UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
For the transition period from ______to_______ .
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(State or other Jurisdiction of incorporation- or Organization) |
(IRS Employer Identification No.) |
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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.
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)
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 ☐ | Smaller
reporting company | |
| 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 ☐
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Ticker symbol(s) | Name of each exchange on which registered | ||
| The
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As of May 2, 2022 there were shares of the registrant’s common stock, $0.02 par value, outstanding.
DSS, INC.
FORM 10-Q
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
DSS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
As of
| March 31, 2022
| December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Current portion of notes receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Investment in real estate, net | ||||||||
| Other investments | ||||||||
| Investment, equity method | ||||||||
| Marketable securities | ||||||||
| Notes receivable | ||||||||
| Other assets | ||||||||
| Right-of-use assets | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and deferred revenue | ||||||||
| Other current liabilities | ||||||||
| Current portion of lease liability | ||||||||
| Current portion of long-term debt, net | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net | ||||||||
| Long term lease liability | ||||||||
| Other long-term liabilities | ||||||||
| Commitments and contingencies (Note 9) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $par value; shares authorized,
shares issued and outstanding ( on December 31, 2021); Liquidation value $ | - | - | ||||||
| Common stock, $ par value; shares authorized, shares issued and outstanding ( on December 31, 2021) | ||||||||
| Additional paid-in capital | ||||||||
| Non-controlling interest in subsidiaries | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
| 3 |
DSS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenue: | ||||||||
| Printed products | $ | $ | ||||||
| Rental income | - | |||||||
| Management fee income | - | |||||||
| Net investment income | - | |||||||
| Direct marketing | ||||||||
| Total revenue | ||||||||
| Costs and expenses: | ||||||||
| Cost of revenue, exclusive of depreciation and amortization | ||||||||
| Selling, general and administrative (including stock based compensation) | ||||||||
| Depreciation and amortization | ||||||||
| Total costs and expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest income | ||||||||
| Other income | ( | ) | - | |||||
| Interest expense | ( | ) | ( | ) | ||||
| Gain on extinguishment of debt | - | |||||||
| Loss on equity method investment | ( | ) | ( | ) | ||||
| (Gain) loss on investments | ( | ) | ||||||
| Gain on sale of asset | - | |||||||
| Loss from continuing operations before income taxes | ( | ) | ( | ) | ||||
| Income tax benefit | - | |||||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
| Income from discontinued operations, net of tax | - | |||||||
| Net loss | ( | ) | ( | ) | ||||
| (Gain) loss from continuing operations attributed to noncontrolling interest | ||||||||
| Net loss attributable to common stockholders | ( | ) | ( | ) | ||||
| Loss per common share: | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Earnings per common share - discontinued operations: | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| Shares used in computing loss per common share: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
See accompanying notes to the condensed consolidated financial statements.
| 4 |
DSS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
(unaudited)
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss from continuing operations to net cash used by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock based compensation | ||||||||
| Loss on equity method investment | ( | ) | ||||||
| Loss (gain) on investments | ||||||||
| Impairment of notes receivable and other investments | - | |||||||
| Gain on extinguishment of debt | - | ( | ) | |||||
| Deferred tax benefit | - | ( | ) | |||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Other assets | ( | ) | ( | ) | ||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | ||||||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Other liabilities | ( | ) | ||||||
| Net cash used by operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Purchase of real estate | - | ( | ) | |||||
| Purchase of investment | ( | ) | ( | ) | ||||
| Purchase of marketable securities | ( | ) | ||||||
| Disposal of property, plant and equipment | ||||||||
| Note receivable investment | ( | ) | ( | ) | ||||
| Net cash used by investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Payments of long-term debt | ( | ) | ( | ) | ||||
| Borrowings of long-term debt | ||||||||
| Debt conversion to equity in subsidiary | - | |||||||
| Issuances of common stock, net of issuance costs | ||||||||
| Net cash provided by financing activities | ||||||||
| Cash flows from discontinued operations: | ||||||||
| Cash (used) provide by discontinued operations | - | ( | ) | |||||
| Net cash used by discontinued operations | - | ( | ) | |||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
| 5 |
DSS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(unaudited)
| Common Stock | Preferred Stock | Additional Paid-in | Non- controlling Interest in | Accumulated | ||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Subsidiary | Deficit | Total | |||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Issuance of common stock, net | - | - | - | - | ||||||||||||||||||||||||||||
| Conversion of debt to equity in subsidiary | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Stock based payments, net of tax effect | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||
| Issuance of common stock, net | - | - | - | - | ||||||||||||||||||||||||||||
| Stock based payments, net of tax effect | - | - | - | - | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance, March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
| 6 |
DSS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2022
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
The Company, incorporated in the state of New York in May 1984 has conducted business in the name of Document Security Systems, Inc. On September 16, 2021, the board of directors approved an agreement and plan of merger with a wholly owned subsidiary, DSS, Inc. (a New York corporation, incorporated in August 2020), for the sole purpose of effecting a name change from Document Security Systems, Inc. to DSS, Inc. This change became effective on September 30, 2021. DSS, Inc. maintained the same trading symbol “DSS” and updated its CUSIP number to 26253C 102.
DSS, Inc. (together with its consolidated subsidiaries, referred to herein as “DSS,” “we,” “us,” “our” or the “Company”) currently operates nine (9) distinct business lines with operations and locations around the globe. These business lines are: (1) Product Packaging, (2) Biotechnology, (3) Direct Marketing, (4) Commercial Lending, (5) Securities and Investment Management, (6) Alternative Trading (7) Digital Transformation, (8) Secure Living, and (9) Alternative Energy. Each of these business lines are in different stages of development, growth, and income generation.
Our divisions, their business lines, subsidiaries, and operating territories: (1) Our Product Packaging line is led by Premier Packaging Corporation, Inc. (“Premier”), a New York corporation. Premier operates in the paper board and fiber based folding carton, consumer product packaging, and document security printing markets. It markets, manufactures, and sells sophisticated custom folding cartons, mailers, photo sleeves and complex 3-dimensional direct mail solutions. Premier is currently located in its new facility in Rochester, NY, and primarily serves the US market. (2) The Biotechnology business line was created to invest in or acquire companies in the BioHealth and BioMedical fields, including businesses focused on the advancement of drug discovery and prevention, inhibition, and treatment of neurological, oncological, and immune related diseases. This division is also targeting unmet, urgent medical needs, and is developing open-air defense initiatives, which curb transmission of air-borne infectious diseases, such as tuberculosis and influenza. (3) Direct Marketing, led by the holding corporation, Decentralized Sharing Systems, Inc. (“Decentralized”) provides services to assist companies in the emerging growth “Gig” business model of peer-to-peer decentralized sharing marketplaces. Direct specializes in marketing and distributing its products and services through its subsidiary and partner network, using the popular gig economic marketing strategy as a form of direct marketing. Direct Marketing’s products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific, Middle East, and Eastern Europe. (4) Our Commercial Lending business division, driven by American Pacific Bancorp (“APB”), is organized for the purposes of being a financial network holding company, focused on acquiring equity positions in (i) undervalued commercial bank(s), bank holding companies and nonbanking licensed financial companies operating in the United States, South East Asia, Taiwan, Japan and South Korea, and (ii) companies engaged in—nonbanking activities closely related to banking, including loan syndication services, mortgage banking, trust and escrow services, banking technology, loan servicing, equipment leasing, problem asset management, SPAC (special purpose acquisition company) consulting services, and advisory capital raising services. (5) Securities and Investment Management was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, broker dealers, and mutual funds management. Also in this segment is the Company’s real estate investment trusts (“REIT”), organized for the purposes of acquiring hospitals and other acute or post-acute care centers from leading clinical operators with dominant market share in secondary and tertiary markets, and leasing each property to a single operator under a triple-net lease. the REIT was formed to originate, acquire, and lease a credit-centric portfolio of licensed medical real estate. (6) Alternative Trading was established to develop and/or acquire assets and investments in the securities trading and/or funds management arena. Alternative Trading, in partnership with recognized global leaders in alternative trading systems, intends to own and operate in the US a single or multiple vertical digital asset exchanges for securities, tokenized assets, utility tokens, and cryptocurrency via an alternative trading platform using blockchain technology. The scope of services within this section is planned to include asset issuance and allocation (securities and cryptocurrency), FPO, IPO, ITO, PPO, and UTO listings on a primary market(s), asset digitization/tokenization (securities, currency, and cryptocurrency), and the listing and trading of digital assets (securities and cryptocurrency) on a secondary market(s). (7) Digital Transformation was established to be a Preferred Technology Partner and Application Development Solution for mid cap brands in various industries including the direct selling and affiliate marketing sector. Digital improves marketing, communications and operations processes with custom software development and implementation. (8) The Secure Living division has developed a plan for fully sustainable, secure, connected, and healthy living communities with homes incorporating advanced technology, energy efficiency, and quality of life living environments both for new construction and renovations for single and multi-family residential housing. (9) The Alternative Energy group was established to help lead the Company’s future in the clean energy business that focuses on environmentally responsible and sustainable measures. Alset Energy, Inc, the holding company for this group, and its wholly owned subsidiary, Alset Solar, Inc., pursue utility-scale solar farms to serve US regional power grids and to provide underutilized properties with small microgrids for independent energy.
| 7 |
On August 21, 2020, the Company, completed its acquisition of Impact BioMedical, Inc. (“Impact BioMedical”), pursuant to a Share Exchange Agreement by and among the Company, DSS BioHealth Security, Inc. (“DSS BioHealth”), Alset International Limited (formally Singapore eDevelopment Ltd.), and Global Biomedical Pte Ltd. (“GBM”), which was previously approved by the Company’s shareholders (the “Share Exchange”). Under the terms of the Share Exchange, the Company issued shares of the Company’s common stock, par value $per share, valued at $per share, and newly issued shares of the Company’s Series A Convertible Preferred Stock (“Series A Preferred Stock”). As a result of the Share Exchange, Impact BioMedical is now a wholly owned subsidiary of DSS BioHealth, the Company’s wholly owned subsidiary (see Note 5).
Impact BioMedical strives to leverage its scientific know-how and intellectual property rights to provide solutions that have been plaguing the biomedical field for decades. By tapping into the scientific expertise of its partners, Impact BioMedical has undertaken a concerted effort in the research and development (“R&D”), drug discovery and development for the prevention, inhibition, and treatment of neurological, oncological, and immune related diseases.
On
September 9, 2021, the Company finalized a stock purchase agreement (the “SPA”) with American Pacific Bancorp, Inc. (“APB”),
which provided for an investment of $
On
September 13, 2021, the Company finalized a shareholder agreement between its subsidiary, DSS Financial Management, Inc. (“DFMI”)
and HR1 Holdings Limited (“HR1”), a company incorporated in the British Virgin Islands, for the purpose of operating
a vehicle for private and institutional investors seeking a highly liquid investment fund with attractive risk adjusted returns relative
to market unpredictability and volatility.
| 8 |
The accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly our consolidated financial position as of March 31, 2022 and December 31, 2021, and the results of our consolidated operations for the interim periods presented. We follow the same accounting policies when preparing quarterly financial data as we use for preparing annual data. These statements should be read in conjunction with the consolidated financial statements and the notes included in our latest annual report on Form 10-K for the fiscal year ended December 31, 2021 (“Form 10-K”), and our other reports on file with the Securities and Exchange Commission (the “SEC”).
Principles of Consolidation - The consolidated financial statements include the accounts of DSS, Inc. 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, convertible notes 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, preferred 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.
Reclassifications - Certain amounts on the accompanying consolidated balance sheets for the year ended December 31, 2021, have been reclassified to conform to current period presentation.
Cash Equivalents – All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. Amounts included in cash equivalents in the accompanying consolidated balance sheets are money market funds whose adjusted costs approximate fair value.
Notes receivable, unearned interest, and related recognition - The Company records all future payments of principal and interest on notes as notes receivable, which are then offset by the amount of any related unearned interest income. For financial statement purposes, the Company reports the net investment in the notes receivable on the consolidated balance sheet as current or long-term based on the maturity date of the underlying notes. Such net investment is comprised of the amount advanced on the loans, adjusting for net deferred loan fees or costs incurred at origination, amounts allocated to warrants received upon origination, and any payments received in advance. The unearned interest is recognized over the term of the notes and the income portion of each note payment is calculated so as to generate a constant rate of return on the net balance outstanding. Net deferred loan fees or costs, together with discounts recognized in connection with warrants acquired at origination, are accreted as an adjustment to yield over the term of the loan.
Investments – Investments in equity securities with a readily determinable fair value, not accounted for under the equity method, are recorded at fair value with unrealized gains and losses included in earnings. For equity securities without a readily determinable fair value, the investment is recorded at cost, less any impairment, plus or minus adjustments related to observable transactions for the same or similar securities, with unrealized gains and losses included in earnings.
| 9 |
For equity method investments, the Company regularly reviews its investments to determine whether there is a decline in fair value below book value. If there is a decline that is other-than-temporary, the investment is written down to fair value. See Note 6 for further discussion on investments.
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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“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 consolidated balance sheet of cash and cash equivalents, accounts receivable, prepaids, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. Marketable securities classify as a Level 1 fair value financial instrument. The fair value of notes receivable approximates their carrying value as the stated or discounted rates of the notes do not reflect recent market conditions. 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. The fair value of investments where the fair value is not considered readily determinable, are carried at cost.
Inventory
– Inventories consist primarily of paper,
pre-printed security paper, paperboard, fully prepared packaging, and health and beauty products which and are stated at the lower of
cost or net realizable value on the first-in, first-out (“FIFO”) method. Packaging work-in-process and finished goods included
the cost of materials, direct labor and overhead. At the closing of each reporting period, the Company evaluates its inventory in order
to adjust the inventory balance for obsolete and slow-moving items. An allowance for obsolescence of approximately $
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.
| 10 |
Acquisitions - In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2017-01, Business Combinations (“Topic 805”): Clarifying the Definition of a Business (“ASU 2017-01”). The guidance is intended to assist entities with evaluating whether a set of transferred assets and activities is a business. Under this guidance, an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If the threshold is not met, the entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. See Note 5 regarding the acquisitions.
Business combinations and non-controlling interests are recorded in accordance with FASB ASC 805 Business Combinations. Under the guidance, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition and all acquisition costs are expensed as incurred. The excess of the purchase price over the estimated fair values is recorded as goodwill. If the fair value of the assets acquired exceeds the purchase price and the liabilities assumed, then a gain on acquisition is recorded. The application of business combination accounting requires the use of significant estimates and assumptions.
Acquisition of assets are recorded at their relative fair value based on total accumulated costs of the acquisition. Direct acquisition-related costs are capitalized as a component of the acquired assets. This includes all costs related to finding, analyzing and negotiating a transaction. The allocation of the purchase price is an area that requires judgment and significant estimates. Tangible and intangible assets include land, building and improvements, furniture, fixtures and equipment, acquired above market and below market leases, in-place lease value (if applicable). Acquisition-date fair values of assets and assumed liabilities are determined based on replacement costs, appraised values, and estimated fair values using methods similar to those used by independent appraisers and that use appropriate discount and/or capitalization rates and available market information.
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 three months ended March 31, 2022, two customers accounted for
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.
Recent Accounting Pronouncements - In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326)”, which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. The Company is currently assessing the impact that adopting this new accounting standard will have on our consolidated financial statements.
| 11 |
2. Revenue
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. The Company recognizes rental income associated with its REIT, net of amortization of favorable/unfavorable lease terms relative to market and includes rental abatements and contractual fixed increases attributable to operating leases, where collection has been considered probable, on a straight-line basis over the term of the related lease. The Company recognizes net investment income from its investment banking line of business as interest owed to the Company occurs. The Company generates revenue from its direct marketing line of business primarily through internet sales and recognizes revenue as items are shipped.
As of March 31, 2022, 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 105 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 March 31, 2022, and December 31, 2021, the
Company established a reserve for doubtful accounts of approximately $
| 12 |
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 March 31, 2022.
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. Notes Receivable
American Premium Water Corporation
On October 15, 2020, APB entered
into a loan agreement with (“APW Note”) with American Premium Water Corporation,(“APW”), a Nevada corporation.
The loan, not to exceed the principal sum of $
GSX Group Limited
On
February 8, 2021, the Company entered into a convertible promissory note (“GSX Note”) with GSX Group Limited (“GSX”),
a company registered in Gibraltar. The Company loaned the principal sum of $
On February 3, 2021, USX Holdings Company, Inc., a subsidiary of the Company entered into a binding joint venture term sheet (“GSX JV”), along with Coinstreet, whose CEO is also a member of the Company’s board of directors, for the creation of a USA based joint venture alternative trading system or exchange (“JV Exchange”). During the nine-months ended September 30, 2021, the Company and GSX finalized the terms of the JV Exchange. This JV is currently in the planning stages.
Dustin Crum
On
February 21, 2021, Impact BioMedical, Inc. a subsidiary of the Company, entered into a promissory note (“Crum Note”) with
Dustin Crum (“Mr. Crum”). The Company loaned the principal sum of $
Sentinel Brokers Company, Inc.
On
May 13, 2021, Sentinel Brokers, LLC, a subsidiary of the Company entered a revolving credit promissory note (“Sentinel
Note”) with Sentinel Brokers Company, Inc. (“Sentinel”), a company registered in the state of New York. The
Sentinel Note has an aggregate principal balance up to $
Puradigm, LLC
On
May 14, 2021, DSS Pure Air, Inc. a subsidiary of the Company entered into a convertible promissory note (“Puradigm Note”)
with Puradigm, LLC (“Puradigm”), a company registered in the state of Texas. The Puradigm Note has an aggregate principal
balance up to $
South Regional Management District (formally Harris-Montgomery Counties Management District)
On
September 23, 2021, APB entered into refunding bond anticipatory note (“District Note”) with South Regional Management
District (the “District”), which operates as a conservation and reclamation district pursuant to Chapter 3891, Texas
Special District Local Laws Code; Chapter 375, Texas Local Government Code; and Chapter 49, Texas Water Code. The District Note was in
the sum of $
| 13 |
Asili, LLC.
On
October 25, 2021, APB entered into loan agreements (“Asili Agreement”) with Asili, LLC. (“Asili”) a company registered
in the state of Utah. The Asili Agreement has an initial aggregate principal balance up to $
Leopoldo Bustamate.
On
June 13, 2019, APB extended the credit to Leopoldo Bustamate (“Bustamate Note”) in the form of a promissory note for $
HWH World Ltd.
On
October 7, 2021, HWH World, Inc., a subsidiary of the Company entered into a revolving loan commitment (“HWH Ltd Note”)
with HWH World Ltd. (“HWH Ltd.”) a company registered in Taiwan. The HWH Ltd. Note has an principal balance of $
West Park Capital Group, LLC.
On December 28, 2021, APB
entered into promissory note (“West Park Note”) with West Park Capital Group, LLC. (“West Park”), a company registered
in the state of California. The West Park Note has an principal balance of $
1044PRO, LLC.
In
January 2021, SHRG and 1044PRO, LLC (“1044 PRO”) entered into a Funding Agreement pursuant to which the Company agreed
to provide to 1044 PRO a $
XIP Optimal
In
the fiscal year 2019, SHRG received a promissory note for $
WUURII Commerce Inc.,
On
March 2, 2022, APB and WUURII Commerce, Inc. (“WUURRII”), a corporation organized under the laws of the Republic of Korea
entered into a promissory note (“WUURRII Note”). Under the terms of the WURRII Note, APB at its discretion, may lend up to
the principal sum of $
| 14 |
Farah S. Khan
On
January 24, 2022, APB and Farah S. Khan (“Khan”) entered into a promissory note (“Khan Note”) in the principal
sum of $
4. Financial Instruments
Cash, Cash Equivalents, Restricted Cash and Marketable Securities
The following tables show the Company’s cash, cash equivalents, restricted cash, and marketable securities by significant investment category as of March 31, 2022, and December 31, 2021:
| 2022 | ||||||||||||||||||||||||
| Adjusted Cost | Unrealized Gain/(Loss) | Fair Value | Cash and Cash Equivalents |
Marketable Securities | Investments | |||||||||||||||||||
| Cash | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Level 1 | ||||||||||||||||||||||||
| Money Market Funds | ||||||||||||||||||||||||
| Marketable Securities | ||||||||||||||||||||||||
| Level 2 | ||||||||||||||||||||||||
| Warrants | ||||||||||||||||||||||||
| Convertible securities | ||||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 2021 | ||||||||||||||||||||||||
Adjusted Cost |
Unrealized Gain/(Loss) |
| Fair Value | Cash and Cash Equivalents |
Marketable Securities | Investments | ||||||||||||||||||
| Cash | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Level 1 | ||||||||||||||||||||||||
| Money Market Funds | $ | |||||||||||||||||||||||
| Marketable Securities | $ | |||||||||||||||||||||||
| Level 2 | ||||||||||||||||||||||||
| Warrants | $ | |||||||||||||||||||||||
| Convertible securities | $ | |||||||||||||||||||||||
| Total | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 15 |
The Company typically invests with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. Fair values were determined for each individual security in the investment portfolio.
5. Acquisitions
American Medical REIT Inc.
On
March 3, 2020, the Company, via its subsidiary DSS Securities, entered into a share subscription agreement and loan arrangement with
LiquidValue Asset Management Pte Ltd., AMRE Asset Management, Inc. and American Medical REIT Inc. under which it acquired a
AMRE entered into
a $
On
June 18, 2021, DSS Securities, entered into a stock purchase agreement with AMRE to acquire Class A Common Shares of AMRE at
a per share price of $, for a total consideration of $
On
June 18, 2021, AMRE Shelton, LLC., (“AMRE Shelton”) a subsidiary of AMRE financed the purchase of a
On
November 4, 2021, AMRE LifeCare Portfolio, LLC. (“AMRE LifeCare”), a subsidiary of AMRE, acquired three medical facilities
located in Fort Worth, Texas, Plano, Texas, and Pittsburgh, Pennsylvania for a purchase price of $
On
December 21, 2021, AMRE Winter Haven, LLC. (“AMRE Winter Haven”), a subsidiary of AMRE, acquired a medical facility located
in Winter Haven, Florida for a purchase price of $
During
the three-months ended March 31, 2022, and 2021, AMRE had net losses of $
| 16 |
Impact BioMedical, Inc.
Impact
BioMedical, a wholly owned subsidiary of the Company, has several subsidiaries that are not wholly owned by Impact Biomedical
and have an ownership percentage ranging from
American Pacific Bancorp.
On
September 9, 2021, the Company finalized a stock purchase agreement (the “SPA”) with American Pacific Bancorp (“APB”),
which provided for an investment of $
Sharing Services Global Corp. (“SHRG”)
As
of and through June 30, 2020, the Company classified its investment in Sharing Services Global Corp. (“SHRG”), a publicly
traded company, as marketable equity security and measured it at fair value with gains and losses recognized in other income. In July
2020, through continued acquisition of common stock, as detailed below, the Company obtained greater than
On January 24, 2022, the Company exercised warrants received as part of a consulting
agreement with SHRG at the exercise price of $
| 17 |
We are currently in the process of completing the purchase price accounting and related allocations associated with the acquisition of SHRG. The Company is in the process of completing valuations and useful lives for certain assets acquired in the transaction. We expect the preliminary purchase price accounting to be completed during the year ending December 31, 2022.
6. Investments
Alset International Limited (formally Singapore eDevelopment Limited), related party
The
Company owns shares or approximately
Century TBD Holdings, LLC
On October 10, 2019, the Company
entered into a convertible promissory note (“TBD Note”) with Century TBD Holdings, LLC (“TBD”), a Florida limited
liability company. The Company loaned the principal sum of $
BMI Capital International LLC
On
September 10, 2020, the Company’s wholly owned subsidiary DSS Securities, Inc. entered into membership interest purchase
agreement with BMI Financial Group, Inc. a Delaware corporation (“BMIF”) and BMI Capital International LLC, a Texas
limited liability company (“BMIC”) whereas DSS Securities, Inc. purchased
BMIC is a broker-dealer registered with the Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”), and is a member of the Securities Investor Protection Corporation (“SIPC”). The Company’s chairman of the board and another independent board member of the Company also have ownership interest in BMIC.
| 18 |
Alset Title Company
BioMed Technologies Asia Pacific Holdings Limited
On
December 19, 2020, Impact BioMedical, a wholly owned subsidiary of the Company, entered into a subscription agreement (the “Subscription
Agreement”) with BioMed Technologies Asia Pacific Holdings Limited (“BioMed”), a limited liability company incorporated
in the British Virgin Islands, pursuant to which the Company agreed to purchase ordinary shares or
BioMed focuses on manufacturing natural probiotics, pursuant to which the Company will directly market, advertise, promote, distribute and sell certain BioMed products to resellers. The products to be distributed by the Company include BioMed’s PGut Premium Probiotics®, PGut Allergy Probiotics®, PGut SupremeSlim Probiotics®, PGut Kids Probiotics®, and PGut Baby Probiotics®.
Under the terms of the Distribution Agreement, the Company will have exclusive rights to distribute the products within the United States, Canada, Singapore, Malaysia, and South Korea and non-exclusive distribution rights in all other countries. In exchange, the Company agreed to certain obligations, including mutual marketing obligations to promote sales of the products. This agreement is for ten years with a one year auto-renewal feature.
Vivacitas Oncology, Inc.
On
March 15, 2021, the Company, through one of its subsidiaries, entered into a Stock Purchase Agreement (the “Vivacitas Agreement
#1”) with Vivacitas Oncology Inc. (“Vivacitas”), to purchase shares of its common stock at the per share price
of $,
with an option to purchase additional shares at the per share price of $.
This option will terminate upon one of the following events: (i) Vivacitas’ board of directors cancels this option because it is
no longer in the best interest of the Company; (ii) December 31, 2021; or (iii) the date on which Vivacitas receives more than $per share of the Company’s common stock
in a private placement with gross proceeds of $.
Under the terms of the Vivacitas Agreement #1, the Company will be allocated two seats on the board of Vivacitas. On March 18, 2021,
the Company entered into an agreement with Alset EHome International, Inc. (“Seller”) to purchase from the Seller’s
its wholly owned subsidiary Impact Oncology PTE Ltd. (“IOPL”) for a purchase price $
On
April 1, 2021, the
On
July 22, 2021, the Company exercised of the available options under the Vivacitas Agreement #1 for $
| 19 |
Sentinel Brokers Company, Inc.
On
May 13, 2021, a Sentinel Brokers, LLC., subsidiary of the Company entered into a stock purchase agreement (“Sentinel Agreement”)
to acquire a
Sentinel is a broker-dealer operating primarily as a fiduciary intermediary, facilitating intuitional trading of municipal and corporate bonds as well as preferred stock, and is registered with the Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”), and is a member of the Securities Investor Protection Corporation (“SIPC”).
Stemtech Corporation
In
September 2021, SHRG, Stemtech Corporation (“Stemtech”) and Globe Net Wireless Corp. (“GNTW”) entered into
a Securities Purchase Agreement (the “SPA”) pursuant to which the SHRG invested $
SHRG
carries its investment in the Convertible Note, the GNTW Warrant and the shares of GNTW common stock at fair value in accordance with
U.S. GAAP. During the three month ended March 31, 2022 and twelve months ended December 31, 2021, the SHRG recognized unrealized
gains, before income tax, of $
MojiLife, LLC
In
September 2021, SHRG entered into a Membership Unit Purchase Agreement pursuant to which the SHRG acquired a
7. Short-Term and Long-Term Debt
DSS, Inc.
Promissory
Notes - On March 2, 2020, AMRE entered into a $
| 20 |
On
March 16, 2021, American Medical REIT, Inc. received loan proceeds in the amount of approximately $
On
May 20, 2021, Premier Packaging entered into master loan and security agreement (“BOA Note”) with Bank of America, N.A. (“BOA”)
to secure financing approximating $
On
June 18, 2021,
On
October 13, 2021, LVAM entered into loan agreement with BMIC (“BMIC Loan”), whereas LVAM borrowed the principal amount of
$
On October 13, 2021, LVAM
entered into loan agreement with Lee Wilson Tsz Kin (“Wilson Loan”), a related party, whereas LVAM borrowed the
principal amount of $
On
November 2, 2021, AMRE LifeCare entered into a loan agreement (“LifeCare Agreement”) with Pinnacle Bank, (“Pinnacle
Bank”) in the amount of $
In November 2021, AMRE entered
into a convertible promissory note (“Alset Note”) with Alset International Limited (“Alset International”) for
the principal amount of $
On March 17, 2022, AMRE Winter
Haven, LLC (“AMRE Winter Haven”) and Pinnacle Bank (“Pinnacle”) entered into a term loan (“Pinnacle Loan”)
whereas Pinnacle lent to AMRE Winter Haven the principal sum of $
Sharing Services Global Corporation
In
October 2017, SHRG issued a Convertible Promissory Note in the principal amount of $
| 21 |
In
December 2019, SHRG and the holder of the SHRG $
8. Lease Liability
The
Company has operating leases predominantly for operating facilities. As of March 31, 2022, the remaining lease terms on our operating
leases range from less than to
Future minimum lease payments as of March 31, 2022, are as follows:
Maturity of Lease Liability:
| Totals | ||||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | - | |||
| After | - | |||
| Total lease payments | ||||
| Less: Imputed Interest | ( | ) | ||
| Present value of remaining lease payments | $ | |||
| Current | $ | |||
| Noncurrent | $ | |||
| Weighted-average remaining lease term (years) | ||||
| Weighted-average discount rate | % | |||
In
March of 2022, Premier Packaging began leasing its relocated manufacturing facilities to West Henrietta, New York. This lease contains
an escalating payment clause, ranging from $
| 22 |
9. Commitments and Contingencies
The Ronaldi Litigation
Additionally,
on March 2, 2020, DSS and DSSTM filed a second litigation action against Jeffrey Ronaldi in the State of New York, Supreme Court,
County of Monroe, Document Security Systems, Inc. and DSS Technology Management, Inc. vs. Jeffrey Ronaldi, Index No.: 2020002300, alleging
acts of self-dealing and conflicts of interest while he served as CEO of both DSS and DSS TM. Mr. Ronaldi filed a Notice of Removal of
this civil litigation to the United States District Court for the Western District of New York where it was assigned Case No. 6:20-cv-06265-EAW.
Mr. Ronaldi filed a motion seeking to compel DSS to advance his legal fees to defend the action, which motion was fully briefed as of
June 30, 2020, and remains pending and undecided. On March 16, 2021, the Western District of New York granted Mr. Ronaldi’s
motion to have his defense costs advanced to him during the pendency of the action as they are incurred. On March 26, 2021, Mr.
Ronaldi applied to the court for reimbursement of $
| 23 |
Maiden Biosciences Litigation
On February 15, 2021, Maiden Biosciences, Inc. (“Maiden”) commenced an action against DSS, Inc. (“DSS”), Decentralized Sharing Systems, Inc. (“Decentralized”), HWH World, Inc. (“HWH”), RBC Life International, Inc., RBC Life Sciences, Inc (“RBC”)., Frank D. Heuszel (“Heuszel”), Steven E. Brown, Clinton Howard, and Andrew Howard (collectively, “Defendants”). The lawsuit is currently pending in the United States District Court Northern District of Texas, Dallas Division, and is styled and numbered Maiden Biosciences, Inc. v. Document Security Stems, Inc., et al., Case No. 3:21-cv-00327.
This
lawsuit relates to two promissory notes executed by RBC in the 4th quarter of
On March 30, 2021, Defendants DSS, Decentralized, HWH, RBC Life International, Inc., and Heuszel filed a motion to dismiss seeking to dismiss Maiden’s unjust enrichment, exemplary damages, and RICO claims against DSS, Decentralized, HWH, RBC Life International, Inc., and Heuszel, as well as Maiden’s fraudulent transfer claims against DSS and RBC International, Inc. On August 9, 2021, the Court then entered an order granting in part the motion to dismiss filed on behalf of DSS, Decentralized, HWH, RBC Life International, Inc., and Heuszel. Among other things, the Court held that Maiden failed to plausibly plead certain causes of action, including (1) the civil RICO claim against DSS, Decentralized, HWH, RBC Life International, Inc., and Heuszel, (2) the TUFTA claim against DSS, and (3) the unjust enrichment claim against DSS and RBC Life International, Inc. Notably, the Court declined the request to dismiss the TUFTA claim against RBC Life International, Inc. The Court granted Maiden leave to file an amended complaint. Maiden’s deadline to do so is Monday, September 6, 2021. The Company intends to vigorously defend its position. On September 3, 2021, Maiden filed its amended complaint, asserting a single cause of action against the DSS Defendants and RBC for an alleged TUFTA violation. Generally, Maiden is seeking the same relief requested in its original complaint. Maiden, however, has abandoned its request for treble damages. On September 17, 2021, the DSS Defendants filed a motion to dismiss the amended complaint seeking to dismiss Maiden’s TUFTA claim to the extent it seeks to avoid a transfer of assets owned by any of RBC’s subsidiaries, including but not limited to RBC Life Sciences USA, Inc. Further, the motion to dismiss also seeks the dismissal of Maiden’s TUFTA claim against Heuszel. The DSS Defendants’ motion to dismiss the amended complaint will be ripe for determination on or after October 22, 2021. Trial is currently set for December 5, 2022, on the Court’s two-week docket.
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.
| 24 |
10. Stockholders’ Equity
Sales of Equity –
On
February 28, 2022, DSS entered into an Amendment to Stock Purchase Agreement (the “Amendment”) with its shareholder Alset
EHome International Inc. (“AEI”), pursuant to which the Company and AEI have agreed to amend certain terms of the Stock Purchase
Agreement dated January 25, 2022 (the “SPA”). Pursuant to the SPA, AEI had agreed to purchase shares of the Company’s common stock for
a purchase price of $per share, for an aggregate purchase price of
$
On March 10, 2022, the Company
issued shares of common stock to Heng Fai Ambrose Chan pursuant to his employment agreement. These shares were issued in consideration
of $
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 three months ended March 31, 2022, the Company’s stock compensation approximated $ or less than $ basic and diluted loss per share.
11. Supplemental Cash Flow Information
The following table summarizes supplemental cash flows for the three-months ended March 31, 2022, and 2021:
| 2022 | 2021 | |||||||
| Cash paid for interest | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Termination of right of use lease asset | $ | $ | ( | ) | ||||
| Termination of right of use lease liability | $ | $ | ||||||
| Debt conversion to equity | $ | $ | ||||||
| Shares issued for accrued bonus | $ | $ | ||||||
| 25 |
12. Segment Information
The
Company’s nine businesses lines are organized, managed and internally reported as
Our segment structure presented below represents a change from the prior year for the inclusion of our Biotechnology, Securities, and Commercial Lending segments and the removal of our Plastics segment, Digital Group and IP Technology Management segment as the Plastics segment was discontinued in 2020, DSS Digital was sold and discontinued in May 2021 and activities surrounding our IP Technology Management segment have significantly decreased. The amounts for these segments have been included in the Corporate reporting segment for the year ended March 31, 2022 and 2021, as necessary, below for reconciliation purposes.
Approximate information concerning the Company’s operations by reportable segment for the three months ended March 31, 2022 and 2021 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 March 31, 2022 | Product Packaging | Commercial Lending | Direct Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Depreciation and amortization | - | |||||||||||||||||||||||||||
| Interest expense | - | - | - | |||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | ||||||||||||||||||||||||
| Impairment of goodwill | - | - | - | - | - | - | - | |||||||||||||||||||||
| Net income (loss) from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Capital expenditures | - | - | ||||||||||||||||||||||||||
| Identifiable assets | ||||||||||||||||||||||||||||
| Three Months Ended March 31,2021 | Product Packaging | Commercial Lending | Direct Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||
| Revenue | $ | $ | - | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Depreciation and amortization | - | - | ||||||||||||||||||||||||||
| Interest expense | - | - | - | - | ||||||||||||||||||||||||
| Stock based compensation | - | - | - | - | ||||||||||||||||||||||||
| Impairment of goodwill | - | - | - | - | - | |||||||||||||||||||||||
| Net income (loss) from continuing operations | - | ( | ) | ( | ) | - | ( | ) | ( | ) | ||||||||||||||||||
| Capital expenditures | - | - | - | - | ||||||||||||||||||||||||
| Identifiable assets | - | - | ||||||||||||||||||||||||||
| 26 |
The following tables disaggregate our business segment revenues by major source:
Printed Products Revenue Information:
| Three months ended March 31, 2022 | ||||
| Packaging Printing and Fabrication | $ | |||
| Commercial and Security Printing | ||||
| Total Printed Products | $ | |||
| Three months ended March 31, 2021 | ||||
| Packaging Printing and Fabrication | $ | |||
| Commercial and Security Printing | ||||
| Total Printed Products | $ |
Direct Marketing
| Three months ended March 31, 2022 | ||||
| Direct Marketing Internet Sales | $ | |||
| Total Direct Marketing | $ |
| Three months ended March 31, 2021 | ||||
| Direct Marketing Internet Sales | $ | |||
| Total Direct Marketing | $ |
Rental Income
| Three months ended March 31, 2022 | ||||
| Rental income | $ | |||
| Total Rental Income | $ |
| Three months ended March 31, 2021 | ||||
| Rental income | $ | |||
| Total Rental Income | $ |
Management Fee Income
Three months ended March 31, 2022 | ||||
| Management fee income | $ | |||
| Total Management fee income | $ |
Three months ended March 31, 2021 | ||||
| Management fee income | $ | |||
| Total Management fee income | $ |
Net Investment Income
Three months ended March 31, 2022 | ||||
| Net investment income | $ | |||
| Total Management fee income | $ |
Three months ended March 31, 2021 | ||||
| Management fee income | $ | |||
| Total Management fee income | $ |
13. Subsequent Events
On April 29, 2022, a purported shareholder of the Company filed a lawsuit in the New York Supreme Court in Monroe County (the “Complaint”) against the Company and members of the Company’s Board. In general, the Complaint alleges that the defendants breached their fiduciary duty to defendant with regards to the transactions described in proposals 1 and 2 in our definitive proxy statement. The Company believes that the claims asserted in the above-described actions are without merit and that no supplemental disclosure is required under applicable law. However, in order to moot the unmeritorious disclosure claims, to avoid the risk of the above-described actions delaying or adversely affecting the transactions and to minimize the costs, risks and uncertainties inherent in litigation, without admitting any liability or wrongdoing, the Company has determined to voluntarily supplement its proxy statement. The plaintiff has withdrawn a request for hearing on their order to show cause to enjoin us from going forward on our proxy proposals 1 and 2.
| 27 |
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements contained herein this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Reform Act”). Except for the historical information contained herein, this report contains forward-looking statements (identified by words such as “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, that could cause actual results to differ materially from the results anticipated in the forward-looking statements.
Overview
The Company, incorporated in the state of New York in May 1984 has conducted business in the name of Document Security Systems, Inc. On September 16, 2021, the board of directors approved an agreement and plan of merger with a wholly owned subsidiary, DSS, Inc. (a New York corporation, incorporated in August 2020), for the sole purpose of effecting a name change from Document Security Systems, Inc. to DSS, Inc. This change became effective on September 30, 2021. DSS, Inc. maintained the same trading symbol “DSS” and updated its CUSIP number to 26253C 102.
DSS, Inc. (together with its consolidated subsidiaries, referred to herein as “DSS,” “we,” “us,” “our” or the “Company”) currently operates nine (9) distinct business lines with operations and locations around the globe. These business lines are: (1) Product Packaging, (2) Biotechnology, (3) Direct Marketing, (4) Commercial Lending, (5) Securities and Investment Management, (6) Alternative Trading (7) Digital Transformation, (8) Secure Living, and (9) Alternative Energy. Each of these business lines are in different stages of development, growth, and income generation.
Our divisions, their business lines, subsidiaries, and operating territories: (1) Our Product Packaging line is led by Premier Packaging Corporation, Inc. (“Premier”), a New York corporation. Premier operates in the paper board and fiber based folding carton, consumer product packaging, and document security printing markets. It markets, manufactures, and sells sophisticated custom folding cartons, mailers, photo sleeves and complex 3-dimensional direct mail solutions. Premier is currently located in its new facility in Rochester, NY, and primarily serves the US market. (2) The Biotechnology business line was created to invest in or acquire companies in the BioHealth and BioMedical fields, including businesses focused on the advancement of drug discovery and prevention, inhibition, and treatment of neurological, oncological, and immune related diseases. This division is also targeting unmet, urgent medical needs, and is developing open-air defense initiatives, which curb transmission of air-borne infectious diseases, such as tuberculosis and influenza. (3) Direct Marketing, led by the holding corporation, Decentralized Sharing Systems, Inc. (“Decentralized”) provides services to assist companies in the emerging growth “Gig” business model of peer-to-peer decentralized sharing marketplaces. Direct specializes in marketing and distributing its products and services through its subsidiary and partner network, using the popular gig economic marketing strategy as a form of direct marketing. Direct Marketing’s products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific, Middle East, and Eastern Europe. (4) Our Commercial Lending business division, driven by American Pacific Bancorp (“APB”), is organized for the purposes of being a financial network holding company, focused on acquiring equity positions in (i) undervalued commercial bank(s), bank holding companies and nonbanking licensed financial companies operating in the United States, South East Asia, Taiwan, Japan and South Korea, and (ii) companies engaged in—nonbanking activities closely related to banking, including loan syndication services, mortgage banking, trust and escrow services, banking technology, loan servicing, equipment leasing, problem asset management, SPAC (special purpose acquisition company) consulting services, and advisory capital raising services. (5) Securities and Investment Management was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, broker dealers, and mutual funds management. Also in this segment is the Company’s real estate investment trust (“REIT”), organized for the purposes of acquiring hospitals and other acute or post-acute care centers from leading clinical operators with dominant market share in secondary and tertiary markets, and leasing each property to a single operator under a triple-net lease. the REIT was formed to originate, acquire, and lease a credit-centric portfolio of licensed medical real estate. (6) Alternative Trading was established to develop and/or acquire assets and investments in the securities trading and/or funds management arena. Alt. Trading, in partnership with recognized global leaders in alternative trading systems, intends to own and operate in the US a single or multiple vertical digital asset exchanges for securities, tokenized assets, utility tokens, and cryptocurrency via an alternative trading platform using blockchain technology. The scope of services within this section is planned to include asset issuance and allocation (securities and cryptocurrency), FPO, IPO, ITO, PPO, and UTO listings on a primary market(s), asset digitization/tokenization (securities, currency, and cryptocurrency), and the listing and trading of digital assets (securities and cryptocurrency) on a secondary market(s). (7) Digital Transformation was established to be a Preferred Technology Partner and Application Development Solution for mid cap brands in various industries including the direct selling and affiliate marketing sector. Digital improves marketing, communications and operations processes with custom software development and implementation. (8) The Secure Living division has developed a plan for fully sustainable, secure, connected, and healthy living communities with homes incorporating advanced technology, energy efficiency, and quality of life living environments both for new construction and renovations for single and multi-family residential housing. (9) The Alternative Energy group was established to help lead the Company’s future in the clean energy business that focuses on environmentally responsible and sustainable measures. Alset Energy, Inc, the holding company for this group, and its wholly owned subsidiary, Alset Solar, Inc., pursue utility-scale solar farms to serve US regional power grids and to provide underutilized properties with small microgrids for independent energy.
| 28 |
On February 8, 2021, DSS Securities announced that it entered into a joint venture (“JV”) with Coinstreet Partners (“Coinstreet”), a global decentralized digital investment banking group and digital asset financial service firm, and GSX Group (“GSX”), a global digital exchange ecosystem for the issuance, trading, and settlement of tokenized securities, using its proprietary blockchain solution. The JV leverages the operational strengths and assets of three key leaders in their field, combining traditional capital market experience, Fintech innovations, and business networks from three continents, North America, Europe, and Asia, to capitalize on unique digital asset opportunities. The JV reported that it intended to first pursue a digital securities exchange license in the US. Moving forward, this JV will be the key operational company building and operating a digital securities exchange that utilizes the GSX STACS blockchain technology, serving corporate issuers and investors in the sector.
On February 25, 2021, DSS Securities announced its acquisition of an equity interest in WestPark Capital, Inc.(“WestPark”) and an investment in BMI Capital International LLC (“BMICI”). DSS Securities executed two separate transactions that were designed to grow the securities division by signing a binding note and stock exchange letter of intent to own 7.5% of the issued and outstanding shares of WestPark and acquiring 24.9% of BMICI through a purchase agreement. WestPark is a full-service investment banking and securities brokerage firm which serves the needs of both private and public companies worldwide, as well as individual and institutional investors. BMI is a private investment bank specializing in corporate finance advising, raising equity, and venture services, providing a global “one-stop” corporate consultancy to listed companies. From corporate finance to professional valuation, corporate communications to event management, BMICI services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia.
On March 1, 2021, Decentralized Sharing Systems, Inc. (“Decentralized”) announced that it increased its investment in Sharing Services Global Corporation (“Sharing Services” or “SHRG”), a publicly traded company dedicated to maximizing shareholder value through the acquisition and development of innovative companies, products, and technologies in the direct selling industry, through a $30 million convertible promissory note dated April 5, 2021. Decentralized’s financing was made as an investment that would help accelerate Sharing Services sales and growth, as well as international expansion, with the expectation that such capital reserves would help make Sharing Services a dominant player in the global marketplace over the next two years. It was reported that the new $30 million investment would have the potential to exponentially increase Sharing Services sales channels and substantially expand its product portfolio, and to position Sharing Services to capitalize on consolidation and roll up opportunities of other direct selling companies. In the joint announcement, Sharing Services reported that the additional funding would now allow it to accelerate its global expansion with a direct focus on the Asian markets, and specifically in countries such as South Korea, Japan, Hong Kong, China, Singapore, Taiwan, Thailand, Malaysia, and the Philippines. In accordance with the April 5, 2021, convertible promissory note, SHRG issued to the Company 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of the loan origination fee and 12,000,000 shares in prepayment of interest for the first year. As of and through June 30, 2020, the Company classified its investment in Sharing Services Global Corp. (“SHRG”), a publicly traded company, as marketable equity security and measured it at fair value with gains and losses recognized in other income. In July 2020, through continued acquisition of common stock, as detailed below, the Company obtained greater than 20% ownership of SHRG, and thus has the ability to exercise significant influence over it. During the quarter ended September 30, 2020, the Company began to account for its investment in SHRG using the equity method in accordance with ASC Topic 323, Investments—Equity Method and Joint Ventures recognizing our share of SHRG’s earnings and losses within our consolidated statement of operations. Through a series of transactions, DSS increased its ownership of voting shares in SHRG to approximately 58% on December 23, 2021. The 58% ownership of SHRG meets the definition of a business with inputs, processes, and outputs, and therefore, the Company has concluded to account for this transaction in accordance with the acquisition method of accounting under Topic 805 and began consolidating the financial results of SHRG as of December 31, 2021. On January 24, 2022, the Company exercised 50,000,000 warrants received as part of a consulting agreement with SHRG at the exercise price of $0.0001, bring its ownership percentage of voting shares to approximately 65%. The Company, via three (3) of the Company’s existing board members, currently holds four (4) of the five (5) SHRG board of director seats. Mr. John “JT” Thatch, DSS’s Lead Independent Director and as well the CEO of SHRG is on the SHRG Board, along with Mr. Heng Fai Ambrose Chan, DSS’s Executive Chairman of the board of directors (joined the SHRG Board effective May 4, 2020), and Mr. Frank D. Heuszel, the CEO of the Company (joined the SHRG Board effective September 29, 2020).
On March 15, 2021, the Company, through one of its subsidiaries, DSS BioMedical International, Inc. entered into a Stock Purchase Agreement (the “Agreement”) with Vivacitas Oncology Inc. (“Vivacitas”), to purchase 500,000 shares of its common stock at the per share price of $1.00, with an option to purchase 1,500,000 additional shares at the per share price of $1.00. In addition, under the terms of the Agreement, the Company will be allocated two seats on the board of Vivacitas. On March 18, 2021, the Company entered into an agreement with Alset EHome International, Inc. (“Seller”) to acquire the Seller’s wholly owned subsidiary Impact Oncology PTE Ltd for the purchase price of $2,480,000 to effectively purchase ownership of 2,480,000 shares of common stock of Vivacitas. This agreement includes an option to purchase an additional 250,000 shares of common stock. As a result of these two transactions, which were closed on March 21, 2021, and March 29, 2021, respectively, the Company owns an approximate 15.7% equity position in Vivacitas. The Seller’s largest shareholder is Mr. Heng Fai Ambrose Chan, the Chairman of the Company’s board of directors and its largest shareholder. On July 22, 2021, the Company exercised 1,000,000 of the available options under the Vivacitas Agreement #1. The Company’s current equity position in Vivacitas approximates 16%.
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On April 21, 2021, the Company announced its wholly owned subsidiary, Premier Packaging Corporation’s intentions to relocate from its current 48,000 square-foot manufacturing facility from Victor, NY to a new 105,000 square-foot facility in the Town of Henrietta, NY approximately 15 miles from its Victor location by the end of 2021. In connection with this relocation, Premier Packaging has entered into an agreement to sell its current Victor location and closed on the transaction in March 2022.
On May 13, 2021, Sentinel Brokers, LLC., a subsidiary of the Company entered into a stock purchase agreement (“Sentinel Agreement”) to acquire a 24.9% equity position of Sentinel Brokers Company, Inc. (“Sentinel”), a company registered in the state of New York, for the purchase price of $300,000. Under the terms of this agreement, the Company as the option to purchase an additional 50.1% of the outstanding Class A Common Shares. Upon the exercising of this option, but no earlier than one year following the effective date the Sentinel Agreement, Sentinel has the option to sell the remaining 25% to the Company. In consideration of purchase price investment in Sentinel, the Company is entitled to an additional 50.1% of the net profits of Sentinel
On May 19, 2021, the Company announced that its wholly owned subsidiary, DSS PureAir, Inc., a Texas corporation (“DSS PureAir”), closed on a Securities Purchase Agreement with Puradigm LLC, a Nevada limited liability corporation (“Puradigm”). Pursuant to the terms of the Securities Purchase Agreement, DSS PureAir agreed to provide Puradigm a secured convertible promissory note in the maximum principal amount of $5,000,000.00 (the “Puradigm Note”). The Puradigm Note has a two-year term with interest at 6.65% payable quarterly. All, or part of the Puradigm Note principal balance can be converted at the sole discretion of DSS PureAir for up to an 18% membership interest in Puradigm LLC. The Puradigm Note is secured by all the assets of Puradigm under a security agreement with Puradigm.
On June 18, 2021, AMRE Shelton, LLC., (“AMRE Shelton”) a subsidiary of AMRE financed the purchase of a 40,000 square foot, 2.0 story, Class A+ multi-tenant medical office building located on a 13.62-acre site in Shelton, Connecticut (See Note 7). In accordance with Topic 805, the acquisition of the medical acquired has been determined to be an acquisition of assets as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. This property was appraised at approximately $7,150,000, of which $6,027,000 and $815,000 was allocated to the facility and land respectively. Also include in the value of the property is $308,000 of intangible assets with an estimated useful life of 11 years. Contained within the sale-purchase agreement for this facility, is a $1,500,000 earnout due to the seller if certain criteria are met. As of March 31, 2022, no liability has been recorded for this earnout as management determined it is currently remote.
On September 9, 2021, the Company finalized a stock purchase agreement (the “SPA”) with American Pacific Bancorp (“APB”), which provided for an investment of $40,000,200 by the Company into APB for an aggregate of 6,666,700 shares of the APB’s Class A Common Stock, par value $0.01 per share. Subject to the terms and conditions contained in the SPA, the shares issued at a purchase price of $6.00 per share. As a result of this transaction, DSS became the majority owner of APB. APB is organized for the purposes of being a financial network holding company, focused providing commercial loans and on acquiring equity positions in (i) undervalued commercial bank(s), bank holding companies and nonbanking licensed financial companies operating in the United States, South East Asia, Taiwan, Japan and South Korea, and (ii) companies engaged in—nonbanking activities closely related to banking, including loan syndication services, mortgage banking, trust and escrow services, banking technology, loan servicing, equipment leasing, problem asset management, SPAC (special purpose acquisition company) consulting, and advisory capital raising services. From this financial platform, the Company shall provide an integrated suite of financial services for businesses that shall include commercial business lines of credit, land development financing, inventory financing, third party loan servicing, and services that address the financial needs of the world Gig Economy.
On September 13, 2021, the Company finalized a shareholder agreement and joint venture between its subsidiary, DSS Financial Management, Inc. (“DFMI”) and HR1 Holdings Limited (“HR1”), a company incorporated in the British Virgin Islands, for the purpose to operate a vehicle for private and institutional investors seeking a highly liquid investment fund with attractive risk adjusted returns relative to market unpredictability and volatility. Under the terms of this agreement, 4000 shares or 40% of the Company’s subsidiary Liquid Asset Limited Management Limited (“LVAM”), a Hong Kong company was transferred to HR1 whereas at the conclusion of the transaction DFMI would own 60% of LVAM and HR1 would own 40%. LVAM executes within reliable platforms and broad market access and uses proprietary systems and algorithms to trade liquid exchange-traded funds (ETFs), stocks, futures or crypto. Aimed at providing consistent returns while offering the unique ability to liquidate the portfolio within 5 to 10 minutes under normal market conditions, LVAM provides an array of advanced tools and products enabling customers to explore multiple opportunities, strengthen and diversify their portfolios, and meet their individual investing goals.
On April 7th, 2021, the Company entered into a transfer and assignment agreement (“RIA Agreement”) between DSS Securities, Inc. (“DSSS”) and AmericaFirst Capital Management, LLC (“Advisor”), a California limited liability company and the registered investment advisor (“RIA”) to all the funds within the AmericaFirst Quantitative Funds Trust (“Trust”). In September of 2021, with the approval of the Trust’s Board of Trustees and its shareholders, and with the consideration of $600,000 paid, DSSS became the new registered investment advisor to the Trust. Upon the completion of the transfer, the Trust was renamed to the DSS AmericaFirst Quantitative Trust. The DSS AmericaFirst Quantitative Trust is a Delaware business trust established in 2012. The Trust currently consists of 4 mutual funds managed by DSS Wealth Management, Inc.: The DSS AmericaFirst Income Trends Fund, DSS AmericaFirst Defensive Growth Fund, DSS AmericaFirst Risk-On Risk-Off Fund, and DSS AmericaFirst Large Cap Buyback Fund. The funds seek to outperform their respective benchmark indices by applying a quantitative rules-based approach to security selection. The DSS AmericaFirst Quantitative Funds is a suite of mutual funds managed by DSS Wealth Management, Inc. that will expand into numerous investment platforms including additional mutual funds, exchange-traded funds, unit investment trusts and closed-end funds. We see substantial growth opportunities in each of these platforms as we are committed to building and expanding upon an experienced distribution infrastructure. For DSSS services rendered in its role as RIA, the Trust shall pay a fee for each fund calculated as a percentage of the average daily net assets. The $600,000 consideration given is recorded as an Other intangible asset, net on the Consolidated Balance Sheet at March 31, 2022. As the RIA Agreement has no defined period, this asset has been deemed an infinite life asset and no amortization has been taken.
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On December 23, 2021, DSS purchased 50,000,000 shares at $0.06 per share of Sharing Services Global Corporation (“SHRG”) via a private placement. With this purchase, DSS increased its ownership of voting shares from approximately 47% of SHRG to approximately 58%. On January 24, 2022, the Company exercised 50,000,000 warrants received as part of a consulting agreement with SHRG at the exercise price of $0.0001, bring its ownership percentage of voting shares to approximately 65%. SHRG aims to build shareholder value by developing or acquiring businesses that increase the Company’s product and services portfolio, business competencies and geographic reach. Currently, the Company, through its subsidiaries, markets and distributes its health and wellness and other products primarily in the United States, Canada, and the Asia Pacific region using a direct selling business model. The Company markets its products and services through its independent sales force, using its proprietary websites, including: www.elevacity.com and www.thehappyco.com. The Company, headquartered in Plano, Texas, was incorporated in the State of Nevada on April 24, 2015, and is an emerging growth company. The Company’s Common Stock is traded, under the symbol “SHRG,” in the OTCQB Market, an over-the-counter trading platforms market operated by OTC Markets Group Inc.
The five reporting segments are as follows:
Premier Packaging:
Premier Packaging Corporation provides custom packaging services and serves clients in the pharmaceutical, nutraceutical, consumer goods, beverage, specialty foods, confections, photo packaging and direct marketing industries, among others. The group also provides active and intelligent packaging and document security printing services for end-user customers. In addition, the division produces a wide array of printed materials, such as folding cartons and paperboard packaging, security paper, vital records, prescription paper, birth certificates, receipts, identification materials, entertainment tickets, secure coupons and parts tracking forms. The division also provides resources and production equipment for our ongoing research and development of security printing, brand protection, consumer engagement and related technologies. Premier is nearing completion of its facility expansion with operations expected to begin at the new 105,000 sq. ft. facility in early March 2022.
For over 25 years, Premier has been a market leader in providing solutions for paperboard packaging from consumer retail packaging and heavy mailing envelopes, to sophisticated custom folding cartons and complex three-dimensional direct mail solutions. Premier’s innovative products and design team delivers packaging that provides functionality, marketability, and sustainability, with its fiber-based packing solutions providing an alternative to traditional plastic packaging.
Since 2019, we have accelerated the transformation of Premier’s operations, investing in state-of-the-art manufacturing equipment, people, and processes to increase its capacity, improve quality and delivery, and to ensure it has the resources to support its growing customer base and their evolving supply chain demands.
Commercial Lending: (“Commercial Lending”) through its operating company, American Pacific Bancorp (“APB”) provides an integrated suite of financial services for businesses that include commercial business lines of credit, land development financing, inventory financing, third party loan, servicing, and services that address the financial needs of the world Gig Economy. APB intends to continue to develop and expand its lending platform to serve the small to mid-size commercial borrower and to continue to acquire equity positions of commercial banks in the US to develop its lending network and to provide global banking services to clients worldwide, including servicing markets with limited access to traditional US banking services. APB’s target customers are businesses with annual revenues of $5 million to $50+ million, including manufacturers, wholesalers, retailers, distributors, importers, and service companies. APB has expertise in, and services tailored for, specific industries, including beverage, food and agribusiness, technology, healthcare, government, higher education, clean technology, and environmental services.
Biotechnology: (“Biotech”) This sector, through its subsidiary Impact BioMedical, Inc. targets unmet, urgent medical needs and expands the borders of medical and pharmaceutical science. Impact drives mission-oriented research, development, and commercialization of solutions for medical advances in human wellness and healthcare. By leveraging technology and new science with strategic partnerships, Impact Bio provides advances in drug discovery for the prevention, inhibition, and treatment of neurological, oncology and immuno-related diseases. Other exciting technologies include a breakthrough alternative sugar aimed to combat diabetes and functional fragrance formulations aimed at the industrial and medical industry.
The business model of BioHealth and Impact BioMedical revolves around two methodologies – Licensing and Sales Distribution.
1) Impact develops valuable and unique patented technologies which will be licensed to pharmaceutical, large consumer package goods companies and venture capitalists in exchange for usage licensing and royalties.
2) Impact utilizes the DSS ecosystem to leverage its sister companies that have in place distribution networks on a global scale. Impact will engage in branded and private labelling of certain products for sales generation through these channels. This global distribution model will give direct access to end users of Impact’s nutraceutical and health related products.
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Securities and Investment Management: (“Securities”) Securities was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, real estate investment funds, broker dealers, and mutual funds management. This business sector has already established the following business lines and associated products and services:
| ● | REIT Management Fund: In March 2020, DSS Securities formed AMRE (“American Medical REIT”) and its management company AAMI (“AMRE Asset Management, Inc.) Through AAMI/AMRE, a medical real estate investment trust, fulfills community needs for quality healthcare facilities while enabling care providers to allocate their capital to growth and investment in their contemporary clinical and critical care businesses. Urban and suburban communities are in need of modern healthcare facilities that provide a range of medical outpatient services. The funds ultimate product is an investor opportunity in a managed medical real estate investment trust. | |
| ● | Real Estate Title Services: Alset Title Company, Inc. provides buyers, sellers, and brokers alike confidence during big real estate transactions, not just in a transaction, but in the property itself. Through bundled services, Alset Title Company, Inc. provides it all from title searches and insurance to escrow agent assistance. | |
| ● | Sentinel: Sentinel primarily operates as a financial intermediary, facilitating institutional trading of municipal and corporate bonds as well as preferred stock, and accelerates the trajectory of the DSS digital securities business. | |
| ● | WestPark: WestPark, a company we hold a minority interest in, is a full-service investment banking and securities brokerage firm which serves the needs of both private and public companies worldwide, as well as individual and institutional investors. | |
| ● | BMI: BMI is a private investment bank specializing in corporate finance advising, raising equity, and venture services, providing a global “one-stop” corporate consultancy to listed companies. From corporate finance to professional valuation, corporate communications to event management, BMI services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia. | |
| ● | DSS AmericaFirst: DSS AmericaFirst is a suite of mutual funds managed by DSS Wealth Management. DSS AmericaFirst expects to expand into numerous investment platforms including additional mutual funds, exchange-traded funds, unit investment trusts, and closed-end funds. DSS AmericaFirst currently consists of four mutual funds that seek to outperform their respective benchmark indices by applying a quantitative rules-based approach to security selection. |
Direct Marketing: (“Direct”) Through its holding company, Decentralized Sharing Systems, Inc. and its subsidiaries and partners, including Sharing Services Global Corporation provide an array of products and services, through an independent contractor network.
For example, Decentralized’s wholly owned subsidiary, HWH World, Inc. promotes products and services that fulfill its corporate position of health, wealth, and happiness. The HWH Marketplace through its brands desires to help its customers become the healthiest, happiest versions of themselves. For the health component, the company offers herbal alternatives of nutraceutical, consumables and topicals, dietary supplements, beauty and skin care products, personal care, gut health products, aloe vera based supplements, and other wellness products. As to the wealth component, the company is developing educational tools to its users to better manage individual finances and savings programs to help its consumers find each consumer’s individual financial goal. As to the happiness component, the company is working with other partners to either acquire or partner in products and/or services to allow its consumers to enjoy and healthy living, including a global travel membership network.
Further, Sharing Services, through its subsidiary Elevacity, markets and distributes health and wellness products under the “Elevate” brand, primarily in the United States and Canada. Sharing Services markets its products and services through its independent contractor distribution system and using its proprietary website: www.elevacity.com. In February 2021, the Company launched its new business brand, “The Happy Co.,” at its Elevacity division. Elevacity as several well-known and signature products, including its top product lines of “Happy Coffees” and “Nootropic Beverages”. Elevacity also sells a “healthy shake”, a “Keto Coffee Booster”, “Energy Caps”, “XanthoMax© Happy Caps”, “Wellness Vitamin Patches”, various beauty and skin care products, and other wellness products.
Results of operations for the three months ended March 31, 2022, as compared to the three months ended March31, 2021.
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, 2021.
Revenue
Three months ended March 31, 2022 | Three months ended March 31, 2021 | % Change | ||||||||||
| Revenue | ||||||||||||
| Printed products | $ | 3,569,000 | $ | 3,861,000 | -8 | % | ||||||
| Rental income | 1,663,000 | - | N/A | |||||||||
| Management fee income | 11,000 | - | N/A | |||||||||
| Net investment income | 129,000 | - | N/A | |||||||||
| Direct marketing | 6,932,000 | 608,000 | 1040 | % | ||||||||
| Total Revenue | $ | 12,304,000 | $ | 4,469,000 | 175 | % | ||||||
For the three months ended March 31, 2022, total revenue increased 175% as compared to the three months ended March 31, 2021. Revenues from the sale of Printed products decreased 8% during the three months ended March 31, 2022, as compared to the same period in 2021, primarily due to manufacturing down time related to relocating Premier’s manufacturing plant during Q1 2022. Net investment income, Rental income and Management fee income, $129,000, $1,663,000 and $11,000 respectively, represent new revenue streams for the Company and are associated with our Securities and Commercial Lending business segments. The Company’s Direct Marketing revenues increased 1040% in 2022 as compared to 2021 due primarily to the increase sales in our Asian markets, and the inclusion of SHRG revenue for the period January 1, 2022, to March 31, 2022.
Costs and expenses
Three months ended March 31, 2022 | Months ended March 31, 2021 | % Change | ||||||||||
| Costs and expenses | ||||||||||||
| Cost of revenue, exclusive of depreciation and amortization | $ | 5,443,000 | $ | 3,287,000 | 66 | % | ||||||
| Sales, general and administrative compensation | 4,333,000 | 1,719,000 | 152 | % | ||||||||
| Depreciation and amortization | 3,266,000 | 514,000 | 535 | % | ||||||||
| Professional fees | 1,222,000 | 977,000 | 25 | % | ||||||||
| Stock based compensation | 4,000 | 60,000 | -93 | % | ||||||||
| Sales and marketing | 3,861,000 | 630,000 | 513 | % | ||||||||
| Rent and utilities | 149,000 | 57,000 | 161 | % | ||||||||
| Research and development | 168,000 | 244,000 | -31 | % | ||||||||
| Other operating expenses | 600,000 | 373,000 | 61 | % | ||||||||
| Total costs and expenses | $ | 19,046,000 | $ | 7,861,000 | 142 | % | ||||||
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Costs of revenue, exclusive of depreciation and amortization includes all direct costs of direct marketing and printed products revenues, including materials, direct labor, transportation and manufacturing facility costs. Costs of goods sold increased 66% for the three months ended March 31, 2022, respectively as compared to the same periods in 2021. This increase is driven primarily by an increase in manufacturing costs associated with the products sold as part of our Direct Marketing, and Packaging and Printing segments, in particular, increases in freight, paper, and overhead costs.
Sales, general and administrative compensation costs, excluding stock-based compensation, increased 152% during the three months ended March 31, 2022, as compared to the same periods in 2021, primarily due to additional head count associated with the inclusion of SHRG compensation costs for the three months ended March 31, 2022.
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. Also included is the depreciation of the buildings acquired and amortization of intangible assets included in real estate acquisitions made by our REIT business line for the three months ended March 31, 2022, depreciation and amortization expense increased 535% as compared to the same periods in 2021 due primarily to the amortization on newly acquired intangibles assets, as well as the acquisition of several properties made by our REIT business line
Professional fees increased 25% during the three months ended March 31, 2022, as compared to the same periods in 2021, primarily due to an increase in legal fees associated with the direct marketing segment, and due diligence fees related to potential acquisitions.
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 decreased 93% during the three months ended March 31, 2022, as compared to the same periods in 2021, driven by the expiration of options awarded to employees no longer with the Company.
Sales and marketing which include internet and trade publication advertising, travel and entertainment costs, sales-broker commissions, and trade show participation expenses. The increased 513% during the three months ended March 31, 2022 as compared to the same periods in 2021, is a result of the commissions paid to brokers associated with the Company’s Direct Marketing segment, and in particular, the inclusion of SHRG financial results for the three months ended March 31, 2022.
Rent and utilities increased 161% during the three months ended March 31, 2022, as compared to the same period in 2021, primarily due to a new facility lease in Houston, Texas started during the first quarter of 2021.
Research and development costs decreased 31% during the three months ended March 31, 2022, as compared to the same period in 2021 are due to a decrease in such activities at our Impact Biomedical, Inc. subsidiary.
Other operating expenses consist primarily of equipment maintenance and repairs, office supplies, IT support, and insurance costs. During the three months ended March 31, 2022, other operating expenses increased 61% as compared to the same period in 2021 due to increased software costs associated with enhancements to the Company’s ERP system as well as new software implement as part of the Company’s Direct Marketing segment and increased D&O insurance premiums.
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Other Income (Expense)
Three months ended March 31, 2022 | Three months ended March 31,2021 | % Change | ||||||||||
| Other Income (Expense) | ||||||||||||
| Interest Income | $ | 156,000 | $ | 52,000 | 200 | % | ||||||
| Interest Expense | (1,378,000 | ) | (20,000 | ) | 6790 | % | ||||||
| Other Expense | (1,703,000 | ) | - | N/A | ||||||||
| Loss on investments | 424,000 | (1,077,000 | ) | -139 | % | |||||||
| Loss on equity method investment | (112,000 | ) | (579,000 | ) | -81 | % | ||||||
| Gain on extinguishment of debt | - | 116,000 | -100 | % | ||||||||
| Gain on sale of assets | 405,000 | - | N/A | |||||||||
| Total other income | $ | (2,208,000 | ) | $ | (1,508,000 | ) | -46 | % | ||||
Interest income is recognized on the Company’s money markets, and notes receivable, identified in Note 3.
Other expense represents cost associated with the impairment of investments and notes receivables for SHRG approximating $1,637,000.
Interest expense increased 6790% during the three months ended March 31, 2022, as compared to the same period in 2021, due to increasing debt balances.
Loss on investments consists of net realized losses on marketable securities which are recognized as the difference between the purchase price and sale price of the common stock investment. Also included are net unrealized losses on marketable securities which are recognized on the change in fair market value on our common stock investment.
Loss on equity method investment is the Company’s prorated portion of earnings on its investments treated under the equity method of account for the three months ended March 31, 2022.
Gain on extinguishment of debt consists of funds received by AAMI in April 2020, by the SBA Paycheck Protection Program of $112,000. As of January 8, 2021, this note was forgiven in full.
Gain on sale of assets is driven by the Company’s gain on the sale of Premier’s manufacturing facility in Victor, NY, as well as other capital assets.
Net Loss
Three months ended March 31, 2022 | Three months ended March 31,2021 | % Change | ||||||||||
| Loss from continuing operations | $ | (8,950,000 | ) | $ | (4,062,000 | ) | -120 | % | ||||
| Income from discontinued operations, net of tax | - | 50,000 | 100 | % | ||||||||
| Net loss | $ | (8,950,000 | ) | $ | (4,012,000 | ) | -123 | % | ||||
For the three months ended March 31, 2022, and March 31, 2021, the Company recorded net loss from continuing operations of $8,950,000 and $4,012,000 respectively. The increase in net loss during the three months ended March 31, 2022, as compared to the same periods in 2021 primarily reflect the inclusion of the Company’s SHRG subsidiary in the first quarter 2022.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its liquidity and capital requirements primarily through the sale of its equity securities and debt financings. As of March 31, 2022 the Company had cash of approximately $53.8 million. As of March 31, 2022, the Company believes that it has sufficient cash to meet its cash requirements for at least the next 12 months from the filing date of this Annual Report. In addition, the Company believes that it will have access to sources of capital from the sale of its equity securities and debt financings.
Off-Balance Sheet Arrangements
We do not have any material 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, 2021, describe the significant accounting policies and methods used in the preparation of the financial statements. There have been no material changes to such critical accounting policies as of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.
ITEM 4 - CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures for the quarter ended March 31, 2022, 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, 2021 which remained as of March 31, 2022, our principal executive officer and principal financial officer concluded that as of March 31, 2022, 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, 2021, 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 March 31, 2022, 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 March 31, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| 35 |
PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
See commentary in Note 9 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, 2021.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 25, 2022, the Company entered into a stock purchase agreement with Alset EHome International, Inc. (the “January 25, 2022 SPA”), pursuant to which the Company agreed to issue to Alset EHome International, Inc. (“AEI”) up to 44,619,423 shares of the Company’s common stock (the “Shares”) for a purchase price of $0.3810 per share. On February 28, 2022, the Company entered into an Amendment to Stock Purchase Agreement, pursuant to which the Company and AEI agreed to amend certain terms of the January 25, 2022 SPA. Pursuant to the Amendment, the number of shares of the common stock of the Company that the AEI will purchase has been reduced from 44,619,423 to 3,986,877 shares for an aggregate purchase price of $1,519,000.
On January 18, 2022, the Company entered into a stock purchase agreement with AEI, pursuant to which AEI sold to the Company 100% of the shares of common stock of its wholly owned subsidiary True Partner International Limited (HK) (“TP”), and all of TP’s 62,122,908 ordinary shares of True Partner Capital Holding Limited, for a purchase price of 11,397,080 newly issued shares of the Company’s common stock. This agreement was terminated on February 25, 2022. On February 28, 2022, the Company entered into a Stock Purchase Agreement with Alset EHome International Inc. (the “True Partner Revised Stock Purchase Agreement”), pursuant to which AEI has agreed to sell a subsidiary holding 62,122,908 shares of stock of True Partner Capital Holding Limited in exchange for 17,570,948 shares of common stock of the Company.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS
| 101.INS | Inline XBRL Instance Document* | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document* | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document* | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document)* |
*Filed herewith.
| 36 |
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.
| DSS, INC. | ||
| May 16, 2022 | By: | /s/ Frank D. Heuszel |
| Frank D. Heuszel | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| May 16, 2022 | By: | /s/ Todd D. Macko |
| Todd D. Macko | ||
| Chief Financial Officer | ||
| 37 |