future remain high as we build upon the
momentum we’ve established and pursue the widening pipeline of opportunities ahead.”
Intellectual Property Enforcement
DSS provided an update on the status of its six intellectual
property cases:
| · | Document
Security Systems, Inc. v. Coupons.com Incorporated (6:11-cv-06528-CJS-MWP) |
In October 2011, DSS initiated litigation against
Coupons.com alleging, among other things, that Coupons.com misused DSS’s proprietary block-out technology in violation of
the terms of a nondisclosure agreement between the parties. On July 10, 2014 the US District Court for the Western District of
New York heard oral arguments in connection with Coupons.com’s motion for Summary Judgment. No decision has been rendered
yet on the motion.
| · | Bascom
Research, LLC v. Facebook, Inc., LinkedIn Corporation et al (CAND-3-12-cv-06293; CAND-3-12-cv-06294) |
In October 2012, Bascom Research, a subsidiary of
Lexington Technology Group, Inc. (LTG), which was acquired by DSS in July 2013, initiated litigation with Facebook, Inc., LinkedIn
Corporation and three other defendants in the US District Court for the Eastern District of Virginia. The complaint alleged infringement
by the defendants of four patents that are instrumental to social and business networking technology and related to the manner
in which users and application developers on the Facebook and LinkedIn platforms make connections between “objects”
such as photos, people, events and pages.
In January 2013, all five cases were transferred
to the US District Court for the Northern District of California. In April and May of 2013, LTG announced that Bascom Research
had reached settlements with two of the named defendants. Currently, Facebook and LinkedIn remain as defendants in the litigation.
On January 15, 2014, these two cases were stayed
by the US District Court for the Northern District of California pending the outcome of Alice Corp v. CLS Bank in the United States
Supreme Court, which was decided on June 24, 2014. Following this decision, a case management conference was scheduled for August
22, 2014, at which time the parties will propose timetables for the remainder of the case.
On May 22, 2014, Facebook, Inc. filed a Petition
for Covered Business Method (CBM) Patent Review with the USPTO’s Patent Trial and Appeal Board. Bascom Research has until
September 3, 2014 to file a preliminary response to the CBM petition.
| · | VirtualAgility,
Inc. v. Salesforce.com, Inc. et al* (TXED-2-13-cv-00011) |
On March 5, 2013, Lexington Technology Group (now
DSS Technology Management) made a strategic investment in VirtualAgility, Inc.
On January 5, 2013, prior to DSS’s investment,
VirtualAgility initiated litigation against Salesforce.com and a number of Salesforce’s customers in the US District Court
for the Eastern District of Texas. VirtualAgility’s complaint against Salesforce.com alleges infringement of one of five
VirtualAgility patents that enable user-friendly programming platforms that facilitate the creation of sophisticated business
applications without programming.
On February 12, 2014, the United States Court of
Appeals for the US Circuit overturned a decision rendered by the US District Court for the Eastern District of Texas, and granted
a temporary stay of the case in light of Salesforce.com’s Petition for Covered Business Method (CBM) Patent Review pending
before the USPTO’s Patent Trial and Appeal Board (PTAB).
On July 10, 2014, a three-judge panel of the US
Circuit issued a divided opinion granting a stay pending the CBM proceedings. Oral argument in the CBM proceeding was held on
July 14, 2014.
| · | DSS
Technology Management, Inc. (DSSTM) v. Taiwan Semiconductor Manufacturing Company, Ltd.
(TSMC) et al (TXED-2-14-cv-00199) |
On March 10, 2014, DSSTM initiated litigation with
TSMC, Samsung Electronics Co. Inc., and NEC Corporation of America in the US District Court for the Eastern District of Texas.
DSSTM’s complaint against these companies alleges infringement of DSS patents relating to a semiconductor manufacturing
process called “double-patterning.”
On June 24, 2014, TSMC filed a petition for Inter
Partes Review (IPR) with the USPTO Patent Trial and Appeal Board, and DSSTM has until October 17, 2014 to file a preliminary response.
| · | DSS
Technology Management, Inc. (DSSTM) v. Apple, Inc. (TXED-6-13-cv-00919) |
On November 29, 2013, DSSTM initiated litigation
against Apple, Inc. in the US District Court for the Eastern District of Texas. DSSTM’s complaint alleges infringement by
Apple of DSS patents that relate to systems and methods of using low power wireless peripheral devices.
On March 3, 2014, Apple filed a motion to transfer
venue of the case from the Eastern District of Texas to the Northern District of California, which is pending a ruling by the
District Court for the Eastern District of Texas.
| · | DSS
Technology Management, Inc. (DSSTM) v. Lenovo (United States), Inc. (TXED-6-14-cv-00525) |
On May 30, 2014, DSSTM initiated litigation against
Lenovo (United States), Inc. in the US District Court for the Eastern District of Texas. DSSTM’s complaint alleges infringement
by Lenovo of DSS patents that relate to systems and methods of using low power wireless peripheral devices. The case is currently
in the pleadings stage.
These active disputes are also listed on the company’s
website here. Further information regarding patent litigation involving DSS investments is available to the public via
the PACER Service here.
Conference Call
DSS management will hold a conference call later today (August
12, 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: August 12, 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
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 August 26, 2014.
U.S. replay dial-in: (877) 660-6853
International replay dial-in: (201) 612-7415
Replay ID: 13588604
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.
DOCUMENT SECURITY SYSTEMS, INC. AND
SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
| | |
Three Months
Ended June 30,
2014 | | |
Three Months
Ended June 30,
2013 | | |
%
change | | |
Six Months
Ended June 30,
2014 | | |
Six Months
Ended June 30,
2013 | | |
% change | |
| Revenue | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Printed products | |
$ | 4,407,000 | | |
$ | 3,822,000 | | |
| 15 | % | |
$ | 7,571,000 | | |
$ | 7,101,000 | | |
| 7 | % |
| Technology sales, services and licensing | |
| 476,000 | | |
| 458,000 | | |
| 4 | % | |
| 940,000 | | |
$ | 949,000 | | |
| -1 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Total revenue | |
$ | 4,883,000 | | |
$ | 4,280,000 | | |
| 14 | % | |
$ | 8,511,000 | | |
$ | 8,050,000 | | |
| 6 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Costs and expenses | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Cost of goods sold, exclusive of depreciation and amortization | |
$ | 3,197,000 | | |
$ | 2,546,000 | | |
| 26 | % | |
$ | 5,395,000 | | |
$ | 4,749,000 | | |
| 14 | % |
| Sales, general and administrative compensation | |
| 1,154,000 | | |
| 1,221,000 | | |
| -5 | % | |
| 2,446,000 | | |
| 2,356,000 | | |
| 4 | % |
| Depreciation and amortization | |
| 1,288,000 | | |
| 229,000 | | |
| 462 | % | |
| 2,602,000 | | |
| 454,000 | | |
| 473 | % |
| Professional fees | |
| 502,000 | | |
| 602,000 | | |
| -17 | % | |
| 1,042,000 | | |
| 1,016,000 | | |
| 3 | % |
| Stock based compensation | |
| 294,000 | | |
| 949,000 | | |
| -69 | % | |
| 841,000 | | |
| 1,289,000 | | |
| -35 | % |
| Sales and marketing | |
| 128,000 | | |
| 126,000 | | |
| 2 | % | |
| 301,000 | | |
| 208,000 | | |
| 45 | % |
| Rent and utilities | |
| 181,000 | | |
| 154,000 | | |
| 18 | % | |
| 366,000 | | |
| 311,000 | | |
| 18 | % |
| Other operating expenses | |
| 243,000 | | |
| 224,000 | | |
| 8 | % | |
| 449,000 | | |
| 446,000 | | |
| 1 | % |
| Research and development | |
| 112,000 | | |
| 62,000 | | |
| 81 | % | |
| 226,000 | | |
| 121,000 | | |
| 87 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Total costs and expenses | |
$ | 7,099,000 | | |
$ | 6,113,000 | | |
| 16 | % | |
$ | 13,668,000 | | |
$ | 10,950,000 | | |
| 25 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Operating loss | |
| (2,216,000 | ) | |
| (1,833,000 | ) | |
| 21 | % | |
| (5,157,000 | ) | |
| (2,900,000 | ) | |
| 78 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other income (expenses) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest expense | |
| (89,000 | ) | |
| (50,000 | ) | |
| 78 | % | |
| (164,000 | ) | |
| (94,000 | ) | |
| 74 | % |
| Amortization of note discount and loss on debt extinguishment | |
| (35,000 | ) | |
| (43,000 | ) | |
| -19 | % | |
| (52,000 | ) | |
| (54,000 | ) | |
| -4 | % |
| Foreign currency translation loss | |
| | | |
| - | | |
| | | |
| (16,000 | ) | |
| - | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other expense, net | |
| (124,000 | ) | |
| (93,000 | ) | |
| 33 | % | |
| (232,000 | ) | |
| (148,000 | ) | |
| 57 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Loss before income taxes | |
| (2,340,000 | ) | |
| (1,926,000 | ) | |
| 21 | % | |
| (5,389,000 | ) | |
| (3,048,000 | ) | |
| 77 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Deferred tax expense, net | |
| 5,000 | | |
| 5,000 | | |
| 0 | % | |
| 9,000 | | |
| 9,000 | | |
| 0 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net loss | |
$ | (2,344,000 | ) | |
$ | (1,925,000 | ) | |
| 22 | % | |
$ | (5,399,000 | ) | |
$ | (3,057,000 | ) | |
| 77 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Earnings per share: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic and diluted | |
$ | (0.06 | ) | |
$ | (0.09 | ) | |
| -33 | % | |
$ | (0.13 | ) | |
$ | (0.14 | ) | |
| -7 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Shares used in computing earnings per share: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Basic and diluted | |
| 42,040,907 | | |
| 21,710,034 | | |
| 94 | % | |
| 41,982,770 | | |
| 21,711,503 | | |
| 93 | % |
DOCUMENT SECURITY SYSTEMS, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
As of
| | |
June 30, 2014 | | |
December 31, 2013 | |
| | |
(Unaudited) | | |
| |
| ASSETS | |
| | | |
| | |
| | |
| | | |
| | |
| Current assets: | |
| | | |
| | |
| Cash | |
$ | 1,304,656 | | |
$ | 1,977,031 | |
| Restricted cash | |
| 245,479 | | |
| 500,000 | |
| Accounts receivable, net of allowance of $68,000 ($60,000- 2013) | |
| 1,789,986 | | |
| 2,149,123 | |
| Inventory | |
| 919,659 | | |
| 834,979 | |
| Prepaid expenses and other current assets | |
| 537,206 | | |
| 403,107 | |
| Deferred tax asset, net | |
| 223,323 | | |
| 223,323 | |
| Total current assets | |
| 5,020,309 | | |
| 6,087,563 | |
| | |
| | | |
| | |
| Property, plant and equipment, net | |
| 5,226,230 | | |
| 5,157,852 | |
| Investments and other assets | |
| 12,529,602 | | |
| 11,448,008 | |
| Goodwill | |
| 15,046,197 | | |
| 15,046,197 | |
| Other intangible assets, net | |
| 28,486,834 | | |
| 29,602,591 | |
| | |
| | | |
| | |
| Total assets | |
$ | 66,309,172 | | |
$ | 67,342,211 | |
| | |
| | | |
| | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
| | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | |
| Accounts payable | |
$ | 1,454,846 | | |
$ | 1,421,765 | |
| Accrued expenses and other current liabilities | |
| 1,416,737 | | |
| 1,455,629 | |
| Revolving lines of credit | |
| - | | |
| 158,087 | |
| Short-term debt | |
| 850,000 | | |
| 824,857 | |
| Current portion of long-term debt, net | |
| 521,699 | | |
| 613,488 | |
| | |
| | | |
| | |
| Total current liabilities | |
| 4,243,282 | | |
| 4,473,826 | |
| | |
| | | |
| | |
| Long-term debt, net | |
| 5,770,868 | | |
| 3,087,358 | |
| Other long-term liabilities | |
| 361,783 | | |
| 27,566 | |
| Deferred tax liability, net | |
| 1,373,921 | | |
| 1,364,447 | |
| | |
| | | |
| | |
| Commitments and contingencies (Note 8) | |
| | | |
| | |
| | |
| | | |
| | |
| Stockholders' equity | |
| | | |
| | |
| Common stock, $.02 par value; 200,000,000 shares authorized, 46,275,297 shares issued
and outstanding (49,411,486 on December 31, 2013) | |
| 925,506 | | |
| 988,230 | |
| Additional paid-in capital | |
| 99,247,351 | | |
| 97,790,426 | |
| Accumulated other comprehensive loss | |
| (52,783 | ) | |
| (27,566 | ) |
| Accumulated deficit | |
| (50,260,756 | ) | |
| (44,862,076 | ) |
| Non-controlling interest in subsidiary | |
| 4,700,000 | | |
| 4,500,000 | |
| Total stockholders' equity | |
| 54,559,318 | | |
| 58,389,014 | |
| | |
| | | |
| | |
| Total liabilities and stockholders' equity | |
$ | 66,309,172 | | |
$ | 67,342,211 | |
DOCUMENT SECURITY SYSTEMS,
INC. AND SUBSIDIARIES
Condensed Consolidated Statements
of Cash Flows
For the Six Months Ended June
30,
(Unaudited)
| | |
2014 | | |
2013 | |
| | |
| | |
| |
| Cash flows from operating activities: | |
| | | |
| | |
| Net loss | |
$ | (5,398,680 | ) | |
$ | (3,057,064 | ) |
| Adjustments to reconcile net loss to net cash used by operating activities: | |
| | | |
| | |
| Depreciation and amortization | |
| 2,601,684 | | |
| 454,129 | |
| Stock based compensation | |
| 840,879 | | |
| 1,288,689 | |
| Amortization of note discount | |
| 51,915 | | |
| 27,570 | |
| Loss on extinguishment of debt | |
| - | | |
| 26,252 | |
| Change in deferred tax provision | |
| 9,474 | | |
| 9,474 | |
| Foreign currency translation loss | |
| 16,420 | | |
| - | |
| Decrease (increase) in assets: | |
| | | |
| | |
| Accounts receivable | |
| 359,137 | | |
| 5,338 | |
| Inventory | |
| (84,680 | ) | |
| 2,466 | |
| Prepaid expenses and other assets | |
| (174,616 | ) | |
| (69,859 | ) |
| Release of restricted cash | |
| 254,521 | | |
| - | |
| Increase in liabilities: | |
| | | |
| | |
| Accounts payable | |
| 33,081 | | |
| 124,863 | |
| Accrued expenses and other liabilities | |
| 387,188 | | |
| 250,206 | |
| Net cash used by operating activities | |
| (1,103,677 | ) | |
| (937,936 | ) |
| | |
| | | |
| | |
| Cash flows from investing activities: | |
| | | |
| | |
| Purchase of equipment and building improvements | |
| (157,789 | ) | |
| (82,312 | ) |
| Purchase of investments | |
| (750,000 | ) | |
| - | |
| Purchase of intangible assets | |
| (1,196,980 | ) | |
| (52,506 | ) |
| Net cash used by investing activities | |
| (2,104,769 | ) | |
| (134,818 | ) |
| | |
| | | |
| | |
| Cash flows from financing activities: | |
| | | |
| | |
| Net payments on revolving lines of credit | |
| (158,087 | ) | |
| (168,247 | ) |
| Payments of long-term debt | |
| (298,816 | ) | |
| (166,876 | ) |
| Borrowings of long-term debt | |
| 2,691,000 | | |
| - | |
| Issuances of common stock, net of issuance costs | |
| 301,974 | | |
| 80,000 | |
| Net cash provided (used) by financing activities | |
| 2,536,071 | | |
| (255,123 | ) |
| | |
| | | |
| | |
| Net decrease in cash | |
| (672,375 | ) | |
| (1,327,877 | ) |
| Cash beginning of period | |
| 1,977,031 | | |
| 1,887,163 | |
| | |
| | | |
| | |
| Cash end of period | |
$ | 1,304,656 | | |
$ | 559,286 | |
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 June 30 | | |
Six Months Ended June 30 | |
| | |
2014 | | |
2013 | | |
% change | | |
2014 | | |
2013 | | |
% change | |
| | |
(unaudited) | | |
(unaudited) | | |
| | |
(unaudited) | | |
(unaudited) | | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Net Loss | |
$ | (2,344,000 | ) | |
$ | (1,925,000 | ) | |
| 22 | % | |
$ | (5,399,000 | ) | |
$ | (3,057,000 | ) | |
| 77 | % |
| Add back: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Depreciation & Amortization | |
| 1,288,000 | | |
| 229,000 | | |
| 462 | % | |
| 2,602,000 | | |
| 454,000 | | |
| 473 | % |
| Stock based compensation | |
| 294,000 | | |
| 948,000 | | |
| -69 | % | |
| 841,000 | | |
| 1,289,000 | | |
| -35 | % |
| Interest expense | |
| 89,000 | | |
| 50,000 | | |
| 78 | % | |
| 164,000 | | |
| 94,000 | | |
| 74 | % |
| Amortization of note discount and loss on debt extinguishment | |
| 35,000 | | |
| 43,000 | | |
| -19 | % | |
| 52,000 | | |
| 54,000 | | |
| -4 | % |
| Income Taxes | |
| 5,000 | | |
| 5,000 | | |
| 0 | % | |
| 9,000 | | |
| 9,000 | | |
| 0 | % |
| Professional fees and other costs incurred in conjunction
with the Merger with Lexington Technology Group | |
| - | | |
| 479,000 | | |
| -100 | % | |
| - | | |
| 587,000 | | |
| -100 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Adjusted EBITDA | |
| (633,000 | ) | |
| (171,000 | ) | |
| -270 | % | |
| (1,731,000 | ) | |
| (570,000 | ) | |
| -204 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Adjusted EBITDA, by group (unaudited) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Printed Products | |
$ | 469,000 | | |
$ | 461,000 | | |
| 2 | % | |
$ | 752,000 | | |
$ | 778,000 | | |
| -3 | % |
| Technology Management | |
| (386,000 | ) | |
| (146,000 | ) | |
| 164 | % | |
| (854,000 | ) | |
| (334,000 | ) | |
| 156 | % |
| Corporate, less Merger costs | |
| (716,000 | ) | |
| (486,000 | ) | |
| 47 | % | |
| (1,629,000 | ) | |
| (1,014,000 | ) | |
| 61 | % |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | |
| (633,000 | ) | |
| (171,000 | ) | |
| -270 | % | |
| (1,731,000 | ) | |
| (570,000 | ) | |
| -204 | % |
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