Evaluation of Intangible Assets and Goodwill for Impairment
As described in Notes 2 and 10 to the consolidated financial statements, the Company holds Intangible Assets and Goodwill through its subsidiaries with a net book value of approximately $20,193,000 and $26,862,000, respectively. We identified the value of Intangible Assets and Goodwill to be a critical audit matter.
The principal consideration for our determination of management’s assessment of impairment of the Intangible Assets and Goodwill as a critical audit matter is the high degree of subjective auditor judgment associated with evaluating management’s determination of impairment of Intangible Assets and Goodwill, which is primarily due to the complexity of the valuation models used and the sensitivity of the underlying significant assumptions. The key assumptions used within the valuation models included qualitative and quantitative assessments. The calculated fair values are sensitive to changes in these key assumptions.
How the Critical Audit Matter was addressed in the Audit
Our audit procedures related to the determination of the fair value of the Intangible Assets and Goodwill included the following, among others:
| a) | We obtained management’s rollforward of Intangible Assets and Goodwill in from December 31, 2022, to December 31, 2023 and tested any material additions and disposals by vouching to agreements. | |
| b) | We obtained management’s qualitative and quantitative assessments and third-party valuations that assess the fair value of the Intangible Assets and Goodwill. | |
| c) | We assessed the qualifications and competence of management and the qualifications, competence and objectivity of third-party specialists. | |
| d) | We reviewed the valuation reports provided by management to determine if the reports were reasonable and acceptable based on the methodologies used by management’s third-party valuation firm. | |
| e) | We audited the critical inputs used in the valuation calculations and utilized the services of an independent auditor engaged specialist to ensure the methodologies and assumptions utilized by the Company’s independent specialists were reasonable and in accordance with industry standards. | |
| f) | We assessed the sufficiency of the Company’s disclosure of its accounting for Intangible Assets and Goodwill included in Notes 2 and 10. |
 | |
| GRASSI & CO., CPAs, P.C. | |
| We have served as the Company’s auditor since 2022. | |
Jericho, New York
March 31, 2023
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of DSS, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of DSS, Inc. and its subsidiaries (the “Company”) as of December 31, 2022 and the related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2022, and the results of its consolidated operations and its consolidated cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Emphasis of matter
As discussed in Note 2, the 2021 consolidated financial statements have been restated to correct an error related to inventory.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Business acquisition of American Pacific Bancorp and real estate asset acquisitions
As described in Note 8 to the consolidated financial statements, the Company completed the acquisition of American Pacific Bancorp. and the assets acquired and liabilities assumed were required to be recorded at fair value as of the acquisition date. Also described in Note 8, the Company completed acquisitions of real estate assets as each transaction was concentrated in a single identifiable asset or group of assets. The Company utilized third-party valuation specialists to assist in the preparation of these valuations. We identified the fair value determination of the acquired assets, liabilities assumed, and residual value of goodwill as well as the allocation of the real estate assets’ purchase price to be a critical audit matter.
The principal considerations for our determination that estimation of the fair value of the assets acquired in the acquisitions of is a critical audit matter are that there was a high estimation uncertainty due to significant judgments with respect to assumptions used to estimate the future revenues and cash flows, including revenue growth rates, operating margins, the discount rate, the valuation methodologies applied by the third-party valuation specialist for the fair value of the intangible assets. This in turn led to a high degree of auditor judgment, subjectivity, and efforts in performing procedures and evaluating audit evidence related to management’s forecasted future revenues and cash flows and valuation methodologies. In addition, the audit effort involved the use of specialists to assist in performing these procedures and evaluating the audit evidence obtained.
Our audit procedures included the following:
/s/ Turner Stone & Company, LLP
We have served as the Company’s auditor since 2021.
Dallas, Texas
March 31, 2022
| 35 |
DSS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31, 2022
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
| ASSETS | ||||||||||||||||
| Current assets: | ||||||||||||||||
| Cash and cash equivalents | $ | 19,290,000 | $ | 56,595,000 | $ | 6,615,000 | $ | 19,290,000 | ||||||||
| Accounts receivable, net | 7,564,000 | 5,673,000 | 3,994,000 | 7,564,000 | ||||||||||||
| Inventory | 7,721,000 | 8,261,000 | 2,819,000 | 7,721,000 | ||||||||||||
| Current portion of notes receivable | 11,719,000 | 6,310,000 | 8,772,000 | 11,719,000 | ||||||||||||
| Assets held for sale | 51,595,000 | - | ||||||||||||||
| Prepaid expenses and other current assets | 1,700,000 | 3,466,000 | 839,000 | 1,700,000 | ||||||||||||
| Total current assets | 47,994,000 | 80,305,000 | 74,634,000 | 47,994,000 | ||||||||||||
| Property, plant and equipment, net | 13,391,000 | 17,674,000 | 6,417,000 | 13,391,000 | ||||||||||||
| Investment in real estate, net | 55,029,000 | 56,374,000 | 6,279,000 | 55,029,000 | ||||||||||||
| Other investments | 1,534,000 | 11,001,000 | 1,282,000 | 1,534,000 | ||||||||||||
| Investment, equity method | 162,000 | 1,080,000 | 128,000 | 162,000 | ||||||||||||
| Marketable securities | 27,307,000 | 14,172,000 | 9,979,000 | 27,307,000 | ||||||||||||
| Notes receivable | 922,000 | 5,878,000 | 111,000 | 922,000 | ||||||||||||
| Other assets | 2,699,000 | 489,000 | 97,000 | 2,699,000 | ||||||||||||
| Right-of-use assets | 8,219,000 | 498,000 | 7,210,000 | 8,219,000 | ||||||||||||
| Goodwill | 60,919,000 | 56,606,000 | 26,862,000 | 60,919,000 | ||||||||||||
| Other intangible assets, net | 30,740,000 | 38,630,000 | 20,193,000 | 30,740,000 | ||||||||||||
| Total assets | $ | 248,916,000 | $ | 282,707,000 | $ | 153,192,000 | $ | 248,916,000 | ||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||
| Current liabilities: | ||||||||||||||||
| Accounts payable | $ | 5,914,000 | $ | 1,920,000 | $ | 3,654,000 | $ | 5,914,000 | ||||||||
| Accrued expenses and deferred revenue | 19,341,000 | 21,180,000 | 2,512,000 | 19,341,000 | ||||||||||||
| Other current liabilities | 447,000 | 402,000 | 983,000 | 447,000 | ||||||||||||
| Current portion of lease liability | 796,000 | 393,000 | 686,000 | 796,000 | ||||||||||||
| Current portion of long-term debt, net | 47,161,000 | 3,916,000 | 47,776,000 | 47,161,000 | ||||||||||||
| Total current liabilities | 73,689,000 | 27,811,000 | 55,611,000 | 73,689,000 | ||||||||||||
| Long-term debt, net | 10,181,000 | 55,711,000 | 7,451,000 | 10,181,000 | ||||||||||||
| Long term lease liability | 7,820,000 | 120,000 | ||||||||||||||
| Long-term lease liability | 6,917,000 | 7,820,000 | ||||||||||||||
| Other long-term liabilities | 507,000 | 880,000 | - | 507,000 | ||||||||||||
| Deferred tax liability, net | 38,000 | - | - | 38,000 | ||||||||||||
| Commitments and contingencies (Note 16) | - | - | ||||||||||||||
| Commitments and contingencies (Note 17) | - | - | ||||||||||||||
| Stockholders’ equity | ||||||||||||||||
| Preferred stock, $ par value; shares authorized, shares issued and outstanding ( on December 31, 2021); Liquidation value $1,000 per share, zero aggregate. zero on December 31, 2021). | - | - | ||||||||||||||
| Common stock, $ par value; shares authorized, shares issued and outstanding ( on December 31, 2021) | 2,779,000 | 1,594,000 | ||||||||||||||
| Preferred stock, $ par value; shares authorized, shares issued and outstanding ( on December 31, 2022); Liquidation value $1,000 per share, zero aggregate. zero on December 31, 2022) | - | - | ||||||||||||||
| Common stock, $ par value; shares authorized, shares issued and outstanding ( on December 31, 2022) | 140,000 | 139,000 | ||||||||||||||
| Additional paid-in capital | 317,126,000 | 294,685,000 | 319,963,000 | 319,766,000 | ||||||||||||
| Accumulated deficit | (194,343,000 | ) | (134,503,000 | ) | (256,176,000 | ) | (194,343,000 | ) | ||||||||
| Total DSS stockholders’ equity | 125,562,000 | 161,776,000 | 63,927,000 | 125,562,000 | ||||||||||||
| Non-controlling interest in subsidiary | 31,119,000 | 36,409,000 | 19,286,000 | 31,119,000 | ||||||||||||
| Total stockholders’ equity | 156,681,000 | 198,185,000 | 83,213,000 | 156,681,000 | ||||||||||||
| Total liabilities and stockholders’ equity | $ | 248,916,000 | $ | 282,707,000 | $ | 153,192,000 | $ | 248,916,000 | ||||||||
See accompanying notes.
| 36 |
DSS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Loss
For the Years Ended December 31,
| 2022 | 2021 | 2023 | 2022 | |||||||||||||||
| Revenue: | ||||||||||||||||||
| Printed products | $ | 17,973,000 | $ | 15,539,000 | $ | 18,497,000 | $ | 17,973,000 | ||||||||||
| Rental income | 6,287,000 | 1,203,000 | 3,647,000 | 6,287,000 | ||||||||||||||
| Management fee income | 134,000 | 24,000 | - | 134,000 | ||||||||||||||
| Net investment income | 630,000 | 250,000 | 385,000 | 630,000 | ||||||||||||||
| Direct marketing | 21,989,000 | 3,259,000 | 6,088,000 | 21,989,000 | ||||||||||||||
| Commission revenue | 294,000 | - | 1,641,000 | 294,000 | ||||||||||||||
| Total revenue | 47,307,000 | 20,275,000 | 30,258,000 | 47,307,000 | ||||||||||||||
| Costs and expenses: | ||||||||||||||||||
| Cost of revenue | 37,463,000 | �� | 16,824,000 | 26,647,000 | 40,247,000 | |||||||||||||
| Selling, general and administrative (including stock-based compensation) | 53,531,000 | 26,979,000 | 25,072,000 | 53,531,000 | ||||||||||||||
| Total costs and expenses | 90,994,000 | 43,803,000 | 51,719,000 | 93,778,000 | ||||||||||||||
| Operating loss | (43,687,000 | ) | (23,528,000 | ) | (21,461,000 | ) | (46,471,000 | ) | ||||||||||
| Other income (expense): | ||||||||||||||||||
| Interest income | 629,000 | 4,556,000 | 1,289,000 | 629,000 | ||||||||||||||
| Dividend Income | 159,000 | - | ||||||||||||||||
| Dividend income | 16,000 | 159,000 | ||||||||||||||||
| Other income | 3,602,000 | 825,000 | 532,000 | 3,602,000 | ||||||||||||||
| Interest expense | (2,910,000 | ) | (196,000 | ) | (553,000 | ) | (126,000 | ) | ||||||||||
| Litigation Loss | (8,750,000 | ) | - | |||||||||||||||
| Litigation loss | - | (8,750,000 | ) | |||||||||||||||
| Gain on extinguishment of debt | 110,000 | 116,000 | - | 110,000 | ||||||||||||||
| Gain/ (loss) on equity method investment | 129,000 | (9,936,000 | ) | |||||||||||||||
| Loss on equity method investment | (34,000 | ) | 129,000 | |||||||||||||||
| Loss on investments | (10,697,000 | ) | (12,035,000 | ) | (32,986,000 | ) | (10,697,000 | ) | ||||||||||
| Impairment of investment | (5,637,000 | ) | - | - | (5,637,000 | ) | ||||||||||||
| Impairment of fixed asset | (2,843,000 | ) | - | |||||||||||||||
| Gain on Sale of Assets | 405,000 | - | ||||||||||||||||
| Loss from continuing operations before income taxes | (69,490,000 | ) | (40,201,000 | ) | ||||||||||||||
| Impairment of fixed assets | - | (2,843,000 | ) | |||||||||||||||
| Impairment of intangible assets | (7,418,000 | ) | - | |||||||||||||||
| Impairment of investment in real estate | ||||||||||||||||||
| Impairment of goodwill | (30,978,000 | ) | - | |||||||||||||||
| Provision for loan losses | (3,794,000 | ) | - | |||||||||||||||
| Loss on sale of assets | (1,300,000 | ) | 405,000 | |||||||||||||||
| Loss before income taxes | (97,499,000 | ) | (69,490,000 | ) | ||||||||||||||
| Income tax (loss) benefit | (172,000 | ) | 4,032,000 | |||||||||||||||
| Loss from continuing operations | (69,662,000 | ) | (36,169,000 | ) | ||||||||||||||
| Income (loss) from discontinued operations, net of tax | - | 2,129,000 | ||||||||||||||||
| Income tax loss | (4,000 | ) | (172,000 | ) | ||||||||||||||
| Net loss | (69,662,000 | ) | (34,040,000 | ) | $ | (97,503,000 | ) | $ | (69,662,000 | ) | ||||||||
| Loss from continuing operations attributed to noncontrolling interest | 9,822,000 | 921,000 | ||||||||||||||||
| Net loss attributed to noncontrolling interest | 16,897,000 | 9,822,000 | ||||||||||||||||
| Net loss attributable to common stockholders | (59,840,000 | ) | (33,119,000 | ) | $ | (80,606,000 | ) | $ | (59,840,000 | ) | ||||||||
| Loss per common share: | ||||||||||||||||||
| Basic | $ | (0.54 | ) | $ | (0.68 | ) | $ | (11.52 | ) | $ | (10.72 | ) | ||||||
| Diluted | $ | (0.54 | ) | $ | (0.68 | ) | $ | (11.52 | ) | $ | (10.72 | ) | ||||||
| Earnings per common share - discontinued operations: | ||||||||||||||||||
| Basic | $ | - | $ | 0.04 | ||||||||||||||
| Diluted | $ | - | $ | 0.04 | ||||||||||||||
| Shares used in computing loss (earnings) per common share: | ||||||||||||||||||
| Basic | 111,622,114 | 51,525,746 | 6,996,322 | 5,581,106 | ||||||||||||||
| Diluted | 111,622,114 | 51,525,746 | 6,996,322 | 5,581,106 | ||||||||||||||
See accompanying notes.
| 37 |
DSS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31,
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
| Cash flows from operating activities: | ||||||||||||||||
| Net loss from continuing operations | $ | (69,662,000 | ) | $ | (36,169,000 | ) | ||||||||||
| Adjustments to reconcile net loss from continuing operations to net cash used by operating activities: | ||||||||||||||||
| Net loss from operations | $ | (97,503,000 | ) | $ | (69,662,000 | ) | ||||||||||
| Adjustments to reconcile net loss from operations to net cash used by operating activities: | ||||||||||||||||
| Depreciation and amortization | 12,925,000 | 4,322,000 | 5,206,000 | 12,925,000 | ||||||||||||
| Stock based compensation | 4,000 | 78,000 | - | 4,000 | ||||||||||||
| (Gain)/loss on equity method investment | (129,000 | ) | 9,939,000 | |||||||||||||
| Gain/(loss) on equity method investment | 34,000 | (129,000 | ) | |||||||||||||
Loss on investments | 13,386,000 | 12,035,000 | 33,506,000 | 13,386,000 | ||||||||||||
| Change in ROU assets | (7,721,000 | ) | - | 1,009,000 | (7,721,000 | ) | ||||||||||
| Change in ROU liabilities | 8,103,000 | - | ||||||||||||||
| Gain on extinguishment of debt | (110,000 | ) | (116,000 | ) | - | (110,000 | ) | |||||||||
| Deferred tax loss (benefit) | 38,000 | (4,032,000 | ) | |||||||||||||
| Deferred tax loss | - | 38,000 | ||||||||||||||
| Loss on sales of assets | 1,300,000 | - | ||||||||||||||
| Impairment of fixed assets | 2,843,000 | - | - | 2,843,000 | ||||||||||||
| Impairment of notes receivable and other investments | 1,525,000 | - | ||||||||||||||
| Impairment of intangible assets | 7,418,000 | - | ||||||||||||||
| Impairment of real estate | 812,000 | - | ||||||||||||||
Impairment of Goodwill | 30,978,000 | - | ||||||||||||||
| Impairment of accounts receivable | 3,023,000 | - | ||||||||||||||
| Impairment of notes receivable | 3,794,000 | 1,525,000 | ||||||||||||||
| Impairment of other investments | 5,637,000 | - | - | 5,637,000 | ||||||||||||
| Decrease (increase) in assets: | ||||||||||||||||
| Accounts receivable | (1,891,000 | ) | (2,084,000 | ) | 1,316,000 | (1,891,000 | ) | |||||||||
| Inventory | 540,000 | (6,306,000 | ) | 5,483,000 | 540,000 | |||||||||||
| Prepaid expenses and other current assets | 1,766,000 | (2,274,000 | ) | 996,000 | 1,766,000 | |||||||||||
| Other assets | (2,210,000 | ) | 1,216,000 | 2,392,000 | (2,210,000 | ) | ||||||||||
| Increase (decrease) in liabilities: | ||||||||||||||||
| Accounts payable | 3,994,000 | 463,000 | (2,260,000 | ) | 3,994,000 | |||||||||||
| Accrued expenses | 4,307,000 | 15,920,000 | (15,646,000 | ) | 4,307,000 | |||||||||||
| Change in ROU liabilities | (1,013,000 | ) | - | |||||||||||||
| Other liabilities | (298,000 | ) | (2,004,000 | ) | (39,000 | ) | (298,000 | ) | ||||||||
| Net cash used by operating activities | (26,953,000 | ) | (9,012,000 | ) | (19,194,000 | ) | (26,953,000 | ) | ||||||||
| Cash flows from investing activities: | ||||||||||||||||
| Purchase of property, plant and equipment | (2,294,000 | ) | (14,283,000 | ) | (818,000 | ) | (2,294,000 | ) | ||||||||
| Purchase of real estate | (732,000 | ) | (56,794,000 | ) | - | (732,000 | ) | |||||||||
| Purchase of investment | (195,000 | ) | (4,130,000 | ) | - | (195,000 | ) | |||||||||
| Purchase of marketable securities | (14,884,000 | ) | (8,171,000 | ) | - | (14,884,000 | ) | |||||||||
| Disposal of property, plant & equipment | 2,152,000 | - | 248,000 | 2,152,000 | ||||||||||||
| Asset acquired with APB acquisition | (1,879,000 | ) | 3,356,000 | - | (1,879,000 | ) | ||||||||||
| Asset acquired with Sentinel acquisition | 40,000 | - | ||||||||||||||
| Conversion of SHRG to consolidation | 3,038,000 | (12,225,000 | ) | - | 3,038,000 | |||||||||||
| Change in Equity investment | (113,000 | ) | - | - | (113,000 | ) | ||||||||||
| Issuance of new notes receivable, net origination fees | (3,621,000 | ) | (11,651,000 | ) | (1,046,000 | ) | (3,621,000 | ) | ||||||||
| Payment received on notes receivable | 1,067,000 | - | 1,010,000 | 1,067,000 | ||||||||||||
| Sale of marketable securities | 9,502,000 | - | ||||||||||||||
| Purchase of intangible assets | (508,000 | ) | (18,110,000 | ) | - | (508,000 | ) | |||||||||
| Net cash used by investing activities | (17,969,000 | ) | (122,008,000 | ) | ||||||||||||
| Net cash provided (used) by investing activities | 8,936,000 | (17,969,000 | ) | |||||||||||||
| Cash flows from financing activities: | ||||||||||||||||
| Payments of long-term debt | (3,504,000 | ) | (1,950,000 | ) | (4,246,000 | ) | (3,504,000 | ) | ||||||||
| Borrowings of long-term debt | 9,602,000 | 60,864,000 | 1,829,000 | 9,602,000 | ||||||||||||
| Deferred financing fees | - | (1,425,000 | ) | |||||||||||||
| Issuances of common stock, net of issuance costs | 1,519,000 | 121,736,000 | - | 1,519,000 | ||||||||||||
| Net cash provided by financing activities | 7,617,000 | 179,225,000 | ||||||||||||||
| Cash flows from discontinued operations: | ||||||||||||||||
| Cash provide by discontinued operations | - | 207,000 | ||||||||||||||
| Cash provided by investing activities | - | 3,000,000 | ||||||||||||||
| Net cash used by discontinued operations | - | 3,207,000 | ||||||||||||||
| Net cash (used) provided by financing activities | (2,417,000 | ) | 7,617,000 | |||||||||||||
| Net decrease in cash | (37,305,000 | ) | 51,412,000 | (12,675,000 | ) | (37,305,000 | ) | |||||||||
| Cash and cash equivalents at beginning of year | 56,595,000 | 5,183,000 | 19,290,000 | 56,595,000 | ||||||||||||
| Cash and cash equivalents at end of year | $ | 19,290,000 | $ | 56,595,000 | $ | 6,615,000 | $ | 19,290,000 | ||||||||
See accompanying notes.
| 38 |
DSS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
For the Years Ended December 31, 2022 and 2021
| Common Stock | Preferred Stock | Additional Paid-in | Accumulated | Total DSS | Non- controlling Interest in | Common Stock | Preferred Stock | Additional Paid-in | Accumulated | Total DSS | Non- controlling Interest in | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | Subsidiary | Total | Shares | Amount | Shares | Amount | Capital | Deficit | Equity | Subsidiary | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 79,746,000 | $ | 1,594,000 | - | $ | - | $ | 294,685,000 | $ | (134,503,000 | ) | $ | 161,778,000 | $ | 36,409,000 | $ | 198,185,000 | 3,987,308 | $ | 80,000 | - | $ | - | $ | 296,199,000 | $ | (134,503,000 | ) | $ | 161,776,000 | $ | 36,409,000 | $ | 198,185,000 | ||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock, net of expenses | 42,924,000 | 858,000 | - | - | 16,547,000 | - | 17,405,000 | - | 17,405,000 | 2,146,200 | 43,000 | - | - | 17,362,000 | - | 17,405,000 | - | 17,405,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of Sentinel Brokers Company Inc | - | - | - | - | - | - | - | 1,274,000 | 1,274,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of Sentinel Brokers Company, Inc. | - | - | - | - | - | - | - | 1,274,000 | 1,274,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Acquisition of Sharing Services Global Corporation | - | - | - | - | - | - | - | 3,257,000 | 3,257,000 | - | - | - | - | - | - | - | 3,257,000 | 3,257,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock based payments | 16,347,000 | 327,000 | - | - | 5,894,000 | - | 6,221,000 | - | 6,221,000 | 817,350 | 16,000 | - | - | 6,205,000 | - | 6,221,000 | - | 6,221,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (59,840,000 | ) | (59,840,000 | ) | (9,821,000 | ) | (69,661,000 | ) | - | - | - | - | - | (59,840,000 | ) | (59,840,000 | ) | (9,821,000 | ) | (69,661,000 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 139,017,000 | $ | 2,779,000 | - | $ | - | $ | 317,126,000 | $ | (194,343,000 | ) | $ | 125,564,000 | $ | 31,119,000 | $ | 156,681,000 | 6,950,858 | $ | 139,000 | - | $ | - | $ | 319,766,000 | $ | (194,343,000 | ) | $ | 125,562,000 | $ | 31,119,000 | $ | 156,681,000 | ||||||||||||||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Additional Paid-in | Accumulated | Total DSS | Non- controlling Interest in | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | Subsidiary | Total | ||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 6,950,858 | $ | 139,000 | - | $ | - | $ | 319,766,000 | $ | (194,343,000 | ) | $ | 125,562,000 | $ | 31,119,000 | $ | 156,681,000 | |||||||||||||||||||
| Balance | 6,950,858 | $ | 139,000 | - | $ | - | $ | 319,766,000 | $ | (194,343,000 | ) | $ | 125,562,000 | $ | 31,119,000 | $ | 156,681,000 | |||||||||||||||||||
| Issuance of common stock, net of expenses | 62,354 | 1,000 | - | - | 267,000 | - | 268,000 | - | 268,000 | |||||||||||||||||||||||||||
| Acquisition of Sentinel Brokers Company, Inc. shares | - | - | - | - | (70,000 | ) | - | (70,000 | ) | - | (70,000 | ) | ||||||||||||||||||||||||
| Fractional shares as a result of reverse stock split | 53,560 | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||
| Deconsolidation of Sharing Services Global Corporation | - | - | - | - | - | 18,773,000 | 18,773,000 | 5,064,000 | 23,837,000 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (80,606,000 | ) | (80,606,000 | ) | (16,897,000 | ) | (97,503,000 | ) | |||||||||||||||||||||||
| Balance, December 31, 2023 | 7,067,772 | $ | 140,000 | - | $ | - | $ | 319,963,000 | $ | (256,176,000 | ) | $ | 63,927,000 | $ | 19,286,000 | $ | 83,213,000 | |||||||||||||||||||
| Balance | 7,067,772 | $ | 140,000 | - | $ | - | $ | 319,963,000 | $ | (256,176,000 | ) | $ | 63,927,000 | $ | 19,286,000 | $ | 83,213,000 | |||||||||||||||||||
| Common Stock | Preferred Stock | Additional Paid-in | Accumulated | Total DSS | Non- controlling Interest in | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | Subsidiary | Total | ||||||||||||||||||||||||||||
| Balance, December 31, 2020 | 5,836,000 | $ | 116,000 | 43,000 | $ | 1,000 | $ | 174,380,000 | $ | (101,382,000 | ) | $ | 73,115,000 | 3,430,000 | $ | 76,545,000 | ||||||||||||||||||||
| Balance | 5,836,000 | $ | 116,000 | 43,000 | $ | 1,000 | $ | 174,380,000 | $ | (101,382,000 | ) | $ | 73,115,000 | 3,430,000 | $ | 76,545,000 | ||||||||||||||||||||
| Issuance of common stock, net of expenses | 67,340,000 | 1,347,000 | - | - | 120,433,000 | - | 121,780,000 | - | 121,780,000 | |||||||||||||||||||||||||||
| Stock based payments | - | - | - | - | 2,000 | - | 2,000 | - | 2,000 | |||||||||||||||||||||||||||
| Conversion of preferred stock | 6,570,000 | 131,000 | (43,000 | ) | (1,000 | ) | (130,000 | ) | - | - | - | - | ||||||||||||||||||||||||
| Acquisition of American Pacific Bancorp | - | - | - | - | - | - | - | 33,097,000 | 33,097,000 | |||||||||||||||||||||||||||
| Acquisition of Sharing Services Global Corporation | - | - | - | - | - | - | - | 803,000 | 803,000 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (33,119,000 | ) | (33,119,000 | ) | (921,000 | ) | (34,040,000 | ) | |||||||||||||||||||||||
| Balance, December 31, 2021 | 79,746,000 | $ | 1,594,000 | - | $ | - | $ | 294,685,000 | $ | (134,503,000 | ) | $ | 161,778,000 | $ | 36,409,000 | $ | 198,185,000 | |||||||||||||||||||
| Balance | 79,746,000 | $ | 1,594,000 | - | $ | - | $ | 294,685,000 | $ | (134,503,000 | ) | $ | 161,778,000 | $ | 36,409,000 | $ | 198,185,000 | |||||||||||||||||||
See accompanying notes.
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DSS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Description of Business
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.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 specializes in marketing and distributing its products and services through its subsidiary and partner network, using the popular gig economic marketing strategy as a form of direct marketing. Direct Marketing’s products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific, Middle East, and Eastern Europe. (4) Our Commercial Lending business division, driven by American Pacific Bancorp (“APB”), is organized for the purposes of being a financial network holding company, focused on acquiring equity positions in (i) undervalued commercial bank(s), bank holding companies and nonbanking licensed financial companies operating in the United States, South East Asia, Taiwan, Japan and South Korea, and (ii) companies engaged in—nonbanking activities closely related to banking, including loan syndication services, mortgage banking, trust and escrow services, banking technology, loan servicing, equipment leasing, problem asset management, SPAC (special purpose acquisition company) consulting services, and advisory capital raising services. (5) Securities and Investment Management was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, broker dealers, and mutual funds management. Also in this segment is the Company’s real estate investment trusts (“REIT”), organized for the purposes of acquiring hospitals and other acute or post-acute care centers from leading clinical operators with dominant market share in secondary and tertiary markets, and leasing each property to a single operator under a triple-net lease. the REIT was formed to originate, acquire, and lease a credit-centric portfolio of licensed medical real estate. (6) Alternative Trading was established to develop and/or acquire assets and investments in the securities trading and/or funds management arena. Alternative Trading, in partnership with recognized global leaders in alternative trading systems, intends to own and operate in the US a single or multiple vertical digital asset exchanges for securities, tokenized assets, utility tokens, and cryptocurrency via an alternative trading platform using blockchain technology. The scope of services within this section is planned to include asset issuance and allocation (securities and cryptocurrency), FPO, IPO, ITO, PPO, and UTO listings on a primary market(s), asset digitization/tokenization (securities, currency, and cryptocurrency), and the listing and trading of digital assets (securities and cryptocurrency) on a secondary market(s). (7) Digital Transformation was established to be a Preferred Technology Partner and Application Development Solution for mid cap brands in various industries including the direct selling and affiliate marketing sector. Digital improves marketing, communications and operations processes with custom software development and implementation.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.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.
On September 9, 2021, the Company finalized a stock purchase agreement (the “SPA”) with American Pacific Bancorp, Inc. (“APB”), which provided for an investment of $40,000,200 by the Company into APB for an aggregate of shares of the APB’s Class A Common Stock, par value $ per share. Subject to the terms and conditions containedenergy (discontinued in the SPA, the shares issued at a purchase price of $ per share. As a result of this transaction, DSS became the majority owner of APB. (see Note 9)2023).
On September 13, 2021, the Company finalized a shareholder agreement between its subsidiary, DSS Financial Management, Inc. (“DFMI”) and HR1 Holdings Limited (“HR1”), a company incorporated in the British Virgin Islands, for the purpose of operating a vehicle for private and institutional investors seeking a highly liquid investment fund with attractive risk adjusted returns relative to market unpredictability and volatility. Under the terms of this agreement, 4000 shares or 40% of the Company’s subsidiary Liquid Asset Limited Management Limited (“LVAM”), a Hong Kong company was transferred to HR1 whereas at the conclusion of the transaction DFMI would own 60% of LVAM and HR1 would own 40%. LVAM executes within reliable platforms and broad market access and uses proprietary systems and algorithms to trade liquid exchange-traded funds (ETFs), stocks, futures or crypto. Aimed at providing consistent returns while offering the unique ability to liquidate the portfolio within 5 to 10 minutes under normal market conditions, LVAM provides an array of advanced tools and products enabling customers to explore multiple opportunities, strengthen and diversify their portfolios, and meet their individual investing goals.
On December 23, 2021, DSS purchased shares at $ per share of Sharing Services Global Corporation (“SHRG”) via a private placement. With this purchase, DSS increased its ownership of voting shares from approximately 47% of SHRG to approximately 58%. SHRG aims to build shareholder value by developing or acquiring businesses that increase the Company’s product and services portfolio, business competencies and geographic reach. Currently, the Company, through its subsidiaries, markets and distributes its health and wellness and other products primarily in the United States, Canada, and the Asia Pacific region using a direct selling business model. SHRG markets its products and services through its independent sales force, using its proprietary websites, including: www.elevacity.com and www.thehappyco.com. SHRG, headquartered in Plano, Texas, was incorporated in the State of Nevada on April 24, 2015, and is an emerging growth company. SHRG Common Stock is traded, under the symbol “SHRG,” in the OTCQB Market, an over-the-counter trading platforms market operated by OTC Markets Group Inc.
On May 13, 2021, Sentinel Brokers, LLC. (“Sentinel LLC”), subsidiary of the Company entered into a stock purchase agreement (“Sentinel Agreement”) to acquire a 24.924.9%% equity position of Sentinel Brokers Company, Inc. (“Sentinel Co.”), a company registered in the state of New York, and in December 2022, Sentinel LLC exercised this option to increase its equity position to 7575%%. In May of 2023, Sentinel LLC acquired an additional 5% increasing its equity position to 80.1%. Sentinel is a broker-dealer operating primarily as a fiduciary intermediary, facilitating intuitional trading of municipal and corporate bonds as well as preferred stock, and is registered with the Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”), and is a member of the Securities Investor Protection Corporation (“SIPC”).
On January 24, 2022, DSS entered into a business consulting agreement with Sharing Services Global Corporation (“SHRG”). As part of this agreement, warrants were exercised, which increased the Company’s ownership of SHRG to approximately 64%.
On February 28, 2022, DSS entered into an Amendment to Stock Purchase Agreement (the “Amendment”) with its shareholder Alset EHome International Inc. (“AEI”), pursuant to which the Company and AEI have agreed to amend certain terms of the Stock Purchase Agreement dated January 25, 2022 (the “SPA”). Pursuant to the SPA, AEI had agreed to purchase up to shares of the Company’s common stock for a purchase price of $ per share, for an aggregate purchase price of $17,000,000. Pursuant to the Amendment, the number of shares of the common stock of the Company that the AEI will purchase has been reduced to shares for an aggregate purchase price of $1,519,000. This transaction was completed on March 9, 2022. In addition, the Company’s Executive Chairman and a significant stockholder, Heng Fai Ambrose Chan, is the Chairman, Chief Executive Officer and largest shareholder of AEI.
On May 17, 2022, the shareholders of the Company approved the issuance of up to Shares of our Common Stock to Alset International, a related party, to purchase the Convertible Promissory Note issued by American Medical REIT, Inc. with a principal amount of $8,350,000 and accrued but unpaid interest of $367,000 through May 15, 2022. This transaction was finalized in July 2022.
On May 17, 2022, the shareholders of the Company approved the acquisition of shares of True Partners Capital Holdings Limited (“True Partners”), a company publicly traded on the Hong Kong stock exchange in exchange for shares of DSS stock. The True Partner shares were acquired from Alset EHome International, Inc. (“Alset EHome”), a related party. Mr. Heng Fai Ambrose Chan, our director and Executive Chairman, is also Chairman of the Board, Chief Executive Officer, and the largest beneficial owner of the outstanding shares of Alset EHome. This transaction was completed with the transfer of DSS share to Alset EHome on July 1, 2022 with the issuance of DSS shares, which were valued at $ per share, to Alset EHome.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Summary of Significant Accounting Policies
Principles of Consolidation – The consolidated financial statements include the accounts of DSS and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Deconsolidation of Sharing Services Global Corporation - On May 4, 2023, the Company distributed approximately million shares of SHRG beneficially held by DSS and Decentralized Sharing Systems in the form of a dividend to the shareholders of DSS common stock. Upon completion of this distribution, DSS will retain an ownership interest in SHRG of approximately 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”). Subsequent to April 30, 2023, the assets and liabilities of SHRG are no longer included within our consolidated balance sheets. Any discussions related to results, operations, and accounting policies associated with SHRG refer to the periods prior to the Deconsolidation.
Upon Deconsolidation, we recognized a loss before income taxes of approximately $29,196,000 which is recorded within gain/loss investments in our consolidated statements of operations for the three and nine months ended September 30, 2023. Subsequent to the Deconsolidation, we accounted for our equity ownership interest in SHRG as a marketable security and at the quoted price stock price of SHRG, valued at approximately $74,000 at December 31, 2023.
Use of Estimates – The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, the Company evaluates its estimates, including those related to the accounts receivable, convertible notes receivable, inventory, fair values of investments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of options and warrants to purchase the Company’s common stock, preferred stock, deferred revenue, and income taxes, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Reclassifications – Certain amounts onInterest expense associated with the accompanying consolidated balance sheets and income statementsdebt owed by AMRE has been reclassed from Interest expense to Cost of revenue for the year ended December 31, 2021, have been reclassified2022 to conform to current period presentation, as have certain amounts for the year ended, December 31, 2022.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 approximateapproximates fair value.
Accounts Receivable – The Company extends credit to its customers in the normal course of business. The Company performs ongoing credit evaluations and generally dodoes not require collateral. Payment terms are generally 30 days but up to net 105120 for certain customers. The Company carries its trade accounts receivable at invoice amountamounts and its rent receivables at contract amounts, less an allowance for doubtful accounts.credit losses. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accountscredit 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. AsIn 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 December 31, 2023, and December 31, 2022, the Company established a reserve for doubtful accountscredit losses of approximately $2,494,000 and $29,000 ($20,000 – 2021)., respectively. The Company does not accrue interest on past due accounts receivable.
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:
The carrying amounts reported in the consolidated balance sheet of cash and cash equivalents, accounts 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 approximatelywas $742,0005,673,000, $7,564,000, and $388,0003,994,000 associated with the inventory at our SHRG subsidiary was recorded as offor January 1, 2022, December 31, 2022, and December 31, 2021,2023, respectively. Write- downs
Concentration of Credit Risk - The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured limits. The Company believes it is not exposed to any significant credit risk because of any non-performance by the financial institutions. As of December 31, 2022, two customers accounted for approximately 14% and write-offs are charged to cost6% of revenue.our consolidated revenue and 36% and 17% of our trade accounts receivable balance. As of December 31, 2023, two customers accounted for approximately 20% and 11% of our consolidated revenue and 39% and 30% of our trade accounts receivable balance.
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. Prior to 2022, the allowance for credit losses represented the amount that in management’s judgment reflected incurred credit losses inherent in the loan and lease portfolio as of the balance sheet date.
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 68 for further discussion on investments.
| 41 |
Fair Value of Financial Instruments - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurement Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
● Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets.
● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The carrying amounts reported in the consolidated balance sheet of cash and cash equivalents, accounts receivable, prepaids, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. Marketable securities classify as a Level 1 fair value financial instrument. The fair value of notes receivable approximates their carrying value as the stated or discounted rates of the notes do not reflect recent market conditions. The fair value of revolving credit lines notes payable and long-term debt approximates their carrying value as the stated or discounted rates of the debt reflect recent market conditions. The fair value of investments where the fair value is not considered readily determinable, are carried at cost.
Inventory – Inventories consist primarily of paper, pre-printed security paper, paperboard, fully prepared packaging, 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 $18,000 and $57,000associated with the inventory at our Premier subsidiary for December 31, 2023 and 2022, respectively. Also, SHRG had an allowance for obsolescence of approximately $685,000 at December 31, 2022. Write- downs and write-offs are charged to cost of revenue.
Property, Plant and Equipment – Property, plant and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives or lease period of the assets whichever is shorter. Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred. Any gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place.
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.
Leases - ASC 842 requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company used its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. A number of the lease agreements contain options to renew and options to terminate the leases early. The lease term used to calculate ROU assets and lease liabilities only includes renewal and termination options that are deemed reasonably certain to be exercised.
| 42 |
The Company recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months. The ROU assets were adjusted per ASC 842 transition guidance for existing lease-related balances of accrued and prepaid rent, and unamortized lease incentives provided by lessors.months.. Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period incurred. The Company has elected to separate lease and non-lease components for all property leases for the purposes of calculating ROU assets and lease liabilities.
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.
Assets held for sale– The Company has several buildings and the associated land they occupy for sale as of December 31, 2023. These consist of primarily of retail space in Lindon, Utah approximating $5,593,000 and the medical facilities associated with AMRE LifeCare of approximately $41,541,000 and AMRE Winter Haven of approximately $4,396,000, and $65,000 of other assets
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, 2022,2023, and no impairment was deemed necessary for the goodwill associated with Premier Packaging Company, APB,and Impact BioMedical SHRG,of $1,769,000 and $25,093,000, respectively. The goodwill for APB, and Sentinel Co. of approximately $1,769,000, $29,744,000, and $25,093,0001,234,000 , $3,257,000respectively, were deemed impaired and $1,274,000 respectively.written off at December 31, 2023.
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 $7,418,000 associated with intangible assets for AMRE Lifecare and AMRE Winter Haven.
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.
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As of December 31, 2022,2023, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Topic 606, the Company has applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. The Company elected the practical expedient allowing it to not recognize as a contract asset the commission paid to its salesforce on the sale of its products as an incremental cost of obtaining a contract with a customer but rather recognize such commission as expense when incurred as the amortization period of the asset that the Company would have otherwise recognized is one year or less.
Costs of revenue - Costs of revenue includes all direct cost of the Company’s packaging, commercial and security printing sales, primarily, paper, inks, dies, and other consumables, and direct labor, transportation, amortization, deprecation, and manufacturing facility costs. In addition, this category includes all direct costs associated with the manufacturing and procurement of the products sold in the Company’s Direct Marketing line of business as well as with the Company’s technology sales, services and licensing including hardware and software that is resold, third-party fees, and fees paid to inventors or others as a result of technology licenses or settlements, if any. Cost of revenue for our REIT line of business 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. Costs of revenue do not include expenses related to product development, integration, and support. These costs are included in research and development, which is a component of selling, general and administrative expenses on the consolidated statement of operations. Legal costs are included in selling, general and administrative.
Shipping and Handling Costs - Costs incurred by the Company related to shipping and handling are included in cost of revenue. Amounts charged to customers pertaining to these costs are reflected as revenue.
Sales Commissions - Sales commissions are expensed as incurred for contracts with an expected duration of one year or less. A significant portion of the Company’s sales commissions expense is generated from its direct marketing line of business. These commissions are based on current month shipments and are paid one month in arrears. There were no sales commissions capitalized as of December 31, 2022.2023.
Contingent Legal Expenses - Contingent legal fees are expensed in the consolidated statements of operations in the period that the related revenues are recognized. In instances where there are no recoveries from potential infringers, no contingent legal fees are paid; however, the Company may be liable for certain out of pocket legal costs incurred pursuant to the underlying legal services agreement that will be paid out from the proceeds from settlements or licenses that arise pursuant to an enforcement action, which will be expensed as legal fees in the period in which the payment of such fees is probable. Any unamortized patent acquisition costs will be expensed in the period a conclusion is reached in an enforcement action that does not yield future royalties potential.
Research and Development - Research and development costs are expensed as incurred. Research and development costs consist primarily of third-party research costs and consulting costs. The Company recognized costs of approximately $1,256,0001,147,000 and $1,080,0001,256,000 in 2023 and 2022, and 2021, respectively.
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.
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 byFor the financial institutions.
As ofyear-ended December 31, 2021, two customers accounted for approximately2023, potential dilutive instruments was % and 14% of our consolidated revenue and these two customers accounted for approximately 29% and 19% of our consolidated trade accounts receivable balance..
As of December 31, 2022, two customers accounted for approximately 14% and 6% of our consolidated revenue and 36% and 17% of our trade accounts receivable balance.
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Acquisitions - Business combinations and non-controlling interests are recorded in accordance with FASB ASC 805 Business Combinations. Under the guidance, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition and all acquisition costs are expensed as incurred. The excess of the purchase price over the estimated fair values is recorded as goodwill. If the fair value of the assets acquired exceeds the purchase price and the liabilities assumed, then a gain on acquisition is recorded. The application of business combination accounting requires the use of significant estimates and assumptions. See Note 8 regarding the acquisitions.
Acquisition of assets are recorded at their relative fair value based on total accumulated costs of the acquisition. Direct acquisition-related costs are expensed as incurred. 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.
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.
Discontinued Operations - On May 7, 2021, the Company completed the sale of 100% of the capital stock of DSS Digital Inc. (“DSS Digital”), the Company’s wholly owned subsidiary, which researched, developed, marketed, and sold the Company’s digital products worldwide. Based on the magnitude of DSS Digital’s historical revenue to the Company and because the Company has exited the brand authentication services, functional anti-counterfeiting technology and technologies to satisfy commercial and consumer product needs for branding, intelligent packaging, and marketing, this sale represented a significant strategic shift that has a material effect on the Company’s operations and financial results. Accordingly, the Company has applied discontinued operations treatment for this sale as required by Accounting Standards Codification 210-05—Discontinued Operations. See Note 17.
Newly Adopted Accounting Pronouncements- In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326)”, which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. The Company adopted this pronouncement for year ended January 1, 2022. See Note 5.
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. Prior to 2022, the allowance for credit losses represented the amount that in management’s judgment reflected incurred credit losses inherent in the loan and lease portfolio as of the balance sheet date.
Continuing Operations and 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 $19.36.6 million in cash, the Company has incurred operating losses as well as negative cash flows from operating and investing activities over the past two years.
Aside from its $19.36.6 million in cash as of December 31, 2022,2023, the Company believes it can continue as a going concern, during the twelve months ended December 31, 2021, due to its ability to generate operating cash through the sale of its $27.310.0 million of Marketable Securities, and the anticipated receipts of principal and interest on its Notes receivable of approximately $11.28.8 million through December 31, 2024. The Company has also taken steps to sell its real estate holdings in Utah, Texas, Pennsylvania, and Florida. These properties approximate $51.6 million through March 31, 2024. Also, our subsidiary Impact BioMedical is in assets and are identified on the process of and IPO in which DSS will maintain a minimum of 55% ownership. Initial conversations with underwriters are providing an estimate of $30 - $50 million potential capital raise. This is expected to close early 3rd quarter 2023. Our subsidiary SHRG is in the process of up listing to NASDQ and conversations with the underwriter involved illustrate an approximate raise of $15 million dollars. Additionally, we are in negotiations with Pinnacle Bank to extend our note payable, approximating $40.2 million through November 2024.
The Company’s management intends to take actions necessary to continueaccompanying balance sheet as a going concern. Management’s plans concerning these matters includes, among other things, continued growth among our operating segments, and tightly controlling operating costs and reducing spending growth rates wherever possible to return to profitability.Held for sale. In addition, the Company has taken steps, and will continue to take measures, to materially reduce the expenses and cash burn at all corporate and business line levels.
At the Company’s current operating levels and capital usage, Although there are no assurances, we believe that without any further acquisition or investments, our $19.3 million in aggregate cash, as of December 31, 2022, along with the $27.3 million of Marketable Securities, and the anticipated receipts of principal and interest on its Notes receivable of approximately $11.2 million through March 2024,above would allow us to fund our nine business lines current and planned operations through March 2024.for the twelve months from the filing date of this Annual Report. Based on this, the Company has concluded that substantial doubt of its ability to continue as a going concern has been alleviatedalleviated.
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3. INVENTORYInventory
Inventory consisted of the following as of December 31:
Schedule of Inventory
| 2023 | 2022 | |||||||
| Finished Goods | $ | 2,218,000 | $ | 6,779,000 | ||||
| Work in Process | 180,000 | 403,000 | ||||||
| Raw Materials | 439,000 | 1,281,000 | ||||||
| Inventory Gross | $ | 2,837,000 | $ | 8,463,000 | ||||
| Less allowance for obsolescence | (18,000 | ) | (742,000 | ) | ||||
| Inventory Net | $ | 2,819,000 | $ | 7,721,000 | ||||
SCHEDULE OF INVENTORY
| 2022 | 2021 | |||||||
| Finished Goods | $ | 6,779,000 | $ | 7,745,000 | ||||
| Work in Process | 403,000 | 512,000 | ||||||
| Raw Materials | 1,281,000 | 392,000 | ||||||
| Inventory Gross | $ | 8,463,000 | $ | 8,649,000 | ||||
| Less allowance for obsolescence | (742,000 | ) | (388,000 | ) | ||||
| Inventory Net | $ | 7,721,000 | $ | 8,261,000 | ||||
4. Notes Receivable
Note 1
On October 15, 2020, APB entered into a loan agreement with (“Note 1”) with Borrower 1. Note 1, not to exceed the principal sum of $200,000, has an interest rate of 12%, and matures on October 15, 2022. The outstanding principal and interest as of December 31, 2022, and December 31, 2021, approximated $0 and $39,000, respectively and is classified as a Current portion of notes receivable on the Consolidated Balance Sheets at December 31, 2022 and December 31, 2021.
Note 2
On February 8, 2021, the Company entered into a convertible promissory note (“Note 2”) with Borrower 2, a company registered in Gibraltar. The Company loaned the principal sum of $800,000, with principal and interest at a rate of 4%, due in one year from date of issuance. Borrower 2 repaid the principal and interest in full in April 2022. The outstanding principal and interest as of December 31, 2021, approximated $829,000 and is classified as a Current portion of notes receivable on the Consolidated Balance Sheets at December 31, 2021.
Note 3
On February 21, 2021, Impact BioMedical, Inc. a subsidiary of the Company, entered into a promissory note (“Note 3”) with an individual. The Company loaned the principal sum of $206,000, with interest at a rate of 6.5%, and maturity date of August 19, 2022. This note was amended to extend the maturity date to February 19, 2024. Monthly payments are due on the twenty-first day of each month and continuing each month thereafter until February 19, 2024, at which time all accrued interest and the entire remaining principal shall be due and payable in full. This note is secured by certain real property situated in Collier County, Florida. The outstanding principal and interest as of December 31, 2022, and December 31, 2021, approximated $206,000 and $197,000 respectively, with $16,000 classified in Current portion of notes receivable and $190,000 and 197,000 respectively, classified as Notes receivable on the accompanying consolidated balance sheets.
Note 4
On May 14, 2021, DSS Pure Air, Inc. a subsidiary of the Company entered a convertible promissory note (“Note 4”1”) with Borrower 4,1, a company registered in the state of Texas. Note 41 has an aggregate principal balance up to $5,000,000, to be funded at the request of Borrower 4.1. Note 4,1, which incurs interest at a rate of 6.65%6.65% due quarterly, has a maturity date of May 1, 2023. Note 41 contains an optional conversion clause that allows the Company to convert all, or a portion of all, into newnewly issued member units of Borrower 41 with the maximum principal amount equal to 18% 18% of the total equity position of Borrower 41 at conversion.conversion. The outstanding principal and interest as of December 31, 20222023, and December 31, 2021,2022, approximated $5,420,0005,544,000 and $5,081,0005,420,000, respectively, which is included in current notes receivable on the accompanying consolidated balance sheet. As of December 31, 2023, the Company has a reserve of $2,772,000 against the principal and interest outstanding. This note is currently in default and its terms are currently being re-negotiated.
Note 52
On September 23, 2021, APB entered into refunding bond anticipatory note (“Note 5”2”) with Borrower 5,2, which operates as a conservation and reclamation district pursuant to Chapter 3891, Texas Special District Local Laws Code;Code ; Chapter 375, Texas Local Government Code; and Chapter 49, Texas Water Code. The District Note was in the sum of $3,500,000 and incurs interest at a rate of 5.59%5.59% per annum. Principal and interest are due in full on September 22, 2022, and later amended to extend the maturity date to September 22, 2023.19, 2024. This note may be redeemed prior to maturity with 10 days written notice to APB at a price equal to principal plus interest accrued on the redemption date. The outstanding principal and interest of $3,701,0003,910,000 and $3,540,0003,701,000 of Note 5 is included in the current portion of notes receivable on the consolidated balance sheet at December 31, 20222023 and December 31, 2021,2022, respectively.
Note 63
On October 25, 2021, APB entered into a loan agreement (“Note 6”3”) with Borrower 6,3, a company registered in the state of Utah. Note 63 has an initial aggregate principal balance up to $1,000,000, to be funded at the request of Borrower 6,3, with an option to increase the maximum principal borrowing to $3,000,000. Note 6,3, which incurs interest at a rate of 8.0%8.0% with principal and interest due at the maturity date of October 25, 2022. This note contains an optional conversion feature allowing APB to convert the outstanding principal to a 10% membership interest. APB, as holder of Note 6,3, has the right to elect one member to the Board of Managers. TheThis note is in default and the outstanding principal and interest of approximately $896,000884,000 and $784,000 of the note is included in current portion of notes receivable on the consolidated balance sheet at December 31, 2022 and December 31, 2021, respectively. As of December 31, 2022, this note is in default. The Company has placed reserve of $896,000 against this notewas reserved for fully as of December 31, 2022, which is accounted for in the current portion of notes receivable.2022.
Note 74
On May 14, 2021, APB extended the credit (“Note 7”4”) to an individual (“Borrower 7”4”) in the form of two promissory notes for $250,000 and $10,000 respectively, bearing interest at 12.5%12.5%, with a maturity date of May 15, 2023. This promissory note iswas secured by a deed of trust on a tract of land, which is approximately 315 acres, and located in Coke County, Texas. The outstanding principal and interest for both notes were paid in full during the third quarter of approximately2023. $252,000 and $9,000 are included in current portion of Notes receivable on the consolidated balance sheet at December 31, 2022 and $260,000 and $9,500 are included in Note receivable at December 31, 2021.2022.
Note 85
On October 27, 2021, HWH World, Inc., a subsidiary of the Company entered a revolving loan commitment (“Note 8”5”) with Borrower 8,5, a company registered in Taiwan. Note 8 has a principal balance of $52,000 and incurred no interest through the maturity date of December 31, 2021. The outstanding principal and interest at December 31, 20222023 and December 31, 20212022 is $63,0000 and $52,00063,000, respectively, and iswas included in theNotes receivable current portion of notes receivable.portion. This note was amended in April 2022 to borrow up to $102,000 and extendhas been written-off during the maturity date through April 2023 bearing interest rate of 18%.third quarter 2023.
Note 96
On December 28, 2021, APB entered into a promissory note (“Note 9”6”) with Borrower 9,6, a company registered in the state of California. Note 96 has ana principal balance of $700,000. Note 9,6, which incurs interest at a rate of 12.0%12.0% with principal and interest due at the maturity date of December 28, 2022. On December 29, 2022, the maturity date of this note was extended to May 31, 2023.2023. On November 27, 2023, the parties to Note 6 agreed to modify the payment terms of the note to be monthly payments of $50,000 until the outstanding principal and interest are paid in full. The outstanding principal and interest of $701,000253,000 and $700,000701,000 of Note 9 is included in currentthe Current portion of notes receivable on the consolidated balance sheet at December 31, 20222023 and December 31, 2021,2022, respectively.
Note 107
On January 24, 2022, APB and Borrower 107 entered into a promissory note (“Note 10”7”) in the principal sum of $100,000 with interest of 6%6%, due annually, and maturing in January 2024.2024. The outstanding principal and interest at December 31, 2023 and December 31, 2022 approximates $103,000 and $106,000, respectively, and is included in Notes receivable on the accompanying consolidate balance sheet.
Note 118
On March 2, 2022, APB and Borrower 11,8, a corporation organized under the laws of the Republic of Korea entered into a promissory note (“Note 11”8”). Under the terms of Note 11,8, APB at its discretion, may lend up to the principal sum of $892,500893,000 with an interest rate of 8%8%, and matures in March 2024, with interest payable quarterly. The outstanding principal and interest at December 31, 2023 is $446,000, net of $3,500 of unamortized origination fees. The outstanding principal and interest at December 31, 2022 is $874,000, net of $25,000 of unamortized origination fees,fees. APB and Borrower 8 are currently negotiating an extension of which $446,250 is included in current notes receivable on the accompanying consolidated balance sheet.maturity date of this note.
Note 129
On May 9, 2022, DSS PureAir and Borrower 129 entered into a promissory note (“Note 12”9”) in the principal sum of $210,000 with interest of 10%10%, is due in three quarterly installments beginning on August 9, 2022, with the first two payment consisting of interest only. All unpaid principal and interest are due on February 9, 2023.2023. This loan is currently in default and terms are currently being re-negotiated. The outstanding principal and interest at December 31, 20222023 approximates $213,000224,000, of which $112,000 has been reserved for and is included in current portions of notes receivable on the accompanying consolidate balance sheet. The outstanding principal and interest at December 31, 2022 approximates $213,000 and is included in current portions of notes receivable on the accompanying consolidate balance sheet.
Note 1310, related party
On August 29, 2022, DSS Financial Management Inc and Borrower 1310, a related party, entered into a promissory note (“Note 13”10”) in the principal sum of $100,000 with interest of 8%8%, is due in three quarterly installments beginning on September 14, 2022. All unpaid principal and interest is due on August 29, 2025. The outstanding principal and interest at December 31, 2023 and December 31, 2022 approximates $100,000, and $100,000, respectively, and is included in Notes receivable on the accompanying consolidate balance sheet.sheet, of which $76,000 is included in the Current portion of notes receivable and $24,000 is included in the long-term portion of notes receivable at December 31, 2023. DSS owns 24.9% of the outstanding common shares of Borrower 10.
Note 1411, related party
On July 26, 2022, APB and Borrower 1411 entered into a promissory note (“Note 14”11”) in the principal sum of $1,000,000with interest of 8%8%. All unpaid principal and interest due on July 26, 2024. The outstanding principal and interest on December 31, 2023, approximates $939,000, net of $.20,000 of unamortized origination fees and is included in notes receivable on the accompanying consolidate balance sheet. The outstanding principal and interest at December 31, 2022 approximates $924,000, net of $66,000 of unamortized origination fees and is included in Notes receivable on the accompanying consolidate balance sheet. Heng Fai Ambrose Chan, the Chairman of DSS, Inc is also the on the board of directors of Borrower 11.
Note 12, related party
On June 15, 2022, DSS and Borrower 12, entered into a convertible promissory note (“Note 12”) in the principal sum of $27,000,000 with interest of 8%, with an optional conversion into shares of Borrower 12 at a conversion price of $0.03, maturing on June 14, 2024, with interest due quarterly. In December 2022, this note was fully reserved for. On August 31, 2023, the full value of the outstanding principal and interest of this note was exchanged for shares of Series D Preferred Stock with a par value of $ per share. Beginning on September 1, 2028, these Series D Preferred Shares may be redeemed in the amount of $ per share. Due to the lack of liquidity of these shares, the Company has placed no value on these shares. Heng Fai Ambrose Chan, the Chairman of DSS, Inc is also the Chairman of Borrower 12.
Note 13
On February 19, 2021, Impact BioMedical, Inc, entered into a promissory note with an individual. The Company loaned the principal sum of $206,000, with interest at a rate of 6.5%, and maturity date of August 19, 2022 later amended to February 19, 2024. Monthly payments are due on the twenty-first day of each month and continuing each month thereafter until February 19, 2024. This note is secured by certain real property situated in Collier County, Florida. The outstanding principal and interest as of December 31, 2023, approximately $203,000 and is classified in current notes receivable on the accompanying consolidated balance sheets. The outstanding principal and interest as of December 31, 2022 is approximately $206,000 with $16,000 classified in Current portion of notes receivable and $190,000 classified as Notes receivable on the accompanying consolidated balance sheets. The due date of this loan is currently being re-negotiated.
Note 14
On May 8, 2023, DSS Financial Management Inc and Borrower 14 entered into a promissory note (“Note 14”) in the principal sum of $102,000 with interest at the prime rate plus 2% (10.5% at December 31, 2023) with a maturity date of May 7, 2026. The outstanding principal and interest at December 31, 2023 approximates $107,000 with approximately $53,000 of principal and accrued interest classified as Current portion notes receivable, and the remaining balance of approximately $54,000 is recorded as notes receivable, on the accompanying consolidated balance sheet.
Note 15
On June 27, 2023, DSS and Borrower 15 entered into a convertible promissory note (“Note 15”) in the principal sum of $1,400,000 with a discount of $300,000 and interest rate of 10% and maturity date of September 1, 2024. The outstanding principal, interest, and associated discount was fully reserved for as of December 31, 2023.
Note 16
On March 31,2023, DSS Biohealth Security, Inc and Borrower 16 entered into a promissory note (“Note 16”) in the principal sum of $140,000 and interest rate floating daily to Wall Street Journal Prime rate per annum (8.5% at September 31, 2023) with the total outstanding principal and interest due at the maturity date of March 31, 2025. The outstanding principal and interest at December 31, 2023 approximates $133,000. Of the total financed, approximately $99,000 of principal and accrued interest is classified as Current portion of notes receivable and the remaining balance of approximately $34,000 is recorded as Notes receivable on the accompanying consolidated balance sheet.
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Note 17
On September 28, 2023, APB and Borrower 17 entered into a promissory note (“Note 17”) in the principal sum of $400,000 with interest of 5%. All unpaid principal and interest due on November 12, 2023. As of December 31, 2023, this loan has been paid off in full.
Note 18
On August 11, 2022, APB and Borrower 18 entered into a promissory note (“Note 18”) in the principal sum of $1,430,000 with interest of 8%. All unpaid principal and interest due on August 12, 2024. The outstanding principal and interest on December 31, 2023, approximates $1,102,000, net of $375,000 of unamortized origination fees and is included in Notes receivable on the accompanying consolidate balance sheet. The outstanding principal, interest, and associated fees were fully reserved for as of December 31, 2023.
5. Provision for Credit Losses
Effective December 31,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 December 31, 2022,2023, 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. As of December 31, 2022, the Company had a total of $12,641,000 in loans.
We analyzed the loan loss reserve from three basis: general loan portfolio reserves; industry portfolio reserves, and specific loan loss reserves. As of year-ended December 31, 2023 and December 2022, the Company recorded a Loan loss reserve of approximately $4,933,000 and $1,041,000, respectively.
General Loan Portfolio Reserve - Based upon a relatively young loan portfolio that are relatively new loans to generally credit worthy borrowers, we do not believe that a substantial general loan portfolio reserve is due at this time. However, we do recognize that some inherent risks are in all loan portfolios, thus we recorded a general contingent portfolio reserve of $194,000 for December 31, 2023 and $145,000 for December 31, 2022 or approximately ¼ of 1% of the loan portfolio loan balance.
Industry Portfolio Reserves -– Given the relatively young loan portfolio and a diversification of the portfolio over several different loan products, the risk is reduced. Accordingly, we have not recorded a discretionary reserve as of December 31, 2022.2023 and December 31, 2022
Specific Loan Reserves - Previously, we had identified credit weaknesses and borrower repayment weakness in the Borrow 6Borrower 4 loan, which has a current principal and interest balance of $896,000884,000. As of December 31, 2023 and December 31, 2022 we have recorded a specific loan loss reserve for the full balance due the Company asCompany. As of December 31, 2022.2023, the Company identified credit weakness in borrower 2 and has placed a reserve approximating $2,884,000 against the outstanding principal and interest. As of December 31, 2023, the Company identified credit weakness in borrower 16 and placed a reserve of $1,046,000 against the outstanding principal and interest. The Company identified credit weakness in Borrower 19 and has placed a reserve of $1,102,000 against the outstanding principal and interest.
The following table identifies the loan loss reserve for the period ending December 31, 2022::
Schedule of Loan Loss Reserve
| 2023 | 2022 | |||||||
| General Loan Portfolio Reserve | $ | 194,000 | $ | 145,000 | ||||
| Specific Loan Reserves | $ | 5,916,000 | $ | 896,000 | ||||
| Total | $ | 6,110,000 | $ | 1,041,000 |
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Changes in the allowance for doubtful accounts and loan loss reserve were as follows:
SCHEDULE OF LOAN LOSS RESERVESchedule of Allowance for Doubtful Accounts and Loan Loss Reserve
| General Loan Portfolio Reserve | $ | 145,000 | ||
| Specific Loan Reserves | $ | 896,000 | ||
| Total | $ | 1,041,000 |
| Allowance for credit losses | Loan loss reserve | Total | ||||||||||
| Balance at January 1, 2022 | $ | 20,000 | $ | - | $ | 20,000 | ||||||
| Adoption of CECL | - | 1,041,000 | 1,041,000 | |||||||||
| Bad debt expense | 9,000 | - | 9,000 | |||||||||
| Write-offs | - | - | - | |||||||||
| Recoveries | - | - | - | |||||||||
| Balance at December 31, 2022 | 29,000 | 1,041,000 | 1,070,000 | |||||||||
| Bad debt expense | 2,000 | 5,069,000 | 5,071,000 | |||||||||
| Write-offs | 3,500,000 | - | 3,500,000 | |||||||||
| Recoveries | (1,037,000 | ) | - | (1,037,000 | ) | |||||||
| Balance at December 31, 2023 | $ | 2,494,000 | $ | 6,110,000 | $ | 8,604,000 | ||||||
6. FINANCIAL INSTRUMENTS
Financial Instruments
Cash, Cash Equivalents and Marketable Securities
The following tables show the Company’s cash and marketable securities by significant investment category as of December 31:
Schedule of Cash and Marketable Securities by Significant Investment Category
| 2023 | ||||||||||||||||||||
| Cost | Unrealized Gain/Loss | Fair Value | Cash And Cash Equivalents | Marketable Securities | ||||||||||||||||
| Cash | $ | 6,545,000 | $ | - | $ | 6,545,000 | $ | 6,545,000 | $ | - | ||||||||||
| Level 1 | ||||||||||||||||||||
| Money Market Funds | 70,000 | - | 70,000 | 70,000 | - | |||||||||||||||
| Marketable Securities | 27,304,000 | (17,325,000 | ) | 9,979,000 | - | 9,979,000 | ||||||||||||||
| Total | $ | 33,919,000 | $ | (17,325,000 | ) | $ | 16,594,000 | $ | 6,615,000 | $ | 9,979,000 | |||||||||
| 2022 | ||||||||||||||||||||||||
Cost | Unrealized Gain/(Loss) | Fair Value | Cash and Cash Equivalents | Marketable Securities | Investment | |||||||||||||||||||
| Cash | $ | 19,226,000 | $ | - | $ | 19,226,000 | $ | 19,226,000 | $ | - | $ | - | ||||||||||||
| Level 1 | ||||||||||||||||||||||||
| Money Market Funds | 64,000 | - | 64,000 | 64,000 | - | - | ||||||||||||||||||
| Marketable Securities | 45,283,000 | (17,976,000 | ) | 27,307,000 | - | 27,307,000 | - | |||||||||||||||||
| Level 2 | ||||||||||||||||||||||||
| Warrants | 3,318,000 | - | 3,318,000 | - | - | 3,318,000 | ||||||||||||||||||
| Convertible securities | 1,023,000 | - | 1,023,000 | - | - | 1,023,000 | ||||||||||||||||||
| Total | $ | 68,914,000 | $ | (17,976,000 | ) | $ | 50,938,000 | $ | 19,290,000 | $ | 27,307,000 | $ | 4,341,000 | |||||||||||
The following tables shows the Company’s net unrealized (loss) gain recognized during the year on marketable securities still held as of December 31:
SCHEDULE OF CASH AND MARKETABLE SECURITIES BY SIGNIFICANT INVESTMENT CATEGORYSchedule of Net Unrealized (Loss) Gain Recognized on marketable Securities
| 2022 | ||||||||||||||||||||||||
| Adjusted Cost | Unrealized Gain/Loss | Fair Value | Cash And Cash Equivalents | Marketable Securities | Investments | |||||||||||||||||||
| Cash | $ | 19,226,000 | $ | - | $ | 19,226,000 | $ | 19,226,000 | $ | - | $ | - | ||||||||||||
| Level 1 | ||||||||||||||||||||||||
| Money Market Funds | 64,000 | - | 64,000 | 64,000 | - | - | ||||||||||||||||||
| Marketable Securities | 36,263,000 | (3,659,000 | ) | 27,307,000 | - | 27,307,000 | - | |||||||||||||||||
| Level 2 | ||||||||||||||||||||||||
| Warrants | 3,318,000 | - | 140,000 | - | - | 140,000 | ||||||||||||||||||
| Convertible securities | 1,023,000 | - | 39,000 | - | - | 39,000 | ||||||||||||||||||
| Total | $ | 59,894,000 | $ | (3,659,000 | ) | $ | 46,776,000 | $ | 19,290,000 | $ | 27,307,000 | $ | 179,000 | |||||||||||
| 2021 | ||||||||||||||||||||||||
Adjusted Cost | Unrealized Gain/(Loss) | Fair Value | Cash and Cash Equivalents | Marketable Securities | Investment | |||||||||||||||||||
| Cash | $ | 50,286,000 | $ | - | $ | 50,286,000 | $ | 50,286,000 | $ | - | $ | - | ||||||||||||
| Level 1 | ||||||||||||||||||||||||
| Money Market Funds | 6,309,000 | - | 6,309,000 | 6,309,000 | - | - | ||||||||||||||||||
| Marketable Securities | 12,993,000 | 1,554,000 | 14,537,000 | - | 14,537,000 | - | ||||||||||||||||||
| Level 2 | ||||||||||||||||||||||||
| Warrants | 3,318,000 | - | 3,318,000 | - | - | 3,318,000 | ||||||||||||||||||
| Convertible securities | 1,023,000 | - | 1,023,000 | - | - | 1,023,000 | ||||||||||||||||||
| Total | $ | 73,929,000 | $ | 1,554,000 | $ | 75,473,000 | $ | 56,595,000 | $ | 14,537,000 | $ | 4,341,000 | ||||||||||||
| 2023 | 2022 | |||||||
| Net gains (losses) recognized during the year on marketable securities | $ | (5,521,000 | ) | $ | (2,757,000 | ) | ||
| Less: Net gains (losses) realized during the year on marketable securities sold during the period | (1,973,000 | ) | 1,077,000 | |||||
| Net unrealized gain (loss) recognized during the reporting year on marketable securities still held at the reporting date | $ | (3,548,000 | ) | $ | (3,834,000 | ) | ||
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.
7. Disposal of assets
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 $706,000 representing the gross proceeds of the sale of HWH inventory less cost of goods sold. The parties involved amended the terms of this agreement during the third quarter of 2023 from that of equity transaction to the purchase of inventory and assumption of certain liabilities by SHRG. The amended agreement identified the purchase price approximating $758,000 to be paid from amongst other things, the gross proceeds generated by the sale of the inventory acquired. The value of the inventory sold approximates $698,000 and the value of the liabilities assumed by SHRG as part of this transaction is approximately $59,000. Further, the agreement includes payment of 1% royalty, starting November 1, 2023, being defined as 1% of the gross sale price of all Seller’s new products made and sold outside of existing inventory on the schedule, for a period ending October 31, 2033. There is substantial doubt regarding SHRG’s ability to sell and pay for the inventory acquired, and therefore, the Company has determined not to record a receivable for the purchase price. A net loss approximating $639,000 associated with this transaction has been recorded during the third quarter of 2023 and is included in Loss/Gain on sale of assets on the consolidated statement of operations.
On July 1st, 2023, The Company sold 100% of the equity in its subsidiary HWH Holdings, Inc, a Texas corporation (“HWHH”) to SHRG for a purchase price approximating $259,000. This amount is to be paid from gross proceeds generated by the sale of the inventory acquired as part of the transaction. This transaction was later amended during the third quarter of 2023 to assign the purchase of HWHH from SHRG to Ascend Management Pte., Ltd. (“Ascend”), a Singaporean limited company. There is substantial doubt regarding Ascend’s ability to sell and pay for the inventory acquired, and therefore, the Company has determined not to record a receivable for the purchase price. A net loss approximating $617,000 associated with this transaction has been recorded during the third quarter of 2023 and is included in Loss/Gain on sale of assets on the consolidated statement of operations.
7.8. 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 December 31, 2022,2023, and December 31, 2021,2022, was approximately $3,319,0003,269,000 and $4,909,0003,319,000 respectively. During the year ended December 31, 20222023 and December 31, 2021,2022, the Company recorded unrealized loss on this investment of approximately $1,590,00050,000 and unrealized gainloss of $1,920,0001,590,000, respectively.
West Park Capital, Inc.
On October 10, 2019, the Company entered into a convertible promissory note (“TBD Note”) with Century TBD Holdings, LLC (“TBD”), a Florida limited liability company. The Company loaned the principal sum of $500,000, of which up to $500,000 and all accrued interest can be paid by an “Optional Conversion” of such amount up to 19.8% (non-dilutable) of all outstanding membership interest in TBD. This TBD Note accrues interest at 6% and matures on October 9, 2021. As of December 31, 2021, this TBD Note had outstanding principal and interest of approximately $537,000 and was classified as Current portion of notes receivable on the consolidated balance sheet. On December 30, 2020, the Company signed a binding letter of intent with West Park Capital, Inc (“West Park”) and Century TBD Holdings, LLC (“TBD”) where the parties agreed to prepare a note and stock exchange agreement whereby DSS will assign the TBD Note to West Park and West Park shall issue to DSS a stock certificate reflecting 7.5% of the issued and outstanding shares of West Park. This note and stock exchange agreement was finalized during the first quarter 2022 and valued at approximately $500,000 and is included in Investments on the consolidated balance sheet on December 31, 2022. The remaining $37,000 is included in gain (loss) on investments on the consolidated statement2022 and as of operations on December 31, 2021.2023.
BMI Capital International LLC
On September 10, 2020, the Company’s wholly owned subsidiary DSS Securities, Inc. entered into membership interest purchase agreement with BMI Financial Group, Inc. a Delaware corporation (“BMIF”) and BMI Capital International LLC, a Texas limited liability company (“BMIC”) whereas DSS Securities, Inc. purchased 14.9% membership interests in BMIC for $100,000. DSS Securities also had the option to purchase an additional 10% of the outstanding membership interest which it exercised for $100,000 in January of 2021 and increased its ownership to 24.9%. Upon achieving greater than 20% ownership in BMIC during the quarter ended September 30, 2021, the Company is currently accounting for this investment under the equity method of accounting per ASC 323. The Company’s portion of net loss in BMIC during the year ended December 31, 2022,2023, approximated $19,50034,000 and $19,00020,000 for year ended December 31, 2021.2022.
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 4.99% of BioMed at a purchase price of approximately $632,000. The Subscription Agreement provides, among other things, the Company has the right to appoint a new director to the board of BioMed. With respect to an issuance of shares to a third party by BioMed, the Company will have the right of first refusal to purchase such shares, as well as customary tag-along rights. In connection with the Subscription Agreement, Impact Biomedical entered into an exclusive distribution agreement (the “Distribution Agreement”) with BioMed, to directly market, advertise, promote, distribute, and sell certain BioMed products, which focus on manufacturing natural probiotics, to resellers. This investment is valued at cost as it does not have a readily determined fair value.
| 51 |
Under the terms of the Distribution Agreement, the Company will have exclusive rights to distribute the products within the United States, Canada, Singapore, Malaysia, and South Korea and non-exclusive distribution rights in all other countries. In exchange, the Company agreed to certain obligations, including mutual marketing obligations to promote sales of the products. This agreement is for ten years with a one year auto-renewal feature.
Vivacitas Oncology, Inc.
On March 15, 2021, the Company, through one of its subsidiaries, entered into a Stock Purchase Agreement (the “Vivacitas Agreement #1”) with Vivacitas Oncology Inc. (“Vivacitas”), to purchase shares of its common stock at the per share price of $, with an option to purchase additional shares at the per share price of $. This option will terminate upon one of the following events: (i) Vivacitas’ board of directors cancels this option because it is no longer in the best interest of the Company; (ii) December 31, 2022; or (iii) the date on which Vivacitas receives more than $ per share of the Company’s common stock in a private placement with gross proceeds of $500,000. Under the terms of the Vivacitas Agreement #1, the Company will be allocated two seats on the board of Vivacitas. On March 18, 2021, the Company entered into an agreement with Alset EHome International, Inc. (“Seller”) to purchase from the Seller’s its wholly owned subsidiary Impact Oncology PTE Ltd. (“IOPL”) for a purchase price $2,480,000. The acquisition of IOPL has been treated as an asset acquisition as IOPL does not meet the definition of a business as defined in Topic 805. IOPL owns shares of common stock of Vivacitas along with the option to purchase an additional shares of common stock. The Sellers largest shareholder is Mr. Chan Heng Fai Ambrose, the Chairman of the Company’s board of directors and its largest shareholder.
On April 1, 2021, the Company entered into an additional stock purchase agreement with Vivacitas (“Vivacitas Agreement #2”), whereas Vivacities wished to employ the service of the Chief Business Officer of Impact Biomedical, and in return for the services of this individual, Vivacitas shall issue to the Company, the aggregate purchase price for the Class A Common Shares of Vivacitas at the value of $ per share shall be $120,000 to be paid in twelve (12) equal monthly installments for the period between April 1, 2021 and March 31, 2022.
On July 22, 2021, the Company exercised of the available options under the Vivacitas Agreement #1 for $1,000,000. This, along with the shares received as part Vivacitas Agreement #2 increased the Company’s equity position in Vivacitas to approximately 16% as of December 31, 2022. As of December 31, 2021, the fair value of the Company’s investment in Vivacitas is not readily available, and therefore is recorded at cost in the amount of $4 $4,035,000,. As of December 31, 2022, the Company determined to impair 100% of its investment in Vivacitas, in the amount of $4,100,000.
Stemtech Corporation
In September 2021, the Company’s former subsidiary SHRG, Stemtech Corporation (“Stemtech”) and Globe Net Wireless Corp. (“GNTW”) entered into a Securities Purchase Agreement (the “SPA”) pursuant to which SHRG invested $1.4 million in Stemtech in exchange for: (a) a Convertible Promissory Note in the amount of $ 1.4 million in favor of the Company (the “Convertible Note”) and (b) a detachable Warrant to purchase shares GNTW common stock (the “GNTW Warrant”). Stemtech is a subsidiary of GNTW. As an inducement to enter into the SPA, GNTW agreed to pay to the SHRG an origination fee of $500,000, payable in shares of GNTW’s common stock. The Convertible Note matures on September 9, 2024, bears interest at the annual rate of 10%, and is convertible, at the option of the holder, into shares of GNTW’s common stock at a conversion rate calculated based on the closing price per share of GNTW’s common stock during the 30-dayperiod ended September 19, 2021. The GNTW Warrant expires on September 13, 2024 and conveys the right to purchase up to 1.4 million shares of GNTW’s common stock at a purchase price calculated based on the closing price per share of GTNW’s common stock during the 10-day period ended September 13, 2021. In September 2021, GNTW issued to the Company shares of its common stock, or less than 1% of the shares of GNTW then issued and outstanding, in payment of the origination fee. In November 2021, Globe Net Wireless Corp. changed its corporate name to Stemtech Corporation. In connection therewith, the investee’s common stock is now traded under the symbol “STEK”. The SHRG carries its investment in the Convertible Note, the GNTW Warrant and the shares of GNTW common stock at fair value in accordance with GAAP. During the year endedAs of December 31, 2023 and December 31, 2022 the Company recognized losses, before income tax, of $ 1.2 million and $4.9 million in connection with its investment in the Convertible Note, the GNTW Warrant and the shares of GNTW common stock.Convertible Note, were valued at $0, and $44,000 and $0 and $39,000, respectively.
In September 2021, SHRG entered into a Membership Unit Purchase Agreement pursuant to which the SHRG acquired a 30.75% equity interest in MojiLife, LLC, a limited liability company organized in the State of Utah, in exchange for $1,537,000. MojiLife is an emerging growth distributor of technology-based consumer products for the home and car. MojiLife’s products include esthetically attractive, cordless scent diffusers for the home or for the car, as well as proprietary home cleaning products and accessories. On a quarterly basis, SHRG evaluates the recoverability of its investments and reviews current economic trends to determine the adequacy of its allowance for impairment losses based on each investee financial performance data and other relevant information. An estimate for impairment losses is recognized when recovery in full of SHRG’s investment is no longer probable. Investment balances are written off against the allowance after the potential for recovery is considered remote. In March of 2022, SHRG impaired the MojiLife investment as the evaluation at such time determined the investment was not fully recoverable.recoverable and 100% valuation was reserved.
8. Acquisitions
American Pacific Bancorp.
On September 9, 2021, the Company finalized a stock purchase agreement (the “SPA”) with American Pacific Bancorp (“APB”), which provided for an investment of $40,000,000 by the Company into APB for an aggregate of shares of the APB’s Class A Common Stock, par value $ per share. Subject to the terms and conditions contained in the SPA, the shares issued at a purchase price of $ per share. As a result of this transaction, DSS owns approximately 53% of APB, and as a result its operating results have been included in the Company’s financial statements beginning September 9, 2021. The Company incurred approximately $36,000 in cost associated with the acquisition of APB which were recorded as general and administrative expenses. The acquisition of APB meets the definition of a business with inputs, processes and outputs, and therefore, the Company has concluded to account for this transaction in accordance with the acquisition method of accounting under Topic 805. Since acquisition, APB has incurred approximately $194,000 of net losses, of which approximately $96,000 of loss incurred is attributable to non-controlling interest. The next largest shareholder of APB is Alset EHome International, Inc. (“AEI”). AEI’s Chairman and CEO, Heng Fai Chan, and a member of the AEI’s Board of Directors, Wu Wai Leung William, each serve on both the AEI Board and the Board of the Company. The CEO of the Company, Mr. Frank D. Heuszel, also has an approximate 2% equity position of APB.
The Company has completed the valuation of good will and non-controlling interest, which approximate $29,744,000 and $33,099,000, respectively. Goodwill is driven by other intangible assets that do not qualify for separate recognition and is not deductible for tax purposes. Net assets acquired were approximately $3,400,000 and included approximately $1,250,000 in cash, $1,900,000 in marketable securities, $330,000 in notes receivable and $101,000 of accounts payable and accrued liabilities. APB and the company in which APB owns marketable securities share a common director.
Sharing Services Global Corp. (“SHRG“)
As of and through June 30, 2020, the Company classified its investment in Sharing Services Global Corp. (“SHRG”), a publicly traded company, as marketable equity security and measured it at fair value with gains and losses recognized in other income. In July 2020, through continued acquisition of common stock, as detailed below, the Company obtained greater than 20% ownership of SHRG, and thus has the ability to exercise significant influence over it. The Company accounted for its investment in SHRG using the equity method in accordance with ASC Topic 323, Investments—Equity Method and Joint Ventures recognizing our share of SHRG’s earnings and losses within our consolidated statement of operations.
On July 22, 2020, Chan Heng Fai Ambrose, the Chairman of the Company’s board of directors, assigned to DSS a Stock Purchase and Share Subscription Agreement by and between Mr. Chan and SHRG, pursuant to which the Company purchased shares of Class A common stock and 10,000,000 warrants to purchase Class A common stock for $3 million, causing the Company’s ownership in SHRG to exceed 20%. The warrants have an average exercise price of $0.20, immediately vested and may be exercised at any time commencing on the date of issuance and ending three years from such date.
As of July 22, 2020, the carrying value of the Company’s equity method investment exceeded our share of the book value of the investee’s underlying net assets by approximately $9,192,000 which represents primarily intangible assets in the form of a distributor lists and goodwill arising from acquisitions. These intangible assets have been valued at approximately $1,148,000 and $8,044,000, respectively. As of September 30, 2021, the Company held class A common shares equating to a 46.8% ownership interest in SHRG. On December 23, 2021, DSS purchased shares at $0.06 per share via a private placement. With this purchase, DSS increased its ownership of voting shares to , increase its ownership from approximately 47% of SHRG to approximately 58%, at December 31, 2021. SHRG share price on December 22, 2021 was $ per share, thus the fair value of shares owned on December 22, 2021 approximated $12,767,000. 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, increasing its total number of shares owned to , bringing its ownership percentage of voting shares to approximately 65%. During the fourth quarter of 2022, SHRG purchased back a significant number of its outstanding voting shares, increase the Company’s ownership percentage of voting shares to approximately 73% at December 31, 2022. The acquisition of SHRG meets the definition of a business with inputs, processes, and outputs, and therefore, the Company has concluded to account for this transaction in accordance with the acquisition method of accounting under Topic 805.
The following summary, prepared on a proforma basis, combines the consolidated results of operations of the Company with those of SHRG as if the acquisition took place on January 1. The pro forma consolidated results include the impact of certain adjustments.
SCHEDULE OF BUSINESS ACQUISITION, PRO FORMA INFORMATION
| 2021 (unaudited) | ||||
| Revenue | $ | 61,784,000 | ||
| Net (loss)/income | $ | (37,236,000 | ) | |
| Basic (loss)/earnings per share | $ | (0.72 | ) | |
| Diluted (loss)/earnings per share | $ | (0.72 | ) | |
We completed the purchase price accounting and related allocations associated with the acquisition of SHRG for the year ended December 31, 2021. The valuation of Sharing Services has considered both the Market and Income Approaches. The Market Approach using the public stock of SHRG produced a mean business enterprise value using projected 2023 results. The Income Approach was based upon the use of a discounted pro forma cash flow model and produced a business enterprise value. No weighting was applied to the Market Approach using the guideline public company method or the Income Approach given the fact the Market Approach using the public stock of SHRG is the best indicator of value. As such, we have applied all weighting to the Market Approach using the public stock of SHRG. The application of these weightings produced a concluded business enterprise value of $34.26 million for SHRG.
This analysis identified an impairment to SHRG’s Linden, Utah facility and land of approximately $2,843,000. The associated facility has a useful life of 28 years as of December 31, 2021. SHRG owned trademarks and formulas increased in fair value approximately $86,000 and has useful life of 5 years as of December 31, 2021. The Company had previously identified intangible assets in the form of a distributor lists and increase the fair value approximately $132,000 and had a remaining useful life of 1 year at December 31, 2021. Also, identified was goodwill valued at $3,257,000.
The Company, via three (3) of the Company’s existing board members, currently holds three (3) of the seven (7) SHRG board of director seats. Mr. John “JT” Thatch, DSS’s Director and as well the CEO of SHRG is on the SHRG Board, along with Mr. Chan, DSS’s Executive Chairman of the board of directors (joined the SHRG Board effective May 4, 2020), and Mr. Frank D. Heuszel, the CEO of the Company (joined the SHRG Board effective September 29, 2020).
Sentinel Brokers Company, Inc.
On May 13, 2021, Sentinel Brokers, LLC. (“Sentinel LLC”), subsidiary of the Company entered into a stock purchase agreement (“Sentinel Agreement”) to acquire a 24.9% equity position of Sentinel Brokers Company, Inc. (“Sentinel Co.”), a company registered in the state of New York, for the purchase price of $300,000. During the nine months ended September 30, 2021, the Company contributed and additional $750,000 capital into Sentinel, increasing its total capital investment to $1,050,000 as of September 30, 2021. Up to and through November 30, 2022, Sentinel LLC accounted for its investment in Sentinel Co. using the equity method in accordance with ASC Topic 323, Investments—Equity Method and Joint Ventures recognizing our share of Sentinel’s earnings and losses within our consolidated statement of operations. Under the terms of this agreement, the Company had the option to purchase an additional % of the outstanding Class A Common Shares. In December 2022, Sentinel LLC exercised this option to increase its equity position to 75%. The acquisition of Sentinel Co. meets the definition of a business with inputs, processes, and outputs, and therefore, the Company has concluded to account for this transaction in accordance with the acquisition method of accounting under Topic 805.
The following summary, prepared on a proforma basis, combines the consolidated results of operations of the Company with those of Sentinel Co as if the acquisition took place on January 1. The pro forma consolidated results include the impact of certain adjustments.
SCHEDULE OF BUSINESS ACQUISITION, PRO FORMA INFORMATION
| 2022 (unaudited) | 2021 (unaudited) | |||||||
| Revenue | $ | 49,076,804 | $ | 21,144,000 | ||||
| Net loss | $ | (61,680,088 | ) | $ | (36,202,377 | ) | ||
| Basic loss per share | $ | (0.55 | ) | $ | (0.70 | ) | ||
| Diluted loss per share | $ | (0.55 | ) | $ | (0.70 | ) | ||
We are currently in the process of completing the purchase price accounting and related allocations associated with the acquisition of Sentinel Co. Assets included in this acquisition are cash of $3,977,000, receivables of $344,000 and fixed assets of $1,000. The Company is in the process of completing valuations and useful lives for certain assets acquired in the transaction. We expect the preliminary purchase price accounting to be completed during the year ending December 31, 2023.
Sentinel is a broker-dealer operating primarily as a fiduciary intermediary, facilitating intuitional trading of municipal and corporate bonds as well as preferred stock, and is registered with the Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”), and is a member of the Securities Investor Protection Corporation (“SIPC”).
9. PROPERTY PLANT AND EQUIPMENT andAND INVESTMENT IN REAL ESTATE, NET
Property Plant and Equipment and Investment in Real Estate, Net
Property, plant and equipment consisted of the following as of December 31, 2022:2023:
SCHEDULE OF PROPERTY, PLANT AND EQUIPMENTSchedule of Property, Plant and Equipment
| Estimated | Estimated | |||||||||||||||||||
| Useful Life | 2022 | 2021 | Useful Life | 2023 | 2022 | |||||||||||||||
| Machinery and equipment | 5-10 years | $ | 9,170,000 | $ | 7,005,000 | 5-10 years | $ | 9,974,000 | $ | 9,170,000 | ||||||||||
| Building and improvements | 28-39 years | 5,103,000 | 11,234,000 | 39 years | 294,000 | 5,103,000 | ||||||||||||||
| Land | 1,817,000 | 185,000 | - | 1,817,000 | ||||||||||||||||
| Furniture and fixtures | 7 years | 501,000 | 397,000 | 7 years | 432,000 | 501,000 | ||||||||||||||
| Software and websites | 3 years | 320,000 | 1,099,000 | 3 years | 273,000 | 320,000 | ||||||||||||||
| Construction in progress | 667,000 | 4,208,000 | 365,000 | 667,000 | ||||||||||||||||
| Total Cost | 17,578,000 | 24,128,000 | 11,338,000 | 17,578,000 | ||||||||||||||||
| Less accumulated depreciation | 4,187,000 | 6,454,000 | 4,921,000 | 4,187,000 | ||||||||||||||||
| Property, plant and equipment, net | $ | 13,391,000 | $ | 17,674,000 | $ | 6,417,000 | $ | 13,391,000 | ||||||||||||
Depreciation expense for the years ended December 31, 20222023 and 20212022 was $1,569,000802,000 and $1,129,0001,569,000 respectively. Of the $1,569,000 of depreciation, $872,000 is included in selling, general and administrative costs, and the remaining $697,000 is included in cost of revenue.
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Real Estate consisted of the following at December 31:
SCHEDULE OF INVESTMENT IN REAL ESTATESchedule of Investment in Real Estate
| Estimated | Estimated | |||||||||||||||||||
| Useful Life | 2022 | 2021 | Useful Life | 2023 | 2022 | |||||||||||||||
| Building and improvements | 1-30 years | $ | 42,665,000 | $ | 42,073,000 | 1-30 years | $ | 5,273,000 | $ | 42,665,000 | ||||||||||
| Land | 14,861,000 | 14,721,000 | 1,600,000 | 14,861,000 | ||||||||||||||||
| Total Cost | 57,526,000 | 56,794,000 | 6,873,000 | 57,526,000 | ||||||||||||||||
| Less: accumulated depreciation | 2,497,000 | 420,000 | 594,000 | 2,497,000 | ||||||||||||||||
| Investment in real estate | $ | 55,029,000 | $ | 56,374,000 | $ | 6,279,000 | $ | 55,029,000 | ||||||||||||
Depreciation expense for the years ended December 31, 20222023 and 20212022 was $2,077,0002,085,000 and $420,0002,077,000 respectively.
10. INTANGIBLE ASSETS
Intangible Assets
On August 25, 2022, DSS PureAir, a subsidiary of the Company finalized an asset purchase agreement with Celios Corporation (“Celios”) to acquire inventory, patents, and other intangible assets associated with that inventory, and other intangible assets from Celios for $900,000. The related intangible assets were valued at $409,000 with an estimated remaining useful life between 3 and 20 years.
On June 18, 2021, AMRE Shelton financed the purchase of a 40,000 square foot, 2.0 story, Class A+ multi-tenant medical office building located on a 13.62-acre site in Shelton, Connecticut. Include in the value of the property is $585,000 of intangible assets with an estimated useful life of 3 years.
On November 4, 2021, AMRE LifeCare acquired three medical facilities located in Fort Worth, Texas, Plano, Texas, and Pittsburgh, Pennsylvania. Include in the value of the property is $15,901,000 of intangible assets with estimated useful lives ranging from 1 to 11 years.
On December 21, 2021, AMRE Winter Haven, LLC. (“AMRE Winter Haven”), a subsidiary of AMRE, acquired a medical facility located in Winter Haven, Florida. Include in the value of the property is $29,000 of intangible assets with an estimated useful life of approximating 5 years.
Intangible assets are comprised of the following as of December 31:
SCHEDULE OF INTANGIBLE ASSETSSchedule of Intangible Assets
| 2022 | 2021 | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Useful Life | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Useful Life | Gross Carrying Amount | Accumulated Amortization | Impairment | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||||||||||||||||||||||||
| Developed technology assets | 20 years | $ | 22,260,000 | $ | 2,226,000 | $ | 20,034,000 | $ | 22,260,000 | $ | 1,113,000 | $ | 21,147,000 | 20 years | $ | 22,260,000 | $ | 3,340,000 | - | 18,920,000 | $ | 22,260,000 | $ | 2,226,000 | $ | 20,034,000 | ||||||||||||||||||||||||||||||
| Acquired intangibles customer lists, licenses, site/tenant improvements, in-place and favorable or unfavorable leases | 1-11 years | 20,023,000 | 9,397,000 | 10,626,000 | 19,529,000 | 2,162,000 | 17,367,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Acquired intangibles customer lists, licenses, non-compete agreements, branding, product formulas, tenant improvements, in-place, favorable and unfavorable leases | 1-11 years | 19,245,000 | 10,613,000 | 7,418,000 | 1,214,000 | 20,023,000 | 9,397,000 | 10,626,000 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Acquired intangibles patents and patent rights | 500,000 | 500,000 | - | 500,000 | 500,000 | - | 500,000 | 500,000 | - | - | 500,000 | 500,000 | - | |||||||||||||||||||||||||||||||||||||||||||
| Patent application costs | Varied | (1) | 1,052,000 | 972,000 | 80,000 | 1,052,000 | 936,000 | 116,000 | Varied (1) | 1,052,000 | 993,000 | - | 59,000 | 1,052,000 | 972,000 | 80,000 | ||||||||||||||||||||||||||||||||||||||||
| $ | 43,835,000 | $ | 13,095,000 | $ | 30,740,000 | $ | 43,341,000 | $ | 4,711,000 | $ | 38,630,000 | $ | 43,057,000 | $ | 15,446,000 | $ | 7,418,000 | $ | 20,193,000 | $ | 43,835,000 | $ | 13,095,000 | $ | 30,740,000 | |||||||||||||||||||||||||||||||
| (1) | Patent application costs are amortized over their expected useful life which is generally the remaining legal life of the patent. As of December 31, 2023, the weighted average remaining useful life of these assets in service was approximately 1.7 years. |
(1) Patent application costs are amortized over their expected useful life which is generally the remaining legal life of the patent. As of December 31, 2022, the weighted average remaining useful life of these assets in service was approximately 2.7 years.
Amounts amortized for the year ended December 31, 20222023 and 20212022 was approximately $9,279,0002,319,000 and$3,279,0009,279,000, respectively.
Expected amortization for each of the five succeeding fiscal years is as follows:
SCHEDULE OF ESTIMATED FUTURE AMORTIZATION OF INTANGIBLE ASSETSSchedule of Estimated Future Amortization of Intangible Assets
| Year | Amount | Amount | ||||||
| 2023 | 2,421,000 | |||||||
| 2024 | 2,146,000 | 3,012,000 | ||||||
| 2025 | 2,353,000 | 3,009,000 | ||||||
| 2026 | 2,025,000 | 2,869,000 | ||||||
| 2027 | 2,368,000 | 2,869,000 | ||||||
| 2028 | 2,860,000 | |||||||
Thereafter | 5,574,000 | |||||||
11. ACCRUED EXPENSES AND DEFERRED REVENUE
Accrued Expenses and Deferred Revenue
Accrued expenses and deferred revenue consist of the following for the year ended December 31:
SUMMARY OF ACCRUED EXPENSES AND DEFERRED REVENUESummary of Accrued Expenses and Deferred Revenue
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
| Customer deposits | $ | 188,000 | $ | 160,000 | $ | 222,000 | $ | 188,000 | ||||||||
| Deferred revenue | 519,000 | 1,348,000 | - | 519,000 | ||||||||||||
| Accrued wages | 4,014,000 | 11,992,000 | 812,000 | 4,014,000 | ||||||||||||
| Employee stock warrants liabilities | - | 1,070,000 | ||||||||||||||
| Settlement liability | 8,974,000 | 342,000 | - | 8,974,000 | ||||||||||||
| Uncertain tax positions | 926,000 | 922,000 | - | 926,000 | ||||||||||||
| Accrued expenses | 4,535,000 | 4,024,000 | 1,468,000 | 4,536,000 | ||||||||||||
| Income tax payable | 172,000 | - | - | 172,000 | ||||||||||||
| Sales tax payable | 12,000 | 1,322,000 | 10,000 | 12,000 | ||||||||||||
| Accrued expenses and deferred revenue | $ | 19,340,000 | $ | 21,180,000 | $ | 2,512,000 | $ | 19,341,000 | ||||||||
12. SHORT TERM AND LONG-TERM DEBT
Short Term and Long-Term Debt
Promissory Notes - On March 2, 2020, AMRE entered into a $200,000unsecured promissory note with LVAMPTE, a related party. The Note calls for interest to be paid annually on March 2 with interest fixed at 8.0%. As further incentive to enter into this Note, AMRE granted LVAMPTE warrants to purchase shares of common stock of AMRE (the “Warrants”). The amount of the warrants granted is the equivalent of the Note Principal divided by the Exercise Price. The Warrants are exercisable for four years and are exercisable at $5.00per share (the “Exercise” Price). In March 2022, this debt was converted into equity in AMRE, and LVAMPTE exercised the warrants for $200,000 (see(see the consolidated statement of changes in stockholders’ equity) The holder is a related party owned by the Chairman of the Company’s board of directors.
On March 16, 2021, American Medical REIT, Inc. received loan proceeds in the amount of approximately $110,000 under the Paycheck Protection Program (“PPP”) with a fixed rate of 1% and a 60-month maturity term. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. These funds were used for payroll, benefits, rent, mortgage interest, and utilities. As of December 31, 2021, the outstanding principal and interest approximated $111,000 is included in long-term debt, net on the consolidated balance sheet. During the year ended December 31, 2022, the PPP loan was forgiven in full and recorded as a gain on extinguishment of debt on the accompanying consolidated statement of operations.
On May 20, 2021, Premier Packaging entered into master loan and security agreement (“BOA Note”) with Bank of America, N.A. (“BOA”) to secure financing approximating $3,710,000 to purchase a new Heidelberg XL 106-7+L printing press. The aggregate principal balance outstanding under the BOA Note shall bear interest at a variable rate on or before the loan closing. As of December 31, 2022,2023, and December 31, 2021,2022, the outstanding principal on the BOA Note was $3,406,0002,932,000 and $3,339,0003,406,000, respectively and had an interest rate of 4.63%. The outstanding balance at December 31, 2022 is included in Long-term debt, net on the consolidated balance sheet. As of December 31, 2022,2023, $474,000491,000 was included in the current portion of long-term debt, net, and the remaining balance of approximately $2,932,0002,442,000 recorded as long-term debt, The BOA Note contains certain covenants that are analyzed annual.annually. As of December 31, 2022,2023, Premier is in compliance with these covenants. Total interest expense for 2022 is $140,000.
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On August 1, 2021, AMRE Shelton, LLC., (“AMRE Shelton”) a subsidiary of AMRE, entered into a loan agreement (“Shelton Agreement”) with Patriot Bank, N.A. (“Patriot Bank”) in an amount up to $6,155,000, with the amount financed approximating $5,105,000. The Shelton Agreement contains monthly payments of principal and an initial interest of 4.25%. The interest will be adjusted commencing on July 1, 2026 and continuing for the next succeeding 5 year5-year period shall be determined one month prior to the change date and shall be an interest rate equal to two hundred fifty (250) basis points above the Federal Home Loan Bank Boston 5-Year/25-Year amortizing advance rate, but in no event less than 4.25%4.25% for the term of 120 months with a balloon payment approximating $2,829,000due at term end. The affective interest rate at December 31, 2022 was 4.25%4.25%. The funds borrowed were used to purchase a 40,000square foot, 2.0 story, Class A+ multi-tenant medical office building located on a 13.62 acre13.62-acre site. The purchase price has been allocated as $4,640,000, $1,600,000, and $325,000 for the facility, land, and tenant improvements, respectively. Also includeincluded in the value of the property is $585,000 of intangible assets with an estimated useful life of approximating3 years. The net book value of these assetassets as of December 31, 20222023 approximated $6,727,0006,729,000. Of the total financed, approximately $216,000 206,000of principal and accrued interest is classified as current portion of long-term debt, net, and the remaining balance of approximately $4,783,000 4,402,000recorded as long-term debt, net of $73,000 50,000in deferred financing costs. Interest expense totaled in 2022 equaled $212,000
On October 13, 2021, LVAM entered into loan agreement with BMIC (“BMIC Loan”), a related party, whereas LVAM borrowed the principal amount of $3,000,000, with interest to be charged at a variable rate to be adjusted at the maturity date. The BMIC Loan matures on October 12, 2022, and contains an auto renewal period of three months. As of December 31, 20222023 and December 31, 2021,2022, $3,000,000547,000 and $3,000,000, respectively, isare included in Current portion of long-term debt, net on the consolidated balance sheet.
On October 13, 2021, LVAM entered into a loan agreement with Lee Wilson Tsz Kin (“Wilson Loan”), a related party, whereas LVAM borrowed the principal amount of $3,000,000, with interest to be charged at a variable rate to be calculated at the maturity date. The Wilson Loan matures on October 12, 2022, and contains an auto renewal period of nine months. This loan was funded during March 2022. As of December 31, 20222023 $3,008,0002,131,000 is included in the Current portion of long-term debt, net on the consolidated balance sheet. Interest expense equaled $8,000 in 2022.
On October 27, 2021, HWH World, Inc., a subsidiaryAs of the Company entered a revolving loan commitment (“Note 8”) with Borrower 8, a company registered in Taiwan. Note 8 has a principal balance of $52,000 and incurred no interest through the maturity date of December 31, 2021. The outstanding principal at December 31, 2022 and December 31, 2021 is $63,0003,008,000 and $52,000, respectively, and is included in the currentCurrent portion of notes receivable. This note was amended in April 2022 to extendlong-term debt, net on the maturity date through April 2023 bearing interest rate of 18%.consolidated balance sheet.
On November 2, 2021, AMRE LifeCare entered into a loan agreement (“LifeCare Agreement”) with Pinnacle Bank, (“Pinnacle Bank”) in the amount of $40,300,000. The LifeCare Agreement supported the acquisition of three medical facilities located in Fort Worth, Texas, Plano, Texas, and Pittsburgh, Pennsylvania for a purchase price of $62,000,000. These assets are classified as investments, real estate on the consolidated balance sheet. The purchase price has been allocated as $32,100,000, $12,100,000,$32,100,000, $12,100,000, and $1,500,000$1,500,000 for the facility, land and site improvements, respectively. Also includeincluded in the value of the property is $15,901,000$15,901,000 of intangible assets with estimated useful lives ranging from 1 to 11 years. The net book value of the assets acquired as of December 31, 2022 approximated $52,407,000is approximately $52,407,000. The LifeCare Agreement calls for the principal amount of the in equal, consecutive monthly installments based upon a twenty-five (25)(25) year amortization of the original principal amount of the LifeCare Agreement at an initial rate of interest equal to the interest rate determined in accordance as of July 29, 2022 provided, however, such rate of interest shall not be less than 4.28%, with the first such installment being payable on August 29, 2022 and subsequent installments being payable on the first day of each succeeding month thereafter until the maturity date, at which time any outstanding principal and interest is due in full. full. The affective interest rate at December 31, 2022 was 8.46%. The maturity date of November 2, 2023, may be extended to November 2, 2024.2024. As of December 31, 2021,2022, the outstanding principal and interest of the LifeCare agreement approximates $39,448,00040,193,000, net of deferred financing costs of $1,002,000270,000. As of December 31, 2022,2023, the outstanding principal and interested approximates $40,193,000, net of deferred financing costs of $270,00041,331,000 is included in current portion of long-term debt, on the consolidated balance sheet.. Interest expense totaledfor the year-ended December 31, 2023 and 2022 approximated $3,773,000 and $2,418,000, respectively. This note is in 2022.default and demand was made for final payment to be made by December 22, 2023. This amount is past due.
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In November 2021, AMRE entered into a convertible promissory note (“Alset Note”) with Alset International Limited (“Alset International”), a related party, for the principal amount of $8,350,000. The Alset Note accrues interest at 8%8% per annum and matures in December 2023, with interest due quarterly and the principal due at maturity. Principal and interest of approximately $8,805,000 is included in long-term debt, net on the accompanying consolidated balance sheet on December 31, 2022. On May 17, 2022, the shareholders of the Company approved the issuance of up to Shares our Common Stock to Alset International to purchase the Convertible Promissory Note issued by American Medical REIT, Inc. with a principal amount of $8,350,000 and accrued but unpaid interest of $367,000119,000 through May 15,December 31, 2022. This transaction was finalized in July 2022 and is eliminated upon consolidation into DSS. Interest expense for this note totaled $677,000 for year ended December 31, 2023 and $346,000 infor year ended December 31, 2022.
On March 17, 2022, AMRE Winter Haven, LLC (“AMRE Winter Haven”) and Pinnacle Bank (“Pinnacle”) entered into a term loan (“Pinnacle Loan”) whereas Pinnacle lent to AMRE Winter Haven the principal sum of $2,990,000, maturing on March 7, 2024 to acquire a medical facility located in Winter Haven, Florida for a purchase price of $4,500,000. The assets acquired are classified as investments, real estate on the consolidated balance sheet. The purchase price has been allocated as $3,200,000, $1,000,000,$3,200,000, $1,000,000, and $222,000$222,000 for the facility, land and site and tenant improvements, respectively. Also includeincluded in the value of the property is $29,000$29,000 of intangible assets with an estimated useful life of approximating approximately 5 years. The net book value of the assets acquired as of December 31, 2022 approximated $4,450,000.is approximately $4,450,000. Payments are to be made in equal, consecutive installments based on a 25-year amortization period with interest at 4.28%. The first installment is due January 1, 2023. The Pinnacle Loan contains certain covenants that are to be tested annually. AtThis AMRE note is currently due. The outstanding principal and interest, net of debt issuance costs of $17,000, approximates $2,977,000 and is included in long-term debt, net on the accompanying consolidated balance sheet at December 31, 2022, AMRE is in compliance with all covenants.2023. The outstanding principal and interest, net of debt issuance costs of $60,000, approximates $2,952,000and is included in long-term debt, net on the accompanying consolidated balance sheet at December 31, 2022. Interest expense equaled $25,000 for year ended December 31, 2023 and $153,000 for year ended December 31, 2022.
On March 30, 2023, Premier Packaging, a subsidiary of the Company entered into a loan and security agreement with Union Bank & Trust Company for the year 2022.principal amount of $790,000 and shall accrued interest at the rate of 7.44%. Principal and interest shall be repaid in the approximate amount of $14,000 through March 2029. This loan is collateralized by a Bobst Model Novacut and is guaranteed by DSS, Inc. As of December 31, 2023, the outstanding principal and interest approximates $719,000 of which $112,000 was included in the current portion of long-term debt, net, and the remaining balance of approximately $607,000 recorded as long-term debt.
A summary of scheduled principal payments of long-term debt, not including revolving lines of credit, subsequent to December 31, 20222023 are as follows:
Schedule of Notes Payable and Long-term Debt
| Year | Amount | |||
| 2024 | $ | 47,776,000 | ||
| 2025 | 859,000 | |||
| 2026 | 901,000 | |||
| 2027 | 947,000 | |||
| 2028 | 1,200,000 | |||
| Thereafter | 3,544,000 | |||
| Total | 55,227,000 | |||
13. Lease Liability
The Company has operating leases predominantly for operating facilities. As of December 31, 2023, the remaining lease terms on our operating leases range from less than one to twelve years. Renewal options to extend our leases have not been exercised due to uncertainty. Termination options are not reasonably certain of exercise by the Company. There is no transfer of title or option to purchase the leased assets upon expiration. There are no residual value guarantees or material restrictive covenants. There are no significant finance leases as of December 31, 2023.
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Future minimum lease payments as of December 31, 2023, are as follows:
SCHEDULE OF NOTES PAYABLE AND LONG-TERM DEBTMaturity of Lease Liability:
Schedule of Future Minimum Lease Payments
| Year | Amount | |||||||
| 2023 | $ | 46,869,000 | ||||||
| Totals | ||||||||
| 2024 | 3,692,000 | 956,000 | ||||||
| 2025 | 736,000 | 861,000 | ||||||
| 2026 | 769,000 | 839,000 | ||||||
| 2027 | 805,000 | 808,000 | ||||||
| Thereafter | 4,561,000 | |||||||
| 2028 | 824,000 | |||||||
| After | 4,913,000 | |||||||
| Total lease payments | 9,201,000 | |||||||
| Less: Imputed Interest | (1,598,000 | ) | ||||||
| Present value of remaining lease payments | $ | 7,603,000 | ||||||
| Current | $ | 686,000 | ||||||
| Noncurrent | $ | 6,917,000 | ||||||
| Weighted-average remaining lease term (years) | 14.3 | |||||||
| Weighted-average discount rate | 4.1 | % | ||||||
In March of 2022, Premier Packaging began leasing its relocated manufacturing facilities to West Henrietta, New York. This lease contains an escalating payment clause, ranging from $61,000 per month to $78,000 per month, over the twelve-year term of the lease. Total lease expense during the years ended December 31, 2023 and 2022 approximated $790,000 and $975,000, respectively.
13.
14. STOCKHOLDERS’ EQUITY
Stockholders’ Equity
Sales of Equity transactions –
On February 28, 2022, DSS entered into an Amendment to Stock Purchase Agreement (the “Amendment”) with its shareholder Alset EHome International Inc. (“AEI”), pursuant to which the Company and AEI have agreed to amend certain terms of the Stock Purchase Agreement dated January 25, 2022 (the “SPA”). Pursuant to the SPA, AEI had agreed to purchase up to shares of the Company’s common stock for a purchase price of $ per share, for an aggregate purchase price of $17,000,000. Pursuant to the Amendment, the number of shares of the common stock of the Company that the AEI will purchase has been reduced to shares for an aggregate purchase price of $1,519,000. This transaction was completed on March 9, 2022. In addition, the Company’s Executive Chairman and a significant stockholder, Heng Fai Ambrose Chan, is the Chairman, Chief Executive Officer and largest shareholder of AEI.
On March 10, 2022, the Company issued shares of common stock to Mr. Heng Fai Ambrose Chan pursuant to his employment agreement. These shares were issued in consideration of $340,000 due under this employment agreement.
On May 5, 2022, the Company issued shares of common stock to Mr. Frank Heuszel, CEO of DSS, pursuant to his employment agreement. These shares were issued in consideration of $29,000 due under this employment agreement.
On May 25, 2022, the Company issued shares of common stock to Mr. Heng Fai Ambrose Chan pursuant to his employment agreement. These shares were issued in consideration of $5,848,000 due under this employment agreement.
On May 17, 2022, the shareholders of the Company approved the issuance of up to Shares of our Common Stock to Alset International, a related party, to purchase the Convertible Promissory Note issued by American Medical REIT, Inc. with a principal amount of $8,350,000 and accrued but unpaid interest of $367,000 through May 15, 2022. This transaction was finalized in July 2022.
On May 17, 2022, the shareholders of the Company approved the acquisition of shares of True Partners Capital Holdings Limited (“True Partners”), a company publicly traded on the Hong Kong stock exchange in exchange for shares of DSS stock value on the agreed upon date of February 18, 2022 which was approximately $ per share. The True Partner shares were acquired from Alset EHome International, Inc. (“Alset EHome”), a related party. Mr. Heng Fai Ambrose Chan, our director and Executive Chairman, is also Chairman of the Board, Chief Executive Officer, and the largest beneficial owner of the outstanding shares of Alset EHome. This transaction was completed with the transfer of DSS share to Alset EHome on July 1, 2022.
On April 10, 2023, the Company issued shares of common stock to Mr. Frank Heuszel, CEO of DSS, pursuant to his employment agreement. These shares were issued to settle a previously recorded liability of approximately $268,000.
On January 4, 2024 the Company effected a reverse stock split of 1 for 20. As of December 31, 2023 and December 31, 2022, there were and shares of our Common Stock issued and outstanding, respectively, which was converted to and shares, respectively.
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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 twelve monthsyear ended December 31, 2022, the Company’s stock compensation approximated $. During the year ended December 31, 2023 there were .
Stock Warrants – The following is a summary with respect to warrants outstanding and exercisable as of December 31, and activity during the years then ended :
SCHEDULE OF WARRANT ACTIVITY
| 2022 | 2021 | |||||||||||||||
| Weighted | Weighted | |||||||||||||||
| Average | Average | |||||||||||||||
| Exercise | Exercise | |||||||||||||||
| Warrants | Price | Warrants | Price | |||||||||||||
| Outstanding at January 1: | 3,556 | $ | 30.00 | 36,514 | $ | 33.92 | ||||||||||
| Granted during the year | - | - | - | - | ||||||||||||
| Lapsed/terminated | (3,556 | ) | 30.00 | (32,958 | ) | 34.35 | ||||||||||
| Outstanding at December 31: | - | $ | - | 3,556 | $ | 30.00 | ||||||||||
| Exercisable at December 31: | - | $ | - | 3,556 | $ | 30.00 | ||||||||||
| Weighted average months remaining | - | - | ||||||||||||||
The Company did not issue any warrants in 2023 or 2022, or 2021.nor did it have any outstanding warrants as of December 31, 2023 and 2022.
Equity Incentive Plan – On December 9, 2019, the Company’s shareholders adopted the 2020 Employee, Director and Consultant Equity Incentive Plan (the “2020 Plan”). The 2020 Plan provides for the issuance of an initial shares of common stock authorized to be issued for grants of options, restricted stock and other forms of equity to employees, directors and consultants. In addition, on the first day of each calendar year, for a period of not more than ten (10) years, commencing January 1, 2021, or the first business day of the calendar year if the first day of the calendar year falls on a Saturday or Sunday, the shares available under this plan will automatically increase in an amount equal to the lesser of (i) five percent (5%) of the total number of shares of Common Stock outstanding as of December 31 of the preceding fiscal year or (ii) such number of shares of Common Stock as determined by the Board of Directors.Under the terms of the 2020 Plan, options granted thereunder may be designated as options which qualify for incentive stock option treatment (“ISOs”) under Section 422A of the Internal Revenue Code, or options which do not qualify (“NQSOs”). As of December 31, 2022,2023, there are shares available under this plan.
Stock Options – On June 20, 2013, the Company’s shareholders adopted the 2013 Employee, Director and Consultant Equity Incentive Plan (the “2013 Plan”). The 2013 Plan provides for the issuance of up to a total of shares of common stock authorized to be issued for grants of options, restricted stock and other forms of equity to employees, directors and consultants. Under the terms of the 2013 Plan, options granted thereunder may be designated as options which qualify for incentive stock option treatment (“ISOs”) under Section 422A of the Internal Revenue Code, or options which do not qualify (“NQSOs”). During the year ended December 31, 2023, options were forfeited. As of December 31, 2022,2023, shares remained available under this plan.
SUMMARY OF STOCK OPTION ACTIVITY UNDER STOCK OPTION AND INCENTIVE PLANS
| 2022 | 2021 | |||||||||||||||||||||||
| Number of Options | Weighted Average Exercise Price | Weighted Average life Remaining (Years) | Number of Options | Weighted Average Exercise Price | Weighted Average life Remaining (Years) | |||||||||||||||||||
| Outstanding at January 1, | 11,930 | $ | 218.39 | 19,264 | $ | 150.30 | ||||||||||||||||||
| Lapsed/terminated | (6,930 | ) | 344.58 | (7,334 | ) | 39.85 | ||||||||||||||||||
| Outstanding at December 31, | 5,000 | $ | 43.50 | 11,930 | $ | 218.39 | ||||||||||||||||||
| Exercisable at December 31, | 5,000 | $ | 43.50 | 11,930 | $ | 218.39 | ||||||||||||||||||
| Expected to vest at December 31, | - | $ | - | 6,597 | $ | 199.07 | ||||||||||||||||||
| Aggregate intrinsic value of outstanding options at December 31, | $ | - | $ | - | ||||||||||||||||||||
| Aggregate intrinsic value of exercisable options at December 31, | $ | - | $ | - | ||||||||||||||||||||
| Aggregate intrinsic value of options expected to vest at December 31, | $ | - | $ | - | ||||||||||||||||||||
The fair value of each option award is estimated on the date of grant utilizing the Black-Scholes-Merton Option Pricing Model. The Company estimates the expected volatility of the Company’s common stock at the grant date using the historical volatility of the Company’s common stock over the most recent period equal to the expected stock option term.
The aggregate grant
Impact BioMedical, Inc. Equity Transactions –
On August 8, 2023 DSS BioHealth Securities, Inc. (“DSS BioHealth”), a wholly-owned subsidiary of the Company, and the sole shareholder of Impact BioMedical Inc., distributed to the shareholders of DSS on record as of July 10, 2023 4 shares of Impact Bio’s stock for 1 share they owned of DSS stock. Each share of Impact BioMedical distributed as part of the distribution will not be eligible for resale until 180 days from the date fair valueImpact BioMedical’s initial public offering becomes effective under the Securities Act, subject to the discretion of options that vested duringthe Company to lift the restriction sooner.
On October 31, 2023, Impact BioMedical effected a reverse stock split of 1 for 55. As of December 31, 2023 and December 31, 2022, and 2021 was approximately $ and $, respectively. Therethere were options exercised during 2022 or 2021.shares of our Common Stock issued and outstanding which was converted to shares. Also on October 31, 2023, DSS BioHealth Securities, Inc., the Company’s largest shareholder converted shares of Common Stock into shares of Series A Convertible Preferred Shares, reducing its ownership of the Company’s Common Stock from approximately 88% to approximately 12%. The Preferred Shares are voting shares and convertible.
14. 15. INCOME TAXES
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of tax benefits which are not expected to be realized.
The following is a summary of the components giving rise to the income tax provision (benefit) for the years ended December 31:
The provision (benefit) for income taxes consists of the following:
Schedule of Income Tax ProvisionSCHEDULE OF INCOME TAX PROVISION
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
| Currently payable: | ||||||||||||||||
| Federal | $ | 15,000 | $ | - | $ | - | $ | 15,000 | ||||||||
| State | - | - | 4,000 | - | ||||||||||||
| Foreign | 119,000 | - | - | 119,000 | ||||||||||||
| Total currently payable | 134,000 | - | 4,000 | 134,000 | ||||||||||||
| Deferred: | ||||||||||||||||
| Federal | (14,839,000 | ) | (5,336,000 | ) | (5,392,000 | ) | (14,839,000 | ) | ||||||||
| State | (492,000 | ) | (778,000 | ) | (79,000 | ) | (492,000 | ) | ||||||||
| Foreign | (58,000 | ) | (123,000 | ) | (48,000 | ) | (58,000 | ) | ||||||||
| Total deferred | (15,390,000 | ) | (6,237,000 | ) | (5,519,000 | ) | (15,390,000 | ) | ||||||||
| Less: increase in allowance | 15,427,000 | 2,739,000 | 5,519,000 | 15,427,000 | ||||||||||||
| Net deferred | 38,000 | (3,498,000 | ) | |||||||||||||
| Less: tax effect of discontinued operations | - | (533,000 | ) | |||||||||||||
| Total income tax loss (benefit) | $ | 172,000 | $ | (4,032,000 | ) | |||||||||||
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Individual components of deferred tax assets and liabilities are as follows:
Schedule of Deferred Tax Assets and Liabilities SCHEDULE OF DEFERRED TAX ASSETS AND LIABILITIES
| 2022 | 2021 | 2023 | 2022 | |||||||||||||
| Deferred tax assets: | ||||||||||||||||
| Net operating loss carry forwards | $ | 24,975,000 | $ | 14,453,000 | $ | 21,496,000 | $ | 24,975,000 | ||||||||
| Net operating loss IRC 382 limited | 9,634,000 | 9,634,000 | ||||||||||||||
| Unrealized loss on securities | 5,753,000 | 2,598,000 | 4,655,000 | 5,753,000 | ||||||||||||
| Equity issued for services | 190,000 | 189,000 | 190,000 | 190,000 | ||||||||||||
| Goodwill and other intangibles | 34,000 | 21,000 | 63,000 | 34,000 | ||||||||||||
| Investment in pass-through entity | 11,000 | 11,000 | 11,000 | 11,000 | ||||||||||||
| Deferred revenue | 176,000 | 176,000 | 176,000 | 176,000 | ||||||||||||
| Operating Lease Liability | 1,935,000 | 47,000 | 1,713,000 | 1,935,000 | ||||||||||||
| Depreciation and amortization | 24,000 | 5,000 | 1,000 | 24,000 | ||||||||||||
| Other | 696,000 | 620,000 | 2,507,000 | 696,000 | ||||||||||||
| Gross deferred tax assets | 33,794,000 | 18,120,000 | 40,446,000 | 33,794,000 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||||
| Goodwill and other intangibles | 2,822,000 | 4,143,000 | 3,369,000 | 2,822,000 | ||||||||||||
| Depreciation and amortization | (194,000 | ) | - | 614,000 | (194,000 | ) | ||||||||||
| Right -of-use asset | 1,846,000 | 47,000 | 1,625,000 | 1,846,000 | ||||||||||||
| Gross deferred tax liabilities | 4,474,000 | 4,190,000 | 5,608,000 | 4,474,000 | ||||||||||||
| Less: valuation allowance | (29,357,000 | ) | (13,929,000 | ) | (34,838,000 | ) | (29,357,000 | ) | ||||||||
| Net deferred tax liabilities | $ | - | $ | (38,000 | ) | |||||||||||
At December 31, 20222023 and 2021,2022, the Company has approximately $108.4 138.9million and $58.5 108.4million in federal net operating loss carryforwards (“NOLs”), respectively, available to reduce future taxable income. Under the provisions of the Internal Revenue Code, the net operating losses are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Certain tax attributes are subject to an annual limitation as a result of certain cumulative changes in ownership interest of significant shareholders which could constitute a change of ownership as defined under Internal Revenue Code Section 382. For the year ended December 31, 2021, the Company has completed a full analysis of historical ownership changes and determined that a portion of the net operating losses have a limitation on future deductibility. Approximately $43.8million of net operating losses incurred prior to 2020 will be unable to offset future taxable income and have been reserved via a valuation allowance to reduce the deferred tax asset to the expected realizable amount, leaving $2.9 million available for use which expire at various dates through 2038 and the residual which never expire. This analysis is currently being performed for tax year ending December 31, 2022.2023. Additionally, at December 31, 20222023 and 2021,2022, the Company had approximately $43.6 20.7million and $13.343.6 of California and Illinois NOL carry-forwards, respectively, which expire through 20422043. The NOL carry-forwards may be limited in certain circumstances, including ownership change and have been fully reserved via a valuation allowance.
The valuation allowance for deferred tax assets increased approximately $15.45.5 million and $2.715.4 million for the years ended December 31, 20222023 and December 31, 2021,2022, respectively. The valuation allowance for deferred tax liability increased approximately $1.41.1 million in the year ended December 31,202231,2023 and increaseddecreased approximately $2.89.9 million for the year ended December 31, 2021.2022.
The differences between the United States statutory federal income tax rate and the effective income tax rate in the accompanying consolidated statements of operations are as follows:
SCHEDULE OF EFFECTIVE INCOME TAX RATE RECONCILIATIONSchedule of Effective Income Tax Rate Reconciliation
| 2022 | 2021 | |||||||
| Statutory United States federal rate | 21.0 | % | 21.0 | % | ||||
| State income taxes net of federal benefit | 0.51 | % | 1.3 | % | ||||
| Permanent differences | 0.03 | % | - | % | ||||
| Other | .93 | % | (1.1 | )% | ||||
| Foreign taxes | (0.07 | )% | - | % | ||||
| Change in valuation allowance | (22.66 | )% | (7.7 | )% | ||||
| Effective rate | (0.25 | )% | 9.8 | % | ||||
| 2023 | 2022 | ||||||
| Statutory United States federal rate | 21.0 | % | 21.0 | % | |||
| State income taxes net of federal benefit | 0.38 | % | 0.51 | % | |||
| Permanent differences | (6.68 | )% | 0.03 | % | |||
| Other | (9.04 | )% | 0.93 | % | |||
| Foreign taxes | - | % | (0.07 | )% | |||
| Change in valuation allowance | (5.66 | )% | (22.66 | )% | |||
| Effective rate | - | % | (0.25 | )% | |||
The Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 20222023 and 20212022 the Company recognized no interest and penalties.
The Company files income tax returns in the U.S. federal jurisdiction and various states. The tax years 2019-20222020-2023 generally remain open to examination by major taxing jurisdictions to which the Company is subject.
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15. 16. DEFINED CONTRIBUTION PENSION PLAN
Defined Contribution Pension Plan
The Company maintains a qualified employee savings plans (the “401(k) Plan”) that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code and which covers all eligible employees. Employees generally become eligible to participate in the 401(k) Plan two months following the employee’s hire date. Employees may contribute a percentage of their earnings, subject to the limitations of the Internal Revenue Code. Commencing on January 1, 2018, the Company matched 100% of the first 1%1% of employee contributions, then 50% of additional contributions up to an aggregate maximum match of 3.5%. The total matching contributions for 20222023 and 20212022 were approximately $124,000 and $99,000124,000, respectively.
16. 17. COMMITMENTS AND CONTINGENCIES
Commitments and Contingencies
The Company has operating leases predominantly for operating facilities. As of December 31, 2022, the remaining lease terms on our operating leases range from one to sixty-three months. Termination options are not reasonably certain of exercise by the Company. There is no transfer of title or option to purchase the leased assets upon expiration. There are no residual value guarantees or material restrictive covenants. There are no significant finance leases as of December 31, 2022. Operating cash paid for the year ended December 31, 2022 and December 31, 2021 was approximately $977,000 and $190,000 respectively.
Future minimum lease payments as of December 31, 2022 are as follows:
SCHEDULE OF FUTURE MINIMUM PAYMENTS UNDER OPERATING LEASES
| Totals | ||||
| 2023 | $ | 1,146,000 | ||
| 2024 | 915,000 | |||
| 2025 | 883,000 | |||
| 2026 | 899,000 | |||
| 2027 | 916,000 | |||
| 2028 | 1,076,000 | |||
After | 4,912,000 | |||
| Total lease payments | 10,747,000 | |||
| Less: Imputed Interest | (2,131,000 | ) | ||
| Present value of remaining lease payments | $ | 8,616,000 | ||
| Current | $ | 796,000 | ||
| Noncurrent | $ | 7,820,000 | ||
| Weighted-average remaining lease term (years) | 14.5 | |||
| Weighted-average discount rate | 4.3 | % | ||
Employment Agreements – The Company has employment or severance agreements with members of its management team. The employment or severance agreements provide for severance payments in the event of termination for certain causes. As of December 31, 2022 and 2021, the Company accrued approximately $0 and $7,276,000, respectively, for Mr. Heng Fai Ambrose Chan, an executive of the Company’s DSS Cyber Security Pte. Ltd subsidiary in accordance with the terms of his employment contract. Also, as of December 31, 2022, the minimum severance payments under these employment agreements are, in aggregate, approximately $220,000.
Legal Proceedings –
The Apple Litigation
On November 26, 2013, DSS Technology Management, Inc. (“DSSTM”) filed suit against Apple, Inc. (“Apple”) in the United States District Court for the Eastern District of Texas, for patent infringement (the “Apple Litigation”). The complaint alleges infringement by Apple of DSSTM’s patents that relate to systems and methods of using low power wireless peripheral devices. DSSTM is seeking a judgment for infringement, injunctive relief, and compensatory damages from Apple. On October 28, 2014, the case was stayed by the District Court pending a determination of Apple’s motion to transfer the case to the Northern District of California. On November 7, 2014, Apple’s motion to transfer the case to the Northern District of California was granted. On December 30, 2014, Apple filed two Inter Partes Review (“IPR”) petitions with the Patent Trial and Appeal Board (“PTAB”) for review of the patents at issue in the case. The PTAB instituted the IPRs on June 25, 2015. The California District Court then stayed the case pending the outcome of those IPR proceedings. Oral arguments of the IPRs took place on March 15, 2016, and on June 17, 2016, PTAB ruled in favor of Apple on both IPR petitions. DSSTM then filed an appeal with the U.S. Court of Appeals for the Federal Circuit (the “Federal Circuit”) seeking reversal of the PTAB decisions. Oral arguments for the appeal were held on August 9, 2017. On March 23, 2018, the Federal Circuit reversed the PTAB, finding that the PTAB erred when it found the claims of U.S. Patent No. 6,128,290 to be unpatentable. The Federal Circuit affirmed its decision on July 12, 2018, when it denied Apple’s petition for panel rehearing of the Federal Circuit’s Opinion and Judgment issued on March 23, 2018. On July 27, 2018, the District Court judge lifted the Stay resuming the litigation, which had a trial date set for the week of February 24, 2020. On January 14, 2020, the Court in the case DSS Technology Management, Inc. v. Apple, Inc., 4:14-cv-05330-HSG pending in the Northern District of California issued an order that denied DSS’ motion to amend its infringement contentions. In the same order, the Court granted Apple’s motion to strike DSS’ infringement expert report. DSS filed a motion for leave to file a motion for reconsideration of the Court’s order denying DSS the right to amend its infringement contentions and motion to strike DSS infringement expert report. On February 18, 2020, the Court denied DSS’s motion for leave to file a motion for reconsideration. On February 24, 2020, the Court signed a Final Judgment stipulating that Apple was “entitled to a judgment of non-infringement of U.S. Patent No. 6,128,290 as a matter of law.” On March 10, 2020, DSS filed an appeal of this Final Judgment to the United States Court of Appeals for the Federal Circuit under DSS Technology Management v. Apple, Federal Circuit Docket no. 2020-1570. On April 27, 2021, the Court of Appeals heard oral argument, and on April 30, 2021, the Court affirmed the District Court’s judgment. After considering all factors the Company has elected to not pursue any further appeals on this matter. Case is deemed closed.
The Ronaldi Litigation
In April 2019 DSS commenced an action in New York State Supreme Court, Monroe County, Index No. E2019003542, against Jeffrey Ronaldi, our former Chief Executive Officer. The New York action sought a declaratory judgment that, contrary to informal claims made by him, Mr. Ronaldi’s employment agreement with us expired by its terms and that he is not entitled to any cash bonuses or other unpaid amounts. The lawsuit also sought an injunction against Mr. Ronaldi from interfering with any of DSS’ IP litigation. Mr. Ronaldi subsequently commenced an action against DSS in the Superior Court of California, County of San Diego, on November 8, 2019, under case number 37-2019-00059664-CU-CO-CTL, in which he alleged that DSS terminated his employment in April 2019 in order to avoid paying him certain employment-related amounts. DSS was successful in dismissing the California case and consolidating it with the action pending in Monroe County, New York. Mr. Ronaldi asserted counterclaims in the Monroe County, New York action similar to those he originally brought in California. Mr. Ronaldi claimed that his termination violated an alleged employment agreement or implied-in-fact employment agreement and that he should have remained employed through 2019. Mr. Ronaldi seeks to recover: (i) $144,658 in wages from April 11, 2019 through December 31, 2019; (ii) $769 in alleged unpaid based salary for time worked before April 11, 2019; (iii) $15,385 in alleged paid time off compensation; (iv) $3,077 in alleged unpaid sick time compensation; (v) $26,077 in waiting-time penalties; (vi) $91,000 in unspecified expense reimbursement; (vii) $300,000 in alleged cash bonuses ($100,000 per year) based on DSS’s performance in 2017, 2018 and 2019; and (viii) a $450,000 performance bonus based on the result of certain alleged net proceeds from patent infringement litigation. He further claimed an interest in any recovery in DSS Technology Management v. Apple, Inc., Case No. 4:14-cf05330-HSG. Additionally, on March 2, 2020, DSS and DSSTM filed a second litigation action against Jeffrey Ronaldi in the State of New York, Supreme Court, County of Monroe, Document Security Systems, Inc. and DSS Technology Management, Inc. vs. Jeffrey Ronaldi, Index No.: 2020002300, alleging acts of self-dealing and conflicts of interest while he served as CEO of both DSS and DSS TM. Mr. Ronaldi filed a Notice of Removal of this civil litigation to the United States District Court for the Western District of New York where it was assigned Case No. 6:20-cv-06265-EAW. Both pieces of Ronaldi litigation were settled and were discontinued with prejudice as of October 19, 2022.
Maiden Biosciences Litigation
On February 15, 2021, Maiden Biosciences, Inc. (“Maiden”) commenced an action against DSS, Inc. (“DSS”), Decentralized Sharing Systems, Inc. (“Decentralized”), HWH World, Inc. (“HWH”), RBC Life International, Inc. (RBC International) (together, the “DSS Defendants”), Frank D. Heuszel (“Heuszel”), RBC Life Sciences, Inc (“RBC”), Steven E. Brown, Clinton Howard, and Andrew Howard (collectively, “Defendants”). The lawsuit is currently pending in the United States District Court Northern District of Texas, Dallas Division, and is styled and numbered Maiden Biosciences, Inc. v. Document Security Stems, Inc., et al., Case No. 3:21-cv-00327.
This lawsuit relates to two promissory notes executed by RBC in the 4th quarter of 2019 in favor of Decentralized and HWH, totaling approximately $1,000,000. Maiden, a 2020 default judgment creditor of RBC, in the principal amount of $4,329,000, now complains about those notes, the funding of those notes, the subsequent default of those notes by RBC, and HWH and Decentralized’s subsequent Article 9 foreclosure or deed-in-lieu debt conveyances. In the instant lawsuit, Maiden first asserted claims against Defendants for unjust enrichment, fraudulent transfer under the Texas Uniform Fraudulent Transfer Act (“TUFTA”), and violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Maiden also sought a judgment from the court declaring: “(1) Defendants lacked a valid security interest in RBC and RBC Subsidiaries’ assets and therefore lacked the authority to sell the assets during the public foreclosure sale; (2) Defendant Heuszel’s low bid at the public foreclosure sale was invalid and void; (3) the public foreclosure sale was conducted in a commercially unreasonable manner; and (4) Defendants do not have the legal authority to transfer RBC and RBC’s Subsidiaries assets to Heuszel and HWH.” Maiden sought to recover from Defendants: (1) treble damages or, alternatively, damages in the amount of their underlying judgment plus the other creditors’ claims or the value of the assets transferred, whichever is less, plus punitive or exemplary damages; (2) pre- and post-judgment interest; and (3) attorneys’ fees and cost.
On March 30, 2021, Defendants DSS, Decentralized, HWH, RBC International, and Heuszel filed a motion to dismiss seeking to dismiss Maiden’s unjust enrichment, exemplary damages, and RICO claims against DSS, Decentralized, HWH, RBC Life International, Inc., and Heuszel, as well as Maiden’s fraudulent transfer claims against DSS and RBC International. On August 9, 2021, the Court then entered an order granting in part the motion to dismiss filed on behalf of DSS, Decentralized, HWH, RBC International, and Heuszel. Among other things, the Court held that Maiden failed to plausibly plead certain causes of action, including (1) the civil RICO claim against DSS, Decentralized, HWH, RBC International, and Heuszel, (2) the TUFTA claim against DSS, and (3) the unjust enrichment claim against DSS and RBC International. Notably, the Court declined the request to dismiss the TUFTA claim against RBC International. On September 3, 2021, Maiden filed its first amended complaint, asserting a single cause of action against the DSS Defendants, Heuszel, and RBC for an alleged TUFTA violation.
Generally, Maiden sought the same relief requested in its original complaint. Maiden, however, abandoned its request for treble damages. On September 17, 2021, the DSS Defendants filed a motion to dismiss the amended complaint seeking to dismiss Maiden’s TUFTA claim to the extent it seeks to avoid a transfer of assets owned by any of RBC’s subsidiaries, including but not limited to RBC Life Sciences USA, Inc. (“RBC USA”). Further, the motion to dismiss sought the dismissal of Maiden’s TUFTA claim against Heuszel. On November 19, 2021, the Court granted the motion to dismiss in part, dismissing Maiden’s claim against Heuszel and determined Maiden failed to plead that it was a creditor of RBC USA or RBC’s other subsidiaries. However, the Court permitted Maiden to replead once again.
On December 17, 2021, Maiden filed its second amended complaint which asserted a single TUFTA claim against only the DSS Defendants, RBC, and RBC USA. During the discovery period, the Parties conducted written discovery, production of documents, and depositions of fact witnesses and expert witnesses. The discovery period closed on August 9, 2022. The DSS Defendants have engaged Stout Risius Ross, LLC (“Stout”) to provide expert opinions regarding the value of the assets at issue.
The trial in this matter began on December 12, 2022. The Company vigorously defended its position that Maiden should recover nothing on its TUFTA claim. The DSS Defendants’ experts at Stout provided expert opinions regarding the value of the assets at issue and the deficiencies with Maiden’s designated expert’s opinions. The jury returned a verdict in favor of Maiden, and the Court entered a judgment on December 20, 2022. The DSS Defendants filed post-judgment motions seeking reversal of the judgment for several reasons, including that: (1) the evidence does not support Maiden’s claim against the Company; (2) recovery of exemplary damages under TUFTA is unsupported; and (3) the evidence established that the DSS Defendants are entitled to judgment in their favor on their affirmative defenses. After the DSS Defendants filed their post-judgment motions, the case was settled for $8.75 million, the Court’s December 20, 2022 judgment was vacated, and the case was dismissed with prejudice.
In addition to the foregoing, we may become subject to other legal proceedings that arise in the ordinary course of business and have not been finally adjudicated. Adverse decisions in any of the foregoing may have a material adverse effect on our results of operations, cash flows or our financial condition. The Company accrues for potential litigation losses when a loss is probable and estimable.
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 December 31, 2023 and December 31, 2022, no liability$200,000 and $0, respectively, has been recordedaccrued for in relation to the Equivir License as development of the Equivir technologytechnology.
Employment Agreements – As of December 31, 2023, the Company has not begun and no reasonable amount can be estimated.employment or severance agreements with members of its management team.
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Legal Proceedings – Maiden Biosciences Litigation
On February 15, 2021, Maiden Biosciences, Inc. (“Maiden”) commenced an action against DSS, Inc. (“DSS”), Decentralized Sharing Systems, Inc. (“Decentralized”), HWH World, Inc. (“HWH”), RBC Life International, Inc. (RBC International) (together, the “DSS Defendants”), Frank D. Heuszel (“Heuszel”), RBC Life Sciences, Inc (“RBC”), Steven E. Brown, Clinton Howard, and Andrew Howard (collectively, “Defendants”). The lawsuit is currently pending in the United States District Court Northern District of Texas, Dallas Division, and is styled and numbered Maiden Biosciences, Inc. v. Document Security Stems, Inc., et al., Case No. 3:21-cv-00327.
This lawsuit relates to two promissory notes executed by RBC in the 4th quarter of 2019 in favor of Decentralized and HWH, totaling approximately $1,000,000. Maiden, a 2020 default judgment creditor of RBC, in the principal amount of $4,329,000, now complains about those notes, the funding of those notes, the subsequent default of those notes by RBC, and HWH and Decentralized’s subsequent Article 9 foreclosure or deed-in-lieu debt conveyances. In the instant lawsuit, Maiden first asserted claims against Defendants for unjust enrichment, fraudulent transfer under the Texas Uniform Fraudulent Transfer Act (“TUFTA”), and violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Maiden also sought a judgment from the court declaring: “(1) Defendants lacked a valid security interest in RBC and RBC Subsidiaries’ assets and therefore lacked the authority to sell the assets during the public foreclosure sale; (2) Defendant Heuszel’s low bid at the public foreclosure sale was invalid and void; (3) the public foreclosure sale was conducted in a commercially unreasonable manner; and (4) Defendants do not have the legal authority to transfer RBC and RBC’s Subsidiaries assets to Heuszel and HWH.” Maiden sought to recover from Defendants: (1) treble damages or, alternatively, damages in the amount of their underlying judgment plus the other creditors’ claims or the value of the assets transferred, whichever is less, plus punitive or exemplary damages; (2) pre- and post-judgment interest; and (3) attorneys’ fees and cost.
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On March 30, 2021, Defendants DSS, Decentralized, HWH, RBC International, and Heuszel filed a motion to dismiss seeking to dismiss Maiden’s unjust enrichment, exemplary damages, and RICO claims against DSS, Decentralized, HWH, RBC Life International, Inc., and Heuszel, as well as Maiden’s fraudulent transfer claims against DSS and RBC International. On August 9, 2021, the Court then entered an order granting in part the motion to dismiss filed on behalf of DSS, Decentralized, HWH, RBC International, and Heuszel. Among other things, the Court held that Maiden failed to plausibly plead certain causes of action, including (1) the civil RICO claim against DSS, Decentralized, HWH, RBC International, and Heuszel, (2) the TUFTA claim against DSS, and (3) the unjust enrichment claim against DSS and RBC International. Notably, the Court declined the request to dismiss the TUFTA claim against RBC International. On September 3, 2021, Maiden filed its first amended complaint, asserting a single cause of action against the DSS Defendants, Heuszel, and RBC for an alleged TUFTA violation.
Generally, Maiden sought the same relief requested in its original complaint. Maiden, however, abandoned its request for treble damages. On September 17, 2021, the DSS Defendants filed a motion to dismiss the amended complaint seeking to dismiss Maiden’s TUFTA claim to the extent it seeks to avoid a transfer of assets owned by any of RBC’s subsidiaries, including but not limited to RBC Life Sciences USA, Inc. (“RBC USA”). Further, the motion to dismiss sought the dismissal of Maiden’s TUFTA claim against Heuszel. On November 19, 2021, the Court granted the motion to dismiss in part, dismissing Maiden’s claim against Heuszel and determined Maiden failed to plead that it was a creditor of RBC USA or RBC’s other subsidiaries. However, the Court permitted Maiden to replead once again.
On December 17, 2021, Maiden filed its second amended complaint which asserted a single TUFTA claim against only the DSS Defendants, RBC, and RBC USA. During the discovery period, the Parties conducted written discovery, production of documents, and depositions of fact witnesses and expert witnesses. The discovery period closed on August 9, 2022. The DSS Defendants have engaged Stout Risius Ross, LLC (“Stout”) to provide expert opinions regarding the value of the assets at issue.
The trial in this matter began on December 12, 2022. The Company vigorously defended its position that Maiden should recover nothing on its TUFTA claim. The DSS Defendants’ experts at Stout provided expert opinions regarding the value of the assets at issue and the deficiencies with Maiden’s designated expert’s opinions. The jury returned a verdict in favor of Maiden, and the Court entered a judgment on December 20, 2022. The DSS Defendants filed post-judgment motions seeking reversal of the judgment for several reasons, including that: (1) the evidence does not support Maiden’s claim against the Company; (2) recovery of exemplary damages under TUFTA is unsupported; and (3) the evidence established that the DSS Defendants are entitled to judgment in their favor on their affirmative defenses. After the DSS Defendants filed their post-judgment motions, the case was settled for $8.75 million, the Court’s December 20, 2022 judgment was vacated, and the case was dismissed with prejudice.
In addition to the foregoing, we may become subject to other legal proceedings that arise in the ordinary course of business and have not been finally adjudicated. Adverse decisions in any of the foregoing may have a material adverse effect on our results of operations, cash flows or our financial condition. The Company accrues for potential litigation losses when a loss is probable and estimable.
Contingent Litigation Payments – The Company retains the services of professional service providers, including law firms that specialize in intellectual property licensing, enforcement and patent law. These service providers are often retained on an hourly, monthly, project, contingent or a blended fee basis. In contingency fee arrangements, a portion of the legal fee is based on predetermined milestones or the Company’s actual collection of funds. The Company accrues contingent fees when it is probable that the milestones will be achieved, and the fees can be reasonably estimated. As of December 31, 2023 and 2022 the Company had not accrued any contingent legal fees pursuant to these arrangements.
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Contingent Payments – The Company is party to certain agreements with funding partners who have rights to portions of intellectual property monetization proceeds that the Company receives. As of December 31, 2023 and 2022, there are no contingent payments due.
17. DISCONTINUED OPERATIONS
On May 7, 2021, the Company completed the sale of 100% of the capital stock of DSS Digital Inc., the Company’s wholly-owned subsidiary (“DSS Digital”), to Proof Authentication Corporation (the “Buyer”) pursuant to a stock purchase agreement (the “Digital Purchase Agreement”). Pursuant to the terms of the Digital Purchase Agreement, the Buyer purchased DSS Digital for a purchase price of $5,000,000, consisting of $3 million in cash; $1.5 million in potential earn-out if certain performance targets are met during an earn-out period commencing on the one-year anniversary of the closing and ending the day before the six-year of the closing; and $0.5 million in trade credit or license fee rebates. Consistent with the Company’s policy for accounting for gain contingencies, the earn out will be recorded when determined realizable which did not occur during the twelve-months ended December 31, 2022. The Company has not utilized the $0.5 million trade credit as of December 31, 2022. The net effect of sale of DSS Digital, inclusive of income tax, is a net gain of $2,333,000. This amount is included in Income (loss) from Discontinued Operations on the accompanying consolidated statement of operations.
18. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental Cash Flow Information
Supplemental cash flow information for the years ended December 31:
Schedule of Supplemental Cash Flow Information SCHEDULE OF SUPPLEMENTAL CASH FLOW INFORMATION
| 2022 | 2021 | |||||||
| Cash paid for interest | $ | 3,270,000 | $ | - | ||||
| Non-cash investing and financing activities: | ||||||||
| Termination of right of use lease asset | $ | - | $ | (744,000 | ) | |||
| Termination of right of use lease liability | $ | - | $ | 744,000 | ||||
| Shares received for loan origination fee | $ | - | $ | (3,000,000 | ) | |||
| Shares received for prepaid loan interest | $ | - | $ | (2,440,000 | ) | |||
| Right of use asset | $ | 9,568,000 | $ | - | ||||
| Acquisition of APB net assets | $ | - | 38,765,000 | |||||
| Shares issued in lieu of bonus cash | $ | 6,221,000 | $ | - | ||||
| Purchase of notes receivable with Company stock | $ | 8,717,000 | $ | - | ||||
| Purchase of marketable security with Company stock | $ | 7,169,000 | $ | - | ||||
| 2023 | 2022 | |||||||
| Cash paid for interest | $ | 4,812,000 | $ | 3,270,000 | ||||
| Non-cash investing and financing activities: | ||||||||
| Right of use asset | $ | - | $ | 9,568,000 | ||||
| Shares issued in lieu of bonus cash | $ | 268,000 | $ | 6,221,000 | ||||
| Purchase of notes receivable with company stock | $ | - | $ | 8,717,000 | ||||
| Purchase of marketable security with Company stock | $ | - | $ | 7,169,000 | ||||
| Third party Note receivable received in lieu of cash | $ | 1,100,000 | - | |||||
19. SEGMENT INFORMATION
Segment Information
The Company’s nine businesses lines are organized, managed, and internally reported as five operating segments. One of these operating segments, Product Packaging, is the Company’s packaging and printing group. Product Packaging operates in the paper board folding carton, smart packaging, and document security printing markets. It markets, manufactures, and sells mailers, photo sleeves, sophisticated custom folding cartons, and complex 3-dimensional direct mail solutions. These products are designed to provide functionality and marketability while also providing counterfeit protection. A second, Biotechnology, invests in, or acquires companies in the biohealth and biomedical fields, including businesses focused on the advancement of drug discovery and prevention, inhibition, and treatment of neurological, oncological, and immune related diseases. This division is also developing open-air defense initiatives, which curb transmission of air-borne infectious diseases, such as tuberculosis and influenza. Biotechnology is also targeting unmet, urgent medical needs. A third operating segment, Securities and Investment Management (“Securities”) was established to develop and/or acquire assets and investments in the securities trading and/or funds management arena. Further, Securities, in partnership with recognized global leaders in alternative trading systems, intends to own and operate in the US a single or multiple vertical digital asset exchanges for securities, tokenized assets, utility tokens, stable coins and cryptocurrency via a digital asset trading platform using blockchain technology. The scope of services within this section is planned to include asset issuance and allocation (securities and cryptocurrency), FPO, IPO, ITO, PPO, STO and UTO listings on a primary market(s), asset digitization/tokenization (securities, currency, and cryptocurrency), and the listing and trading of digital assets (securities and cryptocurrency) on a secondary market(s). Also in this segment is the Company’s real estate investment trust (“REIT”), organized for the purposes of acquiring hospitals and other acute or post-acute care centers from leading clinical operators with dominant market share in secondary and tertiary markets, and leasing each property to a single operator under a triple-net lease. the REIT was formed to originate, acquire, and lease a credit-centric portfolio of licensed medical real estate. The fourth segment, Direct, provides services to assist companies in the emerging growth gig business model of peer-to-peer decentralized sharing marketplaces. It specializes in marketing and distributing its products and services through its subsidiary and partner network, using the popular gig economic marketing strategy as a form of direct marketing. Direct marketing products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific and Eastern Europe. The fifth business line, Commercial Banking, is organized for the purposes of being a financial network holding company, focused providing commercial loans and on acquiring equity positions in (i) undervalued commercial bank(s), bank holding companies and nonbanking licensed financial companies operating in the United States, South East Asia, Taiwan, Japan and South Korea, and (ii) companies engaged in—nonbanking activities closely related to banking, including loan syndication services, mortgage banking, trust and escrow services, banking technology, loan servicing, equipment leasing, problem asset management, SPAC (special purpose acquisition company) consulting, and advisory capital raising services. From this financial platform, the Company shall provide an integrated suite of financial services for businesses that shall include commercial business lines of credit, land development financing, inventory financing, third party loan servicing, and services that address the financial needs of the world Gig Economy.
Our segment structure presented below represents a change from the prior year for the inclusion of our Biotechnology, Securities, and Commercial Lending segments and the removal of our Plastics segment, Digital Group and IP Technology Management segment as the Plastics segment was discontinued in 2020, DSS Digital was sold and discontinued in May 2021 and activities surrounding our IP Technology Management segment have significantly decreased. The amounts for these segments have been included in the Corporate reporting segment for the year ended December 31, 20222023 and 2021,2022, as necessary, below for reconciliation purposes.
Approximate information concerning the Company’s operations by reportable segment for the twelve months ended December 31, 20222023 and 20212022 is as follows. The Company relies on intersegment cooperation and management does not represent that these segments, if operated independently, would report the results contained herein:
Schedule of Operations by Reportable Segment SCHEDULE OF OPERATIONS BY REPORTABLE SEGMENT
| Year Ended December 31, 2022 | Product Packaging | Commercial Lending | Direct Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, 2023 | Product Packaging | Commercial Lending | Direct Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 17,973,000 | $ | 764,000 | $ | 21,989,000 | $ | - | $ | 6,581,000 | $ | - | $ | 47,307,000 | $ | 18,497,000 | $ | 385,000 | $ | 6,088,000 | $ | - | $ | 5,288,000 | $ | - | $ | 30,258,000 | ||||||||||||||||||||||||||||
| Assets held for sale | - | - | - | - | 51,595,000 | - | 51,595,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 715,000 | - | 413,000 | 1,113,000 | 9,093,000 | 129,000 | 11,463,000 | 761,000 | - | 157,000 | 1,163,000 | 3,047,000 | 78,000 | 5,206,000 | ||||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | 16,960,000 | 1,041,000 | 9,828,000 | - | 8,995,000 | 639,000 | 37,463,000 | 15,282,000 | 1,139,000 | 2,075,000 | 77,000 | 8,003,000 | 71,000 | 26,647,000 | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense | 140,000 | - | 1,000 | - | 2,769,000 | - | 2,910,000 | 185,000 | - | (5,000 | ) | - | 4,632,000 | - | 4,812,000 | |||||||||||||||||||||||||||||||||||||||||
| Interest Income | 2,000 | 12,000 | 18,000 | 378,000 | 204,000 | 15,000 | 629,000 | - | - | 986,000 | 155,000 | 148,000 | - | 1,289,000 | ||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | 1,000 | - | - | - | - | 3,000 | 4,000 | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) from continuing operations | (1,234,000 | ) | (459,000 | ) | (40,182,000 | ) | (7,462,000 | ) | (8,240,000 | ) | (12,037,000 | ) | (69,664,000 | ) | 327,000 | (31,497,000 | ) | (32,860,000 | ) | (7,168,000 | ) | (19,792,000 | ) | (6,513,000 | ) | (97,503,000 | ) | |||||||||||||||||||||||||||||
| Capital expenditures | 1,612,000 | - | 384,000 | 276,000 | 18,000 | 4,000 | 2,294,000 | 689,000 | - | 4,000 | 17,000 | 104,000 | 4,000 | 818,000 | ||||||||||||||||||||||||||||||||||||||||||
| Identifiable assets | 24,641,000 | 48,240,000 | 27,526,000 | 53,069,000 | 83,873,000 | 11,566,000 | 248,915,000 | 21,508,000 | 12,285,000 | 6,303,000 | 49,305,000 | 59,345,000 | 4,446,000 | 153,192,000 | ||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31,2021 | Product Packaging | Commercial Lending | Direct | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| Year Ended December 31,2022 | Product Packaging | Commercial Lending | Direct | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue | $ | 15,315,000 | $ | 250,000 | $ | 3,379,000 | $ | 83,000 | $ | 1,196,000 | $ | 52,000 | $ | 20,275,000 | $ | 17,973,000 | $ | 764,000 | $ | 21,989,000 | $ | - | $ | 6,581,000 | $ | - | $ | 47,307,000 | ||||||||||||||||||||||||||||
| Depreciation and amortization | 612,000 | - | 461,000 | 1,113,000 | 1,833,000 | 303,000 | 4,236,000 | 715,000 | - | 413,000 | 1,113,000 | 9,093,000 | 129,000 | 11,463,000 | ||||||||||||||||||||||||||||||||||||||||||
| Cost of revenue | 13,087,000 | - | 1,401,000 | - | 2,227,000 | 109,000 | 16,824,000 | 16,960,000 | 1,041,000 | 9,828,000 | - | 11,784,000 | 634,000 | 40,247,000 | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense | 62,000 | - | 2,000 | 1,000 | 114,000 | 17,000 | 196,000 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock based compensation | 3,000 | - | - | - | - | 43,000 | 46,000 | 1,000 | - | - | - | - | 3,000 | 4,000 | ||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) from continuing operations | 710,000 | (303,000 | ) | (17,709,000 | ) | (2,536,000 | ) | (4,582,000 | ) | (11,749,000 | ) | (36,084,000 | ) | (1,234,000 | ) | (459,000 | ) | (40,182,000 | ) | (7,462,000 | ) | (8,238,000 | ) | (12,084,000 | ) | (69,662,000 | ) | |||||||||||||||||||||||||||||
| Capital expenditures | 4,296,000 | - | 9,798,000 | - | 56,794,000 | 189,000 | 71,077,000 | 1,612,000 | - | 384,000 | 276,000 | 18,000 | 4,000 | 2,294,000 | ||||||||||||||||||||||||||||||||||||||||||
| Identifiable assets | 23,575,000 | 32,964,000 | 50,659,000 | 56,425,000 | 64,701,000 | 54,383,000 | 282,707,000 | 24,641,000 | 48,240,000 | 27,526,000 | 53,069,000 | 83,873,000 | 11,566,000 | 248,915,000 | ||||||||||||||||||||||||||||||||||||||||||
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International revenue, which consists of sales to customers with operations in Canada, Western Europe, Latin America, Africa, the Middle East and Asia comprised 11.07.0% of total revenue for 20222023 (11.0% - 2021)2022). Revenue is allocated to individual countries by customer based on where the product is shipped. The Company had no long-lived assets in any country other than the United States for any period presented.
The following tables disaggregate our business segment revenues by major source:
Printed Products Revenue Information:
Schedule of Disaggregation of Revenue SCHEDULE OF DISAGGREGATION OF REVENUE
| Twelve months ended December 31, 2022 | ||||||||
| Twelve months ended December 31, 2023 | ||||||||
| Packaging Printing and Fabrication | $ | 17,499,000 | $ | 18,036,000 | ||||
| Commercial and Security Printing | 474,000 | 461,000 | ||||||
| Total Printed Products | $ | 17,973,000 | $ | 18,497,000 | ||||
| Twelve months ended December 31, 2021 | ||||||||
| Twelve months ended December 31, 2022 | ||||||||
| Packaging Printing and Fabrication | $ | 15,187,000 | $ | 17,499,000 | ||||
| Commercial and Security Printing | 352,000 | 474,000 | ||||||
| Total Printed Products | $ | 15,539,000 | $ | 17,973,000 | ||||
Direct Marketing
| Twelve months ended December 31, 2022 | ||||||||
| Twelve months ended December 31, 2023 | ||||||||
| Direct Marketing Internet Sales | $ | 21,989,000 | $ | 6,088,000 | ||||
| Total Direct Marketing | $ | 21,989,000 | $ | 6,088,000 | ||||
| Twelve months ended December 31, 2021 | ||||||||
| Twelve months ended December 31, 2022 | ||||||||
| Direct Marketing Internet Sales | $ | 3,259,000 | $ | 21,989,000 | ||||
| Total Direct Marketing | $ | 3,259,000 | $ | 21,989,000 | ||||
Rental Income
| Twelve months ended December 31, 2023 | ||||
| Rental income | $ | 3,647,000 | ||
| Total Rental Income | $ | 3,647,000 | ||
| Twelve months ended December 31, 2022 | ||||
| Rental income | $ | 6,287,000 | ||
| Total Rental Income | $ | 6,287,000 | ||
| Twelve months ended December 31, 2021 | ||||
| Rental income | $ | 1,203,000 | ||
| Total Rental Income | $ | 1,203,000 |
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Commission Income
| Twelve months ended December 31, 2023 | ||||
| Commission income | $ | 1,641,000 | ||
| Total commission income | $ | 1,641,000 | ||
| Twelve months ended December 31, 2022 | ||||
| Commission income | $ | 294,000 | ||
| Total commission income | $ | 294,000 | ||
Management Fee Income
| Twelve months ended December 31, 2022 | ||||
| Management fee income | $ | 134,000 | ||
| Total Management fee income | $ | 134,000 | ||
| Twelve months ended December 31, 2023 | ||||
| Management fee income | $ | - | ||
| Total Management fee income | $ | - | ||
| Twelve months ended December 31, 2021 | ||||||||
| Twelve months ended December 31, 2022 | ||||||||
| Management fee income | $ | 24,000 | $ | 134,000 | ||||
| Total Management fee income | $ | 24,000 | $ | 134,000 | ||||
Net Investment Income
| Twelve months ended December 31, 2023 | ||||
| Net investment income | $ | 385,000 | ||
| Total Net Investment Income | $ | 385,000 | ||
| Twelve months ended December 31, 2022 | ||||
| Net investment income | $ | 630,000 | ||
| Total Net Investment Income | $ | 630,000 | ||
| Twelve months ended December 31, 2021 | ||||
| Net investment income | $ | 250,000 | ||
| Total Net Investment Income | $ | 250,000 | ||
20. Related Party Transactions
The Company owns shares or approximately4% 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 December 31, 2022,2023, and December 31, 2021,2022, was approximately $3,319,0003,269,000 and $4,909,0003,319,000 respectively. During the year ended December 31, 20222023 and December 31, 2021,2022, the Company recorded unrealized loss on this investment of approximately $1,590,00050,000 and unrealized loss of $1,920,0001,590,000, respectively.
On March 2, 2020, AMRE entered into a $200,000 unsecured promissory note with LVAMPTE, a related party. The Note calls for interest to be paid annually on March 2 with interest fixed at 8.0%. As further incentive to enter into this Note, AMRE granted LVAMPTE warrants to purchase shares of common stock of AMRE (the “Warrants”). The amount of the warrants granted is the equivalent of the Note Principal divided by the Exercise Price. The Warrants are exercisable for four years and are exercisable at $5.00 per share (the “Exercise” Price). In March 2022, this debt was converted into equity in AMRE, and LVAMPTE exercised the warrants for $200,000 (see the consolidated statement of changes in stockholders’ equity) The holder is a related party owned by the Chairman of the Company’s board of directors.
On March 18, 2021, the Company entered into an agreement with Alset EHome International, Inc. (“Seller”), a related party, to purchase from the Seller’s its wholly owned subsidiary Impact Oncology PTE Ltd. (“IOPL”) for a purchase price $2,480,000. The acquisition of IOPL has been treated as an asset acquisition as IOPL does not meet the definition of a business as defined in Topic 805. IOPL owns shares of common stock of Vivacitas along with the option to purchase an additional shares of common stock. The Sellers largest shareholder is Mr. Heng Fai Ambrose Chan, the Chairman of the Company’s board of directors and its largest shareholder. At December 31, 2022 the full value of this investment was impaired.
On August 28, 2020, the Company’s wholly owned subsidiary, DSS Securities, Inc. entered into a corporate venture to form and operate a real estate title agency, under the name of Alset Title Company, Inc, a Texas corporation (“ATC”). DSS Securities, Inc. shall own 70% of this venture with the other two shareholders being attorneys necessary to the state application and permitting process. The Company’s CEO, who is a licensed attorney, has a stated non-compensated 15% ownership interest in the venture. There was minimal activity for the year ended December 31, 2022.
On September 9, 2021, the Company finalized a stock purchase agreement (the “SPA”) with American Pacific Bancorp (“APB”), which provided for an investment of $40,000,200 by the Company into APB for an aggregate of shares of the APB’s Class A Common Stock, par value $ per share. Subject to the terms and conditions contained in the SPA, the shares issued at a purchase price of $per share. As a result of this transaction, DSS owns approximately 53% of APB, and as a result its operating results have been included in the Company’s financial statements beginning September 9, 2021. The Company incurred approximately $36,000 in cost associated with the acquisition of APB which were recorded as general and administrative expenses. The acquisition of APB meets the definition of a business with inputs, processes and outputs, and therefore, the Company has concluded to account for this transaction in accordance with the acquisition method of accounting under Topic 805. Since acquisition, APB has incurred approximately $895,000 of net losses, of which approximately $361,000 of loss incurred is attributable to non-controlling interest. The next largest shareholder of APB is Alset EHome International, Inc. (“AEI”). AEI’s Chairman and CEO, Heng Fai Chan, and a member of the AEI’s Board of Directors, Wu Wai Leung William, each serve on both the AEI Board and the Board of the Company. The CEO of the Company, Mr. Frank D. Heuszel, also has an approximate 2% equity position of APB.
On October 27, 2021, HWH World, Inc., a subsidiary of the Company entered a revolving loan commitment (“Note 8”) with Borrower 8, a company registered in Taiwan. Note 8 has a principal balance of $52,000 and incurred no interest through the maturity date of December 31, 2021. The outstanding principal at December 31, 2022 and December 31, 2021 is $63,000 and $52,000, respectively, and is included in the current portion of notes receivable. This note was amended in April 2022 to extend the maturity date through April 2023 bearing interest rate of 18%.
On October 13, 2021, LVAM entered into loan agreement with BMIC (“BMIC Loan”), a related party, whereas LVAM borrowed the principal amount of $3,000,000, with interest to be charged at a variable rate to be adjusted at the maturity date. The BMIC Loan matures on October 12, 2022, and contains an auto renewal period of three months. As of December 31, 20222023 and December 31, 2021,2022, $547,000 and $3,000,000is, respectively, are included in Current portion of long-term debt, net on the consolidated balance sheet.
On October 13, 2021, LVAM entered into a loan agreement with Lee Wilson Tsz Kin (“Wilson Loan”), a related party, whereas LVAM borrowed the principal amount of $3,000,000, with interest to be charged at a variable rate to be calculated at the maturity date. The Wilson Loan matures on October 12, 2022, and contains an auto renewal period of nine months. This loan was funded during March 2022. As of December 31, 20222023 $3,000,0002,131,000 is included in the Current portion of long-term debt, net on the consolidated balance sheet. As of December 31, 2022 $3,008,000 is included in the Current portion of long-term debt, net on the consolidated balance sheet.
OnIn November 2021, AMRE entered into a convertible promissory note (“Alset Note”) with Alset International Limited (“Alset International”), a related party, for the principal amount of $8,350,000. The Alset Note accrues interest at 8%8% per annum and matures in December 2023, with interest due quarterly and the principal due at maturity. Principal and interest of approximately $8,469,000 8,805,000is included in long-term debt, net on the accompanying consolidated balance sheet on December 31, 2022. On May 17, 2022, the shareholders of the Company approved the issuance of up to Shares our Common Stock to Alset International Limited (“Alset International”), a related party, to purchase the Convertible Promissory Note issued by American Medical REIT, Inc. with a principal amount of $8,350,000 and accrued but unpaid interest of $367,400119,000 through May 15,December 31, 2022. This transaction was finalized in July 2022 and is eliminated upon consolidation into DSS. Interest expense for this note totaled $677,000 for year ended December 31, 2023 and $346,000 for year ended December 31, 2022.
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On February 28, 2022, DSS entered into an Amendment to Stock Purchase Agreement (the “Amendment”) with its shareholder Alset EHome International Inc. (“AEI”), pursuant to which the Company and AEI have agreed to amend certain terms of the Stock Purchase Agreement dated January 25, 2022 (the “SPA”). Pursuant to the SPA, AEI had agreed to purchase up to shares of the Company’s common stock for a purchase price of $ per share, for an aggregate purchase price of $17,000,000. Pursuant to the Amendment, the number of shares of the common stock of the Company that the AEI will purchase has been reduced to shares for an aggregate purchase price of $1,519,000. This transaction was completed on March 9, 2022. In addition, the Company’s Executive Chairman and a significant stockholder, Heng Fai Ambrose Chan, is the Chairman, Chief Executive Officer and largest shareholder of AEI.
On July 26, 2022, APB and Borrower 11 entered into a promissory note (“Note 11”) in the principal sum of $1,000,000 with interest of 8%. All unpaid principal and interest due on July 26, 2024. The outstanding principal and interest on December 31, 2023, approximates $939,000, net of $20,000 of unamortized origination fees and is included in notes receivable on the accompanying consolidate balance sheet. The outstanding principal and interest at December 31, 2022 approximates $924,000, net of $66,000 of unamortized origination fees and is included in Notes receivable on the accompanying consolidate balance sheet. Heng Fai Ambrose Chan, the Chairman of DSS, Inc is also the on the board of directors of Borrower 11.
In October 2017, Sharing Services issued a Convertible Promissory Note in the principal amount of $ 50,000 (the “Note”) to HWH International, Inc. (“HWH” or the “Holder”), a related party. HWH is affiliated with Heng Fai Ambrose Chan, who became a Director of the Company in April 2020. The Note is convertible into shares of the Company’s Common Stock. Concurrent with issuance of the Note, the Company issued to HWH a detachable stock warrant to purchase up to an additional 333,333 shares of the Company’s Common Stock, at an exercise price of $ per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to certain financing rights. If the Company enters into more favorable transactions with a third-party investor, it must notify the Holder and may have to amend and restate the Note and the detachable stock warrant to be identical. On August 9, 2022, HWH and the Company executed an agreement to settle the Note and cancel the related stock warrant for $, which amount represents the principal plus accrued interest. The Company made the payment to HWH on August 9, 2022.
On May 17, 2022, the shareholders of the Company approved the acquisition of shares of True Partners Capital Holdings Limited (“True Partners”), a company publicly traded on the Hong Kong stock exchange in exchange for shares of DSS stock. The True Partner shares were acquired from Alset EHome International, Inc. (“Alset EHome”), a related party. Mr. Heng Fai Ambrose Chan, our director and Executive Chairman, is also Chairman of the Board, Chief Executive Officer, and the largest beneficial owner of the outstanding shares of Alset EHome. This transaction was completed with the transfer of DSS share to Alset EHome on July 1, 2022 with the issuance of DSS shares, which were valued at $ per share, to Alset EHome.
21. SUBSEQUENT EVENTS
On March 30, 2023, Premier Packaging,August 29, 2022, DSS Financial Management Inc and Borrower 10, a subsidiary of the Companyrelated party, entered into a loan and security agreement with Union Bank & Trust Company forpromissory note (“Note 10”) in the principal amountsum of $790,000100,000 with interest of 8%, is due in three quarterly installments beginning on September 14, 2022. All unpaid principal and shall accruedinterest is due on August 29, 2025. The outstanding principal and interest at December 31, 2023 and December 31, 2022 approximates $100,000, and $100,000, respectively, and is included in Notes receivable on the rateaccompanying consolidate balance sheet, of which $7.4476,000%. Principal and interest shall be repaid is included in the approximate amountCurrent portion of notes receivable and $14,00024,000 is included in the long-term portion of notes receivable at December 31, 2023.
21. SUBSEQUENT EVENTS
Subsequent Events
The Company has evaluated all subsequent events and transactions through March 2029. This loan is collateralized by a Bobst Model Novacut26, 2024, the date that the consolidated financial statements were available to be issued and is guaranteed by DSS, Inc.other then the reverse stock split identified in Note 14 and noted no subsequent events requiring financial statement recognition or disclosure.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On June 29, 2022, the Company’s Board of Directors (the “Board”) approved replacing Turner, Stone & Company, LLP (the “Former Accountant”) as our independent registered public accounting firm, with Grassi & Co. CPAs, P.C. (the “New Accountant”) as our independent registered public accounting firm, effective July 1, 2022. The engagement of the New Accountant was recommended and approved by the Board.
The Former Accountant’s audit report on our financial statements for the year ended December 31, 2021 contained no adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles. The audit report of Turner, Stone & Company, LLP on our financial statements for the year ended December 31, 2021 contained no adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles.
For the yearsyear ended December 31, 2021 and 2020 and the interim period ending June 30, 2022, there were no “disagreements” (as such term is defined in Item 304 of Regulation S-K) with the Former Accountant or the Previous Accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of the Former Accountant or Previous Accountant, would have caused them to make reference thereto in their reports on the financial statements for such periods.
ForPrior to retaining the years ended December 31, 2021 and 2020 andNew Accountant, the interim period ending June 30, 2022, there wereCompany did not consult with the followingNew Accountant regarding either: (i) the application of accounting principles to a specified transaction, either contemplated or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements; or (ii) any matter that was the subject of a “disagreement” or a “reportable events”event” (as such term isthose terms are defined in Item 304 of Regulation S-K): as disclosed in Part II, Item 9A of the Company’s Form 10-K/A for the year ended December 31, 2021, the Former Accountant advised the Company that the internal controls necessary for the Company to develop reliable financial statements for such period did not exist; and as disclosed in the Company’s Current Report on Form 8-K dated December 3, 2021, the Previous Accountant advised the Company that the internal controls necessary for the Company to develop reliable financial statements for such period did not exist..
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 as of December 31, 2022.2023. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2022,2023, to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there were resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Management’s Annual Report on Internal Control over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022.2023. In making this assessment, management used the framework established in “Internal Control—Integrated Framework” promulgated by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, commonly referred to as the “COSO” criteria. Based on our assessment, we concluded that, as of December 31, 2022,2023, our internal control over financial reporting was not effective based on those criteria.
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In connection with management’s assessment of our internal control over financial reporting described above, the following weaknessweaknesses have been identified in the Company’s internal control over financial reporting as of December 31, 2022:2023:
| 1. | The Company did not maintain a sufficient complement of qualified accounting personnel and controls associated with segregation of duties over complex transactions. | |
| 2. | There was no systematic method of documenting that timely and complete monthly reconciliation and closing procedures take place. |
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.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
Changes in Internal Control over Financial Reporting
Remediation of the Material Weaknesses
Management believes it has taken significant steps during 2022, and subsequently in 2023, to strengthen our overall internal controls and eliminate the material weakness of those controls. During the 20232024 fiscal year, the Company will document and test the remediations put in place. Such remediation includes the following:
| ● | The Company |
| ● | The Company has centralized its accounting functions across all divisions. The goal of this process is to support the segregation of duties and to allow the Chief Financial Officer to focus on ensuring reporting packages, reconciliations, and other financial reports are accurate and timely reported. |
| ● | A monthly operations and financial review is performed with key members of the management team, executive committee, and accounting team which has enhanced the timeliness, formality and rigor of our financial statement preparation, review and reporting process. |
| ● | The Director of External Reporting will complete the appropriate disclosure check list for the required filings. The CFO will review the completion of this checklist in a timely manner for inclusion of all necessary disclosures. |
| ● | Routine account reconciliations for all key balance sheet accounts have been initiated. These account reconciliations are reviewed timely by an independent person. |
| ● | Procedures have been enhanced and count sheets modified to ensure accuracy of physical inventory counts. |
The Company 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.
Changes in Internal Control over Financial Reporting
While changes in the Company’s internal control over financial reporting occurred during the year ended December 31, 20222023 as the Company continued to implement the remediation steps described above, we have not been able to fully document and test these controls to ensure their effectiveness over financial reporting during the quarteryear ended December 31, 2022,2023, and thus cannot conclude that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B - OTHER INFORMATION
Please see the disclosure related to the winding down of our intellectual property monetization business included in ITEM 1 – BUSINESS, Overview, Strategic Business Plan, Exiting Unprofitable Business Lines, which information is incorporated in this Item 9B by reference.
DSS intends to hold its 20222023 Annual Meeting of Stockholders at the end of the third quarter of 2023.2024.
PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires the Company’s stockholders to have the opportunity to cast a non-binding advisory vote regarding the approval of the compensation disclosed in this Proxy Statement of the Company’s Named Executive Officers included in the summary compensation table and related disclosures. As discussed in the “Executive Compensation” section below, the Company has disclosed the compensation of the Named Executive Officers pursuant to rules adopted by the SEC. We believe that our compensation policies for the Named Executive Officers are designed to attract, motivate and retain talented executive officers and are aligned with the long-term interests of the Company’s stockholders. This advisory stockholder vote, commonly referred to as a “say-on-pay vote,” gives you as a stockholder the opportunity to approve or not approve the compensation of the Named Executive Officers that is disclosed in this Proxy Statement by voting for or against the following resolution (or by abstaining with respect to the resolution): RESOLVED, that the stockholders of DSS, Inc. approve all of the compensation of the Company’s executive officers who are named in the Summary Compensation Table of the Company’s 2022 Proxy Statement, as such compensation is disclosed in the Company’s 2022 Proxy Statement pursuant to Item 402 of Regulation S-K, which disclosure includes the Proxy Statement’s Summary Compensation Table and other executive compensation tables and related narrative disclosures. Because your vote is advisory, it will not be binding on either the Board of Directors or the Company. However, the Company’s Compensation and Management Resources Committee will take into account the outcome of the stockholder vote on this proposal at the Annual Meeting when considering future executive compensation arrangements. In addition, your non-binding advisory votes described in this Proposal 3 will not be construed: (1) as overruling any decision by the Board of Directors, any Board committee or the Company relating to the compensation of the Named Executive Officers, or (2) as creating or changing any fiduciary duties or other duties on the part of the Board of Directors, any Board committee or the Company.
Our executive officers and directors as of the date of this report are as follows:
| NAME | POSITION | |
Frank D. Heuszel Jason Grady Todd D. Macko Ambrose Chan Heng Fai
José Escudero
Wai Leung William Wu Tung Moe Chan Hiu Pan Joanne Wong Shui Yeung Frankie Wong Lim Sheng Hon Danny | Chief Executive Officer, Director Chief Operating Officer Chief Financial Officer Director, Chairman
Independent Director
Lead Independent Director Director Independent Director Independent Director Director |
Biographical and certain other information concerning the Company’s officers and directors is set forth below. Except for Mr. Ambrose Chan Heng Fai and his son Mr. Tung Moe Chan, there are no familial relationships among any of our directors. Except as indicated below, none of our directors is a director of any other reporting companies. None of our directors has been affiliated with any company that has filed for bankruptcy within the last ten years. We are not aware of any proceedings to which any of our directors, or any associate of any such director is a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries. Each executive officer serves at the pleasure of the Board of Directors.
| Name | Age | Director/Officer Since | Principal Occupation or Occupations and Directorships | |||
| Frank D. Heuszel | 66 | 2018 | Mr. Frank D. Heuszel currently serves as the Chief Executive Officer of DSS, Inc. (“DSS”), a NYSE American publicly traded company. He manages the strategic direction, growth, day to day operations, and governance of the New York based multinational company operating businesses in bio-health and bioscience, healthcare, securities trading and management platforms, blockchain technology, direct marketing, real estate, alternative energy, brand protection technology and securitized digital assets, with offices in Houston, Tx., Rochester, NY, Victor, NY, Dallas, Tx., Nashville, Tn., Winter Haven, Fl., Singapore, Malaysia, and Hong Kong.
Mr. Heuszel, 66, became DSS’s Chief Executive Officer and Interim Chief Financial Officer in April 2019. He has served as a member of DSS’s board of directors since July 2018 and served as chairman of the company’s Audit Committee from July 2018 to April 2019.
Heuszel has extensive expertise in a wide array of strategic, business, turnaround, and regulatory matters across several industries as a result of his executive management, educational, and operational experience. Prior to joining DSS, Mr. Heuszel had a very successful career in commercial banking. For over 35 years, Heuszel served in many senior executive roles with major US and international banking organizations. As a banker Mr. Heuszel has served as General Counsel, Director of Special Assets, Credit Officer, Chief Financial Officer and Auditor. Mr. Heuszel currently serves as CEO of the Texas bank holding company, American Pacific Bancorp. Mr. Heuszel also operates a successful law practice focuses on the regulation and operation of banks, management of bank litigation, corporate restructures, and merger and acquisitions. In addition to being an attorney and executive manager, Mr. Heuszel is also a Certified Public Accountant (retired), and a Certified Internal Auditor.
Mr. Heuszel also serves as a director of a Texas community bank, Herring Bank of Amarillo, Texas As a director, Mr. Heuszel also serves as Chairman of the Audit Committees. Mr. Heuszel was appointed to those position in May 2022.
Mr. Heuszel was born in Branson, Missouri, graduated from the University of Texas at Austin from the McCombs School of Business in 1979 and received his Doctorate of Jurisprudence with honors from South Texas College of Law in 1990. Frank received his certification as a Certified Public Accountant and as a Certified Internal Auditor in 1985.
Mr. Heuszel is also a member of the Texas State Bar, the Houston Bar Association, Association of Corporate Counsel, Texas Society of Certified Public Accountants, and the State Bar of Texas Bankruptcy Section. |
| Name | Age | Director/Officer Since | Principal Occupation or Occupations and Directorships | |||
| Frank D. Heuszel | 67 | 2018 | Frank D. Heuszel currently serves as the Chief Executive Officer of DSS, Inc., a NYSE American publicly traded company. He manages the strategic direction, growth, day to day operations, and governance of the New York based multinational company operating businesses in biohealth and bioscience, healthcare, securities trading and management platforms, blockchain technology, direct marketing, real estate, alternative energy, brand protection technology and securitized digital assets.
Mr. Heuszel became DSS’s Chief Executive Officer and Interim Chief Financial Officer in April 2019, prior to 2019 Mr. Heuszel was retired. He has served as a member of DSS’s board of directors since July 2018 and served as chairman of the company’s Audit Committee from July 2018 to April 2019.
Heuszel has extensive expertise in a wide array of strategic, business, turnaround, and regulatory matters across several industries as a result of his executive management, educational, and operational experience. Prior to joining DSS, Mr. Heuszel had a very successful career in commercial banking. For over 35 years, Heuszel served in many senior executive roles with major US and international banking organizations. As a banker, Mr. Heuszel has served as General Counsel, Director of Special Assets, Credit Officer, Chief Financial Officer and Auditor. Mr. Heuszel currently serves as CEO of the Texas bank holding company, American Pacific Bancorp. Mr. Heuszel also operates a successful law practice focuses on the regulation and operation of banks, management of bank litigation, corporate restructures, and merger and acquisitions. In addition to being an attorney and executive manager, Mr. Heuszel is also a Certified Public Accountant (retired), and a Certified Internal Auditor.
Mr. Heuszel also serves as a director of a Texas community bank, Herring Bank of Amarillo, Texas and Mr. Heuszel serves as Chairman of the Audit Committee. Mr. Heuszel was appointed to this position in May 2022.
Frank D. Heuszel was born in Branson, Missouri, graduated from the University of Texas at Austin from the McCombs School of Business in 1979 and received his Doctorate of Jurisprudence with honors from South Texas College of Law in 1990. Frank received his certification as a Certified Public Accountant and as a Certified Internal Auditor in 1985.
Mr. Heuszel is also a member of the Texas State Bar, the Houston Bar Association, Association of Corporate Counsel, Texas Society of Certified Public Accountants, and the State Bar of Texas Bankruptcy Section.
Mr. Heuszel’s years of experience with the Company and decades of experience in banking and law make him an asset to the Board |
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| Jason Grady | 2018 | Mr. Jason Grady has Company since August |
| Todd D. Macko | 2020 | Mr. Todd D. Macko was promoted to Chief Financial Officer on August 16, 2021. Mr. Macko previously served as the Interim Chief Financial Officer and Vice President of Finance of DSS. As the Interim Chief Financial Officer and Vice President of Finance, Mr. Macko’s responsibilities included assisting DSS’s Chief Executive Officer in all aspects of financial and regulatory reporting. In addition, his responsibilities included the day-to-day management of the Company’s Accounting and Finance team and the financial leadership in the directing and improving of the accounting, reporting, audit, and tax activities. Prior to his role as Vice President of Finance for the Company, Mr. Macko joined the wholly owned subsidiary of DSS, Premier Packaging Corporation in January 2019, as its Vice President of Finance. Mr. Macko is a Certified Public Accountant with over 25 years of public and corporate financial management, business leadership and corporate strategy. Mr. Macko brings a wealth of experience with strengths in financial planning and analysis, business process re-engineering, budgeting, merger and acquisitions, financial reporting systems, project evaluation and treasury and capital management. Prior to joining the Company, Mr. Macko served as the Corporate Controller for Baldwin Richardson Foods, a leading custom ingredients manufacturer for the food and beverage industry from November 2015 until January 2019. Prior to that, Mr. Macko served as the Controller for The Outdoor Group, LLC., Genesis Vision, Inc., Complemar Partners, Inc., and Level 3 Communications, Inc. Mr. Macko obtained is Bachelor of Science in Accounting from Rochester Institute of Technology. |
|
| José Escudero | 2019 | Mr. Mr. Escudero worked as a Partner at BMI Capital Partners from September 2013 to November 2019. Mr. Ecudero has worked as Certisign’s Chief Strategy and M&A Officer since November 2019. He is currently working as partner of the Managing Consulting firm Hallman & Burke, and previously worked for the Spanish M&A boutique Ambers & Co. He started his career in PwC. Mr. Escudero has a B.Sc. in Economics from the Francisco de Vitoria University (Madrid, Spain) where he ranked number one of the promotion. He has a Masters degree in Corporate Finance and Investment Banking from the Options & Futures Institute. Currently he is enrolled in Harvard University in Business Postgraduate studies. He collaborates with different Organizations and Business Schools as speaker and |
| ● | TED | |||||||
| ● | Ie - Instituto de Empresa | |||||||
| ● | Raffles University of Hong Kong | |||||||
| ● | IED - Istituto Europeo di Design | |||||||
| ● | ISDE - Instituto Superior de Derecho y Economía | |||||||
| ● | CEF - Centro de Estudios Financieros |
Mr. Escudero’s experience in mergers and acquisitions, corporate finance, and international trade along with his education in economics and finance and investment banking qualify him to serve on the Company’s Board of Directors and as a member of the Compensation and Management Resources Committee and the Nominating and Corporate Governance Committee. |
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| Wai Leung William Wu | 57 | 2019 | Mr. Wai Leung William Wu has served as a director of the Company since October 20, 2019. He served as the managing director of Investment Banking at Glory Sun Securities Limited since January 2019. Mr. Wu previously served as the executive director and chief executive officer of Power Financial Group Limited from November 2017 to January 2019. Mr. Wu has served as a director of Asia Allied Infrastructure HoldingsLimited since February 2015. Mr. Wu previously served as a director and chief executive officer of RHB Hong Kong Limited from April 2011 to October 2017. Mr. Wu served as the chief executive officer of SW Kingsway Capital Holdings Limited (now known as Sunwah Kingsway Capital Holdings Limited) from April 2006 to September 2010. Mr. Wu serves as a director and is on the audit committees of Alset Inc., traded on The Nasdaq Stock Market LLC; JY GrandMark Holdings Limited listed on the Hong Kong Stock Exchange; and Asia Allied Infrastructure Holdings Limited listed on the Hong Kong Stock Exchange. Mr. Wu holds a Bachelor of Business Administration degree and a Master of Business Administration degree of Simon Fraser University in Canada. He was qualified as a chartered financial analyst of The Institute of Chartered Financial Analysts in 1996. Mr. Wu previously worked for a number of international investment banks and possesses over 26 years of experience in the investment banking, capital markets, institutional broking and direct investment businesses. He is a registered license holder to carry out Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). Mr. Wu has served as a member of the Guangxi Zhuang Autonomous Region Committee of the Chinese People’s Political Consultative Conference in January 2013. Mr. Wu’s experience in banking, capital markets, investment banking, Asian economic and banking dynamics, and education in corporate finance and asset management qualify him to serve on the Company’s Board as Lead Independent Director, Chair of the Audit Committee and member of the Compensation and Management Resources Committee. |
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Tung Moe Chan
| 45 | 2020 | Mr. Tung Moe Chan has served as a director of the Company since September 2020. In addition, since August 2020, he has served as Director of Corporate Development of American Medical REIT Inc., a subsidiary of the Company.
Mr. Tung Moe Chan has served as the Co-Chief Executive Officer of Alset Inc., a Nasdaq listed company since July 2021 and as the Executive Director since October 2022. Mr. Tung Moe Chan also serves as the Co-Chief Executive Officer and Executive Director of Alset International Limited, a diversified holding company listed on the Catalist of the Singapore Exchange Securities Trading Limited. Mr. Moe Chan is responsible for Alset International Limited’s international real estate business (including serving as Co-Chief Executive Officer-International and a member of the Board of its subsidiary LiquidValue Development Inc.).
From April 2014 to June 2015, Mr. Moe Chan was the Chief Operating Officer of Zensun Enterprises Limited (formerly known as ZH International Holdings Limited and Heng Fai Enterprises Limited), an investment holding company listed on the HKSE and was responsible for that company’s global business operations consisting of REIT ownership and management, property development, hotels and hospitality, as well as property and securities investment and trading. Prior to that, Mr. Moe Chan was an executive director (from March 2006 to February 2014) and the Chief of Project Development (from April 2013 to February 2014) of SingHaiyi Group Ltd (now known as SingHaiyi Group Pte. Ltd.), a property development company in Singapore which was listed on the Singapore Exchange Mainboard, overseeing its property development projects. Mr. Moe Chan was also a non-executive director of the Toronto Stock Exchange-listed RSI International Systems Inc., a hotel software company and the developer of RoomKeyPMS, a web-based property management system, from July 2007 to August 2016.
Mr. Tung Moe Chan holds a Master’s Degree in Business Administration with honors from the University of Western Ontario, a Master’s Degree in Electro-Mechanical Engineering with honors and a Bachelor’s Degree in Applied Science with honors from the University of British Columbia
Mr. Tung Moe Chan’s experience with the Company and experience with global business operations makes him an asset to the Board. | |||
| Shui Yeung Frankie Wong | 53 | 2022 | Wong Shui Yeung joined the Board of Directors of the Company in July 2022. Mr. Wong is a practicing member and fellow member of Hong Kong Institute of Certified Public Accountants and a member of Hong Kong Securities and Investment Institute and holds a bachelor’s degree in business administration. Mr. Wong is a Certified Public Accountant admitted to practice in Hong Kong and he serves as the sole proprietor of S.Y.WONG. He has over 20 years’ experience in accounting, auditing, corporate finance, corporate investment and development, and company secretarial practice.
Mr. Wong previously worked for a number of listed companies as the Chief Financial Officer and/or Company Secretary for over 20 years. He was the CFO and/or Company Secretary of Lerthai Group Limited from September 2016 to December 2020, the shares of which were listed on the Hong Kong Stock Exchange. Mr. Wong has served as a member of the Board of Directors of Alset Capital Acquisition Corp. and Alset Inc. since January 2022 and November 2021 respectively, the shares of which are listed on NASDAQ. Mr. Wong has served as an independent non-executive director of Alset International Limited since June 2017, the shares of which are listed on the Catalist Board of Singapore Stock Exchange. Mr. Wong has served as a member of the Board of Directors of Value Exchange International, Inc. since April 2022, the shares of which are listed on the OTCQB. Mr. Wong was an independent non-executive director of SMI Holdings Group Limited from April 2017 to December 2020, the shares of which were listed on the Main Board of The Stock Exchange of Hong Kong Limited and was an independent non-executive director of SMI Culture & Travel Group Holdings Limited from December 2019 to November 2020, the shares of which are listed on the Main Board of The Stock Exchange of Hong Kong Limited. Mr. Wong’s experience with accounting, public companies, and development make him an asset to the Board and qualify him to act as Chairman of the Nominating and Corporate Governance Committee. |
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Wong Shui Yeung joined the Board of Directors of the Company in July 2022. Mr. Wong is a practicing member and fellow member of Hong Kong Institute of Certified Public Accountants and a member of Hong Kong Securities and Investment Institute and holds a bachelor’s degree in business administration. Mr. Wong is a Certified Public Accountant admitted to practice in Hong Kong and he serves as the sole proprietor of S.Y.WONG. He has over 20 years’ experience in accounting, auditing, corporate finance, corporate investment and development, and company secretarial practice. Mr. Wong previously worked for a number of listed companies as the Chief Financial Officer and/or Company Secretary for over 20 years. He was the CFO and/or Company Secretary of Lerthai Group Limited from September 2016 to December 2020, the shares of which were listed on the Hong Kong Stock Exchange. Mr. Wong has served as a member of the Board of Directors of Alset Capital Acquisition Corp. and Alset Inc. since January 2022 and November 2021 respectively, the shares of which are listed on NASDAQ. Mr. Wong has served as an independent non-executive director of Alset International Limited since June 2017, the shares of which are listed on the Catalist Board of Singapore Stock Exchange. Mr. Wong has served as a member of the Board of Directors of Value Exchange International, Inc. since April 2022, the shares of which are listed on the OTCQB. Mr. Wong was an independent non-executive director of SMI Holdings Group Limited from April 2017 to December 2020, the shares of which were listed on the Main Board of The Stock Exchange of Hong Kong Limited and was an independent non-executive director of SMI Culture & Travel Group Holdings Limited from December 2019 to November 2020, the shares of which are listed on the Main Board of The Stock Exchange of Hong Kong Limited. Mr. Wong’s experience with accounting, public companies, and development make him an asset to the Board and qualify him to act as Chairman of the Nominating and Corporate Governance Committee. | ||||||
Wong Shui Yeung joined the Board of Directors of the Company in July 2022. Mr. Wong is a practicing member and fellow member of Hong Kong Institute of Certified Public Accountants and a member of Hong Kong Securities and Investment Institute and holds a bachelor’s degree in business administration. Mr. Wong is a Certified Public Accountant admitted to practice in Hong Kong and he serves as the sole proprietor of S.Y.WONG. He has over 20 years’ experience in accounting, auditing, corporate finance, corporate investment and development, and company secretarial practice. Mr. Wong previously worked for a number of listed companies as the Chief Financial Officer and/or Company Secretary for over 20 years. He was the CFO and/or Company Secretary of Lerthai Group Limited from September 2016 to December 2020, the shares of which were listed on the Hong Kong Stock Exchange. Mr. Wong has served as a member of the Board of Directors of Alset Capital Acquisition Corp. and Alset Inc. since January 2022 and November 2021 respectively, the shares of which are listed on NASDAQ. Mr. Wong has served as an independent non-executive director of Alset International Limited since June 2017, the shares of which are listed on the Catalist Board of Singapore Stock Exchange. Mr. Wong has served as a member of the Board of Directors of Value Exchange International, Inc. since April 2022, the shares of which are listed on the OTCQB. Mr. Wong was an independent non-executive director of SMI Holdings Group Limited from April 2017 to December 2020, the shares of which were listed on the Main Board of The Stock Exchange of Hong Kong Limited and was an independent non-executive director of SMI Culture & Travel Group Holdings Limited from December 2019 to November 2020, the shares of which are listed on the Main Board of The Stock Exchange of Hong Kong Limited. Mr. Wong’s experience with accounting, public companies, and development make him an asset to the Board and qualify him to act as Chairman of the Nominating and Corporate Governance Committee. |
| Sassuan Samson Lee | 51 | 2019 | Mr. Samson Lee (or Sam) is a prominent entrepreneur and FinTech executive with over 25 years’ experience in the digital economy industry. He actively gives back and contributes to the industry, with solid track record in commercializing various blockchain, digital asset and e-business projects. Some of his recent projects includes, Winner of the “Asia Futurist Leadership Award” organized by the “Association of Family Offices in Asia”, Completion of two projects in the Fintech Proof-of-Concept Subsidy Scheme organized by The Financial Services and the Treasury Bureau (FSTB) of Hong Kong, Winner of “Security Tokens Realised Awards London 2020”, Co-organizer of TADS Awards, the world’s first international awards for Tokenized Assets & Digitized Securities, inaugurated in 2020, Co-organizer of Digital Asset Series (DAS), one of the first and largest educational seminar in Asia, supported by 3 government bodies, 5 universities and 7 industry organizations, Honorary Guest Lecturer & Fintech and Blockchain Committee of Hang Seng University of Hong Kong - EDC (2019-2020), Author of the “Digital Asset Year” chapter of “Welcome to the New Era of Finance - Hong Kong’s Fintech Practice and Prospects” book, published by Hong Kong University of Science and Technology, Co-chairman of “Asia Pacific Digital Economy Institute”, Co-chairman of “NFT Association of Hong Kong”. Mr. Lee graduated with an MBA and a Master of Science degrees from the Hong Kong University of Science and Technology, and a Bachelor of Commerce degree from the University of Toronto. | |||
| Wai Leung William Wu | 56 | 2019 | Mr. Wu, aged 56, holds a Bachelor of Business Administration degree and a Master of Business Administration degree of Simon Fraser University in Canada. He was qualified as a chartered financial analyst of The Institute of Chartered Financial Analysts in 1996. Mr. Wu was the chief executive officer of SW Kingsway Capital Holdings Limited (now known as Sunwah Kingsway Capital Holdings Limited) (a company listed on the Main Board of the Stock Exchange, stock code: 00188) from April 2006 to September 2010. He was also a director and chief executive officer of RHB Hong Kong Limited from April 2011 to October 2017. Mr. Wu has been appointed as the non-executive, independent member of the board of DSS, Inc. (a company listed on the New York Stock Exchange, stock code: DSS) since October 2019, the independent director of Alset EHome International Inc. (a company listed on NASDAQ, stock code: AEI) since November 2020, the independent nominee director of Alset Capital Acquisition Corp. (a company listed on NASDAQ, stock code: ACAX) since January 2022 and the independent non-executive director of JY Grandmark Holdings Limited (a company listed on the Main Board of the Stock Exchange, stock code: 02231) since November 2019. Mr. Wu has also been appointed as managing director, Investment Banking of Glory Sun Securities Limited from January 2019 to May 2022.
Mr. Wu previously worked for a number of international investment banks and possesses over 29 years of experience in the investment banking, capital markets, institutional broking and direct investment businesses. He is a registered license holder to carry out Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). He has been appointed as a member of the Guangxi Zhuang Autonomous Region Committee of the Chinese People’s Political Consultative Conference since January 2013. Mr. Wu has been appointed as Independent Non-executive Director since February 2015 and is also the Chairman of Audit Committee and a member of the Remuneration Committee and Nomination Committee. |
| Hiu Pan Joanne Wong | 56 | 2022 | Ms. Joanne Wong has been Director and Responsible Officer (SFC), BMI Funds Management Limited since August 6, 2014. She has participated as the management role in fund administrator activities in A-Link Services Limited and Global Intelligence Trust Limited since 2020 and 2018. Ms. Joanne Wong graduated from The Chinese University of Hong Kong (CUHK) with an Honors Bachelor’s degree in Chemistry 1999. She has expertise in an array of strategic, business, turnaround and regulatory matters spanning across several industries. Ms. Joanne Wong’s experience in turnaround and regulatory matters across several industries makes her an asset to the Board. | |||
| Lim Sheng Hon Danny | 32 | 2023 | Mr. Lim Sheng Hon Danny has served as a director of the Company since 2023.
Mr. Lim Sheng Hon Danny has served as Senior Vice President, Business Development and as Executive Director of Alset International Limited, a diversified holding company listed on the Catalist of the Singapore Exchange Securities Trading Limited, since 2020. Mr. Lim Sheng Hon Danny has served as an Executive Director of Alset Inc., a Nasdaq listed company, since October 2022. Mr. Lim Sheng Hon Danny has served as Chief Operating Officer of HWH International Inc., a publicly traded company on the Nasdaq stock exchange since February 2024 and also serves as its Chief Strategy Officer.
Mr. Lim has over 7 years of experience in business development, merger & acquisitions, corporate restructuring and strategic planning and execution. Mr. Lim manages the Group’s business development efforts, focusing on corporate strategic planning, merger and acquisition and capital markets activities. He oversees and ensures the executional efficiency of the Group and facilitates internal and external stakeholders on the implementation of the Group’s strategies. Mr. Lim liaises with corporate partners or investment prospects for potential working/ investment collaborations, operational subsidiaries locally and overseas to augment close parent-subsidiary working relationship.
Mr. Lim graduated from Singapore Nanyang Technological University with a Bachelor’s Degree with Honors in Business, specializing in Banking and Finance. | |||
| Ambrose Chan Heng Fai | 79 | 2017 | Mr. Ambrose Chan Heng Fai has served as a director of the Company since February 12, 2017 and became Chairman of the Board of Directors on March 27, 2019. He has also served as an officer of the Company’s wholly-owned subsidiaries, DSS International Inc. since July of 2017, as the Chief Executive Officer of DSS Digital Transformation Limited and DSS Cyber Security Pte. Ltd. since July 2019.
Mr. Chan is an expert in banking and finance, with 45 years of experience in these industries. He has also restructured numerous companies in various industries and countries during the past 40 years.
Mr. Chan has served as the Chairman of the Board and Chief Executive Officer of Alset Inc., a Nasdaq listed company, since March 2018. Mr. Chan has served as the Chief Executive Officer of Alset International Limited, a diversified holding company listed on the Catalist of the Singapore Exchange Securities Trading Limited, since April 2014, and has served as a director of that company since May of 2013. Mr. Chan has served as the Chairman of HWH International Inc. (formerly known as Alset Capital Acquisition Corp.), a Nasdaq listed company, since October 2021. Mr. Chan has served as a member of the Board of Directors of Hapi Metaverse Inc. (formerly known as GigWorld Inc.), a technology company since October of 2014, as Executive Chairman since December 2017 and served as the Acting Chief Executive Officer of Hapi Metaverse Inc. from August 2018 until September 2020, having previously served as Chief Executive Officer from December of 2014 until June of 2017. Mr. Chan served as a non-executive director of Holista CollTech Ltd., an ASX listed company, from July 2013 to June 2021. Mr. Chan served as a director of OptimumBank Holdings, Inc. from June 2018 to April 2022. Mr. Chan has served as a director of Sharing Services Global Corporation, an OTCQB since April 2020 and as the Chairman of the Board since July 2021.
Mr. Chan’s previous experiences include serving as Managing Chairman of Zensun Enterprises Limited (formerly known as ZH International Holdings Limited and Heng Fai Enterprises Limited), an investment holding company listed on the HKSE, from 1992 to 2015. Mr. Chan was formerly the Managing Director of SingHaiyi Group Ltd. (now known as SingHaiyi Group Pte. Ltd.), a property development company in Singapore which was listed on the Singapore Exchange Mainboard, from March 2003 to September 2013, and the Executive Chairman of China Gas Holdings Limited, a Hong Kong listed investor and operator of city gas pipeline infrastructure in China from 1997 to 2002. Mr. Chan served on the Board of RSI International Systems, Inc., a Toronto Stock Exchange-listed, the developer of RoomKeyPMS, a web-based property management system, from June 2014 to February 2019.
Mr. Chan has also served as a director of Global Medical REIT Inc., a healthcare facility real estate company, from December 2013 to July 2015. He was a director of American Housing REIT Inc. from October of 2013 to July of 2015. He served as a director of Skywest Ltd., a public Australian airline company from 2005 to 2006. Mr. Chan was a director of Global Med Technologies, Inc., a medical company engaged in the design, development, marketing and support information for management software products for healthcare-related facilities, from May 1998 until December 2005.
Mr. Chan’s international business contacts and experience qualify him to serve on our Board of Directors. |
Tung Moe Chan
| 44 | 2020 | Mr. Tung Moe Chan has served as a director of the Company since September 2020. He currently serves as a director and Co-Chief Executive Officer of Singapore Exchange-listed Alset International Limited, where he has held various positions since 2015. In addition, since August 2020, he has served as Director of Corporate Development of American Medical REIT Inc. Prior to that, in 2015 he was Group Chief Operating Officer of Hong Kong Stock Exchange listed Zensun International Limited where he was responsible for the company’s global business operations consisting of REIT ownership and management, property development, hotels and hospitality, as well as property and securities investment and trading. Previously, Mr. Moe Chan served as a director of MasterCard issuer Xpress Finance Limited as well as RSI International Systems Inc., which was a hotel software company listed on the Toronto Stock Exchange.
He holds a Master’s Degree in Business Administration with honors from the University of Western Ontario, a Master’s Degree in Electro-Mechanical Engineering with honors and a Bachelor’s Degree in Applied Science with honors from the University of British Columbia. | |||
| Shui Yeung Frankie Wong | 52 | 2022 | Wong Shui Yeung joined the Board of Directors of our company in July 2022. Mr. Wong is a practicing member and fellow member of Hong Kong Institute of Certified Public Accountants and a member of Hong Kong Securities and Investment Institute and holds a bachelor’s degree in business administration. He has over 20 years’ experience in accounting, auditing, corporate finance, corporate investment and development, and company secretarial practice. Mr. Wong has served as a member of the Board of Directors of Alset Capital Acquisition Corp. and Alset Inc. since January 2022 and November 2021 respectively, the shares of which are listed on NASDAQ. Mr. Wong has served as an independent non-executive director of Alset International Limited since June 2017, the shares of which are listed on the Catalist Board of Singapore Stock Exchange. Mr. Wong has served as a member of the Board of Directors of Value Exchange International, Inc. since April 2022, the shares of which are listed on the OTCQB. Mr. Wong was an independent non-executive director of SMI Holdings Group Limited from April 2017 to December 2020, the shares of which were listed on the Main Board of The Stock Exchange of Hong Kong Limited and was an independent non-executive director of SMI Culture & Travel Group Holdings Limited from December 2019 to November 2020, the shares of which are listed on the Main Board of The Stock Exchange of Hong Kong Limited. | |||
| Mr. Wong’s knowledge of complex, cross-border financial, accounting and tax matters highly relevant to our business, as well as working experience in internal corporate controls, qualify him to serve as an independent member of the board. Mr. Wong serves on our Audit Committee and Nominations and Corporate Governance Committee. | ||||||
| Hiu Pan Joanne Wong | 55 2022 | Ms. Joanne Wong has been Director and Responsible Offices (SFC), BMI Funds Management Limited since August 6, 2014. She has participated as the management role in fund administrator activities in A-Link Services Limited and Global Intelligence Trust Limited since 2020 and 2018. Ms. Wong graduated from The Chinese University of Hong Kong (CUHK) with an Honors Bachelor’s degree in Chemistry 1999. She has expertise in an array of strategic, business, turnaround and regulatory matters spanning across several industries. Ms. Wong’s experience in turnaround and regulatory matters across several industries makes her an asset to the Board. |
Board of Directors and Committees
The Company has determined that each of Mr. Wai Leung William Wu, Mr. Sassuan Samson Lee, Mr. Shui Yeung Frankie Wong, Ms. Hiu Pan Joanne Wong and Mr. José Escudero qualify as independent directors (as defined under Section 803 of the NYSE American LLC Company Guide).
In fiscal 2022,2023, each of the Company’s independent directors attended or participated in approximately 86%92% or more of the aggregate of (i) the total number of meetings of the Board of Directors held during the period in which each such director served as a director and (ii) the total number of meetings held by all committees of the Board of Directors during the period in which each such director served on such committee. All directors attended last year’s annual general meeting. During the fiscal year ended December 31, 2022,2023, the Board held three meetings and acted by written consent on eightfourteen occasions.
Effective July 8, 2022, the Board of Directors elected Mr. Shui Yeung Frankie Wong as a non-executive member of the Company’s Board of Directors. Mr. Wong will serve as an independent director and serve on the Audit Committee and the Nominating and Corporate Governance Committee.
Effective July 11, 2022, the Board of the Company elected Ms. Hiu Pan Joanne Wong as an independent, non-executive director of the Board.
On or around June 2022, Mr. John Thatch was no longer considered an independent director under the New York Stock Exchange listing standards. Mr. Thatch remains a member of the Company’s Board. On July 22, 2022, Mr. Wai Leung William Wu was appointed Lead Independent Director and Chairman of the Audit Committee.
OnEffective August 19, 2021, Lo Wah Wai resigned31, 2023, the Board of the Company elected Mr. Lim Sheng Hon Danny as a, membernon-executive director of the Board.
Mr. Lo’s resignation was accepted and became effective August 20, 2021.John Thatch resigned from the Board on September 1, 2023. Mr. LoThatch did not resign from the Board as a result of any disagreement related to the Company’s operations, policies or practices but rather duepractices.
Mr. Sassuan Samson Lee resigned from the Board on February 8, 2024. Mr. Lee did not resign from the Board as a result of any disagreement related to his “heavy workload and commitment in other corporations”.the Company’s operations, policies or practices.
Audit Committee
The Company has separately designated an Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee held fivesix meetings in 20212023 and did not acted by written consent twice.consent. The Audit Committee is responsible for, among other things, the appointment, compensation, removal and oversight of the work of the Company’s independent registered public accounting firm, overseeing the accounting and financial reporting process of the Company, and reviewing related person transactions. As of December 31, 2021, the Audit Committee was comprised of Mr. Thatch, Mr. Wu2023 and Mr. Lee. Mr. Thatch is no longer a member of the Audit Committee. As of July 22,December 31, 2022, the Audit Committee is comprised of Mr. Wu, who serves as Chairman of the Audit Committee, Mr. Shui Yeung Frankie Wong, and Mr. Escudero. Each of Messrs. Wu and Escudero is qualified as a “financial expert” as defined in Item 407 under Regulation S-K of the Securities Act of 1933, as amended (the “Securities Act”). Mr. Wong is financially sophisticated. Each of Mr. Wu, Mr. Escudero and MrMr. Wong is an independent director (as defined under Section 803 of the NYSE American LLC Company Guide). The Audit Committee operates under a written charter adopted by the Board of Directors, which can be found in the Investors/Corporate Governance section of our web site, www.dsssecure.com.
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Compensation and Management Resources Committee
The purpose of the Compensation and Management Resources Committee is to assist the Board in discharging its responsibilities relating to executive compensation, succession planning for the Company’s executive team, and to reviewing and making recommendations to the Board regarding employee benefit policies and programs, incentive compensation plans and equity-based plans. The Compensation and Management Resources Committee met oncetwice in 2021.2023. The Compensation and Management Resources Committee is responsible for, among other things, (a) reviewing all compensation arrangements for the executive officers of the Company and (b) administering the Company’s stock option plans. The Compensation and Management Resources Committee consists of Mr. Escudero, Mr. Wu and Mr. Wong, with Mr. Escudero as the Chairman. Each of the members of the Compensation and Management Resources Committee is an independent director (as defined under Section 803 of the NYSE American Company Guide). The Compensation and Management Resource Committee operates under a written charter adopted by the Board of Directors, which can be found in the Investors/Corporate Governance section of our web site, www.dsssecure.com. The duties and responsibilities of the Compensation and Management Resources Committee in accordance with its charter, are to review and discuss with management and the Board the objectives, philosophy, structure, cost and administration of the Company’s executive compensation and employee benefit policies and programs; no less than annually, review and approve, with respect to the Chief Executive Officer and the other executive officers (a) all elements of compensation, (b) incentive targets, (c) any employment agreements, severance agreements and change in control agreements or provisions, in each case as, when and if appropriate, and (d) any special or supplemental benefits; make recommendations to the Board with respect to the Company’s major long-term incentive plans applicable to directors, executives and/or non-executive employees of the Company and approve (a) individual annual or periodic equity-based awards for the Chief Executive Officer and other executive officers and (b) an annual pool of awards for other employees with guidelines for the administration and allocation of such awards; recommend to the Board for its approval a succession plan for the Chief Executive Officer, addressing the policies and principles for selecting a successor to the Chief Executive Officer, both in an emergency situation and in the ordinary course of business; review programs created and maintained by management for the development and succession of other executive officers and any other individuals identified by management or the Compensation and Management Resources Committee; review the establishment, amendment and termination of employee benefits plans, review employee benefit plan operations and administration; and any other duties or responsibilities expressly delegated to the Compensation and Management Resources Committee by the Board from time to time relating to the Committee’s purpose. The Compensation and Management Resources Committee may request any officer or employee of the Company or the Company’s outside counsel to attend a meeting of the Compensation and Management Resources Committee or to meet with any members of, or consultants to, the Compensation and Management Resources Committee. The Company’s Chief Executive Officer does not attend any portion of a meeting where the Chief Executive Officer’s performance or compensation is discussed, unless specifically invited by the Compensation and Management Resources Committee.
The Compensation and Management Resources Committee has the sole authority to retain and terminate any compensation consultant to be used to assist in the evaluation of director, Chief Executive Officer or other executive officer compensation or employee benefit plans and has sole authority to approve the consultant’s fees and other retention terms. The Compensation and Management Resources Committee also has the authority to obtain advice and assistance from internal or external legal, accounting or other experts, advisors and consultants to assist in carrying out its duties and responsibilities and has the authority to retain and approve the fees and other retention terms for any external experts, advisors or consultants.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is responsible for overseeing the appropriate and effective governance of the Company, including, among other things, (a) nominations to the Board of Directors and making recommendations regarding the size and composition of the Board of Directors and (b) the development and recommendation of appropriate corporate governance principles. As ofAt December 31, 2021,2023, the Nominating and Corporate Governance Committee consisted of Mr. Thatch, the Chairman of the committee,Wu, Mr. LeeWong and Mr. Escudero, each of whom is an independent director (as defined under Section 803 of the NYSE American LLC Company Guide). On July 22, 2022,Guide Mr. Shui Yeung Frankie Wong was appointed to the Nominating and Corporate Governance Committee as Chair of the Committee. The members of the Nominating and Corporate Governance Committee were confirmed to be Mr. Shui Yeung Frankie Wong, Ms. Wong, and Mr. Escudero.
The Nominating and Corporate Governance Committee met twiceonce during 20212023 and did not act by written consent in 2021.2023. The Nominating and Corporate Governance Committee operates under a written charter adopted by the Board of Directors, which can be found in the Investors/Corporate Governance section of our web site, www.dsssecure.com. The Nominating and Corporate Governance Committee adheres to the Company’s By-Laws provisions and Securities and Exchange Commission rules relating to proposals by stockholders when considering director candidates that might be recommended by stockholders, along with the requirements set forth in the committee’s Policy with Regard to Consideration of Candidates Recommended for Election to the Board of Directors, also available on our website. The Nominating and Corporate Governance Committee of the Board of Directors is responsible for identifying and selecting qualified candidates for election to the Board of Directors prior to each annual meeting of the Company’s stockholders. In identifying and evaluating nominees for director, the Committee considers each candidate’s qualities, experience, background and skills, as well as other factors, such as the individual’s ethics, integrity and values which the candidate may bring to the Board of Directors. Currently, the Nominating and Corporate Governance Committee does not have an explicit policy regarding diversity, however, when considering candidates nominees shall not be discriminated against based on race, religion, national origin, sex, disability or any other basis proscribed by applicable law.
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Code of Ethics
The Company has adopted a Code of Ethics that establishes the standards of ethical conduct applicable to all directors, officers and employees of the Company. A copy of the Code of Ethics covering all of our employees, directors and officers, and all other corporate governance documents, are available on the Corporate Governance section of our web site at www.dsssecure.com.
Information about our Executive Officers
Since
On April 17, 2019, Frank D. Heuszel has been serving asbecame the Chief Executive Officer and Interimof the Company. On August 16, 2021, Todd D. Macko was appointed Chief Financial Officer of the Company. On October 28, 2020, Mr.July 15, 2019, Jason Grady was appointed Chief Operating Officer of the Company. The biographies for Messrs. Heuszel, became solely the CEOMacko and transferred the Interim Chief Financial Officer title to Todd D. Macko, who became the permanent CFO on August 16, 2021. The biography for Mr. Heuszel and Mr. Macko isGrady are contained herein in the information disclosures relating to the Company’s directors above.
Involvement in Certain Legal Proceedings
None of our directors or executive officers has been involved in any legal proceedings in the past 10 years that would require disclosure under Item 401(f) of Regulation S-K.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than ten percent of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and holders of more than ten percent of the Company’s Common Stock are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
To the Company’s knowledge, based solely upon review of the copies of such reports filed with the SEC and written representations that no other reports were required, during the fiscal year ended December 31, 2023 all Section 16(a) filing requirements applicable to the Company’s officers, directors and holders of more than ten percent of the Company’s common stock were satisfied.
ITEM 11 - EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation earned by each of the persons serving as the Company’s Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, referred to herein collectively as the “Named Executive Officers”, or NEOs, for services rendered to us for the years ended December 31, 20222023 and 2021:2022:
| Name and principal position | Year | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation Earnings | All Other Compensation (1)(2) | Total | |||||||||||||||||||||||||||
| Frank D. Heuszel, Chief Executive Officer | 2022 | $ | 260,000 | 28,442 | - | - | - | - | $ | 146,196 | $ | 314,639 | ||||||||||||||||||||||||
| 2023 | $ | 260,000 | 268,000 | - | - | - | - | 147,973 | 555,973 | |||||||||||||||||||||||||||
| Jason T. Grady, Chief Operating Officer | 2022 | $ | 210,000 | 10,000 | - | - | - | - | $ | 16,735 | $ | 236,735 | ||||||||||||||||||||||||
| 2023 | $ | 247,344 | 78,319 | - | - | - | - | 19,460 | $ | 345,123 | ||||||||||||||||||||||||||
| Todd D. Macko, Chief Financial Officer | 2022 | $ | 198,000 | $ | 42,887 | $ | 17,154 | 258,041 | ||||||||||||||||||||||||||||
| 2023 | $ | 235,609 | 55,400 | - | - | - | - | 19,196 | $ | 310,205 | ||||||||||||||||||||||||||
| Name and principal position | Year | Salary | Bonus | Stock Awards (1) | Option Awards | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation Earnings | All Other Compensation (2) | Total | |||||||||||||||||||||||||||
| Frank D. Heuszel, Chief Executive Officer | 2022 | $ | 260,000 | 28,442 | - | - | - | - | 26,196 | $ | 314,639 | |||||||||||||||||||||||||
| 2021 | $ | 260,000 | - | - | - | - | - | 40,587 | $ | 300,587 | ||||||||||||||||||||||||||
| Jason T. Grady, Chief Operating Officer | 2022 | $ | 210,000 | 10,000 | - | - | - | - | 16,735 | $ | 236,735 | |||||||||||||||||||||||||
| 2021 | $ | 204,038 | 200,000 | - | - | - | - | 29,100 | $ | 433,138 | ||||||||||||||||||||||||||
| Todd D. Macko, Chief Financial Officer | 2022 | 198,000 | 42,887 | 17,154 | 258,041 | |||||||||||||||||||||||||||||||
| 2021 | $ | 172,154 | 115,513 | - | - | - | - | 25,900 | $ | 313,567 | ||||||||||||||||||||||||||
| (1) | |
| Includes health insurance premiums, retirement matching funds and automobile expenses paid by the Company. | |
| (2) | As part of a consulting agreement Mr. Heuszel had with APB prior to becoming the CEO of the Company, he is compensated $120,000 annual for various responsibilities. |
Employment and Severance Agreements
On December 12, 2023, Frank D. Heuszel, has served as the Company’s Chief Executive Officer since April 11, 2019, was the Company’s Interim Chief Financial Officer since April 17, 2019 from that date until October 28, 2020. Upon his appointment,(“CEO”) of DSS, Inc. (the “Company”) and the Company executed a letter agreement (“Heuszel Interim Agreement”) pursuant to which Mr. Heuszel agreed to pay Mr. Heuszel cash compensation in the amount of $7,500 per month for his combined servicesact as Interim Chief Executive Officer and Chief Financial Officer. On August 27, 2019, the Company entered into an executive employment agreement with Mr. Heuszel. Pursuant to the agreement, Mr. Heuszel was entitled to receive an annual base salary of $165,000, payable bi-weekly, and was entitled to be eligible to receive an annual performance bonus in an amount up to 100% of his base salary, upon the Company’s achievement of certain net income and gross revenue milestones. In the event of a change in controlCEO of the Company or the termination ofon a month-to-month basis beginning January 1, 2024 until a new employment agreement is executed (the “Heuszel Interim Period”). Mr. Heuszel’s current employment without cause, Mr. Heuszel was entitledagreement pursuant to receive four-months’ salary, payable monthly. In October 2020, this Employment Contract was extended on the same general terms to expire on December 31, 2021. Commencing January 1, 2021, the Company and Mr. Heuszel have entered into a new three-year Employment Contract schedule to terminatewhich he serves as CEO expires on December 31, 2023. UnderIn accordance with the terms of this Employment Contract,Heuszel Interim Agreement, Mr. Heuszel will continue to act as CEO until either a new employment agreement is entitledsuccessfully negotiated and executed or if the Heuszel Interim Agreement is terminated by either party by giving one month’s written notice to receive an annualthe other party. Pursuant to the Heuszel Interim Agreement, Mr. Heuszel’s base salary ofis $260,000 per annum, which will be payable bi-weekly, and he is eligible to receive an annual performancehim monthly in arrears. There will be no bonus in an amount up to 100% of his base salary, uponaccrued or payable during the Company’s achievement of certain net income and gross revenue milestones. As in his previous employment agreement, in the event of his termination without cause, Mr. Heuszel shall receive four-months’ salary, payable monthly.Interim Period.
Affective January 1, 2022, the Company entered in an executive employment agreement with Mr.On December 15, 2023, Jason Grady, the Company’s Chief Operating Officer covering(“COO”) of the periodCompany and the Company executed a letter agreement (the “Grady Interim Agreement”) pursuant to which Mr. Grady agreed to act as COO of the Company on a month-to-month basis beginning January 1, 2022 through2024 until a new employment agreement is executed (the “Grady Interim Period”). Mr. Grady’s current employment agreement pursuant to which he serves as COO expires on December 31, 2023. In accordance with the Grady Interim Agreement, Mr. Grady will continue to act as COO until either a new employment agreement is successfully negotiated and executed or if the Grady Interim Agreement is terminated by either party by giving one month’s written notice to the other party. Pursuant to the agreement,Grady Interim Agreement, Mr. Grady shall receive an annualGrady’s base salary of $210,000 and shallis $260,000 per annum, which will be eligiblepayable to receive an annual performancehim monthly in arrears. There will be no bonus in an amount up to 100% of his base salary, uponaccrued or payable during the Company’s achievement of certain net income and gross revenue milestones. InGrady Interim Period.
Also on December 15, 2023, Todd Macko, the event of a change in controlChief Financial Officer (“CFO”) of the Company or the termination of Mr. Grady’s employment without cause, he shall be entitled to receive four-month’s base salary.
On September 23, 2019,and the Company entered in an executive employmentexecuted a letter agreement with(the “Macko Interim Agreement”) pursuant to which Mr. Heng Fai Ambrose Chan, a directorMacko agreed to act as CFO of the Company Chief Executive Officer ofon a month-to-month basis beginning January 1, 2024 until a new employment agreement is executed (the “Macko Interim Period”). Mr. Macko’s current employment agreement pursuant to which he serves as CFO expires on December 31, 2023. In accordance with the Company’s wholly-owned subsidiary DSS International Inc.Macko Interim Agreement, Mr. Macko will continue to act as CFO until either a new employment agreement is successfully negotiated and Chief Executive Officer of DSS Asia, a wholly-owned subsidiary of DSS International Inc.executed or if the Macko Interim Agreement is terminated by either party by giving one month’s written notice to the other party. Pursuant to the agreement,Macko Interim Agreement, Mr. Chan shall receive an annualMacko’s base salary of $250,000,is $248,000 per annum, which will be payable quarterlyto him in either cash or common stock, subject to availability of shares under a shareholder-approved stock plan. The calculation of each quarterly payment of common stock shall beaccordance with the Company’s average trading price for the last ten trading days of that quarter. Mr. Chan is also eligible to receive an annual performance bonus, in an amount up to 100% of his base salary, upon the Company’s achievement of certain net income and gross revenue milestones. Mr. Chan has the option to have the bonus paid in Company common stock. In the event of a change in controlpayroll policies of the CompanyCompany. There will be no bonus accrued or payable during the termination of Mr. Chan’s employment without cause, Mr. Chan shall receive four-months’ salary, payable monthly. In connection with this agreement, Mr. Chan was awarded 74,770 shares of fully vested restricted stock with a two-year lock-up period and had an aggregated grant date fair value of approximately $31,000. Mr. Chan’s employment agreement was amended on November 19, 2020, retroactive to January 1, 2020. Under the terms of this amendment, Mr. Chan’s annual salary is set at $1.00 and is eligible for bonuses based on market capitalization growth, and annual net asset change.Macko Interim Period.
Affective January 1, 2022, the Company entered in an executive employment agreement with Mr. Todd D. Macko, the Company’s Chief Financial Officer covering the period of January 1, 2022 through December 31, 2023. Mr. Macko shall receive a base pay $198,000 annually and shall be eligible to receive an annual performance bonus, in an amount up to 80% of his base salary, upon the Company’s achievement of certain net income and EBITDA milestones. In the event of a change in control of the Company or the termination of Mr. Macko’s employment without cause, he shall be entitled to receive four-month’s base salary.
Outstanding Equity Awards at Fiscal Year-End
As of December 31, 2022,2023, there were no outstanding equity awards to our Named Executive Officers.
Director Compensation
The following table sets forth cash compensation and the value of stock options awards granted to the Company’s non-employee independent directors for their service in 2022:2023:
| Name | Fees Earned or Paid in Cash | Stock Awards (1) | All Other Compensation (2) | Total | Fees Earned or Paid in Cash | Stock Awards | All Other Compensation | Total | ||||||||||||||||||||||||
| Current Directors | ||||||||||||||||||||||||||||||||
| Frank D. Heuszel | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
| Heng Fai Ambrose Chan | $ | - | $ | - | $ | 7,208,031 | $ | 7,208,031 | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
| John “JT” Thatch | $ | 11,500 | $ | - | $ | - | $ | 11,500 | ||||||||||||||||||||||||
| Sassuan (Samson) Lee | $ | 30,300 | $ | - | $ | - | $ | 30,300 | ||||||||||||||||||||||||
| Lim Sheng Hon Danny | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||||||
| José Escudero | $ | 29,600 | $ | - | $ | - | $ | 29,600 | $ | 27,150 | $ | - | $ | - | $ | 27,150 | ||||||||||||||||
| Wai Leung William Wu | $ | 31,800 | $ | - | $ | - | $ | 31,800 | $ | 27,150 | $ | - | $ | - | $ | 27,150 | ||||||||||||||||
| Hiu Pan Joanne Wong | $ | 7,35013,250 | $ | - | $ | - | $ | 13,250 | $ | 21,100 | $ | - | $ | - | $ | 21,100 | ||||||||||||||||
| Shui Yeung Frankie Wong | $ | 7,85014,500 | $ | 14,500 | ||||||||||||||||||||||||||||
| Wong Shui Yueng | $ | 27,150 | $ | - | $ | - | $ | 27,150 | ||||||||||||||||||||||||
| Sassuan Samson Lee | $ | 22,100 | $ | - | $ | - | $ | 22,100 | ||||||||||||||||||||||||
| Tung Moe Chan | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | ||||||||||||||||
Each independent director (as defined under Section 803 of the NYSE MKT LLC Company Guide) is entitled to receive base cash compensation of $18,000 annually, provided such director attends at least 75% of all Board of Director meetings, and all scheduled committee meetings. Each independent director is entitled to receive an additional $1,000 for each Board of Director meeting he attends, and an additional $500 for each nominating and compensation committee meeting he attends and $750 for each audit and executive committee meeting he attends, provided such committee meeting falls on a date other than the date of a full Board of Directors meeting. Each of the independent directors is also eligible to receive discretionary grants of options or restricted stock under the Company’s 2020 Equity Incentive Plan. Non-independent members of the Board of Directors do not receive compensation in their capacity as directors, except for reimbursement of travel expenses.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth beneficial ownership of Common Stock as of March 14, 20221, 2024 by each person known by the Company to beneficially own more than 5% of the Common Stock, each director and each of the executive officers named in the Summary Compensation Table (see “Executive Compensation” above), and by all of the Company’s directors and executive officers as a group. Each person has sole voting and dispositive power over the shares listed opposite his name except as indicated in the footnotes to the table and each person’s address is c/o DSS, Inc., 275 Wiregrass Parkway, West Henrietta, New York 14586.
For purposes of this table, beneficial ownership is determined in accordance with the Securities and Exchange Commission rules, and includes investment power with respect to shares owned and shares issuable pursuant to warrants for March 14, 20221, 2024.
The percentages of shares beneficially owned are based on 139,017,1727,066,772 shares of our Common Stock issued and outstanding as of March 13, 2023,1, 2024, and is calculated by dividing the number of shares that person beneficially owns by the sum of (a) the total number of shares outstanding on March 13, 2023,1, 2024, plus (b) the number of shares such person has the right to acquire within 60 days of March 13, 2023.
1, 2024.
| Percentage of | ||||||||||||||||
| Number of Shares | Outstanding Share | |||||||||||||||
| Name | Number of Shares Beneficially Owned | Percentage of Outstanding Share Beneficially Owned | Beneficially Owned | Beneficially Owned | ||||||||||||
| Heng Fai Ambrose Chan (1) | 81,786,142 | 58.8 | % | 4,122,916 | 58.3 | % | ||||||||||
| John “JT” Thatch | 1,020 | * | ||||||||||||||
| Sassuan (Samson) Lee | 1,020 | * | ||||||||||||||
| José Escudero | 1,020 | * | 51 | * | ||||||||||||
| Frank D. Heuszel | 2,493 | * | 65,639 | * | ||||||||||||
| Wai Leung William Wu | 152,040 | * | - | * | ||||||||||||
| Jason Grady | 2,493 | * | 125 | * | ||||||||||||
| Todd D. Macko | 1,667 | * | 83 | * | ||||||||||||
| Lim Sheng Hon Danny | - | * | ||||||||||||||
| Tung Moe Chan | - | - | - | * | ||||||||||||
| All officers and directors as a group (9 persons) | 81,947,895 | 58.9 | % | |||||||||||||
| Sassuan Samson Lee | 51 | * | ||||||||||||||
| Frankie Wong | - | * | ||||||||||||||
| Joanne Wong | - | * | ||||||||||||||
| All officers and directors as a group (8 persons) | 4,188,865 | 59.3 | % | |||||||||||||
| 5% Shareholders | ||||||||||||||||
| Global BioMedical Pte Inc. | 6,232,671 | 4.5 | % | |||||||||||||
| Alset International Limited | 21,366,177 | 15.4 | % | |||||||||||||
| Alset International limited | 1,068,309 | 15.1 | % | |||||||||||||
| Alset, Inc. | 35,213,416 | 25.3 | % | 1,760,671 | 24.9 | % | ||||||||||
| * Less than 1%. | ||
| (1) | The beneficial ownership of Heng Fai Chan includes | |
Equity Compensation Plans Information
The following table sets forth information about our equity compensation plans as of December 31, 2022.2023.
| Restricted stock to be issued upon vesting | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance (under equity compensation Plans (excluding securities reflected in column (a & b)) | |||||||||||||
| Plan Category | (a) | (b) | (c) | (d) | ||||||||||||
| Equity compensation plans approved by security holders | ||||||||||||||||
| 2013 Employee, Director and Consultant Equity Incentive Plan - options | - | 5,000 | $ | 43.50 | - | |||||||||||
| 2013 Employee, Director and Consultant Equity Incentive Plan - warrants | - | - | $ | - | - | |||||||||||
| 2020 Employee, Director and Consultant Equity Incentive Plan | - | - | - | 3,513,130 | ||||||||||||
| Total | - | 5,000 | $ | 43.50 | 3,513,130 | |||||||||||
| Restricted stock to be issued upon vesting | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance (under equity compensation Plans (excluding securities reflected in column (a & b)) | |||||||||||||
| Plan Category | (a) | (b) | (c) | (d) | ||||||||||||
| Equity compensation plans approved by security holders | ||||||||||||||||
| 2013 Employee, Director and Consultant Equity Incentive Plan - options | - | - | $ | - | - | |||||||||||
| 2013 Employee, Director and Consultant Equity Incentive Plan - warrants | - | - | $ | - | - | |||||||||||
| 2020 Employee, Director and Consultant Equity Incentive Plan | - | - | - | 460,846 | ||||||||||||
| Total | - | - | $ | - | 460,846 | |||||||||||
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
Except as disclosed herein, no director, executive officer, shareholder holding at least 5% of shares of our common stock, or any family member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction since January 1, 2020, in which the amount involved in the transaction exceeds the lesser of $120,000 or one percent of the average of our total assets at the year-end for the last two completed fiscal years.
The Company owns 127,179,311127,179,291 shares or approximately 4% of the outstanding shares of Alset International Limited (“Alset Intl”), a company incorporated in Singapore and publicly listed on the Singapore Exchange Limited. This investment is classified as a marketable security and is classified as long-term assets on the consolidated balance sheets as the Company has the intent and ability to hold the investments for a period of at least one year. The Chairman of the Company, Mr. Heng Fai Ambrose Chan, is the Executive Director and Chief Executive Officer of Alset Intl. Mr. Chan is also the majority shareholder of Alset Intl as well as the largest shareholder of the Company. The fair value of the marketable security as of September 30, 2022,December 31, 2023, and December 31, 2021,2022, was approximately $3,370,000$3,269,000 and $4,909,000$3,319,000 respectively. During the year ended December 31, 20222023 and December 31, 2021,2022, the Company recorded unrealized loss on this investment of approximately $1,590,000$177,000 and $1,920,000,unrealized loss of $1,590,000, respectively.
On March 2, 2020, AMRE entered into a $200,000 unsecured promissory note with LVAMPTE, a related party. The Note calls for interest to be paid annually on March 2 with interest fixed at 8.0%. As further incentive to enter into this Note, AMRE granted LVAMPTE warrants to purchase shares of common stock of AMRE (the “Warrants”). The amount of the warrants granted is the equivalent of the Note Principal divided by the Exercise Price. The Warrants are exercisable for four years and are exercisable at $5.00 per share (the “Exercise” Price). In March 2022, this debt was converted into equity in AMRE, and LVAMPTE exercised the warrants for $200,000 (see the consolidated statement of changes in stockholders’ equity) The holder is a related party owned by the Chairman of the Company’s board of directors.
On March 18, 2021, the Company entered into an agreement with Alset EHome International, Inc. (“Seller”), a related party, to purchase from the Seller’s its wholly owned subsidiary Impact Oncology PTE Ltd. (“IOPL”) for a purchase price $2,480,000. The acquisition of IOPL has been treated as an asset acquisition as IOPL does not meet the definition of a business as defined in Topic 805. IOPL owns 2,480,000 shares of common stock of Vivacitas along with the option to purchase an additional 250,000 shares of common stock. The Sellers largest shareholder is Mr. Heng Fai Ambrose Chan, the Chairman of the Company’s board of directors and its largest shareholder. Investment was fully impaired atAt December 31, 2022.2022 the full value of this investment was impaired.
On or about August 28, 2020, the Company’s wholly owned subsidiary, DSS Securities, Inc. entered into a corporate venture to form and operate a real estate title agency, under the name of Alset Title Company, Inc, a Texas corporation (“ATC”). DSS Securities, Inc. shall own 70% of this venture with the other two shareholders being attorneys necessary to the state application and permitting process. The Company’s CEO, who is a licensed attorney, has a stated non-compensated 15% ownership interest in the venture. There was minimal activity for the twelve monthsyear ended December 31, 2022.
On September 9, 2021, the Company finalized a stock purchase agreement (the “SPA”) with American Pacific Bancorp (“APB”), which provided for an investment of $40,000,000$40,000,200 by the Company into APB for an aggregate of 6,666,700 shares of the APB’s Class A Common Stock, par value $0.01 per share. Subject to the terms and conditions contained in the SPA, the shares issued at a purchase price of $6.00 per share. As a result of this transaction, DSS owns approximately 53% of APB, and as a result its operating results will behave been included in the Company’s financial statements beginning September 9, 2021. The Company incurred approximately $36,000 in cost associated with the acquisition of APB which were recorded as general and administrative expenses. The acquisition of APB meets the definition of a business with inputs, processes and outputs, and therefore, the Company has concluded to account for this transaction in accordance with the acquisition method of accounting under Topic 805. During the year ended December 31, 2022,Since acquisition, APB had net loss ofhas incurred approximately $895,000 of net losses, of which approximately $361,000 of loss incurred is attributable to non-controlling interest. The next largest shareholder of APB is Alset EHome International, Inc. (“AEI”). AEI’s Chairman and CEO, Heng Fai Ambrose Chan, and a member of the AEI’s Board of Directors, Wu Wai Leung William, each serve on both the AEI Board and the Board of the Company. The CEO of the Company, Mr. Frank D. Heuszel, also has an approximate 2% equity position of APB. APB and the company in which APB owns marketable securities share a common director.
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On October 27, 2021, HWH World, Inc., a subsidiary of the Company entered a revolving loan commitment (“Note 8”5”) with Borrower 8,5, a company registered in Taiwan. Note 8 has a principal balance of $52,000 and incurred no interest through the maturity date of December 31,2021. The outstanding principal and interest at December 31, 20222023 and December 31, 20212022 is $63,000$0 and $52,000,$63,000, respectively, and iswas included in theNotes receivable current portion of notes receivable.portion. This note was amended in April 2022 to extendhas been written-off during the maturity date through April 2023 bearing interest rate of 18%.
third quarter 2023.
On October 13, 2021, LVAM entered into loan agreement with BMIC (“BMIC Loan”), a related party, whereas LVAM borrowed the principal amount of $3,000,000, with interest to be charged at a variable rate to be adjusted at the maturity date. The BMIC Loan matures on JanuaryOctober 12, 2023,2022, and contains an auto renewal period of three months. As of December 31, 20222023 and December 31, 2021, $3,000,0002022, $547,000 and $3,000,000, respectively, isare included in Current portion of long-term debt, net on the consolidated balance sheet.
On October 13, 2021, LVAM entered into a loan agreement with Lee Wilson Tsz Kin (“Wilson Loan”), a related party, whereas LVAM borrowed the principal amount of $3,000,000, with interest to be charged at a variable rate to be calculated at the maturity date. The Wilson Loan matures on JanuaryOctober 12, 2023,2022, and contains an auto renewal period of nine months. This loan was funded during March 2022. As of December 31, 2022 $3,000,0002023 $2,131,000 is included in the Current portion of long-term debt, net on the consolidated balance sheet. As of December 31, 2022 $3,000,000 is included in the Current portion of long-term debt, net on the consolidated balance sheet.
On November 2, 2021, AMRE LifeCare entered into a loan agreement (“LifeCare Agreement”) with Pinnacle Bank, (“Pinnacle Bank”) in the amount of $40,300,000. The LifeCare Agreement supported the acquisition of three medical facilities located in Fort Worth, Texas, Plano, Texas, and Pittsburgh, Pennsylvania for a purchase price of $62,000,000. These assets are classified as investments, real estate on the consolidated balance sheet. The purchase price has been allocated as $32,100,000, $12,100,000, and $1,500,000 for the facility, land and site improvements, respectively. Also included in the value of the property is $15,901,000 of intangible assets with estimated useful lives ranging from 1 to 11 years. The net book value of the assets acquired as of December 31, 2022 is approximately $52,407,000. The LifeCare Agreement calls for the principal amount of the in equal, consecutive monthly installments based upon a twenty-five (25) year amortization of the original principal amount of the LifeCare Agreement at an initial rate of interest equal to the interest rate determined in accordance as of July 29, 2022 provided, however, such rate of interest shall not be less than 4.28%, with the first such installment being payable on August 29, 2022 and subsequent installments being payable on the first day of each succeeding month thereafter until the maturity date, at which time any outstanding principal and interest is due in full. The affective interest rate at December 31, 2022 was 8.46%. The maturity date of November 2, 2023, may be extended to November 2, 2024. As of December 31, 2022, the outstanding principal and interest of the LifeCare agreement approximates $40,193,000, net of deferred financing costs of $270,000. As of December 31, 2023, the outstanding principal and interested approximates $41,331,000. Interest expense for the year-ended December 31, 2023 and 2022 approximated $1,142,000 and $952,000, respectively. The LifeCare agreement is currently in default. The Company is in the process of remediating the related issues and continues to negotiate the extension of the loan.
On February 28, 2022, DSS entered into an Amendment to Stock Purchase Agreement (the “Amendment”) with its shareholder Alset EHome International Inc. (“AEI”), pursuant to which the Company and AEI have agreed to amend certain terms of the Stock Purchase Agreement dated January 25, 2022 (the “SPA”). Pursuant to the SPA, AEI had agreed to purchase up to 44,619,423 shares of the Company’s common stock for a purchase price of $0.3810 per share, for an aggregate purchase price of $17,000,000. Pursuant to the Amendment, the number of shares of the common stock of the Company that the AEI will purchase has been reduced to 3,986,877 shares for an aggregate purchase price of $1,519,000. This transaction was completed on March 9, 2022. In addition, the Company’s Executive Chairman and a significant stockholder, Heng Fai Ambrose Chan, is the Chairman, Chief Executive Officer and largest shareholder of AEI.
| 87 |
In October 2017, Sharing Services issued a Convertible Promissory Note in the principal amount of $ 50,000 (the “Note”) to HWH International, Inc. (“HWH” or the “Holder”), a related party. HWH is affiliated with Heng Fai Ambrose Chan, who became a Director of the Company in April 2020. The Note is convertible into 333,333 shares of the Company’s Common Stock. Concurrent with issuance of the Note, the Company issued to HWH a detachable stock warrant to purchase up to an additional 333,333 shares of the Company’s Common Stock, at an exercise price of $0.15 per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to certain financing rights. If the Company enters into more favorable transactions with a third-party investor, it must notify the Holder and may have to amend and restate the Note and the detachable stock warrant to be identical. On August 9, 2022, HWH and the Company executed an agreement to settle the Note and cancel the related stock warrant for $78,635.62, which amount represents the principal plus accrued interest. The Company made the payment to HWH on August 9, 2022.
On May 17, 2022, the shareholders of the Company approved the acquisition of 62,122,908 shares of True Partners Capital Holdings Limited (“True Partners”), a company publicly traded on the Hong Kong stock exchange in exchange for 17,570,948 shares of DSS stock. The True Partner shares were acquired from Alset EHome International, Inc. (“Alset EHome”), a related party. Mr. Heng Fai Ambrose Chan, our director and Executive Chairman, is also Chairman of the Board, Chief Executive Officer, and the largest beneficial owner of the outstanding shares of Alset EHome. This transaction was completed with the transfer of DSS share to Alset EHome on July 1, 2022 with the issuance of DSS shares, which were valued at $0.34 per share, to Alset EHome.
In November 2021, AMRE entered into a convertible promissory note (“Alset Note”) with Alset International Limited (“Alset International”), a related party, for the principal amount of $8,350,000. The Alset Note accrues interest at 8% per annum and matures in December 2023, with interest due quarterly and the principal due at maturity. Principal and interest of approximately $8,805,000 is included in long-term debt, net on the accompanying consolidated balance sheet on June 30,December 31, 2022. On May 17, 2022, the shareholders of the Company approved the issuance of up to 21,366,177 Shares our Common Stock to Alset International to purchase the Convertible Promissory Note issued by American Medical REIT, Inc. with a principal amount of $8,350,000 and accrued but unpaid interest of $367,000$119,000 through May 15,December 31, 2022. This transaction was finalized in July 2022 and is eliminated upon consolidation into DSS. Interest expense for this note totaled $796,000 in December 2023 and $346,000 in December 2022.
On February 28, 2022, DSS entered into an Amendment to Stock Purchase Agreement (the “Amendment”) with its shareholder Alset EHome International Inc. (“AEI”), pursuant to which the Company and AEI have agreed to amend certain terms of the Stock Purchase Agreement dated January 25, 2022 (the “SPA”). Pursuant to the SPA, AEI had agreed to purchase 44,619,423 shares of the Company’s common stock for a purchase price of $0.3810 per share, for an aggregate purchase price of $17,000,000. Pursuant to the Amendment, the number of shares of the common stock of the Company that the AEI will purchase has been reduced to 3,986,877 shares for an aggregate purchase price of $1,519,000. This transaction was completed on March 9, 2022. In addition, the Company’s Executive Chairman and a significant stockholder, Heng Fai Ambrose Chan, is the Chairman, Chief Executive Officer and largest shareholder of AEI.
On May 13, 2021, and later amended in April 2022, Sentinel Brokers, LLC, a subsidiary of the Company entered a revolving credit promissory note (“Note 4”3”) with Borrower 4,3, a company registered in the state of New York and related party. Note 43 has an aggregate principal balance up to $3,000,000, to be funded at request of Borrower 4.3. Note 4,3, which incurs interest at a rate of 6.65% is payable in areas until the principal is paid in full at the maturity date of May 13, 2023. As of December 31, 2022 and December 31, 2021, there was $309,000 and $0, respectively, outstanding on the, and is included in current notes receivable on the accompanying consolidated balance sheet. During the three months ended September 30, 2022, Sentinel Brokers converted approximately $1,364,000 of Note 43 into 13.64 preferred shares of Borrower 4.3. In December 2022, Sentinel LLC obtained 75% ownership of Sentinel Co. and all transaction are eliminated upon consolidation into DSS.
In October 2017, Sharing Services issued a Convertible Promissory Note in the principal amount of $ 50,000 (the “Note”) to HWH International, Inc. (“HWH” or the “Holder”), a related party. HWH is affiliated with Heng Fai Ambrose Chan, who became a Director of the Company in April 2020. The Note is convertible into 333,333 shares of the Company’s Common Stock. Concurrent with issuance of the Note, the Company issued to HWH a detachable stock warrant to purchase up to an additional 333,333 shares of the Company’s Common Stock, at an exercise price of $0.15 per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to certain financing rights. If the Company enters into more favorable transactions with a third-party investor, it must notify the Holder and may have to amend and restate the Note and the detachable stock warrant to be identical. On August 9, 2022, HWH and the Company executed an agreement to settle the Note and cancel the related stock warrant for $78,635.62, which amount represents the principal plus accrued interest. The Company made the payment to HWH on August 9, 2022.
On May 17, 2022, the shareholders of the Company approved the issuance of up to 21,366,177 Shares our Common Stock to Alset International Limited (“Alset International”), a related party, to purchase the Convertible Promissory Note issued by American Medical REIT, Inc. with a principal amount of $8,350,000 and accrued but unpaid interest of $367,400 through May 15, 2022. This transaction was finalized in July 2022.
On May 17, 2022, the shareholders of the Company approved the acquisition of 62,122,908 shares of True Partners Capital Holdings Limited (“True Partners”), a company publicly traded on the Hong Kong stock exchange in exchange for 17,570,948 shares of DSS stock. The True Partner shares were acquired from Alset EHome International, Inc. (“Alset EHome”), a related party. Mr. Heng Fai Ambrose Chan, our director and Executive Chairman, is also Chairman of the Board, Chief Executive Officer, and the largest beneficial owner of the outstanding shares of Alset EHome. This transaction was completed with the transfer of DSS share to Alset EHome on July 1, 2022 with the issuance of DSS shares, which were valued at $0.34 per share, to Alset EHome.
Sharing Services Global Corp
In November 2021, SHRG and Hapi Café, Inc, a company affiliated with Heng Fai Ambrose Chan, a Director of the Company, entered into a Master Franchise Agreement pursuant to which Sharing Services acquired the exclusive franchise rights in North America to the brand “Hapi Café.” Under the terms, Sharing Services, directly or through its subsidiaries, has the right to operate no less than five (5) corporate-owned stores and can offer to the public sub-franchise rights to own and operate other stores, subject to the terms and conditions contained in the Master Franchise Agreement.
In October 2017, Sharing Services issued a Convertible Promissory Note in the principal amount of $50,000 (the “Note”) to HWH International, Inc. (“HWH” or the “Holder”). HWH is affiliated with Heng Fai Ambrose Chan, who became a Director of the Company in April 2020. The Note is convertible into 333,333 shares of the Company’s Common Stock. Concurrent with issuance of the Note, the Company issued to HWH a detachable stock warrant to purchase up to an additional 333,333 shares of the Company’s Common Stock, at an exercise price of $0.15 per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to certain financing rights. If the Company enters into more favorable transactions with a third-party investor, it must notify the Holder and may have to amend and restate the Note and the detachable stock warrant to be identical. On August 9, 2022, HWH and the Company executed an agreement to settle the Note and cancel the related stock warrant for $78,636, which amount represents the principal plus accrued interest. The detachable stock warrant to purchase the additional 333,333 shares of the Company’s Common Stock was forfeited by the Holder upon payment. The Company made the payment to HWH on August 9, 2022.
In the nine months ended December 31, 2021, a wholly owned subsidiary of the SHRG purchased skin care products manufactured by K Beauty Research Lab. Co., Ltd (“K Beauty”), a South Korean-based supplier of skin care products that is affiliated with Heng Fai Ambrose Chan, a Director of the Company, in the aggregate amount of $2.3 million. The Company’s affiliates operating in Asia intend to distribute skin care and other products in South Korea and other countries, including skin care products procured from K Beauty, as part of the Company’s previously announced strategic growth plans.
In February 2020, the Company, Alchemist Holdings, LLC (“Alchemist”), and a former Company officer entered into a Settlement Accommodation Agreement (the “Accommodation Agreement”) pursuant to which Alchemist and the former Company officer agreed to transfer to the Company 22.7 million shares of the Company’s Common Stock held by Alchemist, in settlement of certain obligations to the Company. Under the terms of the Accommodation Agreement, Alchemist and the former Company officer also agreed to transfer to the Company 15.6 million shares of the Company’s Common Stock held by Alchemist, to offset certain legal and other expenses incurred by the Company in connection with various related-party legal claims. Accordingly, in the fiscal year ended March 31, 2021, the Company and Alchemist caused the transfer to the Company, in the aggregate, of 38.3 million shares of the Company’s Common Stock then held by Alchemist, and the Company retired such redeemed shares. In May 2022, the Company and certain of its subsidiaries, on the one hand, and Alchemist, the former officer and certain entities affiliated with the former officer, on the other hand, entered into a Confidential Settlement Agreement with Mutual Releases (the “May 2022Settlement Agreement”) pursuant to which the parties amicably settled all claims and disputes among them; (b) the former officer sold to the Company 26,091,136 shares of the Company’s common stock then under the voting and dispositive control of the former officer; (c)the Company made a one-time payment of $1,043,645; and (d) the Company and its relevant subsidiaries, on the one hand, and the former officer and relevant entities affiliated with the former officer, on the other hand, exchanged customary mutual releases of any prior obligations among them. On May 19, 2022, the closing price for the Company’s common stock was $0.25 per share. During the nine months ended December 31, 2022, the Company measured and recognized the repurchase of its common stock at its fair value of $626,187, derecognized its remaining liability under the Co-Founder’s Agreement, and recognized a recovery of $324,230 in connection with the previously recognized loss related to the Co-Founder’s Agreement.
In July 2021, the Company, and American Premium Water Corporation (“American Premium”) entered into a business consulting agreement pursuant to which the Company provides consulting services to American Premium in exchange for a monthly fee of $4,166. Mr. John “JT” Thatch, a director of the Company, also serves on the Board of Directors of American Premium. During the three and nine months ended December 31, 2022, the Company recognized consulting fee income of $12,498 and 37,494, respectively. In August 2022, the Company executed a non-binding letter of intent with American Wealth Mining Corporation (“AWM”), a related party, allowing AWM to be the exclusive franchisee of Hapi Café in the State of New York.
Review, Approval or Ratification of Transactions with Related Persons
The Board conducts an appropriate review of and oversees all related party transactions on a continuing basis and reviews potential conflict of interest situations where appropriate. The Board has adopted formal standards to apply when it reviews, approves or ratifies any related party transaction. In addition, the Board applies the following standards to such reviews: (i) all related party transactions must be fair and reasonable and on terms comparable to those reasonably expected to be agreed to with independent third parties for the same goods and/or services at the time they are authorized by the Board and (ii) all related party transactions should be authorized, approved or ratified by the affirmative vote of a majority of the directors who have no interest, either directly or indirectly, in any such related party transaction.
ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
Audit fees consist of fees for professional services rendered for the audit of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K, the review of financial statements included in the Company’s Quarterly Reports on Form 10-Q, and for services that are normally provided by the auditor in connection with statutory and regulatory filings or engagements. The aggregate fees billed for professional services rendered by our former independent public accounting firm, Turner StoneGrassi & Company, LLP, Dallas, Texas, PCAOB Auditor ID 76,Co. CPAs, P.C., Jericho, NY, for audit and review services for the fiscal year ended December 31, 20212023 were approximately $464,000.$365,000. The aggregate fees build for professional services rendered by Grassi&Co for audit and review services for the fiscal year ended December 31, 2022 was approximately $325,000.
The anticipated fees associated with the audit of the year ended December 31, 2021, is expected to range between $355,000 and $375,000. The aggregate fees billed for professional services rendered by our prior principal accountant, Freed Maxick CPAs, P.C., review services for the fiscal years ended December 31, was approximately $200,000.
Audit Related Fees
The aggregate fees billed for audit related services by our prior principal accountant, Freed Maxick CPAs, P.C., pertaining to comfort letter related to our registered offering during the years, consents for related registration statements and the audit of the Company’s employee benefit plan and review of the stand-alone financial statements for one of the Company’s subsidiaries, for the years ended December 31, 2021 approximated $51,000 The aggregate fees billed for audit related services by our former principal accountant, Turner Stone & Company, LLP, pertaining to comfort letter related to our registered offering during the years, consents for related registration statements and the audit of the Company’s employee benefit plan and review of the stand-alone financial statements for one of the Company’s subsidiaries, for the years ended December 31, 2021 approximated $33,000.
Tax Fees
The aggregate fees billed for professional services rendered by our principal accountant, Freed Maxick CPAs, P.C., for tax compliance, tax advice and tax planning during the years ended December 31, 20222023 and 20212022 were approximately $143,000 and $52,700$143,000 respectively. In 2021, DSS has engaged Greendyke Jencik & Associates CPAs, PLLC to render quarterly and year end tax provisions. The aggregate fees for 20222023 and 20212022 were approximately $8,000 and $7,000.$8,000.
All Other Fees
There were no fees billed for professional services rendered by our principal accountant, Freed MaxickGrassi & Co. CPAs, P.C., associated with the Company’s S-1 filings for other related services duringImpact BioMedical approximating $87,000 for the years ended December 31, 2021 and 2020.2023.
Administration of the Engagement; Pre-Approval of Audit and Permissible Non-Audit Services
The Company’s Audit Committee Charter requires that the Audit Committee establish policies and procedures for pre-approval of all audit or permissible non-audit services provided by the Company’s independent auditors. Our Audit Committee approved, in advance, all work performed for year ended December 31, 2020 and nine-months ended September 30, 2021,2023 by our principal accountant, Freed Maxick CPAs, P.C. On December 2, 2021, Freed Maxick CPAs P.C. resigned as our independent registered public accounting firm, and on December 3, 2021, our Audit Committee approved Turner, Stone & Company, L.L.P. as our independent registered public accounting firm for the year ended December 31, 2021. On June 29, 2022, the Company’s Board of Directors (the “Board”) approved replacing Turner, Stone & Company, LLP (the “Former Accountant”) as our independent registered public accounting firm, with Grassi & Co. CPAs, P.C. (the “New Accountant”) as our independent registered public accounting firm, effective July 1, 2022. The engagement of the New Accountant was recommended and approved by the Board. These services may include audit services, audit-related services, tax services and other services. The Audit Committee may establish, either on an ongoing or case-by-case basis, pre-approval policies and procedures providing for delegated authority to approve the engagement of the independent registered public accounting firm, provided that the policies and procedures are detailed as to the particular services to be provided, the Audit Committee is informed about each service, and the policies and procedures do not result in the delegation of the Audit Committee’s authority to management. In accordance with these procedures, the Audit Committee pre-approved all services performed by Freed MaxickGrassi & Co. CPAs, P.C., and Turner, Stone & Company, L.L.P.
PART IV
ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(b) Exhibits
| 92 |
| 101.INS | Inline XBRL Instance Document* | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document* | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document* | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document)* |
* Filed herewith
ITEM 16 – Form 10K SUMMARY
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| March | By: | /s/ Frank D. Heuszel |
| Frank D. Heuszel | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
| March | By: | /s/ Todd D. Macko |
| Todd D. Macko | ||
| Chief Financial Officer (Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| March | By: | /s/ Frank D. Heuszel |
Frank D. Heuszel Chief Executive Officer (Principal Executive Officer) | ||
| March | By: | /s/ Todd D. Macko |
| Todd D. Macko | ||
| Chief Financial Officer (Principal Financial and Accounting Officer) | ||
| March | By: | /s/ Jason Grady |
Jason Grady Chief Operating Officer | ||
| March | By: | /s/ Heng Fai Ambrose Chan |
Heng Fai Ambrose Chan Chairman of the Board and CEO of DSS International, Inc. | ||
| March | By: | /s/ |
Hiu Pan Joanne Wong Director | ||
| March | By: | /s/ José Escudero |
José Escudero Director | ||
| March | By: | /s/ |
Shui Yeung Frankie Wong Director | ||
| March | By: | /s/ Tung Moe Chan |
| Tung Moe Chan | ||
| Director | ||
| March 27, 2024 | By: | /s/ Lim Sheng Hon Danny |
| Lim Sheng Hon Danny | ||
| Director | ||
| March | By: | /s/ Wai Leung William Wu |
William Wu Director |