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Document Security Systems Inc (DSS) SEC Filing 10-K Annual report for the fiscal year ending Sunday, December 31, 2017

Document Security Systems Inc

CIK: 771999 Ticker: DSS

 

 

 

Document Security Systems, Inc. Reports Fourth Quarter and Year Ended

2017 Financial Results

 

  Net Income of $147,000 in fourth quarter of 2017, up 674% from fourth quarter of 2016
  2017 Adjusted EBITDA totaled $1.4 million vs. 2016 Adjusted EBITDA of $1.1 million
  Net Loss Per Share Reduced 43% from ($0.07) in 2016 to ($0.04) in 2017

 

ROCHESTER, NY — March 6, 2018 —

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 fourth quarter and year ended December 31, 2017.

 

“While 2017 was our first full year of integrating our AuthentiGuard technology within a global customer’s supply chain, we are very pleased with its progress and execution, as well as with the additional AuthentiGuard opportunities currently in our development pipeline,” stated Jeff Ronaldi, CEO of DSS.

 

“Sales for the fourth quarter of 2017 increased 7% for our printed products division and was the largest sales quarter for that group in our history. Those revenues were countered by a reduction in technology-based sales, affected by a slowdown in the reported usage of AuthentiGuard during the latter part of 2017. However, we were able to generate a meaningful net profit during the quarter, which points to the strength of our combined business segments,” added Ronaldi.

 

“For the full year 2017, along with major strides in our AuthentiGuard product development and rollout, we also began our expansion into the Asia Pacific market with the opening of our Hong Kong office, and the formation of the DSS International team. This new location will allow us to service our existing customers in the region, and to hopefully capitalize on the demand for anti-counterfeit technology in the Asia Pacific market. The expansion and investment into the Asia Pacific market is a strategic component to the planned growth of DSS – and was achieved while we increased our year-over-year profitability to over $1.4 million, as measured by our Adjusted EBITDA,” said Ronaldi.

 

Fourth Quarter 2017 Financial Highlights

 

  Revenue for the fourth quarter of 2017 increased slightly to $5.83 million from $5.79 million in the fourth quarter of 2016.
     
  Net income during the fourth quarter of 2017 increased 674% to approximately $147,000 ($0.01 per share), as compared to a net income of $19,000 ($0.00 per share) during the fourth quarter of 2016.
     
  Costs and expenses for the fourth quarter totaled $5.6 million, a decrease of 1% from $5.7 million during the same period of 2016.
     
  Adjusted EBITDA1 for the fourth quarter of 2017 was approximately $590,000 as compared to $662,000 for the fourth quarter of 2016, which represents an 11% decrease. The decline in Adjusted EBITDA was mostly driven by increases in costs of goods sold.

 

   

 

 

Full Year 2017 Financial Highlights

 

  Revenue for the year 2017 decreased 3% to $18.7 million from $19.2 million in 2016. Printed products revenue decreased 1% as compared to 2016, with the decrease in the sales of printing and packaging products of 3%, offset by an increase in sales of plastic card products of 3%.
     
  Adjusted EBITDA totaled $1.4 million in 2017 compared to an Adjusted EBITDA $1.1 million in 2016. The improvement in Adjusted EBIDTA for the year reflects the decrease in costs, especially sales, general, and administrative compensation, professional fees, and stock-based compensation costs.
     
  Costs and expenses for the year 2017 totaled $18.9 million, a decrease of 5% from $19.8 million in 2016.
     
  During 2017, the Company reported a reduction in its net loss of $578,000, or $(0.04) per share, as compared to net loss of $950,000 or $(0.07) per share in 2016. The improvement in net loss is primarily due to significant reductions in sales, general, and administrative compensation, professional fees, and stock-based compensation costs incurred during 2017.

 

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 Plastics Group subsidiary, visit our websites at http://www.dsssecure.com and http://www.dssplasticsgroup.com.

 

Keep up-to-date on DSS events and developments; join our online communities at Facebook, Twitter and LinkedIn.

 

For more information:

 

Investor Relations

Document Security Systems

(585) 232-5440

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, 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, 2017, filed with the Securities and Exchange Commission on March 6, 2018. 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)

 

   Three Months Ended
December 31, 2017
   Three Months Ended
December 31, 2016
   % change   Year Ended
December 31, 2017
   Year Ended
December 31, 2016
   % change 
Revenue                              
Printed products  $5,473,000   $5,129,000    7%  $17,026,000   $17,277,000    -1%
Technology sales, services and licensing   360,000    657,000    -45%   1,636,000    1,900,000    -14%
Total revenue  $5,833,000   $5,786,000    1%  $18,662,000   $19,177,000    -3%
                               
Costs and expenses                              
Costs of goods sold, exclusive of depreciation and amortization  $3,629,000   $3,304,000    10%  $11,009,000   $11,120,000    -1%
Sales, general and administrative compensation   997,000    1,032,000    -3%   3,758,000    4,199,000    -11%
Depreciation and amortization   372,000    343,000    8%   1,414,000    1,392,000    2%
Professional fees   57,000    109,000    -48%   613,000    813,000    -25%
Stock based compensation   12,000    241,000    -95%   215,000    329,000    -35%
Sales and marketing   109,000    175,000    -38%   401,000    420,000    -5%
Rent and utilities   172,000    153,000    12%   634,000    602,000    5%
Other operating expenses   283,000    353,000    -20%   844,000    963,000    -12%
Total costs and expenses  $5,631,000   $5,710,000    -1%  $18,888,000   $19,838,000    -5%
                               
Operating income (loss)   202,000    76,000    166%   (226,000)   (661,000)   -66%
                               
Other income and expense                              
Interest income   4,000    0    100%   4,000    -    100%
Interest expense   (53,000)  $(62,000)   -15%   (223,000)   (248,000)   -10%
Amortized debt discount   (41,000)   -    100%   (154,000)   (31,000)   397%
Total other income and expense  $(90,000)  $(62,000)   45%  $(373,000)  $(279,000)   34%
                               
Loss before income taxes   112,000    14,000    700%   (599,000)   (940,000)   -36%
Income tax expense   (35,000)   (3,000)   1067%   (21,000)   11,000    -291%
Net income (loss)  $147,000   $19,000    674%  $(578,000)  $(950,000)   -39%
                               
Loss per common share:                              
Basic and diluted  $0.01   $0.00    100%  $(0.04)  $(0.07)   -43%
Shares used in computing loss per common share:                              
Basic and diluted   14,424,344    12,977,903    11%   14,424,344    13,068,329    10%

 

   

 

 

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

As of

 

   December 31, 2017   December 31, 2016 
         
ASSETS          
           
Current assets:          
Cash  $4,188,623   $5,871,738 
Restricted cash   256,005    177,609 
Accounts receivable, net   2,025,284    1,890,981 
Inventory   1,651,246    1,206,377 
Prepaid expenses and other current assets   261,324    350,289 
Total current assets   8,382,482    9,496,994 
           
Property, plant and equipment, net   4,805,640    4,573,841 
Investment   484,930    - 
Other assets   83,376    45,821 
Goodwill   2,453,597    2,453,349 
Other intangible assets, net   1,220,752    1,896,018 
Total assets  $17,430,777   $18,466,023 
           
LIABILITIES AND STOCKHOLDERS’ EQUITY          
           
Current liabilities:          
Accounts payable  $728,652   $2,212,653 
Accrued expenses and deferred revenue   1,105,718    1,290,593 
Other current liabilities   2,953,629    2,996,310 
Short-term debt   3,645,760    - 
Current portion of long-term debt, net   966,506    1,202,335 
Total current liabilities   9,400,265    7,701,891 
           
Long-term debt, net   1,734,171    5,249,569 
Other long-term liabilities   1,384,500    2,184,843 
Deferred tax liability, net   125,982    45,619 
           
Commitments and contingencies (Note 12)          
           
Stockholders’ equity          
Common stock, $.02 par value; 200,000,000 shares authorized, 16,599,327 shares issued and outstanding (13,502,653 on December 31, 2016)   331,987    270,053 
Additional paid-in capital   106,633,708    104,338,002 
Subscription receivable   (300,000)   - 
Accumulated other comprehensive loss   (23,069)   (45,343)
Accumulated deficit   (101,856,767)   (101,278,611)
Total stockholders’ equity   4,785,859    3,284,101 
Total liabilities and stockholders’ equity  $17,430,777   $18,466,023 

 

   

 

 

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Years Ended December 31,

 

   2017   2016 
Cash flows from operating activities:          
Net loss  $(578,156)  $(950,003)
Adjustments to reconcile net loss to net cash (used by) from operating activities:          
Depreciation and amortization   1,413,838    1,391,815 
Stock based compensation   214,862    328,567 
Paid in-kind interest   72,000    39,000 
Change in deferred tax provision   80,363    (116,488)
Amortization of deferred financing costs   154,142    21,351 
Gain on settlement of legal expenses   (219,364)   - 
Decrease (increase) in assets:          
Accounts receivable   (134,303)   206,452 
Inventory   (444,869)   (268,547)
Prepaid expenses and other current assets   51,409    (38,532)
Restricted cash   (78,396)   115,434 
Increase (decrease) in liabilities:          
Accounts payable   (893,431)   267,581 
Accrued expenses   (60,791)   - 
Other liabilities   (944,834)   4,469,895 
Net cash (used by) from operating activities   (1,367,530)   5,466,525 
           
Cash flows from investing activities:          
Purchase of property, plant and equipment   (958,819)   (269,870)
Proceeds from sale of intangibles   -    495,000 
Purchase of intangible assets   (11,552)   (73,661)
Net cash (used by) from investing activities   (970,371)   151,469 
           
Cash flows from financing activities:          
Payments of long-term debt   (818,332)   (1,386,420)
Borrowings from equipment line of credit   522,000    - 
Issuances of common stock, net of issuance costs   951,118    199,908 
Net cash from (used by) financing activities   654,786    (1,186,512)
           
Net (decrease) increase in cash   (1,683,115)   4,431,482 
Cash at beginning of year   5,871,738    1,440,256 
Cash at end of year  $4,188,623   $5,871,738 

 

   

 

 

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 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 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 loss:

 

Non-GAAP Financial Performance Measure

 

   Three Months Ended December 31,   Years Ended December 31, 
   2017   2016   % change   2017   2016   % change 
   (unaudited)   (unaudited)       (unaudited)   (unaudited)     
                         
Net income (loss):  $147,000   $19,000    674%  $(578,000)  $(950,000)   -39%
Add backs:                              
Depreciation & amortization   372,000    343,000    8%   1,414,000    1,392,000    2%
Stock based compensation   12,000    241,000    -95%   215,000    329,000    -35%
Interest, Net   53,000    62,000    -15%   219,000    279,000    -22%
Amortization of note discount   41,000    -    100%   154,000    -    100%
Income Taxes   (35,000)   (3,000)   1067%   (21,000)   11,000    -291%
Adjusted EBITDA   590,000    662,000    -11%   1,403,000    1,061,000    32%
                               
Adjusted EBITDA, by group (unaudited)                              
Printed Products  $899,000   $858,000    5%  $2,745,000   $2,897,000    -5%
Technology Management   (47,000)   119,000    -139%   (374,000)   (556,000)   -33%
Corporate   (262,000)   (315,000)   -17%   (968,000)   (1,280,000)   -24%
    590,000    662,000    -11%   1,403,000    1,061,000    32%

 

   

 

 


The following information was filed by Document Security Systems Inc (DSS) on Tuesday, March 6, 2018 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 (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)
Intangible Assets And Goodwill - Schedule Of Intangible Assets (details)
Intangible Assets And Goodwill - Schedule Of Intangible Assets (details) (parenthetical)
Inventory
Inventory (tables)
Inventory - Schedule Of Inventory (details)
Other Liabilities
Other Liabilities (details Narrative)
Property Plant And Equipment
Property Plant And Equipment (tables)
Property Plant And Equipment - Schedule Of Property, Plant And Equipment (details)
Property Plant And Equipment - Schedule Of Property, Plant And Equipment (details) (parenthetical)
Related Party Investment
Related Party Investment (details Narrative)
Segment Information
Segment Information (details Narrative)
Segment Information (tables)
Segment Information - Schedule Of Operations By Reportable Segment (details)
Short Term And Long Term Debt (tables)
Short Term And Long Term Debt - Schedule Of Notes Payable And Long-term Debt (details)
Short-term And Long-term Debt
Short-term And Long-term Debt (details Narrative)
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: 0001493152-18-002948
Submitted to the SEC: Tue Mar 06 2018 4:01:50 PM EST
Accepted by the SEC: Tue Mar 06 2018
Period: Sunday, December 31, 2017
Industry: Paperboard Containers And Boxes

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