UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
ACT OF 1934
For
the quarterly period ended
ACT OF 1934
Commission file number
| (Exact name of registrant as specified in its charter) |
(State or other Jurisdiction of incorporation- or Organization) |
(IRS Employer Identification No.) |
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ☐ 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 | ||
| The
|
As of November 11, 2024 there were shares of the registrant’s common stock, $ par value, outstanding.
DSS, INC.
FORM 10-Q
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
DSS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 2024 (unaudited) | December 31, 2023 (restated) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Assets held for sale | ||||||||
| Current portion of notes receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Investment in real estate, net | ||||||||
| Other investments | ||||||||
| Investment, equity method | ||||||||
| Marketable securities | ||||||||
| Notes receivable | ||||||||
| Other assets | ||||||||
| Right-of-use assets | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and deferred revenue | ||||||||
| Other current liabilities | ||||||||
| Current portion of lease liability | ||||||||
| Current portion of long-term debt, net | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net | ||||||||
| Long term lease liability | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 12) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ par value; shares authorized, shares issued and outstanding ( on December 31, 2023); Liquidation value $ | ||||||||
| Common stock, $ par value; shares authorized, shares issued and outstanding ( on December 31, 2023) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total DSS stockholders’ equity | ||||||||
| Non-controlling interest in subsidiaries | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
| 3 |
DSS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 (restated) | |||||||||||||
| Revenue: | ||||||||||||||||
| Printed products | $ | $ | $ | $ | ||||||||||||
| Rental income | ||||||||||||||||
| Net investment income | ||||||||||||||||
| Direct marketing | ||||||||||||||||
| Commission revenue | ||||||||||||||||
| Total revenue | ||||||||||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of revenue | ||||||||||||||||
| Selling, general and administrative (including stock based compensation) | ||||||||||||||||
| Total costs and expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | ||||||||||||||||
| Dividend income | ||||||||||||||||
| Other income (expense) | ( | ) | ||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Foreign Currency Translation Adjustment | ( | ) | ||||||||||||||
| (Loss) gain on equity method investment | ( | ) | ( | ) | ( | ) | ||||||||||
| (Loss) gain on investments | ( | ) | ( | ) | ( | ) | ||||||||||
| Impairment of assets upon deconsolidation | ( | ) | ||||||||||||||
| Provision for loan losses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| (Loss) gain on sale of asset | ( | ) | ( | ) | ||||||||||||
| Loss from continuing operations before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit (expense) | ( | ) | ||||||||||||||
| Loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from discontinued operations, net of tax | ( | ) | ||||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss attributed to noncontrolling interest | ||||||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Amounts attributable to DSS stockholders | ||||||||||||||||
| Loss from continuing operations net of taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss from discontinued operations net of taxes | ( | ) | ||||||||||||||
| Net loss attributable to DSS shareholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per common share attributable to common stock holders - continuing operations | ||||||||||||||||
| Basic | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Loss per common share attributable to common stock holders - discontinued operations | ||||||||||||||||
| Basic | $ | $ | $ | $ | ( | ) | ||||||||||
| Diluted | $ | $ | $ | $ | ( | ) | ||||||||||
| Shares used in computing loss per common share: | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
| 4 |
DSS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,
(unaudited)
| 2024 | 2023 (restated) | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Loss from discontinued operations | ( | ) | ||||||
| Loss from continuing operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Loss (income) on equity method investment | ( | ) | ||||||
| Loss on investments | ||||||||
| Change in ROU assets | ||||||||
| (Loss) gain on sale of assets | ( | ) | ||||||
| Impairment of assets upon deconsolidation | ||||||||
| Provision for loan losses | ||||||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | ||||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses | ( | ) | ( | ) | ||||
| Change in ROU liabilities | ( | ) | ( | ) | ||||
| Other liabilities | ( | ) | ||||||
| Net cash used by operating activities - continuing operations | ( | ) | ( | ) | ||||
| Net cash used by operating activities - discontinued operations | ( | ) | ||||||
| Net cash used by operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Purchase of investment | ( | ) | ||||||
| Disposal of property, plant and equipment | ||||||||
| Sale of marketable securities | ||||||||
| Issuance of new notes receivable, net origination fees | ( | ) | ( | ) | ||||
| Payments received on notes receivable | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash flows from financing activities: | ||||||||
| Payments of long-term debt | ( | ) | ( | ) | ||||
| Borrowings of long-term debt | ||||||||
| Issuances of common stock, net of issuance costs | ||||||||
| Net cash provided (used) by financing activities | ( | ) | ||||||
| Net increase (decrease) in cash - continuing operations | ( | ) | ||||||
| Net increase (decrease) in cash - discontinued operations | ( | ) | ||||||
| Cash and cash equivalents at beginning of period | ||||||||
| Cash and cash equivalents at end of period | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
| 5 |
DSS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(unaudited)
| Common Stock | Preferred Stock | Additional Paid- | Accumulated | Total DSS | Non-controlling | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | in Capital | Deficit (restated) | Equity (restated) |
Interest in Subsidiary | Total (restated) | ||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| - | ||||||||||||||||||||||||||||||||||||
| Stock based payments | - | |||||||||||||||||||||||||||||||||||
| Dividend in kind - Deconsolidation of Sharing Services Global Corporation | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Deconsolidation of Sharing Services | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, September 30, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Initial public offering of Impact BioMedical | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
| 6 |
DSS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2024
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
The Company, incorporated in the state of New York in May 1984 has conducted business in the name of DSS, 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”.
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, (4) Commercial Lending, (5) Securities and Investment Management, (6) Alternative Trading (7) Digital Transformation (discontinued in 2023), (8) Secure Living (discontinued in 2023), and (9) Alternative Energy (discontinued in 2023). 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 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 Financial, Inc. (“APF”, formally American Pacific Bancorp, Inc. “APB”), 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 (discontinued in 2023). (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 (discontinued in 2023). (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 (discontinued in 2023).
| 7 |
The accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments, unless otherwise indicated) necessary to present fairly our consolidated financial position as of September 30, 2024 and December 31, 2023, 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/A, for the fiscal year ended December 31, 2023 (“Form 10-K/A”), and our other reports on file with the Securities and Exchange Commission (the “SEC”).
Principles of Consolidation - The consolidated financial statements include the accounts of DSS, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Deconsolidation
of Sharing Services Global Corporation(“SHRG”) - On May 4, 2023, the Company distributed approximately million
shares of SHRG beneficially held by DSS and Decentralized Sharing Systems in the form of a dividend to the shareholders of DSS common
stock. Upon completion of this distribution, DSS will retain an ownership interest in SHRG of approximately
Upon
Deconsolidation, we recognized an impairment of assets due to the deconsolidation of SHRG approximately $
Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, the Company evaluates its estimates, including those related to the accounts receivable, convertible notes receivable, inventory, fair values of investments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of options and warrants to purchase the Company’s common stock, preferred stock, deferred revenue and income taxes, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Reclassifications - Cost associated with Professional fees for the three and nine months ended September 30, 2023 and the nine months September 30, 2024 have been reclassified to Research and development to conform with current period presentation.
Cash Equivalents – All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. Amounts included in cash equivalents in the accompanying consolidated balance sheets are money market funds whose adjusted costs approximate fair value.
Accounts/Rents Receivable - The Company extends credit to its customers in the normal course of business. The Company performs ongoing credit evaluations and generally does not require collateral. Payment terms are generally 30 days but up to net 120 for certain customers. The Company carries its trade accounts receivable at invoice amounts and its rent receivables at contract amounts, less an allowance for credit losses. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for credit losses based upon management’s estimates that include a review of the history of past write-offs and collections and an analysis of current credit conditions. In estimating expected losses in the accounts receivable portfolio, customer-specific financial data and macro-economic assumptions are utilized to project losses over a reasonable and supportable forecast period. Assumptions and judgment are applied to measure amounts and timing of expected future cash flows, collateral values and other factors used to determine the customers’ abilities to pay.
At
September 30, 2024, and December 31, 2023, the Company established a reserve for credit losses of approximately $
| 8 |
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 September 30, 2024, two customers accounted for approximately
As
of September 30, 2023, one customer accounted for approximately
As
of December 31, 2023, two customers accounted for approximately
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.
Allowance For Loans And Lease Losses - On January 1, 2022, 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.
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 9 for further discussion on investments.
Fair Value of Financial Instruments - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurement Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
● Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets.
● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
| 9 |
The carrying amounts reported in the consolidated balance sheet of cash and cash equivalents, accounts receivable, prepaids, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. Marketable securities classify as a Level 1 fair value financial instrument. The fair value of notes receivable approximates their carrying value as the stated or discounted rates of the notes do not reflect recent market conditions. The fair value of revolving credit lines notes payable and long-term debt approximates their carrying value as the stated or discounted rates of the debt reflect recent market conditions. The fair value of investments where the fair value is not considered readily determinable, are carried at cost.
Inventory
– Inventories consist primarily of paper, pre-printed security paper, paperboard, fully prepared packaging, 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 $
Investments in real estate, net – Acquisition of assets are recorded at their relative fair value based on total accumulated costs of the acquisition. Direct acquisition-related costs are capitalized as a component of the acquired assets. This includes all costs related to finding, analyzing and negotiating a transaction. The allocation of the purchase price is an area that requires judgment and significant estimates. Tangible and intangible assets include land, building and improvements, furniture, fixtures and equipment, acquired above market and below market leases, in-place lease value (if applicable). Acquisition date fair values of assets and assumed liabilities are determined based on replacement costs, appraised values, and estimated fair values using methods similar to those used by independent appraisers and that use appropriate discount and/or capitalization rates and available market information. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets. During 2023, the land and buildings related to AMRE LifeCare and AMRE Winter Haven were reclassified to Assets held for sale.
Assets
held for sale – The Company has several buildings and the associated land they occupy for sale as of September 30, 2024
and December 31, 2023. These consist of primarily of retail space in Lindon, Utah approximating $
Intangible
Assets - The estimated fair values of acquired intangibles are generally determined based upon future economic benefits such
as earnings and cash flows. Acquired identifiable intangible assets are recorded at fair value and are amortized over their estimated
useful lives. Acquired intangible assets with an indefinite life are not amortized but are reviewed for impairment at least annually
or more frequently whenever events or changes in circumstances indicate that the carrying amounts of those assets are below their estimated
fair values. Impairment is tested under ASC 350. At December 31, 2023, The Company impaired approximately $
| 10 |
Goodwill
– Goodwill is the excess of cost of an acquired entity over the fair value of amounts assigned to assets acquired and liabilities
assumed in a business combination. Goodwill is subject to impairment testing at least annually and will be tested for impairment between
annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. FASB ASC Topic 350 provides
an entity with the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to
a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after completing
the assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value,
the Company will proceed to a quantitative test. The Company may also elect to perform a quantitative test instead of a qualitative test
for any or all of our reporting units. The test compares the fair value of an entity’s reporting units to the carrying value of
those reporting units. This quantitative test requires various judgments and estimates. The Company estimates the fair value of the reporting
unit using a market approach in combination with a discounted operating cash flow approach. Impairment of goodwill is measured as the
excess of the carrying amount of goodwill over the fair values of recognized and unrecognized assets and liabilities of the reporting
unit. The Company performed its annual goodwill impairment test as of December 31, 2023, and no impairment was deemed necessary for the
goodwill associated with Premier Packaging Company, and Impact BioMedical of $
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.
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.
| 11 |
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.
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 $
Aside
from its $
Recently Issued Accounting Pronouncements — In November 2023, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure through enhanced disclosures about significant segment expenses. The amendment is effective for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024 and early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company has adopted the enhanced segment disclosures of the quarter ending September 30, 2024.
2. Restatement of previously issued financial statements
The Company has restated the financial statements for the year ended December 31, 2023 along with certain notes to such restated financial statements. The adjustments recorded were related to the correction of an error identified by management. The nature and impact of this adjustment on the Company’s previously issued financial statements is summarized as follows and the effects by impacted line items are detailed in the tables below. Impacted amounts and associated disclosures are restated within the accompanying notes to the financial statements.
On
May 4, 2023, the Company distributed approximately million shares of Sharing Service Global Corporation (“SHRG”), beneficially
held by the Company, in the form of a dividend to the shareholders of the Company’s common stock. Upon completion of this distribution,
the Company retained an ownership interest in SHRG of approximately
| 12 |
The following tables summarize the effect of the restatement on each financial statement line items as of the September 30, 2023:
| As Previously Reported | Adjustments | As Restated | ||||||||||
| Consolidated Statements of Operations Income (Loss) for the nine months ended September 30, 2023 | ||||||||||||
| Direct marketing revenue | $ | ( | ) | $ | ||||||||
| Total revenue | $ | ( | ) | $ | ||||||||
| Cost of revenue | $ | ( | ) | $ | ||||||||
| Selling, general and administrative (including stock based compensation) | $ | ( | ) | $ | ||||||||
| Total costs and expenses | $ | ( | ) | $ | ||||||||
| Operating loss | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Other income (expense) | $ | ( | ) | $ | ||||||||
| Loss on investment | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Impairment of assets due to deconsolidation | $ | $ | ( | ) | ||||||||
| Loss from continuing operations before income taxes | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Loss from continuing operations | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| (Loss) from discontinued operations, net of tax | $ | $ | ( | ) | ||||||||
| Net loss | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Net loss attributable to common stockholders | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Loss per common share - basic earnings per share | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Loss per common share - diluted earnings per share | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Loss per common share - discontinued operations basic | $ | ( | ) | $ | ( | ) | ||||||
| Loss per common share - discontinued operations diluted | $ | ( | ) | $ | ( | ) | ||||||
| Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 | ||||||||||||
| Net loss | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Loss from discontinued operations | $ | ( | ) | $ | ( | ) | ||||||
| Loss from continuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Loss (gain) on investments | $ | ( | ) | $ | ||||||||
| Impairment of assets | $ | $ | ||||||||||
| Net cash used by operating activities - continuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Net cash used by operating activities - discontinued operations | $ | ( | ) | $ | ( | ) | ||||||
| Net increase (decrease) in cash - continuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Net increase (decrease) in cash - discontinued operations | $ | ( | ) | $ | ( | ) | ||||||
| Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2023 | ||||||||||||
| Dividend in kind - Deconsolidation of Sharing Services Global Corporation | $ | ( | ) | $ | ( | ) | ||||||
| Deconsolidation of Sharing Services Global Corp | $ | ( | ) | $ | ||||||||
| Net loss | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Accumulated deficit | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Total stockholders’ equity | $ | ( | ) | $ | ||||||||
3. Revenue
The Company recognizes its 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 and management fees related to loans managed for third parties owed to the Company occurs. The Company generates revenue from its direct marketing line of business primarily through internet sales and recognizes revenue as items are shipped.
As of September 30, 2024, 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.
| 13 |
Sales Commissions
Sales commissions are expensed as incurred for contracts with an expected duration of one year or less. There were no sales commissions capitalized as of September 30, 2024 or September 30, 2023.
Shipping and Handling Costs
Costs incurred by the Company related to shipping and handling are included in cost of products sold. Amounts charged to customers relating to these costs are reflected as revenue.
See Note 16 for disaggregated revenue information.
4. Inventory
Inventory consisted of the following as of:
| September | December | |||||||
| 2024 | 2023 | |||||||
| Finished Goods | $ | $ | ||||||
| Work in Process | ||||||||
| Raw Materials | ||||||||
| $ | $ | |||||||
| Less allowance for obsolescence | ( | ) | ( | ) | ||||
| $ | $ | |||||||
5. Notes Receivable
Note 1
On
May 14, 2021, DSS Pure Air, Inc. a subsidiary of the Company entered a convertible promissory note (“Note 1”) with
Puradigm, Inc. (“Puradigm”), a company registered in the state of Texas. Note 1 has an aggregate principal balance up to
$
Note 2
On
September 23, 2021, APB entered into refunding bond anticipatory note (“Note 2”) with Southeast Regional Management District (“SERMD”), 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 $
Note 3
On
October 25, 2021, APF entered into a loan agreement (“Note 3”) with Asili, LLC. (“Asili”), a company
registered in the state of Utah. Note 3 has an initial aggregate principal balance up to $
Note 4
On
December 28, 2021, APF entered into a promissory note (“Note 4”) with WestPark Capital Group, LLC. (“WestPark”),
a company registered in the state of California. Note 4 has a principal balance of $
| 13 |
Note 5
On
January 24, 2022, APF and an individual entered into a promissory note (“Note 5”) in the principal sum of $
Note 6
On
March 2, 2022, APF and WUURII Commerce, Inc. (“WUURII”), a corporation organized under the laws of the Republic of Korea entered into a promissory note (“Note
6”). Under the terms of Note 6, APF at its discretion, may lend up to the principal sum of $
Note 7
On
May 9, 2022, DSS PureAir and Puradigm entered into a promissory note (“Note 7”) in the principal sum of $
Note 8, related party
On
August 29, 2022, DSS Financial Management Inc and BMI Capital, Inc. (“BMIC”), a related party, entered into a promissory
note (“Note 8”) in the principal sum of $
Note 9, related party
On
May 8, 2023, DSS Financial Management Inc and BMIC entered into a promissory note (“Note 9”) in the principal sum of
$
Note 10, related party
On
July 26, 2022, APF and VEII, Inc. (“VEII”) entered into a promissory note (“Note 10”) in the principal sum
of $
| 14 |
Note 11
On
February 19, 2021, Impact BioMedical, Inc, entered into a promissory note with an individual. The Company loaned the principal sum of
$
The
outstanding principal and interest as of September 30, 2024 and December 31, 2023, was approximately $
Note 12
On
June 27, 2023, Decentralized Sharing Systems, Inc. and Stemtech Corporation (“Stemtech”) entered into a convertible promissory note (“Note 12”) in
the principal sum of $
Note 13
On
March 31,2023, DSS Biohealth Security, Inc and an individual entered into a promissory note (“Note 13”) in the principal
sum of $
Note 14
On August 29, 2024, APF entered
into a promissory note (“Note 14”) with WestPark. Note 14 has a principal balance of $
6. Financial Instruments
Cash, Cash Equivalents, Restricted Cash and Marketable Securities
The following tables show the Company’s cash, cash equivalents, restricted cash, and marketable securities by significant investment category as of:
| September 30, 2024 | ||||||||||||||||||||
| cost | Unrealized Gain/(Loss) | Fair Value | Cash and Cash Equivalents | Marketable Securities | ||||||||||||||||
| Cash | $ | $ | $ | $ | $ | |||||||||||||||
| Level 1 | ||||||||||||||||||||
| Money Market Funds | ||||||||||||||||||||
| Marketable Securities | ( | ) | $ | |||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
| December 31, 2023 | ||||||||||||||||||||
Adjusted Cost | Unrealized Gain/(Loss) | Fair Value | Cash and Cash Equivalents |
Marketable Securities | ||||||||||||||||
| Cash | $ | $ | $ | $ | $ | |||||||||||||||
| Level 1 | ||||||||||||||||||||
| Money Market Funds | $ | $ | ||||||||||||||||||
| Marketable Securities | $ | ( | ) | $ | ||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
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.
| 15 |
7. Provision for Credit Losses
Effective January 1, 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.
Accounts receivable are stated at the amount owed by the customer. The Company maintains an allowance for credit losses for accounts receivable and unbilled receivables, based on expected credit losses resulting from the inability of our customers to make required payments. The allowance for credit losses is estimated based on historical experience, current economic conditions and the creditworthiness of customers. Receivables are charged to the allowance when determined to be no longer collectible. The Company regularly monitors and assesses its risk of not collecting amounts owed by customers and records its allowance for credit losses based on the results of this analysis.
As of September 30, 2024 and December 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. For the nine months ended September 30, 2024, and 2023, the Company recorded a Loan loss reserve of approximately $
General
Loan Portfolio Reserve - Based upon the review of our loan portfolio, 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 $
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 September 30, 2024 and December 31, 2023.
Specific
Loan Reserves - Previously, we had identified credit weaknesses and borrower repayment weakness with Asili, which has a current
principal and interest balance of $
8. Disposal of assets
On
July 1st, 2023, The Company intended to sell its subsidiary, HWH World, Inc. to SHRG. The proposed transaction had the Company
sell shares of common stock, representing all the issued and outstanding common stock shares of HWH World for the sum $
| 16 |
On
July 1st, 2023, The Company sold
On
June 13, 2024, the Company sold its retail space in Lindon, Utah for the sales price, net of expenses, of approximately $
9. Investments
Alset International Limited, related party
The
Company owns shares or approximately %
of the outstanding shares of Alset International Limited (“Alset Intl”), a company incorporated in Singapore and publicly
listed on the Singapore Exchange Limited. This investment is classified as a marketable security and is classified as long-term assets
on the consolidated balance sheets as the Company has the intent and ability to hold the investments for a period of at least one year.
The Chairman of the Company, Mr. Heng Fai Ambrose Chan, is the Executive Director and Chief Executive Officer of Alset Intl. Mr. Chan
is also the majority shareholder of Alset Intl as well as the largest shareholder of the Company. The fair value of the marketable security
as of September 30, 2024 and December 31, 2023, was approximately $
WestPark Capital Group, LLC.
On
December 30, 2020, the Company signed a binding letter of intent with WestPark Capital Group, LLC. (“WestPark”) and
Century TBD, Inc. (“TBD”) where the parties agreed to prepare a note and stock exchange agreement whereby DSS will assign the TBD Note to WestPark and WestPark shall issue to DSS a stock certificate reflecting
BMI Capital International LLC, related party
On
September 10, 2020, the Company’s wholly owned subsidiary DSS Securities, Inc. entered into membership interest purchase agreement
with BMI Financial Group, Inc. a Delaware corporation (“BMIF”) and BMI Capital International LLC, a Texas limited liability
company (“BMIC”) whereas DSS Securities, Inc. purchased
BMIC is a broker-dealer registered with the Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”), and is a member of the Securities Investor Protection Corporation (“SIPC”). The Company’s chairman of the board and another independent board member of the Company also have ownership interest in BMIC.
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
| 17 |
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.
10. Short-Term and Long-Term Debt
DSS, Inc.
Promissory
Notes - On May 20, 2021, Premier Packaging entered into master loan and security agreement (“BOA Note”) with
Bank of America, N.A. (“BOA”) to secure financing approximating $
On
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 $
On
October 13, 2021, LVAM entered into loan agreement with BMIC (“BMIC Loan”), a related party, whereas LVAM borrowed the principal
amount of $
On
October 13, 2021, LVAM entered into a loan agreement with Lee Wilson Tsz Kin (“Wilson Loan”), a related party, whereas LVAM
borrowed the principal amount of $
On
November 2, 2021, AMRE LifeCare entered into a loan agreement (“LifeCare Agreement”) with Pinnacle Bank,
(“Pinnacle Bank”) in the amount of $
| 18 |
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 $
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 $
A summary of scheduled principal payments of long-term debt, not including revolving lines of credit, subsequent to September 30, 2024, are as follows:
| Year | Amount | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
11. Lease Liability
The
Company has operating leases predominantly for operating facilities. As of September 30, 2024, the remaining lease terms on our operating
leases range from less than to
| 19 |
Future minimum lease payments as of September 30, 2024 are as follows:
Maturity of Lease Liability:
| Totals | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| After | ||||
| Total lease payments | ||||
| Less: Imputed Interest | ( | ) | ||
| Present value of remaining lease payments | $ | |||
| Current | $ | |||
| Noncurrent | $ | |||
| Weighted-average remaining lease term (years) | ||||
| Weighted-average discount rate | % | |||
Total
cash paid for leases during the nine months ended September 30, 2024 and 2023 approximated $
12. Commitments and Contingencies
License
Agreement – On March 19, 2022, Impact BioMedical entered into a License Agreement (“Equivir License”) with
a third-party (“Licensee”) where the Licensor is granted the right, amongst other things, to develop, commercialize, and
sell the Company’s Equivir technology. 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 $1,250,000. As of September 30, 2024 and December 31, 2023, $
| 20 |
13. Stockholders’ Equity
Equity transactions –
On
April 10, 2023, the Company issued shares of common stock to Mr. Frank Heuszel, CEO of DSS, pursuant to his employment agreement.
These shares were issued to settle a previously recorded liability of approximately $
On
January 4, 2024 the Company effected a reverse stock split of
Stock-Based Compensation –
The Company records stock-based payment expense related to options and warrants based on the grant date fair value in accordance with FASB ASC 718. Stock-based compensation includes expense charges for all stock-based awards to employees, directors, and consultants. Such awards include option grants, warrant grants, and restricted stock awards. During the nine months ended September 30, 2024, there were . During the nine months ended September 30, 2023, the Company’s did not have stock compensation associated with these items, and options were forfeited.
Impact BioMedical, Inc. Equity Transactions –
On
May 10, 2023, the Company, the Company’s Board of Directors approved an amendment to the Articles of Incorporation of the Company
to increase the total number of shares of Common Stock to shares with a par value of $.
On August 8, 2023 DSS, the Company’s largest shareholder, distributed to its shareholders of record on July 10, 2023 shares of Impact Bio’s stock for share they owned. Each share of Impact BioMedical distributed as part of the distribution will not be eligible for resale until 180 days from the date Impact BioMedical’s initial public offering becomes effective under the Securities Act, subject to the discretion of the Company to lift the restriction sooner.
On October 31, 2023, the Company
effected a
On September 16, 2024,
Impact Biomedical Inc., entered into an underwriting agreement (the “Underwriting Agreement”) with Revere Securities,
LLC., as representative (the “Representative”) of the underwriters named therein (the “Underwriters”),
pursuant to which the Company agreed to sell to the Underwriters in a firm commitment initial public offering (the
“Offering”) an aggregate of
of the Company’s shares of common stock, par value $
per share at a public offering price of $
per share. On September 17, 2024, the Company closed the Offering, and as of September 30, 2024 there were
shares of common stock issued and outstanding. The total net proceeds to the Company from the Offering, after deducting discounts,
expenses allowance and expenses, was approximately $
14. Discontinued Operations
On
May 4, 2023, the Company distributed approximately million shares of SHRG beneficially held by DSS and Decentralized Sharing Systems
in the form of a dividend to the shareholders of DSS common stock. Upon completion of this distribution, DSS will retain an ownership
interest in SHRG of approximately
Upon
Deconsolidation, we recognized an impairment of assets due to the deconsolidation of SHRG approximately $
The following tables show results of operations of the discontinued operation:
Sharing Services Global Corporation
Statements of Operations Loss - Discontinued Operations
For the Nine Months Ended September 30,
| 2023 | ||||
| Revenue: | ||||
| Direct marketing | $ | |||
| Total revenue | ||||
| Costs and expenses: | ||||
| Cost of revenue | ||||
| Selling, general and administrative | ||||
| Total costs and expenses | ||||
| Operating loss | ||||
| Other income (expense): | ||||
| Other income (expense) | ( | ) | ||
| Interest income | ) | |||
| Gain (loss) on investments | ||||
| Impairment of assets | ||||
| Loss from discontinued operations before income taxes | ( | ) | ||
| Income tax benefit/(loss) | ||||
| Loss from discontinued operations | ( | ) | ||
15. Supplemental Cash Flow Information
The following table summarizes supplemental cash flows for the six months ended September 30, 2024 and 2023:
| 2024 | 2023 | |||||||
| Cash paid for interest | $ | $ | ||||||
Shares issued in lieu of cash bonus | ||||||||
| 21 |
16. Segment Information
The
Company’s nine businesses lines are organized, managed, and internally reported as
Approximate information concerning the Company’s operations by reportable segment for the three and nine months ended September 30, 2024 and 2023 is as follows. The Company relies on intersegment cooperation and management does not represent that these segments, if operated independently, would report the results contained herein:
| Three Months Ended September 30, 2024 | Product Packaging | Commercial Lending | Direct Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Cost of revenue | ( | ) | ||||||||||||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Operating expense | ||||||||||||||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net income (loss) from continuing operations before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Three Months Ended September 30,2023 | Product Packaging | Commercial Lending | Direct Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Operating expense | ||||||||||||||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net income (loss) from continuing operations before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Nine Months Ended September 30, 2024 | Product Packaging | Commercial Lending | Direct Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Cost of Revenue | ( | ) | ||||||||||||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Operating expense | ||||||||||||||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Nine Months Ended September 30,2023 | Product Packaging | Commercial Lending | Direct Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||||||||||
| Gross profit (loss) | ( | ) | ( | ) | ||||||||||||||||||||||||
| Operating expense | ||||||||||||||||||||||||||||
| Operating income (loss) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Other income (expense) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Net loss from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| 22 |
The following tables disaggregate our business segment revenues by major source:
Printed Products Revenue Information:
| Three months ended September 30, 2024 | ||||
| Packaging Printing and Fabrication | $ | |||
| Commercial and Security Printing | ||||
| Total Printed Products | $ | |||
| Three months ended September 30, 2023 | ||||
| Packaging Printing and Fabrication | $ | |||
| Commercial and Security Printing | ||||
| Total Printed Products | $ | |||
| Nine months ended September 30, 2024 | ||||
| Packaging Printing and Fabrication | $ | |||
| Commercial and Security Printing | ||||
| Total Printed Products | $ | |||
| Nine months ended September 30, 2023 | ||||
| Packaging Printing and Fabrication | $ | |||
| Commercial and Security Printing | ||||
| Total Printed Products | $ | |||
Direct Marketing
| Three months ended September 30, 2024 | ||||
| Direct Marketing Internet Sales | $ | |||
| Total Direct Marketing | $ |
| Three months ended September 30, 2023 | ||||
| Direct Marketing Internet Sales | $ | |||
| Total Direct Marketing | $ | |||
| Nine months ended September 30, 2024 | ||||
| Direct Marketing Internet Sales | $ | |||
| Total Direct Marketing | $ |
| Nine months ended September 30, 2023 (as restated) | ||||
| Direct Marketing Internet Sales | $ | |||
| Total Direct Marketing | $ | |||
Rental Income
| Three months ended September 30, 2024 | ||||
| Rental income | $ | |||
| Total Rental Income | $ | |||
| Three months ended September 30, 2023 | ||||
| Rental income | $ | |||
| Total Rental Income | $ | |||
| Nine months ended September 30, 2024 | ||||
| Rental income | $ | |||
| Total Rental Income | $ | |||
| Nine months ended September 30, 2023 | ||||
| Rental income | $ | |||
| Total Rental Income | $ | |||
Commission Income
| Three months ended September 30, 2024 | ||||
| Commission income | $ | |||
| Total commission income | $ | |||
| Three months ended September 30, 2023 | ||||
| Commission income | $ | |||
| Total commission income | $ |
| Nine months ended September 30, 2024 | ||||
| Commission income | $ | |||
| Total commission income | $ | |||
| Nine months ended September 30, 2023 | ||||
| Commission income | $ | |||
| Total commission income | $ | |||
Net Investment Income
| Three months ended September 30, 2024 | ||||
| Net Investment Income | $ | |||
| Total Investment Income | $ | |||
| Three months ended September 30, 2023 | ||||
| Net Investment Income | $ | |||
| Total Rental Income | $ | |||
| Nine months ended September 30, 2024 | ||||
| Net investment income | $ | |||
| Total Management fee income | $ | |||
| Nine months ended September 30, 2023 | ||||
| Net Investment Income | $ | |||
| Total Management fee income | $ | |||
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17. Related Party Transactions
The Company owns shares or approximately % of the outstanding shares of Alset International Limited (“Alset Intl”), a company incorporated in Singapore and publicly listed on the Singapore Exchange Limited. This investment is classified as a marketable security and is classified as long-term assets on the consolidated balance sheets as the Company has the intent and ability to hold the investments for a period of at least one year. The Chairman of the Company, Mr. Heng Fai Ambrose Chan, is the Executive Director and Chief Executive Officer of Alset Intl. Mr. Chan is also the majority shareholder of Alset Intl as well as the largest shareholder of the Company.
The
fair value of the marketable security as of September 30, 2024 and December 31, 2023, was approximately $
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
On
October 13, 2021, LVAM entered into loan agreement with BMIC (“BMIC Loan”), a related party, whereas LVAM borrowed the principal
amount of $
On
October 13, 2021, LVAM entered into a loan agreement with Lee Wilson Tsz Kin (“Wilson Loan”), a related party, whereas LVAM
borrowed the principal amount of $
On
August 29, 2022, DSS Financial Management Inc and BMI Capital, Inc. (“BMIC”), a related party, entered into a promissory
note (“Note 8”) in the principal sum of $
On
May 8, 2023, DSS Financial Management Inc and BMIC entered into a promissory note (“Note 9”) in the principal sum of
$
On
July 26, 2022, APF and VEII, Inc. (“VEII”) entered into a promissory note (“Note 10”) in the principal sum
of $1,000,000 with interest of 8% with all unpaid principal and interest due on July 26, 2024. This note was amended so that all
unpaid principal and interest is due July 26, 2025. The outstanding principal and interest on September 30, 2024 approximates $
18. Subsequent Events
The Company has evaluated all subsequent events and transactions through November 13, 2024, the date that the condensed consolidated financial statements were available to be issued and noted no subsequent events requiring financial statement recognition or disclosure.
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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, (4) Commercial Lending, (5) Securities and Investment Management, (6) Alternative Trading (7) Digital Transformation (discontinued in 2023), (8) Secure Living (discontinued in 2023), and (9) Alternative Energy (discontinued in 2023). 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 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 Financial, Inc. (“APF”, formally American Pacific Bancorp, Inc. “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 (discontinued in 2023). (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 (discontinued in 2023). (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 (discontinued in 2023).
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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. 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%. Immediately prior to this distribution, DSS owned approximately 81% of the issued and outstanding common shares of SHRG. As a result, SHRG, whose operations represented a significant portion of our Direct Marketing segment, was deconsolidated from our consolidated financial statements effective as of May 1, 2023 (the “Deconsolidation”). The consolidated statement of operations for the fiscal quarter ended September 30, 2023, therefore includes one month of activity related to SHRG prior to the Deconsolidation. Subsequent to April 30, 2023 the assets and liabilities of SHRG are no longer included within our consolidated balance sheets. Any discussions related to results, operations, and accounting policies associated with SHRG refer to the periods prior to the Deconsolidation.
The five reporting segments are as follows:
Premier Packaging: (“Premier”) 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.
Commercial Lending: (“Commercial Lending”) through its operating company, American Pacific Bancorp, Inc. (“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.
Biotechnology: (“Biotech”) 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 BioMedical provides advances in drug discovery for the prevention, inhibition, and treatment of neurological, oncology and immuno-related diseases. Other technologies include a breakthrough alternative sugar aimed to combat diabetes and functional fragrance formulations aimed at the industrial and medical industry.
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The business model of BioHealth and Impact BioMedical revolves around two methodologies – Licensing and Sales Distribution.
1) Impact develops valuable and unique patented technologies which will be licensed to pharmaceutical, large consumer package goods companies and venture capitalists in exchange for usage licensing and royalties.
2) Impact utilizes the DSS ecosystem to leverage its sister companies that have in place distribution networks on a global scale. Impact will engage in branded and private labelling of certain products for sales generation through these channels. This global distribution model will give direct access to end users of Impact’s nutraceutical and health related products.
Securities and Investment Management: (“Securities”) Securities was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, real estate investment funds, broker dealers, and mutual funds management. This business sector has already established the following business lines and associated products and services:
| ● | REIT Management Fund: In March 2020, DSS Securities formed AMRE (“American Medical REIT”) and its management company AAMI (“AMRE Asset Management, Inc.) Through AAMI/AMRE, a medical real estate investment trust, fulfills community needs for quality healthcare facilities while enabling care providers to allocate their capital to growth and investment in their contemporary clinical and critical care businesses. | |
| ● | Sentinel Brokers Company, Inc.: 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. | |
| ● | 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, provide an array of products and services which include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific and Eastern Europe, through licensing agreements.
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Results of operations for the three and nine months ended September 30, 2024, as compared to the three and nine months ended September 30, 2023.
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/A for the year ended December 31, 2023.
Three months ended September 30, 2024 | Three months ended September 30, 2023 | % Change | Nine months ended September 30, 2024 | Nine months ended September 30, 2023
(as restated) | % Change | |||||||||||||||||||
| Printed products | $ | 4,828,000 | $ | 3,315,000 | 46 | % | $ | 11,429,000 | $ | 12,976,000 | -12 | % | ||||||||||||
| Rental income | 496,000 | 236,000 | 110 | % | 1,334,000 | 3,464,000 | -61 | % | ||||||||||||||||
| Net investment income | 45,000 | 108,000 | -58 | % | 181,000 | 422,000 | -57 | % | ||||||||||||||||
| Commission revenue | 230,000 | - | N/A | 737,000 | 295,000 | 150 | % | |||||||||||||||||
| Direct marketing | - | 523,000 | -100 | % | - | 1,763,000 | -100 | % | ||||||||||||||||
| Total Revenue | $ | 5,599,000 | $ | 4,182,000 | 34 | % | $ | 13,681,000 | $ | 18,920,000 | -28 | % | ||||||||||||
For the three months ended September 30, 2024, total revenue increased 34% as compared to the three months ended September 30, 2023. The increase in Printed Product revenue of approximately 46% is driven by new customer orders. The increases in Rental income of 110% is driven by new tenants at AMRE LifeCare Pittsburg facility being making rental payments in 2024. The decreases in Net investment income approximating 58% is due to a number of loans made going on non-accrual as borrowers have struggled to make expect payments. The Company’s Direct Marketing revenues decreased 100% as the change in business plan from maintaining its own sales force to licensing its products has been slow to generate revenue.
For the nine months ended September 30, 2024, total revenue decreased 28% as compared to the nine months ended September 30, 2023. Revenues from the sale of Printed products decreased 12% due primarily to orders expected to ship during the 4th quarter 2022 being pushed to the 1st quarter 2023 as well as decrease in orders from two existing customers. The decreases in Rental income of 61% is driven by the tenants at AMRE LifeCare being unable to make rental payments in 2024. The decreases in Net investment income approximating 57% is due to a number of loans made going on non-accrual as borrowers have struggled to make expect payments. The Company’s Direct Marketing revenues decreased 100% as the change in business plan from maintaining its own sales force to licensing its products has been slow to generate revenue.
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Three months ended September 30, 2024 | Three months ended September 30, 2023 | % Change | Nine months ended September 30, 2024 | Nine months ended September 30, 2023
(as restated) | % Change | |||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||||||
| Printed products | $ | 4,350,000 | $ | 3,871,000 | 12 | % | $ | 10,715,000 | $ | 10,952,000 | -2 | % | ||||||||||||
| Securities | 1,993,000 | 1,926,000 | 3 | % | 5,804,000 | 6,340,000 | -8 | % | ||||||||||||||||
| Biotechnology | 10,000 | 4,000 | 150 | % | 30,000 | 67,000 | -55 | % | ||||||||||||||||
| Commercial lending | 252,000 | - | N/A | 719,000 | - | N/A | ||||||||||||||||||
| Direct marketing | (2,000 | ) | 271,000 | -101 | % | (2,000 | ) | 820,000 | -100 | % | ||||||||||||||
| Sales, general and administrative compensation | 1,197,000 | 1,132,000 | 6 | % | 3,639,000 | 4,452,000 | -18 | % | ||||||||||||||||
| Professional fees | 647,000 | 1,139,000 | -43 | % | 2,206,000 | 3,248,000 | -32 | % | ||||||||||||||||
| Sales and marketing | 907,000 | 483,000 | 88 | % | 1,849,000 | 1,845,000 | 0 | % | ||||||||||||||||
| Rent and utilities | 133,000 | 156,000 | -15 | % | 560,000 | 656,000 | -15 | % | ||||||||||||||||
| Research and development | - | 239,000 | -100 | % | 50,000 | 684,000 | -93 | % | ||||||||||||||||
| Other operating expenses | 783,000 | 64,000 | 1123 | % | 2,398,000 | 5,423,000 | -56 | % | ||||||||||||||||
| Total costs and expenses | $ | 10,270,000 | $ | 9,285,000 | 11 | % | $ | 27,968,000 | $ | 34,487,000 | -19 | % | ||||||||||||
Costs of revenue include all direct costs of the Company’s printed products, including its packaging and printing sales and its direct marketing sales, materials, direct labor, transportation, and manufacturing facility costs. In addition, this category includes all direct costs associated with the Company’s technology sales, services and licensing including hardware and software that are resold, third-party fees, and fees paid to inventors or others because of technology licenses or settlements, if any. Cost of revenue for our Securities operating segments is comprised mainly of our REIT line of business and includes all direct cost associated with the maintenance and upkeep of the related facilities, depreciation, amortization, and the costs to acquire the facilities.
Our Commercial Lending operating segment has costs of revenue associated with the impairment of notes receivable for those amounts at risk of collection. Total costs of revenue decreased 5% for nine months ended September 30, 2024 as compared to 2023 is primarily related to the decrease in revenue associate with the change in the Direct marketing business plan that has been slow to generate revenue as well as decrease in revenues from our Printed product business line.
Sales, general and administrative compensation costs, excluding stock-based compensation, decreased 18% for nine months ended September 30, 2024 as compared to 2023 is primarily related the decrease in head count as the change in business plan from maintaining our own sales force for the Direct marketing business segment to licensing its products.
Professional fees decreased 32% for nine months ended September 30, 2024 as compared to 2023 due primarily to primarily due to efforts taken to decrease these cost primarily at the Company’s Impact Bio subsidiary in anticipation of its IPO.
Sales and marketing which include internet and trade publication advertising, travel and entertainment costs, sales-broker commissions, and trade show participation expenses. Sales and marketing remained flat during the nine months ended September 30, 2024 as compared to 2023 due as the decrease in such cost associated with our Direct marketing business segment were offset by increases in our Printed Products and Biotechnology business segments.
Rent and utilities decreased 15% during the nine months ended September 30, 2024 as compared to 2023 primarily due to end of the lease in Tennessee for AMRE office space and California for the Company’s DSS Wealth Management subsidiary.
Research and development costs represent costs consisting primarily of independent, third-party testing of the various properties of each technology the Company owns possesses as well as research on new technologies. These costs decreased 93% the nine months ended September 30, 2024 as compared to September 30, 2023, due primarily to the cessation of the Company’s research and development contract with GRDG at the end of 2023.
Other operating expenses consist primarily of equipment maintenance and repairs, office supplies, IT support, and insurance costs. These costs decrease approximately 56% during the nine months ended September 30, 2024 as compared to September 30, 2023, due primarily to the write-off of accounts receivable associated with our AMRE LifeCare facilities of approximately $3,023,000 in 2023 as the tenant was unable to pay rent.
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Other Income (Expense)
Three months ended September 30, 2024 | Three months ended September 30, 2023 | %Change | Nine months ended September 30, 2024 | Nine months ended September 30,2023 (as restated) | % Change | |||||||||||||||||||
| Interest Income | $ | 28,000 | $ | 682,000 | -96 | % | $ | 331,000 | $ | 1,220,000 | -73 | % | ||||||||||||
| Dividend Income | - | $ | - | N/A | $ | - | $ | 12,000 | -100 | % | ||||||||||||||
| Other Income (expense) | 2,000 | (43,000 | ) | -105 | % | $ | 39,000 | $ | 138,000 | -72 | % | |||||||||||||
| Interest Expense | (53,000 | ) | (51,000 | ) | 4 | % | $ | (242,000 | ) | $ | (438,000 | ) | -45 | % | ||||||||||
| Foreign Currency Translation Adjustment | 8,000 | - | N/A | $ | (5,000 | ) | $ | - | N/A | |||||||||||||||
| (Loss) gain on equity method investment | (4,000 | ) | (6,000 | ) | -33 | % | $ | 3,000 | $ | (28,000 | ) | -111 | % | |||||||||||
| (Loss) gain on investments | (449,000 | ) | 301,000 | -249 | % | $ | (1,021,000 | ) | $ | (2,471,000 | ) | -59 | % | |||||||||||
| Impairment of assets upon deconsolidation | - | - | N/A | $ | - | $ | (6,220,000 | ) | -100 | % | ||||||||||||||
| Provision for loan losses | (562,000 | ) | (1,179,000 | ) | -52 | % | $ | (908,000 | ) | $ | (4,936,000 | ) | -82 | % | ||||||||||
| Gain (loss) on sale | - | (1,281,000 | ) | -100 | % | $ | 165,000 | $ | (1,281,000 | ) | -113 | % | ||||||||||||
| Total other income | $ | (1,030,000 | ) | $ | (1,577,000 | ) | 35 | % | $ | (1,638,000 | ) | $ | (14,004,000 | ) | 88 | % | ||||||||
Interest income is recognized on the Company’s money markets, and a portion of notes receivable, identified in Note 4. The decrease in interest income is driven by several notes being put on non-accrual as the related borrowers have shown an inability to pay timely.
Other income (expense) for the nine months ended September 30, 2024 as compared to 2023 decreased 72% due primarily to income incurred in 2023 regarding the Company’s distribution agreement with BioMed Technologies.
Interest expenses decreased 45% during the nine months ended September 30, 2024, as compared to the same period in 2023, due to decreasing debt balances.
(Loss) gain on equity method investment is the Company’s prorated portion of earnings on its investments treated under the equity method of account for the six months ended September 30, 2024 as compared to 2023.
(Loss) gain on investments consists of net realized losses on marketable securities which are recognized as the difference between the purchase price and sale price of the common stock investment, and net unrealized losses on marketable securities which are recognized on the change in fair market value on our common stock investment. The decrease in loss on investment for the nine months ended September 30, 2024 as compared to 2023 is driven by better performance of our stock portfolio.
Impairment of assets upon deconsolidation represents the impairment of assets recognized due to the deconsolidation of SHRG approximately $6,220,000 which is recorded as an impairment of assets due to the deconsolidation in our consolidated statements of operations.
Net Loss
Three months ended September 30, 2024 | Three months ended September 30, 2023 | % Change | Nine months ended September 30, 2024 | Nine months ended September 30, 2023 (as restated) | % Change | |||||||||||||||||||
| Loss from continuing operations | $ | (5,701,000 | ) | $ | (6,680,000 | ) | -15 | % | $ | (15,762,000 | ) | $ | (29,580,000 | ) | -47 | % | ||||||||
| Income (loss) from discontinued operations, net of tax | - | - | N/A | - | (3,481,000 | ) | -100 | % | ||||||||||||||||
| Net loss | $ | (5,701,000 | ) | $ | (6,680,000 | ) | 15 | % | $ | (15,762,000 | ) | $ | (33,061,000 | ) | 52 | % | ||||||||
For the nine months ended September 30, 2024 the Company recorded net losses of $15,762,000 as compared to net losses of $33,061,000 for the same period in 2023. The decrease in net loss is driven by decreases in the Provision for loan losses, impairment of assets upon deconsolidation, the improved performance of our stock portfolio as well as the deconsolidation of SHRG.
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LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its liquidity and capital requirements primarily through the sale of its equity securities and debt financing. As of September 30, 2024 the Company had cash of approximately $11.6 million. As of September 30, 2024, 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 Quarterly Report. In addition, the Company believes that it will have access to sources of capital from the sale of its equity securities and debt financing. The deconsolidation of SHRG and sale of HWH Holdings, Inc, two companies with historical losses, also is expected to improve future cash flows.
Cash Flow from Continuing Operating Activities
Net cash used by operating activities was $9,181,000 for the nine months ended September 30, 2024 as compared to $21,035,000 for nine months ended September, 2023. This fluctuation is driven by decreases in net loss, after reconciling items, approximating $371,000. Also, the Company paid litigation losses during the 1st quarter of 2023 of approximately $8,750,000.
Cash Flow from Investing Activities
Net cash provided by investing activities was $9,916,000 for the nine months ended September 30, 2024 as compared to net cash provided by investing activities of $11,885,000 for the nine months ended September 30, 2023. This fluctuation is driven by the sale of marketable securities approximating $11,330,000 during 2023 versus a sale of $3,029,000 during 2024. This is offset by receipts on Notes receivable of $4,039,000 in 2024 versus $1,419,000 in 2023.
Cash Flow from Financing Activities
Net cash provided by financing activities was $4,281,000 for the nine months ended September 30, 2024 as compared to net cash used by financing activities of $3,243,000 for the nine months ended September 30, 2023. This variance is driven by payments toward long term debt of $1,492,000 in 2024 versus $4,056,000 in 2023.
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, 2023, describe the significant accounting policies and methods used in the preparation of the financial statements. There have been no material changes to such critical accounting policies as of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2024.
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ITEM 4 - CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures for the quarter ended September 30, 2024, 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, 2023 which remained as of September 30, 2024, our principal executive officer and principal financial officer concluded that as of September 30, 2024, 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, 2023, the Company has a remediation plan and is committed to maintaining a strong internal control environment and believes that these remediation efforts will represent significant improvements in our controls. The Company has started to implement these steps, however, some of these steps will take time to be fully integrated and confirmed to be effective and sustainable. Additional controls may also be required over time. Until the remediation steps set forth above are fully implemented and tested, the material weaknesses described above will continue to exist.
Changes in Internal Control over Financial Reporting
While changes in the Company’s internal control over financial reporting occurred during the quarter ended September 30, 2024, as the Company began implementation of the remediation steps described above, we believe that there were no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II
OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
See commentary in Note 11 Commitments and Contingencies.
ITEM 1A - RISK FACTORS
There have been no material changes to the discussion of risk factors previously disclosed in our most recently filed Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 25, 2022, the Company entered into a stock purchase agreement with Alset EHome International, Inc. (the “January 25, 2022 SPA”), pursuant to which the Company agreed to issue to Alset EHome International, Inc. (“AEI”) up to 44,619,423 shares of the Company’s common stock (the “Shares”) for a purchase price of $0.3810 per share. On February 28, 2022, the Company entered into an Amendment to Stock Purchase Agreement, pursuant to which the Company and AEI agreed to amend certain terms of the January 25, 2022 SPA. Pursuant to the Amendment, the number of shares of the common stock of the Company that the AEI will purchase has been reduced from 44,619,423 to 3,986,877 shares for an aggregate purchase price of $1,519,000.
On January 18, 2022, the Company entered into a stock purchase agreement with AEI, pursuant to which AEI sold to the Company 100% of the shares of common stock of its wholly owned subsidiary True Partner International Limited (HK) (“TP”), and all of TP’s 62,122,908 ordinary shares of True Partner Capital Holding Limited, for a purchase price of 11,397,080 newly issued shares of the Company’s common stock. This agreement was terminated on February 25, 2022. On February 28, 2022, the Company entered into a Stock Purchase Agreement with Alset EHome International Inc. (the “True Partner Revised Stock Purchase Agreement”), pursuant to which AEI has agreed to sell a subsidiary holding 62,122,908 shares of stock of True Partner Capital Holding Limited in exchange for 17,570,948 shares of common stock of the Company.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS
*Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| DSS, INC. | ||
| November 13, 2024 | By: | /s/ Jason Grady |
Jason Grady | ||
| Interim Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| November 13, 2024 | By: | /s/ Todd D. Macko |
| Todd D. Macko | ||
| Chief Financial Officer | ||
(Principal Financial and Accounting Officer) | ||
| 34 |