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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 11/14/23 DSS, Inc. 10-Q 9/30/23 71:50M M2 Compliance LLC/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 1.21M
2: EX-3.1 Articles of Incorporation/Organization or Bylaws HTML 63K
3: EX-3.2 Articles of Incorporation/Organization or Bylaws HTML 140K
4: EX-3.3 Articles of Incorporation/Organization or Bylaws HTML 23K
5: EX-10.1 Material Contract HTML 71K
6: EX-10.2 Material Contract HTML 32K
7: EX-31.1 Certification -- §302 - SOA'02 HTML 24K
8: EX-31.2 Certification -- §302 - SOA'02 HTML 24K
9: EX-32.1 Certification -- §906 - SOA'02 HTML 20K
10: EX-32.2 Certification -- §906 - SOA'02 HTML 20K
16: R1 Cover HTML 72K
17: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 144K
18: R3 Condensed Consolidated Balance Sheets (Unaudited) HTML 29K
(Parenthetical)
19: R4 Condensed Consolidated Statements of Operations HTML 127K
(Unaudited)
20: R5 Condensed Consolidated Statements of Cash Flows HTML 108K
(Unaudited)
21: R6 Condensed Consolidated Statements of Changes in HTML 68K
Stockholders' Equity (Unaudited)
22: R7 Basis of Presentation and Significant Accounting HTML 80K
Policies
23: R8 Revenue HTML 29K
24: R9 Inventory HTML 28K
25: R10 Notes Receivable HTML 86K
26: R11 Financial Instruments HTML 68K
27: R12 Provision for Credit Losses HTML 34K
28: R13 Disposal of assets HTML 30K
29: R14 Investments HTML 61K
30: R15 Acquisitions HTML 34K
31: R16 Short-Term and Long-Term Debt HTML 82K
32: R17 Lease Liability HTML 33K
33: R18 Commitments and Contingencies HTML 25K
34: R19 Stockholders? Equity HTML 50K
35: R20 Supplemental Cash Flow Information HTML 29K
36: R21 Segment Information HTML 153K
37: R22 Related Party Transactions HTML 55K
38: R23 Subsequent Events HTML 28K
39: R24 Basis of Presentation and Significant Accounting HTML 99K
Policies (Policies)
40: R25 Inventory (Tables) HTML 28K
41: R26 Financial Instruments (Tables) HTML 66K
42: R27 Acquisitions (Tables) HTML 27K
43: R28 Short-Term and Long-Term Debt (Tables) HTML 25K
44: R29 Lease Liability (Tables) HTML 30K
45: R30 Supplemental Cash Flow Information (Tables) HTML 28K
46: R31 Segment Information (Tables) HTML 146K
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49: R34 Notes Receivable (Details Narrative) HTML 251K
50: R35 Schedule of Cash and Marketable Securities by HTML 62K
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52: R37 Disposal of assets (Details Narrative) HTML 56K
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54: R39 Schedule of Business Acquisition, Pro Forma HTML 29K
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56: R41 Schedule of Notes Payable and Long-term Debt HTML 36K
(Details)
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58: R43 Schedule of Future Minimum Lease Payments HTML 47K
(Details)
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60: R45 Commitments and Contingencies (Details Narrative) HTML 28K
61: R46 Stockholders? Equity (Details Narrative) HTML 109K
62: R47 Schedule of Supplemental Cash Flow Information HTML 33K
(Details)
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(Details)
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66: R51 Subsequent Events (Details Narrative) HTML 43K
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
i ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended i September 30, i 2023 /
i ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______to_______ .
Commission file number
| i DSS, INC. |
| (Exact name of registrant as specified in its charter) |
| i New York | i 16-1229730 | |
(State or other Jurisdiction of incorporation- or Organization) |
(IRS Employer Identification No.) |
i West Henrietta, i NY i 14586
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐ i No ☒
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) i Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | i Non-accelerated filer ☒ | Smaller reporting company i ☒ |
| Emerging growth company i ☐ |
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 ☐ i No ☒
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Ticker symbol(s) | Name of each exchange on which registered | ||
| i Common Stock, $0.02 par value per share | i DSS | The i NYSE American LLC |
As of November 6, 2023 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
DSS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
| September 30, 2023 (unaudited) | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | i 6,897,000 | $ | i 19,290,000 | ||||
| Accounts receivable, net | i 3,136,000 | i 7,564,000 | ||||||
| Inventory | i 3,930,000 | i 7,721,000 | ||||||
| Current portion of notes receivable | i 9,225,000 | i 11,719,000 | ||||||
| Prepaid expenses and other current assets | i 1,215,000 | i 1,700,000 | ||||||
| Total current assets | i 24,403,000 | i 47,994,000 | ||||||
| Property, plant and equipment, net | i 12,351,000 | i 13,391,000 | ||||||
| Investment in real estate, net | i 53,482,000 | i 55,029,000 | ||||||
| Other investments | i 1,163,000 | i 1,534,000 | ||||||
| Investment, equity method | i 134,000 | i 162,000 | ||||||
| Marketable securities | i 11,064,000 | i 27,307,000 | ||||||
| Notes receivable | i 138,000 | i 922,000 | ||||||
| Other assets | i 246,000 | i 2,699,000 | ||||||
| Right-of-use assets | i 7,470,000 | i 8,219,000 | ||||||
| Goodwill | i 57,880,000 | i 60,919,000 | ||||||
| Other intangible assets, net | i 28,220,000 | i 30,740,000 | ||||||
| Total assets | $ | i 196,551,000 | $ | i 248,916,000 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | i 2,924,000 | $ | i 5,914,000 | ||||
| Accrued expenses and deferred revenue | i 2,701,000 | i 19,341,000 | ||||||
| Other current liabilities | i 396,000 | i 477,000 | ||||||
| Current portion of lease liability | i 813,000 | i 796,000 | ||||||
| Current portion of long-term debt, net | i 46,638,000 | i 47,161,000 | ||||||
| Total current liabilities | i 53,472,000 | i 73,689,000 | ||||||
| Long-term debt, net | i 7,747,000 | i 10,181,000 | ||||||
| Long term lease liability | i 7,040,000 | i 7,820,000 | ||||||
| Other long-term liabilities | i 507,000 | i 507,000 | ||||||
| Deferred tax liability, net | i 38,000 | i 38,000 | ||||||
| Commitments and contingencies (Note 12) | - | |||||||
| Stockholders’ equity | ||||||||
| Common stock, $ par value; shares authorized, shares issued and outstanding ( on December 31, 2022) | i 2,804,000 | i 2,779,000 | ||||||
| Additional paid-in capital | i 317,369,000 | i 317,126,000 | ||||||
| Accumulated deficit | ( i 225,873,000 | ) | ( i 194,343,000 | ) | ||||
| Total stockholders’ equity | i 94,300,000 | i 125,562,000 | ||||||
| Non-controlling interest in subsidiaries | i 33,447,000 | i 31,119,000 | ||||||
| Total stockholders’ equity | i 127,747,000 | i 156,681,000 | ||||||
| Total liabilities and stockholders’ equity | $ | i 196,551,000 | $ | i 248,916,000 | ||||
See accompanying notes to the condensed consolidated financial statements.
| 3 |
DSS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue: | ||||||||||||||||
| Printed products | $ | i 3,315,000 | $ | i 5,032,000 | $ | i 12,976,000 | $ | i 12,650,000 | ||||||||
| Rental income | i 236,000 | i 1,485,000 | i 3,464,000 | i 4,656,000 | ||||||||||||
| Management fee income | - | i 38,000 | - | i 38,000 | ||||||||||||
| Net investment income | i 108,000 | i 370,000 | i 422,000 | i 644,000 | ||||||||||||
| Commission revenue | - | - | i 295,000 | - | ||||||||||||
| Direct marketing | i 523,000 | i 4,937,000 | i 6,088,000 | i 17,939,000 | ||||||||||||
| Total revenue | i 4,182,000 | i 11,862,000 | i 23,245,000 | i 35,927,000 | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of revenue | i 6,072,000 | i 11,933,000 | i 19,437,000 | i 29,658,000 | ||||||||||||
| Selling, general and administrative (including stock-based compensation) | i 3,213,000 | i 14,677,000 | i 21,036,000 | i 40,316,000 | ||||||||||||
| Total costs and expenses | i 9,285,000 | i 26,610,000 | i 40,473,000 | i 69,974,000 | ||||||||||||
| Operating loss | ( i 5,103,000 | ) | ( i 14,748,000 | ) | ( i 17,228,000 | ) | ( i 34,047,000 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | i 682,000 | i 319,000 | i 1,220,000 | i 613,000 | ||||||||||||
| Dividend income | - | - | i 12,000 | - | ||||||||||||
| Other income (expense) | ( i 44,000 | ) | i 3,627,000 | i 139,000 | i 4,203,000 | |||||||||||
| Interest expense | ( i 51,000 | ) | ( i 42,000 | ) | ( i 438,000 | ) | ( i 100,000 | ) | ||||||||
| Gain on extinguishment of debt | - | - | - | i 110,000 | ||||||||||||
| Gain/(loss) on equity method investment | ( i 6,000 | ) | i 344,000 | ( i 28,000 | ) | i 134,000 | ||||||||||
| Gain/(loss) on investments | i 301,000 | ( i 14,302,000 | ) | ( i 30,490,000 | ) | ( i 10,479,000 | ) | |||||||||
| Provision for loan losses | ( i 1,179,000 | ) | - | ( i 4,936,000 | ) | - | ||||||||||
| Loss on sale of assets | ( i 1,281,000 | ) | - | ( i 1,281,000 | ) | i 405,000 | ||||||||||
| Loss from operations before income taxes | ( i 6,681,000 | ) | ( i 24,802,000 | ) | ( i 53,030,000 | ) | ( i 39,161,000 | ) | ||||||||
| Income tax benefit | - | - | ( i 9,000 | ) | - | |||||||||||
| Net loss | ( i 6,681,000 | ) | ( i 24,802,000 | ) | ( i 53,039,000 | ) | ( i 39,161,000 | ) | ||||||||
| Loss from operations attributed to non-controlling interest | i 2,339,000 | i 4,587,000 | i 2,736,000 | i 6,247,000 | ||||||||||||
| Net loss attributable to common stockholders | ( i 4,342,000 | ) | ( i 20,215,000 | ) | ( i 50,303,000 | ) | ( i 32,914,000 | ) | ||||||||
| Loss per common share: | ||||||||||||||||
| Basic | $ | ( i 0.03 | ) | $ | ( i 0.15 | ) | $ | ( i 0.36 | ) | $ | ( i 0.32 | ) | ||||
| Diluted | $ | ( i 0.03 | ) | $ | ( i 0.15 | ) | $ | ( i 0.36 | ) | $ | ( i 0.32 | ) | ||||
| Shares used in computing loss per common share: | ||||||||||||||||
| Basic | i 140,264,250 | i 134,893,360 | i 139,809,113 | i 102,390,079 | ||||||||||||
| Diluted | i 140,264,250 | i 134,893,360 | i 139,809,113 | i 102,390,079 | ||||||||||||
See accompanying notes to the condensed consolidated financial statements.
| 4 |
DSS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,
(unaudited)
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 | Accumulated | Total DSS | Non- controlling Interest in | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | Subsidiary | Total | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | i 139,017,000 | $ | i 2,779,000 | - | $ | - | $ | i 317,126,000 | $ | ( i 194,343,000 | ) | $ | i 125,562,000 | $ | i 31,119,000 | $ | i 156,681,000 | |||||||||||||||||||||||
| Issuance of common stock, net of expenses | i 1,247,000 | i 25,000 | - | - | i 243,000 | - | i 268,000 | - | i 268,000 | |||||||||||||||||||||||||||||||
| Deconsolidation of Sharing Services | - | - | - | - | i 18,773,000 | i 18,773,000 | i 5,064,000 | i 23,837,000 | ||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( i 50,303,000 | ) | ( i 50,303,000 | ) | ( i 2,736,000 | ) | ( i 53,039,000 | ) | |||||||||||||||||||||||||||
| Balance, September 30, 2023 | i 140,264,000 | $ | i 2,804,000 | - | $ | - | $ | i 317,369,000 | $ | ( i 225,873,000 | ) | $ | i 94,300,000 | $ | i 33,447,000 | $ | i 127,747,000 | |||||||||||||||||||||||
| Balance, December 31, 2021 | i 79,746,000 | $ | i 1,594,000 | - | $ | - | $ | i 294,685,000 | $ | ( i 134,503,000 | ) | $ | i 161,776,000 | i 36,409,000 | $ | i 198,185,000 | ||||||||||||||||||||||||
| Issuance of common stock, net of expenses | i 47,924,000 | i 858,000 | - | - | i 16,547,000 | - | i 17,405,000 | - | i 17,405,000 | |||||||||||||||||||||||||||||||
| Stock based payments | i 16,347,000 | i 327,000 | - | - | i 5,893,000 | - | i 6,220,000 | - | i 6,220,000 | |||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( i 32,914,000 | ) | ( i 32,914,000 | ) | ( i 6,247,000 | ) | ( i 39,161,000 | ) | |||||||||||||||||||||||||||
| Balance, September 30, 2022 | i 139,017,000 | $ | i 2,779,000 | - | $ | - | $ | i 317,125,000 | $ | ( i 167,417,000 | ) | $ | i 152,487,000 | $ | i 30,162,000 | $ | i 182,649,000 | |||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
| 6 |
DSS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
i
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 May 13, 2021, Sentinel Brokers, LLC. (“Sentinel LLC”), subsidiary of the Company entered into a stock purchase agreement (“Sentinel Agreement”) to acquire a i 24.9% equity position of Sentinel Brokers Company, Inc. (“Sentinel Co.”), a company registered in the state of New York, and in December 2022, Sentinel LLC exercised this option to increase its equity position to i 75%. In May of 2023, Sentinel LLC acquired an additional i 5% increasing its equity position to i 80.1%. 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”).
The accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments, unless otherwise indicated) necessary to present fairly our consolidated financial position as of September 30, 2023 and December 31, 2022, 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, and 10-K/A for the fiscal year ended December 31, 2022 (“Form 10-K”, “Form 10-K/A”), and our other reports on file with the Securities and Exchange Commission (the “SEC”).
i
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.
Deconsolidation of Sharing Services Global Corporation - On May 4, 2023, the Company distributed approximately million shares of SHRG beneficially held by DSS and Decentralized Sharing Systems in the form of a dividend to the shareholders of DSS common stock. Upon completion of this distribution, DSS will retain an ownership interest in SHRG of approximately i 7%. Immediately prior to this distribution, DSS owned approximately i 81% of the issued and outstanding common shares of SHRG. As a result, SHRG, whose operations represented a significant portion of our Direct Marketing segment, was deconsolidated from our consolidated financial statements effective as of May 1, 2023 (the “Deconsolidation”). The consolidated statement of operations for the fiscal quarter ended September 30, 2023, therefore includes one month of activity related to SHRG prior to the Deconsolidation. Subsequent to April 30, 2023 the assets and liabilities of SHRG are no longer included within our consolidated balance sheets. Any discussions related to results, operations, and accounting policies associated with SHRG refer to the periods prior to the Deconsolidation.
Upon Deconsolidation, we recognized a loss before income taxes of approximately $ i 29,196,000 which is recorded within gain/loss investments in our consolidated statements of operations for the three and nine months ended September 30, 2023. Subsequent to the Deconsolidation, we accounted for our equity ownership interest in SHRG as a marketable security and at the quoted price stock price of SHRG, valued at approximately $ i 148,000 at September 30, 2023.
Reclassifications - Certain amounts on the accompanying condensed consolidated cash flows and condensed consolidated statements of operations have been reclassified to conform to current period presentation.
| 8 |
/ i
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.
i
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.
Accounts/Rents 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 amounts and its rent receivables at contract amounts, 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. In estimating expected losses in the accounts receivable portfolio, customer-specific financial data and macro-economic assumptions are utilized to project losses over a reasonable and supportable forecast period. Assumptions and judgment are applied to measure amounts and timing of expected future cash flows, collateral values and other factors used to determine the customers’ abilities to pay.
At September 30, 2023, and December 31, 2022, the Company established a reserve for doubtful accounts of approximately $ i 2,706,000 and $ i 29,000, respectively. The Company does not accrue interest on past due accounts receivable.
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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.
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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. 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 8 for further discussion on investments.
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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.
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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.
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Inventory – Inventories consist primarily of paper, pre-printed security paper, paperboard, fully prepared packaging, air filtration systems, 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 $ i 57,000 and $ i 742,000 associated with the inventory at our Premier subsidiary for September 30, 2023 and our former SHRG subsidiary as of December 31, 2022. Write- downs and write-offs are charged to cost of revenue.
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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.
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Business Combinations - 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.
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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.
As of September 30, 2023, two customers accounted for approximately i 21% and i 7% of our consolidated revenue and these two customers approximately i 32% and i 15% of our consolidated trade accounts receivable balance. As of December 31, 2022, two customers accounted for approximately i 14% and i 6% of our consolidated revenue and these two customers approximately i 36% and i 17% of our consolidated trade accounts receivable balance.
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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.
Allowance For Loans And Lease Losses - On January 1, 2023, the Company adopted amended accounting guidance “ASU No.2016-13 – Credit Losses” which requires an allowance for credit losses to be deducted from the amortized cost basis of financial assets to present the net carrying value at the amount that is expected to be collected over the contractual term of the asset considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. In estimating expected losses in the loan and lease portfolio, borrower-specific financial data and macro-economic assumptions are utilized to project losses over a reasonable and supportable forecast period. Assumptions and judgment are applied to measure amounts and timing of expected future cash flows, collateral values and other factors used to determine the borrowers’ abilities to repay obligations. After the forecast period, the company utilizes longer-term historical loss experience to estimate losses over the remaining contractual life of the loans. Prior to 2023, the allowance for credit losses represented the amount that in management’s judgment reflected incurred credit losses inherent in the loan and lease portfolio as of the balance sheet date. See Note 6.
Going Concern - The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should we be unable to continue as a going concern. While the Company has approximately $ i 6.9 million in cash, the Company has incurred operating losses as well as negative cash flows from operating and investing activities over the past two years.
Aside from its $ i 6.9 million in cash as of September 30, 2023, the Company believes it can continue as a going concern, due to its ability to generate operating cash through the sale of its $ i 11.1 million of Marketable Securities, and the anticipated receipts of principal and interest on its Notes receivable of approximately $ i 6.3 million through September 30, 2024. Also, our subsidiary Impact BioMedical is in the process of an IPO in which DSS projects to maintain a minimum of i 55% ownership. Proceeds of which are expected to pay in part, amounts utilized by DSS for Impact BioMedical expenses. This is expected to close in the fourth quarter 2023. Additionally, we are in negotiations with Pinnacle Bank to extend our note payable, approximating $ i 40.2 million through November 2024. This related note payable is currently in default; however the Company is in the process of renegotiating the terms of this note with Pinnacle, which is expected to be completed during the fourth quarter.
The Company’s management intends to take actions necessary to continue as a going concern. Management’s plans concerning these matters include, among other things, continued growth among our operating segments, and tightly controlling operating costs and reducing spending growth rates wherever possible to return to profitability. In addition, the Company has taken steps, and will continue to take measures, to materially reduce the expenses and cash burn at all corporate and business line levels.
At the Company’s current operating levels and capital usage, we believe that without any further acquisition or investments, our $ i 6.9 million in aggregate cash, as of September 30, 2023, along with the $ i 11.1 million of Marketable Securities, and the anticipated receipts of principal and interest on its Notes receivable of approximately $ i 6.3 million through September 30, 2024, would allow us to fund our nine business lines current and planned operations through September 30, 2024. Based on this, the Company has concluded that substantial doubt of its ability to continue as a going concern has been alleviated.
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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 September 30, 2023, 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.
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Sales Commissions
Sales commissions are expensed as incurred for contracts with an expected duration of one year or less. There were no sales commissions capitalized as of September 30, 2023.
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 relating to these costs are reflected as revenue.
See Note 15 for disaggregated revenue information.
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Inventory consisted of the following as of:
| September 30, 2023 | December 31, 2022 | |||||||
| Finished Goods | $ | i 2,894,000 | $ | i 6,779,000 | ||||
| Work in Process | i 79,000 | i 403,000 | ||||||
| Raw Materials | i 1,014,000 | i 1,281,000 | ||||||
| Inventory Gross | $ | i 3,987,000 | $ | i 8,463,000 | ||||
| Less allowance for obsolescence | ( i 57,000 | ) | ( i 742,000 | ) | ||||
| Inventory Net | $ | i 3,930,000 | $ | i 7,721,000 | ||||
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Note 1
On February 8, 2021, the Company entered into a convertible promissory note (“Note 1”) with Borrower 1, a company registered in Gibraltar. The Company loaned the principal sum of $ i 800,000, with principal and interest at a rate of i 4%, due in one year from the date of issuance. Borrower 1 repaid the principal and interest in full in April 2022.
Note 2
On May 14, 2021, DSS Pure Air, Inc. a subsidiary of the Company entered a convertible promissory note (“Note 2”) with Borrower 2, a company registered in the state of Texas. Note 3 has an aggregate principal balance up to $ i 5,000,000, to be funded at the request of Borrower 2. Note 2, which incurs interest at a rate of i 6.65% due quarterly, has a maturity date of i May 1, 2023. i Note 2 contains an optional conversion clause that allows the Company to convert all, or a portion of all, into newly issued member units of Borrower 2 with the maximum principal amount equal to 18% of the total equity position of Borrower 2 at conversion. The outstanding principal and interest as of September 30, 2023, and December 31, 2022, approximated $ i 5,544,000 and $ i 5,420,000, respectively, which is included in current notes receivable on the accompanying consolidated balance sheet. As of September 30, 2023, the Company has a reserve of $ i 2,884,000 against the principal and interest outstanding. This note is currently in default and its terms are currently being re-negotiated.
Note 3
On September 23, 2021, APB entered into refunding bond anticipatory note (“Note 3”) with Borrower 3, 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 $ i 3,500,000 and incurs interest at a rate of i 5.59% per annum. Principal and interest are due in full on i September 22, 2022, and later amended to extend the maturity date to i September 19, 2024. This note may be redeemed prior to maturity with 10 days written notice to APB at a price equal to principal plus interest accrued on the redemption date. The outstanding principal and interest of $ i 3,854,000 and $ i 3,701,000 is included in the current portion of notes receivable on the consolidated balance sheet at September 30, 2023 and December 31, 2022, respectively.
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Note 4
On October 25, 2021, APB entered into a loan agreement (“Note 4”) with Borrower 4, a company registered in the state of Utah. Note 4 has an initial aggregate principal balance up to $ i 1,000,000, to be funded at the request of Borrower 4, with an option to increase the maximum principal borrowing to $ i 3,000,000. Note 4, which incurs interest at a rate of i 8.0% with principal and interest due at the maturity date of i October 25, 2022. i This note contains an optional conversion feature allowing APB to convert the outstanding principal to a 10% membership interest. APB, as holder of Note 4, has the right to elect one member to the Board of Managers. This note is in default and the outstanding principal and interest of approximately $ i 884,000 was reserved for fully as of December 31, 2022.
Note 5
On May 14, 2021, APB extended the credit (“Note 5”) to an individual (“Borrower 5”) in the form of two promissory notes for $ i 250,000 and $ i 10,000 respectively, bearing interest at i 12.5%, with a maturity date of i May 15, 2023. This promissory note was secured by a deed of trust on a tract of land, which is approximately 315 acres, and located in Coke County, Texas. The outstanding principal and interest for both notes were paid in full during the third quarter of 2023. $ i 252,000 and $ i 9,000 are included in Note receivable at December 31, 2022.
Note 6
On October 27, 2021, HWH World, Inc., a subsidiary of the Company entered a revolving loan commitment (“Note 6”) with Borrower 8, a company registered in Taiwan. The outstanding principal and interest at September 30, 2023 and December 31, 2022 is $ i 0 and $ i 63,000, respectively, and was included in Notes receivable current portion. This note has been written-off during the third quarter 2023.
Note 7
On December 28, 2021, APB entered into a promissory note (“Note 7”) with Borrower 7, a company registered in the state of California. Note 7 has a principal balance of $ i 700,000. Note 7, which incurs interest at a rate of i 12.0% with principal and interest due at the maturity date of i December 28, 2022. On December 29, 2022, the maturity date of this note was extended to i May 31, 2023. The outstanding principal and interest of $ i 404,000 and $ i 701,000 is included in the Current portion of notes receivable on the consolidated balance sheet at September 30, 2023 and December 31, 2022, respectively. This note has been extended to November 30, 2023.
Note 8
On January 24, 2022, APB and Borrower 8 entered into a promissory note (“Note 8”) in the principal sum of $ i 100,000 with interest of i 6%, due annually, and maturing in i January 2024. The outstanding principal and interest at September 30, 2023 and December 31, 2022 approximates $ i 100,000 and $ i 106,000, respectively, and is included in Notes receivable on the accompanying consolidate balance sheet.
Note 9
On March 2, 2022, APB and Borrower 9, a corporation organized under the laws of the Republic of Korea entered into a promissory note (“Note 9”). Under the terms of Note 9, APB at its discretion, may lend up to the principal sum of $ i 893,000 with an interest rate of i 8%, and matures in i March 2024, with interest payable quarterly. The outstanding principal and interest at September 30, 2023 is $ i 440,000, net of $ i 9,00 of unamortized origination fees. The outstanding principal and interest at December 31, 2022 is $ i 874,000 net of $ i 25,000 of unamortized origination fees.
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Note 10
On May 9, 2022, DSS PureAir and Borrower 2 entered into a promissory note (“Note 10”) in the principal sum of $ i 210,000 with interest of i 10%, is due in three quarterly installments beginning on August 9, 2022, with the first two payment consisting of interest only. All unpaid principal and interest are due on i February 9, 2023. The outstanding principal and interest at September 30, 2023 approximates $ i 224,000 and is included in current portions of notes receivable on the accompanying consolidate balance sheet. The outstanding principal and interest at December 31, 2022 approximates $ i 213,000 and is included in current portions of notes receivable on the accompanying consolidate balance sheet. The due date of this loan is currently being re-negotiated.
Note 11
On August 29, 2022, DSS Financial Management Inc and Borrower 11 entered into a promissory note (“Note 11”) in the principal sum of $ i 100,000 with interest of i 8%, is due in three quarterly installments beginning on September 14, 2022. All unpaid principal and interest is due on i August 29, 2025. The outstanding principal and interest at September 30, 2023 and December 31, 2022 approximates $ i 99,000, and $ i 100,000, respectively, and is included in Notes receivable on the accompanying consolidate balance sheet, of which $ i 68,000 is included in the Current portion of notes receivable and $ i 31,000 is included in the Notes receivable at September 30, 2023.
Note 12
On July 26, 2022, APB and Borrower 12 entered into a promissory note (“Note 12”) in the principal sum of $ i 1,000,000 with interest of i 8%. All unpaid principal and interest due on i July 26, 2024. The outstanding principal and interest on September 30, 2023, approximates $ i 929,000, net of $ i 30,000 of unamortized origination fees and is included in Notes receivable on the accompanying consolidate balance sheet. The outstanding principal and interest at December 31, 2022 approximates $ i 924,000, net of $ i 66,000 of unamortized origination fees and is included in Notes receivable on the accompanying consolidate balance sheet.
Note 13
On June 15, 2022, Decentralized and Borrower 13 entered into a convertible promissory note (“Note 13”) in the principal sum of $ i 27,000,000 with interest of i 8%, with an optional conversion into shares of Borrower 13 at a conversion price of $ i 0.03, maturing on i June 14, 2024, with interest due quarterly. In December 2022, this note was fully reserved for. On August 31, 2023, the full value of the outstanding principal and interest of this note was exchanged for shares of Series D Preferred Stock with a par value of $ per share. Beginning on September 1, 2028, these Series D Preferred Shares may be redeemed in the amount of $ per share. Due to the lack of liquidity of these shares, the Company has placed no value on these shares.
Note 14
On February 19, 2021, Impact BioMedical, Inc, a subsidiary of the Company, entered into a promissory note (Note 14) with Borrower 14. The Company loaned the principal sum of $ i 206,000, with interest at a rate of i 6.5%, and maturity date of i August 19, 2022 later amended to February 19, 2024. Monthly payments are due on the twenty-first day of each month and continuing each month thereafter until February 19, 2024. This note is secured by certain real property situated in Collier County, Florida. The outstanding principal and interest as of September 30, 2023, approximated $ i 204,000 and is classified in current notes receivable on the accompanying consolidated balance sheets. The outstanding principal and interest as of December 31, 2022 approximated $ i 206,000 with $ i 16,000 classified in Current portion of notes receivable and $ i 190,000 classified as Notes receivable on the accompanying consolidated balance sheets.
Note 15
On May 8, 2023, DSS Financial Management Inc and Borrower 15 entered into a promissory note (“Note 15 “) in the principal sum of $ i 102,000 with interest at the prime rate plus i 2% ( i 10.5% at September 30, 2023) with a maturity date of i May 7, 2026. The outstanding principal and interest at September 30, 2023 approximates $ i 104,000 with approximately $ i 44,000 of principal and accrued interest classified as Current portion notes receivable, and the remaining balance of approximately $ i 60,000 is recorded as notes receivable, on the accompanying consolidated balance sheet.
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Note 16
On June 27, 2023, Decentralized and Borrower 16 entered into a convertible promissory note (“Note 16”) in the principal sum of $ i 1,400,000 with a discount of $ i 300,000 and interest rate of i 10% and maturity date of i September, 1, 2024. The outstanding principal, interest, and associated discount was fully reserved for as of September 30, 2023.
Note 17
On March 31,2023, DSS Biohealth Security, Inc and Borrower 17 entered into a promissory note (“Note 17”) in the principal sum of $ i 140,000 and interest rate floating daily to Wall Street Journal Prime rate per annum ( i 8.5% at September 31, 2023) with the total outstanding principal and interest due at the maturity date of i March 31, 2025. The outstanding principal and interest at September 30, 2023 approximates $ i 130,000. Of the total financed, approximately $ i 83,000 of principal and accrued interest is classified as Current portion of notes receivable and the remaining balance of approximately $ i 46,500 is recorded as Notes receivable on the accompanying consolidated balance sheet.
Note 18
On September 28, 2023, APB and Borrower 18 entered into a promissory note (“Note 18”) in the principal sum of $ i 400,000 with interest of i 5%. All unpaid principal and interest due on i November 12, 2023. The outstanding principal and interest on September 30, 2023, approximates $ i 401,000 and is included in Notes receivable on the accompanying consolidate balance sheet.
Note 19
On August 11, 2022, APB and Borrower 19 entered into a promissory note (“Note 19”) in the principal sum of $ i 1,430,000 with interest of i 8%. All unpaid principal and interest due on i August 12, 2024. The outstanding principal and interest on September 30, 2023, approximates $ i 1,102,000, net of $ i 375,000 of unamortized origination fees and is included in Notes receivable on the accompanying consolidate balance sheet. The outstanding principal, interest, and associated fees were fully reserved for as of September 30, 2023.
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Cash, Cash Equivalents, Restricted Cash and Marketable Securities
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The following tables show the Company’s cash, cash equivalents, restricted cash, and marketable securities by significant investment category as of September 30, 2023, and December 31, 2022:
Schedule of Cash and Marketable Securities by Significant Investment Category
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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.
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6. Provision for Credit Losses
Effective December 31, 2022, the Company adopted amended accounting guidance “ASU No.2016-13 – Credit Losses” for the measurement of credit losses on financial instruments and other financial assets. That guidance requires an allowance for credit losses to be deducted from the amortized cost basis of financial assets to present the net carrying value that is expected to be collected over the contractual term of the assets considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The guidance replaced the previous incurred loss model for determining the allowance for credit losses.
As of December 31, 2022, and September 30, 2023 we have reviewed the entire loan portfolio as well as all financial assets of the Company for the purpose of evaluating the loan portfolio and the loan balances, including a review of individual and collective portfolio loan quality, loan(s) performance, including past due status and covenant defaults, assessment of the ability of the borrower to repay the loan on the loan terms, whether any loans should be placed on nonaccrual or returned to accrual, any concentrations in any single borrower and/or industry that we might need to further manage, and if any specific or general loan loss reserve should be established for the entire loan portfolio or for any specific loan.
We analyzed the loan loss reserve from three basis: general loan portfolio reserves; industry portfolio reserves, and specific loan loss reserves. For the three and nine months ended September 30, 2023, the Company recorded a Loan loss reserve of approximately $ i 1,179,000 and $ i 4,936,000, respectively.
General Loan Portfolio Reserve - Based upon a relatively young loan portfolio that are relatively new loans to generally credit worthy borrowers, we do not believe that a substantial general loan portfolio reserve is due at this time. However, we do recognize that some inherent risks are in all loan portfolios, thus we recorded a general contingent portfolio reserve of $ i 145,000 and $ i 199,000 or approximately ¼ of 1% of the loan portfolio loan balance as of December 31, 2022 and September 30, 2023, respectively.
Industry Portfolio Reserves - Given the relatively young loan portfolio and a diversification of the portfolio over several different loan products, the risk is reduced. Accordingly, we have not recorded a discretionary reserve as of December 31, 2022 and September 30, 2023.
Specific Loan Reserves - Previously, we had identified credit weaknesses and borrower repayment weakness in the Borrow 4 loan, which has a current principal and interest balance of $ i 884,000. As of December 31, 2022 and September 30, 2023 we have recorded a specific loan loss reserve for the full balance due the Company. As of December 31, 2022 and September 30, 2023, the Company reserved for principal and interest of $ i i 27,831,000 / for Borrower 13. As of September 30, 2023, the Company identified credit weakness in borrower 2 and has placed a reserve approximating $ i 2,884,000 against the outstanding principal and interest. As of September 30, 2023, the Company identified credit weakness in borrower 16 and placed a reserve of $ i 1,291,000 against the outstanding principal and interest. The Company identified credit weakness in Borrower 19 and has placed a reserve of $ i 1,477,000 against the outstanding principal and interest.
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On July 1st, 2023, The Company intended to sell its subsidiary, HWH World, Inc. to SHRG. The proposed transaction had the Company sell shares of common stock, representing all the issued and outstanding common stock shares of HWH World for the sum $ i 706,000 representing the gross proceeds of the sale of HWH inventory less cost of goods sold. The parties involved amended the terms of this agreement during the third quarter of 2023 from that of equity transaction to the purchase of inventory and assumption of certain liabilities by SHRG. The amended agreement identified the purchase price approximating $ i 758,000 to be paid from amongst other things, the gross proceeds generated by the sale of the inventory acquired. The value of the inventory sold approximates $ i 698,000 and the value of the liabilities assumed by SHRG as part of this transaction is approximately $ i 59,000. Further, i the agreement includes payment of 1% royalty, starting November 1, 2023, being defined as 1% of the gross sale price of all Seller’s new products made and sold outside of existing inventory on the schedule, for a period ending October 31, 2033. There is substantial doubt regarding SHRG’s ability to sell and pay for the inventory acquired, and therefore, the Company has determined not to record a receivable for the purchase price. A net loss approximating $ i 639,000 associated with this transaction has been recorded during the third quarter of 2023 and is included in Loss/Gain on sale of assets on the consolidated statement of operations.
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On July 1st, 2023, The Company sold i 100% of the equity in its subsidiary HWH Holdings, Inc, a Texas corporation (HWHH) to SHRG for a purchase price approximating $ i 259,000. This amount is to be paid from gross proceeds generated by the sale of the inventory acquired as part of the transaction. This transaction was later amended during the third quarter of 2023 to assign the purchase of HWHH from SHRG to Ascend Management Pte., Ltd. (“Ascend”), a Singaporean limited company. There is substantial doubt regarding Ascend’s ability to sell and pay for the inventory acquired, and therefore, the Company has determined not to record a receivable for the purchase price. A net loss approximating $ i 617,000 associated with this transaction has been recorded during the third quarter of 2023 and is included in Loss/Gain on sale of assets on the consolidated statement of operations.
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Alset International Limited, related party
The Company owns shares or approximately % of the outstanding shares of Alset International Limited (“Alset Intl”), a company incorporated in Singapore and publicly listed on the Singapore Exchange Limited. This investment is classified as a marketable security and is classified as long-term assets on the consolidated balance sheets as the Company has the intent and ability to hold the investments for a period of at least one year. The Chairman of the Company, Mr. Heng Fai Ambrose Chan, is the Executive Director and Chief Executive Officer of Alset Intl. Mr. Chan is also the majority shareholder of Alset Intl as well as the largest shareholder of the Company. The fair value of the marketable security as of September 30, 2023, and December 31, 2022, was approximately $ i 3,726,000 and $ i 3,319,000, respectively. During the nine-month ended September 30, 2023 and September 30, 2022, the Company recorded unrealized gain of approximately $ i 407,000 and loss on this investment of $ i 1,539,000, respectively.
West Park Capital, Inc.
On December 30, 2020, the Company signed a binding letter of intent with West Park Capital, Inc (“West Park”) and TBD where the parties agreed to prepare a note and stock exchange agreement whereby DSS will assign the TBD Note to West Park and West Park shall issue to DSS a stock certificate reflecting i 7.5% of the issued and outstanding shares of West Park. This note and stock exchange agreement was finalized during the first quarter 2022 and valued at approximately $ i i 500,000 / and is included in Investments on the consolidated balance sheet on December 31, 2022 and as of September 30, 2023.
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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 i 14.9% membership interests in BMIC for $ i 100,000. DSS Securities also had the option to purchase an additional i 10% of the outstanding membership interest which it exercised for $ i 100,000 in January of 2021 and increased its ownership to i 24.9%. Upon achieving greater than i 20% ownership in BMIC during the quarter ended September 30, 2021, the Company is currently accounting for this investment under the equity method of accounting per ASC 323. The Company’s portion of net loss in BMIC during the three and nine months ended September 30, 2023, approximated $ i 6,000 and $ i 28,000, respectively
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.
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 i 4.99% of BioMed at a purchase price of approximately $ i 632,000. The Subscription Agreement provides, among other things, the Company has the right to appoint a new director to the board of BioMed. With respect to an issuance of shares to a third party by BioMed, the Company will have the right of first refusal to purchase such shares, as well as customary tag-along rights. In connection with the Subscription Agreement, Impact Biomedical entered into an exclusive distribution agreement (the “Distribution Agreement”) with BioMed, to directly market, advertise, promote, distribute, and sell certain BioMed products, which focus on manufacturing natural probiotics, to resellers. This investment is valued at cost as it does not have a readily determined fair value.
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, 2022; 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 $ i 500,000. 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 of $ i 2,480,000. The acquisition of IOPL has been treated as an asset acquisition as IOPL does not meet the definition of a business as defined in Topic 805. IOPL owns shares of common stock of Vivacitas along with the option to purchase an additional shares of common stock. The Sellers largest shareholder is Mr. Chan Heng Fai Ambrose, the Chairman of the Company’s board of directors and its largest shareholder.
On April 1, 2021, i the Company entered into an additional stock purchase agreement with Vivacitas (“Vivacitas Agreement #2”), whereas Vivacities wished to employ the service of the Chief Business Officer of Impact Biomedical, and in return for the services of this individual, Vivacitas shall issue to the Company, the aggregate purchase price for the Class A Common Shares of Vivacitas at the value of $ per share shall be $ i 120,000 to be paid in twelve (12) equal monthly installments for the period between April 1, 2021 and March 31, 2022 / .
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On July 22, 2021, the Company exercised of the available options under the Vivacitas Agreement #1 for $ i 1,000,000. This, along with the shares received as part Vivacitas Agreement #2 increased the Company’s equity position in Vivacitas to approximately i 16% as of December 31, 2022. As of December 31, 2022, the Company determined to impair i 100% of its investment in Vivacitas, in the amount of $ i 4,100,000.
Stemtech Corporation (Sharing Services Global Corp)
In September 2021, the Company’s former subsidiary SHRG, Stemtech Corporation (“Stemtech”) and Globe Net Wireless Corp. (“GNTW”) entered into a Securities Purchase Agreement (the “SPA”) pursuant to which SHRG invested $ i 1.4 million in Stemtech in exchange for: (a) a Convertible Promissory Note in the amount of $ i 1.4 million in favor of the Company (the “Convertible Note”) and (b) a detachable Warrant to purchase shares GNTW common stock (the “GNTW Warrant”). Stemtech is a subsidiary of GNTW. As an inducement to enter into the SPA, GNTW agreed to pay to the SHRG an origination fee of $ i 500,000, payable in shares of GNTW’s common stock. The Convertible Note matures on i September 9, 2024, bears interest at the annual rate of i 10%, and is convertible, at the option of the holder, into shares of GNTW’s common stock at a conversion rate calculated based on the closing price per share of GNTW’s common stock during the 30-dayperiod ended September 19, 2021. The GNTW Warrant expires on September 13, 2024 and conveys the right to purchase up to i 1.4 million shares of GNTW’s common stock at a purchase price calculated based on the closing price per share of GTNW’s common stock during the 10-day period ended September 13, 2021. In September 2021, GNTW issued to the Company shares of its common stock, or less than 1% of the shares of GNTW then issued and outstanding, in payment of the origination fee. In November 2021, Globe Net Wireless Corp. changed its corporate name to Stemtech Corporation. In connection therewith, the investee’s common stock is now traded under the symbol “STEK”. The SHRG carries its investment in the Convertible Note, the GNTW Warrant and the shares of GNTW common stock at fair value in accordance with GAAP. As of September 30, 2023 and December 31, 2022 the investment in the GNTW Warrant and Convertible Note, were valued at $ i 0, and $ i 44,000 and $ i 0 and $ i 39,000, respectively.
In September 2021, SHRG entered into a Membership Unit Purchase Agreement pursuant to which the SHRG acquired a i 30.75% equity interest in MojiLife, LLC, a limited liability company organized in the State of Utah, in exchange for $ i 1,537,000. MojiLife is an emerging growth distributor of technology-based consumer products for the home and car. MojiLife’s products include esthetically attractive, cordless scent diffusers for the home or for the car, as well as proprietary home cleaning products and accessories. On a quarterly basis, SHRG evaluates the recoverability of its investments and reviews current economic trends to determine the adequacy of its allowance for impairment losses based on each investee financial performance data and other relevant information. An estimate for impairment losses is recognized when recovery in full of SHRG’s investment is no longer probable. Investment balances are written off against the allowance after the potential for recovery is considered remote. In March of 2022, SHRG impaired the MojiLife investment as the evaluation at such time determined the investment was not fully recoverable and i 100% valuation was reserved.
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Sentinel Brokers Company, Inc.
On May 13, 2021, Sentinel Brokers, LLC. (“Sentinel LLC”), subsidiary of the Company entered into a stock purchase agreement (“Sentinel Agreement”) to acquire a i 24.9% equity position of Sentinel Brokers Company, Inc. (“Sentinel Co.”), a company registered in the state of New York, for the purchase price of $ i 300,000. During the nine months ended September 30, 2021, the Company contributed an additional $ i 750,000 capital into Sentinel, increasing its total capital investment to $ i 1,050,000 as of September 30, 2021. Up to and through November 30, 2022, Sentinel LLC accounted for its investment in Sentinel Co. using the equity method in accordance with ASC Topic 323, Investments—Equity Method and Joint Ventures recognizing our share of Sentinel’s earnings and losses within our consolidated statement of operations. Under the terms of this agreement, the Company had the option to purchase an additional i 50.1% of the outstanding Class A Common Shares. In December 2022, Sentinel LLC exercised this option to increase its equity position to i 75%. In May 2023, the Company acquired an additional 5% equity position of Sentinel Co. to increase its ownership percentage to 80%. The acquisition of Sentinel Co. 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.
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The following summary, prepared on a proforma basis, combines the consolidated results of operations of the Company with those of Sentinel Co as if the acquisition took place on January 1. The pro forma consolidated results include the impact of certain adjustments.
Schedule of Business Acquisition, Pro Forma Information
| 2022 (unaudited) | ||||
| Revenue | $ | i 49,076,804 | ||
| Net loss | $ | ( i 61,680,088 | ) | |
| Basic loss per share | $ | ( i 0.55 | ) | |
| Diluted loss per share | $ | ( i 0.55 | ) | |
We are currently in the process of completing the purchase price accounting and related allocations associated with the acquisition of Sentinel Co. Assets included in this acquisition are cash of $ i 3,977,000, receivables of $ i 344,000 and fixed assets of $ i 1,000. Goodwill of approximately $ i 1,274,000 was also recorded. The Company is in the process of completing valuations and useful lives for certain assets acquired in the transaction. We expect the purchase price accounting to be completed during the year ending December 31, 2023.
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”).
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10. Short-Term and Long-Term Debt
DSS, Inc.
Promissory Notes - On March 2, 2020, AMRE entered into a $ i 200,000 unsecured promissory note with LVAMPTE, a related party. The Note calls for interest to be paid annually on March 2 with interest fixed at i 8.0%. As further incentive to enter into this Note, AMRE granted LVAMPTE warrants to purchase shares of common stock of AMRE (the “Warrants”). The amount of the warrants granted is the equivalent of the Note Principal divided by the Exercise Price. The Warrants are exercisable for four years and are exercisable at $ i 5.00 per share (the “Exercise” Price). In March 2022, this debt was converted into equity in AMRE, and LVAMPTE exercised the warrants for $ i 200,000 (see the consolidated statement of changes in stockholders’ equity) The holder is a related party owned by the Chairman of the Company’s board of directors.
On March 16, 2021, American Medical REIT, Inc. received loan proceeds in the amount of approximately $ i 110,000 under the Paycheck Protection Program (“PPP”) with a fixed rate of i 1% and a 60-month maturity term. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. These funds were used for payroll, benefits, rent, mortgage interest, and utilities. As of December 31, 2021, the outstanding principal and interest of approximately $ i 111,000 is included in long-term debt, net on the consolidated balance sheet. During the year ended December 31, 2022, the PPP loan was forgiven in full and recorded as a gain on extinguishment of debt on the accompanying consolidated statement of operations.
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 $ i 3,710,000 to purchase a new Heidelberg XL 106-7+L printing press. The aggregate principal balance outstanding under the BOA Note shall bear interest at a variable rate on or before the loan closing. As of September 30, 2023, and December 31, 2022, the outstanding principal on the BOA Note was $ i 3,053,000 and $ i 3,406,000, respectively and had an interest rate of i 4.63%. As of September 30, 2023, $ i 491,000 was included in the current portion of long-term debt, net, and the remaining balance of approximately $ i 2,562,000 recorded as long-term debt, The BOA Note contains certain covenants that are analyzed annually. As of September 30, 2023, Premier is in compliance with these covenants.
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On August 1, 2021, AMRE Shelton, LLC., (“AMRE Shelton”) a subsidiary of AMRE, entered into a loan agreement (“Shelton Agreement”) with Patriot Bank, N.A. (“Patriot Bank”) in an amount up to $ i 6,155,000, with the amount financed approximating $ i 5,105,000. The Shelton Agreement contains monthly payments of principal and an initial interest of i 4.25%. i The interest will be adjusted commencing on July 1, 2026 and continuing for the next succeeding 5-year period shall be determined one month prior to the change date and shall be an interest rate equal to two hundred fifty (250) basis points above the Federal Home Loan Bank Boston 5-Year/25-Year amortizing advance rate, but in no event less than 4.25% for the term of 120 months with a balloon payment approximating $ i 2,829,000 due at term end. The affective interest rate at December 31, 2022 was i 4.25%. The funds borrowed were used to purchase a i 40,000 square foot, 2.0 story, Class A+ multi-tenant medical office building located on a 13.62-acre site. The purchase price has been allocated as $ i 4,640,000, $ i 1,600,000, and $ i 325,000 for the facility, land, and tenant improvements, respectively. Also included in the value of the property is $ i 585,000 of intangible assets with an estimated useful life of approximating i 3 years. The net book value of these assets as of September 30, 2023 approximated $ i 4,652,000. Of the total financed, approximately $ i 102,000 of principal and accrued interest is classified as current portion of long-term debt, net, and the remaining balance of approximately $ i 4,590,000 recorded as long-term debt, net of $ i 56,000 in deferred financing costs.
On October 13, 2021, LVAM entered into loan agreement with BMIC (“BMIC Loan”), a related party, whereas LVAM borrowed the principal amount of $ i 3,000,000, with interest to be charged at a variable rate to be adjusted at the maturity date. The BMIC Loan matures on i October 12, 2022, and contains an auto renewal period of three months. As of September 30, 2023 and December 31, 2022, $ i 512,000 and $ i 3,000,000, respectively, are included in Current portion of long-term debt, net on the consolidated balance sheet.
On October 13, 2021, LVAM entered into a loan agreement with Lee Wilson Tsz Kin (“Wilson Loan”), a related party, whereas LVAM borrowed the principal amount of $ i 3,000,000, with interest to be charged at a variable rate to be calculated at the maturity date. The Wilson Loan matures on i October 12, 2022, and contains an auto renewal period of nine months. This loan was funded during March 2022. As of September 30, 2023 $ i 1,997,000 is included in the Current portion of long-term debt, net on the consolidated balance sheet. As of December 31, 2022 $ i 3,000,000 is included in the Current portion of long-term debt, net on the consolidated balance sheet.
On November 2, 2021, AMRE LifeCare entered into a loan agreement (“LifeCare Agreement”) with Pinnacle Bank, (“Pinnacle Bank”) in the amount of $ i 40,300,000. The LifeCare Agreement supported the acquisition of three medical facilities located in Fort Worth, Texas, Plano, Texas, and Pittsburgh, Pennsylvania for a purchase price of $ i 62,000,000. These assets are classified as investments, real estate on the consolidated balance sheet. The purchase price has been allocated as $ i 32,100,000, $ i 12,100,000, and $ i 1,500,000 for the facility, land and site improvements, respectively. Also included in the value of the property is $ i 15,901,000 of intangible assets with estimated useful lives ranging from 1 to i 11 years. The net book value of the assets acquired as of December 31, 2022 is approximately $ i 52,407,000. i The LifeCare Agreement calls for the principal amount of the in equal, consecutive monthly installments based upon a twenty-five (25) year amortization of the original principal amount of the LifeCare Agreement at an initial rate of interest equal to the interest rate determined in accordance as of July 29, 2022 provided, however, such rate of interest shall not be less than i 4.28%, with the first such installment being payable on August 29, 2022 and subsequent installments being payable on the first day of each succeeding month thereafter until the maturity date, at which time any outstanding principal and interest is due in full / . The affective interest rate at December 31, 2022 was i 8.46%. The maturity date of i November 2, 2023, may be extended to i November 2, 2024. As of December 31, 2022, the outstanding principal and interest of the LifeCare agreement approximates $ i 40,193,000, net of deferred financing costs of $ i 270,000. As of September 30, 2023, the outstanding principal and interested approximates $ i 40,462,000, net of deferred financing costs of $ i 24,000 is included in current portion of long-term debt, on the consolidated balance sheet. Interest expense for the nine months ended September 30, 2023 and 2022 approximated $ i 2,672,000 and $ i 952,000, respectively. The LifeCare agreement is currently in default. The Company is in the process of remediating the related issues and continues to negotiate the extension of the loan.
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In November 2021, AMRE entered into a convertible promissory note (“Alset Note”) with Alset International Limited (“Alset International”), a related party, for the principal amount of $ i 8,350,000. The Alset Note accrues interest at i 8% per annum and i matures in December 2023, with interest due quarterly and the principal due at maturity. Principal and interest of approximately $ i 8,805,000 is included in long-term debt, net on the accompanying consolidated balance sheet on December 31, 2022. On May 17, 2022, the shareholders of the Company approved the issuance of up to Shares our Common Stock to Alset International to purchase the Convertible Promissory Note issued by American Medical REIT, Inc. with a principal amount of $ i 8,350,000 and accrued unpaid interest of $ i 119,000 through December 31, 2022. This transaction was finalized in July 2022 and is eliminated upon consolidation into DSS. Interest expense for this note totaled $ i 625,000 in September 2023 and $ i 346,000 in December 2022.
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 $ i 2,990,000, maturing on i March 7, 2024 to acquire a medical facility located in Winter Haven, Florida for a purchase price of $ i 4,500,000. The assets acquired are classified as investments, real estate on the consolidated balance sheet. The purchase price has been allocated as $ i 3,200,000, $ i 1,000,000, and $ i 222,000 for the facility, land and site and tenant improvements, respectively. Also included in the value of the property is $ i 29,000 of intangible assets with an estimated useful life of approximately i 5 years. The net book value of the assets acquired as of December 31, 2022 is approximately $ i 4,450,000. Payments are to be made in equal, consecutive installments based on a 25-year amortization period with interest at i 4.28%. The first installment is due January 1, 2023. The Pinnacle Loan contains certain covenants that are to be tested annually. At September 30, 2023, AMRE is in compliance with all covenants. The outstanding principal and interest, net of debt issuance costs of $ i 35,000, approximates $ i 2,966,000 and is included in long-term debt, net on the accompanying consolidated balance sheet at September 30, 2023. The outstanding principal and interest, net of debt issuance costs of $ i 60,000, approximates $ i 2,952,000 and is included in long-term debt, net on the accompanying consolidated balance sheet at December 31, 2022. Interest expense equaled $ i 24,000 for September 2023 and $ i 153,000 in December 2022.
On March 30, 2023, Premier Packaging, a subsidiary of the Company entered into a loan and security agreement with Union Bank & Trust Company for the principal amount of $ i 790,000 and shall accrued interest at the rate of i 7.44%. Principal and interest shall be repaid in the approximate amount of $ i 14,000 through March 2029. This loan is collateralized by a Bobst Model Novacut and is guaranteed by DSS, Inc. As of September 30, 2023, the outstanding principal and interest approximates $ i 746,000 of which $ i 112,000 was included in the current portion of long-term debt, net, and the remaining balance of approximately $ i 634,000 recorded as long-term debt.
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A summary of scheduled principal payments of long-term debt, not including revolving lines of credit, subsequent to September 30, 2023, are as follows:
Schedule of Notes Payable and Long-term Debt
| Year | Amount | |||
| 2024 | i 46,952,000 | |||
| 2025 | i 859,000 | |||
| 2026 | i 901,000 | |||
| 2027 | i 947,000 | |||
| 2028 | i 1,200,000 | |||
| Thereafter | i 3,526,000 | |||
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The Company has operating leases predominantly for operating facilities. As of September 30, 2023, the remaining lease terms on our operating leases range from less than one to twelve years. Renewal options to extend our leases have not been exercised due to uncertainty. Termination options are not reasonably certain of exercise by the Company. There is no transfer of title or option to purchase the leased assets upon expiration. There are no residual value guarantees or material restrictive covenants. There are no significant finance leases as of September 30, 2023.
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Future minimum lease payments as of September 30, 2023, are as follows:
Maturity of Lease Liability:
Schedule of Future Minimum Lease Payments
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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 $ i 61,000 per month to $ i 78,000 per month, over the twelve-year term of the lease. Total cash paid for leases during the three months ended September 30, 2023 and nine months ended September 30, 2023 are $ i 319,000 and $ i 948,000, respectively.
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12. Commitments and Contingencies
License Agreement – On March 19, 2022, Impact BioMedical entered into a License Agreement (“Equivir License”) with a third-party (“Licensee”) where the Licensor is granted the right, amongst other things, to develop, commercialize, and sell the Company’s Equivir technology. i In exchange, the Licensee shall pay the Company a royalty of 5.5% of net sales. Under the terms of the Equivir Agreement, the Company shall reimburse the Licensee for 50% of the development costs provided that the development costs shall not exceed $ i 1,250,000. As of September 30, 2023 and December 31, 2022, no liability has been recorded in relation to the Equivir License as development of the Equivir technology has not begun and no reasonable amount can be estimated / .
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Equity transactions –
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 up to shares of the Company’s common stock for a purchase price of $ per share, for an aggregate purchase price of $ i 17,000,000. Pursuant to the Amendment, the number of shares of the common stock of the Company that the AEI will purchase has been reduced to shares for an aggregate purchase price of $ i 1,519,000. This transaction was completed on March 9, 2022. In addition, the Company’s Executive Chairman and a significant stockholder, Heng Fai Ambrose Chan, is the Chairman, Chief Executive Officer and largest shareholder of AEI.
On March 10, 2022, the Company issued shares of common stock to Mr. Heng Fai Ambrose Chan pursuant to his employment agreement. These shares were issued in consideration of $ i 340,000 due under this employment agreement.
On May 5, 2022, the Company issued shares of common stock to Mr. Frank Heuszel, CEO of DSS, pursuant to his employment agreement. These shares were issued in consideration of $ i 29,000 due under this employment agreement.
On May 25, 2022, the Company issued shares of common stock to Mr. Heng Fai Ambrose Chan pursuant to his employment agreement. These shares were issued in consideration of $ i 5,848,000 due under this employment agreement.
On May 17, 2022, the shareholders of the Company approved the issuance of up to Shares of our Common Stock to Alset International, a related party, to purchase the Convertible Promissory Note issued by American Medical REIT, Inc. with a principal amount of $ i 8,350,000 and accrued but unpaid interest of $ i 367,000 through May 15, 2022. This transaction was finalized in July 2022.
On May 17, 2022, the shareholders of the Company approved the acquisition of shares of True Partners Capital Holdings Limited (“True Partners”), a company publicly traded on the Hong Kong stock exchange in exchange for shares of DSS stock value on the agreed upon date of February 18, 2022 which was approximately $ per share. The True Partner shares were acquired from Alset EHome International, Inc. (“Alset EHome”), a related party. Mr. Heng Fai Ambrose Chan, our director, and Executive Chairman, is also Chairman of the Board, Chief Executive Officer, and the largest beneficial owner of the outstanding shares of Alset EHome. This transaction was completed with the transfer of DSS share to Alset EHome on July 1, 2022.
On April 10, 2023, the Company issued shares of common stock to Mr. Frank Heuszel, CEO of DSS, pursuant to his employment agreement. These shares were issued to settle a previously recorded liability of approximately $ i 268,000.
Stock-Based Compensation –
The Company records stock-based payment expense related to options and warrants based on the grant date fair value in accordance with FASB ASC 718. Stock-based compensation includes expense charges for all stock-based awards to employees, directors, and consultants. Such awards include option grants, warrant grants, and restricted stock awards. During the nine months ended September 30, 2023, the Company did not have stock compensation associated with these items, and 5,333 options were forfeited.
Impact BioMedical, Inc. Equity Transactions –
On August 8, 2023 DSS BioHealth Securities, Inc., a wholly-owned subsidiary of the Company, and the sole shareholder of Impact BioMedical Inc. , distributed to the shareholders of DSS on record as of July 10, 2023 4 shares of Impact Bio’s stock for 1 share they owned of DSS stock. Each share of Impact BioMedical distributed as part of the distribution will not be eligible for resale until 180 days from the date Impact BioMedical’s initial public offering becomes effective under the Securities Act, subject to the discretion of the Company to lift the restriction sooner.
On October 31, 2023, Impact BioMedical effected a i reverse stock split of 1 for 55. As of December 31, 2022 and September 30, 2023, there were shares of common stock issued and outstanding which was converted to shares. Also on October 31, 2023, DSS BioHealth Securities, Inc., the largest shareholder of Impact BioMedical converted shares of Common Stock into shares of Series A Convertible Preferred Shares, reducing its ownership of the Company’s Common Stock from approximately i 88% to approximately i 12%
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14. Supplemental Cash Flow Information
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The following table summarizes supplemental cash flows for the nine-months ended September 30, 2023, and 2022:
Schedule of Supplemental Cash Flow Information
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The Company’s nine businesses lines are organized, managed, and internally reported as five operating segments. One of these operating segments, Product Packaging, is the Company’s packaging and printing group. Product Packaging operates in the paper board folding carton, smart packaging, and document security printing markets. It markets, manufactures, and sells mailers, photo sleeves, sophisticated custom folding cartons, and complex 3-dimensional direct mail solutions. These products are designed to provide functionality and marketability while also providing counterfeit protection. A second, Biotechnology, invests in, or acquires 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 developing open-air defense initiatives, which curb transmission of air-borne infectious diseases, such as tuberculosis and influenza. Biotechnology is also targeting unmet, urgent medical needs. A third operating segment, Securities, and Investment Management (“Securities”) was established to develop and/or acquire assets and investments in the securities trading and/or funds management arena. Further, Securities, 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, stable coins and cryptocurrency via a digital asset 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, STO 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). 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. The fourth segment, Direct, provides services to assist companies in the emerging growth gig business model of peer-to-peer decentralized sharing marketplaces. It 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 products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific and Eastern Europe (see Note 1, Deconsolidation of Sharing Services Global Corporation). The fifth business line, Commercial Banking, 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.
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Approximate information concerning the Company’s operations by reportable segment for the three and nine months ended September 30, 2023 and 2022 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:
Schedule of Operations by Reportable Segment
| Three Months Ended | Product | Commercial | Direct | |||||||||||||||||||||||||
| September 30, 2023 | Packaging | Lending | Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||
| Revenue | $ | i 3,378,000 | $ | i 108,000 | $ | i 523,000 | $ | - | $ | i 173,000 | $ | - | $ | i 4,182,000 | ||||||||||||||
| Interest expense | i 51,000 | - | - | - | - | - | i 51,000 | |||||||||||||||||||||
| Interest income | - | - | i 660,000 | i 6,000 | i 16,000 | - | i 682,000 | |||||||||||||||||||||
| Net Loss (income) from operations | ( i 579,000 | ) | ( i 24,000 | ) | ( i 1,010,000 | ) | ( i 1,151,000 | ) | ( i 2,166,000 | ) | ( i 1,751,000 | ) | ( i 6,681,000 | ) | ||||||||||||||
| Capital expenditures | i 67,000 | - | - | - | - | - | i 67,000 | |||||||||||||||||||||
| Identifiable assets | i 21,554,000 | i 39,446,000 | i 7,102,000 | i 49,816,000 | i 69,498,000 | i 9,135,000 | i 196,551,000 | |||||||||||||||||||||
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| Three Months Ended | Product | Commercial | Direct | |||||||||||||||||||||||||
| September 30, 2022 | Packaging | Lending | Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||
| Revenue | $ | i 4,707,000 | $ | i 370,000 | $ | i 4,956,000 | $ | - | $ | i 1,646,000 | $ | i 183,000 | $ | i 11,862,000 | ||||||||||||||
| Depreciation and amortization | i 168,000 | - | i 41,000 | i 278,000 | i 2,423,000 | i 17,000 | i 2,927,000 | |||||||||||||||||||||
| Interest Expense | i 42,000 | - | i 193,000 | - | i 371,000 | - | i 606,000 | |||||||||||||||||||||
| Interest income | - | - | i 3,000 | i 94,000 | i 79,000 | i 143,000 | i 319,000 | |||||||||||||||||||||
| Net income (loss) from operations | ( i 1,077,000 | ) | i 221,000 | ( i 15,379,000 | ) | ( i 909,000 | ) | ( i 3,182,000 | ) | ( i 4,476,000 | ) | ( i 24,802,000 | ) | |||||||||||||||
| Capital expenditures | i 300,000 | - | i 73,000 | - | - | - | i 373,000 | |||||||||||||||||||||
| Identifiable assets | i 24,035,000 | i 48,121,000 | i 39,979,000 | i 57,225,000 | i 81,766,000 | i 13,754,000 | i 264,880,000 | |||||||||||||||||||||
| Nine Months Ended | Product | Commercial | Direct | |||||||||||||||||||||||||
| September 30, 2023 | Packaging | Lending | Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||
| Revenue | $ | i 13,038,000 | $ | i 422,000 | $ | i 6,088,000 | $ | - | $ | i 3,697,000 | $ | - | $ | i 23,245,000 | ||||||||||||||
| Interest expense | i 137,000 | - | ( i 6,000 | ) | - | i 307,000 | - | i 438,000 | ||||||||||||||||||||
| Interest income | - | - | i 945,000 | i 149,000 | i 126,000 | - | i 1,220,000 | |||||||||||||||||||||
| Net income (loss) from operations | ( i 88,000 | ) | ( i 1,800,000 | ) | ( i 32,272,000 | ) | ( i 5,933,000 | ) | ( i 8,606,000 | ) | ( i 4,340,000 | ) | ( i 53,039,000 | ) | ||||||||||||||
| Capital expenditures | i 596,000 | - | - | i 17,000 | i 66,000 | - | i 679,000 | |||||||||||||||||||||
| Identifiable assets | i 21,554,000 | i 39,446,000 | i 7,102,000 | i 49,816,000 | i 69,498,000 | i 9,135,000 | i 196,551,000 | |||||||||||||||||||||
| Nine Months Ended | Product | Commercial | Direct | |||||||||||||||||||||||||
| September 30, 2022 | Packaging | Lending | Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||
| Revenue | $ | i 11,876,000 | $ | i 644,000 | $ | i 18,000,000 | $ | i 94,000 | $ | i 4,817,000 | $ | i 496,000 | $ | i 35,927,000 | ||||||||||||||
| Depreciation and Amortization | i 525,000 | - | i 248,000 | i 835,000 | i 7,637,000 | i 106,000 | i 9,351,000 | |||||||||||||||||||||
| Interest expense | i 100,000 | - | i 193,000 | - | i 1,812,000 | - | i 2,105,000 | |||||||||||||||||||||
| Stock based compensation | i 1,000 | - | - | - | - | i 3,000 | i 4,000 | |||||||||||||||||||||
| Net income (loss) from operations | ( i 755,000 | ) | i 638,000 | ( i 19,102,000 | ) | ( i 2,198,000 | ) | ( i 8,334,000 | ) | ( i 9,410,000 | ) | ( i 39,161,000 | ) | |||||||||||||||
| Capital expenditures | i 1,242,000 | - | i 88,000 | - | i 15,000 | i 4,000 | i 1,349,000 | |||||||||||||||||||||
| Identifiable assets | i 24,035,000 | i 48,121,000 | i 39,979,000 | i 57,225,000 | i 81,766,000 | i 13,754,000 | i 264,880,000 | |||||||||||||||||||||
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The following tables disaggregate our business segment revenues by major source:
i
Printed Products Revenue Information:
Schedule of Disaggregation of Revenue
| Three months ended September 30, 2023 | ||||
| Packaging Printing and Fabrication | $ | i 3,293,000 | ||
| Commercial and Security Printing | i 22,000 | |||
| Total Printed Products | $ | i 3,315,000 | ||
| Three months ended September 30, 2022 | ||||
| Packaging Printing and Fabrication | $ | i 4,888,000 | ||
| Commercial and Security Printing | i 144,000 | |||
| Total Printed Products | $ | i 5,032,000 | ||
| Nine months ended September 30, 2023 | ||||
| Packaging Printing and Fabrication | $ | i 12,539,000 | ||
| Commercial and Security Printing | i 347,000 | |||
| Total Printed Products | $ | i 12,976,000 | ||
| Nine months ended September 30, 2022 | ||||
| Packaging Printing and Fabrication | $ | i 12,357,000 | ||
| Commercial and Security Printing | i 293,000 | |||
| Total Printed Products | $ | i 12,650,000 | ||
Direct Marketing
| Three months ended September 30, 2023 | ||||
| Direct Marketing Internet Sales | $ | i 523,000 | ||
| Total Direct Marketing | $ | i 523,000 | ||
| Three months ended September 30, 2022 | ||||
| Direct Marketing Internet Sales | $ | i 4,937,000 | ||
| Total Direct Marketing | $ | i 4,937,000 | ||
| Nine months ended September 30, 2023 | ||||
| Direct Marketing Internet Sales | $ | i 6,088,000 | ||
| Total Direct Marketing | $ | i 6,088,000 | ||
| Nine months ended September 30, 2022 | ||||
| Direct Marketing Internet Sales | $ | i 17,939,000 | ||
| Total Direct Marketing | $ | i 17,939,000 | ||
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Rental Income
| Three months ended September 30, 2023 | ||||
| Rental income | $ | i 236,000 | ||
| Total Rental Income | $ | i 236,000 | ||
| Three months ended September 30, 2022 | ||||
| Rental income | $ | i 1,485,000 | ||
| Total Rental Income | $ | i 1,485,000 | ||
| Nine months ended September 30, 2023 | ||||
| Rental income | $ | i 3,464,000 | ||
| Total Rental Income | $ | i 3,464,000 | ||
| Nine months ended September 30, 2022 | ||||
| Rental income | $ | i 4,656,000 | ||
| Total Rental Income | $ | i 4,656,000 | ||
Net Investment Income
| Three months ended September 30, 2023 | ||||
| Net Investment Income | $ | i 108,000 | ||
| Total Investment Income | $ | i 108,000 | ||
| Three months ended September 30, 2022 | ||||
| Net Investment Income | $ | i 370,000 | ||
| Total Rental Income | $ | i 370,000 | ||
| Nine months ended September 30, 2023 | ||||
| Net investment income | $ | i 422,000 | ||
| Total Management fee income | $ | i 422,000 | ||
| Nine months ended September 30, 2022 | ||||
| Net Investment Income | $ | i 644,000 | ||
| Total Management fee income | $ | i 644,000 | ||
Commission Income
| Three months ended September 30, 2023 | ||||
| Commission income | $ | - | ||
| Total commission income | $ | - | ||
| Three months ended September 30, 2022 | ||||
| Commission income | $ | - | ||
| Total commission income | $ | - |
| Nine months ended September 30, 2023 | ||||
| Commission income | $ | i 295,000 | ||
| Total commission income | $ | i 295,000 |
| Nine months ended September 30, 2022 | ||||
| Commission income | $ | - | ||
| Total commission income | $ | - |
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16. Related Party Transactions
The Company owns shares or approximately i 4% of the outstanding shares of Alset International Limited (“Alset Intl”), a company incorporated in Singapore and publicly listed on the Singapore Exchange Limited. This investment is classified as a marketable security and is classified as long-term assets on the consolidated balance sheets as the Company has the intent and ability to hold the investments for a period of at least one year. The Chairman of the Company, Mr. Heng Fai Ambrose Chan, is the Executive Director and Chief Executive Officer of Alset Intl. Mr. Chan is also the majority shareholder of Alset Intl as well as the largest shareholder of the Company. The fair value of the marketable security as of September 30, 2023, and December 31, 2022, was approximately $ i 3,726,000 and $ i 3,319,000, respectively. During the nine-month ended September 30, 2023 and September 30, 2022, the Company recorded unrealized gain of approximately $ i 281,000 and loss on this investment of $ i 75,000, respectively.
On March 2, 2020, AMRE entered into a $ i 200,000 unsecured promissory note with LVAMPTE, a related party. The Note calls for interest to be paid annually on March 2 with interest fixed at i 8.0%. As further incentive to enter into this Note, AMRE granted LVAMPTE warrants to purchase shares of common stock of AMRE (the “Warrants”). The amount of the warrants granted is the equivalent of the Note Principal divided by the Exercise Price. The Warrants are exercisable for four years and are exercisable at $ i 5.00 per share (the “Exercise” Price). In March 2022, this debt was converted into equity in AMRE, and LVAMPTE exercised the warrants for $ i 200,000 (see the consolidated statement of changes in stockholders’ equity) The holder is a related party owned by the Chairman of the Company’s board of directors.
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 $ i 2,480,000 to effectively purchase ownership of shares of common stock of Vivacitas. This agreement includes an option to purchase an additional 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 i 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 i 1,000,000 of the available options under the Vivacitas Agreement #1. The Company’s current equity position in Vivacitas approximates i 16%.
On October 13, 2021, LVAM entered into loan agreement with BMIC (“BMIC Loan”), a related party, whereas LVAM borrowed the principal amount of $ i 3,000,000, with interest to be charged at a variable rate to be adjusted at the maturity date. The BMIC Loan matures on i October 12, 2022, and contains an auto renewal period of three months. As of September 30, 2023 and December 31, 2022, $ i 512,000 and $ i 3,000,000, respectively, are included in Current portion of long-term debt, net on the consolidated balance sheet.
On October 13, 2021, LVAM entered into a loan agreement with Lee Wilson Tsz Kin (“Wilson Loan”), a related party, whereas LVAM borrowed the principal amount of $ i 3,000,000, with interest to be charged at a variable rate to be calculated at the maturity date. The Wilson Loan matures on i October 12, 2022, and contains an auto renewal period of nine months. This loan was funded during March 2022. As of September 30, 2023 $ i 1,997,000 is included in the Current portion of long-term debt, net on the consolidated balance sheet. As of December 31, 2022 $ i 3,000,000 is included in the Current portion of long-term debt, net on the consolidated balance sheet.
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In November 2021, AMRE entered into a convertible promissory note (“Alset Note”) with Alset International Limited (“Alset International”), a related party, for the principal amount of $ i 8,350,000. The Alset Note accrues interest at i 8% per annum and i matures in December 2023, with interest due quarterly and the principal due at maturity. Principal and interest of approximately $ i 8,805,000 is included in long-term debt, net on the accompanying consolidated balance sheet on December 31, 2022. On May 17, 2022, the shareholders of the Company approved the issuance of up to Shares our Common Stock to Alset International to purchase the Convertible Promissory Note issued by American Medical REIT, Inc. with a principal amount of $ i 8,350,000 and accrued unpaid interest of $ i 119,000 through December 31, 2022. This transaction was finalized in July 2022 and is eliminated upon consolidation into DSS. Interest expense for this note totaled $ i 625,000 in September 2023 and $ i 346,000 in December 2022.
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 up to shares of the Company’s common stock for a purchase price of $ per share, for an aggregate purchase price of $ i 17,000,000. Pursuant to the Amendment, the number of shares of the common stock of the Company that the AEI will purchase has been reduced to shares for an aggregate purchase price of $ i 1,519,000. This transaction was completed on March 9, 2022. In addition, the Company’s Executive Chairman and a significant stockholder, Heng Fai Ambrose Chan, is the Chairman, Chief Executive Officer and largest shareholder of AEI.
In October 2017, Sharing Services issued a Convertible Promissory Note in the principal amount of $ i 50,000 (the “Note”) to HWH International, Inc. (“HWH” or the “Holder”), a related party. HWH is affiliated with Heng Fai Ambrose Chan, who became a Director of the Company in April 2020. The Note is convertible into shares of the Company’s Common Stock. Concurrent with issuance of the Note, the Company issued to HWH a detachable stock warrant to purchase up to an additional i 333,333 shares of the Company’s Common Stock, at an exercise price of $ per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to certain financing rights. If the Company enters into more favorable transactions with a third-party investor, it must notify the Holder and may have to amend and restate the Note and the detachable stock warrant to be identical. On August 9, 2022, HWH and the Company executed an agreement to settle the Note and cancel the related stock warrant for $, which amount represents the principal plus accrued interest. The Company made the payment to HWH on August 9, 2022.
On May 17, 2022, the shareholders of the Company approved the acquisition of shares of True Partners Capital Holdings Limited (“True Partners”), a company publicly traded on the Hong Kong stock exchange in exchange for shares of DSS stock. The True Partner shares were acquired from Alset EHome International, Inc. (“Alset EHome”), a related party. Mr. Heng Fai Ambrose Chan, our director and Executive Chairman, is also Chairman of the Board, Chief Executive Officer, and the largest beneficial owner of the outstanding shares of Alset EHome. This transaction was completed with the transfer of DSS shares to Alset EHome on July 1, 2022 with the issuance of DSS shares, which were valued at $0.34 per share, to Alset EHome.
On May 17, 2022, the shareholders of the Company approved the issuance of up to shares of our Common Stock to Alset International, a related party, to purchase the Convertible Promissory Note issued by American Medical REIT, Inc. with a principal amount of $ i 8,350,000 and accrued but unpaid interest of $ i 367,000 through May 15, 2022. This transaction was finalized in July 2022.
/ i
The Company has evaluated all subsequent events and transactions through November 14, 2023, the date that the condensed consolidated financial statements were available to be issued and noted no subsequent events requiring financial statement recognition or disclosure other than what was identified below:
On October 31, 2023, Impact BioMedical effected a i reverse stock split of 1 for 55. As of June 30, 2023, and December 31, 2022, there were shares of common stock issued and outstanding which was converted to shares. Also on October 31, 2023, DSS BioHealth Securities, Inc., the Impact’s largest shareholder and a wholly-owned subsidiary of DSS, converted shares of Common Stock into shares of Series A Convertible Preferred Shares, reducing its ownership of Impact’s common stock from approximately i 88% to approximately i 12%.
/
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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements contained herein 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.
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.
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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, bringing its ownership percentage of voting shares to approximately 65%. During the fourth quarter of 2022, SHRG purchased back a significant number of its outstanding voting shares, increasing the Company’s ownership percentage of voting shares to approximately 73% at December 31, 2022. During the first quarter of 2023, DSS converted both interest due from SHRG on notes receivable and warrants in SHRG shares into newly issued common stock of SHRG totaling 84,619,047 shares, increasing DSS ownership of voting shares to approximately 80% at March 31, 2023. On May 4, 2023, the Company distributed approximately 280 million shares of SHRG beneficially held by DSS and Decentralized Sharing Systems in the form of a dividend to the shareholders of DSS common stock. Upon completion of this distribution, DSS will retain an ownership interest in SHRG of approximately 7%. 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%.
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 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 has 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 of 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. In December 2022, the Company exercised its option to obtain the additional 50.1% of Sentinel’s common stock and began consolidating its results affective December 1, 2022.
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.
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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 were allocated to the facility and land, respectively. Also included 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 September 30, 2023, 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 7, 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.
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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.
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 licensing agreements.
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Results of operations for the three and nine months ended September 30, 2023, as compared to the three and nine months ended September 30, 2022.
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, 2022.
Revenue
| Three months ended September 30, 2023 | Three months ended September 30, 2022 | % Change | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | % Change | |||||||||||||||||||
| Printed products | $ | 3,315,000 | $ | 5,032,000 | -34 | % | $ | 12,976,000 | $ | 12,650,000 | 3 | % | ||||||||||||
| Rental income | 236,000 | 1,485,000 | -84 | % | 3,464,000 | 4,656,000 | -26 | % | ||||||||||||||||
| Management fee income | - | 38,000 | -100 | % | - | 38,000 | -100 | % | ||||||||||||||||
| Net investment income | 108,000 | 370,000 | -71 | % | 422,000 | 644,000 | -34 | % | ||||||||||||||||
| Commission revenue | - | - | N/A | 295,000 | -N/A | |||||||||||||||||||
| Direct marketing | 523,000 | 4,937,000 | -89 | % | 6,088,000 | 17,939,000 | -66 | % | ||||||||||||||||
| Total Revenue | $ | 4,182,000 | $ | 11,862,000 | -65 | % | $ | 23,245,000 | $ | 35,927,000 | -35 | % | ||||||||||||
For the three and nine months ended September 30, 2023, total revenue decreased 65% and 35% respectively, as compared to the three and nine months ended September 30, 2022. Revenues from the sale of Printed products decreased 34% during three months but increased 3% during nine months ended September 30, 2023, as compared to the same period in 2022 due primarily to orders expected to ship during the 3rd quarter 2023 being pushed to the 4th quarter 2023. The decreases in Rental income, $236,000, and $3,464,000 respectively, for the three months ended September 30, 2023 and $1,485,000, and $4,656,000, respectively for the three and nine months ended September 30, 2022, is driven by the tenants at AMRE LifeCare being unable to make full rental payments on a monthly basis. The decreases in Net investment income of $108,000 for three months ended September 30, 2023 and $422,000 for nine months ended September 30, 2023 as compared to $370,000 and $644,000 for the three and nine months ended September 30, 2022 is due to a number of loans made going on non-accrual as borrowers have struggled to make expect payments. The Company’s Direct Marketing revenues decreased 89% and 66% for the three and nine months ended September 30, 2023 as compared to 2022 due primarily to the Deconsolidation of SHRG as described in Note 1.
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Costs and expenses
| Three months ended September 30, 2023 | Three months ended September 30, 2022 | % Change | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | % Change | |||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||||||
| Printed products | $ | 3,871,000 | $ | 5,174,000 | -25 | % | $ | 10,952,000 | $ | 11,201,000 | -2 | % | ||||||||||||
| Securities | 1,922,000 | 3,541,000 | -46 | % | 6,046,000 | 10,837,000 | -44 | % | ||||||||||||||||
| Direct marketing | 271,000 | 2,926,000 | -91 | % | 2,077,000 | 7,160,000 | -71 | % | ||||||||||||||||
| Other | 8,000 | 292,000 | -97 | % | 362,000 | 460,000 | -21 | % | ||||||||||||||||
| Sales, general and administrative compensation | 1,132,000 | 6,968,000 | -84 | % | 7,493,000 | 20,177,000 | -63 | % | ||||||||||||||||
| Professional fees | 1,139,000 | 2,919,000 | -61 | % | 3,248,000 | 6,416,000 | -49 | % | ||||||||||||||||
| Stock based compensation | - | - | N/A | - | 4,000 | -100 | % | |||||||||||||||||
| Sales and marketing | 483,000 | 3,110,000 | -84 | % | 3,534,000 | 9,952,000 | -64 | % | ||||||||||||||||
| Rent and utilities | 156,000 | 295,000 | -47 | % | 656,000 | 632,000 | 4 | % | ||||||||||||||||
| Research and development | 239,000 | 331,000 | -28 | % | 684,000 | 705,000 | -3 | % | ||||||||||||||||
| Other operating expenses | 64,000 | 1,054,000 | -94 | % | 5,421,000 | 2,431,000 | 123 | % | ||||||||||||||||
| Total costs and expenses | $ | 9,285,000 | $ | 26,610,000 | -65 | % | $ | 40,473,000 | $ | 69,974,000 | -42 | % | ||||||||||||
Costs of revenue include all direct costs of the Company’s printed products, including its packaging and printing sales and its direct marketing sales, materials, direct labor, transportation, and manufacturing facility costs. In addition, this category includes all direct costs associated with the Company’s technology sales, services and licensing including hardware and software that are resold, third-party fees, and fees paid to inventors or others because of technology licenses or settlements, if any. Cost of revenue for our Securities operating segments is comprised mainly of our REIT line of business and includes all direct cost associated with the maintenance and upkeep of the related facilities, depreciation, amortization, and the costs to acquire the facilities. Our Commercial Lending operating segment has costs of revenue associated with the impairment of notes receivable for those amounts at risk of collection. Total costs of revenue decreased 49% for three-months ended September 2023 as compared to 2022 and decreased 34% for nine-months ended September 2023 as compared to September 2022 primarily related to the Deconsolidation of SHRG as described in Note 1.
Sales, general and administrative compensation costs, excluding stock-based compensation, decreased 84% and 63% for the three and nine months ended September 30, 2023 as compared to the same periods in 2022 due primarily to the Deconsolidation of SHRG as described in Note 1.
Professional fees decreased 61% and 49%, during the three and nine months ended September 30, 2023, as compared to the same periods in 2022 respectively, primarily due to a decrease in legal fees associated with the direct marketing segment, accounting fees, 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. There was no stock based compensation during the nine months ended September 30, 2023.
Sales and marketing which include internet and trade publication advertising, travel and entertainment costs, sales-broker commissions, and trade show participation expenses. Sales and marketing decreased 84% and 64% during the three and nine months ended September 30, 2023 as compared to the same periods in 2022 respectively, due primarily to the Deconsolidation of SHRG as described in Note 1.
Rent and utilities decreased 47% during the three months period but increased 4% for nine months ended September 30, 2023, as compared to the same period in 2022 respectively, primarily due to end of the lease in Tennessee for AMRE office space and California for the Company’s DSS Wealth Management subsidiary. The company rented additional space at our facility leased in Houston, Texas started during the 2022 as well as Premier Packaging’s leased facility beginning in March 2022.
Research and development costs decreased 28% and 3% during the three and nine months ended September 30, 2023, as compared to the same period in 2022 respectively, 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 and nine months ended September 30, 2023, other operating expenses decreased 94% but increased 123% as compared to the same period in 2022 respectively, due primarily to the reserves put against rent receivables during the nine months ended September 30, 2023 at our AMRE subsidiary approximating $3.4 million.
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Other Income (Expense)
| Three months ended September 30, 2023 | Three months ended September 30, 2022 | % Change | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | % Change | |||||||||||||||||||
| Interest Income | $ | 682,000 | $ | 319,000 | 114 | % | $ | 1,220,000 | $ | 613,000 | 99 | % | ||||||||||||
| Dividend Income | - | - | N/A | 12,000 | - | N/A | ||||||||||||||||||
| Interest Expense | (51,000 | ) | (42,000 | ) | 21 | % | (438,000 | ) | (100,000 | ) | 338 | % | ||||||||||||
| Other Income (expense) | (44,000 | ) | 3,627,000 | -101 | % | 44,000 | 4,203,000 | -99 | % | |||||||||||||||
| Loss on investments | 301,000 | (14,302,000 | ) | -102 | % | (30,490,000 | ) | (10,479,000 | ) | 191 | % | |||||||||||||
| Gain/(loss) on equity method investment | (6,000 | ) | 344,000 | -102 | % | (28,000 | ) | 134,000 | -121 | % | ||||||||||||||
| Gain/(Loss) on extinguishment of debt | - | - | N/A | - | 110,000 | -100 | % | |||||||||||||||||
| Provision for loan losses | (1,179,000 | ) | - | N/A | (4,936,000 | ) | - | N/A | ||||||||||||||||
| Loss on disposal of operations, net of taxes | (1,281,000 | ) | - | N/A | (1,281,000 | ) | 405,000 | -415 | % | |||||||||||||||
| Total other income | $ | (1,578,000 | ) | $ | (10,054,000 | ) | -84 | % | $ | (35,897,000 | ) | $ | (5,114,000 | ) | 602 | % | ||||||||
Interest income is recognized on the Company’s money markets, and a portion of notes receivable, identified in Note 4.
Other expense for the nine months ended September 30, 2022 is driven by the impairment of investments and notes receivables for SHRG approximating $1,745,000. No similar activity occurred in 2023.
Interest expenses increased 21% and 338% during the three and nine months ended September 30, 2023, as compared to the same period in 2022, due to decreasing 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, and net unrealized losses on marketable securities which are recognized on the change in fair market value on our common stock investment. Also included is a loss approximating $29.2 million associated with the Deconsolidation of SHRG (see Note 1).
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 and nine months ended September 30, 2023.
Gain on extinguishment of debt During the three months ended June 30, 2022, SHRG’s $110,000 SBA Paycheck Protection Program was forgiven in full.
Loss on sale of assets is driven by the Company’s loss on the sale of equity of HWH Holdings Inc and loss on sale of assets of HWH World as identified in Note 7.
Net Loss
| Three months ended September 30, 2023 | Three months ended September 30, 2022 | % Change | Nine months ended September 30, 2023 | Nine months ended September 30, 2022 | % Change | |||||||||||||||||||
| Loss from continuing operations | $ | (6,681,000 | ) | $ | (24,802,000 | ) | 73 | % | $ | (53,039,000 | ) | $ | (39,161,000 | ) | -35 | % | ||||||||
| Net loss | $ | (6,681,000 | ) | $ | (24,802,000 | ) | 73 | % | $ | (53,039,000 | ) | $ | (39,161,000 | ) | -35 | % | ||||||||
For the three and nine months ended September 30, 2023, the Company recorded net losses of $6,681,000 and $53,039,000, respectively as compared to net losses of $24,802,000 and $39,161,000, respectively for September 30, 2022. The decrease in net loss during the three months ended September 30, 2023, is driven by the Deconsolidation of SHRG as described in Note 1.
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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 financing. As of September 30, 2023 the Company had cash of approximately $6.9 million. As of September 30, 2023, 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 financing. The deconsolidation of SHRG and sale of HWH Holdings, Inc, two companies with historical losses, will also is expected to improve future cash flows.
Cash Flow from Continuing Operating Activities
Net cash used from continuing operating activities was $21,035,000 for the nine months ended September 30, 2023 as compared to $23,251,000 for the nine months ended September 30, 2022. This fluctuation is driven by increases in net loss and decrease in inventory of $5,270,000, accounts receivable of $2,520,000 off-set by accrued expenses of $15,549,000 during 2023.
Cash Flow from Investing Activities
Net cash provided by investing activities was $11,885,000 for the nine months ended September 30, 2023 as compared to net cash used of $17,816,000 for the nine months ended September 30, 2022. This fluctuation is driven by the sale of marketable securities approximating $11,330,000 during 2023 versus the purchase of marketable securities approximating $14,254,000 during 2022.
Cash Flow from Financing Activities
Net cash used from financing activities was $3,243,000 for the nine months ended September 30, 2023 and represents payment of debt of $4,056,000 offset by borrowings of debt of $813,000. During the nine months ended September 30, 2022, net cash provided by financing activities was driven by borrowings of long-term debt of $6,360,000 and issuance of common stock of $1,518,000.
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 September 30, 2023.
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 September 30, 2023, 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, 2022 which remained as of September 30, 2023, our principal executive officer and principal financial officer concluded that as of September 30, 2023, 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, 2022, the Company has a remediation plan and is committed to maintaining a strong internal control environment and believes that these remediation efforts will represent significant improvements in our controls. The Company has started to implement these steps, however, some of these steps will take time to be fully integrated and confirmed to be effective and sustainable. Additional controls may also be required over time. Until the remediation steps set forth above are fully implemented and tested, the material weaknesses described above will continue to exist.
Changes in Internal Control over Financial Reporting
While changes in the Company’s internal control over financial reporting occurred during the quarter ended September 30, 2023, as the Company began implementation of the remediation steps described above, we believe that there were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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OTHER INFORMATION
See commentary in Note 12 Commitments and Contingencies.
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, 2022.
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.
None.
*Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| DSS, INC. | ||
| November 14, 2023 | By: | /s/ Frank D. Heuszel |
| Frank D. Heuszel | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| November 14, 2023 | By: | /s/ Todd D. Macko |
| Todd D. Macko | ||
| Chief Financial Officer | ||
| 41 |
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| 10/31/33 | ||||
| 9/1/28 | ||||
| 7/1/26 | ||||
| 5/7/26 | ||||
| 8/29/25 | ||||
| 3/31/25 | ||||
| 11/2/24 | ||||
| 9/30/24 | ||||
| 9/19/24 | ||||
| 9/13/24 | ||||
| 9/9/24 | ||||
| 8/12/24 | ||||
| 7/26/24 | ||||
| 6/14/24 | ||||
| 3/7/24 | ||||
| 2/19/24 | ||||
| 12/31/23 | ||||
| 11/30/23 | ||||
| Filed on: | 11/14/23 | |||
| 11/12/23 | ||||
| 11/6/23 | ||||
| 11/2/23 | ||||
| 11/1/23 | ||||
| 10/31/23 | ||||
| For Period end: | 9/30/23 | |||
| 9/28/23 | ||||
| 8/31/23 | 8-K | |||
| 8/8/23 | ||||
| 6/30/23 | 10-Q | |||
| 6/27/23 | ||||
| 5/31/23 | ||||
| 5/15/23 | 10-Q | |||
| 5/8/23 | 4 | |||
| 5/4/23 | ||||
| 5/1/23 | ||||
| 4/30/23 | ||||
| 4/10/23 | 4 | |||
| 3/31/23 | 10-K, 10-Q | |||
| 3/30/23 | ||||
| 2/9/23 | ||||
| 1/1/23 | ||||
| 12/31/22 | 10-K | |||
| 12/29/22 | ||||
| 12/28/22 | ||||
| 12/1/22 | ||||
| 11/30/22 | ||||
| 10/25/22 | ||||
| 10/12/22 | ||||
| 9/30/22 | 10-Q | |||
| 9/22/22 | ||||
| 9/14/22 | 10-Q | |||
| 8/29/22 | ||||
| 8/19/22 | ||||
| 8/11/22 | ||||
| 8/9/22 | 8-K | |||
| 7/29/22 | ||||
| 7/26/22 | 3 | |||
| 7/1/22 | 8-K | |||
| 6/30/22 | 10-Q, NT 10-Q | |||
| 6/15/22 | ||||
| 5/25/22 | 4, 8-K | |||
| 5/17/22 | 8-K | |||
| 5/15/22 | ||||
| 5/9/22 | DEFA14A | |||
| 5/5/22 | ||||
| 3/31/22 | 10-K, 10-Q | |||
| 3/19/22 | ||||
| 3/17/22 | ||||
| 3/10/22 | 4, 8-K/A | |||
| 3/9/22 | 4 | |||
| 3/2/22 | ||||
| 2/28/22 | 8-K | |||
| 2/25/22 | 8-K | |||
| 2/18/22 | ||||
| 1/25/22 | 8-K | |||
| 1/24/22 | 4, PRE 14A | |||
| 1/18/22 | 8-K | |||
| 12/31/21 | 10-K, 10-K/A | |||
| 12/28/21 | 4 | |||
| 12/23/21 | 4 | |||
| 11/2/21 | ||||
| 10/27/21 | ||||
| 10/25/21 | ||||
| 10/13/21 | 4 | |||
| 9/30/21 | 10-Q, DEF 14A, NT 10-Q | |||
| 9/23/21 | ||||
| 9/19/21 | ||||
| 9/16/21 | ||||
| 9/13/21 | 4 | |||
| 9/9/21 | ||||
| 8/1/21 | ||||
| 7/22/21 | ||||
| 6/18/21 | ||||
| 5/20/21 | ||||
| 5/19/21 | ||||
| 5/14/21 | 10-Q | |||
| 5/13/21 | ||||
| 4/21/21 | ||||
| 4/7/21 | ||||
| 4/5/21 | 8-K | |||
| 4/1/21 | 8-K | |||
| 3/29/21 | ||||
| 3/21/21 | ||||
| 3/18/21 | ||||
| 3/16/21 | ||||
| 3/15/21 | ||||
| 3/1/21 | ||||
| 2/25/21 | ||||
| 2/19/21 | ||||
| 2/8/21 | 424B5 | |||
| 12/30/20 | ||||
| 12/19/20 | ||||
| 9/30/20 | 10-Q, 3, 4 | |||
| 9/29/20 | ||||
| 9/10/20 | ||||
| 6/30/20 | 10-Q | |||
| 5/4/20 | 8-K | |||
| 3/2/20 | ||||
| 4/24/15 | ||||
| List all Filings | ||||