10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________.

001-32146

Commission file number

DOCUMENT SECURITY SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

New York	16-1229730
(State or other Jurisdiction of incorporation- or Organization)	(IRS Employer Identification No.)

200 Canal View Boulevard, Suite 300

Rochester, NY 14623

(Address of principal executive offices)

(585) 325-3610

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [  ]	Accelerated filer [  ]	Non-accelerated filer [X]	Smaller reporting company [X]
Emerging growth company [  ]

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes [  ] No [X]

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Ticker symbol(s)	Name of each exchange on which registered
Common Stock, $0.02 par value per share	DSS	The NYSE American LLC

As of November 12, 2019, there were 36,180,626 shares of the registrant’s common stock, $0.02 par value, outstanding.

DOCUMENT SECURITY SYSTEMS, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
Item 1	Financial Statements	3
	Consolidated Balance Sheets as of September 30, 2019 (Unaudited) and December 31, 2018	3
	Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2019 and 2018 (Unaudited)	4
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (Unaudited)	5
	Consolidated Statement of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018 (Unaudited)	6
	Notes to Interim Condensed Consolidated Financial Statements (Unaudited)	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 4	Controls and Procedures	26
PART II	OTHER INFORMATION
Item 1	Legal Proceedings	27
Item 1A	Risk Factors	27
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3	Defaults upon Senior Securities	27
Item 4	Mine Safety Disclosures	27
Item 5	Other Information	27

2

PART I – FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

As of

(unaudited)

	September 30, 2019			December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	3,916,332		$	2,447,985
Accounts receivable, net of $50,000 allowance for doubtful accounts		2,127,727			2,217,877
Inventory		1,651,884			1,563,593
Prepaid expenses and other current assets		470,047			285,580
Total current assets		8,165,990			6,515,035
Property, plant and equipment, net		5,122,138			5,014,494
Investment		324,930			324,930
Other assets		90,319			90,319
Right-of-use assets		1,344,601			-
Goodwill		2,453,597			2,453,597
Other intangible assets, net		1,048,503			881,411
Total assets	$	18,550,078		$	15,279,786
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,341,003		$	1,347,491
Accrued expenses and deferred revenue		779,638			1,106,346
Other current liabilities		935,404			2,255,942
Current portion of long-term debt, net		467,382			713,427
Current portion of lease liability		361,713			-
Total current liabilities		3,885,140			5,423,206
Long-term debt, net		2,361,696			1,721,936
Lease liability		1,007,251			-
Other long-term liabilities		311,986			391,325
Deferred tax liability, net		168,986			168,986
Commitments and contingencies (Note 10)
Stockholders’ equity:
Common stock, $.02 par value; 200,000,000 shares authorized, 30,180,626 shares issued and outstanding (17,425,858 on December 31, 2018)		603,613			348,517
Additional paid-in capital		113,335,147			107,624,666
Accumulated other comprehensive loss		-			(7,052	)
Accumulated deficit		(103,123,741	)		(100,391,798	)
Total stockholders’ equity		10,815,019			7,574,333
Total liabilities and stockholders’ equity	$	18,550,078		$	15,279,786

See accompanying notes to the condensed consolidated financial statements.

3

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive Income (Loss)

(unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue:
Printed products	$	3,035,219		$	3,783,779		$	11,024,464		$	11,432,038
Technology sales, services and licensing		497,700			310,511			1,424,204			1,126,867
Total revenue		3,532,919			4,094,290			12,448,668			12,558,905
Costs and expenses:
Cost of revenue, exclusive of depreciation and amortization		2,217,822			2,551,782			8,275,046			7,889,844
Selling, general and administrative (including stock based compensation)		2,094,578			1,610,831			5,736,078			5,195,495
Depreciation and amortization		420,063			310,330			1,051,211			1,002,813
Total costs and expenses		4,732,463			4,472,943			15,062,335			14,088,152
Operating loss		(1,199,544	)		(378,653	)		(2,613,667	)		(1,529,247	)
Other income (expense):
Interest income		6,983			2,308			11,175			8,415
Interest expense		(57,759	)		(29,554	)		(127,900	)		(112,460	)
Amortization of deferred financing costs and debt discount		(351	)		(6,168	)		(1,551	)		(40,067	)
Gain on extinguishment of liabilities, net		-			-			-			3,532,659
Income (loss) before income taxes		(1,250,671	)		(412,067	)		(2,731,943	)		1,859,300
Income tax expense (benefit)		-			-			-			-
Net income (loss)	$	(1,250,671	)	$	(412,067	)	$	(2,731,943	)	$	1,859,300
Other comprehensive income (loss):
Foreign currency translation adjustment		-			(5,088	)		-			(5,088.00	)
Interest rate swap gain (loss)		-			(4,458	)		(15,431	)		17,394
Settlement of interest rate swap		22,483			-			22,483			-
Comprehensive income (loss):	$	(1,228,188	)	$	(421,613	)	$	(2,724,891	)	$	1,871,606
Earnings (loss) per common share:
Basic	$	(0.05	)	$	(0.02	)	$	(0.12	)	$	0.11
Diluted	$	(0.05	)	$	(0.02	)	$	(0.12	)	$	0.11
Shares used in computing earnings (loss) per common share:
Basic		24,026,417			16,767,992			22,611,189			16,662,907
Diluted		24,026,417			16,767,992			22,611,189			16,930,812

See accompanying notes to condensed consolidated financial statements.

4

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30,

(unaudited)

	2019			2018
Cash flows from operating activities:
Net income (loss)	$	(2,731,943	)	$	1,859,300
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Depreciation and amortization		1,051,211			1,002,813
Stock based compensation		331,264			106,617
Paid in-kind interest		-			12,000
Amortization of deferred financing costs and debt discount		351			40,067
Gain on extinguishment of liabilities, net		-			(3,532,659	)
Decrease (increase) in assets:
Accounts receivable		90,150			107,708
Inventory		(88,291	)		(291,329	)
Prepaid expenses and other current assets		(160,104	)		(55,374	)
Increase (decrease) in liabilities:
Accounts payable		(6,485	)		762,404
Accrued expenses		(318,741	)		(394,170	)
Other liabilities		(1,452,876	)		(1,141,929	)
Net cash used by operating activities		(3,285,464	)		(1,524,552	)
Cash flows from investing activities:
Purchase of property, plant and equipment		(823,348	)		(526,251	)
Purchase of intangible assets		(357,816	)		(45,471	)
Net cash used by investing activities		(1,181,164	)		(571,722	)
Cash flows from financing activities:
Payments of long-term debt		(194,386	)		(966,077	)
Borrowing from equipment line of credit		587,750			87,703
Borrowings from convertible note		500,000			-
Issuances of common stock, net of issuance costs		5,041,611			300,000
Receipt of subscription receivable, net of issuance costs		-			288,000
Net cash provided (used) by financing activities		5,934,975			(290,374	)
Net increase (decrease) in cash and cash equivalents		1,468,347			(2,386,648	)
Cash and cash equivalents at beginning of period		2,447,985			4,444,628
Cash and cash equivalents at end of period	$	3,916,332		$	2,057,980

See accompanying notes to the condensed consolidated financial statements.

5

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity

(Unaudited)

	Common Stock				Additional Paid-in		Accumulated Other Comprehensive			Accumulated
	Shares		Amount		Capital		Loss			Deficit			Total
Balance, December 31, 2018		17,425,858	$	348,517	$	107,624,666	$	(7,052	)	$	(100,391,798	)	$	7,574,333
Issuance of common stock, net		576,863		11,537		626,453		-			-			637,990
Stock based payments, net of tax effect		-		-		30,701		-			-			30,701
Other comprehensive loss		-		-		-		(778	)		-			(778	)
Net loss		-		-		-		-			(450,450	)		(450,450	)
Balance, March 31, 2019		18,002,721	$	360,054	$	108,281,820	$	(7,830	)	$	(100,842,248	)	$	7,791,796
Issuance of common stock, net		11,200,000		224,000		4,662,637		-			-			4,886,637
Stock based payments, net of tax effect		-		-		27,909		-			-			27,909
Other comprehensive loss		-		-		-		(14,653	)		-			(14,653	)
Net loss		-		-		-		-			(1,030,822	)		(1,030,822	)
Balance, June 30, 2019		29,202,721	$	584,054	$	112,972,366	$	(22,483	)	$	(101,873,070	)	$	11,660,867
Issuance of common stock, net		519,186		10,384		151,383		-			-			161,767
Stock based payments, net of tax effect		458,719		9,175		211,398		-			-			220,573
Other comprehensive loss		-		-		-		22,483			-			22,483
Net loss		-		-		-		-			(1,250,671	)		(1,250,671	)
Balance, September 30, 2019		30,180,626	$	603,613	$	113,335,147	$	-		$	(103,123,741	)	$	10,815,019

	Common Stock				Additional Paid-in			Subscription			Accumulated Other Comprehensive			Accumulated
	Shares		Amount		Capital			Receivable			Loss			Deficit			Total
Balance, December 31, 2017		16,599,327	$	331,987	$	106,633,708		$	(300,000	)	$	(23,069	)	$	(101,856,767	)	$	4,785,859
Issuance of common stock, net		-		-		(12,000	)		300,000			-			-			288,000
Stock based payments, net of tax effect		-		-		1,251			-			-			-			1,251
Other comprehensive gain		-		-		-			-			14,889			-			14,889
Net loss		-		-		-			-			-			(406,091	)		(406,091	)
Balance, March 31, 2018		16,599,327	$	331,987	$	106,622,959		$	-		$	(8,180	)	$	(102,262,858	)	$	4,683,908
Issuance of common stock, net		-		-								-			-			-
Stock based payments, net of tax effect		-		-		84,922			-			-			-			84,922
Other comprehensive gain		-		-		-			-			6,963			-			6,963
Net income		-		-		-			-			-			2,677,458			2,677,458
Balance, June 30, 2018		16,599,327	$	331,987	$	106,707,881		$	-		$	(1,217	)	$	(99,585,400	)	$	7,453,251
Issuance of common stock, net		300,000		4,285		295,715						-			-			300,000
Stock based payments, net of tax effect		-		-		20,444			-			-			-			20,444
Other comprehensive gain		-		-		-			-			(4,458	)		-			(4,458	)
Net income		-		-		-			-			-			(412,067	)		(412,067	)
Balance, September 30, 2018		16,899,327	$	336,272	$	107,024,040		$	-		$	(5,675	)	$	(99,997,467	)	$	7,357,170

See accompanying notes to the condensed consolidated financial statements.

6

DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2019

(Unaudited)

1. Basis of Presentation and Significant Accounting Policies

Document Security Systems, Inc. (the “Company”), through two of its subsidiaries, Premier Packaging Corporation, which operates under the assumed name of DSS Packaging Group, and Plastic Printing Professionals, Inc., which operates under the name of DSS Plastics Group, operates in the security and commercial printing, packaging and plastic ID markets. The Company develops, markets, manufactures and sells paper and plastic products designed to protect valuable information from unauthorized scanning, copying, and digital imaging. The Company’s subsidiary, DSS Digital Inc., which also operates under the name of DSS Digital Group, develops, markets and sells digital information services, including data hosting, disaster recovery and data back-up and security services. The Company’s subsidiary, DSS Technology Management (“DSSTM”), Inc., manages, licenses and acquires intellectual property (“IP”) assets for the purpose of monetizing these assets through a variety of value-enhancing initiatives, including, but not limited to, investments in the development and commercialization of patented technologies, licensing, strategic partnerships and commercial litigation. In 2018, the Company commenced operations in the Asia Pacific market through its subsidiary DSS Asia Limited, which was formed in 2017. In 2019 DSS created four new, wholly-owned subsidiaries all of which currently have no employees and are in the exploratory stage and looking for opportunities. DSS Blockchain Security, Inc., that intends to specialize in the development of blockchain security technologies for tracking and tracing solutions for supply chain logistics and cyber securities across global markets. Decentralize Sharing Systems, Inc., that amongst other things, intends to provide services to assist companies utilizing blockchain technologies for sharing system solutions in the new economics of the peer-to-peer decentralized sharing marketplaces. DSS Securities, Inc., anticipates establishing or acquiring two parallel streams of digital asset exchanges in multiple jurisdictions: (i) securitized token exchanges, focusing on digitized assets from different vertical industries and (ii) utilities token exchanges, focusing on "blue-chip" utility tokens from solid businesses. DSS BioHealth Security, Inc., to invest in companies that include, but not limited to, hold bio-medical intellectual property and/or which have, or are securing, strategic alliances, partnerships and distributing rights for biomedical and security products, technologies or enterprises. This new division will focus on open-air defense initiatives, which curb transmission of air-borne infectious diseases such as tuberculosis, influenza, among others, in open areas.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8.03 of Regulation S-X for smaller reporting companies. Accordingly, these statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying balance sheets and related interim statements of operations and comprehensive loss and cash flows include all adjustments considered necessary for their fair presentation in accordance with U.S. GAAP. All significant intercompany transactions have been eliminated in consolidation.

Interim results are not necessarily indicative of results expected for the full year. For further information regarding the Company’s accounting policies, refer to the audited consolidated financial statements and footnotes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2018.

Principles of Consolidation - The consolidated financial statements include the accounts of Document Security Systems and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, the Company evaluates its estimates, including those related to the accounts receivable, inventory, fair values of investments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of options and warrants to purchase the Company’s common stock, deferred revenue and income taxes, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Reclassification - Certain amounts on the accompanying consolidated balance sheets for the year ended December 31, 2018 have been reclassified to conform to current year presentation.

Investment – In accordance with ASC 325-20, the Company records its investment in common stock of Singapore eDevelopment Limited at cost as the fair market value of the investment is not readily determinable. The Company evaluates investment for indications of impairment at least annually.

7

Fair Value of Financial Instruments - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurement Topic of the FASB ASC establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

● Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The carrying amounts reported in the balance sheet of cash, accounts receivable, prepaids, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of revolving credit lines notes payable and long-term debt approximates their carrying value as the stated or discounted rates of the debt reflect recent market conditions. Derivative instruments, as discussed below, are recorded as assets and liabilities at estimated fair value based on available market information. The fair value of investments carried at cost, less impairment however, the fair value is not considered readily determinable based on the lack of liquidity for the shares owned.

Derivative Instruments - The Company maintains an overall interest rate risk management strategy that may incorporate the use of interest rate swap contracts to minimize significant fluctuations in earnings that are caused by interest rate volatility. The Company had an interest rate swap that changes variable rates into fixed rates on one Citizens Bank term loan relating to the Company’s subsidiary, Premier Packaging. This swap qualified as a Level 2 fair value financial instrument. This swap agreement was not held for trading purposes and the Company did not intend to sell this derivative swap financial instrument. The Company recorded the interest swap agreement on the balance sheet at fair value because the agreement qualifies as a cash flow hedge under accounting principles generally accepted in the United States of America. Gains and losses on these instruments are recorded in other comprehensive loss until the underlying transaction is recorded in earnings. When the hedged item was realized, gains or losses are reclassified from accumulated other comprehensive loss (“AOCI”) to the consolidated statement of operations. The valuations of the interest rate swaps have been derived from proprietary models of Citizens Bank, N.A (Citizens), based upon recognized financial principles and reasonable estimates about relevant future market conditions and may reflect certain other financial factors such as anticipated profit or hedging, transactional, and other costs. The notional amounts of the swaps decreased over the life of the agreements. The Company would be exposed to a credit loss in the event of nonperformance by the counter parties to the interest rate swap agreements. The Company did not anticipate non-performance by the counter parties. The swap was settled in September 2019 with the effect of the settlement of a loss of $22,483 recorded in interest expense in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).

Impairment of Long-Lived Assets and Goodwill - The Company monitors the carrying value of long-lived assets for potential impairment and tests the recoverability of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If a change in circumstance occurs, the Company performs a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If cash flows cannot be separately and independently identified for a single asset, the Company will determine whether impairment has occurred for the group of assets for which the Company can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, the Company measures any impairment by comparing the fair value of the asset or asset group to its carrying value.

Contingent Legal Expenses - Contingent legal fees are expensed in the consolidated statements of operations in the period that the related revenues are recognized. In instances where there are no recoveries from potential infringers, no contingent legal fees are paid; however, the Company may be liable for certain out of pocket legal costs incurred pursuant to the underlying legal services agreement that will be paid out from the proceeds from settlements or licenses that arise pursuant to an enforcement action, which will be expensed as legal fees in the period in which the payment of such fees is probable. Any unamortized patent acquisition costs will be expensed in the period a conclusion is reached in an enforcement action that does not yield future royalties potential.

Earnings Per Common Share - The Company presents basic and diluted earnings per share. Basic earnings per share reflect the actual weighted average of shares issued and outstanding during the period. Diluted earnings per share are computed including the number of additional shares that would have been outstanding if dilutive potential shares had been issued and is calculated utilizing the treasury stock method. In a loss period, the calculation for basic and diluted earnings per share is the same, as the impact of potential common shares is anti-dilutive.

8

For the three and nine months ended September 30, 2019, common stock equivalents were excluded from the calculation of diluted earnings per share as the Company had a net loss, since their inclusion would have been anti-dilutive. For the nine-months ended September 30, 2018, based on the average market price of the Company’s common stock during that period of $1.37, 267,905 common stock equivalents were added to the basic shares outstanding to calculate dilutive earnings per share. For the three-months ended September 30, 2018, common stock equivalents were excluded from the calculation of diluted earnings per share as the company had a net loss, since their inclusion would have been anti-dilutive.

Concentration of Credit Risk - The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured limits. The Company believes it is not exposed to any significant credit risk as a result of any non-performance by the financial institutions.

During the nine months ended September 30, 2019, two customers accounted for approximately 31% and 13%, respectively, of the Company’s consolidated revenue and accounted for 29% and 5%, respectively, of the Company’s accounts receivable balance as of September 30, 2019. During the nine months ended September 30, 2018, these two customers accounted for 24.8% and 14.7%, respectively, of the Company’s consolidated revenue and accounted for 22% and 6.6%, respectively, of the Company’s accounts receivable balance as of September 30, 2018. The risk with respect to accounts receivables is mitigated by credit evaluations the Company performs on its customers, the short duration of its payment terms for most of its customer contracts and by the diversification of its customer base.

Income Taxes - The Company recognizes estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income items is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized. We recognize penalties and accrued interest related to unrecognized tax benefits in income tax expense.

Recently Adopted Accounting Pronouncements – In February 2016, the FASB issued ASU No. 2016-02 and its related amendments which introduced Leases (Topic 842, or “ASC 842”), a new comprehensive lease accounting model that supersedes the current lease guidance under Leases (Topic 840). The new accounting standard requires lessees to recognize right-of-use (“ROU”) assets and corresponding lease liabilities for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. In July 2018, the FASB added a transition option for implementation that allows companies to continue to use the legacy guidance in ASC 840, Leases, including its disclosure requirements, in the comparative periods presented in the year of adoption. The Company adopted the guidance effective January 1, 2019. The Company elected the transition package of three practical expedients permitted under the transition guidance and elected the optional transition method that allows for a cumulative-effect adjustment in the period of adoption, without a restatement of prior periods. Further, the Company elected a short-term lease exception policy, permitting the Company to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets. As a result of the adoption, the Company adjusted its beginning balance as of January 1, 2019 by recording operating lease ROU asset and liabilities through a cumulative-effect adjustment. The adoption impacted the accompanying consolidated balance sheet, but did not have an impact on the consolidated statements of operations and comprehensive income (loss).

At the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, the Company calculates the associated lease liability and corresponding ROU assets upon lease commencement using a discount rate based on a credit-adjusted secured borrowing rate commensurate with the term of the lease. The Company records lease liabilities within current or noncurrent liabilities based upon the length of time associated with the lease payments. The operating lease ROU assets includes any lease payments made and excludes lease incentives and initial direct costs incurred, if any, and are recorded as noncurrent assets. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with an initial term of 12 months or less are not recorded on the accompanying consolidated balance sheet. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

The impact of the adoption of ASC 842 on the accompanying consolidated balance sheet as of January 1, 2019 was a right-of-use asset and a lease liability of $1,489,156.

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Continuing Operations and Going Concern – The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should we be unable to continue as a going concern. While the Company has approximately $ 3.9 million in cash, and a positive working capital position of approximately $4.3 million as of September 30, 2019, the Company has incurred negative cash flows from operating and investing activities over the past two years and has projected that the Company will likely incur negative cash flows from operations in 2019. To continue as a going concern, on June 5, 2019, the Company entered into an underwriting agreement with Aegis Capital Corp., acting as a representative of several underwriters, which provided for the issuance and sale by the Company in an underwritten public offering (the “Offering”) of 11,200,000 shares of the Company’s common stock. The Company also granted the Underwriters a 45-day option to purchase up to 1,680,000 additional shares of the Company’s common stock on the same terms and conditions for the purpose of covering any over-allotments in connection with the Offering (519,186 shares were exercised on July 18, 2019.) The net offering proceeds to the Company was approximately $5.0 million, inclusive of the July 18, 2019 transaction and after deducting underwriting discounts, commissions and other offering expenses. Also, on November 1, 2019, Pursuant to a Subscription Agreement, LiquidValue Development Pte LTD, a company owned and controlled by Mr. Heng Fai Ambrose Chan, DSS’s Chairman, purchased from the Company, in a private placement, and aggregate of 6,000,000 shares of common stock, for an above market purchase price equal to $0.3037 per share (at the time of LiquidValues’ commitment, the closing stock price was $0.26 per share) for net proceeds to the Company of approximately $1.5 million after deducting underwriting discounts, commissions and other offering expenses (see Note 14).

The expected use of cash for operations in 2019 will be primarily for funding operating losses, working capital, legal expenses associated with its intellectual property related litigation, and the costs associated with the global roll-out of the Company’s AuthentiGuard product line. The Company will also use these funds to make capital improvements at its two manufacturing facilities to increase production capacity and create efficiencies, as well as to diversify its revenue streams and take advantage of profit opportunities.

The Company’s management intends to take actions necessary to continue as a going concern. Management’s plans concerning these matters includes, among other things, continued growth among our operating segments including international expansion of our AuthentiGuard product, and tightly controlling operating costs and reducing spending growth rates wherever possible to return to profitability.

We believe that our $3.9 million in aggregate cash and equivalents as of September 30, 2019 will allow us to fund our four operating segments current and planned operations through 2020. However, we may seek additional capital through the sale of debt or equity securities, if necessary, especially in conjunction with opportunistic acquisitions or licensing arrangements. Based on this, we have concluded that substantial doubt of our ability to continue as a going concern has been alleviated.

Recent Accounting Pronouncements – In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment”, which eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. The annual assessment of goodwill impairment will be determined by using the difference between the carrying amount and the fair value of the reporting unit. The standards update is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently assessing the impact that adopting this new accounting standard will have on its Consolidated Financial Statements and plans to adopt ASU 2017-04 in the first quarter of 2020.

2. Revenue

Effective January 1, 2018, the Company adopted Topic 606 using the modified retrospective approach and applied the guidance to those contracts which were not completed as of January 1, 2018. Adoption of Topic 606 did not impact the timing of revenue recognition in the Company’s Consolidated Financial Statements for the current or prior interim or annual periods. Accordingly, no adjustments have been made to opening retained earnings or prior period amounts.

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Revenue Recognition

The Company sells printed products including packaging printing and fabrication, commercial and security printing and plastic cards and badges, including cards and badges integrated with technology such as RFID and smart chips. The Company also provides information technology services and digital authentication products and services to its customers. The Company recognizes its products and services revenue based on when the title passes to the customer or when the service is completed and accepted by the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for shipped product or service provided. Sales and other taxes billed and collected from customers are excluded from revenue. Customers, including distributors, do not have a general right of return. The Company also derives revenue from royalties from third parties which are typically based on licensees’ net sales of products that utilize the Company’s technology, or on a per item usage of the technology on the customers’ printed products. The Company recognizes license revenue at the time it is reported by the licensee. From time to time, the Company generates license revenues through litigation settlements. For these, the Company recognizes revenue upon the execution of the agreement, when collectability is reasonably assured, or upon receipt of the minimum upfront fee for term agreement renewals, and when all other revenue recognition criteria have been met.

As of September 30, 2019, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Topic 606, the Company has applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. The Company elected the practical expedient allowing it to not recognize as a contract asset the commission paid to its salesforce on the sale of its products as an incremental cost of obtaining a contract with a customer but rather recognize such commission as expense when incurred as the amortization period of the asset that the Company would have otherwise recognized is one year or less.

Accounts Receivable

The Company extends credit to its customers in the normal course of business. The Company performs ongoing credit evaluations and generally does not require collateral. Payment terms are generally 30 days but up to net 60 for certain customers. The Company carries its trade accounts receivable at invoice amount less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based upon management’s estimates that include a review of the history of past write-offs and collections and an analysis of current credit conditions. At September 30, 2019, the Company established a reserve for doubtful accounts of $50,000 ($50,000 – December 31, 2018). The Company does not accrue interest on past due accounts receivable.

Sales Commissions

Sales commissions are expensed as incurred for contracts with an expected duration of one year or less. There were no sales commissions capitalized as of September 30, 2019.

Shipping and Handling Costs

Costs incurred by the Company related to shipping and handling are included in cost of products sold. Amounts charged to customers pertaining to these costs are reflected as revenue.

See Note 13 for disaggregated revenue information.

3. Inventory

Inventory consisted of the following:

	Inventory
	September 30, 2019		December 31, 2018
Finished Goods	$	1,106,803	$	1,144,695
WIP		251,807		339,091
Raw Materials		293,274		79,807
	$	1,651,884	$	1,563,593

4. Investment

The Company owns 21,196,552 ordinary shares and an existing three-year warrant to purchase up to 105,982,759 ordinary shares at an exercise price of SGD$0.040 (US$0.0298) per share of Singapore eDevelopment Limited (“SED”), a company incorporated in Singapore and publicly-listed on the Singapore Exchange Limited. The restriction on the sale of shares, and execution of the warrants expired on September 17, 2019 . At the time of the investment, the cost of the investment was determined to be the fair value of the Company’s common stock issued in the transaction, which was determined to have the most readily determinable fair value. In 2018, the Company adopted ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” has and carries its investment in SED at costs. During the 4th quarter of 2018, the Company determined that its investment in Singapore eDevelopment (“SED”) was impaired due to the decline in the share price of SED, especially since November of 2018, which the Company believes was influenced by a general decline in equity markets in Asia caused by the tariff dispute between the United States and China. As such, in response to the decline in the trading value of the SED shares in the fourth quarter of 2018, the Company performed an impairment test and determined an impairment of approximately $160,000 was warranted. Similar analysis was performed at September 30, 2019 and no further impairment is deemed necessary as the stock price has rebounded in excess of 15%. The carrying value of the investment as of September 30, 2019 was $324,930.

5. Intangible Assets

Intangible assets are comprised of the following:

		September 30, 2019						December 31, 2018
	Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Acquired intangibles - customer lists, licenses and non-compete agreements	3-10 years		1,778,848		1,097,787		681,061		1,284,065		823,884		460,181
Acquired intangibles - patents and patent rights			500,000		500,000		-		500,000		500,000		-
Patent application costs	Varied (1)		1,175,971		808,529		367,442		1,168,155		746,925		421,230
		$	3,454,819	$	2,406,316	$	1,048,503	$	2,952,220	$	2,070,809	$	881,411

(1) Patent application costs are amortized over their expected useful life which is generally the remaining legal life of the patent. As of September 30, 2019, the weighted average remaining useful life of these assets in service was approximately 7 years.

Amortization expense for the nine months ended September 30, 2019 amounted to $335,507($407,034 – September 30, 2018).

On March 5, 2019, the Company paid $350,000 and issued 130,435 shares of the Company’s common stock valued at $144,783 in conjunction with the signing of a Master Distributor Agreement with Advanced Cyber Security Corp. (“ACS”) to for the Company to distribute ACS’s EndpointLockV™ cyber security software exclusively in thirteen countries in Asia and Australia, and non-exclusively, in the U.S. and Middle East. The aggregate cost of $494,783 of the agreement was recorded as an intangible asset to be amortized over the expected useful life of 36 months.

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6. Short-Term and Long-Term Debt

Revolving Credit Lines - The Company’s subsidiary Premier Packaging Corporation (“Premier Packaging”) has a revolving credit line with Citizens Bank (“Citizens”) of up to $800,000 that bears interest at 1 Month LIBOR plus 2.0% (4.1% as of June 30, 2019). This revolving line of credit was renewed and has a maturity date of May 31, 2020. As of September 30, 2019, and December 31, 2018, the revolving line had a balance of $0.

On July 26, 2017, Premier Packaging entered into a Loan Agreement and accompanying Term Note Non-Revolving Line of Credit Agreement with Citizens pursuant to which Citizens agreed to lend up to $1,200,000 to permit Premier Packaging to purchase equipment from time to time that it may need for use in its business. The aggregate principal balance outstanding under the Equipment Acquisition Line of Credit shall bear interest thereon at a per annum rate of 2% above the LIBOR Advantage Rate until the Conversion Date (as defined in the Term Note Non-Revolving Line of Credit). Effective on the Conversion Date, the interest shall be adjusted to a fixed rate equal to 2% above the bank’s Cost of Funds, as determined by Citizens. Current maturities of long-term debt are based on an estimated 48-month amortization which will be adjusted upon conversion. As of September 30, 2019, the line had not yet converted into a credit facility and had a balance of $917,884 ($339,000 at December 31, 2018).

On December 1, 2017, the Company’s subsidiary Plastic Printing Professionals entered into a Loan Agreement and accompanying Term Note Non-Revolving Line of Credit Agreement with Citizens pursuant to which Citizens agreed to lend up to $800,000 to enable Plastic Printing Professionals to purchase equipment from time to time that it may need for use in its business. Advances may be made under this Equipment Acquisition Line of Credit, from time to time, from December 1, 2017 until December 1, 2018. The aggregate principal balance outstanding under the Equipment Acquisition Line of Credit bears interest at 2% above the LIBOR Advantage Rate (as defined in the agreement) (4.1% at September 30, 2019) until converted. Effective on conversion, the interest rate payable on the aggregate principal balance outstanding shall be adjusted to a fixed rate equal to 2% above Citizens’ cost of funds as determined by Citizens. Prior to conversion, interest on the outstanding principal is payable in arrears monthly. After conversion, the aggregate principal balance may be repaid in (i) up to 84 installments comprised of principal and interest for new equipment or (ii) up to 60 installments comprised of principal and interest for used equipment. Commencing March 30, 2019, the line was converted into two term notes under which the Company will make monthly payments of $13,657 until November 30, 2023. Interest under the term notes is payable monthly at 5.37%. As of September 30, 2019, the combined balance of the term notes was $610,401 ($684,554 at December 31, 2018).

Term Loan Debt - On April 28, 2015, Premier Packaging entered into a term note with Citizens for $525,000, repayable over a 60-month period. The loan bears interest at 3.62% and is payable in equal monthly installments of $9,591 until April 28, 2020. Premier Packaging used the proceeds of the term note to acquire a HP Indigo 7800 Digital press. The loan is secured by the printing press. As of September 30, 2019, the loan had a balance of $66,322 ($149,542 at December 31, 2018).

Promissory Notes - On August 30, 2011, Premier Packaging purchased the packaging plant it occupies in Victor, New York, for $1,500,000, which was partially financed with a $1,200,000 promissory note obtained from Citizens Bank (“Promissory Note”). The Promissory Note called for monthly payments of principal and interest in the amount of $7,658, with interest calculated as 1 Month LIBOR plus 3.15%. This note, in conjunction with the Construction to Permanent Loan described below, was refinanced as of June 27, 2019.

On December 6, 2013, Premier Packaging entered into a Construction to Permanent Loan with Citizens Bank for up to $450,000 that was converted into a promissory note upon the completion and acceptance of building improvements to the Company’s packaging plant in Victor, New York. In May 2014, the Company converted the loan into a $450,000 note payable in monthly installments over a 5-year period of $2,500 plus interest calculated at a variable rate of 1 Month LIBOR plus 3.15%. The note was set to mature in July 2019 at which time a balloon payment of the remaining principal balance of $300,000 was due. On June 27, 2019 the balloon payment, in conjunction with the remaining balance on promissory note identified above, was refinanced.

On June 27, 2019 Premier Packaging refinanced and consolidated the outstanding principal associated with the two promissory notes for its packaging plant located in Victor, New York, for $1,156,742 with Citizens Bank. The new Promissory Note calls for monthly payments of $7,181, with interest fixed at 4.22%. The new Promissory Note matures on June 27, 2029, at which time a balloon payment of $707,689 is due. As of September 30, 2019, the new, consolidated Promissory Note had a balance of $1,150,766.

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The Citizens credit facilities to each of the Company’s subsidiaries, Premier Packaging and Plastic Printing Professionals, contain various covenants including fixed charge coverage ratio, tangible net worth and current ratio covenants which are tested annually at December 31. For the year ended December 31, 2018, both Premier Packaging and Plastic Printing Professionals were in compliance with the annual covenants.

On October 24, 2018, the Company’s subsidiary, DSS Asia Limited entered into a $100,000 unsecured promissory note with HotApps International Pte Ltd in conjunction with the acquisition of Guangzhou Hotapps Technology Ltd., a Chinese subsidiary of HotApps International Pte Ltd, by DSS Asia Limited. The promissory note does not accrue interest and is payable in full on October 24, 2020.

Effective on February 18, 2019, Document Security Systems, Inc. (the “Company” or “Borrower”) entered into a Convertible Promissory Note (the “Note”) with LiquidValue Development Pte Ltd (the “Holder”) in the principal sum of $500,000 (the “Principal Amount”), of which up to $500,000 of the Principal Amount can be paid by the conversion of such amount into the Company’s common stock, par value $0.02 per share, up to a maximum of 446,428 shares of common stock (the “Common Stock”), at a conversion price of $1.12 per share. The Note carried a fixed interest rate of 8% per annum and had a term of 12-months. Accrued interest was payable in cash in arrears on the last day of each calendar quarter, with the first interest payment due on June 30, 2019, and remains payable until the Principal Amount is paid in full. The Holder is a related party, owned by one of the Company’s directors. Effective on March 25, 2019, the Holder exercised its conversion option and converted the Maximum Conversion Amount under the Note. As a result of Holder’s election to exercise its full conversion rights under the Note, the Note was cancelled effective on March 25, 2019.

7. Other Liabilities

On November 14, 2016, the Company entered into a Proceeds Investment Agreement (the “Agreement”) with Brickell Key Investments LP (“BKI”). Pursuant to the Agreement, BKI financed an aggregate of $13,500,000 in a patent purchase and monetization program to be implemented and managed by the Company (the “Financing”). Pursuant to the Agreement. $3,000,000 of the Financing was used to cover the Company’s purchase of a portfolio of U.S. and foreign LED patents and a license from Intellectual Discovery Co., Ltd., a Korean company (collectively, the “LED Patent Portfolio”), resulting in a basis in these assets of $0. A total of $6,000,000 of the Financing was directed by BKI to attorneys to cover anticipated attorneys’ fees and out-of-pocket expenses for legal proceedings that may transpire relating to enforcement of the LED Patent Portfolio. This amount is not included in the Company’s financial statements as the Company has no control over these funds, which are segregated and escrowed in the attorneys’ trust account.

In addition, on November 14, 2016, the Company received $4,500,000 of the Financing, which was required to be used by the Company to pay for the defense of Inter Partes Review or other similar proceedings that may be filed from time to time by defendants with the U.S. Patent & Trademark Office relating to the LED Patent Portfolio, with excess amounts available for general working capital needs. As of September 30, 2019, an aggregate of $955,388 is recorded as other liabilities by the Company, of which $759,966 is classified as short-term. Of this amount, the Company allocated $2,500,000 which it subsequently adjusted to $1,500,000 for the payment of estimated future Inter Partes Review costs. The Company will reduce this liability as it pays legal and other expenses related to the Inter Partes Review matters involving the LED Patent Portfolio as incurred. The remaining $173,700 in other liabilities is allocated to working capital, which the Company is amortizing on a pro-rata basis over the expected remaining life of the monetization period of the LED Patent Portfolio through November 30, 2019. For this amount, the Company reduced the liability with an offset to selling, general and administrative costs by $47,500 per month from January 2017 through July 2017, $80,000 per month for the remainder of 2017 through March 2018, $86,500 per month for the remainder of 2018, and $86,850 per month through November 30, 2019. During the nine months ended September 30, 2019, there was approximately $317,350 of Inter Partes Review costs and an aggregate of $781,650 was recorded as a reduction of the liability allocated to working capital.

On July 8, 2013, the Company’s subsidiary, DSSTM, purchased two patents for $500,000 covering certain methods and processes related to Bluetooth devices. In conjunction with the patent purchases, DSSTM entered into a Proceed Right Agreement with certain investors pursuant to which DSSTM initially received $250,000 of a total of $750,000 which it will ultimately receive thereunder, subject to certain payment milestones, in exchange for 40% of the proceeds which it receives, if any, from the use, sale or licensing of the two patents. As of September 30, 2019, the Company had received an aggregate of $750,000 ($750,000 in 2018) from the investors pursuant to the agreement of which approximately $175,000 was in current liabilities in the consolidated balance sheets ($476,000 as of December 31, 2018). The Company reduces the liability as it pays legal and other expenses related to its litigation involving the Bluetooth patents, for which the amount is available to be used for 50% of all such expenses.

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8. Related Party Transactions

Effective on May 31, 2019, Document Security Systems, Inc. (the “Company” or “Borrower”) entered into a Promissory Note (the “Note”) with LiquidValue Development Pte Ltd (the “Holder”) in the principal sum of $650,000 (the “Principal Amount”). The Note was not interest bearing with a maturity date of July 31, 2019. The Holder is a related party, owned by one of the Company’s directors. This Note was paid in full on June 12, 2019.

Pursuant to Mr. Heng Fai Ambrose Chan’s employment agreement with a subsidiary of DSS, date September 23, 2019, effective July 15, 2019, Mr. Chan shall receive an annual base salary of $250,000 payable in common stock or cash. Mr. Chan is also eligible to receive and annual performance bonus in an amount up to 100% of his base salary, upon the Company’s achievement of certain net income and gross revenue milestones.

9. Lease Liability

The Company has operating leases predominantly for operating facilities. As of September 30, 2019, the remaining lease terms on our operating leases range from less than one year to approximately five years. Renewal options to extend our leases have not been exercised due to uncertainty. Termination options are not reasonably certain of exercise by the Company. There is no transfer of title or option to purchase the leased assets upon expiration. There are no residual value guarantees or material restrictive covenants. There are no significant finance leases as of September 30, 2019.

Future minimum lease payments as of September 30, 2019 are as follows:

2019	$	106,821
2020		424,129
2021		335,097
2022		315,271
2023		306,070
Thereafter		24,208
Total lease payments		1,511,596
Less: Imputed Interest		(142,632	)
Present value of remaining lease payments	$	1,368,964
Current	$	361,713
Noncurrent	$	1,007,251
Weighted-average remaining lease term (years)		4.0
Weighted-average discount rate		5.4	%

10. Commitments and Contingencies

On November 26, 2013, DSSTM filed suit against Apple, Inc. (“Apple”) in the United States District Court for the Eastern District of Texas, for patent infringement (the “Apple Litigation”). The complaint alleges infringement by Apple of DSSTM’s patents that relate to systems and methods of using low power wireless peripheral devices. DSSTM is seeking a judgment for infringement, injunctive relief, and compensatory damages from Apple. On October 28, 2014, the case was stayed by the District Court pending a determination of Apple’s motion to transfer the case to the Northern District of California. On November 7, 2014, Apple’s motion to transfer the case to the Northern District of California was granted. On December 30, 2014, Apple filed two Inter Partes Review (“IPR”) petitions with the Patent Trial and Appeal Board (“PTAB”) for review of the patents at issue in the case. The PTAB instituted the IPRs on June 25, 2015. The California District Court then stayed the case pending the outcome of those IPR proceedings. Oral arguments of the IPRs took place on March 15, 2016, and on June 17, 2016, PTAB ruled in favor of Apple on both IPR petitions. DSSTM then filed an appeal with the U.S. Court of Appeals for the Federal Circuit (the “Federal Circuit”) seeking reversal of the PTAB decisions. Oral arguments for the appeal were held on August 9, 2017. On March 23, 2018, the Federal Circuit reversed the PTAB, finding that the PTAB erred when it found the claims of U.S. Patent No. 6,128,290 to be unpatentable. The Federal Circuit affirmed its decision on July 12, 2018, when it denied Apple’s petition for panel rehearing of the Federal Circuit’s Opinion and Judgment issued on March 23, 2018. On July 27, 2018, the District Court judge lifted the Stay resuming the litigation, which has a trial date set for the week of February 24, 2020.

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On February 16, 2015, DSSTM filed suit in the United States District Court, Eastern District of Texas, against defendants Intel Corporation, Dell, Inc., GameStop Corp., Conn’s Inc., Conn Appliances, Inc., NEC Corporation of America, Wal-Mart Stores, Inc., Wal-Mart Stores Texas, LLC, and AT&T, Inc. The complaint alleged patent infringement and sought judgment for infringement of two of DSSTM’s patents, injunctive relief and money damages. On December 9, 2015, Intel filed IPR petitions with PTAB for review of the patents at issue in the case. Intel’s IPRs were instituted by PTAB on June 8, 2016. On June 1, 2017, the PTAB ruled in favor of Intel for all the challenged claims. On July 28, 2017, DSSTM filed a notice of appeal of the PTAB’s decision relating to U.S. Patent 6,784,552 with the Federal Circuit. On January 8, 2019, DSSTM entered into a confidential settlement agreement with Intel Corporation, Dell Inc., GameStop Corp, Conn’s Inc., Conn Appliances, Inc., Wal-Mart Stores, Inc., Wal-Mart Stores Texas, LLC and AT&T Mobility LLC (collectively, the “Defendants”). The Federal Circuit Appeal involving DSSTM and Intel was dismissed on January 16, 2019, and the District Court case against the Defendants was dismissed, as to all the Defendants, on February 5, 2019.

On July 16, 2015, DSSTM filed three separate lawsuits in the United States District Court for the Eastern District of Texas alleging infringement of certain of its semiconductor patents. The defendants were SK Hynix et al., Samsung Electronics et al., and Qualcomm Incorporated. Each respective complaint alleges patent infringement and seeks judgment for infringement, injunctive relief and money damages. On November 12, 2015, SK Hynix filed an IPR petition with PTAB for review of the patent at issue in their case. SK Hynix’s IPR was instituted by the PTAB on May 11, 2016. On August 16, 2016, DSSTM and SK Hynix entered into a confidential settlement agreement ending the litigation between them. The pending SK Hynix IPR was then terminated by mutual agreement of the parties on August 31, 2016. On March 18, 2016, Samsung also filed an IPR petition, which was instituted by the PTAB. On September 20, 2017, PTAB ruled in favor of Samsung for all the challenged claims relating to U.S. Patent 6,784,552. DSSTM then appealed this PTAB ruling to the Federal Circuit on November 17, 2017. The Federal Circuit joined this appeal with the Intel appeal effective on December 7, 2017. Qualcomm filed its IPR proceeding on July 1, 2016, which was then later joined with Intel’s IPRs in August 2016 by PTAB. On June 1, 2017, the PTAB ruled in favor of Intel/Qualcomm for all the challenged claims. On July 28, 2017, DSSTM filed a notice of appeal of the PTAB’s decision relating to U.S. Patent 6,784,552 with the Federal Circuit. A confidential patent license agreement was executed by DSSTM on November 14, 2018, covering Samsung and Qualcomm. On December 12, 2018, DSSTM and Samsung entered into a confidential release. On December 27, 2018, DSSTM and Qualcomm entered into a confidential settlement agreement. The DSSTM - Samsung District Court case was dismissed on December 17, 2018. The DSSTM - Samsung Federal Circuit Appeal was dismissed on January 2, 2019. The Federal Circuit Appeal involving DSSTM and Qualcomm was dismissed on January 16, 2019. The DSSTM - Qualcomm District Court case was dismissed on January 16, 2019. As a result, all of DSSTM’s litigation matters originally filed in the District Court for the Eastern District of Texas have been resolved and are now dismissed.

On April 13, 2017, the Company filed a patent infringement lawsuit against Seoul Semiconductor Co., Ltd. and Seoul Semiconductor, Inc. (collectively, “Seoul Semiconductor”) in the United States District Court for the Eastern District of Texas, alleging infringement of certain of the Company’s Light-Emitting Diode (“LED”) patents. The Company is seeking a judgment for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements. On June 7, 2017, the Company refiled its patent infringement complaint against Seoul Semiconductor in the United States District Court for the Central District of California, Southern Division. On December 3, 2017, Seoul Semiconductor filed an IPR challenging the validity of certain claims of U.S. Patent No. 6,949,771. This IPR was instituted by the PTAB on June 7, 2018. On April 18, 2019, the PTAB issued a written decision determining claims 1-9 of the ‘771 patent unpatentable. On December 21, 2017, Seoul Semiconductor filed an IPR challenging the validity of certain claims of U.S. Patent No. 7,256,486. This IPR was instituted by the PTAB on June 21, 2018. On June 10, 2019, the PTAB issued a written decision determining claims 1-3 of the ‘486 patent unpatentable. On August 12, 2019, the Company filed a Notice of Appeal with the Federal Circuit Court of Appeals challenging the PTAB’s decisions. On January 25, 2018, Seoul Semiconductor filed an IPR challenging the validity of certain claims of U.S. Patent No. 7,524,087. This IPR was instituted by the PTAB on July 27, 2018. On July 22, 2019, the PTAB issued a written decision determining claims 1, 6-8, 15, and 17 of the ‘087 patent unpatentable. On September 23, 2019, the Company filed a Notice of Appeal with the Federal Circuit Court of Appeals challenging the PtAB’s decisions. These challenged patents are the patents that are the subject matter of the infringement lawsuit, which is pending but stayed pending the outcome of the IPR proceedings.

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On April 13, 2017, the Company filed a patent infringement lawsuit against Everlight Electronics Co., Ltd. and Everlight Americas, Inc. (collectively, “Everlight”) in the United States District Court for the Eastern District of Texas, alleging infringement of certain of the Company’s LED patents. The Company is seeking a judgment for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements. On June 8, 2017, the Company refiled its patent infringement complaint against Everlight in the United States District Court for the Central District of California. On June 8, 2018, Everlight filed IPR petitions challenging the validity of claims under U.S. Patent Nos. 7,256,486 and 7,524,087. On June 12, 2018, Everlight filed an IPR petition challenging the validity of claims under U.S. Patent No. 6,949,771, and on June 15, 2018, filed an IPR petition challenging the validity of claims under U.S. Patent No 7,919,787. These challenged patents are the patents that are the subject matter of the infringement lawsuit. On January 18, 2019, the Company and Everlight entered into a confidential settlement agreement resolving the litigation.

On April 13, 2017, the Company filed a patent infringement lawsuit against Cree, Inc. (“Cree”) in the United States District Court for the Eastern District of Texas, alleging infringement of certain of the Company’s LED patents. The Company is seeking a judgment for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements. On June 8, 2017, the Company refiled its patent infringement complaint against Cree in the United States District Court for the Central District of California, and thereafter filed a first amended complaint for patent infringement against Cree in that same court on July 14, 2017. The case is currently pending as of the date of this Report. On June 6, 2018, Cree filed an IPR petition challenging the validity of claims under U.S. Patent No. 7,256,486. This IPR was instituted and joined with the Seoul Semiconductor IPR. On June 7, 2018, Cree filed IPR petitions challenging the validity of certain claims U.S. Patent Nos. 7,524,087 and 6,949,771. Both IPRs were denied by the PTAB on November 14, 2018 as time-barred. The challenged patent is the patent that is the subject matter of the infringement lawsuit, which is pending but stayed pending the outcome of the IPR.

On August 15, 2017, the Company filed a patent infringement lawsuit against Lite-On, Inc., and Lite-On Technology Corporation (collectively, “Lite-On”) in the United States District Court for the Central District of California, alleging infringement of certain of the Company’s LED patents. The Company is seeking a judgment for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements. The case is currently pending but is stayed pending the outcome of IPR proceedings filed by other parties.

On December 7, 2017, DSS filed a patent infringement lawsuit against Nichia Corporation and Nichia America Corporation in the United States District Court for the Central District of California, alleging infringement of certain of DSS’s LED patents. The Company is seeking a judgment for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements. The case is currently pending as of the date of this Report. On May 10, 2018, Nichia filed an IPR petition challenging the validity of claims under U.S. Patent No. 7,919,787. On May 11, 2018, Nichia filed an IPR petition challenging the validity of claims under U.S. Patent No. 7,652,297. On May 25, 2018, Nichia filed an IPR petition challenging the validity of claims under U.S. Patent No. 7,524,087. On May 29, 2018, Nichia filed an IPR petition challenging the validity of claims under U.S. Patent No. 6,949,771. On May 30, 2018, Nichia filed an IPR petition challenging the validity of claims under U.S. Patent No. 7,256,486. The 6,949,771 IPR was denied institution, but the remaining IPRs were instituted by the PTAB. On December 10, 2018, Nichia refiled IPRs relating to 6,949,771, which was denied by the PTAB on April 15, 2019. These challenged patents are the patents that are the subject matter of the infringement lawsuit, which is pending but stayed pending the outcome of the IPR proceedings. On September 17, 2019, the PTAB issued a written decision determining claims 1-14 of the ‘787 patent unpatentable. On October 30, 2019, the PTAB issued a written decision determining claims 1-17 of the ‘297 patent unpatentable.

On September 18, 2019, DSS filed a patent infringement lawsuit against Seoul Semiconductor Co., Ltd. and Seoul Semiconductor Inc. in the United States District Court for the Central District of California alleging infringement of U.S. Patent No. 7,315,119. The Company is seeking a judgment for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements.

On September 19, 2019, DSS filed a patent infringement lawsuit against Cree, Inc. in the United States District Court for the Central District of California alleging infringement of U.S. Patent No. 6,784,460. The Company is seeking a judgment for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements.

On September 20, 2019, DSS filed a patent infringement lawsuit against Nichia Corp. and Nichia America Corp. in the United States District Court for the Central District of California alleging infringement of U.S. Patent No. 6,879,040. The Company is seeking a judgment for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements.

In addition to the foregoing, we may become subject to other legal proceedings that arise in the ordinary course of business and have not been finally adjudicated. Adverse decisions in any of the foregoing may have a material adverse effect on our results of operations, cash flows or our financial condition. The Company accrues for potential litigation losses when a loss is probable and estimable.

Contingent Litigation Payments - The Company retains the services of professional service providers, including law firms that specialize in intellectual property licensing, enforcement and patent law. These service providers are often retained on an hourly, monthly, project, contingent or a blended fee basis. In contingency fee arrangements, a portion of the legal fee is based on predetermined milestones or the Company’s actual collection of funds. The Company accrues contingent fees when it is probable that the milestones will be achieved, and the fees can be reasonably estimated. As of September 30, 2019, and December 31, 2018, the Company had not accrued any contingent legal fees pursuant to these arrangements.

Contingent Payments - The Company is party to certain agreements with funding partners who have rights to portions of intellectual property monetization proceeds that the Company receives. As of September 30, 2019, and December 31, 2018, there are no contingent payments due.

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11. Stockholders’ Equity

Sales of Equity - On March 5, 2019, the Company issued 130,435 shares of its common stock at $1.15 per share as partial consideration for a licensing and distribution agreement entered into with Advanced Cyber Security Corp.

On February 18, 2019, the Company had entered into a Convertible Promissory Note with LiquidValue Development Pte Ltd in the principal sum of $500,000, of which up to $500,000 of the Principal Amount could be paid by the conversion of such amount into the Company’s common stock, par value $0.02 per share, up to a maximum of 446,428 shares of common stock (the “Maximum Conversion Amount”), at a conversion price of $1.12 per share. Effective on March 25, 2019, LiquidValue Development Pte Ltd exercised its conversion option and converted the Maximum Conversion Amount under the Note.

On June 5, 2019, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Aegis Capital Corp., acting as representative of the several underwriters, which provided for the issuance and sale by the Company in an underwritten public offering (the “Offering”) and the purchase by the Underwriters of 11,200,000 shares of the Company’s common stock, $0.02 par value per share. Subject to the terms and conditions contained in the Underwriting Agreement, the shares were sold to the Underwriters at a public offering price of $0.50 per share, less certain underwriting discounts and commissions. As part of this transaction, 2,000,000 shares were purchased by Heng Fai Ambrose Chan, Chairman of the Board of directors. The Company also granted the Underwriters a 45-day option to purchase up to 1,680,000 additional shares of the Company’s common stock on the same terms and conditions for the purpose of covering any over-allotments in connection with the Offering (519,186 shares were exercised on July 18, 2019 at $0.50 per share, less underwriting discounts and expenses). The net offering proceeds to the Company was approximately $5.0 million, inclusive of the July 18, 2019 transaction and after deducting underwriting discounts, commissions and other offering expenses. The Company intends to use the net proceeds from the Offering for research, product and brand development, strategic initiatives and general corporate and working capital purposes.

Stock-Based Compensation - The Company records stock-based payment expense related to options and warrants based on the grant date fair value in accordance with FASB ASC 718. Stock-based compensation includes expense charges for all stock-based awards to employees, directors and consultants. Such awards include option grants, warrant grants, and restricted stock awards. During the nine months ended September 30, 2019, the Company had stock compensation expense of approximately $331,000 or less than $0.01 basic and diluted earnings per share ($107,000, or less than $0.01 basic and diluted earnings per share for the corresponding nine months ended September 30, 2018). Of the $331,000, $52,000 was accrued for the CEO of a subsidiary of the Company.

In July 2019, by unanimous written consent, the Board of Directors authorized the Company to issue individual stock grants of the Company’s common stock, pursuant to the Company’s 2013 Employee, Director and Consultant Equity Incentive Plan, to certain officers and directors in the amount of 458,719 shares, at $0.42 per share which were immediately vested and issued on September 6, 2019.

12. Supplemental Cash Flow Information

The following table summarizes supplemental cash flows for the nine-month periods ended September 30, 2019 and 2018:

Supplemental Cash Information
	2019		2018
Cash paid for interest	$	128,000	$	100,000
Non-cash investing and financing activities:
Impact of adoption of lease accounting standards	$	1,616,000	$	-
(Loss) gain from change in fair value of interest rate swap derivatives	$	7,000	$	17,000
Common stock issued upon conversion of convertible note	$	500,000	$	-
Equity issued to purchase intangible assets	$	145,000	$	-
Elimination of contingent liabilities through agreement	$	-	$	459,000
Purchase of intangible assets to be paid in installments	$	-	$	304,000

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13. Segment Information

The Company’s businesses are organized, managed and internally reported as five operating segments. Two of these operating segments, Packaging and Printing, and Plastics are engaged in the printing and production of paper, cardboard and plastic documents with a wide range of features, including the Company’s patented technologies and trade secrets designed for the protection of documents against unauthorized duplication and altering. The three other operating segments, DSS Digital Group, DSS Technology Management, and DSS International, are engaged in various aspects of developing, acquiring, selling and licensing technology assets and are grouped into one reportable segment called Technology.

Approximate information concerning the Company’s operations by reportable segment for the three and nine months ended September 30, 2019 and 2018 is as follows. The Company relies on intersegment cooperation and management does not represent that these segments, if operated independently, would report the results contained herein.

Three Months Ended September 30, 2019	Packaging and Printing			Plastics			Technology			Corporate			Total
Revenue	$	2,119,000			916,000			498,000			-		$	3,533,000
Depreciation and amortization		228,000			122,000			70,000			-			420,000
Interest expense		(24,000	)		(9,000	)		(3,000	)		(22,000	)		(58,000	)
Stock based compensation		4,000			-			20,000			249,000			273,000
Net loss		(322,000	)		(29,000	)		(64,000	)		(836,000	)		(1,251,000	)

Three Months Ended September 30, 2018	Packaging and Printing			Plastics			Technology			Corporate			Total
Revenue	$	2,736,000		$	1,048,000		$	310,000		$	-		$	4,094,000
Depreciation and amortization		227,000			60,000			22,000			1,000			310,000
Interest expense		(20,000	)		(6,000	)		-			(4,000	)		(30,000	)
Stock based compensation		1,000			-			15,000			4,000			20,000
Net Income (loss)		96,000			72,000			(427,000	)		(153,000	)		(412,000	)

Nine Months Ended September 30, 2019	Packaging and Printing			Plastics			Technology			Corporate			Total
Revenue	$	8,434,000			2,591,000			1,424,000			-		$	12,449,000
Depreciation and amortization		675,000			208,000			168,000			-			1,051,000
Interest expense		(76,000	)		(24,000	)		(6,000	)		(22,000	)		(128,000	)
Stock based compensation		13,000			-			62,000			256,000			331,000
Net Loss		(254,000	)		(346,000	)		(642,000	)		(1,490,000	)		(2,732,000	)
Identifiable assets		9,156,000			3,884,000			899,000			4,611,000			18,550,000

Nine Months Ended September 30, 2018	Packaging and Printing			Plastics			Technology			Corporate			Total
Revenue	$	8,483,000		$	2,949,000		$	1,127,000		$	-		$	12,559,000
Depreciation and amortization		561,000			119,000			322,000			1,000			1,003,000
Interest Expense		(66,000	)		(17,000	)		(12,000	)		(17,000	)		(112,000	)
Stock based compensation		2,000			-			82,000			23,000			107,000
Net Income (loss)		378,000			63,000			2,092,000			(674,000	)		1,859,000
Identifiable assets		9,381,000			3,141,000			830,000			1,483,000			14,835,000

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The following tables disaggregate our business segment revenues by major source.

Printed Products Revenue Information:

	Total
Three months ended September 30, 2019
Packaging Printing and Fabrication	$	1,883,000
Commercial and Security Printing		251,000
Technology Integrated Plastic Cards and Badges		306,000
Plastic Cards, Badges and Accessories		595,000
Total Printed Products	$	3,035,000
Three months ended September 30, 2018
Packaging Printing and Fabrication	$	2,482,000
Commercial and Security Printing		253,000
Technology Integrated Plastic Cards and Badges		409,000
Plastic Cards, Badges and Accessories		640,000
Total Printed Products	$	3,784,000
Nine months ended September 30, 2019
Packaging Printing and Fabrication	$	7,619,000
Commercial and Security Printing		828,000
Technology Integrated Plastic Cards and Badges		968,000
Plastic Cards, Badges and Accessories		1,610,000
Total Printed Products	$	11,025,000
Nine months ended September 30, 2018
Packaging Printing and Fabrication	$	7,592,000
Commercial and Security Printing		891,000
Technology Integrated Plastic Cards and Badges		915,000
Plastic Cards, Badges and Accessories		2,034,000
Total Printed Products	$	11,432,000

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Technology Sales, Services and Licensing Revenue Information:

	Total
Three months ended September 30, 2019
Information Technology Sales and Services	$	46,000
Digital Authentication Products and Services		307,000
Royalties from Licensees		145,000
Total Technology Sales, Services and Licensing	$	498,000
Three months ended September 30, 2018
Information Technology Sales and Services	$	61,000
Digital Authentication Products and Services		143,000
Royalties from Licensees		107,000
Total Technology Sales, Services and Licensing	$	311,000
Nine months ended September 30, 2019
Information Technology Sales and Services	$	151,000
Digital Authentication Products and Services		857,000
Royalties from Licensees		416,000
Total Technology Sales, Services and Licensing	$	1,424,000
Nine months ended September 30, 2018
Information Technology Sales and Services	$	269,000
Digital Authentication Products and Services		494,000
Royalties from Licensees		364,000
Total Technology Sales, Services and Licensing	$	1,127,000

14. SUBSEQUENT EVENTS

In October 2019, the Company entered into two separate convertible preferred promissory notes (“Note” or “Notes”) with unaffiliated companies, where the Company loaned a total principal sum of $700,000. The first Note has interest charged at the rate of six percent (6%) and is payable upon demand. The second Note is to be repaid on or before the twenty-four (24) month anniversary of the closing date of the Note, together with interest therein at the rate of six percent (6%) per annum. The Company has the right to convert both Notes to equity, in its sole discretion, upon written notice.

On October 29, 2019 and subsequently October 30, 2019, the Audit Committee and the Board of Directors of the Company approved the issuance of common stock, not to exceed 6,000,000 shares, via private placement with a related party. Pursuant to a Subscription Agreement, LiquidValue Development Pte LTD, a company owned and controlled by Mr. Heng Fai Ambrose Chan, DSS’s Chairman, purchased from the Company, in a private placement, and aggregate of 6,000,000 shares of common stock, for an above market purchase price equal to $0.3037 per share for gross proceeds to the Company of $1,822,200 (before deductions for placement agent fees and other expenses). This transaction was executed on November 1, 2019.

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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

Certain statements contained herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Reform Act”). Document Security Systems, Inc. desires to avail itself of certain “safe harbor” provisions of the 1995 Reform Act and is therefore including this special note to enable us to do so. Except for the historical information contained herein, this report contains forward-looking statements (identified by the words “estimate”, “project”, “anticipate”, “plan”, “expect”, “intend”, “believe”, “hope”, “strategy” and similar expressions), which are based on our current expectations and speak only as of the date made. These forward-looking statements are subject to various risks, uncertainties and factors, as set forth in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2018, that could cause actual results to differ materially from the results anticipated in the forward-looking statements.

Overview

Document Security Systems, Inc. (referred to in this report as “Document Security Systems”, “DSS”, “we”, “us”, “our” or “Company”) has strategically focused its core business efforts on developing and selling anti-counterfeiting technologies and solutions. We emphasize fraud and counterfeit prevention for all forms of printed documents and digital information. The Company holds numerous patents for optical deterrent technologies that provide protection of printed information from unauthorized scanning and copying. We operate two production facilities, consisting of a combined security printing and packaging facility and a plastic card facility where we produce secure and non-secure documents for our customers. We license our anti-counterfeiting technologies to printers and brand-owners. In addition, we have a digital division which provides cloud computing services for our customers, including disaster recovery, back-up and data security services. In 2013, the Company expanded its business focus by merging with DSS Technology Management, Inc., formerly known as Lexington Technology Group, Inc., which acquires intellectual property assets and interests in companies owning intellectual property assets for the purpose of monetizing these assets through a variety of value-enhancing initiatives, including, but not limited to, investments in the development and commercialization of patented technologies, licensing, strategic partnerships and commercial litigation. In January 2018, the Company commenced international operations with its wholly owned subsidiary, DSS Asia Limited, in its office in Hong Kong. In December 2018, this division acquired Guangzhou Hotapps Technology Ltd, a Chinese company that enhances the Company’s ability to do business in China. Guangzhou Hotapps Technology Ltd, did not have revenue but has two employees and a license to do business in China.

We do business in four operating segments as follows:

DSS Packaging and Printing Group - Produces custom paperboard packaging serving clients in the pharmaceutical, beverage, photo packaging, toy, specialty foods and direct marketing industries, among others. The group also provides secure and commercial printing services for end-user customers along with technical support for our technology licensees. The division produces a wide array of printed materials such as security paper, vital records, prescription paper, birth certificates, receipts, manuals, identification materials, entertainment tickets, secure coupons, parts tracking forms, brochures, direct mailing pieces, catalogs, business cards, etc. The division also provides resources and production equipment resources for our ongoing research and development of security printing and related technologies.

DSS Plastics Group - Manufactures laminated and surface printed cards which can include magnetic stripes, bar codes, holograms, signature panels, invisible ink, micro fine printing, guilloche patterns, biometric, radio frequency identification (RFID) and watermarks for printed plastic documents such as ID cards, event badges, and driver’s licenses.

DSS Digital Group - This division researches, develops, markets and sells world wide the Company’s digital products, including and primarily, our AuthentiGuard product, which is a brand authentication application that integrates the Company’s optical deterrent technologies used in its security printing offerings with proprietary digital data security-based solutions. The AuthentiGuard product allows customers to implement a security mark utilizing conventional printing methods that is copy and counterfeit resistant that can be read and recorded utilizing smartphones and other digital image capture devices, which can be utilized by that customer’s suppliers, field personnel and customers throughout its global product supply and distribution chains.

DSS Technology Management - Since its acquisition in 2013, DSS Technology Management’s primary mission has been the attempted monetization of its various patent portfolios through commercial litigation. Except for investment in its social networking related patents, DSS Technology Management and the Company have historically partnered with various third-party funding groups in connection with patent monetization programs. While DSS Technology and the Company may continue to consider new patent opportunities in the future, the pursuit of such acquisitions opportunities will be very selective. As to the existing assets, management will continue to assert and defend the existing patents and purse potential infringements as they are identified.

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In connection with this patent acquisition and protection business, we have previously purchased patents in a variety of fields, including social networking, mobile communications, semi-conductors, Bluetooth and LED, and had initiated patent infringement litigation against a wide range of domestic and global companies. In our patent monetization business model, we engage with legal firms that typically work under fee caps and contingency fee arrangements. To date, we have been or are currently in litigation with, among others, Apple, Samsung, Taiwan Semiconductor Manufacturing Company, Intel, NEC, Lenovo, Seoul Semiconductor, Everlight Electronics, Cree, Nichia and Osram, GMBH. During the course of these litigation matters, we typically incur a variety of legal challenges from defendants, including defendants seeking to have the patents in question adjudicated to be invalid by the United States Patent and Trademark Office through the Inter Parts Review process. As a result of these various legal challenges issued by defendants, we have experienced varying levels of success in our efforts to monetize our patent investments. In addition, to date, most of settlements or payments received from defendants have been remitted to the Company’s third-party funders in accordance with the terms of those respective funding agreements.

Results of Operations for the Three and Nine Months Ended September 30, 2019 as compared to the Three and Nine Months Ended September 30, 2018

This discussion should be read in conjunction with the financial statements and footnotes contained in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2018.

Revenue

	Three Months Ended September 30, 2019		Three Months Ended September 30, 2018		% change			Nine Months Ended September 30, 2019		Nine Months Ended September 30, 2018		% change
Revenue
Printed products	$	3,035,000	$	3,784,000		-20	%	$	11,025,000	$	11,432,000		-4	%
Technology sales, services and licensing		498,000		310,000		61	%		1,424,000		1,127,000		26	%
Total revenue	$	3,533,000	$	4,094,000		-14	%	$	12,449,000	$	12,559,000		-1	%

For the three months ended September 30, 2019, total revenue declined 14% as compared to the three months ended September 30, 2018. Revenues from the sale of Printed products decreased 20% during the three months ended September 30, 2019, as compared to the same period in 2018, primarily due to significant decreased packaging and technology card sales. Technology sales, services and licensing revenue increased 61% during the three months ended September 30, 2019 as compared to the same period in 2018, primarily due to a significant increase in AuthentiGuard sales. Revenues for the nine months ended September 30, 2019 and September 30, 2018 remained relatively flat at $12.5 million and $12.6 million respectively. Printed products revenues for the nine months ended September 30, 2019 were down by 4% as compared to the same period in 2018, primarily due to a decline in vinyl card sales and commercial printing sales, while Technology sales, services and licensing revenue increased by 26%, primarily resulting from increased AuthentiGuard sales.

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Costs and expenses

	Three Months Ended September 30, 2019			Three Months Ended September 30, 2018		% change			Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018		% change
Costs and expenses
Costs of goods sold, exclusive of depreciation and amortization	$	2,218,000		$	2,552,000		-13	%	$	8,275,000		$	7,890,000		5	%
Sales, general and administrative compensation		773,000			795,000		-3	%		2,508,000			2,616,000		-4	%
Depreciation and amortization		420,000			310,000		35	%		1,051,000			1,003,000		5	%
Professional fees		544,000			243,000		124	%		1,270,000			828,000		53	%
Stock based compensation		273,000			20,000		1265	%		331,000			107,000		209	%
Sales and marketing		111,000			137,000		-19	%		392,000			351,000		12	%
Rent and utilities		187,000			173,000		8	%		551,000			488,000		13	%
Other operating expenses		239,000			241,000		-1	%		697,000			698,000		0	%
Research and development		(32,000	)		2,000		-1700	%		(13,000	)		107,000		-112	%
Total costs and expenses	$	4,733,000		$	4,473,000		6	%	$	15,062,000		$	14,088,000		7	%

Costs of goods sold, exclusive of depreciation and amortization includes all direct costs of printed products revenues, including materials, direct labor, transportation and manufacturing facility costs. In addition, this category includes all direct costs associated with technology sales, services and licensing including hardware and software that are resold, and fees paid to inventors or others as a result of technology licenses or settlements, if any. Costs of goods sold decreased by 13% during the three months ended September 30, 2019 as compared to the same period in 2018. This decrease is attributed to both the decline in revenue as well as cost controlling measures put in regarding external warehousing, inter-warehouse shipments, and labor at the DSS Printing and Packaging Group as well as the DSS Plastics Group. For the nine months ended September 30, 2019, costs of goods sold increased by 5% as compared to the same period in 2018, resulting from the increase in paper costs, freight costs, and machine maintenance at the Company’s two production facilities.

Sales, general and administrative compensation costs, excluding stock-based compensation, decreased 3% and 4%, respectively, during the three and nine months ended September 30, 2019, as compared to the same periods in 2018, primarily due to the reduction of headcount and a reduction in commissions and bonus compensation expense.

Depreciation and amortization include the depreciation of machinery and equipment used for production, depreciation of office equipment and building and leasehold improvements, amortization of software, and amortization of acquired intangible assets such as customer lists, trademarks, non-compete agreements and patents, and internally developed patent assets. For the three and nine months ended September 30, 2019, depreciation and amortization expense increased 35% and 5%, respectively, as compared to the same periods in 2018, primarily due to the write-off of the semiconductor patents during the six months ended June 30, 2018, as well as the addition of pre-production software and hardware and production equipment at the DSS Printing and Packaging Group.

Professional fees increased 124% and 53%, respectively, during the three and nine months ended September 30, 2019, as compared to the same periods in 2018, mostly due to increases in legal services for patent litigation, as well as the outsourcing of corporate legal services.

Stock based compensation includes expense charges for all stock-based awards to employees, directors and consultants. Such awards include option grants, warrant grants, and restricted stock awards. Stock based compensation increased 1265% and 209%, respectively, as a result of stock based compensation totaling approximately $52,000 accrued for the CEO of a subsidiary of the Company, as well as an increase in common stock granted to certain executive members and directors during the third quarter of 2019.

Sales and marketing costs, which include internet and trade publication advertising, travel and entertainment costs, sales-broker commissions, and trade show participation expenses decreased 19% during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018, resulting from a decrease in marketing and travel costs for the technology group. For the nine months ended September 30, 2019, sales and marketing costs increased 12% as compared to the same period in 2018, primarily due to travel costs for the associated with the implementation of the AuthentiGuard product at customer sites throughout Europe and Asia.

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Rent and utilities increased by 8% and 13%, respectively, during the three and nine months ended September 30, 2019, as compared to the same periods in 2018, primarily due to an increase in facilities maintenance costs and rent expense for the Company’s printed products group.

Other operating expenses consist primarily of equipment maintenance and repairs, office supplies, IT support and insurance costs. During the three and nine months ended September, other operating expenses remained relatively flat.

Research and development costs consist primarily of compensation costs for research personnel, third-party research costs, and consulting costs. Research and development costs for the three and nine months ended September 30, 2019 declined 1700% and 112%, respectively, as compared to the same periods in 2018, primarily due to receipt of the anticipated $33,243 refund on development costs for the development of proprietary block chain solutions for DSS International.

Other Income (Expense)

	Three Months Ended September 30, 2019			Three Months Ended September 30, 2018			% change			Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018			% change
Other income (expense):
Interest income	$	7,000		$	2,000			250	%	$	11,000		$	8,000			38	%
Interest expense		(58,000	)		(30,000	)		93	%		(128,000	)		(112,000	)		14	%
Amortization of deferred financing costs and debt discount		-			(6,000	)		-100	%		(2,000	)		(40,000	)		-95	%
Gain on extinguishment of liabilities, net		-			-			0	%		-			3,533,000			-100	%
Total other expense	$	(51,000	)	$	(34,000	)		50	%	$	(119,000	)	$	3,389,000			-104	%

Interest income recognized on the money market account was $11,000 for the nine months ended September 30, 2019.

Interest expense increased 93% and 14% during the three and nine months ended September 30, 2019, respectively, due to the interest expense incurred with the settlement of the swap agreement associated with the consolidation of the two Promissory Notes noted in Note 6.

Amortized debt discount decreased 100% and 95% during the three and nine months ended September 30, 2019, as compared to the same periods in 2018, due to the impact of the write-off of the semiconductor patents during the nine months ended September 30, 2018.

Net Income (loss)

	Three Months Ended September 30, 2019			Three Months Ended September 30, 2018			% change			Nine Months Ended September 30, 2019			Nine Months Ended September 30, 2018		% change
Net income (loss)	$	(1,251,000	)	$	(413,000	)		203	%	$	(2,732,000	)	$	1,860,000		-247	%
Earnings (loss) per common share:
Basic	$	(0.05	)	$	(0.02	)		150	%	$	(0.12	)	$	0.11		-209	%
Diluted	$	(0.05	)	$	(0.02	)		150	%	$	(0.12	)	$	0.11		-209	%

For the three months ended September 30, 2019, the Company recorded net loss of approximately $1.2 million, as compared to a net loss of $413,000 during the same period in 2018. During the nine months ended September 30, 2019, the company recorded net loss of $2.7 million, as compared to net income of $1.9 million for the nine months ended September 30, 2018. The increases in operating losses incurred during the three and nine months ended September 30, 2019 as compared to the same periods in 2018 primarily reflect the combined impact of a decline in revenues in the Printed products group coupled with an increases in professional fees, stock based compensation, costs associated with the Company’s expansion into Asia, and the impact of the net gain from extinguishment of liabilities of approximately $3.5 million, which occurred during the second quarter of 2018.

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LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2019, the Company had cash and cash equivalents of $3,916,332.

Operating Cash Flow – During the nine months ended September 30, 2019, the Company used approximately $3,285,500 of cash for operations as compared to the $1,524,550 in cash used for operations during the first nine months ended September 30, 2018. The increase in the use of cash for operations primarily reflects an increase in net operating loss as well as payments toward various accrued liabilities and expenses across all business units.

Investing Cash Flow – During the nine months ended September 30, 2019, the Company expended approximately $823,400 on equipment for its packaging group, and approximately $350,000 for ACS licensing agreement for the DSS International group.

Financing Cash Flows – During the nine months ended September 30, 2019, the Company made aggregate principal payments for long-term debt of approximately $194,000, and had borrowings on its equipment line of credit of approximately $588,000. The Company also received net proceeds of $500,000 from the sale of the Company’s common stock as a result of the conversion of a short-term convertible note that was entered into and converted during the nine months ended September 30, 2019. In addition, the Company raised approximately $4.9 million by the sale of common shares that occurred in June 2019. In July 2019, in accordance with the Company’s underwriting agreement with Aegis Capital Corp., Aegis exercised an overallotment of 519,186 shares which brought a net $162,000 to the Company.

Continuing Operations and Going Concern – The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should we be unable to continue as a going concern. While the Company has approximately $ 3.9 million in cash, and a positive working capital position of approximately $4.3 million as of September 30, 2019, the Company has incurred negative cash flows from operating and investing activities over the past two years and has projected that the Company will likely incur negative cash flows from operations in 2019. To continue as a going concern, on June 5, 2019, the Company entered into an underwriting agreement with Aegis Capital Corp., acting as representative of the several underwriters, which provided for the issuance and sale by the Company in an underwritten public offering (the “Offering”) of 11,200,000 shares of the Company’s common stock. The Company also granted the Underwriters a 45-day option to purchase up to 1,680,000 additional shares of the Company’s common stock on the same terms and conditions for the purpose of covering any over-allotments in connection with the Offering (519,186 shares were exercised on July 18, 2019.) The net offering proceeds to the Company was approximately $5.0 million, inclusive of the July 18, 2019 transaction and after deducting underwriting discounts, commissions and other offering expenses. Also, on November 1, 2019, Pursuant to a Subscription Agreement, LiquidValue Development Pte LTD, a company owned and controlled by Mr. Heng Fai Ambrose Chan, DSS’s Chairman, purchased from the Company, in a private placement, and aggregate of 6,000,000 shares of common stock, for an above market purchase price equal to $0.3037 per share (at the time of LiquidValues’ commitment, the closing stock price was $0.26 per share) for net proceeds to the Company of approximately $1.5 million after deducting underwriting discounts, commissions and other offering expenses (see Note 14).

The expected use of cash for operations in 2019 will be primarily for funding operating losses, working capital, legal expenses associated with its intellectual property related litigation, and the costs associated with the global roll-out of the Company’s AuthentiGuard product line. The Company will also use these funds to make capital improvements at its two manufacturing facilities to increase production capacity and create efficiencies, as well as to diversify its revenue streams and take advantage of profit opportunities.

The Company’s management intends to take actions necessary to continue as a going concern. Management’s plans concerning these matters includes, among other things, continued growth among our operating segments including international expansion of our AuthentiGuard product, and tightly controlling operating costs and reducing spending growth rates wherever possible to return to profitability.

We believe that our $3.9 million in aggregate cash and equivalents as of September 30, 2019 will allow us to fund our four operating segments current and planned operations through 2020. However, we may seek additional capital through the sale of debt or equity securities, if necessary, especially in conjunction with opportunistic acquisitions or licensing arrangements. Based on this, we have concluded that substantial doubt of our ability to continue as a going concern has been alleviated.

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Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, an effect on our financial condition, financial statements, revenues or expenses.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in our financial statements and accompanying notes. The financial statements as of December 31, 2018 describe the significant accounting policies and methods used in the preparation of the financial statements. Additionally, the Company adopted ASU No. 2016-02 and its related amendments which introduced Leases (Topic 842, or “ASC 842”), as required, effective January 1, 2019 and elected the optional transition method that allows for a cumulative-effect adjustment in the period of adoption, without a restatement of prior periods. The new accounting standard requires lessees to recognize right-of-use (“ROU”) assets and corresponding lease liabilities for all leases with lease terms of greater than 12 months. Further, the Company elected a short-term lease exception policy, permitting the Company to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets. As a result of the adoption, the Company adjusted its balance sheet by recording an ROU asset and lease liability. The adoption impacted the accompanying consolidated balance sheet, but did not have an impact on the consolidated statements of operations and comprehensive income (loss). The Company uses a discount rate to determine the present value based on the rate implicit in the lease, if readily determinable, or its incremental borrowing rate. Critical accounting policies are impacted significantly by judgments, assumptions and estimates used in the preparation of our consolidated financial statements. A discussion of such critical accounting policies can be found in our Annual Report on Form 10-K for the year ended December 31, 2018. Other than the adoption of Topic ASC 842, there have been no material changes to such critical accounting policies as of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2019.

ITEM 4 - CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including our principal executive officer who is also our principal financial officer, we conducted an evaluation of our disclosure controls and procedures for the quarter ended September 30, 2019, pursuant to Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation and on the material weaknesses disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 which remained As of September 30, 2019, our principal executive officer and principal financial officer concluded that as of September 30, 2019, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is being recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that our disclosure controls are not effectively designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is being accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Plan for Remediation of Material Weaknesses

As discussed in our Annual Report on Form 10-K for the year ended December 31, 2018, the Company has a remediation plan and is committed to maintaining a strong internal control environment and believes that these remediation efforts will represent significant improvements in our controls. The Company has started to implement these steps, however, some of these steps will take time to be fully integrated and confirmed to be effective and sustainable. Additional controls may also be required over time. Until the remediation steps set forth above are fully implemented and tested, the material weaknesses described above will continue to exist.

Changes in Internal Control over Financial Reporting

While changes in the Company’s internal control over financial reporting occurred during the quarter ended September 30, 2019 as the Company began implementation of the remediation steps described above, we believe that there were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2019, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II

OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

See commentary in Note 10 Commitments and Contingencies.

ITEM 1A - RISK FACTORS

There have been no material changes to the discussion of risk factors previously disclosed in our most recently filed Annual Report on Form 10-K for the year ended December 31, 2018.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4 - MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5 - OTHER INFORMATION

On August 27, 2019, the Company entered into an executive employment agreement with Mr. Frank D. Heuszel, Chief Executive Officer, Interim Chief Financial Officer and director of the Company. Pursuant to the agreement, Mr. Heuszel shall receive an annual base salary of $165,000, payable bi-weekly, and shall be eligible to an annual performance bonus in an amount up to 100% of his base salary, upon the Company’s achievement of certain net income and gross revenue milestones In the event of a change in control of the Company or the termination of Mr. Heuszel’s employment without cause, Mr. Heuszel shall receive four-months’ salary, payable monthly. The terms of Mr. Heuszel’s agreement were previously disclosed in our Form 8-K filed July 16, 2019.

On September 5, 2019, the Company entered in an executive employment agreement with Mr. Jason Grady, the Company’s Chief Operating Officer. Pursuant to the agreement, Mr. Grady shall receive an annual base salary of $200,000 and shall be eligible to receive an annual performance bonus, in an amount up to 100% of his base salary, upon the Company’s achievement of certain net income and gross revenue milestones. In the event of a change in control of the Company or the termination of Mr. Grady’s employment without cause, he shall be entitled to receive four-month’s base salary. The terms of Mr. Grady’s agreement were previously disclosed in our Form 8-K filed July 16, 2019.

On September 23, 2019, the Company entered in an executive employment agreement with Mr. Heng Fai Ambrose Chan, a director of the Company, Chief Executive Officer of the Company’s wholly-owned subsidiary DSS International Inc. and Chief Executive Officer of DSS Asia, a wholly-owned subsidiary of DSS International Inc., Pursuant to the agreement,, Mr. Chan  shall receive an annual base salary of $250,000, payable quarterly in either cash or common stock, subject to availability of shares under a shareholder-approved stock plan. The calculation of each quarterly payment of common stock shall be the Company’s average trading price for the last ten trading days of that quarter. Mr. Chan is also eligible to receive an annual performance bonus, in an amount up to 100% of his base salary, upon the Company’s achievement of certain net income and gross revenue milestones. Mr. Chan has the option to have the bonus paid in Company common stock. In the event of a change in control of the Company or the termination of Mr. Chan’s employment without cause, Mr. Chan shall receive four-months’ salary, payable monthly. The terms of Mr. Chan’s agreement were previously disclosed in our Form 8-K filed July 16, 2019.

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ITEM 6 - EXHIBITS

Exhibit Number	Exhibit Description
10.1	Executive Employment Agreement dated August 27, 2019, 2019, between the Registrant and Frank D. Heuszel
10.2	Executive Employment Agreement dated September 5, 2019, between the Registrant and Jason Grady
10.3	Executive Employment Agreement dated September 23, 2019, between the Registrant and Chan Heng Fai
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer and Interim Chief Financial Officer. *
32.1**	Certification of Chief Executive Officer and Interim Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.*

101.INS	XBRL Instance Document*
101.SCH	XBRL Taxonomy Extension Schema Document*
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document*
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document*
101.LAB	XBRL Taxonomy Extension Label Linkbase Document*
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document*

*

Filed herewith.

**

Furnished herewith. This certification will not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	DOCUMENT SECURITY SYSTEMS, INC.
November 13, 2019	By:	/s/ Frank D. Heuszel
		Frank D. Heuszel
		Chief Executive Officer and Interim Chief Financial Officer
		(Principal Executive Officer and Principal Financial and Accounting Officer)

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EX-10.2

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”), made this         day of                   , 2019 (the “Effective Date”), is entered into by and between Document Security Systems, Inc. (the “Company”) and Jason Grady (the “Executive”).

1. Term of Employment. The Company agrees to employ Executive, and Executive agrees to work for the Company, upon the terms set forth in this Agreement, for the period commencing on July 15, 2019 (the “Commencement Date”) and ending on July 15, 2020 (the “Term”). This Agreement shall terminate in accordance with the provisions of Section 4, below.

2. Title; Capacity. The Company will employ Executive, and Executive agrees to work for the Company, as its Chief Operating Officer to perform the duties and responsibilities inherent in such position and such other duties and responsibilities consistent with such position (including travel, as required) as the Company’s Chief Executive Officer (“CEO”) and/or Board of Directors (the “Board”) shall from time to time assign to him. Executive shall report directly to the CEO and shall be subject to the supervision of and shall have such authority as is delegated to him by, the CEO, which authority shall be sufficient to perform his duties hereunder. Executive shall be a full time employee and shall devote his best efforts in the performance of the foregoing, provided (i) that he may accept board memberships or participate in charitable and similar organizations which are not in conflict with his primary obligations to the Company, further provided that such activities shall be approved by the Board, which approval shall not be unreasonably withheld; and (ii) that he may perform related services as described in Section 6.6 below.

3. Compensation, Benefits and Equity.

3.1 Salary. The Company shall pay Executive an annual base salary of Two-Hundred Thousand and no/100 dollars ($200,000.00) less applicable payroll withholdings, which shall be payable in accordance with the Company’s customary payroll practices (the “Base Salary”).

3.2 Cash Performance Bonus. The Executive is eligible for a cash performance bonus with an aggregate potential annual bonus of up to Two-Hundred Thousand and no/100 dollars ($200,000.00) (the “Cash Bonus”). The Cash Bonus will be calculated based upon the sum of 3% of Gross Revenue Growth and 5% of Net Revenue Change, capped at 100% of annualized Base Salary.

The calculation, administration and payment of the bonus will be determined on a semi-annual basis and shall be payable semi-annually. The bonus payment shall be paid within a forty-five (45) days after the year-end, (e.g. December 31, 2019) and the Effective anniversary date of the Agreement (e.g. July 15, 2020). It is intended that the Bonus calculation shall not include any M&A changes or any IP Monetization revenue or expense impact. It is intended to be a bonus program related to growing the core businesses and improving the net operating profits of the 3 core business units.

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3.3 Definitions.

(a) Gross Revenue Growth. “Gross Revenue Growth” shall mean the increase or decrease in the actual sales revenue of Premier Packaging Corporation, Plastic Printing Professionals, and DSS Digital as if the 3 entities were standalone entities, year over year, (in accordance with generally accepted accounting principles, or GAAP) for the two 6-month ending periods of 12/31/2019 and 6/30/2020. The revenue growth calculation shall not include any growth increases or decreases resulting from any new line of business, acquisition or merger of a new business, or the IP Monetization line of business.

For the sake of clarity in the bonus calculation and for example only,

If the gross revenues of the 3 lines of business totaled, as of:

Period 1: July 1, 2018 through December 31, 2018 = $30,400,000

Period 2: January 1, 2019 through June 30, 2019 = $20,000,000

Period 3: July 1, 2019 through December 31, 2019 = $32,000,000

Period 4: January 1, 2020 through June 30, 2020 = $24,000,000

Calculation:

· (Period 3 minus Period 1) x .03, or ($32,000,000 - $30,400,000) x.03 = $48,000.

· (Period 4 minus Period 2) x .03, or ($24,000,000 - $20,000,000) x.03 = $120,000.

Therefore, total bonus associated with Gross Revenue Growth = $168,000.

(b) Net Income Change. “Net Revenue Change” shall mean 5% of the change in Net Income before income taxes (plus intangible asset amortization) of Premier Packaging Corporation, Plastic Printing Professionals, and DSS Digital as if the 3 entities were standalone entities, year over year, (in accordance with generally accepted accounting principles, or GAAP) for the two 6-month ending periods of 12/31/2019 and 6/30/2020. The net income change calculation shall not include any net income change resulting from any new line of business, acquisition or merger of a new business, or the IP Monetization line of business.

For the sake of clarity in the bonus calculation and for example only,

If the net revenues of the 3 lines of business totaled, as of:

Period 1: July 1, 2018 through December 31, 2018 = $1,000,000

Period 2: January 1, 2019 through June 30, 2019 = $1,600,000

Period 3: July 1, 2019 through December 31, 2019 = $1,200,000

Period 4: January 1, 2020 through June 30, 2020 = $2,000,000

Calculation:

● (Period 3 minus Period 1) x .05, or ($1,200,000 - $1,000,000) x.05 = $10,000.

● (Period 4 minus Period 2) x .05, or ($2,000,000 - $1,600,000) x.05 = $20,000.

Therefore, total bonus associated with Gross Revenue Growth = $30,000.

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By adding the two components of the bonus calculation will comprise the total bonus calculation.

In this example, the total bonus calculation is $198,000 [$168,000+$30,000] with maximum payable to be capped at 100% annual salary of $200,000; Therefore $198,000.

3.5 Benefits. Executive shall be entitled to participate in all benefit programs and allowances that the Company establishes and makes available to its executive employees, including eligibility for all company benefit plans, including but not limited to, health care coverage and 40(k) plan, profit sharing, car allowance, cell phone and data usage payment or reimbursement, home and office internet and computer support equipment. The Executive understands that, except when prohibited by applicable law, the Company’s benefit plans and fringe benefits may be amended by the Company from time to time in its sole discretion.

The Executive shall be entitled to four (4) weeks of paid vacation time per year during the terms of this Agreement commencing immediately with the execution of this Agreement. All other terms of the Executive’s vacation shall be subject to the Company’s vacation policy, as it exists or is subsequently modified.

3.6 Expenses. The Company shall reimburse Executive for reasonable travel, entertainment, mileage, and other business expenses incurred by Executive in the performance of his duties hereunder in accordance with the Company's general policies, as amended from time to time. If a business expense reimbursement is not exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), any reimbursement in one calendar year shall not affect the amount that may be reimbursed in any other calendar year, and a reimbursement (or right thereto) may not be exchanged or liquidated for another benefit or payment. Any business expense reimbursements subject to Section 409A of the Code shall be made no later than the end of the calendar year following the calendar year in which such business expense is incurred by Executive.

3.7 Equity Grants. The Company shall issue a one-time stock grant of 74,770 shares of the Company’s common stock to Executive with a non-trading restriction of 2 years (the “Stock Grant”), from the Company’s existing Employee, Director and Consultant Equity Incentive Plan (the “Plan”), to be issued upon the earlier of September 1, 2019 or the execution of this Agreement.

4. Termination of Agreement. Upon the expiration of the original terms of this Agreement or any renewal term of this Employment Agreement, the Executive’s employment shall be automatically renewed for a one (1) year period unless, at least sixty (60) days prior to the scheduled termination date, either party gives the other party written notice of its intent not to continue the employment relationship. During any renewal term of employment, the terms, conditions, and provisions set forth in this Agreement shall remain in effect unless modified in accordance with section 9, except the dates of bonuses shall be modified to reflect the extension period.

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5. Termination of Executive’s Employment.

a)	By the Company. The Company may terminate the Executive’s employment at any time, with or without “Cause,” upon written notice by the Company to the Executive, and the Executive’s employment will terminate on the day specified in such notice. For the purposes of this Agreement, “Cause” means: (i) the Executive’s conviction of (or Executive pleads nolo contendere to) a felony or misdemeanor involving dishonesty, fraud, breach of trust, moral turpitude, or a crime leading to incarceration of more than sixty (60) days; (ii) the Executive’s material breach of this Agreement; (iii) Executive’s continued failure in any material respects with the performance of his/her employment duties for more than 10 business days (other than due to illness, disability, and vacation) after having received written notice specifying the nature of the failure; (iv) commission by the Executive of any act of fraud, dishonesty, or embezzlement against the Company, any of its subsidiaries, or any of its customers; (v) the Executive reporting to work while impaired under the influence of alcohol or drugs, or the Executive’s use or distribution of illegal narcotics; (vi) the Executive’s commission of any illegal act of violence against an employee, customer, or vendor of the Company; (vii) willful disregard of any reasonable instruction of the Board of Directors relating to a material matter of the Company; and (viii) Executive’s violation of any material law, statue, or regulation relating to the Company’s business.
b)	By the Executive. The Executive may terminate his/her employment with the Company at any time with or without “Good Reason” upon written notice by the Executive to the Company, and the Executive’s employment will terminate on the date specified in the notice. “Good Reason” means: (i) a material reduction in the Executive’s compensation or benefits; (ii) a material breach by the Company of this Agreement; or (iii) a material reduction or material change in the Executive’s original duties, responsibilities or authority.
c)	Death. Executive’s employment with the Company shall be terminated immediately upon death of the Executive.
d)	Disability of Executive. This Agreement may be terminated immediately upon the disability of the Executive. For purposes of this Agreement, “Disability” shall mean if Executive has a mental or physical condition that prevents Executive from carrying out the essential duties of his/her employment position for a period greater than 3 months, notwithstanding Company’s reasonable accommodations (to the extent required by law.)
e)	Mutual Agreement of Parties. Upon the mutual agreement of the parties, this Agreement will terminate.

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f)	Effects of Termination. In the event that Executive’s employment is terminated by the Company without “Cause” or by similar premise, or by the Executive for “Good Reason”, then the Executive shall be entitled to payment for: (i) unpaid base salary, prorated to the date of termination or resignation; (ii) accrued and unused vacation pay, (iii) any benefits accruing to Executive under the terms and conditions of any then-existing employee benefit plan; (iv) four (4) months of prorated annual base salary; (v) four (4) months of paid health insurance benefits, (vi) reimbursement of expenses incurred prior to termination in accordance with Section 3.6.; and (vii) benefits as required by the Consolidated Omnibus Budget Reconciliation Act of 1985 or any other applicable federal or state statute.
g)	Termination “For Cause” or due to the Executive’s resignation “Without Good Reason”. In the event of the Executive’s employment is terminated: (i) by the Company for “Cause”, or (ii) if the Executive resigns without “Good Reason”, then the Executive shall be entitled to payment for: (i) unpaid base salary, prorated to the date of termination or resignation; (ii) accrued and unused vacation pay, (iii) any benefits accruing to Executive under the terms and conditions of any then-existing employee benefit plan; (iv) reimbursement of expenses incurred prior to termination in accordance with Section 3.6.; and (vii) benefits as required by the Consolidated Omnibus Budget Reconciliation Act of 1985 or any other applicable federal or state statute.
h)	Termination “Without Cause” or due to the Executive’s Death, Disability, or resignation for Good Reason”. In the event that Company terminates Executive’s employment prior to expiration of the Term without “Cause”, or due to the Executive’s Death, Disability, or resignation for “Good Reason”, then Executive shall be entitled to any earned and unvested portion of his equity grant pursuant to Section 3.7, and to any remaining compensation he would have been entitled to receive had he remained until expiration of the Term of this Agreement.

6. Nondisclosure and Proprietary Information.

6.1 Proprietary Information.

(a)	Executive agrees that all information and know-how, whether or not in writing, of a private, secret or confidential nature concerning the Company’s business or financial affairs (collectively, “Proprietary Information”) is and shall be the exclusive property of the Company. By way of illustration, but not limitation, Proprietary Information may include inventions, products, processes, methods, techniques, formulas, designs, drawings, slogans, tests, logos, ideas, practices, projects, developments, plans, research data, financial data, personnel data, computer programs, and customer and supplier data, or other materials or information relating to the Company’s business and activities and the manner in which the Company does business. Executive will not disclose any Proprietary Information to others outside the Company except in the performance of his duties or use the same for any unauthorized purposes without written approval by an officer of the Company, either during or after his employment, unless and until such Proprietary Information has become public knowledge or generally known within the industry without fault by Executive, or unless otherwise required by law.
(b)	Executive agrees that all files, letters, memoranda, reports, records, data, sketches, drawings, laboratory notebooks, program listings, or other written, photographic, electronic or other material containing Proprietary Information, whether created by Executive or others, which shall come into his custody or possession, shall be and are the exclusive property of the Company to be used by Executive only in the performance of his duties for the Company.
(c)	Executive agrees that his obligation not to disclose or use information, know-how and records of the types set forth in paragraphs (a) and (b) above, also extends to such types of information, know-how, records and tangible property of subsidiaries and joint ventures of the Company, customers of the Company or suppliers to the Company or other third parties who may have disclosed or entrusted the same to the Company or to Executive in the course of the Company’s business.

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(d) Nothing in this Agreement prohibits Executive from reporting possible violations of federal law or regulation to any governmental agency or enforcement entity, or from making other disclosures that are protected under applicable whistleblower provisions of federal law and regulation.

6.2 Noncompetition and Non-solicitation

a)	During Executive’s employment and for a period of four months (4) months after the termination of Executive’s employment with the Company, Executive will not directly or indirectly, absent the Company’s prior written approval, render services of a business, professional or commercial nature to any other person or entity that competes with the Company in the same geographical area where the Company does business at the time this covenant is in effect (or where the Company has made, as of the effective date of termination, active plans to do business), whether such services are for compensation or otherwise, whether alone or in conjunction with others, as an employee, as a partner, or as a shareholder (other than as the holder of not more than 1% of the combined voting power of the outstanding stock of a public company), officer or director of any corporation or other business entity, or as a trustee, fiduciary or in any other similar representative capacity. The restrictions set forth in this Section 6.2 shall be applicable only as to the following lines of business: printing, packaging, plastic printing, anti-counterfeiting and blockchain technology, and brand protection.
(b)	During Executive’s employment and for a period of twelve (12) months after the termination of Executive’s employment with the Company, Executive will not, directly or indirectly, recruit, solicit or induce, or attempt to recruit, solicit or induce any employee or employees of the Company to terminate their employment with, or otherwise cease their relationship with, the Company.
(c)	During Executive’s employment and for a period of four (4) months after the termination of Executive’s employment with the Company, Executive will not, directly or indirectly, solicit, divert or take away, or attempt to solicit, divert or take away, the business or patronage of any of the Serviced Clients of the Company or the Marketed Prospective Clients of the Company, as defined in Section 6.2(d).
(d)	As used above, a “Serviced Client” shall be considered any client, customers or accounts of the Company with whom Executive had business dealings or contacts on behalf of the Company in the course of Employee’s employment with the Company or about which Executive had access to Proprietary Information. As used above, the “Marketed Prospective Clients” shall be considered any prospective clients, customers or accounts of the Company with whom Executive had business dealings or contacts on behalf of the Company in the course of Executive’s employment with the Company or about which Executive had access to Proprietary Information.

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6.3 Invalidity. If any restriction set forth in this Section 6 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable.

6.4 Reasonableness of Restrictions. The restrictions contained in this Section 6 are necessary for the protection of the business, trade secrets, proprietary and confidential information, and goodwill of the Company, especially in light of the unique services rendered on behalf of the Company by Executive in his position as Chief Operating Officer. These restrictions are entered in to in conjunction with the Company’s offer to Executive of continued employment and eligibility for the Performance Bonuses described herein. Executive has had the opportunity to consult with counsel regarding these restrictions, which are considered by Executive to be reasonable for such purpose and substantial new consideration. Executive agrees that any breach of this Section 6 will cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Company shall have the right to seek specific performance and injunctive relief.

6.5 Other Agreements. Executive represents that his performance of all the terms of this Agreement as an employee of the Company does not and will not breach any (i) agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or in trust prior to his employment with the Company or (ii) agreement to refrain from competing, directly or indirectly, with the business of any previous employer or any other party. Executive represents that all information Executive provided to the Company regarding Executive’s education, work background, experience and lack of post-employment restrictions are all true and accurate and the Company is entitled to rely on such representations.

6.6 Other Business Exception. The Company acknowledges that the Executive is also involved in the management of personal and family investments. It is expressly understood by the Company that that the Executive is allowed to continue to be involved in these activities, the restrictions set forth in Section 6.2 above shall not apply with respect to any services Executive provides regarding any business identified in this section.

7. Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon (a) the date of receipt, if sent by personal delivery (including delivery by reputable overnight courier), or (b) the date of receipt or refusal, if deposited in the United States Post Office, by registered or certified mail, postage prepaid and return receipt requested, or (c) the date of receipt if sent by e-mail PDF or facsimile transmission to the e-mail address or facsimile number of record of Executive or the Company, or at such other place as may from time to time be designated by either party in writing.

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8. Entire Agreement. This Agreement, and those documents referenced herein, constitute the entire agreement between the parties and supersede all prior agreements and understandings, including prior employment agreements, whether written or oral relating to the subject matter of this Agreement. Signatures affixed to this Agreement may be delivered in e-mail PDF form and any such signatures shall be deemed original signatures for purposes of the validity and enforceability of this Agreement.

9. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and Executive.

10. Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the State of New York, applied without giving effect to any conflicts-of-law principles. Any action or proceeding relating to this Agreement or Executive’s employment shall be venued exclusively in the state or federal courts located in Western New York.

11. Assumption by Successors. Any successor of the Company shall succeed to all of the Company’s duties, obligations, rights and benefits hereunder. The obligations of Executive are personal and shall not be assigned by him.

12. No Waiver. No delay or omission by a party in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by a party on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.

13. Severability. In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby.

14. Survival. Upon the termination of the Term and any termination of this Agreement, the obligations of the parties under Sections 5 and 6 shall survive and continue in effect in accordance with their terms.

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IN WITNESS WHEREOF, the undersigned parties have executed this Agreement effective on the date and year first above written.

 

DOCUMENT SECURITY SYSTEMS, INC.

By:	Frank D. Heuszel
Title:	Chief Executive Officer
Date:	September 5, 2019

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EX-10.3

EXECUTIVE EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”), made this 23 day of September, 2019 (the “Effective Date”), is entered into by and between DSS Asia Limited and Document Security Systems, Inc. (collectively the “Company”) and Chan Heng Fai (the “Executive”).

1. Term of Employment. The Company agrees to employ Executive, and Executive agrees to work for the Company, upon the terms set forth in this Agreement, for the period commencing on July 15, 2019 (the “Commencement Date”) and ending on July 15, 2020 (the “Term”). This Agreement shall terminate in accordance with the provisions of Section 4, below.

2. Title; Capacity. The Company will employ Executive, and Executive agrees to work for the Company, as its Chief Executive Officer of DSS Cyber Security Pte. Ltd. to perform the duties and responsibilities inherent in such position and such other duties and responsibilities consistent with such position (including travel, as required) as DSS’s Chief Executive Officer and Company’s Board of Directors (the “Board”) shall from time to time assign to him. Executive shall report directly to the Board and shall be subject to the supervision of and shall have such authority as is delegated to him by, the Board, which authority shall be sufficient to perform his duties hereunder. Executive shall be a full time employee and shall devote his best efforts in the performance of the foregoing, provided (i) that he may accept board memberships or participate in charitable and similar organizations which are not in conflict with his primary obligations to the Company, further provided that such activities shall be approved by the Board, which approval shall not be unreasonably withheld; and (ii) that he may perform related services as described in Section 6.6 below.

3. Compensation, Benefits and Equity.

3.1 Salary. The Company shall pay Executive an annual base salary of Two-Hundred Fifty Thousand and no/100 dollars ($250,000.00) less applicable payroll withholdings, which shall be payable in accordance with the Company’s customary payroll practices (the “Base Salary”).

3.2 Performance Bonus. The Executive is eligible for a performance bonus with an aggregate potential annual bonus of up to Two-Hundred Fifty Thousand and no/100 dollars ($250,000.00) (the “Bonus”). The Bonus will be calculated based upon the sum of 3% of Gross Revenue Growth and 5% of Net Revenue Change, capped at 100% of annualized Base Salary.

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The calculation, administration and payment of the bonus will be determined on a semi-annual basis and shall be payable semi-annually. The bonus payment shall be paid within a forty-five (45) days after the year-end, (e.g. December 31, 2019) and the Effective anniversary date of the Agreement (e.g. July 15, 2020). It is intended that the Bonus calculation shall not include any M&A changes or any IP Monetization revenue or expense impact. It is intended to be a bonus program related to growing the core businesses and improving the net operating profits of the 3 core business units.

3.3 Definitions.

(a) Gross Revenue Growth. “Gross Revenue Growth” shall mean the increase or decrease in the actual sales revenue of Premier Packaging Corporation, Plastic Printing Professionals, and DSS Digital as if the 3 entities were standalone entities, year over year, (in accordance with generally accepted accounting principles, or GAAP) for the two 6-month ending periods of 12/31/2019 and 6/30/2020. The revenue growth calculation shall not include any growth increases or decreases resulting from any new line of business, acquisition or merger of a new business, or the IP Monetization line of business.

For the sake of clarity in the bonus calculation and for example only,

If the gross revenues of the 3 lines of business totaled, as of:

Period 1: July 1, 2018 through December 31, 2018 = $30,400,000

Period 2: January 1, 2019 through June 30, 2019 = $20,000,000

Period 3: July 1, 2019 through December 31, 2019 = $32,000,000

Period 4: January 1, 2020 through June 30, 2020 = $24,000,000

Calculation:

· (Period 3 minus Period 1) x .03, or ($32,000,000 - $30,400,000) x.03 = $48,000.

· (Period 4 minus Period 2) x .03, or ($24,000,000 - $20,000,000) x.03 = $120,000.

Therefore, total bonus associated with Gross Revenue Growth = $168,000.

(b) Net Income Change. “Net Revenue Change” shall mean 5% of the change in Net Income before income taxes (plus intangible asset amortization) of Premier Packaging Corporation, Plastic Printing Professionals, and DSS Digital as if the 3 entities were standalone entities, year over year, (in accordance with generally accepted accounting principles, or GAAP) for the two 6-month ending periods of 12/31/2019 and 6/30/2020. The net income change calculation shall not include any net income change resulting from any new line of business, acquisition or merger of a new business, or the IP Monetization line of business.

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For the sake of clarity in the bonus calculation and for example only,

If the net revenues of the 3 lines of business totaled, as of:

Period 1: July 1, 2018 through December 31, 2018 = $1,000,000

Period 2: January 1, 2019 through June 30, 2019 = $1,600,000

Period 3: July 1, 2019 through December 31, 2019 = $1,200,000

Period 4: January 1, 2020 through June 30, 2020 = $2,000,000

Calculation:

● (Period 3 minus Period 1) x .05, or ($1,200,000 - $1,000,000) x.05 = $10,000.

● (Period 4 minus Period 2) x .05, or ($2,000,000 - $1,600,000) x.05 = $20,000.

Therefore, total bonus associated with Gross Revenue Growth = $30,000.

By adding the two components of the bonus calculation will comprise the total bonus calculation.

In this example, the total bonus calculation is $198,000 [$168,000+$30,000] with maximum payable to be capped at 100% annual salary of $250,000; Therefore $198,000.

3.5 Base Salary and Performance Bonus Payment Option. Subject to the Company having available shares under its Employee, Director and Consultant Equity Incentive Plan or equivalent plan (the “Plan”), the Executive shall have the option to be paid his annual Base Salary and/or his Semi-annual Performance Bonus, if any, less any applicable payroll withholdings, in either cash or in equivalent unrestricted registered DSS common stock via the Plan.

If the Executive elects to have either the Base Salary and/or the Performance Bonus paid in DSS common stock via the Plan, the Executive must make the request in writing to Company’s CEO or CFO. The conversion rate from cash to DSS stock shall be the NYSE 10-day average closing price for the DSS stock immediately before the earned period. Further, the Executive can elect to have the payment of the DSS common stock paid to him monthly or quarterly. Such payment can be made by physical DSS stock certificate or by electronic deposit to his designated stock brokerage account.

3.6 Benefits. Executive shall be entitled to participate in all benefit programs and allowances that the Company establishes and makes available to its executive employees, including eligibility for all company benefit plans, including but not limited to, health care coverage and 40(k) plan, profit sharing, car allowance, cell phone and data usage payment or reimbursement, home and office internet and computer support equipment. The Executive understands that, except when prohibited by applicable law, the Company’s benefit plans and fringe benefits may be amended by the Company from time to time in its sole discretion.

The Executive shall be entitled to four (4) weeks of paid vacation time per year during the terms of this Agreement commencing immediately with the execution of this Agreement. All other terms of the Executive’s vacation shall be subject to the Company’s vacation policy, as it exists or is subsequently modified.

3.7 Expenses. The Company shall reimburse Executive for reasonable travel, entertainment, mileage, and other business expenses incurred by Executive in the performance of his duties hereunder in accordance with the Company’s general policies, as amended from time to time. If a business expense reimbursement is not exempt from Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), any reimbursement in one calendar year shall not affect the amount that may be reimbursed in any other calendar year, and a reimbursement (or right thereto) may not be exchanged or liquidated for another benefit or payment. Any business expense reimbursements subject to Section 409A of the Code shall be made no later than the end of the calendar year following the calendar year in which such business expense is incurred by Executive.

3.8 Equity Grants. The Company shall issue a one-time stock grant of 74,770 shares of the Company’s common stock to Executive with a non-trading restriction of 2 years (the “Stock Grant”), from the Company’s existing Employee, Director and Consultant Equity Incentive Plan (the “Plan”), to be issued upon the earlier of September 19, 2019 or the execution of this Agreement.

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4. Termination of Agreement. Upon the expiration of the original terms of this Agreement or any renewal term of this Employment Agreement, the Executive’s employment shall be automatically renewed for a one (1) year period unless, at least sixty (60) days prior to the scheduled termination date, either party gives the other party written notice of its intent not to continue the employment relationship. During any renewal term of employment, the terms, conditions, and provisions set forth in this Agreement shall remain in effect unless modified in accordance with section 9, except the dates of bonuses shall be modified to reflect the extension period.

5. Termination of Executive’s Employment.

a)	By the Company. The Company may terminate the Executive’s employment at any time, with or without “Cause,” upon written notice by the Company to the Executive, and the Executive’s employment will terminate on the day specified in such notice. For the purposes of this Agreement, “Cause” means: (i) the Executive’s conviction of (or Executive pleads nolo contendere to) a felony or misdemeanor involving dishonesty, fraud, breach of trust, moral turpitude, or a crime leading to incarceration of more than sixty (60) days; (ii) the Executive’s material breach of this Agreement; (iii) Executive’s continued failure in any material respects with the performance of his/her employment duties for more than 10 business days (other than due to illness, disability, and vacation) after having received written notice specifying the nature of the failure; (iv) commission by the Executive of any act of fraud, dishonesty, or embezzlement against the Company, any of its subsidiaries, or any of its customers; (v) the Executive reporting to work while impaired under the influence of alcohol or drugs, or the Executive’s use or distribution of illegal narcotics; (vi) the Executive’s commission of any illegal act of violence against an employee, customer, or vendor of the Company; (vii) willful disregard of any reasonable instruction of the Board relating to a material matter of the Company; and (viii) Executive’s violation of any material law, statue, or regulation relating to the Company’s business.
b)	By the Executive. The Executive may terminate his/her employment with the Company at any time with or without “Good Reason” upon written notice by the Executive to the Company, and the Executive’s employment will terminate on the date specified in the notice. “Good Reason” means: (i) a material reduction in the Executive’s compensation or benefits; (ii) a material breach by the Company of this Agreement; or (iii) a material reduction or material change in the Executive’s original duties, responsibilities or authority.
c)	Death. Executive’s employment with the Company shall be terminated immediately upon death of the Executive.
d)	Disability of Executive. This Agreement may be terminated immediately upon the disability of the Executive. For purposes of this Agreement, “Disability” shall mean if Executive has a mental or physical condition that prevents Executive from carrying out the essential duties of his/her employment position for a period greater than 3 months, notwithstanding Company’s  reasonable accommodations (to the extent required by law.)
e)	Mutual Agreement of Parties.  Upon the mutual agreement of the parties, this Agreement will terminate.

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f)	Effects of Termination. In the event that Executive’s employment is terminated by the Company without “Cause” or by similar premise, or by the Executive for “Good Reason”, then the Executive shall be entitled to payment for: (i) unpaid base salary, prorated to the date of termination or resignation; (ii) accrued and unused vacation pay, (iii) any benefits accruing to Executive under the terms and conditions of any then-existing employee benefit plan; (iv) four (4) months of prorated annual base salary; (v) four (4) months of paid health insurance benefits, (vi) reimbursement of expenses incurred prior to termination in accordance with Section 3.6.; and (vii) benefits as required by the Consolidated Omnibus Budget Reconciliation Act of 1985 or any other applicable federal or state statute.
g)	Termination “For Cause” or due to the Executive’s resignation “Without Good Reason”. In the event of the Executive’s employment is terminated: (i) by the Company for “Cause”, or (ii) if the Executive resigns without “Good Reason”, then the Executive shall be entitled to payment for: (i) unpaid base salary, prorated to the date of termination or resignation; (ii) accrued and unused vacation pay, (iii) any benefits accruing to Executive under the terms and conditions of any then-existing employee benefit plan; (iv) reimbursement of expenses incurred prior to termination in accordance with Section 3.6.; and (vii) benefits as required by the Consolidated Omnibus Budget Reconciliation Act of 1985 or any other applicable federal or state statute.
h)	Termination “Without Cause” or due to the Executive’s Death, Disability, or resignation for Good Reason”. In the event that Company terminates Executive’s employment prior to expiration of the Term without “Cause”, or due to the Executive’s Death, Disability, or resignation for “Good Reason”, then Executive shall be entitled to any earned and unvested portion of his equity grant pursuant to Section 3.5 and 3.6, and to any remaining compensation he would have been entitled to receive had he remained until expiration of the Term of this Agreement.

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6. Nondisclosure and Proprietary Information.

6.1 Proprietary Information.

(a)	Executive agrees that all information and know-how, whether or not in writing, of a private, secret or confidential nature concerning the Company’s business or financial affairs (collectively, “Proprietary Information”) is and shall be the exclusive property of the Company. By way of illustration, but not limitation, Proprietary Information may include inventions, products, processes, methods, techniques, formulas, designs, drawings, slogans, tests, logos, ideas, practices, projects, developments, plans, research data, financial data, personnel data, computer programs, and customer and supplier data, or other materials or information relating to the Company’s business and activities and the manner in which the Company does business. Executive will not disclose any Proprietary Information to others outside the Company except in the performance of his duties or use the same for any unauthorized purposes without written approval by an officer of the Company, either during or after his employment, unless and until such Proprietary Information has become public knowledge or generally known within the industry without fault by Executive, or unless otherwise required by law.
(b)	Executive agrees that all files, letters, memoranda, reports, records, data, sketches, drawings, laboratory notebooks, program listings, or other written, photographic, electronic or other material containing Proprietary Information, whether created by Executive or others, which shall come into his custody or possession, shall be and are the exclusive property of the Company to be used by Executive only in the performance of his duties for the Company.
(c)	Executive agrees that his obligation not to disclose or use information, know-how and records of the types set forth in paragraphs (a) and (b) above, also extends to such types of information, know-how, records and tangible property of subsidiaries and joint ventures of the Company, customers of the Company or suppliers to the Company or other third parties who may have disclosed or entrusted the same to the Company or to Executive in the course of the Company’s business.
(d)	Nothing in this Agreement prohibits Executive from reporting possible violations of federal law or regulation to any governmental agency or enforcement entity, or from making other disclosures that are protected under applicable whistleblower provisions of federal law and regulation.

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6.2 Noncompetition and Non-solicitation

a)	During Executive’s employment and for a period of twelve months (12) months after the termination of Executive’s employment with the Company, Executive will not directly or indirectly, absent the Company’s prior written approval, render services of a business, professional or commercial nature to any other person or entity that competes with the Company in the same geographical area where the Company does business at the time this covenant is in effect (or where the Company has made, as of the effective date of termination, active plans to do business), whether such services are for compensation or otherwise, whether alone or in conjunction with others, as an employee, as a partner, or as a shareholder (other than as the holder of not more than 1% of the combined voting power of the outstanding stock of a public company), officer or director of any corporation or other business entity, or as a trustee, fiduciary or in any other similar representative capacity. The restrictions set forth in this Section 6.2 shall be applicable only as to the following lines of business: printing, packaging, plastic printing, anti-counterfeiting and blockchain technology, and brand protection.
(b)	During Executive’s employment and for a period of twelve (12) months after the termination of Executive’s employment with the Company, Executive will not, directly or indirectly, recruit, solicit or induce, or attempt to recruit, solicit or induce any employee or employees of the Company to terminate their employment with, or otherwise cease their relationship with, the Company.
(c)	During Executive’s employment and for a period of twelve (12) months after the termination of Executive’s employment with the Company, Executive will not, directly or indirectly, solicit, divert or take away, or attempt to solicit, divert or take away, the business or patronage of any of the Serviced Clients of the Company or the Marketed Prospective Clients of the Company, as defined in Section 6.2(d).
(d)	As used above, a “Serviced Client” shall be considered any client, customers or accounts of the Company with whom Executive had business dealings or contacts on behalf of the Company in the course of Employee’s employment with the Company or about which Executive had access to Proprietary Information. As used above, the “Marketed Prospective Clients” shall be considered any prospective clients, customers or accounts of the Company with whom Executive had business dealings or contacts on behalf of the Company in the course of Executive’s employment with the Company or about which Executive had access to Proprietary Information.

6.3 Invalidity. If any restriction set forth in this Section 6 is found by any court of competent jurisdiction to be unenforceable because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area, it shall be interpreted to extend only over the maximum period of time, range of activities or geographic area as to which it may be enforceable.

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6.4 Reasonableness of Restrictions. The restrictions contained in this Section 6 are necessary for the protection of the business, trade secrets, proprietary and confidential information, and goodwill of the Company, especially in light of the unique services rendered on behalf of the Company by Executive in his position as Chief Executive Officer. These restrictions are entered in to in conjunction with the Company’s offer to Executive of continued employment and eligibility for the Performance Bonuses described herein. Executive has had the opportunity to consult with counsel regarding these restrictions, which are considered by Executive to be reasonable for such purpose and substantial new consideration. Executive agrees that any breach of this Section 6 will cause the Company substantial and irrevocable damage and therefore, in the event of any such breach, in addition to such other remedies which may be available, the Company shall have the right to seek specific performance and injunctive relief.

6.5 Other Agreements. Executive represents that his performance of all the terms of this Agreement as an employee of the Company does not and will not breach any (i) agreement to keep in confidence proprietary information, knowledge or data acquired by him in confidence or in trust prior to his employment with the Company or (ii) agreement to refrain from competing, directly or indirectly, with the business of any previous employer or any other party. Executive represents that all information Executive provided to the Company regarding Executive’s education, work background, experience and lack of post-employment restrictions are all true and accurate and the Company is entitled to rely on such representations.

6.6 Other Business Exception. The Company acknowledges that the Executive is also involved in the management of personal and family investments, banking and finance, and has multiple investments around the world, and is a board member and even Chairman of many publicly traded companies and non-publicly traded companies. It is expressly understood by the Company that that the Executive is allowed to continue to be involved in these activities. Accordingly, the restrictions set forth in Section 6.2 above shall not apply with respect to any services Executive provides regarding any business identified in this section.

7. Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon (a) the date of receipt, if sent by personal delivery (including delivery by reputable overnight courier), or (b) the date of receipt or refusal, if deposited in the United States Post Office, by registered or certified mail, postage prepaid and return receipt requested, or (c) the date of receipt if sent by e-mail PDF or facsimile transmission to the e-mail address or facsimile number of record of Executive or the Company, or at such other place as may from time to time be designated by either party in writing.

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8. Entire Agreement. This Agreement, and those documents referenced herein, constitute the entire agreement between the parties and supersede all prior agreements and understandings, including prior employment agreements, whether written or oral relating to the subject matter of this Agreement. Signatures affixed to this Agreement may be delivered in e-mail PDF form and any such signatures shall be deemed original signatures for purposes of the validity and enforceability of this Agreement.

9. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and Executive.

10. Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the State of New York, applied without giving effect to any conflicts-of-law principles. Any action or proceeding relating to this Agreement or Executive’s employment shall be venued exclusively in the state or federal courts located in Western New York.

11. Assumption by Successors. Any successor of the Company shall succeed to all of the Company’s duties, obligations, rights and benefits hereunder. The obligations of Executive are personal and shall not be assigned by him.

12. No Waiver. No delay or omission by a party in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by a party on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion.

13. Severability. In case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby.

14. Survival. Upon the termination of the Term and any termination of this Agreement, the obligations of the parties under Sections 5 and 6 shall survive and continue in effect in accordance with their terms.

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IN WITNESS WHEREOF, the undersigned parties have executed this Agreement effective on the date and year first above written.

 

DOCUMENT SECURITY SYSTEMS, INC.

By:	Frank D. Heuszel
Title:	Chief Executive Officer
Date:	September 5, 2019

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EX-31.1

Exhibit 31.1

RULE 13a-14(a)/15d-14(a) CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND INTERIM CHIEF FINANCIAL OFFICER

I, Frank D. Heuszel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Document Security Systems, Inc. for the quarter ended September 30, 2019;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)), for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the registrant’s audit committee of the board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 13, 2019

/s/ Frank D. Heuszel

Frank D. Heuszel

Chief Executive Officer and Interim Chief Financial Officer

(Principal Executive Officer and Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND INTERM CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. 1350

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Document Security Systems, Inc. (the “Company”) on Form 10-Q for the quarter ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Frank D. Heuszel, Chief Executive Officer and Interim Chief Financial Officer of the Company hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

(1)	The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date: November 13, 2019

/s/ Frank D. Heuszel

Frank D. Heuszel

Chief Executive Officer and Interim Chief Financial Officer

(Principal Executive Officer and Principal Financial and Accounting Officer)

XML

Segment Information (Tables)

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Schedule of Operations by Reportable Segment

The Company relies on intersegment cooperation and management does not represent that these segments, if operated independently, would report the results contained herein.

Three Months Ended September 30, 2019	Packaging and Printing			Plastics			Technology			Corporate			Total
Revenue	$	2,119,000			916,000			498,000			-		$	3,533,000
Depreciation and amortization		228,000			122,000			70,000			-			420,000
Interest expense		(24,000	)		(9,000	)		(3,000	)		(22,000	)		(58,000	)
Stock based compensation		4,000			-			20,000			249,000			273,000
Net loss		(322,000	)		(29,000	)		(64,000	)		(836,000	)		(1,251,000	)

Three Months Ended September 30, 2018	Packaging and Printing			Plastics			Technology			Corporate			Total
Revenue	$	2,736,000		$	1,048,000		$	310,000		$	-		$	4,094,000
Depreciation and amortization		227,000			60,000			22,000			1,000			310,000
Interest expense		(20,000	)		(6,000	)		-			(4,000	)		(30,000	)
Stock based compensation		1,000			-			15,000			4,000			20,000
Net Income (loss)		96,000			72,000			(427,000	)		(153,000	)		(412,000	)

Nine Months Ended September 30, 2019	Packaging and Printing			Plastics			Technology			Corporate			Total
Revenue	$	8,434,000			2,591,000			1,424,000			-		$	12,449,000
Depreciation and amortization		675,000			208,000			168,000			-			1,051,000
Interest expense		(76,000	)		(24,000	)		(6,000	)		(22,000	)		(128,000	)
Stock based compensation		13,000			-			62,000			256,000			331,000
Net Loss		(254,000	)		(346,000	)		(642,000	)		(1,490,000	)		(2,732,000	)
Identifiable assets		9,156,000			3,884,000			899,000			4,611,000			18,550,000

Nine Months Ended September 30, 2018	Packaging and Printing			Plastics			Technology			Corporate			Total
Revenue	$	8,483,000		$	2,949,000		$	1,127,000		$	-		$	12,559,000
Depreciation and amortization		561,000			119,000			322,000			1,000			1,003,000
Interest Expense		(66,000	)		(17,000	)		(12,000	)		(17,000	)		(112,000	)
Stock based compensation		2,000			-			82,000			23,000			107,000
Net Income (loss)		378,000			63,000			2,092,000			(674,000	)		1,859,000
Identifiable assets		9,381,000			3,141,000			830,000			1,483,000			14,835,000

Schedule of Disaggregation of Revenue

The following tables disaggregate our business segment revenues by major source.

Printed Products Revenue Information:

	Total
Three months ended September 30, 2019
Packaging Printing and Fabrication	$	1,883,000
Commercial and Security Printing		251,000
Technology Integrated Plastic Cards and Badges		306,000
Plastic Cards, Badges and Accessories		595,000
Total Printed Products	$	3,035,000
Three months ended September 30, 2018
Packaging Printing and Fabrication	$	2,482,000
Commercial and Security Printing		253,000
Technology Integrated Plastic Cards and Badges		409,000
Plastic Cards, Badges and Accessories		640,000
Total Printed Products	$	3,784,000
Nine months ended September 30, 2019
Packaging Printing and Fabrication	$	7,619,000
Commercial and Security Printing		828,000
Technology Integrated Plastic Cards and Badges		968,000
Plastic Cards, Badges and Accessories		1,610,000
Total Printed Products	$	11,025,000
Nine months ended September 30, 2018
Packaging Printing and Fabrication	$	7,592,000
Commercial and Security Printing		891,000
Technology Integrated Plastic Cards and Badges		915,000
Plastic Cards, Badges and Accessories		2,034,000
Total Printed Products	$	11,432,000

Technology Sales, Services and Licensing Revenue Information:

	Total
Three months ended September 30, 2019
Information Technology Sales and Services	$	46,000
Digital Authentication Products and Services		307,000
Royalties from Licensees		145,000
Total Technology Sales, Services and Licensing	$	498,000
Three months ended September 30, 2018
Information Technology Sales and Services	$	61,000
Digital Authentication Products and Services		143,000
Royalties from Licensees		107,000
Total Technology Sales, Services and Licensing	$	311,000
Nine months ended September 30, 2019
Information Technology Sales and Services	$	151,000
Digital Authentication Products and Services		857,000
Royalties from Licensees		416,000
Total Technology Sales, Services and Licensing	$	1,424,000
Nine months ended September 30, 2018
Information Technology Sales and Services	$	269,000
Digital Authentication Products and Services		494,000
Royalties from Licensees		364,000
Total Technology Sales, Services and Licensing	$	1,127,000

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Inventory (Tables)

9 Months Ended

Sep. 30, 2019

Inventory Disclosure [Abstract]

Schedule of Inventory

Inventory consisted of the following:

	Inventory
	September 30, 2019		December 31, 2018
Finished Goods	$	1,106,803	$	1,144,695
WIP		251,807		339,091
Raw Materials		293,274		79,807
	$	1,651,884	$	1,563,593

XML

Segment Information - Schedule of Disaggregation of Revenue (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Segment Reporting Information [Line Items]
Total Printed Products	$ 3,035,000	$ 3,784,000	$ 11,025,000	$ 11,432,000
Total Technology Sales, Services and Licensing	498,000	311,000	1,424,000	1,127,000
Packaging Printing and Fabrication [Member]
Segment Reporting Information [Line Items]
Total Printed Products	1,883,000	2,482,000	7,619,000	7,592,000
Commercial and Security Printing [Member]
Segment Reporting Information [Line Items]
Total Printed Products	251,000	253,000	828,000	891,000
Technology Integrated Plastic Cards and Badges [Member]
Segment Reporting Information [Line Items]
Total Printed Products	306,000	409,000	968,000	915,000
Plastic Cards, Badges and Accessories [Member]
Segment Reporting Information [Line Items]
Total Printed Products	595,000	640,000	1,610,000	2,034,000
Information Technology Sales and Services [Member]
Segment Reporting Information [Line Items]
Total Technology Sales, Services and Licensing	46,000	61,000	151,000	269,000
Digital Authentication Products and Services [Member]
Segment Reporting Information [Line Items]
Total Technology Sales, Services and Licensing	307,000	143,000	857,000	494,000
Royalties from Licensees [Member]
Segment Reporting Information [Line Items]
Total Technology Sales, Services and Licensing	$ 145,000	$ 107,000	$ 416,000	$ 364,000

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Related Party Transactions

9 Months Ended

Sep. 30, 2019

Related Party Transactions [Abstract]

Related Party Borrowing

8. Related Party Transactions

Effective on May 31, 2019, Document Security Systems, Inc. (the “Company” or “Borrower”) entered into a Promissory Note (the “Note”) with LiquidValue Development Pte Ltd (the “Holder”) in the principal sum of $650,000 (the “Principal Amount”). The Note was not interest bearing with a maturity date of July 31, 2019. The Holder is a related party, owned by one of the Company’s directors. This Note was paid in full on June 12, 2019.

Pursuant to Mr. Heng Fai Ambrose Chan’s employment agreement with a subsidiary of DSS, date September 23, 2019, effective July 15, 2019, Mr. Chan shall receive an annual base salary of $250,000 payable in common stock or cash. Mr. Chan is also eligible to receive and annual performance bonus in an amount up to 100% of his base salary, upon the Company’s achievement of certain net income and gross revenue milestones.

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Revenue

9 Months Ended

Sep. 30, 2019

Revenue from Contract with Customer [Abstract]

Revenue

2. Revenue

Effective January 1, 2018, the Company adopted Topic 606 using the modified retrospective approach and applied the guidance to those contracts which were not completed as of January 1, 2018. Adoption of Topic 606 did not impact the timing of revenue recognition in the Company’s Consolidated Financial Statements for the current or prior interim or annual periods. Accordingly, no adjustments have been made to opening retained earnings or prior period amounts.

Revenue Recognition

The Company sells printed products including packaging printing and fabrication, commercial and security printing and plastic cards and badges, including cards and badges integrated with technology such as RFID and smart chips. The Company also provides information technology services and digital authentication products and services to its customers. The Company recognizes its products and services revenue based on when the title passes to the customer or when the service is completed and accepted by the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for shipped product or service provided. Sales and other taxes billed and collected from customers are excluded from revenue. Customers, including distributors, do not have a general right of return. The Company also derives revenue from royalties from third parties which are typically based on licensees’ net sales of products that utilize the Company’s technology, or on a per item usage of the technology on the customers’ printed products. The Company recognizes license revenue at the time it is reported by the licensee. From time to time, the Company generates license revenues through litigation settlements. For these, the Company recognizes revenue upon the execution of the agreement, when collectability is reasonably assured, or upon receipt of the minimum upfront fee for term agreement renewals, and when all other revenue recognition criteria have been met.

As of September 30, 2019, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Topic 606, the Company has applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. The Company elected the practical expedient allowing it to not recognize as a contract asset the commission paid to its salesforce on the sale of its products as an incremental cost of obtaining a contract with a customer but rather recognize such commission as expense when incurred as the amortization period of the asset that the Company would have otherwise recognized is one year or less.

Accounts Receivable

The Company extends credit to its customers in the normal course of business. The Company performs ongoing credit evaluations and generally does not require collateral. Payment terms are generally 30 days but up to net 60 for certain customers. The Company carries its trade accounts receivable at invoice amount less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based upon management’s estimates that include a review of the history of past write-offs and collections and an analysis of current credit conditions. At September 30, 2019, the Company established a reserve for doubtful accounts of $50,000 ($50,000 – December 31, 2018). The Company does not accrue interest on past due accounts receivable.

Sales Commissions

Sales commissions are expensed as incurred for contracts with an expected duration of one year or less. There were no sales commissions capitalized as of September 30, 2019.

Shipping and Handling Costs

Costs incurred by the Company related to shipping and handling are included in cost of products sold. Amounts charged to customers pertaining to these costs are reflected as revenue.

See Note 13 for disaggregated revenue information.

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Investment

9 Months Ended

Sep. 30, 2019

Investments Schedule [Abstract]

Investment

4. Investment

The Company owns 21,196,552 ordinary shares and an existing three-year warrant to purchase up to 105,982,759 ordinary shares at an exercise price of SGD$0.040 (US$0.0298) per share of Singapore eDevelopment Limited (“SED”), a company incorporated in Singapore and publicly-listed on the Singapore Exchange Limited. The restriction on the sale of shares, and execution of the warrants expired on September 17, 2019 . At the time of the investment, the cost of the investment was determined to be the fair value of the Company’s common stock issued in the transaction, which was determined to have the most readily determinable fair value. In 2018, the Company adopted ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities.” has and carries its investment in SED at costs. During the 4th quarter of 2018, the Company determined that its investment in Singapore eDevelopment (“SED”) was impaired due to the decline in the share price of SED, especially since November of 2018, which the Company believes was influenced by a general decline in equity markets in Asia caused by the tariff dispute between the United States and China. As such, in response to the decline in the trading value of the SED shares in the fourth quarter of 2018, the Company performed an impairment test and determined an impairment of approximately $160,000 was warranted. Similar analysis was performed at September 30, 2019 and no further impairment is deemed necessary as the stock price has rebounded in excess of 15%. The carrying value of the investment as of September 30, 2019 was $324,930.

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Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenue:
Total revenue	$ 3,532,919	$ 4,094,290	$ 12,448,668	$ 12,558,905
Costs and expenses:
Cost of revenue, exclusive of depreciation and amortization	2,217,822	2,551,782	8,275,046	7,889,844
Selling, general and administrative (including stock based compensation)	2,094,578	1,610,831	5,736,078	5,195,495
Depreciation and amortization	420,063	310,330	1,051,211	1,002,813
Total costs and expenses	4,732,463	4,472,943	15,062,335	14,088,152
Operating loss	(1,199,544)	(378,653)	(2,613,667)	(1,529,247)
Other income (expense):
Interest income	6,983	2,308	11,175	8,415
Interest expense	(57,759)	(29,554)	(127,900)	(112,460)
Amortization of deferred financing costs and debt discount	(351)	(6,168)	(1,551)	(40,067)
Gain on extinguishment of liabilities, net				3,532,659
Income (loss) before income taxes	(1,250,671)	(412,067)	(2,731,943)	1,859,300
Income tax expense (benefit)
Net income (loss)	(1,250,671)	(412,067)	(2,731,943)	1,859,300
Other comprehensive income (loss):
Foreign currency translation adjustment		(5,088)		(5,088)
Interest rate swap gain (loss)		(4,458)	(15,431)	17,394
Settlement of interest rate swap	22,483		22,483
Comprehensive income (loss):	$ (1,228,188)	$ (421,613)	$ (2,724,891)	$ 1,871,606
Earnings (loss) per common share:
Basic	$ (0.05)	$ (0.02)	$ (0.12)	$ 0.11
Diluted	$ (0.05)	$ (0.02)	$ (0.12)	$ 0.11
Shares used in computing earnings (loss) per common share:
Basic	24,026,417	16,767,992	22,611,189	16,662,907
Diluted	24,026,417	16,767,992	22,611,189	16,930,812
Printed Products [Member]
Revenue:
Total revenue	$ 3,035,219	$ 3,783,779	$ 11,024,464	$ 11,432,038
Technology Sales, Services and Licensing [Member]
Revenue:
Total revenue	$ 497,700	$ 310,511	$ 1,424,204	$ 1,126,867

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Supplemental Cash Flow Information

9 Months Ended

Sep. 30, 2019

Supplemental Cash Flow Information [Abstract]

Supplemental Cash Flow Information

12. Supplemental Cash Flow Information

The following table summarizes supplemental cash flows for the nine-month periods ended September 30, 2019 and 2018:

Supplemental Cash Information
	2019		2018
Cash paid for interest	$	128,000	$	100,000
Non-cash investing and financing activities:
Impact of adoption of lease accounting standards	$	1,616,000	$	-
(Loss) gain from change in fair value of interest rate swap derivatives	$	7,000	$	17,000
Common stock issued upon conversion of convertible note	$	500,000	$	-
Equity issued to purchase intangible assets	$	145,000	$	-
Elimination of contingent liabilities through agreement	$	-	$	459,000
Purchase of intangible assets to be paid in installments	$	-	$	304,000

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Intangible Assets - Schedule of Intangible Assets (Details) (Parenthetical)	9 Months Ended
	Sep. 30, 2019
Patent Application Costs [Member]
Weighted average remaining useful life	7 years

XML

Lease Liability (Details Narrative)	9 Months Ended
	Sep. 30, 2019
Leases [Abstract]
Lease description	The remaining lease terms on our operating leases range from less than one year to approximately five years

XML

Segment Information

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Segment Information

13. Segment Information

The Company’s businesses are organized, managed and internally reported as five operating segments. Two of these operating segments, Packaging and Printing, and Plastics are engaged in the printing and production of paper, cardboard and plastic documents with a wide range of features, including the Company’s patented technologies and trade secrets designed for the protection of documents against unauthorized duplication and altering. The three other operating segments, DSS Digital Group, DSS Technology Management, and DSS International, are engaged in various aspects of developing, acquiring, selling and licensing technology assets and are grouped into one reportable segment called Technology.

Approximate information concerning the Company’s operations by reportable segment for the three and nine months ended September 30, 2019 and 2018 is as follows. The Company relies on intersegment cooperation and management does not represent that these segments, if operated independently, would report the results contained herein.

Three Months Ended September 30, 2019	Packaging and Printing			Plastics			Technology			Corporate			Total
Revenue	$	2,119,000			916,000			498,000			-		$	3,533,000
Depreciation and amortization		228,000			122,000			70,000			-			420,000
Interest expense		(24,000	)		(9,000	)		(3,000	)		(22,000	)		(58,000	)
Stock based compensation		4,000			-			20,000			249,000			273,000
Net loss		(322,000	)		(29,000	)		(64,000	)		(836,000	)		(1,251,000	)

Three Months Ended September 30, 2018	Packaging and Printing			Plastics			Technology			Corporate			Total
Revenue	$	2,736,000		$	1,048,000		$	310,000		$	-		$	4,094,000
Depreciation and amortization		227,000			60,000			22,000			1,000			310,000
Interest expense		(20,000	)		(6,000	)		-			(4,000	)		(30,000	)
Stock based compensation		1,000			-			15,000			4,000			20,000
Net Income (loss)		96,000			72,000			(427,000	)		(153,000	)		(412,000	)

Nine Months Ended September 30, 2019	Packaging and Printing			Plastics			Technology			Corporate			Total
Revenue	$	8,434,000			2,591,000			1,424,000			-		$	12,449,000
Depreciation and amortization		675,000			208,000			168,000			-			1,051,000
Interest expense		(76,000	)		(24,000	)		(6,000	)		(22,000	)		(128,000	)
Stock based compensation		13,000			-			62,000			256,000			331,000
Net Loss		(254,000	)		(346,000	)		(642,000	)		(1,490,000	)		(2,732,000	)
Identifiable assets		9,156,000			3,884,000			899,000			4,611,000			18,550,000

Nine Months Ended September 30, 2018	Packaging and Printing			Plastics			Technology			Corporate			Total
Revenue	$	8,483,000		$	2,949,000		$	1,127,000		$	-		$	12,559,000
Depreciation and amortization		561,000			119,000			322,000			1,000			1,003,000
Interest Expense		(66,000	)		(17,000	)		(12,000	)		(17,000	)		(112,000	)
Stock based compensation		2,000			-			82,000			23,000			107,000
Net Income (loss)		378,000			63,000			2,092,000			(674,000	)		1,859,000
Identifiable assets		9,381,000			3,141,000			830,000			1,483,000			14,835,000

The following tables disaggregate our business segment revenues by major source.

Printed Products Revenue Information:

	Total
Three months ended September 30, 2019
Packaging Printing and Fabrication	$	1,883,000
Commercial and Security Printing		251,000
Technology Integrated Plastic Cards and Badges		306,000
Plastic Cards, Badges and Accessories		595,000
Total Printed Products	$	3,035,000
Three months ended September 30, 2018
Packaging Printing and Fabrication	$	2,482,000
Commercial and Security Printing		253,000
Technology Integrated Plastic Cards and Badges		409,000
Plastic Cards, Badges and Accessories		640,000
Total Printed Products	$	3,784,000
Nine months ended September 30, 2019
Packaging Printing and Fabrication	$	7,619,000
Commercial and Security Printing		828,000
Technology Integrated Plastic Cards and Badges		968,000
Plastic Cards, Badges and Accessories		1,610,000
Total Printed Products	$	11,025,000
Nine months ended September 30, 2018
Packaging Printing and Fabrication	$	7,592,000
Commercial and Security Printing		891,000
Technology Integrated Plastic Cards and Badges		915,000
Plastic Cards, Badges and Accessories		2,034,000
Total Printed Products	$	11,432,000

Technology Sales, Services and Licensing Revenue Information:

	Total
Three months ended September 30, 2019
Information Technology Sales and Services	$	46,000
Digital Authentication Products and Services		307,000
Royalties from Licensees		145,000
Total Technology Sales, Services and Licensing	$	498,000
Three months ended September 30, 2018
Information Technology Sales and Services	$	61,000
Digital Authentication Products and Services		143,000
Royalties from Licensees		107,000
Total Technology Sales, Services and Licensing	$	311,000
Nine months ended September 30, 2019
Information Technology Sales and Services	$	151,000
Digital Authentication Products and Services		857,000
Royalties from Licensees		416,000
Total Technology Sales, Services and Licensing	$	1,424,000
Nine months ended September 30, 2018
Information Technology Sales and Services	$	269,000
Digital Authentication Products and Services		494,000
Royalties from Licensees		364,000
Total Technology Sales, Services and Licensing	$	1,127,000

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash flows from operating activities:
Net income (loss)	$ (2,731,943)	$ 1,859,300
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Depreciation and amortization	1,051,211	1,002,813
Stock based compensation	331,264	106,617
Paid in-kind interest		12,000
Amortization of deferred financing costs and debt discount	351	40,067
Gain on extinguishment of liabilities, net		(3,532,659)
Decrease (increase) in assets:
Accounts receivable	90,150	107,708
Inventory	(88,291)	(291,329)
Prepaid expenses and other current assets	(160,104)	(55,374)
Increase (decrease) in liabilities:
Accounts payable	(6,485)	762,404
Accrued expenses	(318,741)	(394,170)
Other liabilities	(1,452,876)	(1,141,929)
Net cash used by operating activities	(3,285,464)	(1,524,552)
Cash flows from investing activities:
Purchase of property, plant and equipment	(823,348)	(526,251)
Purchase of intangible assets	(357,816)	(45,471)
Net cash used by investing activities	(1,181,164)	(571,722)
Cash flows from financing activities:
Payments of long-term debt	(194,386)	(966,077)
Borrowing from equipment line of credit	587,750	87,703
Borrowings from convertible note	500,000
Issuances of common stock, net of issuance costs	5,041,611	300,000
Receipt of subscription receivable, net of issuance costs		288,000
Net cash provided (used) by financing activities	5,934,975	(290,374)
Net increase (decrease) in cash and cash equivalents	1,468,347	(2,386,648)
Cash and cash equivalents at beginning of period	2,447,985	4,444,628
Cash and cash equivalents at end of period	$ 3,916,332	$ 2,057,980

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 12, 2019
Document And Entity Information
Entity Registrant Name	DOCUMENT SECURITY SYSTEMS INC
Entity Central Index Key	0000771999
Document Type	10-Q
Document Period End Date	Sep. 30, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business Flag	true
Entity Emerging Growth Company	false
Entity Ex Transition Period	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		36,180,626
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2019

XML

Inventory

9 Months Ended

Sep. 30, 2019

Inventory Disclosure [Abstract]

Inventory

3. Inventory

Inventory consisted of the following:

	Inventory
	September 30, 2019		December 31, 2018
Finished Goods	$	1,106,803	$	1,144,695
WIP		251,807		339,091
Raw Materials		293,274		79,807
	$	1,651,884	$	1,563,593

XML

Lease Liability

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Lease Liability

9. Lease Liability

The Company has operating leases predominantly for operating facilities. As of September 30, 2019, the remaining lease terms on our operating leases range from less than one year to approximately five years. Renewal options to extend our leases have not been exercised due to uncertainty. Termination options are not reasonably certain of exercise by the Company. There is no transfer of title or option to purchase the leased assets upon expiration. There are no residual value guarantees or material restrictive covenants. There are no significant finance leases as of September 30, 2019.

Future minimum lease payments as of September 30, 2019 are as follows:

2019	$	106,821
2020		424,129
2021		335,097
2022		315,271
2023		306,070
Thereafter		24,208
Total lease payments		1,511,596
Less: Imputed Interest		(142,632	)
Present value of remaining lease payments	$	1,368,964
Current	$	361,713
Noncurrent	$	1,007,251
Weighted-average remaining lease term (years)		4.0
Weighted-average discount rate		5.4	%

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Intangible Assets

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets

5. Intangible Assets

Intangible assets are comprised of the following:

		September 30, 2019						December 31, 2018
	Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Acquired intangibles - customer lists, licenses and non-compete agreements	3-10 years		1,778,848		1,097,787		681,061		1,284,065		823,884		460,181
Acquired intangibles - patents and patent rights			500,000		500,000		-		500,000		500,000		-
Patent application costs	Varied (1)		1,175,971		808,529		367,442		1,168,155		746,925		421,230
		$	3,454,819	$	2,406,316	$	1,048,503	$	2,952,220	$	2,070,809	$	881,411

(1) Patent application costs are amortized over their expected useful life which is generally the remaining legal life of the patent. As of September 30, 2019, the weighted average remaining useful life of these assets in service was approximately 7 years.

Amortization expense for the nine months ended September 30, 2019 amounted to $335,507($407,034 – September 30, 2018).

On March 5, 2019, the Company paid $350,000 and issued 130,435 shares of the Company’s common stock valued at $144,783 in conjunction with the signing of a Master Distributor Agreement with Advanced Cyber Security Corp. (“ACS”) to for the Company to distribute ACS’s EndpointLockV™ cyber security software exclusively in thirteen countries in Asia and Australia, and non-exclusively, in the U.S. and Middle East. The aggregate cost of $494,783 of the agreement was recorded as an intangible asset to be amortized over the expected useful life of 36 months.

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Intangible Assets - Schedule of Intangible Assets (Details) - USD ($)		9 Months Ended
		Sep. 30, 2019	Dec. 31, 2018
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount		$ 3,454,819	$ 2,952,220
Accumulated Amortization		2,406,316	2,070,809
Net Carrying Amount		1,048,503	881,411
Customer Lists, Licenses and Non-compete Agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount		1,778,848	1,284,065
Accumulated Amortization		1,097,787	823,884
Net Carrying Amount		$ 681,061	460,181
Customer Lists, Licenses and Non-compete Agreements [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life		3 years
Customer Lists, Licenses and Non-compete Agreements [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Useful Life		10 years
Patent Application Costs [Member]
Finite-Lived Intangible Assets [Line Items]
Useful life, description	[1]	Varied
Gross Carrying Amount		$ 1,175,971	1,168,155
Accumulated Amortization		808,529	746,925
Net Carrying Amount		367,442	421,230
Patents and Patent Rights [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount		500,000	500,000
Accumulated Amortization		500,000	500,000
Net Carrying Amount

[1] Patent application costs are amortized over their expected useful life which is generally the remaining legal life of the patent. As of September 30, 2019, the weighted average remaining useful life of these assets in service was approximately 7 years.

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Related Party Transactions (Details Narrative) - USD ($)	Sep. 23, 2019	May 31, 2019
Mr. Heng Fai Ambrose Chan [Member]
Annual base salary	$ 250,000
Annual performance bonus, percentage	100.00%
LiquidValue Development Pte Ltd [Member]
Debt instrument, face amount		$ 650,000
Debt instrument, maturity date		Jul. 31, 2019

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Basis of Presentation and Significant Accounting Policies (Details Narrative) - USD ($)					3 Months Ended		9 Months Ended
	Nov. 01, 2019	Oct. 30, 2019	Jul. 18, 2019	Jun. 05, 2019	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Jan. 02, 2019	Dec. 31, 2018
Significant Accounting Policies [Line Items]
Settlement of interest rate swap					$ 22,483		$ 22,483
Average market price of common stock								$ 1.37
Antidilutive securities basic shares outstanding to calculate dilutive earnings								267,905
Right of use asset and lease liability									$ 1,489,156
Cash					3,916,332		3,916,332			$ 2,447,985
Working capital					$ 4,300,000		$ 4,300,000
Common stock shares exercised			519,186
Proceeds from net offering			$ 5,000,000
Private Placement [Member] | Subsequent Event [Member]
Significant Accounting Policies [Line Items]
Issuance of public offering shares of common stock		6,000,000
Aggregate shares of common stock	6,000,000
Purchase price per share	$ 0.3037
Closing stock price per share	$ 0.26
Proceeds from issuance of common stock	$ 1,500,000
Underwriting Agreement Member] | Aegis Capital Corp [Member]
Significant Accounting Policies [Line Items]
Issuance of public offering shares of common stock				11,200,000
Underwriting Agreement Member] | Aegis Capital Corp [Member] | Maximum [Member]
Significant Accounting Policies [Line Items]
Option to purchase shares of common stock				1,680,000
Customer One [Member] | Sales Revenue, Goods, Net [Member]
Significant Accounting Policies [Line Items]
Concentration of credit risk, percentage							31.00%	24.80%
Customer One [Member] | Accounts Receivable [Member]
Significant Accounting Policies [Line Items]
Concentration of credit risk, percentage							29.00%	22.00%
Customer Two [Member] | Sales Revenue, Goods, Net [Member]
Significant Accounting Policies [Line Items]
Concentration of credit risk, percentage							13.00%	14.70%
Customer Two [Member] | Accounts Receivable [Member]
Significant Accounting Policies [Line Items]
Concentration of credit risk, percentage							5.00%	6.60%

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Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets

Intangible assets are comprised of the following:

		September 30, 2019						December 31, 2018
	Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Acquired intangibles - customer lists, licenses and non-compete agreements	3-10 years		1,778,848		1,097,787		681,061		1,284,065		823,884		460,181
Acquired intangibles - patents and patent rights			500,000		500,000		-		500,000		500,000		-
Patent application costs	Varied (1)		1,175,971		808,529		367,442		1,168,155		746,925		421,230
		$	3,454,819	$	2,406,316	$	1,048,503	$	2,952,220	$	2,070,809	$	881,411

(1) Patent application costs are amortized over their expected useful life which is generally the remaining legal life of the patent. As of September 30, 2019, the weighted average remaining useful life of these assets in service was approximately 7 years.

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Segment Information - Schedule of Operations by Reportable Segment (Details) - USD ($)	3 Months Ended						9 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018
Segment Reporting Information [Line Items]
Revenue	$ 3,532,919			$ 4,094,290			$ 12,448,668	$ 12,558,905
Depreciation and amortization	420,063			310,330			1,051,211	1,002,813
Stock based compensation							331,264	106,617
Net Income (loss)	(1,250,671)	$ (1,030,822)	$ (450,450)	(412,067)	$ 2,677,458	$ (406,091)	(2,731,943)	1,859,300
Operating Segments [Member]
Segment Reporting Information [Line Items]
Revenue	3,533,000			4,094,000			12,449,000	12,559,000
Depreciation and amortization	420,000			310,000			1,051,000	1,003,000
Interest expense	(58,000)			(30,000)			(128,000)	(112,000)
Stock based compensation	273,000			20,000			331,000	107,000
Net Income (loss)	(1,251,000)			(412,000)			(2,732,000)	1,859,000
Identifiable assets	18,550,000			14,835,000			18,550,000	14,835,000
Operating Segments [Member] | Packaging and Printing [Member]
Segment Reporting Information [Line Items]
Revenue	2,119,000			2,736,000			8,434,000	8,483,000
Depreciation and amortization	228,000			227,000			675,000	561,000
Interest expense	(24,000)			(20,000)			(76,000)	(66,000)
Stock based compensation	4,000			1,000			13,000	2,000
Net Income (loss)	(322,000)			96,000			(254,000)	378,000
Identifiable assets	9,156,000			9,381,000			9,156,000	9,381,000
Operating Segments [Member] | Plastics [Member]
Segment Reporting Information [Line Items]
Revenue	916,000			1,048,000			2,591,000	2,949,000
Depreciation and amortization	122,000			60,000			208,000	119,000
Interest expense	(9,000)			(6,000)			(24,000)	(17,000)
Stock based compensation
Net Income (loss)	(29,000)			72,000			(346,000)	63,000
Identifiable assets	3,884,000			3,141,000			3,884,000	3,141,000
Operating Segments [Member] | Technology [Member]
Segment Reporting Information [Line Items]
Revenue	498,000			310,000			1,424,000	1,127,000
Depreciation and amortization	70,000			22,000			168,000	322,000
Interest expense	(3,000)						(6,000)	(12,000)
Stock based compensation	20,000			15,000			62,000	82,000
Net Income (loss)	(64,000)			(427,000)			(642,000)	2,092,000
Identifiable assets	899,000			830,000			899,000	830,000
Operating Segments [Member] | Corporate [Member]
Segment Reporting Information [Line Items]
Revenue
Depreciation and amortization				1,000				1,000
Interest expense	(22,000)			(4,000)			(22,000)	(17,000)
Stock based compensation	249,000			4,000			256,000	23,000
Net Income (loss)	(836,000)			(153,000)			(1,490,000)	(674,000)
Identifiable assets	$ 4,611,000			$ 1,483,000			$ 4,611,000	$ 1,483,000

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Lease Liability - Schedule of Future Minimum Lease Payments (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Leases [Abstract]
2019	$ 106,821
2020	424,129
2021	335,097
2022	315,271
2023	306,070
Thereafter	24,208
Total lease payments	1,511,596
Less: Imputed Interest	(142,632)
Present value of remaining lease payments	1,368,964
Current	361,713
Noncurrent	$ 1,007,251
Weighted-average remaining lease term (years)	4 years
Weighted-average discount rate	5.40%

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Investment (Details Narrative) - USD ($)	9 Months Ended
	Sep. 30, 2018	Sep. 30, 2019
Impairment of investment	$ 160,000
Stock price has rebounded in excess		15.00%
Investment		$ 324,930
Singapore eDevelopment Limited [Member]
Number of shares own		21,196,552
Warrant term		3 years
Warrant to purchase of common shares		105,982,759
Warrant exercise price per share		$ 0.0298
Singapore eDevelopment Limited [Member] | Singapore, Dollars [Member]
Warrant exercise price per share		$ 0.040
Warrant expiration date		Sep. 17, 2019

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Short-Term and Long-Term Debt (Details Narrative) - USD ($)								1 Months Ended	9 Months Ended
	Jun. 27, 2019	May 31, 2019	Mar. 30, 2019	Feb. 18, 2019	Oct. 24, 2018	Apr. 28, 2015	Aug. 30, 2011	May 31, 2014	Sep. 30, 2019	Dec. 31, 2018	Dec. 02, 2017	Jul. 26, 2017	Dec. 06, 2013
Debt Instrument [Line Items]
Common stock par value									$ .02	$ .02
Two Term Notes [Member]
Debt Instrument [Line Items]
Debt instrument, maturity date			Nov. 30, 2023
Debt interest rate			5.37%
Monthly payments			$ 13,657
Debt instrument, face amount									$ 610,401	$ 684,554
Promissory Notes [Member]
Debt Instrument [Line Items]
Purchase price for Real Estate acquired							$ 1,500,000
Purchase price for Real Estate acquired, loan obtained							1,200,000
Non Revolving Line of Credit Agreement [Member] | Citizens [Member]
Debt Instrument [Line Items]
Line of credit, maximum borrowing amount									$ 917,884	339,000		$ 1,200,000
Debt interest rate												2.00%
Non Revolving Line of Credit Agreement [Member] | Citizens Bank [Member]
Debt Instrument [Line Items]
Line of credit, maximum borrowing amount											$ 800,000
Debt interest rate											2.00%
Equipment Acquisition Line of Credit [Member]
Debt Instrument [Line Items]
Debt interest rate									4.41%		2.00%
Citizens Bank [Member]
Debt Instrument [Line Items]
Line of credit, maximum borrowing amount									$ 800,000
Interest rate additional rate above LIBOR									4.41%
Debt instrument, maturity date									May 31, 2020
Credit facility, amount outstanding									$ 0	0
Citizens Bank [Member] | Two Promissory Notes [Member]
Debt Instrument [Line Items]
Debt instrument, maturity date	Jun. 27, 2029
Debt interest rate	4.22%
Monthly payments	$ 7,181
Debt instrument, face amount	1,156,742								$ 1,150,766
Debt instrument, final balloon payment	$ 707,689
Citizens Bank [Member] | Promissory Notes [Member]
Debt Instrument [Line Items]
Monthly payments							$ 7,658
Citizens Bank [Member] | Permanent Loan [Member]
Debt Instrument [Line Items]
Monthly payments								$ 450,000
Debt instrument, term								5 years
Debt instrument maturity date, description									The note was set to matures in July 2019 at which time a balloon payment of the remaining principal balance of $300,000 was due.
Interest accrued in the period								$ 2,500
Debt instrument, final balloon payment									$ 300,000
Citizens Bank [Member] | Permanent Loan [Member] | Maximum [Member]
Debt Instrument [Line Items]
Debt instrument, carrying amount													$ 450,000
Citizens Bank [Member] | LIBOR [Member]
Debt Instrument [Line Items]
Interest rate additional rate above LIBOR									2.00%
Citizens Bank [Member] | LIBOR [Member] | Promissory Notes [Member]
Debt Instrument [Line Items]
Interest rate additional rate above LIBOR							3.15%
Citizens Bank [Member] | LIBOR [Member] | Permanent Loan [Member]
Debt Instrument [Line Items]
Interest rate additional rate above LIBOR									3.15%
Citizens [Member] | Term Loan [Member]
Debt Instrument [Line Items]
Debt instrument, maturity date						Apr. 28, 2020
Debt instrument, carrying amount						$ 525,000			$ 66,322	$ 149,542
Debt instrument, term						60 months
Interest rate on outstanding term loan						3.62%
Credit facility agreement, monthly principal payment						$ 9,591
Guangzhou Hotapps Technology Ltd [Member]
Debt Instrument [Line Items]
Debt instrument, maturity date					Oct. 24, 2020
Unsecured promissory note					$ 100,000
LiquidValue Development Pte Ltd [Member]
Debt Instrument [Line Items]
Debt instrument, maturity date		Jul. 31, 2019
Debt instrument, face amount		$ 650,000
LiquidValue Development Pte Ltd [Member] | Convertible Promissory Note [Member]
Debt Instrument [Line Items]
Debt interest rate					8.00%
Debt instrument, face amount				$ 500,000	$ 500,000
Debt instrument, term					12 months
Debt instrument maturity date, description					Accrued interest was payable in cash in arrears on the last day of each calendar quarter, with the first interest payment due on June 30, 2019, and remains payable until the Principal Amount is paid in full.
Common stock par value				$ 0.02	$ 0.02
Debt conversion price per share				$ 1.12	$ 1.12
LiquidValue Development Pte Ltd [Member] | Convertible Promissory Note [Member] | Maximum [Member]
Debt Instrument [Line Items]
Debt instrument, face amount					$ 500,000
Debt conversion into common stock				446,428	446,428

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Basis of Presentation and Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Basis of Presentation and Significant Accounting Policies

1. Basis of Presentation and Significant Accounting Policies

Document Security Systems, Inc. (the “Company”), through two of its subsidiaries, Premier Packaging Corporation, which operates under the assumed name of DSS Packaging Group, and Plastic Printing Professionals, Inc., which operates under the name of DSS Plastics Group, operates in the security and commercial printing, packaging and plastic ID markets. The Company develops, markets, manufactures and sells paper and plastic products designed to protect valuable information from unauthorized scanning, copying, and digital imaging. The Company’s subsidiary, DSS Digital Inc., which also operates under the name of DSS Digital Group, develops, markets and sells digital information services, including data hosting, disaster recovery and data back-up and security services. The Company’s subsidiary, DSS Technology Management (“DSSTM”), Inc., manages, licenses and acquires intellectual property (“IP”) assets for the purpose of monetizing these assets through a variety of value-enhancing initiatives, including, but not limited to, investments in the development and commercialization of patented technologies, licensing, strategic partnerships and commercial litigation. In 2018, the Company commenced operations in the Asia Pacific market through its subsidiary DSS Asia Limited, which was formed in 2017. In 2019 DSS created four new, wholly-owned subsidiaries all of which currently have no employees and are in the exploratory stage and looking for opportunities. DSS Blockchain Security, Inc., that intends to specialize in the development of blockchain security technologies for tracking and tracing solutions for supply chain logistics and cyber securities across global markets. Decentralize Sharing Systems, Inc., that amongst other things, intends to provide services to assist companies utilizing blockchain technologies for sharing system solutions in the new economics of the peer-to-peer decentralized sharing marketplaces. DSS Securities, Inc., anticipates establishing or acquiring two parallel streams of digital asset exchanges in multiple jurisdictions: (i) securitized token exchanges, focusing on digitized assets from different vertical industries and (ii) utilities token exchanges, focusing on "blue-chip" utility tokens from solid businesses. DSS BioHealth Security, Inc., to invest in companies that include, but not limited to, hold bio-medical intellectual property and/or which have, or are securing, strategic alliances, partnerships and distributing rights for biomedical and security products, technologies or enterprises. This new division will focus on open-air defense initiatives, which curb transmission of air-borne infectious diseases such as tuberculosis, influenza, among others, in open areas.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8.03 of Regulation S-X for smaller reporting companies. Accordingly, these statements do not include all the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying balance sheets and related interim statements of operations and comprehensive loss and cash flows include all adjustments considered necessary for their fair presentation in accordance with U.S. GAAP. All significant intercompany transactions have been eliminated in consolidation.

Interim results are not necessarily indicative of results expected for the full year. For further information regarding the Company’s accounting policies, refer to the audited consolidated financial statements and footnotes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2018.

Principles of Consolidation - The consolidated financial statements include the accounts of Document Security Systems and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, the Company evaluates its estimates, including those related to the accounts receivable, inventory, fair values of investments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of options and warrants to purchase the Company’s common stock, deferred revenue and income taxes, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Reclassification - Certain amounts on the accompanying consolidated balance sheets for the year ended December 31, 2018 have been reclassified to conform to current year presentation.

Investment – In accordance with ASC 325-20, the Company records its investment in common stock of Singapore eDevelopment Limited at cost as the fair market value of the investment is not readily determinable. The Company evaluates investment for indications of impairment at least annually.

Fair Value of Financial Instruments - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurement Topic of the FASB ASC establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

● Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The carrying amounts reported in the balance sheet of cash, accounts receivable, prepaids, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of revolving credit lines notes payable and long-term debt approximates their carrying value as the stated or discounted rates of the debt reflect recent market conditions. Derivative instruments, as discussed below, are recorded as assets and liabilities at estimated fair value based on available market information. The fair value of investments carried at cost, less impairment however, the fair value is not considered readily determinable based on the lack of liquidity for the shares owned.

Derivative Instruments - The Company maintains an overall interest rate risk management strategy that may incorporate the use of interest rate swap contracts to minimize significant fluctuations in earnings that are caused by interest rate volatility. The Company had an interest rate swap that changes variable rates into fixed rates on one Citizens Bank term loan relating to the Company’s subsidiary, Premier Packaging. This swap qualified as a Level 2 fair value financial instrument. This swap agreement was not held for trading purposes and the Company did not intend to sell this derivative swap financial instrument. The Company recorded the interest swap agreement on the balance sheet at fair value because the agreement qualifies as a cash flow hedge under accounting principles generally accepted in the United States of America. Gains and losses on these instruments are recorded in other comprehensive loss until the underlying transaction is recorded in earnings. When the hedged item was realized, gains or losses are reclassified from accumulated other comprehensive loss (“AOCI”) to the consolidated statement of operations. The valuations of the interest rate swaps have been derived from proprietary models of Citizens Bank, N.A (Citizens), based upon recognized financial principles and reasonable estimates about relevant future market conditions and may reflect certain other financial factors such as anticipated profit or hedging, transactional, and other costs. The notional amounts of the swaps decreased over the life of the agreements. The Company would be exposed to a credit loss in the event of nonperformance by the counter parties to the interest rate swap agreements. The Company did not anticipate non-performance by the counter parties. The swap was settled in September 2019 with the effect of the settlement of a loss of $22,483 recorded in interest expense in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).

Impairment of Long-Lived Assets and Goodwill - The Company monitors the carrying value of long-lived assets for potential impairment and tests the recoverability of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If a change in circumstance occurs, the Company performs a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If cash flows cannot be separately and independently identified for a single asset, the Company will determine whether impairment has occurred for the group of assets for which the Company can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, the Company measures any impairment by comparing the fair value of the asset or asset group to its carrying value.

Contingent Legal Expenses - Contingent legal fees are expensed in the consolidated statements of operations in the period that the related revenues are recognized. In instances where there are no recoveries from potential infringers, no contingent legal fees are paid; however, the Company may be liable for certain out of pocket legal costs incurred pursuant to the underlying legal services agreement that will be paid out from the proceeds from settlements or licenses that arise pursuant to an enforcement action, which will be expensed as legal fees in the period in which the payment of such fees is probable. Any unamortized patent acquisition costs will be expensed in the period a conclusion is reached in an enforcement action that does not yield future royalties potential.

Earnings Per Common Share - The Company presents basic and diluted earnings per share. Basic earnings per share reflect the actual weighted average of shares issued and outstanding during the period. Diluted earnings per share are computed including the number of additional shares that would have been outstanding if dilutive potential shares had been issued and is calculated utilizing the treasury stock method. In a loss period, the calculation for basic and diluted earnings per share is the same, as the impact of potential common shares is anti-dilutive.

For the three and nine months ended September 30, 2019, common stock equivalents were excluded from the calculation of diluted earnings per share as the Company had a net loss, since their inclusion would have been anti-dilutive. For the nine-months ended September 30, 2018, based on the average market price of the Company’s common stock during that period of $1.37, 267,905 common stock equivalents were added to the basic shares outstanding to calculate dilutive earnings per share. For the three-months ended September 30, 2018, common stock equivalents were excluded from the calculation of diluted earnings per share as the company had a net loss, since their inclusion would have been anti-dilutive.

Concentration of Credit Risk - The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured limits. The Company believes it is not exposed to any significant credit risk as a result of any non-performance by the financial institutions.

During the nine months ended September 30, 2019, two customers accounted for approximately 31% and 13%, respectively, of the Company’s consolidated revenue and accounted for 29% and 5%, respectively, of the Company’s accounts receivable balance as of September 30, 2019. During the nine months ended September 30, 2018, these two customers accounted for 24.8% and 14.7%, respectively, of the Company’s consolidated revenue and accounted for 22% and 6.6%, respectively, of the Company’s accounts receivable balance as of September 30, 2018. The risk with respect to accounts receivables is mitigated by credit evaluations the Company performs on its customers, the short duration of its payment terms for most of its customer contracts and by the diversification of its customer base.

Income Taxes - The Company recognizes estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income items is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized. We recognize penalties and accrued interest related to unrecognized tax benefits in income tax expense.

Recently Adopted Accounting Pronouncements – In February 2016, the FASB issued ASU No. 2016-02 and its related amendments which introduced Leases (Topic 842, or “ASC 842”), a new comprehensive lease accounting model that supersedes the current lease guidance under Leases (Topic 840). The new accounting standard requires lessees to recognize right-of-use (“ROU”) assets and corresponding lease liabilities for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. In July 2018, the FASB added a transition option for implementation that allows companies to continue to use the legacy guidance in ASC 840, Leases, including its disclosure requirements, in the comparative periods presented in the year of adoption. The Company adopted the guidance effective January 1, 2019. The Company elected the transition package of three practical expedients permitted under the transition guidance and elected the optional transition method that allows for a cumulative-effect adjustment in the period of adoption, without a restatement of prior periods. Further, the Company elected a short-term lease exception policy, permitting the Company to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets. As a result of the adoption, the Company adjusted its beginning balance as of January 1, 2019 by recording operating lease ROU asset and liabilities through a cumulative-effect adjustment. The adoption impacted the accompanying consolidated balance sheet, but did not have an impact on the consolidated statements of operations and comprehensive income (loss).

At the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, the Company calculates the associated lease liability and corresponding ROU assets upon lease commencement using a discount rate based on a credit-adjusted secured borrowing rate commensurate with the term of the lease. The Company records lease liabilities within current or noncurrent liabilities based upon the length of time associated with the lease payments. The operating lease ROU assets includes any lease payments made and excludes lease incentives and initial direct costs incurred, if any, and are recorded as noncurrent assets. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with an initial term of 12 months or less are not recorded on the accompanying consolidated balance sheet. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

The impact of the adoption of ASC 842 on the accompanying consolidated balance sheet as of January 1, 2019 was a right-of-use asset and a lease liability of $1,489,156.

Continuing Operations and Going Concern – The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should we be unable to continue as a going concern. While the Company has approximately $ 3.9 million in cash, and a positive working capital position of approximately $4.3 million as of September 30, 2019, the Company has incurred negative cash flows from operating and investing activities over the past two years and has projected that the Company will likely incur negative cash flows from operations in 2019. To continue as a going concern, on June 5, 2019, the Company entered into an underwriting agreement with Aegis Capital Corp., acting as a representative of several underwriters, which provided for the issuance and sale by the Company in an underwritten public offering (the “Offering”) of 11,200,000 shares of the Company’s common stock. The Company also granted the Underwriters a 45-day option to purchase up to 1,680,000 additional shares of the Company’s common stock on the same terms and conditions for the purpose of covering any over-allotments in connection with the Offering (519,186 shares were exercised on July 18, 2019.) The net offering proceeds to the Company was approximately $5.0 million, inclusive of the July 18, 2019 transaction and after deducting underwriting discounts, commissions and other offering expenses. Also, on November 1, 2019, Pursuant to a Subscription Agreement, LiquidValue Development Pte LTD, a company owned and controlled by Mr. Heng Fai Ambrose Chan, DSS’s Chairman, purchased from the Company, in a private placement, and aggregate of 6,000,000 shares of common stock, for an above market purchase price equal to $0.3037 per share (at the time of LiquidValues’ commitment, the closing stock price was $0.26 per share) for net proceeds to the Company of approximately $1.5 million after deducting underwriting discounts, commissions and other offering expenses (see Note 14).

The expected use of cash for operations in 2019 will be primarily for funding operating losses, working capital, legal expenses associated with its intellectual property related litigation, and the costs associated with the global roll-out of the Company’s AuthentiGuard product line. The Company will also use these funds to make capital improvements at its two manufacturing facilities to increase production capacity and create efficiencies, as well as to diversify its revenue streams and take advantage of profit opportunities.

The Company’s management intends to take actions necessary to continue as a going concern. Management’s plans concerning these matters includes, among other things, continued growth among our operating segments including international expansion of our AuthentiGuard product, and tightly controlling operating costs and reducing spending growth rates wherever possible to return to profitability.

We believe that our $3.9 million in aggregate cash and equivalents as of September 30, 2019 will allow us to fund our four operating segments current and planned operations through 2020. However, we may seek additional capital through the sale of debt or equity securities, if necessary, especially in conjunction with opportunistic acquisitions or licensing arrangements. Based on this, we have concluded that substantial doubt of our ability to continue as a going concern has been alleviated.

Recent Accounting Pronouncements – In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment”, which eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. The annual assessment of goodwill impairment will be determined by using the difference between the carrying amount and the fair value of the reporting unit. The standards update is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently assessing the impact that adopting this new accounting standard will have on its Consolidated Financial Statements and plans to adopt ASU 2017-04 in the first quarter of 2020.

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Consolidated Balance Sheets (Parenthetical) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Allowance for doubtful accounts, accounts receivable	$ 50,000	$ 50,000
Common stock, par value	$ .02	$ .02
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	30,180,626	17,425,858
Common stock, shares outstanding	30,180,626	17,425,858

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Stockholders' Equity

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Stockholders' Equity

11. Stockholders’ Equity

Sales of Equity - On March 5, 2019, the Company issued 130,435 shares of its common stock at $1.15 per share as partial consideration for a licensing and distribution agreement entered into with Advanced Cyber Security Corp.

On February 18, 2019, the Company had entered into a Convertible Promissory Note with LiquidValue Development Pte Ltd in the principal sum of $500,000, of which up to $500,000 of the Principal Amount could be paid by the conversion of such amount into the Company’s common stock, par value $0.02 per share, up to a maximum of 446,428 shares of common stock (the “Maximum Conversion Amount”), at a conversion price of $1.12 per share. Effective on March 25, 2019, LiquidValue Development Pte Ltd exercised its conversion option and converted the Maximum Conversion Amount under the Note.

On June 5, 2019, the Company entered into an underwriting agreement (the “Underwriting Agreement”) with Aegis Capital Corp., acting as representative of the several underwriters, which provided for the issuance and sale by the Company in an underwritten public offering (the “Offering”) and the purchase by the Underwriters of 11,200,000 shares of the Company’s common stock, $0.02 par value per share. Subject to the terms and conditions contained in the Underwriting Agreement, the shares were sold to the Underwriters at a public offering price of $0.50 per share, less certain underwriting discounts and commissions. As part of this transaction, 2,000,000 shares were purchased by Heng Fai Ambrose Chan, Chairman of the Board of directors. The Company also granted the Underwriters a 45-day option to purchase up to 1,680,000 additional shares of the Company’s common stock on the same terms and conditions for the purpose of covering any over-allotments in connection with the Offering (519,186 shares were exercised on July 18, 2019 at $0.50 per share, less underwriting discounts and expenses). The net offering proceeds to the Company was approximately $5.0 million, inclusive of the July 18, 2019 transaction and after deducting underwriting discounts, commissions and other offering expenses. The Company intends to use the net proceeds from the Offering for research, product and brand development, strategic initiatives and general corporate and working capital purposes.

Stock-Based Compensation - The Company records stock-based payment expense related to options and warrants based on the grant date fair value in accordance with FASB ASC 718. Stock-based compensation includes expense charges for all stock-based awards to employees, directors and consultants. Such awards include option grants, warrant grants, and restricted stock awards. During the nine months ended September 30, 2019, the Company had stock compensation expense of approximately $331,000 or less than $0.01 basic and diluted earnings per share ($107,000, or less than $0.01 basic and diluted earnings per share for the corresponding nine months ended September 30, 2018). Of the $331,000, $52,000 was accrued for the CEO of a subsidiary of the Company.

In July 2019, by unanimous written consent, the Board of Directors authorized the Company to issue individual stock grants of the Company’s common stock, pursuant to the Company’s 2013 Employee, Director and Consultant Equity Incentive Plan, to certain officers and directors in the amount of 458,719 shares, at $0.42 per share which were immediately vested and issued on September 6, 2019.

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Other Liabilities

9 Months Ended

Sep. 30, 2019

Other Liabilities Disclosure [Abstract]

Other Liabilities

7. Other Liabilities

On November 14, 2016, the Company entered into a Proceeds Investment Agreement (the “Agreement”) with Brickell Key Investments LP (“BKI”). Pursuant to the Agreement, BKI financed an aggregate of $13,500,000 in a patent purchase and monetization program to be implemented and managed by the Company (the “Financing”). Pursuant to the Agreement. $3,000,000 of the Financing was used to cover the Company’s purchase of a portfolio of U.S. and foreign LED patents and a license from Intellectual Discovery Co., Ltd., a Korean company (collectively, the “LED Patent Portfolio”), resulting in a basis in these assets of $0. A total of $6,000,000 of the Financing was directed by BKI to attorneys to cover anticipated attorneys’ fees and out-of-pocket expenses for legal proceedings that may transpire relating to enforcement of the LED Patent Portfolio. This amount is not included in the Company’s financial statements as the Company has no control over these funds, which are segregated and escrowed in the attorneys’ trust account.

In addition, on November 14, 2016, the Company received $4,500,000 of the Financing, which was required to be used by the Company to pay for the defense of Inter Partes Review or other similar proceedings that may be filed from time to time by defendants with the U.S. Patent & Trademark Office relating to the LED Patent Portfolio, with excess amounts available for general working capital needs. As of September 30, 2019, an aggregate of $955,388 is recorded as other liabilities by the Company, of which $759,966 is classified as short-term. Of this amount, the Company allocated $2,500,000 which it subsequently adjusted to $1,500,000 for the payment of estimated future Inter Partes Review costs. The Company will reduce this liability as it pays legal and other expenses related to the Inter Partes Review matters involving the LED Patent Portfolio as incurred. The remaining $173,700 in other liabilities is allocated to working capital, which the Company is amortizing on a pro-rata basis over the expected remaining life of the monetization period of the LED Patent Portfolio through November 30, 2019. For this amount, the Company reduced the liability with an offset to selling, general and administrative costs by $47,500 per month from January 2017 through July 2017, $80,000 per month for the remainder of 2017 through March 2018, $86,500 per month for the remainder of 2018, and $86,850 per month through November 30, 2019. During the nine months ended September 30, 2019, there was approximately $317,350 of Inter Partes Review costs and an aggregate of $781,650 was recorded as a reduction of the liability allocated to working capital.

On July 8, 2013, the Company’s subsidiary, DSSTM, purchased two patents for $500,000 covering certain methods and processes related to Bluetooth devices. In conjunction with the patent purchases, DSSTM entered into a Proceed Right Agreement with certain investors pursuant to which DSSTM initially received $250,000 of a total of $750,000 which it will ultimately receive thereunder, subject to certain payment milestones, in exchange for 40% of the proceeds which it receives, if any, from the use, sale or licensing of the two patents. As of September 30, 2019, the Company had received an aggregate of $750,000 ($750,000 in 2018) from the investors pursuant to the agreement of which approximately $175,000 was in current liabilities in the consolidated balance sheets ($476,000 as of December 31, 2018). The Company reduces the liability as it pays legal and other expenses related to its litigation involving the Bluetooth patents, for which the amount is available to be used for 50% of all such expenses.

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Supplemental Cash Flow Information (Tables)

9 Months Ended

Sep. 30, 2019

Supplemental Cash Flow Information [Abstract]

Schedule of Supplemental Cash Flow Information

The following table summarizes supplemental cash flows for the nine-month periods ended September 30, 2019 and 2018:

Supplemental Cash Information
	2019		2018
Cash paid for interest	$	128,000	$	100,000
Non-cash investing and financing activities:
Impact of adoption of lease accounting standards	$	1,616,000	$	-
(Loss) gain from change in fair value of interest rate swap derivatives	$	7,000	$	17,000
Common stock issued upon conversion of convertible note	$	500,000	$	-
Equity issued to purchase intangible assets	$	145,000	$	-
Elimination of contingent liabilities through agreement	$	-	$	459,000
Purchase of intangible assets to be paid in installments	$	-	$	304,000

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Basis of Presentation and Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation - The consolidated financial statements include the accounts of Document Security Systems and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, the Company evaluates its estimates, including those related to the accounts receivable, inventory, fair values of investments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of options and warrants to purchase the Company’s common stock, deferred revenue and income taxes, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Reclassification

Reclassification - Certain amounts on the accompanying consolidated balance sheets for the year ended December 31, 2018 have been reclassified to conform to current year presentation.

Investment

Investment – In accordance with ASC 325-20, the Company records its investment in common stock of Singapore eDevelopment Limited at cost as the fair market value of the investment is not readily determinable. The Company evaluates investment for indications of impairment at least annually.

Fair Value of Financial Instruments

Fair Value of Financial Instruments - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurement Topic of the FASB ASC establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

● Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets;

● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The carrying amounts reported in the balance sheet of cash, accounts receivable, prepaids, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of revolving credit lines notes payable and long-term debt approximates their carrying value as the stated or discounted rates of the debt reflect recent market conditions. Derivative instruments, as discussed below, are recorded as assets and liabilities at estimated fair value based on available market information. The fair value of investments carried at cost, less impairment however, the fair value is not considered readily determinable based on the lack of liquidity for the shares owned.

Derivative Instruments

Derivative Instruments - The Company maintains an overall interest rate risk management strategy that may incorporate the use of interest rate swap contracts to minimize significant fluctuations in earnings that are caused by interest rate volatility. The Company had an interest rate swap that changes variable rates into fixed rates on one Citizens Bank term loan relating to the Company’s subsidiary, Premier Packaging. This swap qualified as a Level 2 fair value financial instrument. This swap agreement was not held for trading purposes and the Company did not intend to sell this derivative swap financial instrument. The Company recorded the interest swap agreement on the balance sheet at fair value because the agreement qualifies as a cash flow hedge under accounting principles generally accepted in the United States of America. Gains and losses on these instruments are recorded in other comprehensive loss until the underlying transaction is recorded in earnings. When the hedged item was realized, gains or losses are reclassified from accumulated other comprehensive loss (“AOCI”) to the consolidated statement of operations. The valuations of the interest rate swaps have been derived from proprietary models of Citizens Bank, N.A (Citizens), based upon recognized financial principles and reasonable estimates about relevant future market conditions and may reflect certain other financial factors such as anticipated profit or hedging, transactional, and other costs. The notional amounts of the swaps decreased over the life of the agreements. The Company would be exposed to a credit loss in the event of nonperformance by the counter parties to the interest rate swap agreements. The Company did not anticipate non-performance by the counter parties. The swap was settled in September 2019 with the effect of the settlement of a loss of $22,483 recorded in interest expense in the accompanying Consolidated Statements of Operations and Comprehensive Income (Loss).

Impairment of Long-lived Assets and Goodwill

Impairment of Long-Lived Assets and Goodwill - The Company monitors the carrying value of long-lived assets for potential impairment and tests the recoverability of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If a change in circumstance occurs, the Company performs a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If cash flows cannot be separately and independently identified for a single asset, the Company will determine whether impairment has occurred for the group of assets for which the Company can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, the Company measures any impairment by comparing the fair value of the asset or asset group to its carrying value.

Contingent Legal Expenses

Contingent Legal Expenses - Contingent legal fees are expensed in the consolidated statements of operations in the period that the related revenues are recognized. In instances where there are no recoveries from potential infringers, no contingent legal fees are paid; however, the Company may be liable for certain out of pocket legal costs incurred pursuant to the underlying legal services agreement that will be paid out from the proceeds from settlements or licenses that arise pursuant to an enforcement action, which will be expensed as legal fees in the period in which the payment of such fees is probable. Any unamortized patent acquisition costs will be expensed in the period a conclusion is reached in an enforcement action that does not yield future royalties potential.

Earnings Per Common Share

Earnings Per Common Share - The Company presents basic and diluted earnings per share. Basic earnings per share reflect the actual weighted average of shares issued and outstanding during the period. Diluted earnings per share are computed including the number of additional shares that would have been outstanding if dilutive potential shares had been issued and is calculated utilizing the treasury stock method. In a loss period, the calculation for basic and diluted earnings per share is the same, as the impact of potential common shares is anti-dilutive.

For the three and nine months ended September 30, 2019, common stock equivalents were excluded from the calculation of diluted earnings per share as the Company had a net loss, since their inclusion would have been anti-dilutive. For the nine-months ended September 30, 2018, based on the average market price of the Company’s common stock during that period of $1.37, 267,905 common stock equivalents were added to the basic shares outstanding to calculate dilutive earnings per share. For the three-months ended September 30, 2018, common stock equivalents were excluded from the calculation of diluted earnings per share as the company had a net loss, since their inclusion would have been anti-dilutive.

Concentration of Credit Risk

Concentration of Credit Risk - The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured limits. The Company believes it is not exposed to any significant credit risk as a result of any non-performance by the financial institutions.

During the nine months ended September 30, 2019, two customers accounted for approximately 31% and 13%, respectively, of the Company’s consolidated revenue and accounted for 29% and 5%, respectively, of the Company’s accounts receivable balance as of September 30, 2019. During the nine months ended September 30, 2018, these two customers accounted for 24.8% and 14.7%, respectively, of the Company’s consolidated revenue and accounted for 22% and 6.6%, respectively, of the Company’s accounts receivable balance as of September 30, 2018. The risk with respect to accounts receivables is mitigated by credit evaluations the Company performs on its customers, the short duration of its payment terms for most of its customer contracts and by the diversification of its customer base.

Income Taxes

Income Taxes - The Company recognizes estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income items is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized. We recognize penalties and accrued interest related to unrecognized tax benefits in income tax expense.

Recently Adopted Accounting Pronouncements

Recently Adopted Accounting Pronouncements – In February 2016, the FASB issued ASU No. 2016-02 and its related amendments which introduced Leases (Topic 842, or “ASC 842”), a new comprehensive lease accounting model that supersedes the current lease guidance under Leases (Topic 840). The new accounting standard requires lessees to recognize right-of-use (“ROU”) assets and corresponding lease liabilities for all leases with lease terms of greater than 12 months. It also changes the definition of a lease and expands the disclosure requirements of lease arrangements. In July 2018, the FASB added a transition option for implementation that allows companies to continue to use the legacy guidance in ASC 840, Leases, including its disclosure requirements, in the comparative periods presented in the year of adoption. The Company adopted the guidance effective January 1, 2019. The Company elected the transition package of three practical expedients permitted under the transition guidance and elected the optional transition method that allows for a cumulative-effect adjustment in the period of adoption, without a restatement of prior periods. Further, the Company elected a short-term lease exception policy, permitting the Company to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component for certain classes of assets. As a result of the adoption, the Company adjusted its beginning balance as of January 1, 2019 by recording operating lease ROU asset and liabilities through a cumulative-effect adjustment. The adoption impacted the accompanying consolidated balance sheet, but did not have an impact on the consolidated statements of operations and comprehensive income (loss).

At the inception of a contractual arrangement, the Company determines whether the contract contains a lease by assessing whether there is an identified asset and whether the contract conveys the right to control the use of the identified asset in exchange for consideration over a period of time. If both criteria are met, the Company calculates the associated lease liability and corresponding ROU assets upon lease commencement using a discount rate based on a credit-adjusted secured borrowing rate commensurate with the term of the lease. The Company records lease liabilities within current or noncurrent liabilities based upon the length of time associated with the lease payments. The operating lease ROU assets includes any lease payments made and excludes lease incentives and initial direct costs incurred, if any, and are recorded as noncurrent assets. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with an initial term of 12 months or less are not recorded on the accompanying consolidated balance sheet. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

The impact of the adoption of ASC 842 on the accompanying consolidated balance sheet as of January 1, 2019 was a right-of-use asset and a lease liability of $1,489,156.

Continuing Operations and Going Concern

Continuing Operations and Going Concern – The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should we be unable to continue as a going concern. While the Company has approximately $ 3.9 million in cash, and a positive working capital position of approximately $4.3 million as of September 30, 2019, the Company has incurred negative cash flows from operating and investing activities over the past two years and has projected that the Company will likely incur negative cash flows from operations in 2019. To continue as a going concern, on June 5, 2019, the Company entered into an underwriting agreement with Aegis Capital Corp., acting as a representative of several underwriters, which provided for the issuance and sale by the Company in an underwritten public offering (the “Offering”) of 11,200,000 shares of the Company’s common stock. The Company also granted the Underwriters a 45-day option to purchase up to 1,680,000 additional shares of the Company’s common stock on the same terms and conditions for the purpose of covering any over-allotments in connection with the Offering (519,186 shares were exercised on July 18, 2019.) The net offering proceeds to the Company was approximately $5.0 million, inclusive of the July 18, 2019 transaction and after deducting underwriting discounts, commissions and other offering expenses. Also, on November 1, 2019, Pursuant to a Subscription Agreement, LiquidValue Development Pte LTD, a company owned and controlled by Mr. Heng Fai Ambrose Chan, DSS’s Chairman, purchased from the Company, in a private placement, and aggregate of 6,000,000 shares of common stock, for an above market purchase price equal to $0.3037 per share (at the time of LiquidValues’ commitment, the closing stock price was $0.26 per share) for net proceeds to the Company of approximately $1.5 million after deducting underwriting discounts, commissions and other offering expenses (see Note 14).

The expected use of cash for operations in 2019 will be primarily for funding operating losses, working capital, legal expenses associated with its intellectual property related litigation, and the costs associated with the global roll-out of the Company’s AuthentiGuard product line. The Company will also use these funds to make capital improvements at its two manufacturing facilities to increase production capacity and create efficiencies, as well as to diversify its revenue streams and take advantage of profit opportunities.

The Company’s management intends to take actions necessary to continue as a going concern. Management’s plans concerning these matters includes, among other things, continued growth among our operating segments including international expansion of our AuthentiGuard product, and tightly controlling operating costs and reducing spending growth rates wherever possible to return to profitability.

We believe that our $3.9 million in aggregate cash and equivalents as of September 30, 2019 will allow us to fund our four operating segments current and planned operations through 2020. However, we may seek additional capital through the sale of debt or equity securities, if necessary, especially in conjunction with opportunistic acquisitions or licensing arrangements. Based on this, we have concluded that substantial doubt of our ability to continue as a going concern has been alleviated.

Recent Accounting Pronouncements

Recent Accounting Pronouncements – In January 2017, the FASB issued ASU 2017-04, “Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment”, which eliminates the two-step process that required identification of potential impairment and a separate measure of the actual impairment. The annual assessment of goodwill impairment will be determined by using the difference between the carrying amount and the fair value of the reporting unit. The standards update is effective for goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company is currently assessing the impact that adopting this new accounting standard will have on its Consolidated Financial Statements and plans to adopt ASU 2017-04 in the first quarter of 2020.

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Inventory - Schedule of Inventory (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Finished Goods	$ 1,106,803	$ 1,144,695
WIP	251,807	339,091
Raw Materials	293,274	79,807
Inventory	$ 1,651,884	$ 1,563,593

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Supplemental Cash Flow Information - Schedule of Supplemental Cash Flow Information (Details) - USD ($)	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Supplemental Cash Flow Information [Abstract]
Cash paid for interest	$ 128,000	$ 100,000
Impact of adoption of lease accounting standards	1,616,000
(Loss) gain from change in fair value of interest rate swap derivatives	7,000	17,000
Common stock issued upon conversion of convertible note	500,000
Equity issued to purchase intangible assets	145,000
Elimination of contingent liabilities through agreement		459,000
Purchase of intangible assets to be paid in installments		$ 304,000

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Subsequent Events (Details Narrative) - USD ($)		1 Months Ended	3 Months Ended
	Oct. 30, 2019	Oct. 30, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018
Aggregate value of common stock			$ 161,767	$ 4,886,637	$ 637,990	$ 300,000		$ 288,000
Subsequent Event [Member] | Private Placement [Member]
Number of shares of common stock	6,000,000
Subsequent Event [Member] | Private Placement [Member] | Subscription Agreement [Member]
Number of shares of common stock	6,000,000
Debt instrument price per share	$ 0.3037	$ 0.3037
Aggregate value of common stock	$ 1,822,200
Subsequent Event [Member] | Two Separate Convertible Preferred Promissory Notes [Member]
Convertible debt	$ 700,000	$ 700,000
Subsequent Event [Member] | First Note [Member]
Debt instrument interest rate percentage	6.00%	6.00%
Subsequent Event [Member] | Second Note [Member]
Debt instrument terms		P24M
Debt instrument description		The second Note is to be repaid on or before the twenty-four (24) month anniversary of the closing date of the Note, together with interest therein at the rate of six percent (6%) per annum.

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Revenue (Details Narrative) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Revenue from Contract with Customer [Abstract]
Reserve for doubtful accounts	$ 50,000	$ 50,000

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Lease Liability (Tables)

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Schedule of Future Minimum Lease Payments

Future minimum lease payments as of September 30, 2019 are as follows:

2019	$	106,821
2020		424,129
2021		335,097
2022		315,271
2023		306,070
Thereafter		24,208
Total lease payments		1,511,596
Less: Imputed Interest		(142,632	)
Present value of remaining lease payments	$	1,368,964
Current	$	361,713
Noncurrent	$	1,007,251
Weighted-average remaining lease term (years)		4.0
Weighted-average discount rate		5.4	%

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Subsequent Events

9 Months Ended

Sep. 30, 2019

Subsequent Events [Abstract]

Subsequent Events

14. SUBSEQUENT EVENTS

In October 2019, the Company entered into two separate convertible preferred promissory notes (“Note” or “Notes”) with unaffiliated companies, where the Company loaned a total principal sum of $700,000. The first Note has interest charged at the rate of six percent (6%) and is payable upon demand. The second Note is to be repaid on or before the twenty-four (24) month anniversary of the closing date of the Note, together with interest therein at the rate of six percent (6%) per annum. The Company has the right to convert both Notes to equity, in its sole discretion, upon written notice.

On October 29, 2019 and subsequently October 30, 2019, the Audit Committee and the Board of Directors of the Company approved the issuance of common stock, not to exceed 6,000,000 shares, via private placement with a related party. Pursuant to a Subscription Agreement, LiquidValue Development Pte LTD, a company owned and controlled by Mr. Heng Fai Ambrose Chan, DSS’s Chairman, purchased from the Company, in a private placement, and aggregate of 6,000,000 shares of common stock, for an above market purchase price equal to $0.3037 per share for gross proceeds to the Company of $1,822,200 (before deductions for placement agent fees and other expenses). This transaction was executed on November 1, 2019.

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Segment Information (Details Narrative)	9 Months Ended
	Sep. 30, 2019 Integer
Segment Reporting [Abstract]
Number of operating segment	5

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Intangible Assets (Details Narrative) - USD ($)		3 Months Ended						9 Months Ended
	Mar. 05, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Goodwill [Line Items]
Amortization expense								$ 335,507	$ 407,034
Payments to acquire intangible assets								357,816	$ 45,471
Number of shares issued value		$ 161,767	$ 4,886,637	$ 637,990	$ 300,000		$ 288,000
Aggregate cost of intangible assets		$ 1,048,503						$ 1,048,503		$ 881,411
Master Distributor Agreement [Member] | Advanced Cyber Security Corp [Member]
Goodwill [Line Items]
Payments to acquire intangible assets	$ 350,000
Number of shares of common stock	130,435
Number of shares issued value	$ 144,783
Aggregate cost of intangible assets	$ 494,783
Amortization period of intangible asset	36 months

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Other Liabilities (Details Narrative) - USD ($)			3 Months Ended		5 Months Ended	7 Months Ended	9 Months Ended			11 Months Ended	12 Months Ended
	Nov. 14, 2016	Jul. 08, 2013	Sep. 30, 2019	Sep. 30, 2018	Mar. 31, 2018	Jul. 31, 2017	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Nov. 30, 2019	Dec. 31, 2018
Payment to acquire intangible assets							$ 357,816		$ 45,471
Intangible assets book value			$ 3,454,819				3,454,819	$ 2,952,220			$ 2,952,220
Other liabilities short term			935,404				935,404	2,255,942			2,255,942
Payment of estimated future inter parts review costs							317,350
Selling, general and administrative costs			2,094,578	$ 1,610,831			5,736,078		$ 5,195,495
Reduction of the liability							781,650
Current liabilities			3,885,140				3,885,140	5,423,206			5,423,206
LED Patent Portfolio [Member]
Selling, general and administrative costs					$ 80,000	$ 47,500		86,500
LED Patent Portfolio [Member] | Subsequent Event [Member]
Selling, general and administrative costs										$ 86,850
DSS Technology Management [Member]
Payment to acquire intangible assets		$ 500,000
Proceeds from financing amount		250,000
Payment milestones amount		$ 750,000
Milestones description		Subject to certain payment milestones, in exchange for 40% of the proceeds which it receives, if any, from the use, sale or licensing of the two patents.
Reduction the liability pays legal and other expense percentage		50.00%
Proceeds Investment Agreement [Member] | Brickell Key Investments LP [Member]
Finance amount	$ 13,500,000
Other liabilities			955,388				955,388
Other liabilities short term			759,966				759,966
Payment of estimated future inter parts review costs							2,500,000
Payment of related party cost							1,500,000
Allocated to working capital			173,700				173,700
Proceeds Investment Agreement [Member] | Intellectual Discovery Co. Ltd [Member] | LED Patent Portfolio [Member]
Payment to acquire intangible assets	3,000,000
Intangible assets book value	0
Attorneys' fees and out-of-pocket expenses	6,000,000
Proceeds from financing amount	$ 4,500,000
Proceed Right Agreement [Member] | Investors [Member]
Proceeds from related party debt							750,000				750,000
Current liabilities			$ 175,000				$ 175,000	$ 476,000			$ 476,000

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Stockholders' Equity (Details Narrative) - USD ($)						1 Months Ended	9 Months Ended
	Jul. 18, 2019	Jun. 05, 2019	Mar. 05, 2019	Feb. 18, 2019	Oct. 24, 2018	Jul. 02, 2019	Sep. 30, 2019	May 31, 2019	Dec. 31, 2018
Common stock par value							$ .02		$ .02
Share issued price per shares	$ 0.50
Common stock shares exercised	519,186
Proceeds from net offering	$ 5,000,000
Stock compensation expense							$ 331,000
Stock compensation expense, description							The Company had stock compensation expense of approximately $331,000 or less than $0.01 basic and diluted earnings per share ($107,000, or less than $0.01 basic and diluted earnings per share for the corresponding nine months ended september 30, 2018).
President - DSS International Business Operations [Member]
Accrued stock based compensation							$ 52,000
2013 Employee, Director and Consultant Equity Incentive Plan [Member] | Officers and Directors [Member]
Share issued price per shares						$ 0.42
Number of stock issued to stock grants						458,719
Advanced Cyber Security Corp [Member] | Licensing and Distribution Agreement [Member]
Number of shares of common stock, sold			130,435
Purchase price per share			$ 1.15
LiquidValue Development Pte Ltd [Member]
Debt instrument, face amount								$ 650,000
LiquidValue Development Pte Ltd [Member] | Convertible Promissory Note [Member]
Debt instrument, face amount				$ 500,000	$ 500,000
Common stock par value				$ 0.02	$ 0.02
Debt conversion price per share				$ 1.12	$ 1.12
LiquidValue Development Pte Ltd [Member] | Convertible Promissory Note [Member] | Maximum [Member]
Debt instrument, face amount					$ 500,000
Debt conversion into common stock				446,428	446,428
Aegis Capital Corp [Member] | Underwriting Agreement Member]
Number of shares of common stock		11,200,000
Share issued price per shares		$ 0.02
Aegis Capital Corp [Member] | Underwriting Agreement Member] | Public Offering [Member]
Share issued price per shares		$ 0.50
Aegis Capital Corp [Member] | Underwriting Agreement Member] | Maximum [Member]
Option to purchase shares of common stock		1,680,000

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

10. Commitments and Contingencies

On November 26, 2013, DSSTM filed suit against Apple, Inc. (“Apple”) in the United States District Court for the Eastern District of Texas, for patent infringement (the “Apple Litigation”). The complaint alleges infringement by Apple of DSSTM’s patents that relate to systems and methods of using low power wireless peripheral devices. DSSTM is seeking a judgment for infringement, injunctive relief, and compensatory damages from Apple. On October 28, 2014, the case was stayed by the District Court pending a determination of Apple’s motion to transfer the case to the Northern District of California. On November 7, 2014, Apple’s motion to transfer the case to the Northern District of California was granted. On December 30, 2014, Apple filed two Inter Partes Review (“IPR”) petitions with the Patent Trial and Appeal Board (“PTAB”) for review of the patents at issue in the case. The PTAB instituted the IPRs on June 25, 2015. The California District Court then stayed the case pending the outcome of those IPR proceedings. Oral arguments of the IPRs took place on March 15, 2016, and on June 17, 2016, PTAB ruled in favor of Apple on both IPR petitions. DSSTM then filed an appeal with the U.S. Court of Appeals for the Federal Circuit (the “Federal Circuit”) seeking reversal of the PTAB decisions. Oral arguments for the appeal were held on August 9, 2017. On March 23, 2018, the Federal Circuit reversed the PTAB, finding that the PTAB erred when it found the claims of U.S. Patent No. 6,128,290 to be unpatentable. The Federal Circuit affirmed its decision on July 12, 2018, when it denied Apple’s petition for panel rehearing of the Federal Circuit’s Opinion and Judgment issued on March 23, 2018. On July 27, 2018, the District Court judge lifted the Stay resuming the litigation, which has a trial date set for the week of February 24, 2020.

On February 16, 2015, DSSTM filed suit in the United States District Court, Eastern District of Texas, against defendants Intel Corporation, Dell, Inc., GameStop Corp., Conn’s Inc., Conn Appliances, Inc., NEC Corporation of America, Wal-Mart Stores, Inc., Wal-Mart Stores Texas, LLC, and AT&T, Inc. The complaint alleged patent infringement and sought judgment for infringement of two of DSSTM’s patents, injunctive relief and money damages. On December 9, 2015, Intel filed IPR petitions with PTAB for review of the patents at issue in the case. Intel’s IPRs were instituted by PTAB on June 8, 2016. On June 1, 2017, the PTAB ruled in favor of Intel for all the challenged claims. On July 28, 2017, DSSTM filed a notice of appeal of the PTAB’s decision relating to U.S. Patent 6,784,552 with the Federal Circuit. On January 8, 2019, DSSTM entered into a confidential settlement agreement with Intel Corporation, Dell Inc., GameStop Corp, Conn’s Inc., Conn Appliances, Inc., Wal-Mart Stores, Inc., Wal-Mart Stores Texas, LLC and AT&T Mobility LLC (collectively, the “Defendants”). The Federal Circuit Appeal involving DSSTM and Intel was dismissed on January 16, 2019, and the District Court case against the Defendants was dismissed, as to all the Defendants, on February 5, 2019.

On July 16, 2015, DSSTM filed three separate lawsuits in the United States District Court for the Eastern District of Texas alleging infringement of certain of its semiconductor patents. The defendants were SK Hynix et al., Samsung Electronics et al., and Qualcomm Incorporated. Each respective complaint alleges patent infringement and seeks judgment for infringement, injunctive relief and money damages. On November 12, 2015, SK Hynix filed an IPR petition with PTAB for review of the patent at issue in their case. SK Hynix’s IPR was instituted by the PTAB on May 11, 2016. On August 16, 2016, DSSTM and SK Hynix entered into a confidential settlement agreement ending the litigation between them. The pending SK Hynix IPR was then terminated by mutual agreement of the parties on August 31, 2016. On March 18, 2016, Samsung also filed an IPR petition, which was instituted by the PTAB. On September 20, 2017, PTAB ruled in favor of Samsung for all the challenged claims relating to U.S. Patent 6,784,552. DSSTM then appealed this PTAB ruling to the Federal Circuit on November 17, 2017. The Federal Circuit joined this appeal with the Intel appeal effective on December 7, 2017. Qualcomm filed its IPR proceeding on July 1, 2016, which was then later joined with Intel’s IPRs in August 2016 by PTAB. On June 1, 2017, the PTAB ruled in favor of Intel/Qualcomm for all the challenged claims. On July 28, 2017, DSSTM filed a notice of appeal of the PTAB’s decision relating to U.S. Patent 6,784,552 with the Federal Circuit. A confidential patent license agreement was executed by DSSTM on November 14, 2018, covering Samsung and Qualcomm. On December 12, 2018, DSSTM and Samsung entered into a confidential release. On December 27, 2018, DSSTM and Qualcomm entered into a confidential settlement agreement. The DSSTM - Samsung District Court case was dismissed on December 17, 2018. The DSSTM - Samsung Federal Circuit Appeal was dismissed on January 2, 2019. The Federal Circuit Appeal involving DSSTM and Qualcomm was dismissed on January 16, 2019. The DSSTM - Qualcomm District Court case was dismissed on January 16, 2019. As a result, all of DSSTM’s litigation matters originally filed in the District Court for the Eastern District of Texas have been resolved and are now dismissed.

On April 13, 2017, the Company filed a patent infringement lawsuit against Seoul Semiconductor Co., Ltd. and Seoul Semiconductor, Inc. (collectively, “Seoul Semiconductor”) in the United States District Court for the Eastern District of Texas, alleging infringement of certain of the Company’s Light-Emitting Diode (“LED”) patents. The Company is seeking a judgment for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements. On June 7, 2017, the Company refiled its patent infringement complaint against Seoul Semiconductor in the United States District Court for the Central District of California, Southern Division. On December 3, 2017, Seoul Semiconductor filed an IPR challenging the validity of certain claims of U.S. Patent No. 6,949,771. This IPR was instituted by the PTAB on June 7, 2018. On April 18, 2019, the PTAB issued a written decision determining claims 1-9 of the ‘771 patent unpatentable. On December 21, 2017, Seoul Semiconductor filed an IPR challenging the validity of certain claims of U.S. Patent No. 7,256,486. This IPR was instituted by the PTAB on June 21, 2018. On June 10, 2019, the PTAB issued a written decision determining claims 1-3 of the ‘486 patent unpatentable. On August 12, 2019, the Company filed a Notice of Appeal with the Federal Circuit Court of Appeals challenging the PTAB’s decisions. On January 25, 2018, Seoul Semiconductor filed an IPR challenging the validity of certain claims of U.S. Patent No. 7,524,087. This IPR was instituted by the PTAB on July 27, 2018. On July 22, 2019, the PTAB issued a written decision determining claims 1, 6-8, 15, and 17 of the ‘087 patent unpatentable. On September 23, 2019, the Company filed a Notice of Appeal with the Federal Circuit Court of Appeals challenging the PtAB’s decisions. These challenged patents are the patents that are the subject matter of the infringement lawsuit, which is pending but stayed pending the outcome of the IPR proceedings.

On April 13, 2017, the Company filed a patent infringement lawsuit against Everlight Electronics Co., Ltd. and Everlight Americas, Inc. (collectively, “Everlight”) in the United States District Court for the Eastern District of Texas, alleging infringement of certain of the Company’s LED patents. The Company is seeking a judgment for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements. On June 8, 2017, the Company refiled its patent infringement complaint against Everlight in the United States District Court for the Central District of California. On June 8, 2018, Everlight filed IPR petitions challenging the validity of claims under U.S. Patent Nos. 7,256,486 and 7,524,087. On June 12, 2018, Everlight filed an IPR petition challenging the validity of claims under U.S. Patent No. 6,949,771, and on June 15, 2018, filed an IPR petition challenging the validity of claims under U.S. Patent No 7,919,787. These challenged patents are the patents that are the subject matter of the infringement lawsuit. On January 18, 2019, the Company and Everlight entered into a confidential settlement agreement resolving the litigation.

On April 13, 2017, the Company filed a patent infringement lawsuit against Cree, Inc. (“Cree”) in the United States District Court for the Eastern District of Texas, alleging infringement of certain of the Company’s LED patents. The Company is seeking a judgment for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements. On June 8, 2017, the Company refiled its patent infringement complaint against Cree in the United States District Court for the Central District of California, and thereafter filed a first amended complaint for patent infringement against Cree in that same court on July 14, 2017. The case is currently pending as of the date of this Report. On June 6, 2018, Cree filed an IPR petition challenging the validity of claims under U.S. Patent No. 7,256,486. This IPR was instituted and joined with the Seoul Semiconductor IPR. On June 7, 2018, Cree filed IPR petitions challenging the validity of certain claims U.S. Patent Nos. 7,524,087 and 6,949,771. Both IPRs were denied by the PTAB on November 14, 2018 as time-barred. The challenged patent is the patent that is the subject matter of the infringement lawsuit, which is pending but stayed pending the outcome of the IPR.

On August 15, 2017, the Company filed a patent infringement lawsuit against Lite-On, Inc., and Lite-On Technology Corporation (collectively, “Lite-On”) in the United States District Court for the Central District of California, alleging infringement of certain of the Company’s LED patents. The Company is seeking a judgment for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements. The case is currently pending but is stayed pending the outcome of IPR proceedings filed by other parties.

On December 7, 2017, DSS filed a patent infringement lawsuit against Nichia Corporation and Nichia America Corporation in the United States District Court for the Central District of California, alleging infringement of certain of DSS’s LED patents. The Company is seeking a judgment for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements. The case is currently pending as of the date of this Report. On May 10, 2018, Nichia filed an IPR petition challenging the validity of claims under U.S. Patent No. 7,919,787. On May 11, 2018, Nichia filed an IPR petition challenging the validity of claims under U.S. Patent No. 7,652,297. On May 25, 2018, Nichia filed an IPR petition challenging the validity of claims under U.S. Patent No. 7,524,087. On May 29, 2018, Nichia filed an IPR petition challenging the validity of claims under U.S. Patent No. 6,949,771. On May 30, 2018, Nichia filed an IPR petition challenging the validity of claims under U.S. Patent No. 7,256,486. The 6,949,771 IPR was denied institution, but the remaining IPRs were instituted by the PTAB. On December 10, 2018, Nichia refiled IPRs relating to 6,949,771, which was denied by the PTAB on April 15, 2019. These challenged patents are the patents that are the subject matter of the infringement lawsuit, which is pending but stayed pending the outcome of the IPR proceedings. On September 17, 2019, the PTAB issued a written decision determining claims 1-14 of the ‘787 patent unpatentable. On October 30, 2019, the PTAB issued a written decision determining claims 1-17 of the ‘297 patent unpatentable.

On September 18, 2019, DSS filed a patent infringement lawsuit against Seoul Semiconductor Co., Ltd. and Seoul Semiconductor Inc. in the United States District Court for the Central District of California alleging infringement of U.S. Patent No. 7,315,119. The Company is seeking a judgment for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements.

On September 19, 2019, DSS filed a patent infringement lawsuit against Cree, Inc. in the United States District Court for the Central District of California alleging infringement of U.S. Patent No. 6,784,460. The Company is seeking a judgment for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements.

On September 20, 2019, DSS filed a patent infringement lawsuit against Nichia Corp. and Nichia America Corp. in the United States District Court for the Central District of California alleging infringement of U.S. Patent No. 6,879,040. The Company is seeking a judgment for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements.

In addition to the foregoing, we may become subject to other legal proceedings that arise in the ordinary course of business and have not been finally adjudicated. Adverse decisions in any of the foregoing may have a material adverse effect on our results of operations, cash flows or our financial condition. The Company accrues for potential litigation losses when a loss is probable and estimable.

Contingent Litigation Payments - The Company retains the services of professional service providers, including law firms that specialize in intellectual property licensing, enforcement and patent law. These service providers are often retained on an hourly, monthly, project, contingent or a blended fee basis. In contingency fee arrangements, a portion of the legal fee is based on predetermined milestones or the Company’s actual collection of funds. The Company accrues contingent fees when it is probable that the milestones will be achieved, and the fees can be reasonably estimated. As of September 30, 2019, and December 31, 2018, the Company had not accrued any contingent legal fees pursuant to these arrangements.

Contingent Payments - The Company is party to certain agreements with funding partners who have rights to portions of intellectual property monetization proceeds that the Company receives. As of September 30, 2019, and December 31, 2018, there are no contingent payments due.

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Short-Term and Long-Term Debt

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Short-Term and Long-Term Debt

6. Short-Term and Long-Term Debt

Revolving Credit Lines - The Company’s subsidiary Premier Packaging Corporation (“Premier Packaging”) has a revolving credit line with Citizens Bank (“Citizens”) of up to $800,000 that bears interest at 1 Month LIBOR plus 2.0% (4.1% as of June 30, 2019). This revolving line of credit was renewed and has a maturity date of May 31, 2020. As of September 30, 2019, and December 31, 2018, the revolving line had a balance of $0.

On July 26, 2017, Premier Packaging entered into a Loan Agreement and accompanying Term Note Non-Revolving Line of Credit Agreement with Citizens pursuant to which Citizens agreed to lend up to $1,200,000 to permit Premier Packaging to purchase equipment from time to time that it may need for use in its business. The aggregate principal balance outstanding under the Equipment Acquisition Line of Credit shall bear interest thereon at a per annum rate of 2% above the LIBOR Advantage Rate until the Conversion Date (as defined in the Term Note Non-Revolving Line of Credit). Effective on the Conversion Date, the interest shall be adjusted to a fixed rate equal to 2% above the bank’s Cost of Funds, as determined by Citizens. Current maturities of long-term debt are based on an estimated 48-month amortization which will be adjusted upon conversion. As of September 30, 2019, the line had not yet converted into a credit facility and had a balance of $917,884 ($339,000 at December 31, 2018).

On December 1, 2017, the Company’s subsidiary Plastic Printing Professionals entered into a Loan Agreement and accompanying Term Note Non-Revolving Line of Credit Agreement with Citizens pursuant to which Citizens agreed to lend up to $800,000 to enable Plastic Printing Professionals to purchase equipment from time to time that it may need for use in its business. Advances may be made under this Equipment Acquisition Line of Credit, from time to time, from December 1, 2017 until December 1, 2018. The aggregate principal balance outstanding under the Equipment Acquisition Line of Credit bears interest at 2% above the LIBOR Advantage Rate (as defined in the agreement) (4.1% at September 30, 2019) until converted. Effective on conversion, the interest rate payable on the aggregate principal balance outstanding shall be adjusted to a fixed rate equal to 2% above Citizens’ cost of funds as determined by Citizens. Prior to conversion, interest on the outstanding principal is payable in arrears monthly. After conversion, the aggregate principal balance may be repaid in (i) up to 84 installments comprised of principal and interest for new equipment or (ii) up to 60 installments comprised of principal and interest for used equipment. Commencing March 30, 2019, the line was converted into two term notes under which the Company will make monthly payments of $13,657 until November 30, 2023. Interest under the term notes is payable monthly at 5.37%. As of September 30, 2019, the combined balance of the term notes was $610,401 ($684,554 at December 31, 2018).

Term Loan Debt - On April 28, 2015, Premier Packaging entered into a term note with Citizens for $525,000, repayable over a 60-month period. The loan bears interest at 3.62% and is payable in equal monthly installments of $9,591 until April 28, 2020. Premier Packaging used the proceeds of the term note to acquire a HP Indigo 7800 Digital press. The loan is secured by the printing press. As of September 30, 2019, the loan had a balance of $66,322 ($149,542 at December 31, 2018).

Promissory Notes - On August 30, 2011, Premier Packaging purchased the packaging plant it occupies in Victor, New York, for $1,500,000, which was partially financed with a $1,200,000 promissory note obtained from Citizens Bank (“Promissory Note”). The Promissory Note called for monthly payments of principal and interest in the amount of $7,658, with interest calculated as 1 Month LIBOR plus 3.15%. This note, in conjunction with the Construction to Permanent Loan described below, was refinanced as of June 27, 2019.

On December 6, 2013, Premier Packaging entered into a Construction to Permanent Loan with Citizens Bank for up to $450,000 that was converted into a promissory note upon the completion and acceptance of building improvements to the Company’s packaging plant in Victor, New York. In May 2014, the Company converted the loan into a $450,000 note payable in monthly installments over a 5-year period of $2,500 plus interest calculated at a variable rate of 1 Month LIBOR plus 3.15%. The note was set to mature in July 2019 at which time a balloon payment of the remaining principal balance of $300,000 was due. On June 27, 2019 the balloon payment, in conjunction with the remaining balance on promissory note identified above, was refinanced.

On June 27, 2019 Premier Packaging refinanced and consolidated the outstanding principal associated with the two promissory notes for its packaging plant located in Victor, New York, for $1,156,742 with Citizens Bank. The new Promissory Note calls for monthly payments of $7,181, with interest fixed at 4.22%. The new Promissory Note matures on June 27, 2029, at which time a balloon payment of $707,689 is due. As of September 30, 2019, the new, consolidated Promissory Note had a balance of $1,150,766.

The Citizens credit facilities to each of the Company’s subsidiaries, Premier Packaging and Plastic Printing Professionals, contain various covenants including fixed charge coverage ratio, tangible net worth and current ratio covenants which are tested annually at December 31. For the year ended December 31, 2018, both Premier Packaging and Plastic Printing Professionals were in compliance with the annual covenants.

On October 24, 2018, the Company’s subsidiary, DSS Asia Limited entered into a $100,000 unsecured promissory note with HotApps International Pte Ltd in conjunction with the acquisition of Guangzhou Hotapps Technology Ltd., a Chinese subsidiary of HotApps International Pte Ltd, by DSS Asia Limited. The promissory note does not accrue interest and is payable in full on October 24, 2020.

Effective on February 18, 2019, Document Security Systems, Inc. (the “Company” or “Borrower”) entered into a Convertible Promissory Note (the “Note”) with LiquidValue Development Pte Ltd (the “Holder”) in the principal sum of $500,000 (the “Principal Amount”), of which up to $500,000 of the Principal Amount can be paid by the conversion of such amount into the Company’s common stock, par value $0.02 per share, up to a maximum of 446,428 shares of common stock (the “Common Stock”), at a conversion price of $1.12 per share. The Note carried a fixed interest rate of 8% per annum and had a term of 12-months. Accrued interest was payable in cash in arrears on the last day of each calendar quarter, with the first interest payment due on June 30, 2019, and remains payable until the Principal Amount is paid in full. The Holder is a related party, owned by one of the Company’s directors. Effective on March 25, 2019, the Holder exercised its conversion option and converted the Maximum Conversion Amount under the Note. As a result of Holder’s election to exercise its full conversion rights under the Note, the Note was cancelled effective on March 25, 2019.

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Consolidated Statements of Changes in Stockholders' Equity (Unaudited) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Subscription Receivable [Member]	Accumulated Other Comprehensive Loss [Member]	Accumulated Deficit [Member]	Total
Balance at Dec. 31, 2017	$ 331,987	$ 106,633,708	$ (300,000)	$ (23,069)	$ (101,856,767)	$ 4,785,859
Balance, shares at Dec. 31, 2017	16,599,327
Issuance of common stock, net		(12,000)	300,000			288,000
Issuance of common stock, net, shares
Stock based payments, net of tax effect		1,251				1,251
Stock based payments, net of tax effect, shares
Other comprehensive gain (loss)				14,889		14,889
Net income (loss)					(406,091)	(406,091)
Balance at Mar. 31, 2018	$ 331,987	106,622,959		(8,180)	(102,262,858)	4,683,908
Balance, shares at Mar. 31, 2018	16,599,327
Balance at Dec. 31, 2017	$ 331,987	106,633,708	(300,000)	(23,069)	(101,856,767)	4,785,859
Balance, shares at Dec. 31, 2017	16,599,327
Net income (loss)						1,859,300
Balance at Sep. 30, 2018	$ 336,272	107,024,040		(5,675)	(99,997,467)	7,357,170
Balance, shares at Sep. 30, 2018	16,899,327
Balance at Mar. 31, 2018	$ 331,987	106,622,959		(8,180)	(102,262,858)	4,683,908
Balance, shares at Mar. 31, 2018	16,599,327
Issuance of common stock, net
Issuance of common stock, net, shares
Stock based payments, net of tax effect		84,922				84,922
Stock based payments, net of tax effect, shares
Other comprehensive gain (loss)				6,963		6,963
Net income (loss)					2,677,458	2,677,458
Balance at Jun. 30, 2018	$ 331,987	106,707,881		(1,217)	(99,585,400)	7,453,251
Balance, shares at Jun. 30, 2018	16,599,327
Issuance of common stock, net	$ 4,285	295,715				300,000
Issuance of common stock, net, shares	300,000
Stock based payments, net of tax effect		20,444				20,444
Stock based payments, net of tax effect, shares
Other comprehensive gain (loss)				(4,458)		(4,458)
Net income (loss)					(412,067)	(412,067)
Balance at Sep. 30, 2018	$ 336,272	107,024,040		(5,675)	(99,997,467)	7,357,170
Balance, shares at Sep. 30, 2018	16,899,327
Balance at Dec. 31, 2018	$ 348,517	107,624,666		(7,052)	(100,391,798)	7,574,333
Balance, shares at Dec. 31, 2018	17,425,858
Issuance of common stock, net	$ 11,537	626,453				637,990
Issuance of common stock, net, shares	576,863
Stock based payments, net of tax effect		30,701				30,701
Stock based payments, net of tax effect, shares
Other comprehensive gain (loss)				(778)		(778)
Net income (loss)					(450,450)	(450,450)
Balance at Mar. 31, 2019	$ 360,054	108,281,820		(7,830)	(100,842,248)	7,791,796
Balance, shares at Mar. 31, 2019	18,002,721
Balance at Dec. 31, 2018	$ 348,517	107,624,666		(7,052)	(100,391,798)	7,574,333
Balance, shares at Dec. 31, 2018	17,425,858
Net income (loss)						(2,731,943)
Balance at Sep. 30, 2019	$ 603,613	113,335,147			(103,123,741)	10,815,019
Balance, shares at Sep. 30, 2019	30,180,626
Balance at Mar. 31, 2019	$ 360,054	108,281,820		(7,830)	(100,842,248)	7,791,796
Balance, shares at Mar. 31, 2019	18,002,721
Issuance of common stock, net	$ 224,000	4,662,637				4,886,637
Issuance of common stock, net, shares	11,200,000
Stock based payments, net of tax effect		27,909				27,909
Stock based payments, net of tax effect, shares
Other comprehensive gain (loss)				(14,653)		(14,653)
Net income (loss)					(1,030,822)	(1,030,822)
Balance at Jun. 30, 2019	$ 584,054	112,972,366		(22,483)	(101,873,070)	11,660,867
Balance, shares at Jun. 30, 2019	29,202,721
Issuance of common stock, net	$ 10,384	151,383				161,767
Issuance of common stock, net, shares	519,186
Stock based payments, net of tax effect	$ 9,175	$ 211,398				220,573
Stock based payments, net of tax effect, shares	458,719
Other comprehensive gain (loss)				22,483		22,483
Net income (loss)					(1,250,671)	(1,250,671)
Balance at Sep. 30, 2019	$ 603,613	$ 113,335,147			$ (103,123,741)	$ 10,815,019
Balance, shares at Sep. 30, 2019	30,180,626

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Consolidated Balance Sheets - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 3,916,332	$ 2,447,985
Accounts receivable, net of $50,000 allowance for doubtful accounts	2,127,727	2,217,877
Inventory	1,651,884	1,563,593
Prepaid expenses and other current assets	470,047	285,580
Total current assets	8,165,990	6,515,035
Property, plant and equipment, net	5,122,138	5,014,494
Investment	324,930	324,930
Other assets	90,319	90,319
Right-of-use assets	1,344,601
Goodwill	2,453,597	2,453,597
Other intangible assets, net	1,048,503	881,411
Total assets	18,550,078	15,279,786
Current liabilities:
Accounts payable	1,341,003	1,347,491
Accrued expenses and deferred revenue	779,638	1,106,346
Other current liabilities	935,404	2,255,942
Current portion of long-term debt, net	467,382	713,427
Current portion of lease liability	361,713
Total current liabilities	3,885,140	5,423,206
Long-term debt, net	2,361,696	1,721,936
Lease liability	1,007,251
Other long-term liabilities	311,986	391,325
Deferred tax liability, net	168,986	168,986
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock, $.02 par value; 200,000,000 shares authorized, 30,180,626 shares issued and outstanding (17,425,858 on December 31, 2018)	603,613	348,517
Additional paid-in capital	113,335,147	107,624,666
Accumulated other comprehensive loss		(7,052)
Accumulated deficit	(103,123,741)	(100,391,798)
Total stockholders' equity	10,815,019	7,574,333
Total liabilities and stockholders' equity	$ 18,550,078	$ 15,279,786