ROCHESTER, N.Y., May 14, 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 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) 232-5440
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 | ||||||||
| 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 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 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 | % | ||||