Document Security Systems, Inc. Reports Fourth Quarter and Year Ended 2017 Financial Results
March 06 2018 - 4:30PM
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 product
authenticity, today announced its financial results for the fourth
quarter and year ended December 31, 2017.
“While 2017 was our first full year of
integrating our AuthentiGuard technology within a global customer’s
supply chain, we are very pleased with its progress and execution,
as well as with the additional AuthentiGuard opportunities
currently in our development pipeline,” stated Jeff Ronaldi, CEO of
DSS.
“Sales for the fourth quarter of 2017 increased
7% for our printed products division and was the largest sales
quarter for that group in our history. Those
revenues were countered by a reduction in technology-based sales,
affected by a slowdown in the reported usage of AuthentiGuard
during the latter part of 2017. However, we were able to
generate a meaningful net profit during the quarter, which points
to the strength of our combined business segments,” added
Ronaldi.
"For the full year 2017, along with major
strides in our AuthentiGuard product development and rollout, we
also began our expansion into the Asia Pacific market with the
opening of our Hong Kong office, and the formation of the DSS
International team. This new location will allow us to
service our existing customers in the region, and to hopefully
capitalize on the demand for anti-counterfeit technology in the
Asia Pacific market. The expansion and investment into the Asia
Pacific market is a strategic component to the planned growth of
DSS – and was achieved while we increased our year-over-year
profitability to over $1.4 million, as measured by our Adjusted
EBITDA,” said Ronaldi.
Fourth Quarter 2017 Financial
Highlights
- Revenue for the fourth quarter of 2017 increased slightly to
$5.83 million from $5.79 million in the fourth quarter of 2016.
- Net income during the fourth quarter of 2017 increased 674% to
approximately $147,000 ($0.01 per share), as compared to a net
income of $19,000 ($0.00 per share) during the fourth quarter of
2016.
- Costs and expenses for the fourth quarter totaled $5.6 million,
a decrease of 1% from $5.7 million during the same period of 2016.
- Adjusted EBITDA1 for the fourth quarter of 2017 was
approximately $590,000 as compared to $662,000 for the fourth
quarter of 2016, which represents an 11% decrease. The decline in
Adjusted EBITDA was mostly driven by increases in costs of goods
sold.
Full Year 2017 Financial
Highlights
- Revenue for the year 2017 decreased 3% to $18.7 million from
$19.2 million in 2016. Printed products revenue decreased 1%
as compared to 2016, with the decrease in the sales of printing and
packaging products of 3%, offset by an increase in sales of plastic
card products of 3%.
- Adjusted EBITDA totaled $1.4 million in 2017 compared to an
Adjusted EBITDA $1.1 million in 2016. The improvement in Adjusted
EBIDTA for the year reflects the decrease in costs, especially
sales, general, and administrative compensation, professional fees,
and stock-based compensation costs.
- Costs and expenses for the year 2017 totaled $18.9 million, a
decrease of 5% from $19.8 million in 2016.
- During 2017, the Company reported a reduction in its net loss
of $578,000, or $(0.04) per share, as compared to net loss of
$950,000 or $(0.07) per share in 2016. The improvement in net
loss is primarily due to significant reductions in sales, general,
and administrative compensation, professional fees, and stock-based
compensation costs incurred during 2017.
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 Plastics
Group subsidiary, visit our websites at http://www.dsssecure.com
and http://www.dssplasticsgroup.com.
Keep up-to-date on DSS events and developments;
join our online communities at Facebook, Twitter and LinkedIn.
For more information:Investor
RelationsDocument Security SystemsTel: (585) 232-5440 Email:
ir@dsssecure.com
FORWARD-LOOKING
STATEMENTSForward-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, 2017,
filed with the Securities and Exchange Commission on March 6,
2018. 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 |
(Unaudited) |
|
Three MonthsEndedDecember 31,2017 |
Three MonthsEndedDecember 31,2016 |
% change |
|
Year EndedDecember 31,2017 |
Year EndedDecember 31,2016 |
% change |
Revenue |
|
|
|
|
|
|
|
Printed
products |
$ |
5,473,000 |
|
$ |
5,129,000 |
|
7 |
% |
|
$ |
17,026,000 |
|
$ |
17,277,000 |
|
-1 |
% |
Technology sales, services and licensing |
|
360,000 |
|
|
657,000 |
|
-45 |
% |
|
|
1,636,000 |
|
|
1,900,000 |
|
-14 |
% |
Total
revenue |
$ |
5,833,000 |
|
$ |
5,786,000 |
|
1 |
% |
|
$ |
18,662,000 |
|
$ |
19,177,000 |
|
-3 |
% |
|
|
|
|
|
|
|
|
Costs and
expenses |
|
|
|
|
|
|
|
Costs of
goods sold, exclusive of depreciation and amortization |
$ |
3,629,000 |
|
$ |
3,304,000 |
|
10 |
% |
|
$ |
11,009,000 |
|
$ |
11,120,000 |
|
-1 |
% |
Sales,
general and administrative compensation |
|
997,000 |
|
|
1,032,000 |
|
-3 |
% |
|
|
3,758,000 |
|
|
4,199,000 |
|
-11 |
% |
Depreciation and amortization |
|
372,000 |
|
|
343,000 |
|
8 |
% |
|
|
1,414,000 |
|
|
1,392,000 |
|
2 |
% |
Professional fees |
|
57,000 |
|
|
109,000 |
|
-48 |
% |
|
|
613,000 |
|
|
813,000 |
|
-25 |
% |
Stock
based compensation |
|
12,000 |
|
|
241,000 |
|
-95 |
% |
|
|
215,000 |
|
|
329,000 |
|
-35 |
% |
Sales and
marketing |
|
109,000 |
|
|
175,000 |
|
-38 |
% |
|
|
401,000 |
|
|
420,000 |
|
-5 |
% |
Rent and
utilities |
|
172,000 |
|
|
153,000 |
|
12 |
% |
|
|
634,000 |
|
|
602,000 |
|
5 |
% |
Other
operating expenses |
|
283,000 |
|
|
353,000 |
|
-20 |
% |
|
|
844,000 |
|
|
963,000 |
|
-12 |
% |
|
|
|
|
|
|
|
|
Total costs and expenses |
$ |
5,631,000 |
|
$ |
5,710,000 |
|
-1 |
% |
|
$ |
18,888,000 |
|
$ |
19,838,000 |
|
-5 |
% |
|
|
|
|
|
|
|
|
Operating
income (loss) |
|
202,000 |
|
|
76,000 |
|
166 |
% |
|
|
(226,000 |
) |
|
(661,000 |
) |
-66 |
% |
|
|
|
|
|
|
|
|
Other income
and expense |
|
|
|
|
|
|
|
Interest
income |
|
4,000 |
|
|
0 |
|
100 |
% |
|
|
4,000 |
|
|
- |
|
100 |
% |
Interest
expense |
|
(53,000 |
) |
$ |
(62,000 |
) |
-15 |
% |
|
|
(223,000 |
) |
|
(248,000 |
) |
-10 |
% |
Amortized
debt discount |
|
(41,000 |
) |
|
- |
|
100 |
% |
|
|
(154,000 |
) |
|
(31,000 |
) |
397 |
% |
Total other income and expense |
$ |
(90,000 |
) |
$ |
(62,000 |
) |
45 |
% |
|
$ |
(373,000 |
) |
$ |
(279,000 |
) |
34 |
% |
|
|
|
|
|
|
|
|
Loss before
income taxes |
|
112,000 |
|
|
14,000 |
|
700 |
% |
|
|
(599,000 |
) |
|
(940,000 |
) |
-36 |
% |
|
|
|
|
|
|
|
|
Income tax expense |
|
(35,000 |
) |
|
(3,000 |
) |
1067 |
% |
|
|
(21,000 |
) |
|
11,000 |
|
-291 |
% |
|
|
|
|
|
|
|
|
Net income
(loss) |
$ |
147,000 |
|
$ |
19,000 |
|
674 |
% |
|
$ |
(578,000 |
) |
$ |
(950,000 |
) |
-39 |
% |
|
|
|
|
|
|
|
|
Loss per common
share: |
|
|
|
|
|
|
|
Basic and
diluted |
$ |
0.01 |
|
$ |
0.00 |
|
100 |
% |
|
$ |
(0.04 |
) |
$ |
(0.07 |
) |
-43 |
% |
Shares used in
computing loss per common share: |
|
|
|
|
|
|
|
Basic and
diluted |
|
14,424,344 |
|
|
12,977,903 |
|
11 |
% |
|
|
14,424,344 |
|
|
13,068,329 |
|
10 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DOCUMENT SECURITY SYSTEMS, INC. AND
SUBSIDIARIES |
Consolidated Balance Sheets |
As of |
|
|
|
|
|
|
|
December 31, 2017 |
|
December 31, 2016 |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
4,188,623 |
|
|
|
$ |
5,871,738 |
|
|
Restricted cash |
|
|
256,005 |
|
|
|
|
177,609 |
|
|
Accounts
receivable, net |
|
|
2,025,284 |
|
|
|
|
1,890,981 |
|
|
Inventory |
|
|
1,651,246 |
|
|
|
|
1,206,377 |
|
|
Prepaid
expenses and other current assets |
|
|
261,324 |
|
|
|
|
350,289 |
|
|
Total
current assets |
|
|
8,382,482 |
|
|
|
|
9,496,994 |
|
|
|
|
|
|
|
|
|
|
|
Property, plant and
equipment, net |
|
|
4,805,640 |
|
|
|
|
4,573,841 |
|
|
Investment |
|
|
484,930 |
|
|
|
|
- |
|
|
Other assets |
|
|
83,376 |
|
|
|
|
45,821 |
|
|
Goodwill |
|
|
2,453,597 |
|
|
|
|
2,453,349 |
|
|
Other intangible
assets, net |
|
|
1,220,752 |
|
|
|
|
1,896,018 |
|
|
|
|
|
|
|
|
|
|
|
Total
assets |
|
$ |
17,430,777 |
|
|
|
$ |
18,466,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
|
|
Accounts
payable |
|
$ |
728,652 |
|
|
|
$ |
2,212,653 |
|
|
Accrued
expenses and deferred revenue |
|
|
1,105,718 |
|
|
|
|
1,290,593 |
|
|
Other
current liabilities |
|
|
2,953,629 |
|
|
|
|
2,996,310 |
|
|
Short-term debt |
|
|
3,645,760 |
|
|
|
|
- |
|
|
Current
portion of long-term debt, net |
|
|
966,506 |
|
|
|
|
1,202,335 |
|
|
Total
current liabilities |
|
|
9,400,265 |
|
|
|
|
7,701,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt,
net |
|
|
1,734,171 |
|
|
|
|
5,249,569 |
|
|
Other long-term
liabilities |
|
|
1,384,500 |
|
|
|
|
2,184,843 |
|
|
Deferred tax liability,
net |
|
|
125,982 |
|
|
|
|
45,619 |
|
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies (Note 12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock, $.02 par value; 200,000,000 shares authorized,
16,599,327 shares issued and outstanding (13,502,653 on December
31, 2016) |
|
|
331,987 |
|
|
|
|
270,053 |
|
|
Additional paid-in capital |
|
|
106,633,708 |
|
|
|
|
104,338,002 |
|
|
Subscription receivable |
|
|
(300,000 |
) |
|
|
|
- |
|
|
Accumulated other comprehensive loss |
|
|
(23,069 |
) |
|
|
|
(45,343 |
) |
|
Accumulated deficit |
|
|
(101,856,767 |
) |
|
|
|
(101,278,611 |
) |
|
Total
stockholders' equity |
|
|
4,785,859 |
|
|
|
|
3,284,101 |
|
|
Total
liabilities and stockholders' equity |
|
$ |
17,430,777 |
|
|
|
$ |
18,466,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
DOCUMENT SECURITY SYSTEMS, INC. AND
SUBSIDIARIES |
Consolidated Statements of Cash
Flows |
For the Years Ended December 31, |
|
|
|
|
|
|
|
|
|
|
|
|
2017 |
|
|
|
2016 |
|
|
|
Cash flows from
operating activities: |
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(578,156 |
) |
|
$ |
(950,003 |
) |
|
|
Adjustments to reconcile net loss to net cash (used by) from
operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,413,838 |
|
|
|
1,391,815 |
|
|
|
Stock
based compensation |
|
|
214,862 |
|
|
|
328,567 |
|
|
|
Paid
in-kind interest |
|
|
72,000 |
|
|
|
39,000 |
|
|
|
Change in
deferred tax provision |
|
|
80,363 |
|
|
|
(116,488 |
) |
|
|
Amortization of deferred financing costs |
|
|
154,142 |
|
|
|
21,351 |
|
|
|
Gain on
settlement of legal expenses |
|
|
(219,364 |
) |
|
|
- |
|
|
|
Decrease
(increase) in assets: |
|
|
|
|
|
|
|
|
Accounts
receivable |
|
|
(134,303 |
) |
|
|
206,452 |
|
|
|
Inventory |
|
|
(444,869 |
) |
|
|
(268,547 |
) |
|
|
Prepaid
expenses and other current assets |
|
|
51,409 |
|
|
|
(38,532 |
) |
|
|
Restricted cash |
|
|
(78,396 |
) |
|
|
115,434 |
|
|
|
Increase
(decrease) in liabilities: |
|
|
|
|
|
|
|
|
Accounts
payable |
|
|
(893,431 |
) |
|
|
267,581 |
|
|
|
Accrued
expenses |
|
|
(60,791 |
) |
|
|
- |
|
|
|
Other
liabilities |
|
|
(944,834 |
) |
|
|
4,469,895 |
|
|
|
Net cash (used by) from
operating activities |
|
|
(1,367,530 |
) |
|
|
5,466,525 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
|
|
|
|
Purchase
of property, plant and equipment |
|
|
(958,819 |
) |
|
|
(269,870 |
) |
|
|
Proceeds
from sale of intangibles |
|
|
- |
|
|
|
495,000 |
|
|
|
Purchase
of intangible assets |
|
|
(11,552 |
) |
|
|
(73,661 |
) |
|
|
Net cash (used by) from
investing activities |
|
|
(970,371 |
) |
|
|
151,469 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
|
|
|
|
Payments
of long-term debt |
|
|
(818,332 |
) |
|
|
(1,386,420 |
) |
|
|
Borrowings from equipment line of credit |
|
|
522,000 |
|
|
|
- |
|
|
|
Issuances
of common stock, net of issuance costs |
|
|
951,118 |
|
|
|
199,908 |
|
|
|
Net cash from (used by)
financing activities |
|
|
654,786 |
|
|
|
(1,186,512 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net (decrease)
increase in cash |
|
|
(1,683,115 |
) |
|
|
4,431,482 |
|
|
|
Cash at
beginning of year |
|
|
5,871,738 |
|
|
|
1,440,256 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of
year |
|
$ |
4,188,623 |
|
|
$ |
5,871,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 ADJUSTED EBITDAThe 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 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 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 loss to Adjusted EBITDA loss:
Non-GAAP Financial Performance Measure
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended December 31, |
|
|
Years Ended December 31, |
|
|
|
2017 |
|
|
2016 |
|
% change |
|
|
|
2017 |
|
|
2016 |
|
% change |
|
|
(unaudited) |
(unaudited) |
|
|
|
(unaudited) |
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
Net income (loss): |
|
$ |
147,000 |
|
$ |
19,000 |
|
674 |
% |
|
|
$ |
(578,000 |
) |
$ |
(950,000 |
) |
-39 |
% |
Add backs: |
|
|
|
|
|
|
|
|
|
Depreciation
& amortization |
|
|
372,000 |
|
|
343,000 |
|
8 |
% |
|
|
|
1,414,000 |
|
|
1,392,000 |
|
2 |
% |
Stock
based compensation |
|
|
12,000 |
|
|
241,000 |
|
-95 |
% |
|
|
|
215,000 |
|
|
329,000 |
|
-35 |
% |
Interest,
Net |
|
|
53,000 |
|
|
62,000 |
|
-15 |
% |
|
|
|
219,000 |
|
|
279,000 |
|
-22 |
% |
Amortization of note discount |
|
|
41,000 |
|
|
- |
|
100 |
% |
|
|
|
154,000 |
|
|
- |
|
100 |
% |
Income
Taxes |
|
|
(35,000 |
) |
|
(3,000 |
) |
1067 |
% |
|
|
|
(21,000 |
) |
|
11,000 |
|
-291 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
|
|
590,000 |
|
|
662,000 |
|
-11 |
% |
|
|
|
1,403,000 |
|
|
1,061,000 |
|
32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA,
by group (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Printed
Products |
|
$ |
899,000 |
|
$ |
858,000 |
|
5 |
% |
|
|
$ |
2,745,000 |
|
$ |
2,897,000 |
|
-5 |
% |
Technology Management |
|
|
(47,000 |
) |
|
119,000 |
|
-139 |
% |
|
|
|
(374,000 |
) |
|
(556,000 |
) |
-33 |
% |
Corporate |
|
|
(262,000 |
) |
|
(315,000 |
) |
-17 |
% |
|
|
|
(968,000 |
) |
|
(1,280,000 |
) |
-24 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
590,000 |
|
|
662,000 |
|
-11 |
% |
|
|
|
1,403,000 |
|
|
1,061,000 |
|
32 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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