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%