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Document Security Systems Inc (DSS) SEC Filing 10-K Annual report for the fiscal year ending Thursday, December 31, 2015

Document Security Systems Inc

CIK: 771999 Ticker: DSS

 

 

 

Document Security Systems, Inc. Announces 2015 Fourth Quarter and Full-Year Financial Results

 

ROCHESTER, NY — March 30, 2016 — Document Security Systems, Inc. (NYSE MKT: DSS), (DSS

), a leader in anti-counterfeiting and authentication solutions, reported results for the fourth quarter and for the full-year of 2015.

 

“During the fourth quarter of 2015, we continued to benefit from the performance of our core operating groups, which delivered strong revenue results while constraining costs. While a goodwill impairment taken by our technology management group hurt overall results for the quarter, our near positive adjusted EBITDA results for the quarter reiterates the strength of our business,” said Jeff Ronaldi, CEO of Document Security Systems. Mr. Ronaldi continued: “Our business is benefitting from our strategy to intensify our focus on high growth, higher margin products and services. I am excited by our momentum as we enter 2016 and believe that we will continue to gain a wider audience as companies more earnestly address their counterfeiting and brand protection issues.”

 

Q4 2015 Financial Highlights

 

Revenue for the fourth quarter of 2015 increased 13% to $5.5 million from $4.8 million in the same year-ago quarter. During the quarter, the Company had strong performance in both printed products revenues, which increased 14% and technology sales, services and licensing revenue, which increased 11%.

 

Costs and expenses totaled $16.1 million, a decrease of 50% from $32.4 million in the same year-ago period. The decrease was primarily due to a reduction in impairment charges incurred in the fourth quarter of 2015 compared to the fourth quarter of 2014. Absent the impairment charges, costs and expenses for the fourth quarter of 2015 totaled $6.0 million, which was a 16% decrease from the same year-ago period. The decrease was primarily driven by reductions in compensation costs and professional fees.

 

Net loss totaled $10.7 million or $(0.23) per share, as compared to net loss of $27.7 million or ($0.66) per share in the fourth quarter of 2015. For both periods, the net losses were significantly impacted by impairment charges. Absent the impairment charges, net loss would have been $640,000 in the fourth quarter of 2015 and $2,404,000 in the fourth quarter of 2014.

 

Adjusted EBITDA loss, a non-GAAP metric defined as earnings before interest, taxes, depreciation, amortization, and stock-based compensation, and asset impairments as well as other non-recurring items, totaled $68,000 in the fourth quarter of 2015 compared to an adjusted EBITDA loss of $737,000 in the fourth quarter of 2014 (see further discussion about the use of adjusted EBITDA, below). The significant improvement reflected both the increase in revenues and the decrease in costs in nearly every expense category.

 

Full Year 2015 Financial Highlights

 

Revenue in full year of 2015 decreased 4% to $17.5 million from $18.3 million in 2014. During the year, printed products revenue decreased 5% while technology sales, services and licensing revenues were essentially flat.

 

Costs and expenses totaled $31.6 million, a decrease of 51% from $64.8 million in 2014. The decrease was primarily due to the reduction in impairment charges incurred in 2015 compared to 2014. Absent the impairment charges, costs and expenses in 2015 totaled $21.5 million, which was a 22% decrease from 2014 amounts. The decrease was driven by reductions in nearly every expense category.

 

 
   

 

Net loss totaled $14.3 million or $(0.30) per share, as compared to net loss of $41.2 million or $(0.98) per share in 2014. For both periods, the net losses were significantly impacted by impairment charges. Absent the impairment charges, net loss was $4.2 million in 2015 and $8.8 million in 2014.

 

Adjusted EBITDA loss, a non-GAAP metric defined as earnings before interest, taxes, depreciation, amortization, and stock-based compensation, and asset impairments as well as other non-recurring items, totaled $1.3 million in 2015 compared to an adjusted EBITDA loss of $2.8 million in 2014 (see further discussion about the use of adjusted EBITDA, below).

 

About Document Security Systems

 

Document Security Systems, Inc.’s (NYSE MKT: DSS) products and solutions are used by governments, corporations and financial institutions to defeat fraud and to protect brands and digital information from the expanding world-wide counterfeiting problem. DSS technologies help ensure the authenticity of both digital and physical financial instruments, identification documents, sensitive publications, brand packaging and websites.

 

DSS continually invests in research and development to meet the ever-changing security needs of its clients and offers licensing of its patented technologies.

 

For more information on the AuthentiGuard Suite, please visit www.authentiguard.com. For more information on DSS and its subsidiaries, please visit www.DSSsecure.com. To follow DSS on Facebook, click here.

 

For More Information

 

Investor Relations

Document Security Systems

(585) 325-3610

Email: ir@documentsecurity.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, those disclosed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission on March 30, 2016. 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)

 

   Year Ended
December 31, 2015
   Year Ended
December 31, 2014
   %
change
   Three Months
Ended
December 31, 2015
   Three Months
Ended
December 31, 2014
   % change 
Revenue                              
Printed products  $15,701,000   $16,478,000    -5%  $5,023,000   $4,418,000    14%
Technology sales, services and licensing   1,804,000    1,809,000    0%   437,000    394,000    11%
                               
Total revenue  $17,505,000   $18,287,000    -4%  $5,460,000   $4,812,000    13%
                               
Costs and expenses                              
Cost of goods sold, exclusive of depreciation and amortization  $10,665,000   $11,690,000    -9%  $3,459,000   $3,184,000    9%
Sales, general and administrative compensation   3,983,000    4,677,000    -15%   962,000    1,064,000    -10%
Depreciation and amortization   1,559,000    5,274,000    -70%   384,000    1,351,000    -72%
Professional fees   1,918,000    1,773,000    8%   384,000    343,000    12%
Stock based compensation   974,000    1,355,000    -28%   132,000    250,000    -47%
Sales and marketing   329,000    531,000    -38%   79,000    106,000    -25%
Rent and utilities   675,000    809,000    -17%   165,000    242,000    -32%
Other operating expenses   922,000    1,160,000    -21%   330,000    492,000    -33%
Research and development   470,000    462,000    2%   120,000    118,000    2%
Impairment of goodwill   9,593,000    3,000,000    220%   9,593,000    3,000,000    220%
Impairment of intangible assets and investments   500,000    34,035,000    -99%   500,000    22,285,000    -98%
Total costs and expenses  $31,588,000   $64,766,000    -51%  $16,108,000   $32,435,000    -50%
                               
Operating loss   (14,083,000)   (46,479,000)   -70%   (10,648,000)   (27,623,000)   -61%
                               
Other expenses                              
Interest expense  $(335,000)  $(317,000)   6%  $(78,000)  $(65,000)   20%
Gain (loss) on disposals of investment and equipment, net   120,000    -    0%   (26,000)   -    0%
Foreign currency transaction gain   29,000    2,000    1350%   -    -    0%
Net loss on debt modification and extinguishment   (19,000)   (52,000)   -63%   -    -    0%
                               
Other expense  $(205,000)  $(367,000)   -44%  $(104,000)  $(65,000)   60%
                               
Loss before income taxes   (14,288,000)   (46,846,000)   -70%   (10,752,000)   (27,688,000)   -61%
                               
Income tax expense (benefit)   22,000    (989,000)   -102%   8,000    1,000    700%
                               
Net loss   (14,309,000)   (45,859,000)   -69%   (10,759,000)   (27,689,000)   -61%
                               
Less: loss attributable to noncontrolling interest   -    4,700,000    -100%   -    -    -100%
                               
Net loss to common shareholders  $(14,309,000)  $(41,159,000)   -65%  $(10,759,000)  $(27,689,000)   -61%
                               
Loss per common share:                              
Basic and diluted  $(0.30)  $(0.98)   -69%  $(0.23)  $(0.66)   -65%
                               
Shares used in computing loss per common share:                              
Basic and diluted   47,759,877    42,105,619    13%   46,453,962    42,060,015    10%

 

 
   

 

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

As of December 31,

 

   2015   2014 
         
ASSETS          
           
Current assets:          
Cash  $1,440,256   $2,343,675 
Restricted cash   293,043    355,793 
Accounts receivable, net   2,097,433    2,097,671 
Inventory   937,830    869,262 
Prepaid expenses and other current assets   313,528    425,671 
           
Total current assets   5,082,090    6,092,072 
           
Property, plant and equipment, net   5,003,818    5,016,539 
Investments and other assets, net   100,632    686,912 
Goodwill   2,453,349    12,046,197 
Other intangible assets, net   3,017,544    3,908,399 
           
Total assets  $15,657,433   $27,750,119 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current liabilities:          
Accounts payable  $1,945,073   $1,037,359 
Accrued expenses and other current liabilities   1,964,726    1,997,241 
Short-term debt   4,023,379    - 
Current portion of long-term debt, net   1,553,061    754,745 
           
Total current liabilities   9,486,239    3,789,345 
           
Long-term debt, net   2,258,115    7,439,036 
Other long-term liabilities   63,697    520,180 
Deferred tax liability, net   162,107    145,759 
           
Commitments and contingencies          
           
Stockholders’ equity          
Common stock, $.02 par value; 200,000,000 shares authorized, 51,881,948 shares issued and outstanding (46,172,404 on December 31, 2014)        1,037,639           923,448   
Additional paid-in capital   103,041,941    101,012,659 
Accumulated other comprehensive loss   (63,697)   (61,180)
Accumulated deficit   (100,328,608)   (86,019,128)
Total stockholders’ equity   3,687,275    15,855,799 
           
Total liabilities and stockholders’ equity  $15,657,433   $27,750,119 

 

 
   

 

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended December 31,

 

   2015   2014 
Cash flows from operating activities:          
Net loss  $(14,309,480)  $(45,857,052)
Adjustments to reconcile net loss to net cash used by operating activities:          
Depreciation and amortization   1,558,899    5,274,323 
Stock based compensation   974,137    1,355,430 
Paid in-kind interest   84,379    48,000 
Gain on disposals of equipment, net   (20,431)   - 
Amortization of note discount   -    22,707 
Impairment of goodwill   9,592,848    3,000,000 
Impairment of intangible assets and investments inclusive of noncontrolling interest   500,000    34,034,862 
Net loss on debt modification and extinguishment   19,096    - 
Change in deferred tax provision   22,184    (988,630)
Foreign currency transaction gain   (29,400)   (2,305)
Decrease (increase) in assets:          
Accounts receivable   238    51,452 
Inventory   (68,568)   (34,283)
Prepaid expenses and other assets   198,423    30,081 
Restricted cash   62,750    144,207 
Increase (decrease) in liabilities:          
Accounts payable   907,714    (384,406)
Accrued expenses and other liabilities   (469,419)   915,376 
Net cash used by operating activities   (976,630)   (2,390,238)
           
Cash flows from investing activities:          
Purchase of property and equipment   (157,098)   (280,902)
Sale of equipment   46,283    - 
Purchase of investments   -    (750,000)
Purchase of intangible assets   (5,159)   (1,243,714)
Net cash used by investing activities   (115,974)   (2,274,616)
           
Cash flows from financing activities:          
Net payments on revolving lines of credit   -    (158,087)
Payments of long-term debt   (939,151)   (616,393)
Borrowings of long-term debt   -    4,041,000 
Issuances of common stock, net of issuance costs   1,128,336    1,764,978 
Net cash provided by financing activities   189,185    5,031,498 
           
Net (decrease) increase in cash   (903,419)   366,644 
Cash beginning of year   2,343,675    1,977,031 
           
Cash end of year  $1,440,256   $2,343,675 

  

 
   

 

About the Presentation of Adjusted EBITDA

 

The Company uses Adjusted EBITDA as a non-GAAP financial performance measurement. Adjusted EBITDA is calculated by the Company 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, and impairments of investments and intangible assets. 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 its 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 costs related to the Company’s merger with Lexington Technology Group, all 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:

 

   Three Months Ended December 31,   Years Ended December 31, 
   2015   2014   % change   2015   2014   % change 
   (unaudited)   (unaudited)       (unaudited)   (unaudited)     
                         
Net Loss:  $(10,759,000)  $(27,689,000)   -61%  $(14,309,000)  $(41,157,000)   -65%
Add backs:                              
Depreciation & amortization   384,000    1,351,000    -72%   1,559,000    5,274,000    -70%
Stock based compensation   132,000    250,000    -47%   974,000    1,355,000    -28%
Interest expense   78,000    65,000    20%   335,000    317,000    6%
Amortization of note discount and net loss on debt extinguishment and modification   -    -    0%   19,000    52,000    -63%
Income Taxes   8,000    1,000    700%   22,000    (989,000)   -102%
Foreign currency transaction gain   -    -    0%   (29,000)   (2,000)   1350%
Impairment of intangible assets and investments, net of noncontrolling interests   10,093,000    25,285,000    -60%   10,093,000    32,335,000    -69%
                               
Adjusted EBITDA   (64,000)   (737,000)   -91%   (1,336,000)   (2,815,000)   -53%
                               
Adjusted EBITDA, by group (unaudited)                              
                               
Printed Products  $774,000   $490,000    58%  $2,183,000   $1,845,000    18%
Technology Management   (435,000)   (534,000)   -19%   (1,792,000)   (1,877,000)   -5%
Corporate   (403,000)   (693,000)   -42%   (1,727,000)   (2,783,000)   -38%
                               
    (64,000)   (737,000)   -91%   (1,336,000)   (2,815,000)   -53%

 

 
   


The following information was filed by Document Security Systems Inc (DSS) on Wednesday, March 30, 2016 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-K Annual Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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Inside this 10-K Annual Report

Document And Entity Information
Consolidated Balance Sheets
Consolidated Balance Sheets (parenthetical)
Consolidated Statements Of Cash Flows
Consolidated Statements Of Changes In Stockholders??? Equity
Consolidated Statements Of Operations And Comprehensive Loss
Commitments And Contingencies
Commitments And Contingencies (details Narrative)
Commitments And Contingencies (tables)
Commitments And Contingencies - Schedule Of Future Minimum Payments Under Operating Leases (details)
Defined Contribution Pension Plan
Defined Contribution Pension Plan (details Narrative)
Description Of Business
Income Taxes
Income Taxes (details Narrative)
Income Taxes (tables)
Income Taxes - Schedule Of Deferred Tax Assets And Liabilities (details)
Income Taxes - Schedule Of Effective Income Tax Rate Reconciliation (details)
Income Taxes - Schedule Of Income Tax Provision (details)
Intangible Assets And Goodwill
Intangible Assets And Goodwill - Schedule Of Other Intangible Assets (details)
Intangible Assets And Goodwill (details Narrative)
Intangible Assets And Goodwill (tables)
Intangible Assets And Goodwill - Schedule Of Changes On Carrying Amount Of Goodwill (details)
Intangible Assets And Goodwill - Schedule Of Estimated Future Amortization Of Intangible Assets (details)
Inventory
Inventory (tables)
Inventory - Schedule Of Inventory (details)
Investments
Investments (details Narrative)
Property Plant And Equipment
Property Plant And Equipment (tables)
Property Plant And Equipment - Schedule Of Property, Plant And Equipment (details)
Segment Information
Segment Information (details Narrative)
Segment Information (tables)
Segment Information - Schedule Of Operations By Reportable Segment (details)
Short Term And Long Term Debt
Short Term And Long Term Debt (details Narrative)
Short Term And Long Term Debt (tables)
Short Term And Long Term Debt - Schedule Of Notes Payable And Long-term Debt (details)
Stockholders' Equity
Stockholders' Equity (details Narrative)
Stockholders' Equity (tables)
Stockholders' Equity - Schedule Of Assumptions Used To Compute The Share-based Compensation Expense For Stock Options And Warrants (details)
Stockholders' Equity - Schedule Of Warrant Activity (details)
Stockholders' Equity - Summary Of Restricted Stock (details)
Stockholders' Equity - Summary Of Stock Option Activity Under Stock Option And Incentive Plans (details)
Summary Of Significant Accounting Policies
Summary Of Significant Accounting Policies (details Narrative)
Summary Of Significant Accounting Policies (policies)
Summary Of Significant Accounting Policies (tables)
Summary Of Significant Accounting Policies - Schedule Of Derivative Instruments (details)
Supplemental Cash Flow Information
Supplemental Cash Flow Information (tables)
Supplemental Cash Flow Information - Schedule Of Supplemental Cash Flow Information (details)
Ticker: DSS
CIK: 771999
Form Type: 10-K Annual Report
Accession Number: 0001493152-16-008415
Submitted to the SEC: Wed Mar 30 2016 4:19:01 PM EST
Accepted by the SEC: Wed Mar 30 2016
Period: Thursday, December 31, 2015
Industry: Paperboard Containers And Boxes

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