Every now and then I come across a company that intrigues me enough to put out an article with my thoughts on why it may be time to consider taking a position. The last article I posted was on EKSO when it was trading near a dollar in September. A couple of months before it exploded from a buck to nearly 5 dollars in November of last year. It turned out to be a very nice trade and I now only hold a very tiny position in EKSO. There have been new developments @ EKSO that I may share my thoughts on in the future but today I want to focus on DSS.
"*Document Security Systems, Inc. (NYSE Amex: DSS) provides solutions to business and governments to fight the $1.7 trillion global counterfeiting epidemic targeting products, identifications, documents and currency. DSS is a leader in the research and development of optical deterrent technologies and have commercialized these technologies with a suite of products that offer customers flexible, multi-level protection.
*The Company's wholly-owned subsidiary, DSS Plastics Group (DSSPG), acquired in 2006, has been manufacturing advanced plastic cards and related products for businesses worldwide for over 40 years. Utilizing DSS core anti-fraud technologies, DSSPG's expertise includes security printing, plastic card manufacturing, Enhanced Tribal Cards, RFID products, SwiftColor InkJet Plastic Cards, Secure Card Designs and Polycarbonate card production.
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 visit dsssecure.com.**"
Why I like DSS and what I plan to go over in this article
• Nice technical setup on both the daily and weekly time frames
• Insider buying and fundamentals turning the corner
• Blockchain like technology with a potential catalyst on Jan 31st 2018
• Massive addressable market for future growth with expansion internationally
DSS caught my attention from a technical standpoint as I like the daily and weekly charts.
*The daily shows nice consolidation on lower volume after the big volume spike with tight candles just over the 50 day MA working off the overbought condition Stochastic curling up *
On the weekly long term view we can see the dominant trend that has been in place for years was recently broken and could indicate a new long term dominant trend starting
A closer view of the weekly shows DSS consolidating just over the 200 week moving average
DSS hired Jeff Ronaldi nearly five years ago to get this company back on track and improve their financial footing and it appears as though they are turning the corner and potentially on their way from cash flow positive to profitability.
Chief Executive Officer
Jeff Ronaldi has 25 years of experience managing and successfully growing technology-based businesses including ImageExpo, a division of SPX Corporation, a Fortune 500 company, that provided software to the publishing and transportation industries, Concentric Networks, now XO Communications, and UUNET, now a major part of Verizon.
As Product Manager at UUNET he oversaw the explosive growth of an industry standard-setting product that continues to generate billions of dollars in annual revenue. He was among UUNET's first 50 employees. Jeff also served as CEO of Newsletters.com which was sold to Marketresearch.com.
As General Manager at ImageExpo Jeff oversaw a $60 million patent infringement verdict against Microsoft. He also participated on behalf of SSL Services in a $20 million verdict against Citrix, and helped to manage a $50 million verdict against Genzyme. At Turtle Bay, an IP licensing firm, Jeff was responsible for defining overall strategy and for managing the company's approximately $50 million investment.
Prior to the merger with DSS, he served as CEO of Lexington Technology Group." from DSS website
The following is from their latest earnings release.
"Sales for the third quarter of 2017 were impacted by the timing of some projects that slipped into the fourth quarter, especially for our printed products group. Our technology sales continued to expand, including significant growth in our AuthentiGuard product. When compared to our third quarter of 2016, overall technology sales are only down due to a one-time $150,000 settlement license we received in last year's third quarter." stated Jeff Ronaldi, CEO of DSS. "I am pleased to see that we were able to continue our string of profitable Adjusted EBITDA quarters despite the softness in sales. This reflects the core strength of our business and the impact of our continued investment in our technology-based business opportunities. Thus far in 2017, Adjusted EBITDA profit is up 104% to over $800,000 and I expect that we will finish the year with another strong fourth quarter, especially in our printed products divisions," added Ronaldi.
DSS recently entered an employment agreement with Mr Chan for international expansion which should be massive growth opportunity with all the counterfeit activity abroad and two things grabbed my attention about Mr Chan.
One was Mr Chan's salary of 1 dollar a year. The other Mr Chan's recent insider purchase of over 800k shares @ .75 cents in September of 2017 as you can see in the graphic below.
Item 1.01 Entry into a Material Definitive Agreement
"On September 11, 2017, Document Security Systems, Inc. (the “Company”) and Heng Fai Ambrose Chan (“Mr. Chan”) entered into an Employment Agreement (the “Agreement”) which will take effect on October 1, 2017. Pursuant to the Agreement, the Company agrees to employ Mr. Chan to serve as the Chief Executive Officer of the Company’s recently formed wholly-owned subsidiary, DSS International Inc., and that subsidiary’s wholly-owned subsidiary, DSS Asia Limited (collectively, “DSS International”). Pursuant to the Agreement, DSS International’s Board of Directors will establish an executive committee (the “Executive Committee”) to oversee Mr. Chan’s activities, and Mr. Chan will report directly to the Executive Committee and shall be subject to the supervision of, and shall have such authority as is delegated to him by the Executive Committee, which authority shall be sufficient to perform his duties under the Agreement. Mr. Chan’s service under the Agreement will be part-time. Under the Agreement, Mr. Chan will receive an annual salary of $1 and the Company will reimburse him for his reasonable travel and other business expenses. The term of the agreement is three years although Mr. Chan can terminate the agreement at any time. Mr. Chan also serves as a director of the Company.
Within thirty days of the effective date of the Agreement, the Company will make a one-time investment in DSS International of $1,000,000, with such funds to be used primarily for investment in DSS International and the growth and development of DSS International. Specifically, those funds will be used for employment of staff, to establish offices in Singapore, Hong Kong and the United States as needed, and for the acquisition of equipment and other necessary and proper business expenses. Mr. Chan will provide sufficient office space for one employee in each of Hong Kong and Singapore. The Agreement also contains customary protections for the Company’s proprietary information. "
There are three divisions of DSS. The one with the most promise, in my opinion, is their Authentigaurd product. The technology is not new and they do have a couple of direct competitors as you can see from the graphic below. In comparison DSS has improving fundamentals and a much lower market cap than their competition even with the recent rise in their stock price.
*After the recent stock price appreciation the market cap remains significantly below their direct competition at around 34 million and the DSS fundamentals look much more favorable. *
While the printed products and IP licensing divisions may provide some stability of cash flow the real growth driver could be their Authentisuite digital solutions with Blockchain like similarities. We can learn more about that from an event they are having tomorrow Wed January 31st that could act as a catalyst for the stock.
"DSS Digital Group to Launch 2018 Webinar Series with “Big Data & Blockchain: The Future of Brand Protection or Hype?”
You can listen to the event here
Slides are from a recent presentation by DSS
The video below is a bit dated but it gives you a clear understanding of how it works. I would like to assume the technology continues to evolve and new features are available for different use cases.
My thesis is the company is on the verge of a sustainable fundamental turn around and they have potential for significant long term growth with their new international expansion plans. With this week's presentation we could have a near term catalyst that gives us a technical break out and some continued momentum. This is a risky play as they did a reverse split in the latter part of 2016 so they have a tiny float of only 13 million shares. However, the daily volume average of shares traded provides decent liquidity to be able to get in and out. This could be considered for either a day trade opportunity with volume and a press release catalyst, or a higher risk short term swing trade or long term hold consideration building a position on pulls to potential price support.
Full disclosure I took a starter position on Friday with a limit order that filled just before closing.
Disclosure: I am/we are long DSS
Additional disclosure: I have no paid relationship with DSS or other business relationship and do not receive any compensation for writing this. These are only my views and should not be taken as investment advice. I am not and nor do I claim to be a professional investment advisor.