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As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 5/15/23 DSS, Inc. 10-Q 3/31/23 68:6.4M M2 Compliance LLC/FA |
Document/Exhibit Description Pages Size
1: 10-Q Quarterly Report HTML 1.08M
2: EX-31.1 Certification -- §302 - SOA'02 HTML 22K
3: EX-31.2 Certification -- §302 - SOA'02 HTML 22K
4: EX-32.1 Certification -- §906 - SOA'02 HTML 20K
5: EX-32.2 Certification -- §906 - SOA'02 HTML 20K
11: R1 Cover HTML 71K
12: R2 Condensed Consolidated Balance Sheets (Unaudited) HTML 146K
13: R3 Condensed Consolidated Balance Sheets (Unaudited) HTML 45K
(Parenthetical)
14: R4 Condensed Consolidated Statements of Operations HTML 124K
(Unaudited)
15: R5 Condensed Consolidated Statements of Cash Flows HTML 100K
(Unaudited)
16: R6 Condensed Consolidated Statements of Changes in HTML 66K
Stockholders' Equity (Unaudited)
17: R7 Basis of Presentation and Significant Accounting HTML 91K
Policies
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19: R9 Inventory HTML 28K
20: R10 Notes Receivable HTML 64K
21: R11 Financial Instruments HTML 81K
22: R12 Provision for Credit Losses HTML 31K
23: R13 Investments HTML 63K
24: R14 Acquisitions HTML 32K
25: R15 Short-Term and Long-Term Debt HTML 82K
26: R16 Lease Liability HTML 33K
27: R17 Commitments and Contingencies HTML 24K
28: R18 Stockholders? Equity HTML 40K
29: R19 Supplemental Cash Flow Information HTML 24K
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32: R22 Subsequent Events HTML 23K
33: R23 Basis of Presentation and Significant Accounting HTML 101K
Policies (Policies)
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36: R26 Provision for Credit Losses (Tables) HTML 25K
37: R27 Acquisitions (Tables) HTML 26K
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39: R29 Lease Liability (Tables) HTML 30K
40: R30 Supplemental Cash Flow Information (Tables) HTML 22K
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(Details)
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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 March 31, 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_______ .
| i 001-32146 | ||
| 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.) |
| (Address of principal executive offices) |
| i (585) i 325-3610 | ||
| (Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. i Yes ☒ 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 May 3, 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
(unaudited)
As of
| March 31, 2023 | December 31, 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | i 13,732,000 | $ | i 19,290,000 | ||||
| Accounts receivable, net | i 6,995,000 | i 7,564,000 | ||||||
| Inventory | i 7,262,000 | i 7,721,000 | ||||||
| Current portion of notes receivable | i 11,422,000 | i 11,719,000 | ||||||
| Prepaid expenses and other current assets | i 2,043,000 | i 1,700,000 | ||||||
| Total current assets | i 41,454,000 | i 47,994,000 | ||||||
| Property, plant and equipment, net | i 13,611,000 | i 13,391,000 | ||||||
| Investment in real estate, net | i 54,511,000 | i 55,029,000 | ||||||
| Other investments | i 1,562,000 | i 1,534,000 | ||||||
| Investment, equity method | i 157,000 | i 162,000 | ||||||
| Marketable securities | i 13,391,000 | i 27,307,000 | ||||||
| Notes receivable | i 158,000 | i 922,000 | ||||||
| Other assets | i 2,754,000 | i 2,699,000 | ||||||
| Right-of-use assets | i 8,203,000 | i 8,219,000 | ||||||
| Goodwill | i 60,919,000 | i 60,919,000 | ||||||
| Other intangible assets, net | i 30,030,000 | i 30,740,000 | ||||||
| Total assets | $ | i 226,750,000 | $ | i 248,916,000 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | i 5,095,000 | $ | i 5,914,000 | ||||
| Accrued expenses and deferred revenue | i 9,461,000 | i 19,341,000 | ||||||
| Other current liabilities | i 477,000 | i 477,000 | ||||||
| Current portion of lease liability | i 800,000 | i 796,000 | ||||||
| Current portion of long-term debt, net | i 48,773,000 | i 47,161,000 | ||||||
| Total current liabilities | i 64,606,000 | i 73,689,000 | ||||||
| Long-term debt, net | i 5,778,000 | i 10,181,000 | ||||||
| Long term lease liability | i 7,773,000 | i 7,820,000 | ||||||
| Other long-term liabilities | i 507,000 | i 507,000 | ||||||
| Deferred tax liability | i 38,000 | i 38,000 | ||||||
| Commitments and contingencies (Note 11) | - | - | ||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ par value; shares authorized, shares issued and outstanding ( on December 31, 2022); Liquidation value $ i 1,000 per share, i zero aggregate on December 31, 2022). | - | - | ||||||
| Common stock, $par value; shares authorized, shares issued and outstanding (on December 31, 2022) | i 2,779,000 | i 2,779,000 | ||||||
| Additional paid-in capital | i 317,126,000 | i 317,126,000 | ||||||
| Accumulated Deficit | ( i 202,378,000 | ) | ( i 194,343,000 | ) | ||||
| Total Stockholder’s Equity | i 117,527,000 | i 125,562,000 | ||||||
| Non-controlling interest in subsidiaries | i 30,521,000 | i 31,119,000 | ||||||
| Total stockholders’ equity | i 148,048,000 | i 156,681,000 | ||||||
| Total liabilities and stockholders’ equity | $ | i 226,750,000 | $ | 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 | |||||||
For the Three Months Ended | ||||||||
| 2023 | 2022 | |||||||
| Revenue: | ||||||||
| Printed products | $ | i 6,130,000 | $ | i 3,569,000 | ||||
| Rental income | i 1,685,000 | i 1,663,000 | ||||||
| Management fee income | - | i 11,000 | ||||||
| Net investment income | i 117,000 | i 129,000 | ||||||
| Direct marketing | i 3,994,000 | i 6,932,000 | ||||||
| Total revenue | i 11,926,000 | i 12,304,000 | ||||||
| Costs and expenses: | ||||||||
| Cost of revenue | i 8,533,000 | i 8,878,000 | ||||||
| Selling, general and administrative (including stock-based compensation) | i 8,973,000 | i 10,745,000 | ||||||
| Total costs and expenses | i 17,506,000 | i 19,623,000 | ||||||
| Operating loss | ( i 5,580,000 | ) | ( i 7,319,000 | ) | ||||
| Other income (expense): | ||||||||
| Interest income | i 130,000 | i 156,000 | ||||||
| Dividend Income | i 4,000 | - | ||||||
| Other income (expense) | ( i 65,000 | ) | ( i 1,703,000 | ) | ||||
| Interest expense | ( i 249,000 | ) | ( i 802,000 | ) | ||||
| Loss on equity method investment | ( i 4,000 | ) | ( i 112,000 | ) | ||||
| Loss on investments | ( i 2,869,000 | ) | i 424,000 | |||||
| Gain on sale of asset | - | i 405,000 | ||||||
| Loss from operations before income taxes | ( i 8,633,000 | ) | ( i 8,951,000 | ) | ||||
| Income tax | - | - | ||||||
| Net loss | ( i 8,633,000 | ) | ( i 8,951,000 | ) | ||||
| (Gain) loss from operations attributed to noncontrolling interest | i 598,000 | i 903,000 | ||||||
| Net loss attributable to common stockholders | ( i 8,035,000 | ) | ( i 8,048,000 | ) | ||||
| Loss per common share: | ||||||||
| Basic | $ | ( i 0.06 | ) | $ | ( i 0.10 | ) | ||
| Diluted | $ | ( i 0.06 | ) | $ | ( i 0.10 | ) | ||
| Shares used in computing loss per common share: | ||||||||
| Basic | i 139,017,172 | i 84,626,847 | ||||||
| Diluted | i 139,017,172 | i 84,626,847 | ||||||
See accompanying notes to the condensed consolidated financial statements.
| 4 |
DSS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31,
(unaudited)
See accompanying notes to the condensed consolidated financial statements.
| 5 |
DSS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(unaudited)
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | Subsidiary | Total | ||||||||||||||||||||||||||||
| 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 | |||||||||||||||||||
| Net loss | - | - | - | - | - | ( i 8,035,000 | ) | ( i 8,035,000 | ) | ( i 598,000 | ) | ( i 8,633,000 | ) | |||||||||||||||||||||||
| Balance, March 31, 2023 | i 139,017,000 | $ | i 2,779,000 | - | $ | - | $ | i 317,126,000 | $ | ( i 202,378,000 | ) | $ | i 117,527,000 | $ | i 30,521,000 | $ | i 148,048,000 | |||||||||||||||||||
| Balance, December 31, 2021 | i 79,746,000 | $ | i 1,594,000 | - | $ | - | $ | i 294,686,000 | $ | ( i 132,384,000 | ) | $ | i 163,896,000 | i 36,407,000 | $ | i 200,304,000 | ||||||||||||||||||||
| Issuance of common stock, net of expenses | i 4,881,000 | i 98,000 | - | - | i 1,760,000 | - | i 1,858,000 | - | i 1,858,000 | |||||||||||||||||||||||||||
| Conversion of debt to equity in subsidiary | - | - | - | - | - | - | - | i 840,000 | i 840,000 | |||||||||||||||||||||||||||
| Stock based payments | - | - | - | - | i 4,000 | - | i 4,000 | - | i 4,000 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | ( i 8,048,000 | ) | ( i 8,048,000 | ) | ( i 903,000 | ) | ( i 8,951,000 | ) | |||||||||||||||||||||||
| Balance, March 31, 2022 | i 84,627,000 | $ | i 1,692,000 | - | $ | - | $ | i 296,450,000 | $ | ( i 140,432,000 | ) | $ | i 157,710,000 | $ | i 36,344,000 | $ | i 194,055,000 | |||||||||||||||||||
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 September 9, 2021, the Company finalized a stock purchase agreement (the “SPA”) with American Pacific Bancorp, Inc. (“APB”), which provided for an investment of $ i 40,000,200 by the Company into APB for an aggregate of shares of the APB’s Class A Common Stock, par value $ per share. Subject to the terms and conditions contained in the SPA, the shares issued at a purchase price of $ per share. As a result of this transaction, DSS became the majority owner of APB. (see Note 5).
On September 13, 2021, the Company finalized a shareholder agreement between its subsidiary, DSS Financial Management, Inc. (“DFMI”) and HR1 Holdings Limited (“HR1”), a company incorporated in the British Virgin Islands, for the purpose of operating a vehicle for private and institutional investors seeking a highly liquid investment fund with attractive risk adjusted returns relative to market unpredictability and volatility. i 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.
i On December 23, 2021, DSS purchased shares at $ per share of Sharing Services Global Corporation (“SHRG”) via a private placement. With this purchase, DSS increased its ownership of voting shares from approximately i 47% of SHRG to approximately i 58%. / 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. SHRG markets its products and services through its independent sales force, using its proprietary websites, including: www.elevacity.com and www.thehappyco.com. SHRG, headquartered in Plano, Texas, was incorporated in the State of Nevada on April 24, 2015, and is an emerging growth company. SHRG 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.
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%. 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”).
On January 24, 2022, DSS entered into a business consulting agreement with Sharing Services Global Corporation (“SHRG”). As part of this agreement, warrants were exercised, which increased the Company’s ownership of SHRG to approximately i 65%.
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.
| 8 |
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. 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 with the issuance of DSS shares, which were valued at $ per share, to Alset EHome.
The accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly our consolidated financial position as of March 31, 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 for the fiscal year ended December 31, 2022 (“Form 10-K”), 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.
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
Reclassifications - For the three months ended March 31, 2022, $ i 577,000 of was reclassified from Interest expense, to Cost of revenue on the consolidated income statements to conform to current period presentation.
/ 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.
i
Accounts Receivable – The Company extends credit to its customers in the normal course of business. The Company performs ongoing credit evaluations and generally do not require collateral. Payment terms are generally 30 days but up to net 105 for certain customers. The Company carries its trade accounts receivable at invoice amount less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based upon management’s estimates that include a review of the history of past write-offs and collections and an analysis of current credit conditions. As of March 31, 2023, the Company established a reserve for doubtful accounts of approximately $ i 29,000 ($ i 29,000 – December 31, 2022). 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 6 for further discussion on investments.
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For equity method investments, the Company regularly reviews its investments to determine whether there is a decline in fair value below book value. If there is a decline that is other-than-temporary, the investment is written down to fair value. See Note 6 for further discussion on investments.
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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.
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 SHRG subsidiary was recorded as of March 31, 2023, and December 31, 2022, respectively. 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 because of any non-performance by the financial institutions.
As of December 31, 2022, two customers accounted for approximately i 14% and i 6% of our consolidated revenue and these two customers accounted for approximately i 36% and i 17% of our consolidated trade accounts receivable balance.
As of March 31, 2023, one customer accounted for approximately i 23% of our consolidated revenue and i 47% of our 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.
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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.
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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 13.7 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 13.7 million in cash as of March 31, 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 13.4 million of Marketable Securities, and the anticipated receipts of principal and interest on its Notes receivable of approximately $ i 12 million through March 31, 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. Initial conversations with underwriters are providing an estimate of $ i 30 - $ i 50 million potential capital raise. This is expected to close early 3rd quarter 2023. SHRG is in the process of up listing to NASDQ and conversations with the underwriter involved illustrate an approximate raise of $ i 15 million dollars. A significant portion of the funds raised from this up listing will be used to repay loans SHRG owes to DSS. Additionally, we are in negotiations with Pinnacle Bank to extend our note payable, approximating $ i 40.2 million through November 2024.
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 13.7 million in aggregate cash, as of March 31, 2023, along with the $ i 13.4 million of Marketable Securities, and the anticipated receipts of principal and interest on its Notes receivable of approximately $ i 12 million through March 2024, would allow us to fund our nine business lines current and planned operations through March 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 March 31, 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.
Accounts Receivable
The Company extends credit to its customers in the normal course of business. The Company performs ongoing credit evaluations and generally does not require collateral. Payment terms are generally 30 days but up to net 105 for certain customers. The Company carries its trade accounts receivable at invoice amount less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based upon management’s estimates that include a review of the history of past write-offs and collections and an analysis of current credit conditions. At March 31, 2023, and December 31, 2022, the Company established a reserve for doubtful accounts of approximately $ i 29,000 and $ i 29,000 respectively. The Company does not accrue interest on past due accounts receivable.
Sales Commissions
Sales commissions are expensed as incurred for contracts with an expected duration of one year or less. There were no sales commissions capitalized as of March 31, 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 pertaining to these costs are reflected as revenue.
See Note 14 for disaggregated revenue information.
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Inventory consisted of the following as of:
| March 31, 2023 | ||||||||
| Finished Goods | $ | i 5,596,000 | $ | i 6,779,000 | ||||
| Work in Process | i 536,000 | i 403,000 | ||||||
| Raw Materials | i 1,187,000 | i 1,281,000 | ||||||
| Inventory Gross | $ | i 7,319,000 | $ | i 8,463,000 | ||||
| Less allowance for obsolescence | ( i 57,000 | ) | ( i 742,000 | ) | ||||
| Inventory Net | $ | i 7,262,000 | $ | 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 2 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 March 31, 2023, and December 31, 2022, approximated $ i 5,503,000 and $ i 5,420,000, respectively, which is included in current notes receivable on the accompanying consolidated balance sheet.
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 September 22, 2023. 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 3,751,000 and $ i 3,701,000 of Note 3 is included in current portion of notes receivable on the consolidated balance sheet at March 31, 2023 and December 31, 2022, respectively.
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Note 4
On October 25, 2021, APB entered into 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 5, has the right to elect one member to the Board of Managers. The outstanding principal and interest of approximately $ i 884,000 and $ i 896,000 of the note is included in current portion of notes receivable on the consolidated balance sheet at March 31, 2023 and December 31, 2022, respectively. As of December 31, 2022, this note is in default. The Company has placed a reserve of $ i 896,000 against this note 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 is 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 of approximately $ i 260,000 and $ i 9,300 are included in current portion of Notes receivable on the consolidated balance sheet at March 31, 2023 and $ 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. Note 6 has a principal balance of $ i 52,000 and incurred no interest through the maturity date of i December 31, 2021. The outstanding principal at March 31, 2023 and December 31, 2022 is $ i 66,000 and $ i 63,000, respectively, and is included in the current portion of notes receivable. This i note was amended in April 2022 to borrow up to $ i 102,000 and extend the maturity date through April 2023 bearing interest rate of i 18%. The due date of this loan is currently being re-negotiated. /
Note 7
On December 28, 2021, APB entered into promissory note (“Note 7”) with Borrower 7, a company registered in the state of California. Note 8 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 707,000 and $ i 701,000 of Note 7 is included in current portion of notes receivable on the consolidated balance sheet at March 31, 2023 and December 31, 2022, respectively.
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 March 31, 2023 approximates $ i 107,000 and at December 31, 2022 approximates $ i 106,000, 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 892,500 with an interest rate of i 8%, and matures in i March 2024, with interest payable quarterly. The outstanding principal and interest at March 31, 2023 is $ i 766,000, net of $ i 23,000 of unamortized origination fees, of which $ i 376,000 is included in current notes receivable on the accompanying consolidated balance sheet. The outstanding principal and interest at December 31, 2022 is $ i 874,000 net of $ i 25,000 of unamortized origination fees.
Note 10
On May 9, 2022, DSS PureAir and Borrower 11 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 March 31, 2023 approximates $ i 221,000 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.
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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 March 31, 2023 approximates $ i 101,000 and at December 31, 2022 was $ i 100,000, and is included in Notes receivable on the accompanying consolidate balance sheet.
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 March 31, 2023, approximates $ i 440,000, net of $ i 80,000 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.
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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 March 31, 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 March 31, 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.
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 or approximately ¼ of 1% of the loan portfolio loan balance as of December 31, 2022 and March 31, 2023.
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 March 31, 2023.
Specific Loan Reserves - Previously, we had identified credit weaknesses and borrower repayment weakness in the Borrow 6 loan, which has a current principal and interest balance of $ i 896,000. As of December 31, 2022 and March 31, 2023 we have recorded a specific loan loss reserve for the full balance due the Company.
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The following table identifies the loan loss reserve for the period ending March 31, 2023 and December 31, 2022:
| General Loan Portfolio Reserve | $ | i 145,000 | ||
| Specific Loan Reserves | $ | i 896,000 | ||
| Total | $ | i i 1,041,000 / |
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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 March 31, 2023, and December 31, 2022, was approximately $ i 2,289,000 and $ i 3,319,000 respectively. During the three month ended March 31, 2023 and March 31, 2022, the Company recorded unrealized loss on this investment of approximately $ i 1,156,000 and $ i 305,000, respectively.
West Park Capital, Inc.
On October 10, 2019, the Company entered a convertible promissory note (“TBD Note”) with Century TBD Holdings, LLC (“TBD”), a Florida limited liability company. The Company loaned the principal sum of $ i 500,000, of which up to $ i 500,000 and all accrued interest can be paid by an “Optional Conversion” of such amount up to i 19.8% (non-dilutable) of all outstanding membership interest in TBD. This TBD Note accrues interest at i 6% and matures on i October 9, 2021.
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 March 31, 2023.
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 months ended March 31, 2023, approximated $ i 4,300.
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.
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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 $ 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 / .
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
In September 2021, the Company’s 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 March 31, 2023 and December 31, 2022 the investment in the the GNTW Warrant and Convertible Note, were valued at $ i 144,000, and $ i 44,000 and $ i 140,000 and $ i 39,000 respectively.
| 19 |
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 and 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%. 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. The Company is in the process of completing valuations and useful lives for certain assets acquired in the transaction. We expect the preliminary purchase price accounting to be completed during the year ending December 31, 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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9. 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 approximated $ 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.
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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 March 31, 2023, and December 31, 2022, the outstanding principal on the BOA Note was $ i 3,290,000 and $ i 3,406,000, respectively and had an interest rate of i 4.63%. The outstanding balance at March 31, 2023 is included in Long-term debt, net on the consolidated balance sheet. As of March 31, 2023, $ i 479,000 was included in current portion of long-term debt, net, and the remaining balance of approximately $ i 2,810,000 recorded as long-term debt, The BOA Note contains certain covenants that are analyzed annual. As of March 31, 2023, Premier is in compliance with these covenants.
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 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 i 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 include in the value of the property is $ i 585,000 of intangible assets with an estimated useful life approximating i 3 years. The net book value of these asset as of March 31, 2023 approximated $ i 6,727,000. Of the total financed, approximately $ i 183,000 of principal and accrued interest is classified as current portion of long-term debt, net, and the remaining balance of approximately $ i 4,790,000 recorded as long-term debt, net of $ i 17,500 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 March 31, 2023 and December 31, 2022, $ i 512,000 and $ i 3,000,000, respectively, is included in Current portion of long-term debt, net on the consolidated balance sheet.
On October 13, 2021, LVAM entered into loan agreement with Lee Wilson Tsz Kin (“Wilson Loan”), a related party, whereas LVAM borrowed the principal amount of $ 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 March 31, 2023 $ i 1,997,000 is included in Current portion of long-term debt, net on the consolidated balance sheet. As of December 31, 2022 $ i 3,000,000 is included in Current portion of long-term debt, net on the consolidated balance sheet.
On October 27, 2021, HWH World, Inc., a subsidiary of the Company entered a revolving loan commitment (“Note 8”) with Borrower 8, a company registered in Taiwan. Note 8 has a principal balance of $ i 52,000 and incurred no interest through the maturity date of i December 31, 2021. The outstanding principal at March 31, 2023 and December 31, 2022 is $ i 66,000 and $ i 63,000, respectively, and is included in the current portion of notes receivable. This note was amended in April 2022 to extend the maturity date through April 2023 bearing interest rate of i 18%. This note is in the process of being extended.
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 include 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 approximated $ 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 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 March 31, 2023 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 March 31, 2023, the outstanding principal and interested approximates $ i 40,486,000, net of deferred financing costs of $ i 270,000 is included in current portion of long-term debt, on the consolidated balance sheet. Interest expense totaled $ i 297,000 and $ i 156,000 in March 2023 and March 2022 respectively.
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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 March 31, 2023. This transaction was finalized in July 2022 and is eliminated upon consolidation into DSS. Interest expense for this note totaled $ i 286,000 in March 2023 and $ i 338,000 in March 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 include in the value of the property is $ i 29,000 of intangible assets with an estimated useful life of approximating i 5 years. The net book value of the assets acquired as of December 31, 2022 approximated $ 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 December 31, 2022, AMRE is in compliance with all covenants. The outstanding principal and interest, net of debt issuance costs of $ i 69,000, approximates $ i 2,982,000 and is included in long-term debt, net on the accompanying consolidated balance sheet at March 31, 2023. Interest expense equaled $ i 23,000 for March 2023 and $ i 5,000 in March 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.
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A summary of scheduled principal payments of long-term debt, not including revolving lines of credit, subsequent to December 31, 2022, are as follows:
Schedule of Notes Payable and Long-term Debt
| Year | Amount | |||
| 2023 | $ | i 43,275,000 | ||
| 2024 | i 3,801,000 | |||
| 2025 | i 858,000 | |||
| 2026 | i 901,000 | |||
| 2027 | i 947,000 | |||
| Thereafter | i 4,769,000 | |||
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The Company has operating leases predominantly for operating facilities. As of March 31, 2023, the remaining lease terms on our operating leases range from less than one to five years. Renewal options to extend our leases have not been exercised due to uncertainty. Termination options are not reasonably certain of exercise by the Company. There is no transfer of title or option to purchase the leased assets upon expiration. There are no residual value guarantees or material restrictive covenants. There are no significant finance leases as of March 31, 2023.
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Future minimum lease payments as of March 31, 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.
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11. 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 March 31, 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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Sales of Equity –
On February 28, 2022, DSS entered into an Amendment to Stock Purchase Agreement (the “Amendment”) with its shareholder Alset EHome International Inc. (“AEI”), pursuant to which the Company and AEI have agreed to amend certain terms of the Stock Purchase Agreement dated January 25, 2022 (the “SPA”). Pursuant to the SPA, AEI had agreed to purchase 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.
Stock-Based Compensation - The Company records stock-based payment expense related to options and warrants based on the grant date fair value in accordance with FASB ASC 718. Stock-based compensation includes expense charges for all stock-based awards to employees, directors and consultants. Such awards include option grants, warrant grants, and restricted stock awards. During the three months ended March 31, 2022, the Company’s stock compensation approximated $.
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13. Supplemental Cash Flow Information
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The following table summarizes supplemental cash flows for the three-months ended March 31, 2023, and 2022:
Schedule of Supplemental Cash Flow Information
| 2023 | 2022 | |||||||
| Cash paid for interest | $ | i 249,000 | $ | i 1,378,000 | ||||
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The Company’s nine businesses lines are organized, managed, and internally reported as i 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. 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.
Our segment structure presented below represents a change from the prior year for the inclusion of our Biotechnology, Securities, and Commercial Lending segments and the removal of our Plastics segment, Digital Group and IP Technology Management segment as the Plastics segment was discontinued in 2020, DSS Digital was sold and discontinued in May 2021 and activities surrounding our IP Technology Management segment have significantly decreased. The amounts for these segments have been included in the corporate reporting segment for the year ended March 31, 2023 and 2022, as necessary, below for reconciliation purposes.
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Approximate information concerning the Company’s operations by reportable segment for the three months ended March 31, 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 March 31, 2023 | Product Packaging | Commercial Lending | Direct Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||
| Revenue | $ | i 6,130,000 | $ | i 117,000 | $ | i 3,994,000 | $ | - | $ | i 1,685,000 | $ | - | $ | i 11,926,000 | ||||||||||||||
| Depreciation and amortization | i 188,000 | - | i 46,000 | i 298,000 | i 743,000 | i 58,000 | i 1,334,000 | |||||||||||||||||||||
| Interest expense | i 39,000 | - | - | - | i 210,000 | - | i 249,000 | |||||||||||||||||||||
| Interest Income | - | - | i 4,000 | i 94,000 | i 32,000 | - | i 130,000 | |||||||||||||||||||||
| Net income (loss) from continuing operations | i 696,000 | ( i 564,000 | ) | ( i 3,187,000 | ) | ( i 848,000 | ) | ( i 2,028,000 | ) | ( i 2,702,000 | ) | ( i 8,633,000 | ) | |||||||||||||||
| Capital expenditures | i 576,000 | - | ( i 15,000 | ) | i 5,000 | i 28,000 | - | i 594,000 | ||||||||||||||||||||
| Identifiable assets | i 25,217,000 | i 43,133,000 | i 20,539,000 | i 52,983,000 | i 76,003,000 | i 8,875,000 | i 226,750,000 | |||||||||||||||||||||
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The following tables disaggregate our business segment revenues by major source:
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Printed Products Revenue Information:
Schedule of Disaggregation of Revenue
| Three months ended March 31, 2023 | ||||
| Packaging Printing and Fabrication | $ | i 5,865,000 | ||
| Commercial and Security Printing | i 265,000 | |||
| Total Printed Products | $ | i 6,130,000 | ||
| Three months ended March 31, 2022 | ||||
| Packaging Printing and Fabrication | $ | i 3,516,000 | ||
| Commercial and Security Printing | i 53,000 | |||
| Total Printed Products | $ | i 3,569,000 | ||
Direct Marketing
| Three months ended March 31, 2023 | ||||
| Direct Marketing Internet Sales | $ | i 3,994,000 | ||
| Total Direct Marketing | $ | i 3,994,000 | ||
| Three months ended March 31, 2022 | ||||
| Direct Marketing Internet Sales | $ | i 6,932,000 | ||
| Total Direct Marketing | $ | i 6,932,000 | ||
Rental Income
| Three months ended March 31, 2023 | ||||
| Rental income | $ | i 1,685,000 | ||
| Total Rental Income | $ | i 1,685,000 | ||
| Three months ended March 31, 2022 | ||||
| Rental income | $ | i 1,663,000 | ||
| Total Rental Income | $ | i 1,663,000 | ||
Management Fee Income
| Three months ended March 31, 2023 | ||||
| Management fee income | $ | - | ||
| Total Management fee income | $ | - | ||
| Three months ended March 31, 2022 | ||||
| Management fee income | $ | i 11,000 | ||
| Total Management fee income | $ | i 11,000 | ||
Net Investment Income
| Three months ended March 31, 2023 | ||||
| Net investment income | $ | i 117,000 | ||
| Total Investment income | $ | i 117,000 | ||
| Three months ended March 31, 2022 | ||||
| Net Investment income | $ | i 129,000 | ||
| Total Investment income | $ | i 129,000 | ||
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15. 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 March 31, 2023, and December 31, 2022, was approximately $ i 2,289,000 and $ i 3,319,000 respectively. During the three-month ended March 31, 2023 and December 31, 2022, the Company recorded unrealized loss on this investment of approximately $ i 1,156,000 and $ i 1,590,000, 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”), a related party, to purchase from the Seller’s its wholly owned subsidiary Impact Oncology PTE Ltd. (“IOPL”) for a purchase price $ 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. Heng Fai Ambrose Chan, the Chairman of the Company’s board of directors and its largest shareholder. At December 31, 2022 the full value of this investment was impaired.
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 March 31, 2023 and December 31, 2022, $ i 512,000 and $ i 3,000,000, respectively, is included in Current portion of long-term debt, net on the consolidated balance sheet.
On October 13, 2021, LVAM entered into loan agreement with Lee Wilson Tsz Kin (“Wilson Loan”), a related party, whereas LVAM borrowed the principal amount of $ 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 March 31, 2023 $ i 1,997,000 is included in Current portion of long-term debt, net on the consolidated balance sheet. Interest expense equaled $ i 8,000 in 2023.
On 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 8,469,000 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 Limited (“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 367,400 through May 15, 2022. This transaction was finalized in July 2022.
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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 share to Alset EHome on July 1, 2022 with the issuance of DSS shares, which were valued at $ per share, to Alset EHome.
/ i
On May 4, 2023, the Company distributed approximately i 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 i 7%.
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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.
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On February 8, 2021, DSS Securities announced that it entered into a joint venture (“JV”) with Coinstreet Partners (“Coinstreet”), a global decentralized digital investment banking group and digital asset financial service firm, and GSX Group (“GSX”), a global digital exchange ecosystem for the issuance, trading, and settlement of tokenized securities, using its proprietary blockchain solution. The JV leverages the operational strengths and assets of three key leaders in their field, combining traditional capital market experience, Fintech innovations, and business networks from three continents, North America, Europe, and Asia, to capitalize on unique digital asset opportunities. The JV reported that it intended to first pursue a digital securities exchange license in the US. Moving forward, this JV will be the key operational company building and operating a digital securities exchange that utilizes the GSX STACS blockchain technology, serving corporate issuers and investors in the sector.
On February 25, 2021, DSS Securities announced its acquisition of an equity interest in WestPark Capital, Inc.(“WestPark”) and an investment in BMI Capital International LLC (“BMICI”). DSS Securities executed two separate transactions that were designed to grow the securities division by signing a binding note and stock exchange letter of intent to own 7.5% of the issued and outstanding shares of WestPark and acquiring 24.9% of BMICI through a purchase agreement. WestPark is a full-service investment banking and securities brokerage firm which serves the needs of both private and public companies worldwide, as well as individual and institutional investors. BMI is a private investment bank specializing in corporate finance advising, raising equity, and venture services, providing a global “one-stop” corporate consultancy to listed companies. From corporate finance to professional valuation, corporate communications to event management, BMICI services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia.
On March 1, 2021, Decentralized Sharing Systems, Inc. (“Decentralized”) announced that it increased its investment in Sharing Services Global Corporation (“Sharing Services” or “SHRG”), a publicly traded company dedicated to maximizing shareholder value through the acquisition and development of innovative companies, products, and technologies in the direct selling industry, through a $30 million convertible promissory note dated April 5, 2021. Decentralized’s financing was made as an investment that would help accelerate Sharing Services sales and growth, as well as international expansion, with the expectation that such capital reserves would help make Sharing Services a dominant player in the global marketplace over the next two years. It was reported that the new $30 million investment would have the potential to exponentially increase Sharing Services sales channels and substantially expand its product portfolio, and to position Sharing Services to capitalize on consolidation and roll up opportunities of other direct selling companies. In the joint announcement, Sharing Services reported that the additional funding would now allow it to accelerate its global expansion with a direct focus on the Asian markets, and specifically in countries such as South Korea, Japan, Hong Kong, China, Singapore, Taiwan, Thailand, Malaysia, and the Philippines. In accordance with the April 5, 2021, convertible promissory note, SHRG issued to the Company 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of the loan origination fee and 12,000,000 shares in prepayment of interest for the first year. As of and through June 30, 2020, the Company classified its investment in Sharing Services Global Corp. (“SHRG”), a publicly traded company, as marketable equity security and measured it at fair value with gains and losses recognized in other income. In July 2020, through continued acquisition of common stock, as detailed below, the Company obtained greater than 20% ownership of SHRG, and thus has the ability to exercise significant influence over it. During the quarter ended September 30, 2020, the Company began to account for its investment in SHRG using the equity method in accordance with ASC Topic 323, Investments—Equity Method and Joint Ventures recognizing our share of SHRG’s earnings and losses within our consolidated statement of operations. Through a series of transactions, DSS increased its ownership of voting shares in SHRG to approximately 58% on December 23, 2021. The 58% ownership of SHRG meets the definition of a business with inputs, processes, and outputs, and therefore, the Company has concluded to account for this transaction in accordance with the acquisition method of accounting under Topic 805 and began consolidating the financial results of SHRG as of December 31, 2021. On January 24, 2022, the Company exercised 50,000,000 warrants received as part of a consulting agreement with SHRG at the exercise price of $0.0001, bring its ownership percentage of voting shares to approximately 65%. 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%.
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On April 21, 2021, the Company announced its wholly owned subsidiary, Premier Packaging Corporation’s intentions to relocate from its current 48,000 square-foot manufacturing facility from Victor, NY to a new 105,000 square-foot facility in the Town of Henrietta, NY approximately 15 miles from its Victor location by the end of 2021. In connection with this relocation, Premier Packaging has entered into an agreement to sell its current Victor location and closed on the transaction in March 2022.
On May 13, 2021, Sentinel Brokers, LLC., a subsidiary of the Company entered into a stock purchase agreement (“Sentinel Agreement”) to acquire a 24.9% equity position of Sentinel Brokers Company, Inc. (“Sentinel”), a company registered in the state of New York, for the purchase price of $300,000. Under the terms of this agreement, the Company as the option to purchase an additional 50.1% of the outstanding Class A Common Shares. Upon the exercising of this option, but no earlier than one year following the effective date the Sentinel Agreement, Sentinel has the option to sell the remaining 25% to the Company. In consideration of purchase price investment in Sentinel, the Company is entitled to an additional 50.1% of the net profits of Sentinel. 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.
On June 18, 2021, AMRE Shelton, LLC., (“AMRE Shelton”) a subsidiary of AMRE financed the purchase of a 40,000 square foot, 2.0 story, Class A+ multi-tenant medical office building located on a 13.62-acre site in Shelton, Connecticut (See Note 7). In accordance with Topic 805, the acquisition of the medical acquired has been determined to be an acquisition of assets as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. This property was appraised at approximately $7,150,000, of which $6,027,000 and $815,000 was allocated to the facility and land respectively. Also include in the value of the property is $308,000 of intangible assets with an estimated useful life of 11 years. Contained within the sale-purchase agreement for this facility, is a $1,500,000 earnout due to the seller if certain criteria are met. As of March 31, 2022, no liability has been recorded for this earnout as management determined it is currently remote.
On September 9, 2021, the Company finalized a stock purchase agreement (the “SPA”) with American Pacific Bancorp (“APB”), which provided for an investment of $40,000,200 by the Company into APB for an aggregate of 6,666,700 shares of the APB’s Class A Common Stock, par value $0.01 per share. Subject to the terms and conditions contained in the SPA, the shares issued at a purchase price of $6.00 per share. As a result of this transaction, DSS became the majority owner of APB. APB is organized for the purposes of being a financial network holding company, focused providing commercial loans and on acquiring equity positions in (i) undervalued commercial bank(s), bank holding companies and nonbanking licensed financial companies operating in the United States, South East Asia, Taiwan, Japan and South Korea, and (ii) companies engaged in—nonbanking activities closely related to banking, including loan syndication services, mortgage banking, trust and escrow services, banking technology, loan servicing, equipment leasing, problem asset management, SPAC (special purpose acquisition company) consulting, and advisory capital raising services. From this financial platform, the Company shall provide an integrated suite of financial services for businesses that shall include commercial business lines of credit, land development financing, inventory financing, third party loan servicing, and services that address the financial needs of the world Gig Economy.
On September 13, 2021, the Company finalized a shareholder agreement and joint venture between its subsidiary, DSS Financial Management, Inc. (“DFMI”) and HR1 Holdings Limited (“HR1”), a company incorporated in the British Virgin Islands, for the purpose to operate a vehicle for private and institutional investors seeking a highly liquid investment fund with attractive risk adjusted returns relative to market unpredictability and volatility. Under the terms of this agreement, 4000 shares or 40% of the Company’s subsidiary Liquid Asset Limited Management Limited (“LVAM”), a Hong Kong company was transferred to HR1 whereas at the conclusion of the transaction DFMI would own 60% of LVAM and HR1 would own 40%. LVAM executes within reliable platforms and broad market access and uses proprietary systems and algorithms to trade liquid exchange-traded funds (ETFs), stocks, futures or crypto. Aimed at providing consistent returns while offering the unique ability to liquidate the portfolio within 5 to 10 minutes under normal market conditions, LVAM provides an array of advanced tools and products enabling customers to explore multiple opportunities, strengthen and diversify their portfolios, and meet their individual investing goals.
On April 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.
The business model of BioHealth and Impact BioMedical revolves around two methodologies – Licensing and Sales Distribution.
1) Impact develops valuable and unique patented technologies which will be licensed to pharmaceutical, large consumer package goods companies and venture capitalists in exchange for usage licensing and royalties.
2) Impact utilizes the DSS ecosystem to leverage its sister companies that have in place distribution networks on a global scale. Impact will engage in branded and private labelling of certain products for sales generation through these channels. This global distribution model will give direct access to end users of Impact’s nutraceutical and health related products.
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Securities and Investment Management: (“Securities”) Securities was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, real estate investment funds, broker dealers, and mutual funds management. This business sector has already established the following business lines and associated products and services:
| ● | REIT Management Fund: In March 2020, DSS Securities formed AMRE (“American Medical REIT”) and its management company AAMI (“AMRE Asset Management, Inc.) Through AAMI/AMRE, a medical real estate investment trust, fulfills community needs for quality healthcare facilities while enabling care providers to allocate their capital to growth and investment in their contemporary clinical and critical care businesses. Urban and suburban communities are in need of modern healthcare facilities that provide a range of medical outpatient services. The funds ultimate product is an investor opportunity in a managed medical real estate investment trust. | |
| ● | Real Estate Title Services: Alset Title Company, Inc. provides buyers, sellers, and brokers alike confidence during big real estate transactions, not just in a transaction, but in the property itself. Through bundled services, Alset Title Company, Inc. provides it all from title searches and insurance to escrow agent assistance. | |
| ● | Sentinel: Sentinel primarily operates as a financial intermediary, facilitating institutional trading of municipal and corporate bonds as well as preferred stock, and accelerates the trajectory of the DSS digital securities business. | |
| ● | WestPark: WestPark, a company we hold a minority interest in, is a full-service investment banking and securities brokerage firm which serves the needs of both private and public companies worldwide, as well as individual and institutional investors. | |
| ● | BMI: BMI is a private investment bank specializing in corporate finance advising, raising equity, and venture services, providing a global “one-stop” corporate consultancy to listed companies. From corporate finance to professional valuation, corporate communications to event management, BMI services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia. | |
| ● | DSS AmericaFirst: DSS AmericaFirst is a suite of mutual funds managed by DSS Wealth Management. DSS AmericaFirst expects to expand into numerous investment platforms including additional mutual funds, exchange-traded funds, unit investment trusts, and closed-end funds. DSS AmericaFirst currently consists of four mutual funds that seek to outperform their respective benchmark indices by applying a quantitative rules-based approach to security selection. |
Direct Marketing: (“Direct”) Through its holding company, Decentralized Sharing Systems, Inc. and its subsidiaries and partners, including Sharing Services Global Corporation provide an array of products and services, through an independent contractor network.
For example, Decentralized’s wholly owned subsidiary, HWH World, Inc. promotes products and services that fulfill its corporate position of health, wealth, and happiness. The HWH Marketplace through its brands desires to help its customers become the healthiest, happiest versions of themselves. For the health component, the company offers herbal alternatives of nutraceutical, consumables and topicals, dietary supplements, beauty and skin care products, personal care, gut health products, aloe vera based supplements, and other wellness products. As to the wealth component, the company is developing educational tools to its users to better manage individual finances and savings programs to help its consumers find each consumer’s individual financial goal. As to the happiness component, the company is working with other partners to either acquire or partner in products and/or services to allow its consumers to enjoy and healthy living, including a global travel membership network.
Further, Sharing Services, through its subsidiary Elevacity, markets and distributes health and wellness products under the “Elevate” brand, primarily in the United States and Canada. Sharing Services markets its products and services through its independent contractor distribution system and using its proprietary website: www.elevacity.com. In February 2021, the Company launched its new business brand, “The Happy Co.,” at its Elevacity division. Elevacity as several well-known and signature products, including its top product lines of “Happy Coffees” and “Nootropic Beverages”. Elevacity also sells a “healthy shake”, a “Keto Coffee Booster”, “Energy Caps”, “XanthoMax© Happy Caps”, “Wellness Vitamin Patches”, various beauty and skin care products, and other wellness products.
Results of operations for the three months ended March 31, 2023, as compared to the three months ended March31, 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 | Three months ended | % Change | ||||||||||
| Revenue | ||||||||||||
| Printed products | $ | 6,130,000 | $ | 3,569,000 | 72 | % | ||||||
| Rental income | 1,685,000 | 1,663,000 | 1 | % | ||||||||
| Management fee income | - | 11,000 | -100 | % | ||||||||
| Net investment income | 117,000 | 129,000 | -9 | % | ||||||||
| Direct marketing | 3,994,000 | 6,932,000 | -42 | % | ||||||||
| Total Revenue | $ | 11,926,000 | $ | 12,304,000 | -3 | % | ||||||
| 33 |
For the three months ended March 31, 2023, total revenue decreased 3% as compared to the three months ended March 31, 2022. Revenues from the sale of Printed products increased 72% during the three months ended March 31, 2023, as compared to the same period in 2022. Net investment income, Rental income and Management fee income, $117,000, $1,685,000 and $0 respectively, represent new revenue streams in 2022 for the Company and are associated with our Securities and Commercial Lending business segments. The Company’s Direct Marketing revenues decreased 42% in 2023 as compared to 2022 due primarily to the decrease sales in our Asian markets.
Costs and expenses
| Three Months ended March 31, 2023 | Three months ended March 31, 2022 | % Change | ||||||||||
| Cost of revenue - printed products | $ | 4,660,000 | $ | 3,424,000 | 36 | % | ||||||
| Cost of revenue - securities | 2,537,000 | 3,203,000 | -21 | % | ||||||||
| Cost of revenue – directing marketing | 1,290,000 | 2,251,000 | -43 | % | ||||||||
| Cost of revenue – other | 46,000 | - | N/A | |||||||||
| Sales, general and administrative compensation | 5,140,000 | 4,333,000 | 19 | % | ||||||||
| Professional fees | 561,000 | 1,222,000 | -54 | % | ||||||||
| Stock based compensation | - | 4,000 | -100 | % | ||||||||
| Sales and marketing | 1,810,000 | 3,861,000 | -53 | % | ||||||||
| Rent and utilities | 236,000 | 149,000 | 58 | % | ||||||||
| Research and development | 179,000 | 168,000 | 7 | % | ||||||||
| Other operating expenses | 1,047,000 | 1,008,000 | 4 | % | ||||||||
| Total costs and expenses | $ | 17,506,000 | $ | 19,623,000 | -11 | % | ||||||
Costs of revenue includes all direct costs of direct marketing and printed products revenues, including materials, direct labor, transportation, and manufacturing facility costs. Costs of goods sold decreased 4% for the three months ended March 31, 2023, respectively as compared to the same periods in 2022. This decrease is driven primarily by a decrease in manufacturing costs associated with the products sold as part of our Direct Marketing, and Packaging and Printing segments, in particular, decreases in freight, and paper.
Sales, general and administrative compensation costs, excluding stock-based compensation, increased 19% during the three months ended March 31, 2023, as compared to the same periods in 2022.
Professional fees decreased 54% during the three months ended March 31, 2023, as compared to the same periods in 2022, primarily due to a decrease in legal fees associated with the direct marketing division, due diligence fees, as well as costs associated with acquisitions.
Stock based compensation includes expense charges for all stock-based awards to employees, directors and consultants. Such awards include option grants, warrant grants, and restricted stock awards. Stock based compensation decreased 100% during the three months ended March 31, 2023, as compared to the same periods in 2022, due to the expiration of several warrants and options during 2023.
Sales and marketing which include internet and trade publication advertising, travel and entertainment costs, sales-broker commissions, and trade show participation expenses. The decreased 53% during the three months ended March 31, 2023 as compared to the same periods in 2022.
Rent and utilities increased 58% during the three months ended March 31, 2023, as compared to the same period in 2022.
Research and development costs increased 7% during the three months ended March 31, 2023, as compared to the same period in 2022 are due to an increase in such activities at our Impact Biomedical, Inc. subsidiary.
Other operating expenses consist primarily of equipment maintenance and repairs, office supplies, IT support, and insurance costs. During the three months ended March 31, 2023, other operating expenses increased 4% as compared to the same period in 2022.
| 34 |
Other Income (Expense)
Three months ended | Three months ended March 31,2022 | % Change | ||||||||||
| Other Income (Expense) | ||||||||||||
| Interest income | $ | 130,000 | $ | 156,000 | -17 | % | ||||||
| Dividend income | 4,000 | 1,000 | 300 | % | ||||||||
| Interest expense | (249,000 | ) | (1,378,000 | ) | -82 | % | ||||||
| Other expense | (65,000 | ) | (1,704,000 | ) | -96 | % | ||||||
| Loss on investments | (2,869,000 | ) | 424,000 | -777 | % | |||||||
| Loss on equity method investment | (4,000 | ) | (112,000 | ) | -96 | % | ||||||
| Gain on disposal of operations, net of taxes | - | 405,000 | -100 | % | ||||||||
| Total other expense | $ | (3,053,000 | ) | $ | (2,208,000 | ) | -38 | % | ||||
Interest expense is recognized on the Company’s money markets, and notes receivable, identified in Note 4. Interest expense decreased 82% in March 31, 2023 compared to March 31, 2022.
Other expense represents cost associated with the March 31, 2022, impairment of investments and notes receivables for SHRG approximating $1,637,000. No similar activity for March 31, 2023.
Interest expense decreased 82% during the three months ended March 31, 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. Also included are net unrealized losses on marketable securities which are recognized on the change in fair market value on our common stock investment. Loss on investments decreased 777% in March 31, 2023, compared with March 31, 2022.
Loss on equity method investment is the Company’s prorated portion of earnings on its investments treated under the equity method of account for the three months ended March 31, 2023. Loss on equity investment decreased 96% in March 31, 2023, compared to March 2022.
Net Loss
Three months ended | Three months ended March 31,2022 | % Change | ||||||||||
| Loss from operations before income taxes | $ | (8,633,000 | ) | $ | (8,951,000 | ) | 4 | % | ||||
| Income taxes | - | - | NA | % | ||||||||
| Net loss | $ | (8,633,000 | ) | $ | (8,951,000 | ) | 4 | % | ||||
For the three months ended March 31, 2023, and March 31, 2022, the Company recorded net loss from operations of $8,633,000 and $8,951,000 respectively. The decrease in net loss during the three months ended March 31, 2023, as compared to the same periods in 2022 primarily reflect cost cutting efforts by the Company, in particular, the reduction of professional fees as well as commissions paid to distributors within our Direct marketing business line.
| 35 |
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its liquidity and capital requirements primarily through the sale of its equity securities and debt financings. As of March 31, 2023 the Company had cash of approximately $13.7 million. As of March 31, 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.
Cash Flow from Operating Activities
Net cash used from operating activities was $14,199,000 for the three months ended March 31, 2023 as compared to $6,070,000 for the three months ended March 31, 2022. This increase is driven by the payments of accrued liabilities of $9,551,000 during the first quarter 2023.
Cash Flow from Investing Activities
Net cash provided by investing activities was $11,537,000 for the three months ended March 31 ,2023 as compared net cash used of $5,359,000 for the three months ended March 31, 2022. This is fluctuation is driven by the sale of marketable securities approximating $11,330,000 during the first quarter 2023 versus the purchase of marketable securities approximating $4,693,000 during the first quarter 2022.
Cash Flow from Financing Activities
Net cash used from financing activities was $2,896,000 for the three months ended March 31, 2023 and represents payment of debt of $4,002,000 offset by borrowings of debt of $1,106,000. During the three months ended March 31, 2022, net cash provided by financing activities was driven by borrowings of long-term debt of $6,193,000 and issuance of common stock of $1,858,000.
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, 2022, describe the significant accounting policies and methods used in the preparation of the financial statements. There have been no material changes to such critical accounting policies as of the Quarterly Report on Form 10-Q for the quarter ended March 31, 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 March 31, 2022, pursuant to Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation and on the material weaknesses disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 which remained as of March 31, 2022, our principal executive officer and principal financial officer concluded that as of March 31, 2022, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is being recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that our disclosure controls are not effectively designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is being accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Plan for Remediation of Material Weaknesses
As discussed in our Annual Report on Form 10-K for the year ended December 31, 2021, the Company has a remediation plan and is committed to maintaining a strong internal control environment and believes that these remediation efforts will represent significant improvements in our controls. The Company has started to implement these steps, however, some of these steps will take time to be fully integrated and confirmed to be effective and sustainable. Additional controls may also be required over time. Until the remediation steps set forth above are fully implemented and tested, the material weaknesses described above will continue to exist.
Changes in Internal Control over Financial Reporting
While changes in the Company’s internal control over financial reporting occurred during the quarter ended March 31, 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 March 31, 2023, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| 36 |
OTHER INFORMATION
See commentary in Note 11 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.
| 37 |
| 101.INS | Inline XBRL Instance Document* | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document* | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document* | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document)* |
*Filed herewith.
| 38 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| DSS, INC. | ||
| May 15, 2023 | By: | /s/ Frank D. Heuszel |
| Frank D. Heuszel | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| May 15, 2023 | By: | /s/ Todd D. Macko |
| Todd D. Macko | ||
| Chief Financial Officer | ||
| 39 |
| This ‘10-Q’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
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| 7/1/26 | ||||
| 8/29/25 | ||||
| 11/2/24 | ||||
| 9/13/24 | ||||
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| 7/26/24 | ||||
| 3/31/24 | ||||
| 3/7/24 | ||||
| 12/31/23 | ||||
| 11/2/23 | ||||
| 9/22/23 | ||||
| 5/31/23 | ||||
| Filed on: | 5/15/23 | |||
| 5/4/23 | ||||
| 5/3/23 | ||||
| 5/1/23 | ||||
| For Period end: | 3/31/23 | 10-K | ||
| 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 | ||||
| 9/22/22 | ||||
| 9/14/22 | 10-Q | |||
| 8/29/22 | ||||
| 8/9/22 | 8-K | |||
| 7/29/22 | ||||
| 7/26/22 | 3 | |||
| 7/1/22 | 8-K | |||
| 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 | |||
| 10/9/21 | ||||
| 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 | ||||
| 2/8/21 | 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 | ||||
| 10/10/19 | 8-K | |||
| 4/24/15 | ||||
| List all Filings | ||||
As Of Filer Filing For·On·As Docs:Size Issuer Filing Agent 3/01/22 DSS, Inc. 8-K:1,9 2/28/22 14:349K M2 Compliance LLC/FA 2/25/22 DSS, Inc. 8-K:1,9 2/25/22 12:316K M2 Compliance LLC/FA 1/25/22 DSS, Inc. 8-K:1,9 1/25/22 11:265K M2 Compliance LLC/FA 1/19/22 DSS, Inc. 8-K:1,8,9 1/18/22 13:358K M2 Compliance LLC/FA |