DSS Announces Third Quarter 2019 Financial Results
November 14 2019 - 4:59PM
DSS (NYSE American: DSS) (the “Company”), 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 third quarter ended September 30, 2019.
Third Quarter 2019 Business Highlights
and Recent Developments
- Closed private placement of common
shares funded entirely by DSS Chairman of the Board who purchased
the full private placement offering of 6,000,000 shares of common
stock at an above market rate of $0.3037 per share for gross
proceeds to the company of $1,822,200
- Retained CORE IR, a leading
investor relations, public relations and strategic advisory firm,
to assist the Company with investor relations, public relations and
shareholder communications services
- Announced newly established "DSS
Certified Printer Program" for qualified printers and packagers
with DSS portfolio of physical security and digital
anti-counterfeiting technologies
- Added two independent directors,
Mr. José Escudero and Mr. Samson Lee to its Board of Directors
- Released blockchain tracking and
authentication technology "Sentinel" to combat unauthorized
sellers, map violators and retail arbitrage within Amazon
Marketplace
- Appointed Jason Grady as Chief
Operating Officer
- Priced $5.6 million underwritten
public offering of common stock
- Appointed William Wu to DSS Board
of Directors as an independent director
- Expanded AuthentiGuard customer
engagement
“We are very encouraged by the 61% increase in
technology sales, services and licensing revenue during the
quarter. This was achieved through significant increases in sales
of our AuthentiGuard product and associated brand protection
technologies. We view this accomplishment as a direct result of our
concerted, successful efforts to drive market penetration and
conversion of the pent-up customer demand for the associated
anti-counterfeiting and brand protection technologies, which I
referenced in our last quarterly results update,” stated Frank D.
Heuszel, CEO of DSS.
“Further, we continue to identify potential
operational and cost savings while simultaneously aligning
resources to support and build a foundation for strategic growth
opportunities. To that end, we are hard at work implementing our
new strategic business plan, based upon five foundational tenets:
Revive the Company’s core businesses; Substantial reduction of
corporate overhead; Reduce cash burn – Since last spring, we have
reduced the Company’s monthly cash burn by more than $160,000; Exit
unprofitable business lines; and Implement business diversification
initiatives.
“We have further strengthened our balance sheet
with the capital gained from the recent closing of our private
placement of common shares, where our Chairman, Mr. Heng Fai
Ambrose Chan, purchased the entirety of the offering above market
price. Which is a testament to his commitment and support for our
expansive turnaround strategy. We are optimistic that our
investment in sales and marketing efforts is expanding our customer
reach and look forward to continuing to execute on our strategic
vision,” concluded Mr. Heuszel.
Third Quarter 2019 Financial
Highlights
- Revenues for the nine months ended
September 30, 2019 and September 30, 2018 remained relatively flat
at $12.5 million and $12.6 million respectively. Printed products
revenues for the nine months ended September 30, 2019 were down by
4% as compared to the same period in 2018, primarily due to a
decline in vinyl card sales and commercial printing sales, while
Technology sales, services and licensing revenue increased by 26%,
primarily resulting from increased AuthentiGuard sales.
- For the three months ended
September 30, 2019, total revenue declined 14% as compared to the
three months ended September 30, 2018. Revenues from the sale of
printed products decreased 20% during the three months ended
September 30, 2019, as compared to the same period in 2018,
primarily due to significant decreased packaging and technology
card sales. Technology sales, services and licensing revenue
increased 61% during the three months ended September 30, 2019 as
compared to the same period in 2018, primarily due to a significant
increase in AuthentiGuard sales.
- Costs of goods sold decreased by
13% during the three months ended September 30, 2019 as compared to
the same period in 2018. This decrease is attributed to both the
decline in revenue as well as cost controlling measures put in
regarding external warehousing, inter-warehouse shipments, and
labor at the DSS Printing and Packaging Group as well as the DSS
Plastics Group. For the nine months ended September 30, 2019, costs
of goods sold increased by 5% as compared to the same period in
2018, resulting from the increase in paper costs, freight costs,
and machine maintenance at the Company’s two production
facilities.
- For the three months ended
September 30, 2019, the Company recorded net loss of approximately
$1.2 million, as compared to a net loss of $413,000 during the same
period in 2018. During the nine months ended September 30, 2019,
the company recorded net loss of $2.7 million, as compared to net
income of $1.9 million for the nine months ended September 30,
2018. The increases in operating losses incurred during the three
and nine months ended September 30, 2019 as compared to the same
periods in 2018 primarily reflect the combined impact of a decline
in revenues in the printed products group coupled with an increases
in professional fees, stock based compensation, costs associated
with the Company’s expansion into Asia, and the impact of the net
gain from extinguishment of liabilities of approximately $3.5
million, which occurred during the second quarter of
2018.
- The Company recorded an Adjusted
EBITDA1 loss of ($1,231,000) for the nine months ended September
30, 2019 as compared to positive Adjusted EBITDA of $3,115,000 for
the nine months ended September 30, 2018. The decline in Adjusted
EBITDA was mostly driven by increased operating costs for the
Company and the impact of the $3.5M gain on extinguishment of
debt recorded in Q2 2018.
A full analysis of results for the quarter ended
September 30, 2019 is available in the Company’s Form 10-Q which
was filed on November 13, 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 www.dsssecure.com.
Keep up-to-date on DSS events and developments,
join our online communities at Facebook, Twitter and LinkedIn.
Contact Information:Investor Inquiries:
ir@dsssecure.comBret ShapiroCoreIR516 222 2560
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 |
Consolidated
Balance Sheets |
As
of |
(unaudited) |
|
September 30, 2019 |
|
December 31, 2018 |
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and cash equivalents |
$ |
3,916,332 |
|
|
$ |
2,447,985 |
|
Accounts receivable, net of $50,000 allowance for doubtful
accounts |
|
2,127,727 |
|
|
|
2,217,877 |
|
Inventory |
|
1,651,884 |
|
|
|
1,563,593 |
|
Prepaid expenses and other current assets |
|
470,047 |
|
|
|
285,580 |
|
Total current assets |
|
8,165,990 |
|
|
|
6,515,035 |
|
|
|
|
|
|
|
Property,
plant and equipment, net |
|
5,122,138 |
|
|
|
5,014,494 |
|
Investment |
|
324,930 |
|
|
|
324,930 |
|
Other
assets |
|
90,319 |
|
|
|
90,319 |
|
Right-of-use
assets |
|
1,344,601 |
|
|
|
- |
|
Goodwill |
|
2,453,597 |
|
|
|
2,453,597 |
|
Other
intangible assets, net |
|
1,048,503 |
|
|
|
881,411 |
|
|
|
|
|
|
|
|
|
Total assets |
$ |
18,550,078 |
|
|
$ |
15,279,786 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Accounts payable |
$ |
1,341,003 |
|
|
$ |
1,347,491 |
|
Accrued expenses and deferred revenue |
|
779,638 |
|
|
|
1,106,346 |
|
Other current liabilities |
|
935,404 |
|
|
|
2,255,942 |
|
Current portion of long-term debt, net |
|
467,382 |
|
|
|
713,427 |
|
Current portion of lease liability |
|
361,713 |
|
|
|
- |
|
Total current liabilities |
|
3,885,140 |
|
|
|
5,423,206 |
|
|
|
|
|
|
|
Long-term
debt, net |
|
2,361,696 |
|
|
|
1,721,936 |
|
Lease
liability |
|
1,007,251 |
|
|
|
- |
|
Other
long-term liabilities |
|
311,986 |
|
|
|
391,325 |
|
Deferred tax
liability, net |
|
168,986 |
|
|
|
168,986 |
|
|
|
|
|
|
|
Commitments and contingencies (Note 10) |
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.02 par value; 200,000,000 shares authorized,
30,180,626 shares issued and outstanding (17,425,858 on December
31, 2018) |
|
603,613 |
|
|
|
348,517 |
|
Additional paid-in capital |
|
113,335,147 |
|
|
|
107,624,666 |
|
Accumulated other comprehensive loss |
|
- |
|
|
|
(7,052 |
) |
Accumulated deficit |
|
(103,123,741 |
) |
|
|
(100,391,798 |
) |
Total stockholders' equity |
|
10,815,019 |
|
|
|
7,574,333 |
|
Total liabilities and stockholders' equity |
$ |
18,550,078 |
|
|
$ |
15,279,786 |
|
|
|
|
|
|
|
DOCUMENT
SECURITY SYSTEMS, INC. AND SUBSIDIARIES |
Consolidated
Statements of Operations and Comprehensive Income
(Loss) |
(unaudited) |
|
|
For the
Three Months Ended September 30, |
|
For the Nine
Months Ended September 30, |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
Printed products |
$ |
3,035,219 |
|
|
$ |
3,783,779 |
|
|
$ |
11,024,464 |
|
|
$ |
11,432,038 |
|
Technology sales, services and licensing |
|
497,700 |
|
|
|
310,511 |
|
|
|
1,424,204 |
|
|
|
1,126,867 |
|
Total revenue |
|
3,532,919 |
|
|
|
4,094,290 |
|
|
|
12,448,668 |
|
|
|
12,558,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses: |
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue, exclusive of depreciation and amortization |
|
2,217,822 |
|
|
|
2,551,782 |
|
|
|
8,275,046 |
|
|
|
7,889,844 |
|
Selling, general and administrative (including stock based
compensation) |
|
2,094,578 |
|
|
|
1,610,831 |
|
|
|
5,736,078 |
|
|
|
5,195,495 |
|
Depreciation and amortization |
|
420,063 |
|
|
|
310,330 |
|
|
|
1,051,211 |
|
|
|
1,002,813 |
|
Total costs and expenses |
|
4,732,463 |
|
|
|
4,472,943 |
|
|
|
15,062,335 |
|
|
|
14,088,152 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
(1,199,544 |
) |
|
|
(378,653 |
) |
|
|
(2,613,667 |
) |
|
|
(1,529,247 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
6,983 |
|
|
|
2,308 |
|
|
|
11,175 |
|
|
|
8,415 |
|
Interest expense |
|
(57,759 |
) |
|
|
(29,554 |
) |
|
|
(127,900 |
) |
|
|
(112,460 |
) |
Amortization of deferred financing costs and debt discount |
|
(351 |
) |
|
|
(6,168 |
) |
|
|
(1,551 |
) |
|
|
(40,067 |
) |
Gain on extinguishment of liabilities, net |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,532,659 |
|
Income (loss) before income taxes |
|
(1,250,671 |
) |
|
|
(412,067 |
) |
|
|
(2,731,943 |
) |
|
|
1,859,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
expense (benefit) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) |
$ |
(1,250,671 |
) |
|
$ |
(412,067 |
) |
|
$ |
(2,731,943 |
) |
|
$ |
1,859,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
- |
|
|
|
(5,088 |
) |
|
|
- |
|
|
|
(5,088.00 |
) |
Interest rate swap gain (loss) |
|
883 |
|
|
|
- |
|
|
|
(15,431 |
) |
|
|
- |
|
Settlement of interest rate swap |
|
21,600 |
|
|
|
(4,458 |
) |
|
|
22,483 |
|
|
|
17,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): |
$ |
(1,228,188 |
) |
|
$ |
(421,613 |
) |
|
$ |
(2,724,891 |
) |
|
$ |
1,871,606 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
Basic |
$ |
(0.05 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.12 |
) |
|
$ |
0.11 |
|
Diluted |
$ |
(0.05 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.12 |
) |
|
$ |
0.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
DOCUMENT
SECURITY SYSTEMS, INC. AND SUBSIDIARIES |
Consolidated
Statements of Cash Flows |
For the Nine
Months Ended September 30, |
(unaudited) |
|
|
|
|
|
|
|
2019 |
|
|
2018 |
Cash
flows from operating activities: |
|
|
|
|
|
Net income (loss) |
$ |
(2,731,943 |
) |
|
$ |
1,859,300 |
|
Adjustments to reconcile net income (loss) to net cash used by
operating activities: |
|
|
|
|
|
Depreciation and amortization |
|
1,051,211 |
|
|
|
1,002,813 |
|
Stock based compensation |
|
331,264 |
|
|
|
106,617 |
|
Paid in-kind interest |
|
- |
|
|
|
12,000 |
|
Amortization of deferred financing costs and debt discount |
|
351 |
|
|
|
40,067 |
|
Gain on extinguishment of liabilities, net |
|
- |
|
|
|
(3,532,659 |
) |
Decrease (increase) in assets: |
|
|
|
|
|
Accounts receivable |
|
90,150 |
|
|
|
107,708 |
|
Inventory |
|
(88,291 |
) |
|
|
(291,329 |
) |
Prepaid expenses and other current assets |
|
(160,104 |
) |
|
|
(55,374 |
) |
Increase (decrease) in liabilities: |
|
|
|
|
|
Accounts payable |
|
(6,485 |
) |
|
|
762,404 |
|
Accrued expenses |
|
(318,741 |
) |
|
|
(394,170 |
) |
Other liabilities |
|
(1,452,876 |
) |
|
|
(1,141,929 |
) |
Net cash
used by operating activities |
|
(3,285,464 |
) |
|
|
(1,524,552 |
) |
|
|
|
|
|
|
Cash
flows from investing activities: |
|
|
|
|
|
Purchase of property, plant and equipment |
|
(823,348 |
) |
|
|
(526,251 |
) |
Purchase of intangible assets |
|
(357,816 |
) |
|
|
(45,471 |
) |
Net cash
used by investing activities |
|
(1,181,164 |
) |
|
|
(571,722 |
) |
|
|
|
|
|
|
Cash
flows from financing activities: |
|
|
|
|
|
Payments of long-term debt |
|
(194,386 |
) |
|
|
(966,077 |
) |
Borrowing from equipment line of credit |
|
587,750 |
|
|
|
87,703 |
|
Borrowings from convertible note |
|
500,000 |
|
|
|
- |
|
Issuances of common stock, net of issuance costs |
|
5,041,611 |
|
|
|
300,000 |
|
Receipt of subscription receivable, net of issuance costs |
|
- |
|
|
|
288,000 |
|
Net cash
provided (used) by financing activities |
|
5,934,975 |
|
|
|
(290,374 |
) |
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents |
|
1,468,347 |
|
|
|
(2,386,648 |
) |
Cash
and cash equivalents at beginning of period |
|
2,447,985 |
|
|
|
4,444,628 |
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period |
$ |
3,916,332 |
|
|
$ |
2,057,980 |
|
|
|
|
|
|
|
|
Three Months
Ended September 30, |
|
Nine Months
Ended September 30, |
|
|
2019 |
|
2018 |
% change |
|
|
2019 |
|
2018 |
% change |
|
(unaudited) |
(unaudited) |
|
|
(unaudited) |
(unaudited) |
|
|
|
|
|
|
|
|
|
Net income (loss): |
$ |
(1,251,000 |
) |
$ |
(413,000 |
) |
203 |
% |
|
$ |
(2,732,000 |
) |
$ |
1,859,000 |
-247 |
% |
Add
backs: |
|
|
|
|
|
|
|
Depreciation & amortization |
|
420,000 |
|
|
310,000 |
|
35 |
% |
|
|
1,051,000 |
|
|
1,003,000 |
5 |
% |
Stock based compensation |
|
273,000 |
|
|
20,000 |
|
1265 |
% |
|
|
331,000 |
|
|
107,000 |
209 |
% |
Interest, net |
|
51,000 |
|
|
27,000 |
|
89 |
% |
|
|
117,000 |
|
|
104,000 |
13 |
% |
Amortization of deferred financing costs and debt discount |
|
- |
|
|
6,000 |
|
-100 |
% |
|
|
2,000 |
|
|
40,000 |
-95 |
% |
|
|
|
|
|
|
|
|
Adjusted
EBITDA |
$ |
(507,000 |
) |
$ |
(50,000 |
) |
914 |
% |
|
$ |
(1,231,000 |
) |
$ |
3,113,000 |
-140 |
% |
|
|
|
|
|
|
|
|
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 nonrecurring 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 income (loss).
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