Document Security Systems, Inc. Announces First Quarter 2019 Financial Results
May 14 2019 - 4:29PM
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 first quarter ended March 31, 2019.
“I am very pleased with the strong start to
2019. During the first quarter we saw the benefits of our
printed products group’s efforts to expand its capabilities in
addressing new customers’ needs, as their revenue increased by
11%. In addition, while overall technology sales declined
slightly, our AuthentiGuard™ revenue grew by 30% during the
quarter,” stated Frank Heuszel, CEO of DSS.
“Furthermore, the Company has proactively initiated significant
measures in the second quarter to reduce operating costs as we
fine-tune our product offerings which we feel will result in
measurably improved financial performance for the remainder of
2019. We are looking forward to providing additional updates
regarding our authentication and brand protection technologies in
the near future,” added Heuszel.
First Quarter 2019 Financial Highlights
- Revenue for the first quarter of
2019 increased 10% to $4.8 million from $4.4 million in the first
quarter of 2018. Printed Products revenue increased 11%
while Technology sales decreased by 2%.
- Net Loss during the first quarter
of 2019 was approximately $450,000 ($0.03 per share), as compared
to a net loss of approximately $406,000 ($0.02 per share) during
the first quarter of 2018.
- Costs and expenses for the first
quarter totaled $5.2 million, an increase of 11% from $4.7 million
during the same period of 2018, driven by increases in costs of
goods sold which was primarily due an increase in material costs
and outside services costs at the Company’s printed products group,
along with an increase in professional fees primarily driven by
increase in IP litigation legal activity.
- The Company recorded an Adjusted
EBITDA1 loss of $94,000 for the first quarter of 2019 as compared
to positive Adjusted EBITDA of $15,000 for the first quarter of
2018. The decline in Adjusted EBITDA was driven by increased
cost of sales for the printed products group.
A full analysis of results for the quarter ended
March 31, 2019 is available in the Company’s Form 10-Q which was
filed on May 14, 2019 and is available on the Company’s website at
www.dsssecure.com or through the Securities and Exchange
Commission’s Edgar database at www.sec.gov.
ABOUT DOCUMENT SECURITY SYSTEMS,
INC.For over 16 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
integrated operating divisions, visit DSS at www.dsssecure.com,
Premier Printing Corporation at www.premiercustompkg.com and
DSS Plastics Group at dssplasticsgroup.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) 232-5440Email:
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, 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 |
Consolidated Balance Sheets |
As of |
(unaudited) |
|
|
March 31, 2019 |
|
December 31, 2018 |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets: |
|
|
|
|
|
|
Cash |
|
$ |
1,336,754 |
|
|
$ |
2,317,659 |
|
Restricted cash |
|
|
109,892 |
|
|
|
130,326 |
|
Accounts receivable, net of $50,000 allowance for doubtful
accounts |
|
|
2,495,828 |
|
|
|
2,217,877 |
|
Inventory |
|
|
1,345,667 |
|
|
|
1,563,593 |
|
Prepaid expenses and other current assets |
|
|
309,223 |
|
|
|
285,580 |
|
Total current assets |
|
|
5,597,364 |
|
|
|
6,515,035 |
|
|
|
|
|
|
|
|
Property, plant and equipment,
net |
|
|
5,015,358 |
|
|
|
5,014,494 |
|
Investment |
|
|
324,930 |
|
|
|
324,930 |
|
Other assets |
|
|
90,319 |
|
|
|
90,319 |
|
Right-of-use assets |
|
|
1,396,278 |
|
|
|
- |
|
Goodwill |
|
|
2,453,597 |
|
|
|
2,453,597 |
|
Other intangible assets,
net |
|
|
1,291,868 |
|
|
|
881,411 |
|
Total
assets |
|
$ |
16,169,714 |
|
|
$ |
15,279,786 |
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
|
|
Accounts payable |
|
$ |
1,246,798 |
|
|
$ |
1,347,491 |
|
Accrued expenses and deferred revenue |
|
|
965,652 |
|
|
|
1,106,346 |
|
Other current liabilities |
|
|
1,846,281 |
|
|
|
2,255,942 |
|
Current portion of long-term debt, net |
|
|
698,369 |
|
|
|
713,427 |
|
Current portion of lease liability |
|
|
360,839 |
|
|
|
- |
|
Total current liabilities |
|
|
5,117,939 |
|
|
|
5,423,206 |
|
|
|
|
|
|
|
|
Long-term debt, net |
|
|
1,680,285 |
|
|
|
1,721,936 |
|
Lease liability |
|
|
1,059,802 |
|
|
|
- |
|
Other long-term
liabilities |
|
|
350,906 |
|
|
|
391,325 |
|
Deferred tax liability,
net |
|
|
168,986 |
|
|
|
168,986 |
|
|
|
|
|
|
|
|
Commitments and
contingencies (Note 9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity |
|
|
|
|
|
|
Common stock, $.02 par value; 200,000,000 shares authorized,
18,002,721 shares issued and outstanding (17,425,858 on December
31, 2018) |
|
|
360,054 |
|
|
|
348,517 |
|
Additional paid-in capital |
|
|
108,281,820 |
|
|
|
107,624,666 |
|
Accumulated other comprehensive loss |
|
|
(7,830 |
) |
|
|
(7,052 |
) |
Accumulated deficit |
|
|
(100,842,248 |
) |
|
|
(100,391,798 |
) |
Total stockholders' equity |
|
|
7,791,796 |
|
|
|
7,574,333 |
|
Total liabilities and
stockholders' equity |
|
$ |
16,169,714 |
|
|
$ |
15,279,786 |
|
|
|
|
|
|
|
|
DOCUMENT SECURITY SYSTEMS, INC. AND
SUBSIDIARIES |
Condensed Consolidated Statements of
Operations |
(unaudited) |
|
Three Months Ended March 31, 2019 |
Three Months Ended March 31, 2018 |
% change |
Revenue |
|
|
|
Printed products |
$ |
4,366,000 |
|
$ |
3,924,000 |
|
11 |
% |
Technology sales, services and licensing |
|
443,000 |
|
|
454,000 |
|
-2 |
% |
Total revenue |
$ |
4,809,000 |
|
$ |
4,378,000 |
|
10 |
% |
|
|
|
|
Costs and expenses |
|
|
|
Costs of goods sold, exclusive of depreciation and
amortization |
$ |
3,160,000 |
|
$ |
2,582,000 |
|
22 |
% |
Sales, general and administrative compensation |
|
920,000 |
|
|
968,000 |
|
-5 |
% |
Depreciation and amortization |
|
294,000 |
|
|
346,000 |
|
-15 |
% |
Professional fees |
|
292,000 |
|
|
234,000 |
|
25 |
% |
Stock based compensation |
|
31,000 |
|
|
1,000 |
|
3000 |
% |
Sales and marketing |
|
116,000 |
|
|
92,000 |
|
26 |
% |
Rent and utilities |
|
190,000 |
|
|
154,000 |
|
23 |
% |
Other operating expenses |
|
227,000 |
|
|
234,000 |
|
-3 |
% |
Research and development |
|
1,000 |
|
|
99,000 |
|
-99 |
% |
|
|
|
|
Total costs and expenses |
$ |
5,231,000 |
|
$ |
4,710,000 |
|
11 |
% |
|
|
|
|
Operating loss |
|
(422,000 |
) |
|
(332,000 |
) |
27 |
% |
|
|
|
|
Other income (expense): |
|
|
|
Interest income |
$ |
2,000 |
|
$ |
3,000 |
|
-33 |
% |
Interest expense |
|
(30,000 |
) |
|
(49,000 |
) |
-39 |
% |
Amortization of deferred financing costs and debt discount |
|
(1,000 |
) |
|
(28,000 |
) |
-96 |
% |
|
|
|
|
Total other expense |
$ |
(29,000 |
) |
$ |
(74,000 |
) |
61 |
% |
|
|
|
|
Loss before income taxes |
|
(450,000 |
) |
|
(406,000 |
) |
11 |
% |
|
|
|
|
Income
tax expense (benefit) |
|
- |
|
|
- |
|
N/A |
|
|
|
|
|
Net loss |
$ |
(450,000 |
) |
$ |
(406,000 |
) |
11 |
% |
|
|
|
|
Loss per
common share: |
|
|
|
Basic and diluted |
$ |
(0.03 |
) |
$ |
(0.02 |
) |
-50 |
% |
|
|
|
|
Shares
used in computing loss per common share: |
|
|
|
Basic and diluted |
|
17,494,750 |
|
|
16,599,327 |
|
5 |
% |
|
|
|
|
|
|
|
|
|
DOCUMENT SECURITY SYSTEMS, INC. AND
SUBSIDIARIES |
Consolidated Statements of Cash Flows |
For the Three Months Ended March 31, |
(unaudited) |
|
|
|
|
|
|
|
2019 |
|
2018 |
Cash flows from
operating activities: |
|
|
|
|
|
Net loss |
$ |
(450,450 |
) |
|
$ |
(406,091 |
) |
Adjustments to reconcile net loss to net cash used by operating
activities: |
|
|
|
|
|
Depreciation and amortization |
|
294,407 |
|
|
|
345,667 |
|
Stock based compensation |
|
30,701 |
|
|
|
1,251 |
|
Paid in-kind interest |
|
- |
|
|
|
12,000 |
|
Amortization of deferred financing costs and debt discount |
|
600 |
|
|
|
27,731 |
|
Decrease (increase) in assets: |
|
|
|
|
|
Accounts receivable |
|
(277,951 |
) |
|
|
25,689 |
|
Inventory |
|
217,926 |
|
|
|
51,699 |
|
Prepaid expenses and other current assets |
|
720 |
|
|
|
13,329 |
|
Increase (decrease) in liabilities: |
|
|
|
|
|
Accounts payable |
|
(100,692 |
) |
|
|
188,795 |
|
Accrued expenses |
|
(213,370 |
) |
|
|
(103,928 |
) |
Other liabilities |
|
(378,183 |
) |
|
|
(249,594 |
) |
Net cash used by operating
activities |
|
(876,292 |
) |
|
|
(93,452 |
) |
|
|
|
|
|
|
Cash flows from
investing activities: |
|
|
|
|
|
Purchase of property, plant and equipment |
|
(210,945 |
) |
|
|
(132,937 |
) |
Purchase of intangible assets |
|
(350,000 |
) |
|
|
(15,780 |
) |
Net cash used by investing
activities |
|
(560,945 |
) |
|
|
(148,717 |
) |
|
|
|
|
|
|
Cash flows from
financing activities: |
|
|
|
|
|
Payments of long-term debt |
|
(57,309 |
) |
|
|
(206,542 |
) |
Borrowings from convertible note |
|
500,000 |
|
|
|
- |
|
Issuances of common stock, net of issuance costs |
|
(6,793 |
) |
|
|
- |
|
Receipt of subscription receivable, net of issuance costs |
|
- |
|
|
|
288,000 |
|
Net cash provided by financing
activities |
|
435,898 |
|
|
|
81,458 |
|
|
|
|
|
|
|
Net decrease in cash
and cash equivalents |
|
(1,001,339 |
) |
|
|
(160,711 |
) |
Cash and restricted
cash at beginning of period |
|
2,447,985 |
|
|
|
4,444,628 |
|
|
|
|
|
|
|
Cash and restricted
cash at end of period |
$ |
1,446,646 |
|
|
$ |
4,283,917 |
|
|
|
|
|
|
|
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 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 loss to Adjusted
EBITDA income (loss):
|
Three Months Ended March 31, |
|
2019 |
2018 |
% change |
|
(unaudited) |
(unaudited) |
|
|
|
|
|
Net loss: |
$ |
(450,000 |
) |
$ |
(406,000 |
) |
11 |
% |
Add backs: |
|
|
|
Depreciation & amortization |
|
294,000 |
|
|
346,000 |
|
-15 |
% |
Stock based compensation |
|
28,000 |
|
|
1,000 |
|
2700 |
% |
Interest, net |
|
30,000 |
|
|
46,000 |
|
-35 |
% |
Amortization of deferred financing costs and debt
discount |
|
1,000 |
|
|
28,000 |
|
-96 |
% |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA |
$ |
(97,000 |
) |
$ |
15,000 |
|
-747 |
% |
|
|
|
|
Adjusted EBITDA, by
group (unaudited) |
|
|
|
Printed Products |
$ |
395,000 |
|
$ |
551,000 |
|
-28 |
% |
Technology |
|
(324,000 |
) |
|
(309,000 |
) |
-5 |
% |
Corporate |
|
(168,000 |
) |
|
(227,000 |
) |
-26 |
% |
|
|
|
|
|
|
(97,000 |
) |
|
15,000 |
|
-747 |
% |
|
|
|
|
|
|
|
|
|
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