UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q[X]
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 20172022
[ ]☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _____________ to _____________.______to_______ .
001-32146
Commission file number
DOCUMENT SECURITY SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| (Exact name of registrant as specified in its charter) |
| New York | 16-1229730 | |
(State or other Jurisdiction of | ||
incorporation- or Organization) | (IRS Employer Identification No.) |
275 Wiregrass Pkwy,
West Henrietta, NY14586
(Address of principal executive offices)
(585)325-3610
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]☐ No [ ]☒
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files) Yes [X] ☒ No [ ]☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | Non-accelerated filer ☒ | Smaller reporting company ☒ |
| Emerging growth company ☐ |
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer (Do not check if a smaller reporting company) [ ] Smaller reporting company [X]If an emerging growth company, [ ]indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes [ ] ☐ No [X] ☒
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Ticker symbol(s) | Name of each exchange on which registered | ||
| Common Stock, $0.02 par value per share | DSS | The NYSE American LLC |
As of November 14, 2017,09, 2022 there were 16,439,327 shares of the registrant’s common stock, $0.02 par value, outstanding.
DOCUMENT SECURITY SYSTEMS,
DSS, INC.
FORM 10-Q
TABLE OF CONTENTS
| 2 |
PART I – FINANCIAL INFORMATION
DOCUMENT SECURITY SYSTEMS,DSS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
As of(unaudited)
| September 30, 2017 | December 31, 2016 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | 4,223,005 | $ | 5,871,738 | ||||
| Restricted cash | 336,172 | 177,609 | ||||||
| Accounts receivable, net of $50,000 allowance for uncollectible accounts | 1,799,005 | 1,890,981 | ||||||
| Inventory | 1,913,111 | 1,206,377 | ||||||
| Prepaid expenses and other current assets | 308,223 | 350,289 | ||||||
| Total current assets | 8,579,516 | 9,496,994 | ||||||
| Property, plant and equipment, net | 4,484,284 | 4,573,841 | ||||||
| Investment | 484,930 | - | ||||||
| Other assets | 45,821 | 45,821 | ||||||
| Goodwill | 2,453,597 | 2,453,349 | ||||||
| Other intangible assets, net | 1,387,039 | 1,896,018 | ||||||
| Total assets | $ | 17,435,187 | $ | 18,466,023 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 1,706,607 | $ | 2,212,653 | ||||
| Accrued expenses and deferred revenue | 1,012,719 | 1,290,593 | ||||||
| Other current liabilities | 2,957,033 | 2,996,310 | ||||||
| Short-term debt | 3,611,560 | - | ||||||
| Current portion of long-term debt, net | 752,180 | 1,202,335 | ||||||
| Total current liabilities | 10,040,099 | 7,701,891 | ||||||
| Long-term debt, net | 1,607,752 | 5,249,569 | ||||||
| Other long-term liabilities | 1,624,500 | 2,184,843 | ||||||
| Deferred tax liability, net | 59,830 | 45,619 | ||||||
| Commitments and contingencies (Note 7) | ||||||||
| Stockholders’ equity | ||||||||
| Common stock, $.02 par value; 200,000,000 shares authorized, 15,939,327 shares issued and outstanding (13,502,653 on December 31, 2016) | 318,787 | 270,053 | ||||||
| Additional paid-in capital | 106,123,997 | 104,338,002 | ||||||
| Subscriptions receivable from related party | (300,000 | ) | - | |||||
| Accumulated other comprehensive loss | (35,551 | ) | (45,343 | ) | ||||
| Accumulated deficit | (102,004,227 | ) | (101,278,611 | ) | ||||
| Total stockholders’ equity | 4,103,006 | 3,284,101 | ||||||
| Total liabilities and stockholders’ equity | $ | 17,435,187 | $ | 18,466,023 | ||||
| September 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 22,845,000 | $ | 56,595,000 | ||||
| Accounts receivable, net | 8,989,000 | 5,673,000 | ||||||
| Inventory | 8,663,000 | 8,261,000 | ||||||
| Current portion of notes receivable | 12,273,000 | 6,310,000 | ||||||
| Prepaid expenses and other current assets | 2,898,000 | 3,466,000 | ||||||
| Total current assets | 55,668,000 | 80,305,000 | ||||||
| Property, plant and equipment, net | 16,065,000 | 17,674,000 | ||||||
| Investment in real estate, net | 55,493,000 | 56,374,000 | ||||||
| Other investments | 8,190,000 | 11,001,000 | ||||||
| Investment, equity method | 1,326,000 | 1,080,000 | ||||||
| Marketable securities | 28,083,000 | 14,172,000 | ||||||
| Notes receivable | 1,704,000 | 5,878,000 | ||||||
| Other assets | 1,393,000 | 489,000 | ||||||
| Right-of-use assets | 8,459,000 | 498,000 | ||||||
| Goodwill | 56,606,000 | 56,606,000 | ||||||
| Other intangible assets, net | 31,893,000 | 38,630,000 | ||||||
| Total assets | $ | 264,880,000 | $ | 282,707,000 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 4,048,000 | $ | 1,920,000 | ||||
| Accrued expenses and deferred revenue | 11,627,000 | 21,180,000 | ||||||
| Other current liabilities | 396,000 | 402,000 | ||||||
| Current portion of lease liability | 819,000 | 393,000 | ||||||
| Current portion of long-term debt, net | 6,680,000 | 3,916,000 | ||||||
| Total current liabilities | 23,570,000 | 27,811,000 | ||||||
| Long-term debt, net | 50,163,000 | 55,711,000 | ||||||
| Long term lease liability | 7,991,000 | 120,000 | ||||||
| Other long-term liabilities | 507,000 | 880,000 | ||||||
| Commitments and contingencies (Note 9) | - | - | ||||||
| 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 | ||||||
| Additional paid-in capital | 317,125,000 | 294,685,000 | ||||||
| Accumulated deficit | (167,417,000 | ) | (134,503,000 | ) | ||||
| Total stockholders’ equity | 152,487,000 | 161,776,000 | ||||||
| Non-controlling interest in subsidiaries | 30,162,000 | 36,409,000 | ||||||
| Total stockholders’ equity | 182,649,000 | 198,185,000 | ||||||
| Total liabilities and stockholders’ equity | $ | 264,880,000 | $ | 282,707,000 | ||||
See accompanying notes to the condensed consolidated financial statements.
DOCUMENT SECURITY SYSTEMS,
| 3 |
DSS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)(unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2017 | 2016 | 2017 | 2016 | |||||||||||||
| Revenue: | ||||||||||||||||
| Printed products | $ | 3,767,334 | $ | 4,448,509 | $ | 11,552,955 | $ | 12,147,796 | ||||||||
| Technology sales, services and licensing | 431,356 | 530,979 | 1,276,489 | 1,243,158 | ||||||||||||
| Total revenue | 4,198,690 | 4,979,488 | 12,829,444 | 13,390,954 | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of revenue, exclusive of depreciation and amortization | 2,400,883 | 2,874,508 | 7,380,134 | 7,815,658 | ||||||||||||
| Selling, general and administrative (including stock based compensation) | 1,619,066 | 1,710,099 | 4,835,079 | 5,262,618 | ||||||||||||
| Depreciation and amortization | 352,040 | 349,143 | 1,041,789 | 1,049,387 | ||||||||||||
| Total costs and expenses | 4,371,989 | 4,933,750 | 13,257,002 | 14,127,663 | ||||||||||||
| Operating (loss) income | (173,299 | ) | 45,738 | (427,558 | ) | (736,709 | ) | |||||||||
| Other expense: | ||||||||||||||||
| Interest expense | (58,164 | ) | (67,739 | ) | (170,565 | ) | (217,665 | ) | ||||||||
| Amortized debt discount | (40,854 | ) | (113,286 | ) | ||||||||||||
| Loss before income taxes | (272,317 | ) | (22,001 | ) | (711,409 | ) | (954,374 | ) | ||||||||
| Income tax expense | 4,734 | 4,737 | 14,208 | 14,211 | ||||||||||||
| Net loss | $ | (277,051 | ) | $ | (26,738 | ) | $ | (725,617 | ) | $ | (968,585 | ) | ||||
| Other comprehensive loss: | ||||||||||||||||
| Interest rate swap gain (loss) | 3,943 | 11,843 | 9,792 | (22,451 | ) | |||||||||||
| Comprehensive loss: | $ | (273,108 | ) | $ | (14,895 | ) | $ | (715,825 | ) | $ | (991,036 | ) | ||||
| Loss per common share: | ||||||||||||||||
| Basic and diluted | $ | (0.02 | ) | $ | (0.00 | ) | $ | (0.05 | ) | $ | (0.07 | ) | ||||
| Shares used in computing loss per common share: | ||||||||||||||||
| Basic and diluted | 14,087,849 | 12,977,903 | 13,793,946 | 12,975,053 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue: | ||||||||||||||||
| Printed products | $ | 5,032,000 | $ | 3,416,000 | $ | 12,650,000 | $ | 10,652,000 | ||||||||
| Rental income | 1,485,000 | 184,000 | 4,656,000 | 184,000 | ||||||||||||
| Management fee income | 38,000 | - | 38,000 | - | ||||||||||||
| Net investment income | 370,000 | - | 644,000 | - | ||||||||||||
| Direct marketing | 4,937,000 | 966,000 | 17,939,000 | 2,382,000 | ||||||||||||
| Total revenue | 11,862,000 | 4,566,000 | 35,927,000 | 13,218,000 | ||||||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of revenue | 11,368,000 | 3,406,000 | 27,653,000 | 10,045,000 | ||||||||||||
| Selling, general and administrative (including stock based compensation) | 14,677,000 | 6,705,000 | 40,316,000 | 19,164,000 | ||||||||||||
| Total costs and expenses | 26,045,000 | 10,111,000 | 67,969,000 | 29,209,000 | ||||||||||||
| Operating loss | (14,183,000 | ) | (5,545,000 | ) | (32,042,000 | ) | (15,991,000 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest income | 319,000 | 1,593,000 | 613,000 | 3,130,000 | ||||||||||||
| Other income (expense) | 3,627,000 | 325,000 | 4,203,000 | 575,000 | ||||||||||||
| Interest expense | (606,000 | ) | (31,000 | ) | (2,105,000 | ) | (157,000 | ) | ||||||||
| Gain on extinguishment of debt | - | - | 110,000 | 116,000 | ||||||||||||
| Gain/(loss) on equity method investment | 344,000 | (1,645,000 | ) | 134,000 | (2,556,000 | ) | ||||||||||
| Loss on investments | (14,302,000 | ) | (2,996,000 | ) | (10,479,000 | ) | (10,894,000 | ) | ||||||||
| Gain on sale of assets | - | - | 405,000 | - | ||||||||||||
| Loss from continuing operations before income taxes | (24,801,000 | ) | (8,299,000 | ) | (39,161,000 | ) | (25,777,000 | ) | ||||||||
| Income tax benefit | - | 1,624,000 | - | 4,315,000 | ||||||||||||
| Loss from continuing operations | (24,801,000 | ) | (6,675,000 | ) | (39,161,000 | ) | (21,462,000 | ) | ||||||||
| Income from discontinued operations, net of tax | - | - | - | 2,129,000 | ||||||||||||
| Net loss | (24,801,000 | ) | (6,675,000 | ) | (39,161,000 | ) | (19,333,000 | ) | ||||||||
| Loss from continuing operations attributed to noncontrolling interest | 4,587,000 | 77,000 | 6,247,000 | 336,000 | ||||||||||||
| Net loss attributable to common stockholders | (20,214,000 | ) | (6,598,000 | ) | (32,914,000 | ) | (18,997,000 | ) | ||||||||
| Loss per common share: | ||||||||||||||||
| Basic | $ | (0.15 | ) | $ | (0.19 | ) | $ | (0.32 | ) | $ | (0.78 | ) | ||||
| Diluted | $ | (0.15 | ) | $ | (0.19 | ) | $ | (0.32 | ) | $ | (0.78 | ) | ||||
| Earnings per common share - discontinued operations: | ||||||||||||||||
| Basic | $ | - | $ | - | $ | - | $ | 0.08 | ||||||||
| Diluted | $ | - | $ | - | $ | - | $ | 0.08 | ||||||||
| Shares used in computing loss per common share: | ||||||||||||||||
| Basic | 134,893,360 | 34,888,054 | 102,390,079 | 27,203,137 | ||||||||||||
| Diluted | 134,893,360 | 34,888,054 | 102,390,079 | 27,203,137 | ||||||||||||
DOCUMENT SECURITY SYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30:
(Unaudited)
| 2017 | 2016 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (725,617 | ) | $ | (968,585 | ) | ||
| Adjustments to reconcile net loss to net cash from (used by) operating activities: | ||||||||
| Depreciation and amortization | 1,041,789 | 1,049,387 | ||||||
| Stock based compensation | 203,111 | 87,738 | ||||||
| Paid in-kind interest | 54,000 | 58,000 | ||||||
| Change in deferred tax provision | 14,211 | 14,211 | ||||||
| Amortization of deferred financing costs | 113,286 | 15,863 | ||||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | 91,976 | 19,501 | ||||||
| Inventory | (706,735 | ) | (250,529 | ) | ||||
| Prepaid expenses and other current assets | 70,838 | (24,683 | ) | |||||
| Restricted cash | (158,563 | ) | 105,316 | |||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | (506,749 | ) | 169,394 | |||||
| Accrued expenses and other liabilities | (867,702 | ) | 108,138 | |||||
| Net cash (used) provided by operating activities | (1,376,155 | ) | 383,751 | |||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, plant and equipment | (438,350 | ) | (192,614 | ) | ||||
| Proceeds from sale of intangibles | - | 495,000 | ||||||
| Purchase of intangible assets | (4,903 | ) | (72,953 | ) | ||||
| Net cash (used) provided by investing activities | (443,253 | ) | 229,433 | |||||
| Cash flows from financing activities: | ||||||||
| Payments of long-term debt | (612,419 | ) | (1,229,902 | ) | ||||
| Issuances of common stock, net of issuance costs | 783,094 | (92 | ) | |||||
| Net cash provided (used) by financing activities | 170,675 | (1,229,994 | ) | |||||
| Net decrease in cash | (1,648,733 | ) | (616,810 | ) | ||||
| Cash at beginning of period | 5,871,738 | 1,440,256 | ||||||
| Cash at end of period | $ | 4,223,005 | $ | 823,446 | ||||
See accompanying notes to the condensed consolidated financial statements.
| 4 |
DSS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the Nine Months Ended September 30,
(unaudited)
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss from continuing operations | $ | (39,161,000 | ) | $ | (21,462,000 | ) | ||
| Adjustments to reconcile net loss from continuing operations to net cash used by operating activities: | ||||||||
| Depreciation and amortization | 9,351,000 | 2,075,000 | ||||||
| Stock based compensation | 4,000 | 74,000 | ||||||
| Gain/(loss) on equity method investment | (134,000 | ) | 2,556,000 | |||||
| Loss (gain) on investments | 10,479,000 | 10,894,000 | ||||||
| Loss on allowance for obsolescence of inventory | 326,000 | - | ||||||
| Change in ROU assets and lease liabilities, net | 336,000 | - | ||||||
| Gain on extinguishment of debt | (110,000 | ) | (116,000 | ) | ||||
| Deferred tax benefit | - | (4,315,000 | ) | |||||
| Accretion of debt discount, origination fee and prepaid interest | - | (2,287,000 | ) | |||||
| Gain on sale of assets | (405,000 | ) | ||||||
| Impairment of notes receivable and other investments | 1,899,000 | - | ||||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | (3,316,000 | ) | 829,000 | |||||
| Inventory | (728,000 | ) | (1,580,000 | ) | ||||
| Prepaid expenses and other current assets | 568,000 | (277,000 | ) | |||||
| Other assets | (904,000 | ) | (25,000 | ) | ||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | 2,128,000 | 432,000 | ||||||
| Accrued expenses | (3,205,000 | ) | 1,808,000 | |||||
| Other liabilities | (379,000 | ) | (1,054,000 | ) | ||||
| Net cash used by operating activities | (23,251,000 | ) | (12,448,000 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, plant and equipment | (1,349,000 | ) | (2,816,000 | ) | ||||
| Purchase of real estate | (689,000 | ) | (6,565,000 | ) | ||||
| Purchase of investment | - | (19,026,000 | ) | |||||
| Purchase of marketable securities | (14,254,000 | ) | (8,789,000 | ) | ||||
| Disposal of property, plant and equipment | 2,557,000 | - | ||||||
| Asset acquired with APB acquisition | - | 1,235,000 | ||||||
| Purchase of equity investment | - | (1,276,000 | ) | |||||
| Sale of marketable securities | - | 9,185,000 | ||||||
| Issuance of new notes receivable, net origination fees | (4,687,000 | ) | (24,048,000 | ) | ||||
| Payments received on notes receivable | 786,000 | - | ||||||
| Purchase of intangible assets | (180,000 | ) | (1,115,000 | ) | ||||
| Net cash used by investing activities | (17,816,000 | ) | (53,215,000 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Payments of long-term debt | (561,000 | ) | (1,893,000 | ) | ||||
| Borrowings of long-term debt | 6,360,000 | 7,102,000 | ||||||
| Deferred financing fees | - | (186,000 | ) | |||||
| Issuances of common stock, net of issuance costs | 1,518,000 | 121,737,000 | ||||||
| Net cash provided by financing activities | 7,317,000 | 126,760,000 | ||||||
| Cash flows from discontinued operations: | ||||||||
| Cash provided by discontinued operations | - | 207,000 | ||||||
| Cash provided by investing activities | - | 3,000,000 | ||||||
| Net cash used by discontinued operations | - | 3,207,000 | ||||||
| Net increase (decrease) in cash | (33,750,000 | ) | 64,304,000 | |||||
| Cash and cash equivalents at beginning of period | 56,595,000 | 5,183,000 | ||||||
| Cash and cash equivalents at end of period | $ | 22,845,000 | $ | 69,487,000 | ||||
See accompanying notes to the condensed consolidated financial statements.
| 5 |
DOCUMENT SECURITY SYSTEMS,
Condensed Consolidated Statements of Changes in Stockholders’ Equity
(unaudited)
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | Subsidiary | Total | ||||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Additional Paid-in | Accumulated | Total DSS | Non- controlling Interest in | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | Subsidiary | Total | ||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 79,746,000 | $ | 1,594,000 | - | $ | - | $ | 294,685,000 | $ | (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 | |||||||||||||||||||||||||||
| Stock based payments | 16,347,000 | 327,000 | - | - | 5,893,000 | - | 6,220,000 | - | 6,220,000 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (32,914,000 | ) | (32,914,000 | ) | (6,247,000 | ) | (39,161,000 | ) | |||||||||||||||||||||||
| Balance, September 30, 2022 | 139,017,000 | $ | 2,779,000 | - | $ | - | $ | 317,125,000 | $ | (167,417,000 | ) | $ | 152,487,000 | $ | 30,162,000 | $ | 182,649,000 | |||||||||||||||||||
| 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 | ||||||||||||||||||||
| Beginning 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 | - | - | 120,434,000 | - | 121,781,000 | - | 121,781,000 | |||||||||||||||||||||||||||
| 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 | - | - | - | - | - | - | - | 20,301,000 | 20,301,000 | |||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | (18,997,000 | ) | (18,997,000 | ) | (336,000 | ) | (19,333,000 | ) | |||||||||||||||||||||||
| Balance, September 30, 2021 | 79,746,000 | $ | 1,594,000 | - | $ | - | $ | 294,682,000 | $ | (120,379,000 | ) | $ | 175,897,000 | $ | 23,395,000 | $ | 199,292,000 | |||||||||||||||||||
| Ending balance | 79,746,000 | $ | 1,594,000 | - | $ | - | $ | 294,682,000 | $ | (120,379,000 | ) | $ | 175,897,000 | $ | 23,395,000 | $ | 199,292,000 | |||||||||||||||||||
See accompanying notes to the condensed consolidated financial statements.
| 6 |
DSS, INC. AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017(Unaudited)2022
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
The Company, incorporated in the state of New York in May 1984 has conducted business in the name of Document Security Systems, Inc. (theOn 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”), through two currently operates nine (9) distinct business lines with operations and locations around the globe. These business lines are: (1) Product Packaging, (2) Biotechnology, (3) Direct Marketing, (4) Commercial Lending, (5) Securities and Investment Management, (6) Alternative Trading (7) Digital Transformation, (8) Secure Living, and (9) Alternative Energy. Each of itsthese 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, and Plastic Printing Professionals, Inc. (“Premier”), which operates under the assumed name of DSS Plastics Group,a New York corporation. Premier operates in the securitypaper board and commercial printing,fiber based folding carton, consumer product packaging, and plastic IDdocument security printing markets. The Company develops,It markets, manufactures, and sells papersophisticated custom folding cartons, mailers, photo sleeves and plasticcomplex 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 designedand 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 protect valuable informationbanking, 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 unauthorized scanning, copying,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 imaging.asset exchanges for securities, tokenized assets, utility tokens, and cryptocurrency via an alternative trading platform using blockchain technology. The scope of services within this section is planned to include asset issuance and allocation (securities and cryptocurrency), FPO, IPO, ITO, PPO, and UTO listings on a primary market(s), asset digitization/tokenization (securities, currency, and cryptocurrency), and the listing and trading of digital assets (securities and cryptocurrency) on a secondary market(s). (7) Digital Transformation was established to be a Preferred Technology Partner and Application Development Solution for mid cap brands in various industries including the direct selling and affiliate marketing sector. Digital improves marketing, communications and operations processes with custom software development and implementation. (8) The Secure Living division has developed a plan for fully sustainable, secure, connected, and healthy living communities with homes incorporating advanced technology, energy efficiency, and quality of life living environments both for new construction and renovations for single and multi-family residential housing. (9) The Alternative Energy group was established to help lead the Company’s future in the clean energy business that focuses on environmentally responsible and sustainable measures. Alset Energy, Inc, the holding company for this group, and its wholly owned subsidiary, Alset Solar, Inc., pursue utility-scale solar farms to serve US regional power grids and to provide underutilized properties with small microgrids for independent energy.
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On 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 contained in the SPA, the shares issued at a purchase price of $ per share. As a result of this transaction, DSS became the majority owner of APB. (see Note 5).
On September 13, 2021, the Company finalized a shareholder agreement between its subsidiary, DSS Digital Inc., which operates under the assumed name of DSS Digital Group, develops, markets and sells digital information services, including data hosting, disaster recovery and data back-up and security services. The Company’s subsidiary, DSS TechnologyFinancial Management, Inc. (“DFMI”) and HR1 Holdings Limited (“HR1”), acquires intellectual property (“IP”) assets and interestsa company incorporated in companies owning intellectual property assets, or assists others in managing their intellectual property monetization efforts,the British Virgin Islands, for the purpose of monetizing these assetsoperating 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 a variety of value-enhancing initiatives, including, but not limited to, investmentsits subsidiaries, markets and distributes its health and wellness and other products primarily in the developmentUnited States, Canada, and commercializationthe 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 patented technologies, licensing, strategic partnershipsNevada on April 24, 2015, and commercial litigation.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.
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8.03 of Regulation S-X for smaller reporting companies. Accordingly, these statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying balance sheets and related interim statements of operations and comprehensive loss and cash flows includecontain all adjustments considered(consisting of normal recurring adjustments, unless otherwise indicated) necessary for their fair presentation in accordance with U.S. GAAP. All significant intercompany transactions have been eliminated in consolidation.
Interimto present fairly our consolidated financial position as of September 30, 2022 and December 31, 2021, and the results are not necessarily indicative of results expectedour consolidated operations for the full year. For further information regardinginterim periods presented. We follow the Company’ssame accounting policies refer towhen preparing quarterly financial data as we use for preparing annual data. These statements should be read in conjunction with the audited consolidated financial statements and footnotes theretothe notes included in the Company’sour latest annual report on Form 10-K, and 10-K/A for the fiscal year ended December 31, 2016.2021 (“Form 10-K”, “Form 10-K/A”), and our other reports on file with the Securities and Exchange Commission (the “SEC”).
Principles of Consolidation - - The consolidated financial statements include the accounts of Document Security SystemsDSS, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates -The preparation of consolidated financial statements in conformity with U.S. GAAPaccounting principles generally accepted in the United States requires managementthe Company to make estimates and assumptions that affect the amounts reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date ofdisclosed in the financial statements and the reported amounts of revenues and expenses during the reporting period.accompanying notes. Actual results could differ materially from those estimates and assumptions. In preparing these financial statements,estimates. On an ongoing basis, the Company has evaluated eventsevaluates its estimates, including those related to the accounts receivable, convertible notes receivable, inventory, fair values of investments, intangible assets and transactionsgoodwill, 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 potential recognition or disclosure.making judgments about the carrying values of assets and liabilities.
Reclassifications
Restricted Cash – As of- Certain amounts on the accompanying consolidated balance sheets for the year ended December 31, 2021, have been reclassified to conform to current period presentation, as have certain amounts for the three and nine months ended September 30, 2017,2021.
Cash Equivalents – All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash of $336,712 ($177,609 – December 31, 2016) is restricted forequivalents. Amounts included in cash equivalents in the accompanying consolidated balance sheets are money market funds whose adjusted costs approximate fair value.
Notes receivable, unearned interest, and related recognition - The Company records all future payments of costsprincipal and expenses associated with oneinterest 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 Company’s IP monetization programs.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.
InvestmentInvestments– In accordanceInvestments in equity securities with ASC 325-20,a readily determinable fair value, not accounted for under the Company records its investmentequity method, are recorded at fair value with unrealized gains and losses included in common stock of Singapore eDevelopment Limited at cost as theearnings. For equity securities without a readily determinable fair market value, of the investment is not readily determinable. Therecorded 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.
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For equity method investments, the Company evaluatesregularly reviews its investments to determine whether there is a decline in fair value below book value. If there is a decline that is other-than-temporary, the investment is written down to fair value. See Note 6 for indications of impairment at least annually.further discussion on investments.
Fair Value of Financial Instruments - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurement Topic of the FASB ASCFinancial 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. Derivative instruments, as discussed below, are recorded as assets and liabilities at estimatedThe fair value based on available market information.
Derivative Instruments -The Company maintains an overall interest rate risk management strategy that incorporatesof investments where the use of interest rate swap contracts to minimize significant fluctuations in earnings that are caused by interest rate volatility. The Company has two interest rate swaps that change variable rates into fixed rates on two term loans. These swaps qualify as Level 2 fair value financial instruments. These swap agreementsis not considered readily determinable, are not held for trading purposescarried 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 does not intendevaluates its inventory in order to selladjust the derivative swap financial instruments. The Company recordsinventory balance for obsolete and slow-moving items. An allowance for obsolescence of approximately $434,000 and $388,000 associated with the interest swap agreements on the balance sheetinventory at fair value because the agreements qualify as a cash flow hedges under accounting principles generally accepted in the United States of America. Gains and losses on these instruments areour SHRG subsidiary was recorded in other comprehensive loss until the underlying transaction is recorded in earnings. When the hedged item is realized, gains or losses are reclassified from accumulated other comprehensive loss (“AOCI”) to the consolidated statement of operations on the same line item as the underlying transaction. The valuations of the interest rate swaps have been derived from proprietary models of Citizens Bank, N.A. based upon recognized financial principles and reasonable estimates about relevant future market conditions and may reflect certain other financial factors such as anticipated profit or hedging, transactional, and other costs. The notional amounts of the swaps decrease over the life of the agreements. The Company is exposed to a credit loss in the event of nonperformance by the counter parties to the interest rate swap agreements. However, the Company does not anticipate non-performance by the counter parties. The cumulative net loss attributable to this cash flow hedge recorded in accumulated other comprehensive loss and other liabilities as of September 30, 2017 was approximately $36,000 ($45,000 -2022, and December 31, 2016).2021, respectively. Write-downs and write-offs are charged to cost of revenue.
As of September 30, 2017 the Company has an interest rate swap agreement for its debt with RBS Citizens, N.A. (“Citizens Bank”) (see Note 4) which changes a variable rate into a fixed rate on a term loan as follows:
| Notional | Variable | |||||||||||
| Amount | Rate | Fixed Cost | Maturity Date | |||||||||
| $ | 927,753 | 4.38 | % | 5.87 | % | August 30, 2021 | ||||||
Impairment of Long LivedLong-Lived Assets and Goodwill- Long-lived and intangibleThe Company monitors the carrying value of long-lived assets and goodwill are assessed for potential impairment and tests the recoverability of such assets whenever events or changes in circumstances indicate that full recoverability of net asset balances through future cash flows is in question. Goodwill and indefinite-lived intangible assets are assessed at least annually, but also whenever events or changes in circumstances indicate the carrying valuesamounts may not be recoverable. Factors that could trigger anIf 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 review, include (a) significant underperformance relativehas 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 historical or projected future operating results; (b) significant changesits carrying value.
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Acquisitions - Business combinations and non-controlling interests are recorded in accordance with FASB ASC 805 Business Combinations. Under the manner of or useguidance, the assets and liabilities of the acquired assets orbusiness are recorded at their fair values at the strategy for the Company’s overall business; (c) significant negative industry or economic trends; (d) significant decline in the Company’s stock price for a sustained period;date of acquisition and (e) a decline in the Company’s market capitalization below net book value.
Contingent Legal Expenses -Contingent legal fees associated with our commercial litigation involving our IPall acquisition costs are expensed inas incurred. The excess of the consolidated statementspurchase price over the estimated fair values is recorded as goodwill. If the fair value of operations in the periodassets 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 5 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 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 the related revenuesrequires 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 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 legaldetermined based on replacement costs, incurred pursuantappraised values, and estimated fair values using methods similar to the underlying legal services agreementthose used by independent appraisers and that will be paid out from the proceeds from settlements use appropriate discount and/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 in which a conclusion is reached in an enforcement action that does not yield future royalties potential.capitalization rates and available market information.
(Loss) Earnings Per Common Share - The Company presents basic and diluted (loss) earnings per share. Basic (loss) earnings per share reflect the actual weighted average of shares issued and outstanding during the period. Diluted (loss) earnings per share are computed including the number of additional shares from outstanding warrants, stock options and preferred stock that would have been outstanding if dilutive potential shares had been issued.issued and is calculated utilizing the treasury stock method. In a loss period, the calculation for basic and diluted (loss) earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive.
On August 26, 2016, For the Company affected a one-for-four reverse stock split of the Company’s common stock. No fractional shares of the Company’s common stock were issued as a result of the reverse stock split. Instead, stockholders of record who otherwise would have been entitled to receive fractional shares were entitled to a rounding up of their fractional share to the nearest whole share, except in the case of any stockholder that owned less than four shares of the Company’s common stock immediately preceding the reverse stock split. In such case, such stockholder received cash for such fractional share in an amount equal to the product obtained by multiplying: (x) the closing sale price of the common stock on August 25, 2016 as reported on the NYSE MKT, by (y) the amount of the fractional share. As a result, the Company issued 1,166 common shares for shares due as a result of the rounding up featurethree and paid $92 to buy-out the fractional shares of holders with less than four shares immediately preceding the reverse stock split.
As ofnine months ended September 30, 2017 and 2016, there were 3,297,759 and 2,498,128 respectively, of common stock share equivalents potentially issuable options,2022, potential dilutive instruments include both warrants and restricted stock agreements, that could potentially dilute basic earnings per share inoptions of and shares respectively. For the future. Thesethree and nine months ended September 30, 2021, potential dilutive instruments include both warrants and options of and shares are excluded from the calculation of diluted earnings per share in periods in which the Company had a net loss because their inclusion would be anti-dilutive to the Company’s losses in the respective periods.respectively.
Concentration of Credit Risk- The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured limits. The Company believes it is not exposed to any significant credit risk as a result of any non-performance by the financial institutions.
During the nine months ended September 30, 2022, one customer accounted for 13% of our consolidated revenue. As of September 30, 2022, this same customer accounted for 35% of our consolidated trade accounts receivable balance. During the nine months ended September 30, 2021, this customer accounted for 31% of our consolidated revenue and 57% of our consolidated trade accounts receivable balance.
During the nine months ended September 30, 2017, two customers2022, vendor 1 accounted for 25%43% and 15%, respectively, of the Company’s consolidated revenue andvendor 2 accounted for 17% and 11%, respectively,21% of the Company’s accounts receivable balance asour consolidated inventory purchases. As of September 30, 2017. During the nine months ended September 30, 2016, one customer2021, vendor 1 accounted for 25%76% of the Company’sour consolidated revenue and accountedinventory purchases.
Income Taxes - The Company recognizes estimated income taxes payable or refundable on income tax returns for 7% of the Company’s accounts receivable balance as of September 30, 2016. The risk with respect to accounts receivables is mitigated by credit evaluations the Company performs on its customers, the short duration of its payment terms for the significant majority of its customer contracts and by the diversification of its customer base.
Reclassifications- Certain prior year amounts have been reclassified to conform to the current year presentation. All common share and per share figures are presentedfor the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income items is based on a post one for four reverse stock split basis.enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized. We recognize penalties and accrued interest related to unrecognized tax benefits in income tax expense.
Recent Accounting Pronouncements – - In May 2014,June 2016, the FinancialFASB issued Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2014-9 “Revenue from Contracts with Customers”. The new guidance(“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326)”, which requires an entityentities to recognizemeasure all expected credit losses for financial assets held at the amountreporting 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 revenue to which it expects to be entitled for the transfer of promised goods or services to customers. Subsequently, the FASB has issued the following standards related to ASU 2014-09: ASU No. 2016-08, “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations” (“ASU 2016-08”); ASU No. 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing” (“ASU 2016-10”); and ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”). The Company must adopt ASU 2016-08, ASU 2016-10 and ASU 2016-12 with ASU 2014-09 (collectively, the “new revenue standards”). The revenue standards will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a retrospective or cumulative effect transition method.credit losses on financial assets measured at amortized cost. This guidance is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.2022. The Company has not yet selected a transition method and is currently evaluatingassessing the effectimpact that the revenue standardsadopting this new accounting standard will have on itsour consolidated financial statementsstatements.
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2. Revenue
The Company recognizes its products and services revenue based on when the title passes to the customer or when the service is completed and accepted by the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for shipped product or service provided. Sales and other taxes billed and collected from customers are excluded from revenue. The Company recognizes rental income associated with its REIT, net of amortization of favorable/unfavorable lease terms relative to market and includes rental abatements and contractual fixed increases attributable to operating leases, where collection has been considered probable, on a straight-line basis over the term of the related disclosures.lease. The Company recognizes net investment income from its investment banking line of business as interest owed to the Company occurs. The Company generates revenue from its direct marketing line of business primarily through internet sales and recognizes revenue as items are shipped.
InAs of September 30, 2022, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Topic 606, the Company has applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. The Company elected the practical expedient allowing it to not recognize as a contract asset the commission paid to its salesforce on the sale of its products as an incremental cost of obtaining a contract with a customer but rather recognize such commission as expense when incurred as the amortization period of the asset that the Company would have otherwise recognized is one year or less.
Accounts Receivable
The Company extends credit to its customers in the normal course of business. The Company performs ongoing credit evaluations and generally does not require collateral. Payment terms are generally 30 days but up to net 105 for certain customers. The Company carries its trade accounts receivable at invoice amount less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for doubtful accounts based upon management’s estimates that include a review of the history of past write-offs and collections and an analysis of current credit conditions. At September 30, 2022, and December 31, 2021, the Company established a reserve for doubtful accounts of approximately $42,000 and $20,000 respectively. The Company does not accrue interest on past due accounts receivable.
Sales Commissions
Sales commissions are expensed as incurred for contracts with an expected duration of one year or less. There were no sales commissions capitalized as of September 30, 2022.
Shipping and Handling Costs
Costs incurred by the Company related to shipping and handling are included in cost of products sold. Amounts charged to customers pertaining to these costs are reflected as revenue.
See Note 12 for disaggregated revenue information.
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3. 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 September 30, 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, 2021. The outstanding balance of $39,000 was converted to equity in Borrower 1.
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. The outstanding principal and interest as of September 30, 2022 and December 31, 2021, approximated $0 and $829,000, respectively, and is classified as a Current portion of notes receivable on the Consolidated Balance Sheets at December 31, 2021. Borrower 2 repaid the principal and interest in full in April 2022.
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 September 30, 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 classified as Notes receivable on the accompanying consolidated balance sheets.
Note 4, related party
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”) with Borrower 4, a company registered in the state of New York, of which Sentinel Brokers, LLC., owns 24.9% of the company’s outstanding common stock. The Note 4 has an aggregate principal balance up to $3,000,000, to be funded at request of Borrower 4. Note 4, 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 September 30, 2022 and December 31, 2021, there was $309,000 and $0, respectively, and is included in Current portion of notes receivable on the accompanying consolidated balance sheet.
Note 5
On May 14, 2021, DSS Pure Air, Inc. a subsidiary of the Company entered into a convertible promissory note (“Note 5”) with Borrower 5, a company registered in the state of Texas. Note 5 has an aggregate principal balance up to $5,000,000, to be funded at request of Borrower 5. Note 5interest accrues at a rate of 6.5% due quarterly, and has a maturity date of May 14, 2023. Note 5 contains an optional conversion clause that allows the Company to convert all, or a portion of all, into new issued member units of Borrower 5 with the maximum principal amount equal to 18% of the total equity position of Borrower 5 at conversion. The outstanding principal and interest as of September 30, 2022 and December 31, 2021, approximated $5,333,000 and $5,081,000, respectively, which is included in Current portion of notes receivable on the accompanying consolidated balance sheet.
Note 6
On September 23, 2021, APB entered into refunding bond anticipatory note (“Note 6”) with Borrower 6, which operates as a conservation and reclamation district pursuant to Chapter 3891, Texas Special District Local Laws Code; Chapter 375, Texas Local Government Code; and Chapter 49, Texas Water Code. The District Note was in the sum of $3,500,000 and incurs interest at a rate of 4.15% per annum. Principal and interest are due in full on September 22, 2022. 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. At maturity, the outstanding principal and interest of $3,645,000 of Note 6 was converted into a new note with interest accruing at approximately 5.6% per year with a maturity date of September 21, 2023. The outstanding principal and interest of $3,650,000 and $3,540,000 of the Note 6 is included in Current portion of notes receivable on the consolidated balance sheet at September 30, 2022 and December 31, 2021, respectively.
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Note 7
On October 25, 2021, APB entered into loan agreement (“Note 7”) with Borrower 7, a company registered in the state of Utah. Note 7 has an initial aggregate principal balance up to $1,000,000, to be funded at request of Borrower 7, with an option to increase the maximum principal borrowing to $3,000,000. Note 7, which incurs interest at a rate of 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 7, has the right to elect one member to the Board of Managers. The outstanding principal and interest of approximately $937,000 and $784,000 of the note is included in Current portion of notes receivable on the consolidated balance sheet at September 30, 2022 and December 31, 2021, respectively. The maturity date of Note 7 is in the process of being extended.
Note 8
On June 13, 2019, APB extended the credit (“Note 8”) to an individual (“Borrower 8”) in the form of a promissory note for $250,000, bearing interest at 15%, with a maturity date of May 15, 2020. On June 5, 2020, the Company further extended the same credit in the form of a promissory note for $250,000, bearing interest at 15%, with a maturity date of May 14, 2021. On August 30, 2021, the Company further extended the same credit in the form of a promissory note for $250,000, bearing interest at 12.5%, with a maturity date of May 15, 2023. The modification agreement is effective May 14, 2021. This promissory note is secured by a deed of trust on a tract of land, which is approximately 315 acres, and located in Coke County, Texas. The outstanding principal and interest of approximately $256,000 is included in Current portion of notes receivable on the consolidated balance sheet at September 30, 2022 and $260,000 is in included in Notes receivable at December 31, 2021.
Note 9, related party
On October 7, 2021, HWH World, Inc., a subsidiary of the Company entered into a revolving loan commitment (“Note 9”) with Borrower 9, a company registered in Taiwan. Note 9 has an principal balance of $52,000 and incurred no interest through the maturity date of December 31,2021. The outstanding principal at September 30, 2022 and December 31, 2021 is $61,000 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. The Chief Operating Officer of DSS is the sole shareholder of Borrower 9.
Note 10
On December 28, 2021, APB entered into promissory note (“Note 10”) with Borrower 10, a company registered in the state of California. Note 10 has an principal balance of $700,000. Note 10, which incurs interest at a rate of 12.0% with principal and interest due at the maturity date of December 28, 2022. The outstanding principal and interest of $759,000 and $700,000 of Note 10 is included in Current portion of notes receivable on the consolidated balance sheet at September 30, 2022 and December 31, 2021.
Note 11
On January 2016,24, 2022, APB and Borrower 11 entered into a promissory note (“Note 11”) in the FASB issued ASU No. 2016-01, “Recognitionprincipal sum of $100,000 with interest of 6%, due annually, and Measurementmaturing in January 2024. The outstanding principal and interest at September 30, 2022 approximates $104,000, and is included in Notes receivable on the accompanying consolidate balance sheet.
Note 12
On March 2, 2022, APB and Borrower 12, a corporation organized under the laws of the Republic of Korea entered into a promissory note (“Note 12”). Under the terms of Note 12, APB at its discretion, may lend up to the principal sum of $893,000 with an interest rate of 8%, and matures in March 2024, with interest payable quarterly. The outstanding principal and interest at September 30, 2022 is $887,000, of which $446,000 is included in Current notes receivable on the accompanying consolidated balance sheet.
Note 13
On May 9, 2022, DSS PureAir and Borrower 5 entered into a promissory note (“Note 13”) in the principal sum of $210,000 with interest of 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 is due on February 9, 2023. The outstanding principal and interest at September 30, 2022 approximates $218,000, and is included in Current portions of notes receivable on the accompanying consolidate balance sheet.
Note 14, related party
On August 29, 2022, DSS Financial AssetsManagement, Inc. (“DSSFM”) entered into subordinated loan agreement (“Note 14”) with Borrower 14, a broker/dealer, of which DSSFM owns 24.9% of the company’s outstanding common stock, in the principal sum of $100,000 with interest of 8%, due at maturity date of August 29, 2025. The outstanding principal and interest at September 30, 2022 approximates $101,000, and is included in Notes receivable on the accompanying consolidate balance sheet.
Note 15
On July 26, 2022, APB entered into a revolving credit promissory note (Note 15) with Borrower 15 for the principal sum up to $1,000,000 which accrues interest at 8% per year and maturing on July 26, 2024. Interest payments are due quarterly beginning on September 30, 2022. Principal and any unpaid interest is due upon maturity. The outstanding principal and interest at September 30, 2022 approximates $917,000, and is included in Notes receivable on the accompanying consolidate balance sheet.
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4. Financial Liabilities.” ASU 2016-01Instruments
Cash, Cash Equivalents, Restricted Cash and Marketable Securities
The following tables show the Company’s cash, cash equivalents, restricted cash, and marketable securities by significant investment category as of September 30, 2022, and December 31, 2021:
Schedule of Cash and Marketable Securities by Significant Investment Category
| 2022 | ||||||||||||||||||||||||
| Adjusted Cost | Unrealized Gain/(Loss) | Fair Value | Cash and Cash Equivalents | Marketable Securities | Investments | |||||||||||||||||||
| Cash | $ | 21,151,000 | $ | - | $ | 21,151,000 | $ | 21,151,000 | $ | - | $ | - | ||||||||||||
| Level 1 | ||||||||||||||||||||||||
| Money Market Funds | 1,694,000 | - | 1,694,000 | 1,694,000 | - | - | ||||||||||||||||||
| Marketable Securities | 32,498,000 | (4,415,000 | ) | 28,083,000 | - | 28,083,000 | - | |||||||||||||||||
| Investment in unconsolidated subsidiaries | - | - | - | - | - | - | ||||||||||||||||||
| Level 2 | ||||||||||||||||||||||||
| Warrants | 3,318,000 | (2,246,000 | ) | 1,072,000 | - | - | 1,072,000 | |||||||||||||||||
| Convertible securities | 1,023,000 | (725,000) | 298,000 | - | - | 298,000 | ||||||||||||||||||
| Total | $ | 59,684,000 | $ | (7,386,000 | ) | $ | 52,298,000 | $ | 22,845,000 | $ | 28,083,000 | $ | 1,370,000 | |||||||||||
| 2021 | |||||||||||||||||||||||||
Adjusted Cost | Unrealized Gain/(Loss) | Fair Value | Cash and Cash Equivalents | Marketable Securities | Investments | ||||||||||||||||||||
| 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 | 1,544,000 | 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 | $ | 1,544,000 | $ | 75,473,000 | $ | 56,595,000 | $ | 14,537,000 | $ | 4,341,000 | |||||||||||||
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The Company typically invests with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires that mostsecurities to be investment grade and limits the amount of credit exposure to any one issuer. Fair values were determined for each individual security in the investment portfolio.
5. Acquisitions
Sharing Services Global Corp. (“SHRG”)
As of and through September 30, 2020, the Company classified its investment in Sharing Services Global Corp. (“SHRG”), a publicly traded company, as marketable equity investments besecurity and measured it at fair value with subsequent changes in fair valuegains and losses recognized in netother income. Entities will no longer be ableIn 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 useexercise significant influence over it. During the costquarter ended September 30, 2020, the Company began to account for its investment in SHRG using the equity method in accordance with ASC Topic 323, Investments—Equity Method and Joint Ventures recognizing our share of SHRG’s earnings and losses within our consolidated statement of operations. Through a series of transactions, DSS increased its ownership of voting shares in SHRG to approximately 58% on December 23, 2021. The 58% ownership of SHRG meets the definition of a business with inputs, processes, and outputs, and therefore, the Company has concluded to account for this transaction in accordance with the acquisition method of accounting for equity securities. However, for equity investments without readily determinable fair values, entities may elect a measurement alternative that will allow those investments to be recorded at cost, less impairment,under Topic 805 and adjusted for subsequent observable price changes. Upon adoption, entities must record a cumulative-effect adjustment tobegan consolidating the balance sheetfinancial results of SHRG as of the beginningDecember 31, 2021. As of the first reporting period in which the standard is adopted. The guidance on equity securities without readily determinable fair values will be applied prospectively to all equity investments that existDecember 31, 2021, SHRG had total current assets of $28,494,000 and total assets of $45,660,000. Also as of the dateDecember 31, 2021 SHRG had total current liabilities of the adoption$10,418,000 and total liabilities of the standand. The pronouncement also impacts financial liabilities under the fair value option and the presentation and disclosure requirements for financial instruments. This pronouncement is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017, and early adoption is not permitted. The Company has not yet evaluated nor has it determined the effect the standard will have on its consolidated financial statements and related disclosures.$22,463,000.
In February 2016, the FASB issued ASU 2016-02, “Leases”, which requires that lease arrangements longer than 12 months result in an entity recognizing an asset and liability. ASU 2016-02 is effective for interim and annual periods beginning after December 15, 2018, and early adoption is permitted. The Company has not yet evaluated nor has it determined the effect the standard will have on its consolidated financial statements and related disclosures.
In March 2016, the FASB issued ASU 2016-09, “Compensation — Stock Compensation: Improvements to Employee Share-Based Payment Accounting.” The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU 2016-09 was effective forOn January 24, 2022, the Company on January 1, 2017. The adoptionexercised warrants received as part of this standard did not have a material impact on our consolidated financial statements.
In August 2016,consulting agreement with SHRG at the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments”, which clarifies the treatment of several types of cash receipts and payments for which there was diversity in practice. This update is effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years, with early adoption permitted, including adoption in an interim period. We anticipate that the adoption of this guidance will not have a material impact on our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows”, regarding the presentation of restricted cash on the statement of cash flows. The standards update requires that the reconciliation of the beginning and end of period cash amounts shown in the statement of cash flows include restricted cash. When restricted cash is presented separately from cash and cash equivalents on the balance sheet, a reconciliation is required between the amounts presented on the statement of cash flows and the balance sheet. Also, the new guidance requires the disclosure of information about the nature of the restrictions. The standards update is effective retrospectively for fiscal years and interim periods beginning after December 15, 2017, with early adoption permitted. We anticipate that the adoption of this guidance will not have a material impact on our consolidated financial statements.
2. Inventory
Inventory consisted of the following:
| September 30, 2017 | December 31, 2016 | |||||||
| Finished Goods | $ | 1,315,421 | $ | 736,987 | ||||
| WIP | 385,998 | 314,353 | ||||||
| Raw Materials | 211,692 | 155,037 | ||||||
| $ | 1,913,111 | $ | 1,206,377 | |||||
3. Investment
On September 12, 2017, the Company and Hengfai Business Development Pte Ltd. (“HBD”) entered into a Securities Exchange Agreement whereby the Company agreed to issue and sell to HBD 683,000 shares of its common stock, which had a market value on that date of $484,930, in exchange for 21,196,552 ordinary shares and an existing three-year warrant to purchase up to 105,982,759 of common shares at an exercise price of SGD$0.040 per share$0.0001, bring its ownership percentage of Singapore eDevelopmentvoting shares to approximately 65%. 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. During the nine months ended September 30, 2022, SHRG incurred $1,632,000 of losses of which, $702,000 is attributed to non-controlling interest.
We are currently in the process of completing the purchase price accounting and related allocations associated with the acquisition of SHRG. The Company is in the process of completing valuations and useful lives for certain assets acquired in the transaction. We expect the preliminary purchase price accounting to be completed during the year ending December 31, 2022.
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6. Investments
Alset International Limited, related party
The Company owns shares or approximately of the outstanding shares of Alset International Limited (“SED”Alset Intl”), a company incorporated in Singapore and publicly-listedpublicly 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 SED shares and warrants were owned by HBD. One of the directorsChairman of the Company, Mr. Heng Fai Ambrose Chan, is a related party to eachthe Executive Director and Chief Executive Officer of HBD and SED. The costAlset Intl. Mr. Chan is also the majority shareholder of Alset Intl as well as the largest shareholder of the investment was determined to be theCompany. The fair value of the Company’s common stock issued in the transaction, which was determined to have the most readily determinable fair value. Asmarketable security as of September 30, 2017,2022, and December 31, 2021, was approximately $3,370,000 and $4,909,000 respectively. During the nine months ended September 30, 2022 and September 30, 2021, the Company recorded unrealized loss on this investment is carried at cost of approximately $485,000.$1,539,000 and $967,000, 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 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 September 30, 2022. The remaining $37,000 is included in gain (loss) on investments on the consolidated statement of operations at September 30, 2022.
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 nine months ended September 30, 2022, approximated $10,000.
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.
4. Intangible AssetsBioMed Technologies Asia Pacific Holdings Limited
Intangible assets are comprisedOn December 19, 2020, Impact BioMedical, a wholly owned subsidiary of the following: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.
| September 30, 2017 | December 31, 2016 | |||||||||||||||||||||||||
| Useful Life | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||||||||
| Acquired intangibles - customer lists and non-compete agreements | 5-10 years | 1,997,300 | 1,785,932 | 211,368 | 1,997,300 | 1,721,357 | 275,943 | |||||||||||||||||||
| Acquired intangibles - patents and patent rights | Varied (1) | 3,155,000 | 2,476,149 | 678,851 | 3,155,000 | 2,092,767 | 1,062,233 | |||||||||||||||||||
| Patent application costs | Varied (2) | 1,141,368 | 644,548 | 496,820 | 1,136,465 | 578,623 | 557,842 | |||||||||||||||||||
| $ | 6,293,668 | $ | 4,906,629 | $ | 1,387,039 | $ | 6,288,765 | $ | 4,392,747 | $ | 1,896,018 | |||||||||||||||
BioMed focuses on manufacturing natural probiotics, pursuant to which the Company will directly market, advertise, promote, distribute and sell certain BioMed products to resellers. The products to be distributed by the Company include BioMed’s PGut Premium Probiotics®, PGut Allergy Probiotics®, PGut SupremeSlim Probiotics®, PGut Kids Probiotics®, and PGut Baby Probiotics®.
Under the terms of the Distribution Agreement, the Company will have exclusive rights to distribute the products within the United States, Canada, Singapore, Malaysia, and South Korea and non-exclusive distribution rights in all other countries. In exchange, the Company agreed to certain obligations, including mutual marketing obligations to promote sales of the products. This agreement is for ten years with a one year auto-renewal feature.
Vivacitas Oncology, Inc.
On March 15, 2021, the Company, through one of its subsidiaries, entered into a Stock Purchase Agreement (the “Vivacitas Agreement #1”) with Vivacitas Oncology Inc. (“Vivacitas”), to purchase shares of its common stock at the per share price of $, with an option to purchase additional shares at the per share price of $. This option will terminate upon one of the following events: (i) Vivacitas’ board of directors cancels this option because it is no longer in the best interest of the Company; (ii) December 31, 2021; or (iii) the date on which Vivacitas receives more than $1.00 per share of the Company’s common stock in a private placement with gross proceeds of $. Under the terms of the Vivacitas Agreement #1, the Company will be allocated two seats on the board of Vivacitas. On March 18, 2021, the Company entered into an agreement with Alset EHome International, Inc. (“Seller”), 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.
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 $1.00 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 shares or as of September 30, 2022. As of September 30, 2022, and 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 $4,100,000 and $4,035,000, respectively.
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Intangible asset amortization expenseSentinel Brokers Company, Inc.
On May 13, 2021, a Sentinel Brokers, LLC., subsidiary of the Company entered into a stock purchase agreement (“Sentinel Agreement”) to acquire a 24.9% equity position of Sentinel Brokers Company, Inc. (“Sentinel”), a company registered in the state of New York, for the purchase price of $300,000. 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. Under the terms of this agreement, the Company as the option to purchase an additional 50.1% of the outstanding Class A Common Shares. Upon the exercising of this option, but no earlier than one year following the effective date the Sentinel Agreement, Sentinel has the option to sell the remaining 25% to the Company. In consideration of purchase price investment in Sentinel, the Company is entitled to an additional 50.1% of the net profits of Sentinel. The Company currently accounts for its investment in Sentinel 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., as it currently owns 24.9% of Sentinel. The Company’s portion of net gain in Sentinel for the nine months ended September 30, 2017 amounted to $513,881 ($530,015 -2022 approximated $143,000
Sentinel is a broker-dealer operating primarily as a fiduciary intermediary, facilitating intuitional trading of municipal and corporate bonds as well as preferred stock, and is registered with the Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”), and is a member of the Securities Investor Protection Corporation (“SIPC”).
Stemtech Corporation
In September 30, 2016).
5. Short-Term2021, the Company, Stemtech Corporation (“Stemtech”) and Long-Term Debt
Revolving Credit Lines - The Company’s subsidiary Premier Packaging CorporationGlobe Net Wireless Corp. (“Premier Packaging”GNTW”) has a revolving credit line with Citizens Bank of up to $800,000 that bears interest at 1 Month LIBOR plus 3.75% (4.98% as of September 30, 2017) and expires on July 26, 2018. As of September 30, 2017 and December 31, 2016, the revolving line had a balance of $0.
On July 26, 2017, Premier Packaging entered into a LoanSecurities Purchase Agreement and accompanying Term Note Non-Revolving Line of Credit Agreement with Citizens Bank(the “SPA”) pursuant to which Citizens agrees to lend up to $1,200,000 for the purpose of enabling Premier Packaging to purchase equipment from time to time that it may need for use in its business. As of the date of this report, the revolving line had a balance of $0.
Long-Term Debt - On December 30, 2011, the Company issuedinvested $1.4 million in Stemtech in exchange for: (a) a $575,000 convertible note that was initially due on December 29, 2013, and carries an interest rate of 10% per annum. The note is secured by the assets of Company’s wholly-owned subsidiary, Secuprint Inc. Interest is payable quarterly, in arrears. In conjunction with the issuance of the convertible note, the Company determined a beneficial conversion feature existed amounting to approximately $88,000, which was recorded as a debt discount to be amortized over the term of the note. On May 24, 2013, the Company amended the convertible note to extend the maturity date of the note from December 29, 2013 to December 29, 2015. The change in the fair value of the embedded conversion option exceeded 10% of the carrying value of the original debt and, therefore, the Company accounted for this restructuring as an extinguishment in accordance with FASB ASC 470-50 “Debt Modifications and Extinguishments”. The note was written up to its fair value on the date of modification of approximately $650,000 and the premium recorded in excess of its face value was amortized over the remaining life of the note. On February 23, 2015, the Company entered into Convertible Promissory Note Amendment No. 2 to extend the maturity date to December 30, 2016, eliminate the conversion feature, and to institute principal payments in the amount of $15,000$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 Company 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 month plus interest throughshare of GNTW’s common stock during the extended maturity date,30-day period 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 balloonpurchase 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 $230,000 due on the extended maturity date. On April 12, 2016,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 Company 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 three and six months ended September 30, 2022, the Company entered intorecognized losses, before income tax, of $8.6 million and $3.7 million in connection with its investment in the Convertible Promissory Note, Amendment No. 3 to extend the maturity date to May 31, 2017GNTW Warrant and change the balloon payment to $155,000 due on the extended maturity date. On May 31, 2017, the Company entered into Convertible Promissory Note Amendment No. 4 to extend the maturity date to April 30, 2018 at which point the note is scheduled to be paid in full. In exchange for the extension, the Company also issued the lender as additional consideration 18,000 shares of the Company’sGNTW common stock which had a fair value of $17,640. As ofstock.
MojiLife, LLC
In September 30, 2017, the balance of the term loan was $95,000 ($230,000 at December 31, 2016).
On May 24, 2013,2021, the Company entered into a Membership Unit Purchase Agreement pursuant to which the Company 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.
7. Short-Term and Long-Term Debt
DSS, Inc.
Promissory Notes - On March 2, 2020, AMRE entered into a $200,000 unsecured promissory note in the principal sum of $850,000with 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 three printing presses that were previously leasedshares of common stock of AMRE (the “Warrants”). The amount of the warrants granted is the equivalent of the Note Principal divided by the Company’s wholly-owned subsidiary, Secuprint Inc.,Exercise Price. The Warrants are exercisable for four years and carries an interest rateare 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 9% per annum.changes in stockholders’ equity) The noteholder is secureda related party owned by the assets of Company’s wholly-owned subsidiary, Secuprint Inc. Interest is payable quarterly, in arrears. The Company also issued the lender as additional consideration a five-year warrant to purchase up to 60,000 sharesChairman of the Company’s common stock at an exercise priceboard of $3.00 per share. The warrant was valued at approximately $69,000 using the Black-Scholes-Merton option pricing model with a volatility of 60.0%, a risk free rate of return of 0.89% and zero dividend and forfeiture estimates. In conjunction with the issuance of the warrants, the Company recorded a discount on debt of approximately $69,000 that was amortized over the original term of the note. The note was set to mature on May 24, 2014, but its maturity date was extended on May 2, 2014 to May 24, 2015 by the lender. In exchange for the extension, the Company also issued the lender as additional consideration a five-year warrant to purchase up to 40,000 shares of the Company’s common stock at an exercise price of $1.50 per share. The warrant was valued at approximately $29,000 using the Black-Scholes-Merton option pricing model with a volatility of 70.0%, a risk free rate of return of 1.53% and zero dividend and forfeiture estimates. In conjunction with the issuance of the warrants, the Company recorded expense for modification of debt of approximately $29,000. directors.
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On February 23, 2015, the Company entered into Promissory Note Amendment No. 2 to extend the maturity date to May 31, 2016 and to institute principal paymentsMarch 16, 2021, American Medical REIT, Inc. received loan proceeds in the amount of $15,000 per month plus interest throughapproximately $110,000 under the extended maturity date,Paycheck Protection Program (“PPP”) with a fixed rate of 1% and a balloon payment60-month maturity term. The PPP, established as part of $610,000 due on the extended maturity date. On April 12, 2016,Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the Company entered into Promissory Note Amendment No. 3 to extendaverage monthly payroll expenses of the maturity date to May 31, 2017qualifying business. These funds were used for payroll, benefits, rent, mortgage interest, and change the balloon payment to $430,000 due on the extended maturity date. . On May 31, 2017, the Company entered into Convertible Promissory Note Amendment No. 4 to extend the maturity date toutilities. As of December 31, 2018 at which point2021, the note is scheduled to be paid in full. In exchange for the extension, the Company also issued the lender as additional consideration 18,000 shares of the Company’s common stock which had a fair value of $17,640. As of September 30, 2017, the balance of the term loan was $370,000 ($505,000 at December 31, 2016).
Term Loan Debt - On July 19, 2013, Premier Packaging entered into an equipment loan with People’s Capital and Leasing Corp. (“People’s Capital”) for a printing press. The loan is secured by the printing press. The loan was for $1,303,900, repayable over a 60-month period which commenced when the equipment was placed in service in January 2014. The loan bears interest at 4.84% and is payable in equal monthly installments of $24,511. As of September 30, 2017, the loan had a balance of $356,064 ($559,609 at December 31, 2016).
On April 28, 2015, Premier Packaging entered into a term note with Citizens for $525,000, repayable over a 60-month period. The loan bears interest at 3.61% and is payable in equal monthly installments of $9,591 until April 28, 2020. Premier Packaging used the proceeds of the term note to acquire a HP Indigo 7800 Digital press. The loan is secured by the printing press. As of September 30, 2017, the loan had a balance of $283,271 ($360,611 at December 31, 2016).
Promissory Notes - On August 30, 2011, Premier Packaging purchased the packaging plant it occupies in Victor, New York, for $1,500,000, which was partially financed with a $1,200,000 promissory note obtained from Citizens Bank (“Promissory Note”). The Promissory Note calls for monthly payments ofoutstanding principal and interest approximated $111,000 is included in the amount of $7,658, with interest calculated as 1 Month LIBOR plus 3.15% (4.38% at September 30, 2017). Concurrently with the transaction, the Company entered into an interest rate swap agreement to lock into a 5.87% effective interest rate for the life of the loan. The Promissory Note matures in August 2021 at which time a balloon payment of the remaining principal balance will be due. As of September 30, 2017, the Promissory Note had a balance of $927,753 ($966,786 at December 31, 2016).
On December 6, 2013, Premier Packaging entered into a Construction to Permanent Loan with Citizens Bank for up to $450,000 that was converted into a promissory note upon the completion and acceptance of building improvements to the Company’s packaging plant in Victor, New York. In May 2014, the Company converted the loan into a $450,000 note payable in monthly installments over a 5 year period of $2,500 plus interest calculated at a variable rate of 1 Month LIBOR plus 3.15% (4.38% at September 30, 2017), which payments commenced on July 1, 2014. The note matures in July 2019 at which time a balloon payment of the remaining principal balance of $300,000 is due. As of September 30, 2017, the note had a balance of $352,500 ($375,000 – December 31, 2016).
Under the Citizens Bank credit facilities, the Company’s subsidiary, Premier Packaging, is subject to various covenants including fixed charge coverage ratio, tangiblelong-term debt, net worth and current ratio covenants. For the quarters ended March 31, June 30, 2017, and September 30, 2017, Premier Packaging was in compliance with the covenants. The Citizens Bank obligations are secured by all of the assets of Premier Packaging and are also secured through cross guarantees by the Company and its other wholly-owned subsidiaries, Plastic Printing Professionals and Secuprint.
Other Debt - On February 13, 2014, the Company’s subsidiary, DSS Technology Management, Inc. (“DSSTM”), entered into an Investment Agreement (the “Agreement”) dated February 13, 2014 (the “Effective Date”) with Fortress Credit Co LLC, as collateral agent (the “Collateral Agent” or “Fortress”), and certain investors (the “Investors”), pursuant to which DSSTM contracted to receive a series of advances up to $4,500,000 (collectively, the “Advances”). Under the terms of the Agreement, on the Effective Date, DSSTM issued and sold a promissory note in the amount of $1,791,000, fixed return equity interests in the amount of $199,000, and contingent equity interests in the amount of $10,000, to each of the Investors, and in return received $2,000,000 in proceeds. To secure the Advances, DSSTM placed a lien in favor of the Investors on ten semi-conductor patents (the “Patents”) and assigned to the Investors certain funds recoverable from successful patent litigation involving these Patents, including settlement payments, license fees and royalties on the Patents. DSSTM is a plaintiff in various ongoing patent infringement lawsuits involving certain of the Patents.
On March 27, 2014, DSSTM received an additional $1,000,000 under the Agreement comprised of a promissory note for $900,000 and fixed and contingent equity interests of $100,000. On September 5, 2014, DSSTM received the remaining $1,500,000 under the Agreement comprised of a promissory note for $1,350,000 and fixed and contingent return interests of $150,000. On May 23, 2016, DSSTM remitted $495,000 in proceeds received from the sale of patent assets (Note 5) to Fortress under the terms of the Agreement. On September 20, 2016, DSSTM remitted $125,250 in proceeds received from a settlement to Fortress as repayment of the note principalconsolidated balance under the terms of the Agreement.
The Agreement defines certain events as Events of Default, one of which is the failure by DSSTM, on or before the second anniversary of the Effective Date, to make payments to the Investors equal to the outstanding Advances. On February 13, 2016, being the second anniversary date of the Effective Date, DSSTM had failed to make these payments and was therefore in default of the Agreement. On December 2, 2016, the parties entered into a First Amendment to Investment Agreement and Certain Other Documents (the “Amendment”). The purpose of the Amendment was to vacate DSSTM’s ongoing non-payment default under the Agreement, and to amend certain provisions of the Agreement.
The Agreement was amended to add expenses in the amount of $150,000 to DSSTM’s payment obligation, payable on the Maturity Date. This amount was recorded as debt issuance costs and is being amortized on a straight line basis through the amended maturity date of February 13, 2018. The Amendment added a provision whereby DSSTM is required to deposit $300,000 on or before March 2, 2017 and (ii) a further sum of $300,000 on or before March 2, 2018, into a deposit account (collectively, the “Deposit”). The March 2, 2017 deposit was made in a timely manner. The Deposit funds will be restricted to pay certain expenses, consisting of out-of-pocket expenses incurred in connection with certain existing patent litigation matters and other patent litigation matters which may occur after the Amendment Effective Date (the “Qualified Expenses”). In the Event of Default, the Investors may apply the then remaining Deposit to the then outstanding Obligations, if any.
Additionally per the Amendment, DSSTM agrees to pay to the Investors an amount equal to 25% of any amounts received by DSSTM for any and all types of monetization activities related to certain of its patents covering systems and methods of using low power wireless peripheral devices (collectively, “BlueTooth Patents”), but only until the Investors have received payments under the Agreement totaling the sum of (i) the Capitalized Expenses plus (ii) payments of principal and interest on the Notes totaling the sum of (x) $4,500,000 (consisting of the previously made Advances) plus (y) additional amounts, if any, advanced by the Investors pursuant to the Agreement. In addition to the monetization interest granted the Investors in the BlueTooth Patents, DSSTM also granted the Collateral Agent and the Investors a security interest in certain of DSSTM’s unencumbered semiconductor patents to further collateralize the amounts owed under the Agreement.
As of September 30, 2017, DSSTM has made aggregate principal payments of $752,180 on the notes. As of September 30, 2017, $3,611,560 is recorded as a short-term debt under the arrangement, which includes $263,500 of accrued interest, less unamortized debt issuance costs of $77,856. In addition, as of September 30, 2017, $459,000 of fixed and contingent equity interests is recorded in other short-term liabilities. The Company will reduce the liability upon payment to the Investor from available proceeds from litigation, or if none by the maturity date of February 13, 2018, then such amounts will be settled by the Company by the transfer and assignment of certain of the Company’s patent assets.
6. Other Liabilities
On November 14, 2016, the Company entered into a Proceeds Investment Agreement (the “Agreement”) with Brickell Key Investments LP (“BKI”). Pursuant to the Agreement, BKI financed an aggregate of $13,500,000 in a patent purchase and monetization program to be implemented and managed by the Company (the “Financing”). Pursuant to Agreement, $3,000,000 of the Financing was used to cover the Company’s purchase of a portfolio of U.S. and foreign LED patents and a license from Intellectual Discovery Co., Ltd., a Korean company (collectively, the “LED Patent Portfolio”), resulting in a basis in these assets of $0. A total of $6,000,000 of the Financing was directed by BKI to attorneys to cover anticipated attorneys’ fees and out-of-pocket expenses for legal proceedings that may transpire relating to enforcement of the LED Patent Portfolio. This amount is not included in the Company’s financial statements as the Company has no control over these funds, which are segregated and escrowed in the attorneys’ trust account.
In addition, on November 14, 2106, the Company received $4,500,000 of the Financing, which was required to be used by the Company to pay for the defense ofInter Partes Review or other similar proceedings that may be filed from time to time by defendants with the U.S. Patent & Trademark Office relating to the LED Patent Portfolio, with excess amounts available for general working capital needs. As of September 30, 2017, an aggregate of approximately $3,687,000 is recorded as other liabilities by the Company, of which approximately $2,062,500 is classified as short-term. Of this amount, the Company allocated $2,500,000 which it subsequently adjusted to $1,500,000 for the payment of estimated futureInter Partes Review costs. The Company will reduce this liability as it pays legal and other expenses related to theInter Partes Review matters involving the LED Patent Portfolio as incurred. The remaining $2,217,000 in other liabilities is allocated to working capital, which the Company is amortizing this amount on a pro-rata basis over the expected remaining life of the monetization period of the LED Patent Portfolio through November 31, 2019. For this amount, the Company reduced the liability with an offset to selling, general and administrative costs by $47,500 per month from January 2017 through July 2017 and $80,000 per month in August and September of 2017.sheet. During the nine months ended September 30, 2017, there2022, the PPP loan was $30,000 ofInter Partes Review costsforgiven in full and an aggregate of $492,500 was recorded as a reductiongain 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. At closing, the interest rate shall be fixed for the duration of the liability allocated to working capital.
On July 8, 2013, the Company’s subsidiary, DSS Technology Management, purchased two patents for $500,000 covering certain methods and processes related to Bluetooth devices. In conjunction with the patent purchases, DSS Technology Management entered into a Proceed Right Agreement with certain investors pursuant to which DSS Technology Management initially received $250,000 of a total of $750,000 which it will ultimately receive thereunder, subject to certain payment milestones, in exchange for 40% of the proceeds which it receives, if any, from the use, sale or licensing of the two patents.Loan. As of September 30, 2017,2022, and December 31, 2021, the Companyoutstanding principal on the BOA Note was $3,521,000 and $3,339,000, respectively and had received an aggregateinterest rate of $650,000 from the investors pursuant to the agreement of which approximately $435,000 was4.63%. The outstanding balance at December 31, 2021 is included in current liabilities inLong-term debt, net on the consolidated balance sheets ($467,000sheet. As of September 30, 2022, $468,000 was included in Current portion of long-term debt, net, and the remaining balance of approximately $3,053,000 recorded as Long-term debt, net The BOA Note contains certain covenants that are analyzed annual. As of September 30, 2022, Premier is in compliance with these covenants.
On June 18, 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 4.25%. The interest will be adjusted commencing on July 1, 2026 and continuing for the next succeeding 5 year period shall be determined one month prior to the change date and shall be an interest rate equal to two hundred fifty (250) basis points above the Federal Home Loan Bank Boston 5-Year/25-Year amortizing advance rate, but in no event less than 4.25% for the term of 120 months with a balloon payment approximating $2,829,000 due at term end. 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 acre site (See Note 5). As of September 30, 2022, the total balance due net of deferred financing costs of $79,000 is $4,821,000. $216,000is classified as Current portion of long-term debt, net, and the remaining balance of approximately $4,605,000 recorded as Long-term debt.
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 nine months. As of September 30, 2022 and December 31, 2016)2021, $3,068,000 and $3,000,000, respectively, is included in Current portion of long-term debt, net on the consolidated balance sheet.
On October 13, 2021, LVAM entered into loan agreement with Lee Wilson Tsz Kin (“Wilson Loan”), a related party, whereas LVAM borrowed the principal amount of $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 September 30, 2022 $3,000,000 is included in 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 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 maturity date of November 2, 2023, may be extended to November 2, 2024. As of December 31, 2021, the outstanding principal and interest of the LifeCare agreement approximates $39,448,000, net of deferred financing costs of $1,002,000. As of September 30, 2022, the outstanding principal and interested, net of deferred financing costs of $352,000 approximates $40,133,000 is included in Current portion of long-term debt, on the consolidated balance sheet. This agreement contains certain covenants that are analyzed on an annual basis, starting December 31, 2021 At September 30, 2022, AMRE is in compliance with all covenants.
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, 2022. On May 17, 2022, the shareholders of the Company will reduceapproved the liability as it pays legalissuance 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 other expenses relatedaccrued but unpaid interest of $367,000 through May 15, 2022. This transaction was finalized in July 2022 and is eliminated upon consolidation into DSS.
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 its litigation involvingAMRE Winter Haven the Bluetooth patents, for which the amount is availableprincipal sum of $2,990,000, maturing on March 7, 2024. Payments are to be used for 50%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. This agreement contains certain covenants that are analyzed on an annual basis, starting December 31, 2021 At September 30, 2022, AMRE is in compliance with all covenants. The outstanding principal and interest, net of all such expenses.debt issuance costs of $104,000, approximates $2,904,000 and is included in Long-term debt, net on the accompanying consolidated balance sheet at September 30, 2022.
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As describedSharing Services Global Corporation
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 5, On February 13, 2014,is convertible into shares of the Company’s subsidiary, DSSTM entered into an Investment AgreementCommon Stock. Concurrent with Fortress pursuantissuance of the Note, the Company issued to which DSSTM contractedHWH a detachable stock warrant to receive a series of advancespurchase up to $4,500,000.an additional 333,333 shares of the Company’s Common Stock, at an exercise price of $ per share. Under the terms of the Agreement, onNote and the Effective Date, DSSTM issueddetachable 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 sold a promissory note inmay 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 of $1,791,000, fixed return equity interests inrepresents the amount of $199,000, and contingent equity interests in the amount of $10,000. On March 27, 2014, DSSTM received an additional $1,000,000 under the Agreement comprised of a promissory note for $900,000 and fixed and contingent equity interests of $100,000. On September 5, 2014, DSSTM received the remaining $1,500,000 under the Agreement comprised of a promissory note for $1,350,000 and fixed and contingent return interests of $150,000. The $459,000 of aggregate fixed and contingent equity interests received are recorded in current liabilities.principal plus accrued interest. The Company will reducemade the liability upon payment to HWH on August 9, 2022.
In December 2019, SHRG and the Investor from available proceeds from litigation, or if none byholder of the SHRG $100,000 convertible note dated April 13, 2018 (the “April 2018Note”) entered into an amendment to the underlying promissory note. Pursuant to the amendment, the parties extended the maturity date of February 13,the note to April 2021. In addition, after giving effect to the amendment, the April 2018 then such amounts will be reversedNote is non-interest bearing. All other terms of the April 2018 Note remain unchanged. This Note was repaid in full during March 2022.
8. Lease Liability
The Company has operating leases predominantly for operating facilities. As of September 30, 2022, the remaining lease terms on our operating leases range from other current liabilities and recorded as other incomeless than one to twelve years. Renewal options to extend our leases have not been exercised due to uncertainty. Termination options are not reasonably certain of exercise by the Company. There is no transfer of title or option to purchase the leased assets upon expiration. There are no residual value guarantees or material restrictive covenants. There are no significant finance leases as of September 30, 2022.
Future minimum lease payments as of September 30, 2022, are as follows:
Maturity of Lease Liability:
Schedule of Future Minimum Lease Payments
| Totals | ||||
| 2022 | 284,000 | |||
| 2023 | 1,132,000 | |||
| 2024 | 908,000 | |||
| 2025 | 877,000 | |||
| 2026 | 890,000 | |||
| 2027 | 904,000 | |||
| After | 5,768,000 | |||
| Total lease payments | 10,763,000 | |||
| Less: Imputed Interest | (1,953,000 | ) | ||
| Present value of remaining lease payments | $ | 8,810,000 | ||
| Current | $ | 819,000 | ||
| Noncurrent | $ | 7,991,000 | ||
| Weighted-average remaining lease term (years) | 14.9 | |||
| Weighted-average discount rate | 4.3 | % | ||
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 maturity date.twelve year term of the lease.
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7. 9. Commitments and Contingencies
OnThe 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 26, 2013,8, 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) $ in alleged cash bonuses ($ per year) based on DSS’s performance in 2017, 2018 and 2019; and (viii) a $ 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 filed suit againstv. Apple, Inc. (“Apple”), 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 EasternWestern District of Texas, for patent infringement (the “Apple Litigation”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.
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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 complaint alleges infringement by Apple of DSS Technology Management’s patents that relate to systems and methods of using low power wireless peripheral devices DSS Technology Managementlawsuit is seeking a judgment for infringement, injunctive relief, and compensatory damages from Apple. On October 28, 2014, the case was stayed by the District Courtcurrently 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 twoInter 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. DSS Technology Management has 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, and the appeal is still pending as of the date of this Report. The patent assets underlying this matter had no carrying value as of the date of the PTAB decision and therefore, there were no impairment considerations as a result of the decision.
On February 16, 2015, DSS Technology Management filed suit in the United States District Court EasternNorthern District of Texas, against defendants Intel Corporation, Dell,Dallas Division, and is styled and numbered Maiden Biosciences, Inc. v. Document Security Stems, Inc., GameStop Corp.et al., Conn’s Inc., Conn Appliances, Inc., NEC Corporation of America, Wal-Mart Stores, Inc., Wal-Mart Stores Texas, LLC, and AT&T, Inc. The complaint alleges patent infringement and seeks judgment for infringement ofCase No. 3:21-cv-00327.
This lawsuit relates to two of DSSTM’s patents, injunctive relief and money damages. On December 9, 2015, Intel filed IPR petitions with PTAB for review of the patents at issuepromissory notes executed by RBC in the case. Intel’s IPRs were instituted by PTAB on June 8, 2016. On June 1, 2017, the PTAB ruled4th quarter of 2019 in favor of IntelDecentralized 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 allunjust enrichment, fraudulent transfer under the challenged claims. 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 July 28, 2017,March 30, 2021, Defendants DSS, Technology ManagementDecentralized, HWH, RBC International, and Heuszel filed a noticemotion 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 appealDSS, 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 PTAB’s decision relatingcivil 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 U.S. Patent 6,784,552 withdismiss the Federal Circuit. The Intel litigation has been stayed byTUFTA claim against RBC International. On September 3, 2021, Maiden filed its first amended complaint, asserting a single cause of action against the District Court pending final determination ofDSS Defendants, Heuszel, and RBC for an alleged TUFTA violation.
Generally, Maiden sought the IPR proceedings.
On July 16, 2015, DSS Technology Management filed three separate lawsuitssame relief requested in the United States District Courtits original complaint. Maiden, however, abandoned its request for the Eastern District of Texas alleging infringement of certain of its semiconductor patents. The defendants are SK Hynixet al.,Samsung Electronicset al.,and Qualcomm Incorporated. Each respective complaint alleges patent infringement and seeks judgment for infringement, injunctive relief and moneytreble damages. On November 12, 2015, SK HynixSeptember 17, 2021, the DSS Defendants filed an IPR petition with PTAB for review ofa motion to dismiss the patent at issue in their case. SK Hynix’s IPR was instituted by the PTAB on May 11, 2016. On August 16, 2016, DSS Technology Management and SK Hynix entered into a confidential settlement agreement ending the litigation between them. The pending SK Hynix IPR was then terminated by mutual agreement of the parties on August 31, 2016. On March 18, 2016, Samsung also filed an IPR petition, which was instituted by the PTAB. On September 20, 2017, PTAB ruled in favor of Samsung for all the challenged claims relatingamended complaint seeking to U.S. Patent 6,784,552. DSS Technology Management intends to appeal this PTAB rulingdismiss Maiden’s TUFTA claim to the Federal Circuit Qualcomm filed its IPR proceeding on July 1, 2016, which was then later joined with Intel’s IPRs in August 2016extent it seeks to avoid a transfer of assets owned by PTAB. On June 1, 2017, the PTAB ruled in favorany of Intel/Qualcomm for all the challenged claims. On July 28, 2017, DSS Technology Management filed a notice of appeal of the PTAB’s decision relating to U.S. Patent 6,784,552 with the Federal Circuit. The appeal is still pending as of the date of this Report.
On April 13, 2017, Document Security Systems, Inc. (“DSS”) filed a patent infringement lawsuit against Seoul Semiconductor Co., Ltd. and Seoul Semiconductor, Inc. (collectively, “Seoul Semiconductor”) in the United States District Court for the Eastern District of Texas, Marshall Division, alleging infringement of certain of DSS’s Light-Emitting Diode (“LED”) patents. DSS is seeking a judgement for infringement of the patents along with other reliefRBC’s subsidiaries, including but not limited to money damages, costsRBC 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 disbursements. 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 June 7, 2017,December 17, 2021, Maiden filed its second amended complaint which now asserts a single TUFTA claim against only the DSS refiled its patent infringement complaint against Seoul Semiconductor inDefendants, RBC, and RBC USA. During the United States District Court fordiscovery period, the Central DistrictParties conducted written discovery, production of California, Southern Division.documents, and depositions of fact witnesses and expert witnesses. The case is currently pending.
On April 13, 2017,discovery period closed on August 9, 2022. The DSS filed a patent infringement lawsuit against Everlight Electronics Co., Ltd. and Everlight Americas, Inc. (collectively, “Everlight”) inDefendants have engaged Stout Risius Ross, LLC to provide expert opinions regarding the United States District Court for the Eastern District of Texas, Marshall Division, alleging infringement of certain of DSS’s LED patents. DSS is seeking a judgement for infringementvalue of the patents along with other relief including, but not limited to, money damages, costs and disbursements. On June 8, 2017, DSS refiled its patent infringement complaint against Everlight in the United States District Court for the Central District of California. The case is currently pending.
On April 13, 2017, DSS filed a patent infringement lawsuit against Cree, Inc. (“Cree”) in the United States District Court for the Eastern District of Texas, Marshall Division, alleging infringement of certain of DSS’s LED patents. DSS is seeking a judgement for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements. On June 8, 2017, DSS refiled its patent infringement complaint against Cree in the United States District Court for the Central District of California, and thereafter filed a first amended complaint for patent infringement against Cree in that same court on July 14, 2017. The case is currently pending.
On July 13, 2017, DSS filed a patent infringement lawsuit against Osram GMBH, Osram OPTO Semiconductors GMBH & Co., and Osram Sylvania Inc. (collectively, “Osram”) in the United States District Court for the Central District of California, alleging infringement of certain of DSS’s LED patents. DSS is seeking a judgment for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements. The case is currently pending.
assets at issue. On August 15, 2017,2022, the DSS Defendants filed a patent infringement lawsuit against Lite-On, Inc., and Lite-On Technology Corporation inmotion to exclude Maiden’s designated expert. The DSS Defendants’ motion to exclude is still before the United States District Court for determination. Currently, the Central DistrictCompany is preparing for trial which is set for December 5, 2022 on the Court’s two-week docket. The Company intends to vigorously defend its position at trial that Maiden should recover nothing on account of California, alleging infringement of certain of DSS’s LED patents. DSS is seeking a judgement for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements. The case is currently pending.its TUFTA claim.
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 PaymentsLicense Agreement – The
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 retainsa royalty of 5.5% of net sales. Under 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 portionterms of the legal fee is based on predetermined milestones orEquivir Agreement, the Company’s actual collectionCompany shall reimburse the Licensee for 50% of funds. The Company accrues contingent fees when it is probablethe development costs provided that the milestones will be achieved and the fees can be reasonably estimated.development costs shall not exceed $1,250,000. As of September 30, 2017,2022, no liability has been recorded in relation to the Equivir License as development of the Equivir technology has not begun and December 31, 2016,no reasonable amount can be estimated.
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10. Stockholders’ Equity
Sales of Equity –
On February 28, 2022, DSS entered into an Amendment to Stock Purchase Agreement (the “Amendment”) with its shareholder Alset EHome International Inc. (“AEI”), pursuant to which the Company had not accrued any contingent legal fees pursuantand AEI have agreed to these arrangements.
Contingent Payments – The Company is party toamend certain agreements with funding partners who have rights to portions of intellectual property monetization proceeds that the Company receives. As of September 30, 2017 and December 31, 2016, there are no contingent payments due.
8. Shareholders’ Equity
On August 26, 2016, the Company affected a one-for-four reverse stock splitterms of the Company’s common stock. All references in this reportStock Purchase Agreement dated January 25, 2022 (the “SPA”). Pursuant to the number of shares of our common stock and to related per-share prices (including references to periods prior to the effective date of the reverse stock split) reflect this reverse stock split.
On August 30, 2017, the Company sold 1,200,000 shares of unregistered common stock and five-year warrantsSPA, AEI had agreed to purchase up to an aggregate of 240,000 additional shares of the Company’s common stock at an exercisefor a purchase price of $1.00 to a total of two related party accredited investors$ per share, for an aggregate purchase price of $900,000,$17,000,000. Pursuant to the Amendment, the number of which $300,000 was receivable as of September 30, 2017. On September 7, 2017, the Company sold 133,333 shares of unregistered common stock and five-year warrants to purchase up to an aggregate of 26,667 additional shares of the Company’s common stock at an exercise price of $1.00the Company that the AEI will purchase has been reduced to two related party accredited investors shares for an aggregate purchase price of $100,000.$1,519,000. This transaction was completed on March 9, 2022. In conjunction with these transactions,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 recorded $62,000issued 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 $5,847,000 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 costs for placement agent fees and stock listing fees. The warrants had an estimated aggregate fair value of approximately $112,000 which was determinedparty, to purchase the Convertible Promissory Note issued by utilizing the Black-Scholes-Merton option pricing modelAmerican Medical REIT, Inc. with a volatilityprincipal amount of 89.3%$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 risk free rate of return of 1.7% and zero dividend and forfeiture estimates.
On September 12, 2017,company publicly traded on the Company and Hengfai Business Development Pte Ltd. (“HBD”) entered into a Securities Exchange Agreement whereby the Company agreed to issue and sell to HBD 683,000 shares of its commonHong Kong stock which had a market value on that date of $484,930,exchange in exchange for 21,196,552 ordinary 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 an existing three-year warrantExecutive 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 purchase up to 105,982,759Alset EHome on July 1, 2022 with the issuance of commonDSS shares, which were valued at an exercise price of SGD$0.040$0.34 per share, of Singapore eDevelopment Limited (“SED”), a company incorporated in Singapore and publicly-listed on the Singapore Exchange Limited. The SED shares and warrants were owned by HBD. The cost of the investment was the fair value of the Company’s common stock issued in the transaction which was determined to have the most readily determinable fair value. In conjunction with these transactions, the Company recorded $13,660 in stock listing fees. As of September 30, 2017, and the investment is carried at cost of approximately $485,000.Alset EHome.
During September of 2017, the Company received an aggregate of approximately $176,000 in proceeds from the exercise of warrants for 234,091 shares of the Company’s common stock.
Restricted Stock - On January 12, 2017, the Company issued an aggregate of 200,000 shares of restricted stock to members of the Company’s management team of which 150,000 vested on May 17, 2017 and had an aggregated grant date fair value of approximately $126,000. The remaining 50,000 will vest if the Company achieves adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of at least $500,000 and a stock trading price of at least $1.00 per share by the close of the fourth quarter of 2017. In addition, during 2016 the Company issued an aggregate of 224,750 shares of restricted stock to members of the Company’s management team which vested on May 17, 2017 and had an aggregated grant date fair value of approximately $124,000.
Stock-Based Payments and Compensation - The Company records stock-based payment expense related to options and warrants based on the grant date fair value in accordance with FASB ASC 718. Stock-based compensation includes expense charges for all stock-based awards to employees, directors and consultants. Such awards include option grants, warrant grants, and restricted stock awards. During the nine months ended September 30, 2017,2022, the Company hadCompany’s stock compensation expense of approximately $203,000 or $0.01 basic and diluted earnings per share ($88,000; less than $0.01 basic and diluted earnings per shareapproximated $.
11. Supplemental Cash Flow Information
The following table summarizes supplemental cash flows for the corresponding nine monthsnine-months ended September 30, 2016).2022, and 2021:
9.
Schedule of Supplemental Cash Flow Information
| 2022 | 2021 | |||||||
| Cash paid for interest | $ | 1,907,000 | $ | 139,000 | ||||
| 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 | ) | |||
| Notes receivable converted to equity investments | $ | 1,940,000 | $ | - | ||||
| Shares issued for the acquisition of marketable securities | $ | 7,169,000 | $ | - | ||||
| Shares issued for the acquisition of notes receivable | $ | 8,717,000 | $ | - | ||||
| Right of use asset addition | $ | 9,895,000 | $ | - | ||||
| Shares issued in lieu of bonus cash | $ | 6,216,000 | $ | - | ||||
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Supplemental cash flow information for the nine months ended September 30, 2017 and 2016 is approximately as follows:
| 2017 | 2016 | |||||||
| Cash paid for interest | $ | 127,000 | $ | 163,000 | ||||
| Non-cash investing and financing activities: | ||||||||
| Gain (loss) from change in fair value of interest rate swap derivatives | 10,000 | $ | (22,000 | ) | ||||
| Common Stock issued for investment | 485,000 | $ | - | |||||
10. 12. Segment Information
The Company’s nine businesses lines are organized, managed and internally reported as fourfive operating segments. TwoOne of these operating segments, Product Packaging, is the Company’s packaging and Printing, and Plastics are engagedprinting group. Product Packaging operates in the paper board folding carton, smart packaging, and document security printing markets. It markets, manufactures, and productionsells 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 paper, cardboarddrug discovery and plastic documentsprevention, 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 wide rangesingle 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 features, includingservices 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 patented technologies and trade secrets designedreal estate investment trust (“REIT”), organized for the protectionpurposes of documents against unauthorized duplicationacquiring hospitals and altering.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 twofourth 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 DSSand the removal of our Plastics segment, Digital Group and DSSIP Technology Management are engagedsegment as the Plastics segment was discontinued in various aspects of developing, acquiring, selling2020, DSS Digital was sold and licensing technology assetsdiscontinued in May 2021 and are grouped into one reportableactivities surrounding our IP Technology Management segment called Technology.have significantly decreased. The amounts for these segments have been included in the Corporate reporting segment for the three and nine months ended September 30, 2022 and 2021, as necessary, below for reconciliation purposes.
Approximate information concerning the Company’s operations by reportable segment for the three and nine months ended September 30, 20172022 and 20162021 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.herein:
| Three Months Ended September 30, 2017 | Packaging and Printing | Plastics | Technology | Corporate | Total | |||||||||||||||
| Revenue | $ | 2,719,000 | $ | 1,049,000 | $ | 431,000 | $ | - | $ | 4,199,000 | ||||||||||
| Depreciation and amortization | 169,000 | 30,000 | 152,000 | 1,000 | 352,000 | |||||||||||||||
| Stock based compensation | - | - | 1,000 | 11,000 | 12,000 | |||||||||||||||
| Net Income (loss) to common shareholders | 304,000 | 53,000 | (397,000 | ) | (237,000 | ) | (277,000 | ) | ||||||||||||
| Three Months Ended September 30, 2016 | Packaging and Printing | Plastics | Technology | Corporate | Total | |||||||||||||||
| Revenue | $ | 3,287,000 | $ | 1,162,000 | $ | 531,000 | $ | - | $ | 4,980,000 | ||||||||||
| Depreciation and amortization | 163,000 | 29,000 | 157,000 | 1,000 | 350,000 | |||||||||||||||
| Stock based compensation | - | - | - | 1,000 | �� | 1,000 | ||||||||||||||
| Net Income (loss) to common shareholders | 415,000 | 134,000 | (182,000 | ) | (394,000 | ) | (27,000 | ) | ||||||||||||
| Nine Months Ended September 30, 2017 | Packaging and Printing | Plastics | Technology | Corporate | Total | |||||||||||||||
| Revenue | $ | 8,122,000 | $ | 3,431,000 | $ | 1,276,000 | $ | - | $ | 12,829,000 | ||||||||||
| Depreciation and amortization | 487,000 | 91,000 | 462,000 | 2,000 | 1,042,000 | |||||||||||||||
| Stock based compensation | - | - | 38,000 | 165,000 | 203,000 | |||||||||||||||
| Net Income (loss) to common shareholders | 812,000 | 372,000 | (967,000 | ) | (943,000 | ) | (726,000 | ) | ||||||||||||
| Identifiable assets | 9,143,000 | 2,450,000 | 1,642,000 | 4,200,000 | 17,435,000 | |||||||||||||||
| Nine Months Ended September 30, 2016 | Packaging and Printing | Plastics | Technology | Corporate | Total | |||||||||||||||
| Revenue | $ | 8,871,000 | $ | 3,277,000 | $ | 1,243,000 | $ | - | $ | 13,391,000 | ||||||||||
| Depreciation and amortization | 469,000 | 86,000 | 492,000 | 2,000 | 1,049,000 | |||||||||||||||
| Stock based compensation | 17,000 | 11,000 | 19,000 | 41,000 | 88,000 | |||||||||||||||
| Net Income (loss) to common shareholders | 947,000 | 388,000 | (1,242,000 | ) | (1,062,000 | ) | (969,000 | ) | ||||||||||||
| Identifiable assets | 9,032,000 | 2,167,000 | 2,450,000 | 207,000 | 13,856,000 | |||||||||||||||
11. Subsequent EventsSchedule of Operations by Reportable Segment
| Three Months Ended September 30, 2022 | Product Packaging | Commercial Lending | Direct Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||
| Revenue | $ | 4,707,000 | $ | 370,000 | $ | 4,956,000 | $ | - | $ | 1,646,000 | $ | 183,000 | $ | 11,862,000 | ||||||||||||||
| Depreciation and amortization | 168,000 | - | 41,000 | 278,000 | 2,423,000 | 17,000 | 2,927,000 | |||||||||||||||||||||
| Interest expense | 42,000 | - | 193,000 | - | 371,000 | - | 606,000 | |||||||||||||||||||||
| Interest income | - | - | 3,000 | 94,000 | 79,000 | 143,000 | 319,000 | |||||||||||||||||||||
| Net income (loss) from continuing operations | (1,077,000 | ) | 221,000 | (15,379,000 | ) | (909,000 | ) | (3,182,000 | ) | (4,475,000 | ) | (24,801,000 | ) | |||||||||||||||
| Capital expenditures | 300,000 | - | 73,000 | - | - | - | 373,000 | |||||||||||||||||||||
| Identifiable assets | 24,035,000 | 48,121,000 | 39,979,000 | 57,225,000 | 81,766,000 | 13,754,000 | 264,880,000 | |||||||||||||||||||||
| Three Months Ended September 30,2021 | Product Packaging | Commercial Lending | Direct Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||
| Revenue | $ | 3,416,000 | $ | - | $ | 966,000 | $ | - | $ | 184,000 | $ | - | $ | 4,566,000 | ||||||||||||||
| Depreciation and amortization | 152,000 | - | 100,000 | 278,000 | 135,000 | 74,000 | 739,000 | |||||||||||||||||||||
| Interest expense | 11,000 | - | - | - | 37,000 | (17,000 | ) | 31,000 | ||||||||||||||||||||
| Stock based compensation | 1,000 | - | - | - | - | 12,000 | 13,000 | |||||||||||||||||||||
| Income tax benefit | - | - | - | - | - | 1,624,000 | 1,624,000 | |||||||||||||||||||||
| Net income (loss) from continuing operations | 358,000 | 64,000 | (1,304,000 | ) | (647,000 | ) | (835,000 | ) | (4,311,000 | ) | (6,675,000 | ) | ||||||||||||||||
| Capital expenditures | 1,399,000 | - | - | - | 186,000 | 55,000 | 1,640,000 | |||||||||||||||||||||
| Identifiable assets | 24,752,000 | 60,388,000 | 43,695,000 | 55,848,000 | 11,376,000 | 23,017,000 | 219,076,000 | |||||||||||||||||||||
| Nine Months Ended September 30, 2022 | Product Packaging | Commercial Lending | Direct Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||
| Revenue | $ | 11,876,000 | $ | 644,000 | $ | 18,000,000 | $ | 94,000 | $ | 4,817,000 | $ | 496,000 | $ | 35,927,000 | ||||||||||||||
| Depreciation and amortization | 525,000 | - | 248,000 | 835,000 | 7,637,000 | 106,000 | 9,351,000 | |||||||||||||||||||||
| Interest expense | 100,000 | - | 193,000 | - | 1,812,000 | - | 2,105,000 | |||||||||||||||||||||
| Stock based compensation | 1,000 | - | - | - | - | 3,000 | 4,000 | |||||||||||||||||||||
| Net income (loss) from continuing operations | (755,000 | ) | 638,000 | (19,102,000 | ) | (2,198,000 | ) | (8,334,000 | ) | (9,410,000 | ) | (39,161,000 | ) | |||||||||||||||
| Capital expenditures | 1,242,000 | - | 88,000 | - | 15,000 | 4,000 | 1,349,000 | |||||||||||||||||||||
| Identifiable assets | 24,035,000 | 48,121,000 | 39,979,000 | 57,225,000 | 81,766,000 | 13,754,000 | 264,880,000 | |||||||||||||||||||||
| Nine Months Ended September 30,2021 | Product Packaging | Commercial Lending | Direct Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||
| Revenue | $ | 10,652,000 | $ | - | $ | 2,382,000 | $ | - | $ | 184,000 | $ | - | $ | 13,218,000 | ||||||||||||||
| Depreciation and amortization | 459,000 | - | 419,000 | 835,000 | 134,000 | 228,000 | 2,075,000 | |||||||||||||||||||||
| Interest expense | 49,000 | - | 2,000 | 1,000 | 87,000 | 18,000 | 157,000 | |||||||||||||||||||||
| Stock based compensation | 2,000 | - | - | - | - | 40,000 | 42,000 | |||||||||||||||||||||
| Income tax benefit | - | - | - | - | - | 4,315,000 | 4,315,000 | |||||||||||||||||||||
| Net income (loss) from continuing operations | 641,000 | 64,000 | (9,088,000 | ) | (1,955,000 | ) | (1,066,000 | ) | (10,058,000 | ) | (21,462,000 | ) | ||||||||||||||||
| Capital expenditures | 2,621,000 | - | 6,000 | - | 6,750,000 | 4,000 | 9,381,000 | |||||||||||||||||||||
| Identifiable assets | 24,752,000 | 60,388,000 | 43,695,000 | 55,848,000 | 11,376,000 | 23,017,000 | 219,076,000 | |||||||||||||||||||||
| 24 |
The following tables disaggregate our business segment revenues by major source:
On November 1, 2017,
Schedule of Disaggregation of Revenue
| Printed Products Revenue Information: | ||||
| Three months ended September 30, 2022 | ||||
| Packaging Printing and Fabrication | $ | 4,888,000 | ||
| Commercial and Security Printing | 144,000 | |||
| Total Printed Products | $ | 5,032,000 | ||
| Three months ended September 30, 2021 | ||||
| Packaging Printing and Fabrication | $ | 3,373,000 | ||
| Commercial and Security Printing | 43,000 | |||
| Total Printed Products | $ | 3,416,000 | ||
| Nine months ended September 30, 2022 | ||||
| Packaging Printing and Fabrication | $ | 12,357,000 | ||
| Commercial and Security Printing | 293,000 | |||
| Total Printed Products | $ | 12,650,000 | ||
| Nine months ended September 30, 2021 | ||||
| Packaging Printing and Fabrication | $ | 10,428,000 | ||
| Commercial and Security Printing | 224,000 | |||
| Total Printed Products | $ | 10,652,000 | ||
| Direct Marketing | ||||
| Three months ended September 30, 2022 | ||||
| Direct Marketing Internet Sales | $ | 4,937,000 | ||
| Total Direct Marketing | $ | 4,937,000 | ||
| Three months ended September 30, 2021 | ||||
| Direct Marketing Internet Sales | $ | 966,000 | ||
| Total Direct Marketing | $ | 966,000 | ||
| Nine months ended September 30, 2022 | ||||
| Direct Marketing Internet Sales | $ | 17,939,000 | ||
| Total Direct Marketing | $ | 17,939,000 | ||
| Nine months ended September 30, 2021 | ||||
| Direct Marketing Internet Sales | $ | 2,382,000 | ||
| Total Direct Marketing | $ | 2,382,000 | ||
| 25 |
| Rental Income | ||||
| Three months ended September 30, 2022 | ||||
| Rental income | $ | 1,485,000 | ||
| Total Rental Income | $ | 1,485,000 | ||
| Three months ended September 30, 2021 | ||||
| Rental income | $ | 184,000 | ||
| Total Rental Income | $ | 184,000 | ||
| Nine months ended September 30, 2022 | ||||
| Rental income | $ | 4,656,000 | ||
| Total Rental Income | $ | 4,656,000 | ||
| Nine months ended September 30, 2021 | ||||
| Rental income | $ | 184,000 | ||
| Total Rental Income | $ | 184,000 | ||
| Management Fee Income | ||||
| Three months ended September 30, 2022 | ||||
| Management fee income | $ | 38,000 | ||
| Total Rental Income | $ | 38,000 | ||
| Three months ended September 30, 2021 | ||||
| Management fee income | $ | - | ||
| Total Rental Income | $ | - |
| Nine months ended September 30, 2022 | ||||
| Management fee income | $ | 38,000 | ||
| Total Management fee income | $ | 38,000 | ||
| Nine months ended September 30, 2021 | ||||
| Management fee income | $ | - | ||
| Total Management fee income | $ | - |
| Net Investment Income | ||||
| Three months ended September 30, 2022 | ||||
| Net Investment Income | $ | 370,000 | ||
| Total Investment Income | $ | 370,000 | ||
| Three months ended September 30, 2021 | ||||
| Net Investment Income | $ | - | ||
| Total Rental Income | $ | - |
| Nine months ended September 30, 2022 | ||||
| Net investment income | $ | 644,000 | ||
| Total Management fee income | $ | 644,000 | ||
| Nine months ended September 30, 2021 | ||||
| Net Investment Income | $ | - | ||
| Total Management fee income | $ | - |
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13. Related Party Transactions
The Company owns 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 issued 500,000has 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, and December 31, 2021, was approximately $3,370,000 and $4,909,000 respectively. During the nine months ended September 30, 2022 and September 30, 2021, the Company recorded unrealized loss on this investment of approximately $1,539,000 and $967,000, 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 its 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.
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 nine months ended September 30, 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 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 will be 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 nine months ended September 30, 2022, APB had net income of $645,000, of which, $306,000 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 three-year warrantmember 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.
On October 7, 2021, HWH World, Inc., a subsidiary of the Company entered into a revolving loan commitment (“Note 9”) with Borrower 9, a company registered in Taiwan. Note 9 has an principal balance of $52,000 and incurred no interest through the maturity date of December 31,2021. The outstanding principal at September 30, 2022 and December 31, 2021 is $61,000 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.
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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 September 30, 2022 and December 31, 2021, $3,068,000 and $3,000,000, respectively, is included in Current portion of long-term debt, net on the consolidated balance sheet.
On October 13, 2021, LVAM entered into loan agreement with Lee Wilson Tsz Kin (“Wilson Loan”), a related party, whereas LVAM borrowed the principal amount of $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 September 30, 2022 $3,000,000 is included in Current portion of long-term debt, net on the consolidated balance sheet.
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, 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 upthe 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 and is eliminated upon consolidation into DSS.
On February 28, 2022, DSS entered into an Amendment to 125,000 additionalStock Purchase Agreement (the “Amendment”) with its shareholder Alset EHome International Inc. (“AEI”), pursuant to which the Company and AEI have agreed to amend certain terms of the Stock Purchase Agreement dated January 25, 2022 (the “SPA”). Pursuant to the SPA, AEI had agreed to purchase shares of the Company’s common stock for a purchase price of $ per share, for an aggregate purchase price of $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 13, 2021, and later amended in April 2022, Sentinel Brokers, LLC, a subsidiary of the Company entered a revolving credit promissory note (“Note 4”) with Borrower 4, a company registered in the state of New York and related party. Note 4 has an aggregate principal balance up to $3,000,000, to be funded at request of Borrower 4. Note 4, 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 September 30, 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 4 into preferred shares of Borrower 4.
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 $1.00$ 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 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 $367,400 through May 15, 2022. This transaction was finalized in July 2022.
On May 17, 2022, the shareholders of the Company approved the acquisition of 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, alongto Alset EHome.
14. Subsequent Events
On October 20, 2022, Sentinel Brokers, LLC. entered into an on demand promissory note with Borrower 4, a cash paymentrelated party, in the amount of $125,000, to Nix, Patterson & Roach LLP (“NPR”), a law firm, for the purpose of settling all accrued$1,000,000. This note accrues interest at 8% per year with principal and outstanding billed and unbilled invoices for expenses owed by the Company to NPRinterest due in connection with various litigation matters handled by NPRfull on behalf of the Company. The total amount owed to NPR for litigation related expenses was approximately $714,000.April 20, 2023.
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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements contained herein this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Reform Act”). Document Security Systems, Inc. desires to avail itself of certain “safe harbor” provisions of the 1995 Reform Act and is therefore including this special note to enable us to do so. Except for the historical information contained herein, this report contains forward-looking statements (identified by the words such as “estimate”, “project”, “anticipate”, “plan”, “expect”, “intend”, “believe”, “hope”, “strategy” and similar expressions), which are based on our current expectations and speak only as of the date made. These forward-looking statements are subject to various risks, uncertainties and factors, as previously set forth in the Risk Factors section of our Annual Report on Form 10-K for the year ended December 31, 2016 that could cause actual results to differ materially from the results anticipated in the forward-looking statements.
Overview
The Company, incorporated in the state of New York in May 1984 has conducted business in the name of Document Security Systems, Inc. (referredOn September 16, 2021, the board of directors approved an agreement and plan of merger with a wholly owned subsidiary, DSS, Inc. (a New York corporation, incorporated in August 2020), for the sole purpose of effecting a name change from Document Security Systems, Inc. to DSS, Inc. This change became effective on September 30, 2021. DSS, Inc. maintained the same trading symbol “DSS” and updated its CUSIP number to 26253C 102.
DSS, Inc. (together with its consolidated subsidiaries, referred to herein as “DSS,” “we,” “us,” “our” or the “Company”) currently operates nine (9) distinct business lines with operations and locations around the globe. These business lines are: (1) Product Packaging, (2) Biotechnology, (3) Direct Marketing, (4) Commercial Lending, (5) Securities and Investment Management, (6) Alternative Trading (7) Digital Transformation, (8) Secure Living, and (9) Alternative Energy. Each of these business lines are in different stages of development, growth, and income generation.
Our divisions, their business lines, subsidiaries, and operating territories: (1) Our Product Packaging line is led by Premier Packaging Corporation, Inc. (“Premier”), a New York corporation. Premier operates in the paper board and fiber based folding carton, consumer product packaging, and document security printing markets. It markets, manufactures, and sells sophisticated custom folding cartons, mailers, photo sleeves and complex 3-dimensional direct mail solutions. Premier is currently located in its new facility in Rochester, NY, and primarily serves the US market. (2) The Biotechnology business line was created to invest in or acquire companies in the BioHealth and BioMedical fields, including businesses focused on the advancement of drug discovery and prevention, inhibition, and treatment of neurological, oncological, and immune related diseases. This division is also targeting unmet, urgent medical needs, and is developing open-air defense initiatives, which curb transmission of air-borne infectious diseases, such as tuberculosis and influenza. (3) Direct Marketing, led by the holding corporation, Decentralized Sharing Systems, Inc. (“Decentralized”) provides services to assist companies in the emerging growth “Gig” business model of peer-to-peer decentralized sharing marketplaces. Direct specializes in marketing and distributing its products and services through its subsidiary and partner network, using the popular gig economic marketing strategy as a form of direct marketing. Direct Marketing’s products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific, Middle East, and Eastern Europe. (4) Our Commercial Lending business division, driven by American Pacific Bancorp (“APB”), is organized for the purposes of being a financial network holding company, focused on acquiring equity positions in (i) undervalued commercial bank(s), bank holding companies and nonbanking licensed financial companies operating in the United States, South East Asia, Taiwan, Japan and South Korea, and (ii) companies engaged in—nonbanking activities closely related to banking, including loan syndication services, mortgage banking, trust and escrow services, banking technology, loan servicing, equipment leasing, problem asset management, SPAC (special purpose acquisition company) consulting services, and advisory capital raising services. (5) Securities and Investment Management was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, broker dealers, and mutual funds management. Also in this report as “Document Security Systems”segment is the Company’s real estate investment trust (“REIT”), “DSS”organized for the purposes of acquiring hospitals and other acute or post-acute care centers from leading clinical operators with dominant market share in secondary and tertiary markets, and leasing each property to a single operator under a triple-net lease. the REIT was formed to originate, acquire, and lease a credit-centric portfolio of licensed medical real estate. (6) Alternative Trading was established to develop and/or acquire assets and investments in the securities trading and/or funds management arena. Alt. Trading, in partnership with recognized global leaders in alternative trading systems, intends to own and operate in the US a single or multiple vertical digital asset exchanges for securities, tokenized assets, utility tokens, and cryptocurrency via an alternative trading platform using blockchain technology. The scope of services within this section is planned to include asset issuance and allocation (securities and cryptocurrency), “we”FPO, IPO, ITO, PPO, and UTO listings on a primary market(s), “us”asset digitization/tokenization (securities, currency, and cryptocurrency), “our” or “Company”and the listing and trading of digital assets (securities and cryptocurrency) on a secondary market(s). (7) Digital Transformation was established to be a Preferred Technology Partner and Application Development Solution for mid cap brands in various industries including the direct selling and affiliate marketing sector. Digital improves marketing, communications and operations processes with custom software development and implementation. (8) The Secure Living division has developed a plan for fully sustainable, secure, connected, and healthy living communities with homes incorporating advanced technology, energy efficiency, and quality of life living environments both for new construction and renovations for single and multi-family residential housing. (9) The Alternative Energy group was established to help lead the Company’s future in the clean energy business that focuses on environmentally responsible and sustainable measures. Alset Energy, Inc, the holding company for this group, and its wholly owned subsidiary, Alset Solar, Inc., pursue utility-scale solar farms to serve US regional power grids and to provide underutilized properties with small microgrids for independent energy.
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On February 8, 2021, DSS Securities announced that it entered into a joint venture (“JV”) has strategically focused its core business efforts on developing and selling anti-counterfeiting technologies and solutions. We emphasize fraud and counterfeit prevention for all forms of printed documentswith Coinstreet Partners (“Coinstreet”), a global decentralized digital investment banking group and digital information.asset financial service firm, and GSX Group (“GSX”), a global digital exchange ecosystem for the issuance, trading, and settlement of tokenized securities, using its proprietary blockchain solution. The JV leverages the operational strengths and assets of three key leaders in their field, combining traditional capital market experience, Fintech innovations, and business networks from three continents, North America, Europe, and Asia, to capitalize on unique digital asset opportunities. The JV reported that it intended to first pursue a digital securities exchange license in the US. Moving forward, this JV will be the key operational company building and operating a digital securities exchange that utilizes the GSX STACS blockchain technology, serving corporate issuers and investors in the sector.
On February 25, 2021, DSS Securities announced its acquisition of an equity interest in WestPark Capital, Inc.(“WestPark”) and an investment in BMI Capital International LLC (“BMICI”). DSS Securities executed two separate transactions that were designed to grow the securities division by signing a binding note and stock exchange letter of intent to own 7.5% of the issued and outstanding shares of WestPark and acquiring 24.9% of BMICI through a purchase agreement. WestPark is a full-service investment banking and securities brokerage firm which serves the needs of both private and public companies worldwide, as well as individual and institutional investors. BMI is a private investment bank specializing in corporate finance advising, raising equity, and venture services, providing a global “one-stop” corporate consultancy to listed companies. From corporate finance to professional valuation, corporate communications to event management, BMICI services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia.
On March 1, 2021, Decentralized Sharing Systems, Inc. (“Decentralized”) announced that it increased its investment in Sharing Services Global Corporation (“Sharing Services” or “SHRG”), a publicly traded company dedicated to maximizing shareholder value through the acquisition and development of innovative companies, products, and technologies in the direct selling industry, through a $30 million convertible promissory note dated April 5, 2021. Decentralized’s financing was made as an investment that would help accelerate Sharing Services sales and growth, as well as international expansion, with the expectation that such capital reserves would help make Sharing Services a dominant player in the global marketplace over the next two years. It was reported that the new $30 million investment would have the potential to exponentially increase Sharing Services sales channels and substantially expand its product portfolio, and to position Sharing Services to capitalize on consolidation and roll up opportunities of other direct selling companies. In the joint announcement, Sharing Services reported that the additional funding would now allow it to accelerate its global expansion with a direct focus on the Asian markets, and specifically in countries such as South Korea, Japan, Hong Kong, China, Singapore, Taiwan, Thailand, Malaysia, and the Philippines. In accordance with the April 5, 2021, convertible promissory note, SHRG issued to the Company 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of the loan origination fee and 12,000,000 shares in prepayment of interest for the first year. As of and through September 30, 2020, the Company classified its investment in Sharing Services Global Corp. (“SHRG”), a publicly traded company, as marketable equity security and measured it at fair value with gains and losses recognized in other income. In July 2020, through continued acquisition of common stock, as detailed below, the Company obtained greater than 20% ownership of SHRG, and thus has the ability to exercise significant influence over it. During the quarter ended September 30, 2020, the Company began to account for its investment in SHRG using the equity method in accordance with ASC Topic 323, Investments—Equity Method and Joint Ventures recognizing our share of SHRG’s earnings and losses within our consolidated statement of operations. Through a series of transactions, DSS increased its ownership of voting shares in SHRG to approximately 58% on December 23, 2021. The 58% ownership of SHRG meets the definition of a business with inputs, processes, and outputs, and therefore, the Company has concluded to account for this transaction in accordance with the acquisition method of accounting under Topic 805 and began consolidating the financial results of SHRG as of December 31, 2021. On January 24, 2022, the Company exercised 50,000,000 warrants received as part of a consulting agreement with SHRG at the exercise price of $0.0001, bring its ownership percentage of voting shares to approximately 65%. The Company, via three (3) of the Company’s existing board members, currently holds numerous patentsfour (4) of the five (5) SHRG board of director seats. Mr. John “JT” Thatch, DSS’s Lead Independent Director and as well the CEO of SHRG is on the SHRG Board, along with Mr. Heng Fai Ambrose Chan, DSS’s Executive Chairman of the board of directors (joined the SHRG Board effective May 4, 2020), and Mr. Frank D. Heuszel, the CEO of the Company (joined the SHRG Board effective September 29, 2020).
On March 15, 2021, the Company, through one of its subsidiaries, DSS BioMedical International, Inc. entered into a Stock Purchase Agreement (the “Agreement”) with Vivacitas Oncology Inc. (“Vivacitas”), to purchase 500,000 shares of its common stock at the per share price of $1.00, with an option to purchase 1,500,000 additional shares at the per share price of $1.00. In addition, under the terms of the Agreement, the Company will be allocated two seats on the board of Vivacitas. On March 18, 2021, the Company entered into an agreement with Alset EHome International, Inc. (“Seller”) to acquire the Seller’s wholly owned subsidiary Impact Oncology PTE Ltd for optical deterrent technologiesthe purchase price of $2,480,000 to effectively purchase ownership of 2,480,000 shares of common stock of Vivacitas. This agreement includes an option to purchase an additional 250,000 shares of common stock. As a result of these two transactions, which were closed on March 21, 2021, and March 29, 2021, respectively, the Company owns an approximate 15.7% equity position in Vivacitas. The Seller’s largest shareholder is Mr. Heng Fai Ambrose Chan, the Chairman of the Company’s board of directors and its largest shareholder. On July 22, 2021, the Company exercised 1,000,000 of the available options under the Vivacitas Agreement #1. The Company’s current equity position in Vivacitas approximates 16%.
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On April 21, 2021, the Company announced its wholly owned subsidiary, Premier Packaging Corporation’s intentions to relocate from its current 48,000 square-foot manufacturing facility from Victor, NY to a new 105,000 square-foot facility in the Town of Henrietta, NY approximately 15 miles from its Victor location by the end of 2021. In connection with this relocation, Premier Packaging has entered into an agreement to sell its current Victor location and closed on the transaction in March 2022.
On May 13, 2021, Sentinel Brokers, LLC., a subsidiary of the Company entered into a stock purchase agreement (“Sentinel Agreement”) to acquire a 24.9% equity position of Sentinel Brokers Company, Inc. (“Sentinel”), a company registered in the state of New York, for the purchase price of $300,000. Under the terms of this agreement, the Company as the option to purchase an additional 50.1% of the outstanding Class A Common Shares. Upon the exercising of this option, but no earlier than one year following the effective date the Sentinel Agreement, Sentinel has the option to sell the remaining 25% to the Company. In consideration of purchase price investment in Sentinel, the Company is entitled to an additional 50.1% of the net profits of Sentinel
On May 14, 2021, the Company announced that its wholly owned subsidiary, DSS PureAir, Inc., a Texas corporation (“DSS PureAir”), closed on a Securities Purchase Agreement with Puradigm LLC, a Nevada limited liability corporation (“Puradigm”). Pursuant to the terms of the Securities Purchase Agreement, DSS PureAir agreed to provide protectionPuradigm a secured convertible promissory note in the maximum principal amount of printed information from unauthorized scanning$5,000,000.00 (the “Puradigm Note”). The Puradigm Note has a two-year term with interest at 6.65% payable quarterly. All, or part of the Puradigm Note principal balance can be converted at the sole discretion of DSS PureAir for up to an 18% membership interest in Puradigm LLC. The Puradigm Note is secured by all the assets of Puradigm under a security agreement with Puradigm. The outstanding principal and copying. We operate two production facilities, consistinginterest as of September 30, 2022 and December 31, 2021, approximated $5,333,000 and $5,081,000, respectively, which is included in Current portion of notes receivable on the accompanying consolidated balance sheet.
On June 18, 2021, AMRE Shelton, LLC., (“AMRE Shelton”) a subsidiary of AMRE financed the purchase of a combined security printing40,000 square foot, 2.0 story, Class A+ multi-tenant medical office building located on a 13.62-acre site in Shelton, Connecticut (See Note 7). In accordance with Topic 805, the acquisition of the medical acquired has been determined to be an acquisition of assets as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. This property was appraised at approximately $7,150,000, of which $6,027,000 and packaging$815,000 was allocated to the facility and land respectively. Also include in the value of the property is $308,000 of intangible assets with an estimated useful life of 11 years. Contained within the sale-purchase agreement for this facility, is a plastic card facility where we produce secure$1,500,000 earnout due to the seller if certain criteria are met. As of September 30, 2022, no liability has been recorded for this earnout as management determined it is currently remote.
On September 9, 2021, the Company finalized a stock purchase agreement (the “SPA”) with American Pacific Bancorp (“APB”), which provided for an investment of $40,000,000 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 non-secure documentsconditions contained in the SPA, the shares issued at a purchase price of $6.00 per share. As a result of this transaction, DSS became the majority owner of APB. APB is organized for our customers. We license our anti-counterfeiting technologiesthe 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 printersbanking, including loan syndication services, mortgage banking, trust and brand-owners. In addition, we have a digital division which provides cloud computingescrow 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 our customers, including disaster recovery, back-upbusinesses that shall include commercial business lines of credit, land development financing, inventory financing, third party loan servicing, and data security services. In 2013,services that address the financial needs of the world Gig Economy.
On September 13, 2021, the Company expandedfinalized a shareholder agreement and joint venture between its business focus by merging withsubsidiary, DSS TechnologyFinancial Management, Inc. (“DFMI”) and HR1 Holdings Limited (“HR1”), formerly known as Lexington Technology Group, Inc., which acquires intellectual property assets and interestsa company incorporated in companies owning intellectual property assetsthe British Virgin Islands, for the purpose to operate a vehicle for private and institutional investors seeking a highly liquid investment fund with attractive risk adjusted returns relative to market unpredictability and volatility. Under the terms of monetizingthis agreement, 4000 shares or 40% of the Company’s subsidiary Liquid Asset Limited Management Limited (“LVAM”), a Hong Kong company was transferred to HR1 whereas at the conclusion of the transaction DFMI would own 60% of LVAM and HR1 would own 40%. LVAM executes within reliable platforms and broad market access and uses proprietary systems and algorithms to trade liquid exchange-traded funds (ETFs), stocks, futures or crypto. Aimed at providing consistent returns while offering the unique ability to liquidate the portfolio within 5 to 10 minutes under normal market conditions, LVAM provides an array of advanced tools and products enabling customers to explore multiple opportunities, strengthen and diversify their portfolios, and meet their individual investing goals.
On April 7, 2021, the Company entered into a transfer and assignment agreement (“RIA Agreement”) between DSS Securities, Inc. (“DSSS”) and AmericaFirst Capital Management, LLC (“Advisor”), a California limited liability company and the registered investment advisor (“RIA”) to all the funds within the AmericaFirst Quantitative Funds Trust (“Trust”). In September of 2021, with the approval of the Trust’s Board of Trustees and its shareholders, and with the consideration of $600,000 paid, DSSS became the new registered investment advisor to the Trust. Upon the completion of the transfer, the Trust was renamed to the DSS AmericaFirst Quantitative Trust. The DSS AmericaFirst Quantitative Trust is a Delaware business trust established in 2012. The Trust currently consists of 4 mutual funds managed by DSS Wealth Management, Inc.: The DSS AmericaFirst Income Trends Fund, DSS AmericaFirst Defensive Growth Fund, DSS AmericaFirst Risk-On Risk-Off Fund, and DSS AmericaFirst Large Cap Buyback Fund. The funds seek to outperform their respective benchmark indices by applying a quantitative rules-based approach to security selection. The DSS AmericaFirst Quantitative Funds is a suite of mutual funds managed by DSS Wealth Management, Inc. that will expand into numerous investment platforms including additional mutual funds, exchange-traded funds, unit investment trusts and closed-end funds. We see substantial growth opportunities in each of these platforms as we are committed to building and expanding upon an experienced distribution infrastructure. For DSSS services rendered in its role as RIA, the Trust shall pay a fee for each fund calculated as a percentage of the average daily net assets. The $600,000 consideration given is recorded as an Other intangible asset, net on the Consolidated Balance Sheet at September 30, 2022. As the RIA Agreement has no defined period, this asset has been deemed an infinite life asset and no amortization has been taken.
On November 4, 2021, AMRE LifeCare Portfolio, LLC. (“AMRE LifeCare”), a subsidiary of AMRE, acquired three medical facilities located in Fort Worth, Texas, Plano, Texas, and Pittsburgh, Pennsylvania for a purchase price of $62,000,000. In accordance with Topic 805, the acquisition of the medical facility has been determined to be an acquisition of assets throughas substantially all of the fair value of the gross assets acquired is concentrated in a varietysingle identifiable asset or a group of value-enhancing initiatives, including, but not limited to,similar identifiable assets. 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 include in the developmentvalue of the property is $16,321,000 of intangible assets with estimated useful lives ranging from 1 to 11 years. All assets were allocated on a relative fair value basis.
On December 21, 2021, AMRE Winter Haven, LLC. (“AMRE Winter Haven”), a subsidiary of AMRE, acquired a medical facility located in Winter Haven, Florida for a purchase price of $4,500,000. In accordance with Topic 805, the acquisition of the medical facility has been determined to be an acquisition of assets as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. These assets are classified as investments, real estate on the consolidated balance sheet. The purchase price has been approximately allocated as $3,200,000, $1,000,000, and commercialization$222,000 for the facility, land and site and tenant improvements respectively. Also include in the value of patented technologies, licensing, strategic partnershipsthe property is $29,000 of intangible assets with an estimated useful life of approximating 5 years. All assets were allocated on a relative fair value basis.
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On December 23, 2021, DSS purchased 50,000,000 shares at $0.06 per share of Sharing Services Global Corporation (“SHRG”) via a private placement. With this purchase, DSS increased its ownership of voting shares from approximately 47% of SHRG to approximately 58%. On January 24, 2022, the Company exercised 50,000,000 warrants received as part of a consulting agreement with SHRG at the exercise price of $0.0001, bringing its ownership percentage of voting shares to approximately 65%. SHRG aims to build shareholder value by developing or acquiring businesses that increase the Company’s product and commercial litigation.services portfolio, business competencies and geographic reach. Currently, the Company, through its subsidiaries, markets and distributes its health and wellness and other products primarily in the United States, Canada, and the Asia Pacific region using a direct selling business model. The Company markets its products and services through its independent sales force, using its proprietary websites, including: www.elevacity.com and www.thehappyco.com. The Company, headquartered in Plano, Texas, was incorporated in the State of Nevada on April 24, 2015, and is an emerging growth company. The Company’s Common Stock is traded, under the symbol “SHRG,” in the OTCQB Market, an over-the-counter trading platforms market operated by OTC Markets Group Inc.
We do businessOn 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 four operatingJuly 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.
On August 25, 2022, DSS PureAir, a subsidiary of the Company finalized an asset purchase agreement with Celios Corporation (“Celios”) to acquire inventory, patents associated with that inventory, and other intangible assets from Celios for $900,000. In accordance with Topic 805, the acquisition of the inventory and related patents acquired has been determined to be an acquisition of assets as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. The inventory acquired was valued at $491,000, while the related patents were valued at $340,000 with an estimated remaining useful life of 20 years.
The five reporting segments are as follows:
DSSPremier Packaging: Premier Packaging Corporation provides custom packaging services and Printing Group - Produces custom paperboard packaging servingserves clients in the pharmaceutical, nutraceutical, consumer goods, beverage, specialty foods, confections, photo packaging toy, specialty foods and direct marketing industries, among others. The group also provides secureactive and commercialintelligent packaging and document security printing services for end-user customers along with technical support for our technology licensees. Thecustomers. In addition, the division produces a wide array of printed materials, such as folding cartons and paperboard packaging, security paper, vital records, prescription paper, birth certificates, receipts, manuals, identification materials, entertainment tickets, secure coupons and parts tracking forms, brochures, direct mailing pieces, catalogs, business cards, etc.forms. The division also provides resources and production equipment resources for our ongoing research and development of security printing, brand protection, consumer engagement and related technologies. Premier is nearing completion of its facility expansion with operations expected to begin at the new 105,000 sq. ft. facility in early March 2022.
DSS Plastics Group - Manufactures laminated and surface printed cards which can include magnetic stripes, bar codes, holograms, signature panels, invisible ink, micro fine printing, guilloche patterns, biometric, radio frequency identification (RFID) and watermarks for printed plastic documents such as ID cards, event badges, and driver’s licenses.
DSS Digital Group - Provides data center centric solutions to businesses and governments delivered via the “cloud”. This division developed and markets AuthentiGuard, an iPhone based application system that integrates traditional printed optical deterrent technologies with proprietary digital data security basedFor over 25 years, Premier has been a market leader in providing solutions for brand protectionpaperboard packaging from consumer retail packaging and product diversion prevention.heavy mailing envelopes, to sophisticated custom folding cartons and complex three-dimensional direct mail solutions. Premier’s innovative products and design team delivers packaging that provides functionality, marketability, and sustainability, with its fiber-based packing solutions providing an alternative to traditional plastic packaging.
Since 2019, we have accelerated the transformation of Premier’s operations, investing in state-of-the-art manufacturing equipment, people, and processes to increase its capacity, improve quality and delivery, and to ensure it has the resources to support its growing customer base and their evolving supply chain demands.
DSS Technology ManagementCommercial Lending: - Acquires or internally develops patented(“Commercial Lending”) through its operating company, American Pacific Bancorp (“APB”) provides an integrated suite of financial services for businesses that include commercial business lines of credit, land development financing, inventory financing, third party loan, servicing, and services that address the financial needs of the world Gig Economy. APB intends to continue to develop and expand its lending platform to serve the small to mid-size commercial borrower and to continue to acquire equity positions of commercial banks in the US to develop its lending network and to provide global banking services to clients worldwide, including servicing markets with limited access to traditional US banking services. APB’s target customers are businesses with annual revenues of $5 million to $50+ million, including manufacturers, wholesalers, retailers, distributors, importers, and service companies. APB has expertise in, and services tailored for, specific industries, including beverage, food and agribusiness, technology, or intellectual property assets (or interests therein), withhealthcare, government, higher education, clean technology, and environmental services.
Biotechnology: (“Biotech”) This sector, through its subsidiary Impact BioMedical, Inc. targets unmet, urgent medical needs and expands the purposeborders of monetizing these assets through a variety of value-enhancing initiatives, including, but not limited to, investments in themedical and pharmaceutical science. Impact drives mission-oriented research, development, and commercialization of solutions for medical advances in human wellness and healthcare. By leveraging technology and new science with strategic partnerships, Impact Bio provides advances in drug discovery for the prevention, inhibition, and treatment of neurological, oncology and immuno-related diseases. Other exciting technologies include a breakthrough alternative sugar aimed to combat diabetes and functional fragrance formulations aimed at the industrial and medical industry.
The business model of BioHealth and Impact BioMedical revolves around two methodologies – Licensing and Sales Distribution.
1) Impact develops valuable and unique patented technologies which will be licensed to pharmaceutical, large consumer package goods companies and venture capitalists in exchange for usage licensing strategic partnerships and commercial litigation. Since 2013,royalties.
2) Impact utilizes the DSS Technology Managementecosystem to leverage its sister companies that have in place distribution networks on a global scale. Impact will engage in branded and private labelling of certain products for sales generation through these channels. This global distribution model will give direct access to end users of Impact’s nutraceutical and health related products.
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Securities and Investment Management: (“Securities”) Securities was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, real estate investment funds, broker dealers, and mutual funds management. This business sector has been involvedalready established the following business lines and associated products and services:
| ● | REIT Management Fund: In March 2020, DSS Securities formed AMRE (“American Medical REIT”) and its management company AAMI (“AMRE Asset Management, Inc.) Through AAMI/AMRE, a medical real estate investment trust, fulfills community needs for quality healthcare facilities while enabling care providers to allocate their capital to growth and investment in their contemporary clinical and critical care businesses. Urban and suburban communities are in need of modern healthcare facilities that provide a range of medical outpatient services. The funds ultimate product is an investor opportunity in a managed medical real estate investment trust. | |
| ● | Real Estate Title Services: Alset Title Company, Inc. provides buyers, sellers, and brokers alike confidence during big real estate transactions, not just in a transaction, but in the property itself. Through bundled services, Alset Title Company, Inc. provides it all from title searches and insurance to escrow agent assistance. | |
| ● | Sentinel: Sentinel primarily operates as a financial intermediary, facilitating institutional trading of municipal and corporate bonds as well as preferred stock, and accelerates the trajectory of the DSS digital securities business. | |
| ● | WestPark: WestPark, a company we hold a minority interest in, is a full-service investment banking and securities brokerage firm which serves the needs of both private and public companies worldwide, as well as individual and institutional investors. | |
| ● | BMI: BMI is a private investment bank specializing in corporate finance advising, raising equity, and venture services, providing a global “one-stop” corporate consultancy to listed companies. From corporate finance to professional valuation, corporate communications to event management, BMI services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia. | |
| ● | DSS AmericaFirst: DSS AmericaFirst is a suite of mutual funds managed by DSS Wealth Management. DSS AmericaFirst expects to expand into numerous investment platforms including additional mutual funds, exchange-traded funds, unit investment trusts, and closed-end funds. DSS AmericaFirst currently consists of four mutual funds that seek to outperform their respective benchmark indices by applying a quantitative rules-based approach to security selection. |
Direct Marketing: (“Direct”) Through its holding company, Decentralized Sharing Systems, Inc. and its subsidiaries and partners, including Sharing Services Global Corporation provide an array of products and services, through an independent contractor network.
For example, Decentralized’s wholly owned subsidiary, HWH World, Inc. promotes products and services that fulfill its corporate position of health, wealth, and happiness. The HWH Marketplace through its brands desires to help its customers become the healthiest, happiest versions of themselves. For the health component, the company offers herbal alternatives of nutraceutical, consumables and topicals, dietary supplements, beauty and skin care products, personal care, gut health products, aloe vera based supplements, and other wellness products. As to the wealth component, the company is developing educational tools to its users to better manage individual finances and savings programs to help its consumers find each consumer’s individual financial goal. As to the happiness component, the company is working with other partners to either acquire or partner in several patent litigation lawsuits,products and/or services to allow its consumers to enjoy and as ofhealthy living, including a global travel membership network.
Further, Sharing Services, through its subsidiary Elevacity, markets and distributes health and wellness products under the date of this filing, has active litigation against several companies, as summarized below.
On November 26, 2013, DSS Technology Management filed suit against Apple, Inc. (“Apple”)“Elevate” brand, primarily in the United States District Court forand Canada. Sharing Services markets its products and services through its independent contractor distribution system and using its proprietary website: www.elevacity.com. In February 2021, the Eastern DistrictCompany launched its new business brand, “The Happy Co.,” at its Elevacity division. Elevacity as several well-known and signature products, including its top product lines of Texas, for patent infringement (the “Apple Litigation”)“Happy Coffees” and “Nootropic Beverages”. The complaint alleges infringement by Apple of DSS Technology Management’s patents that relate to systemsElevacity also sells a “healthy shake”, a “Keto Coffee Booster”, “Energy Caps”, “XanthoMax© Happy Caps”, “Wellness Vitamin Patches”, various beauty and methods of using low power wireless peripheral devices DSS Technology Management is seeking a judgment for infringement, injunctive relief,skin care products, 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 twoInter 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. DSS Technology Management has 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, and the appeal is still pending as of the date of this Report. The patent assets underlying this matter had no carrying value as of the date of the PTAB decision and therefore, there were no impairment considerations as a result of the decision.other wellness products.
On February 16, 2015, DSS Technology Management filed suit in the United States District Court, Eastern District of Texas, against defendants Intel Corporation, Dell, Inc., GameStop Corp., Conn’s Inc., Conn Appliances, Inc., NEC Corporation of America, Wal-Mart Stores, Inc., Wal-Mart Stores Texas, LLC, and AT&T, Inc. The complaint alleges patent infringement and seeks judgment for infringement of two of DSSTM’s patents, injunctive relief and money damages. On December 9, 2015, Intel filed IPR petitions with PTAB for review of the patents at issue in the case. Intel’s IPRs were instituted by PTAB on June 8, 2016. On June 1, 2017, the PTAB ruled in favor of Intel for all the challenged claims. On July 28, 2017, DSS Technology Management filed a notice of appeal of the PTAB’s decision relating to U.S. Patent 6,784,552 with the Federal Circuit. The Intel litigation has been stayed by the District Court pending final determination of the IPR proceedings.
On July 16, 2015, DSS Technology Management filed three separate lawsuits in the United States District Court for the Eastern District of Texas alleging infringement of certain of its semiconductor patents. The defendants are SK Hynixet al.,Samsung Electronicset al.,and Qualcomm Incorporated. Each respective complaint alleges patent infringement and seeks judgment for infringement, injunctive relief and money damages. On November 12, 2015, SK Hynix filed an IPR petition with PTAB for review of the patent at issue in their case. SK Hynix’s IPR was instituted by the PTAB on May 11, 2016. On August 16, 2016, DSS Technology Management and SK Hynix entered into a confidential settlement agreement ending the litigation between them. The pending SK Hynix IPR was then terminated by mutual agreement of the parties on August 31, 2016. On March 18, 2016, Samsung also filed an IPR petition, which was instituted by the PTAB. On September 20, 2017, PTAB ruled in favor of Samsung for all the challenged claims relating to U.S. Patent 6,784,552. DSS Technology Management intends to appeal this PTAB ruling to the Federal Circuit. Qualcomm filed its IPR proceeding on July 1, 2016, which was then later joined with Intel’s IPRs in August 2016 by PTAB. On June 1, 2017, the PTAB ruled in favor of Intel/Qualcomm for all the challenged claims. On July 28, 2017, DSS Technology Management filed a notice of appeal of the PTAB’s decision relating to U.S. Patent 6,784,552 with the Federal Circuit. The appeal is still pending as of the date of this Report.
In April and July of 2017, Document Security Systems filed patent infringement lawsuits against various defendants relating to DSS’s Light-Emitting Diode patents. Those cases were previously disclosed in the Company’s second quarter Report on Form 10-Q In August of 2017, Document Security Systems filed another patent infringement suit relating to its Light-Emitting Diode patents, the specifics of which are disclosed in this Report in Part II, Item 1 Legal Proceedings.
Results of Operationsoperations for the Threethree and Nine Months Endednine months ended September 30, 20172022, as compared to the Threethree and Nine Months Endednine months ended September 30, 20162021.
This discussion should be read in conjunction with the financial statements and footnotes contained in this quarterly reportQuarterly Report and in our Annual Report on Form 10-K and 10K/A for the year ended December 31, 2016.2021.
Revenue
| Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | % change | Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | % change | |||||||||||||||||||
| Revenue | ||||||||||||||||||||||||
| Printed products | $ | 3,767,000 | $ | 4,449,000 | -15 | % | $ | 11,553,000 | $ | 12,148,000 | -5 | % | ||||||||||||
| Technology sales, services and licensing | 432,000 | 531,000 | -19 | % | 1,276,000 | 1,243,000 | 3 | % | ||||||||||||||||
| Total revenue | $ | 4,199,000 | $ | 4,980,000 | -16 | % | $ | 12,829,000 | $ | 13,391,000 | -4 | % | ||||||||||||
Revenue
| Three months ended September 30, 2022 | Three months ended September 30, 2021 | % Change | Nine months ended September 30, 2022 | Nine months ended September 30, 2021 | % Change | |||||||||||||||||||
| Printed products | $ | 5,032,000 | $ | 3,416,000 | 47 | % | $ | 12,650,000 | $ | 10,652,000 | 19 | % | ||||||||||||
| Rental income | 1,485,000 | 184,000 | 707 | % | 4,656,000 | 184,000 | 2430 | % | ||||||||||||||||
| Management fee income | 38,000 | - | N/A | 38,000 | - | N/A | ||||||||||||||||||
| Net investment income | 370,000 | - | N/A | 644,000 | - | N/A | ||||||||||||||||||
| Direct marketing | 4,937,000 | 966,000 | 411 | % | 17,939,000 | 2,382,000 | 653 | % | ||||||||||||||||
| Total Revenue | $ | 11,862,000 | $ | 4,566,000 | 160 | % | $ | 35,927,000 | $ | 13,218,000 | 172 | % | ||||||||||||
For the three and nine months ended September 30, 2017,2022, total revenue was approximately $4.2 million, a decrease of 16% fromincreased 160% and 172% respectively, as compared to the corresponding three and nine months ended September 30, 2016.2021. Revenues from the sale of printedPrinted products decreased 15% during the three months ended September 30, 2017, as compared to the same period in 2016, primarily due to a decrease in orders from the Company’s largest packaging customer. Technology sales, servicesincreased 47% and licensing revenue decreased 19% during the three months ended September 30, 2017 as compared to the same period in 2016, which primarily reflected the impact of a $150,000 one-time license the Company realized in the 2016 period that did not occur in the 2017 period. Absent this item, this revenue category would have increased approximately 13% during the three months ended September 30, 2107 primarily due to an increase in revenue generated by the Company’s AuthentiGuard product line.
For the nine months ended September 30, 2017, total revenue was approximately $12.8 million, a decrease of 4% from the corresponding nine months ended September 30, 2016. Revenues from the sale of printed products decreased 5% during the nine months ended September 30, 2017, as compared to the same period in 2016, primarily due to a decrease in orders from the Company’s largest packaging customer. Technology sales, services and licensing revenue increased 3% during the nine months ended September 30, 2017 as compared to the same period in 2016, which primarily reflected an increase in revenue generated by the Company’s AuthentiGuard product line.
Costs and expenses
| Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | % change | Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | % change | |||||||||||||||||||
| Costs and expenses | ||||||||||||||||||||||||
| Costs of goods sold, exclusive of depreciation and amortization | $ | 2,401,000 | $ | 2,875,000 | -16 | % | $ | 7,380,000 | $ | 7,816,000 | -6 | % | ||||||||||||
| Sales, general and administrative compensation | 920,000 | 1,081,000 | -15 | % | 2,761,000 | 3,082,000 | -10 | % | ||||||||||||||||
| Depreciation and amortization | 352,000 | 349,000 | 1 | % | 1,042,000 | 1,049,000 | -1 | % | ||||||||||||||||
| Professional fees | 198,000 | 162,000 | 22 | % | 556,000 | 704,000 | -21 | % | ||||||||||||||||
| Stock based compensation | 12,000 | 2,000 | 500 | % | 203,000 | 88,000 | 131 | % | ||||||||||||||||
| Sales and marketing | 117,000 | 79,000 | 48 | % | 292,000 | 245,000 | 19 | % | ||||||||||||||||
| Rent and utilities | 167,000 | 164,000 | 2 | % | 462,000 | 449,000 | 3 | % | ||||||||||||||||
| Other operating expenses | 205,000 | 222,000 | -8 | % | 561,000 | 695,000 | -19 | % | ||||||||||||||||
| Total costs and expenses | $ | 4,372,000 | $ | 4,934,000 | -11 | % | $ | 13,257,000 | $ | 14,128,000 | -6 | % | ||||||||||||
Costs of goods sold, exclusive of depreciation and amortization includes all direct costs of printed products revenues, including materials, direct labor, transportation and manufacturing facility costs. In addition, this category includes all direct costs associated with technology sales, services and licensing including hardware and software that are resold, and fees paid to inventors or others as a result of technology licenses or settlements, if any. Costs of goods sold decreased by 16% during the three months ended September 30, 2017 as compared to the same period in 2016. The decrease on a percentage basis was offset by a 16% decrease in revenues over the same period. For the nine months ended September 30, 2017, costs of goods sold decreased by 6%, which was greater than the decrease in revenue on a percentage basis, for the same period which reflected the improving gross margin of the Company’s sales mix as it sees a higher percentage of its sales derived from technology based products.
Sales, general and administrative compensation costs, excluding stock-based compensation, decreased 15% and 10% during the three and nine months ended September 30, 2017,2022, as compared to the same period in 2021, primarily due to efforts to meet customer demands after manufacturing down time that occurred during Q1 2022 related to relocating Premier’s manufacturing plant during Q1 2022. Rental income increased 707% and 2430% for the three and nine months ended September 30, 2022 as compared to the same period in 2021 as it represented new revenue stream beginning in June 2021. Net investment income of $370,000 and $644,000 for the three and nine months ended represents a new revenue stream beginning in September 2021 for the Company associated with our Commercial Lending business segment. The Company’s Direct Marketing revenues increased 411% and 653% for the three and nine months ended September 30, 2022 as compared to 2021 due primarily to the increase sales in our Asian markets, and the inclusion of SHRG revenue for the period January 1, 2022, to September 30, 2022.
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Costs and expenses
| Three months ended September 30, 2022 | Three months ended September 30, 2021 | % Change | Nine months ended September 30, 2022 | Nine months ended September 30,2021 | % Change | |||||||||||||||||||
| Cost of revenue, inclusive of depreciation and amortization | $ | 11,368,000 | $ | 3,406,000 | 234 | % | $ | 27,653,000 | $ | 10,045,000 | 175 | % | ||||||||||||
| Sales, general and administrative compensation | 6,968,000 | 3,242,000 | 115 | % | 20,117,000 | 9,569,000 | 111 | % | ||||||||||||||||
| Professional fees | 2,919,000 | 1,245,000 | 134 | % | 6,416,000 | 3,444,000 | 86 | % | ||||||||||||||||
| Stock based compensation | - | 13,000 | -100 | % | 4,000 | 42,000 | -90 | % | ||||||||||||||||
| Sales and marketing | 3,110,000 | 1,060,000 | 193 | % | 9,952,000 | 2,586,000 | 285 | % | ||||||||||||||||
| Rent and utilities | 295,000 | 42,000 | 602 | % | 632,000 | 175,000 | 261 | % | ||||||||||||||||
| Research and development | 331,000 | 190,000 | 74 | % | 705,000 | 645,000 | 9 | % | ||||||||||||||||
| Other operating expenses | 1,054,000 | 913,000 | 15 | % | 2,430,000 | 2,703,000 | -10 | % | ||||||||||||||||
| Total costs and expenses | $ | 26,045,000 | $ | 10,111,000 | 158 | % | $ | 67,969,000 | $ | 29,209,000 | 133 | % | ||||||||||||
Costs of revenue, inclusive of depreciation and amortization includes all direct costs of direct marketing and printed products revenues, including materials, direct labor, transportation, manufacturing facility costs and depreciation. Costs of goods sold increased 234% and 175% for the three and nine months ended September 30, 2022, respectively as compared to the same periods in 2016,2021. This increase is driven primarily due to the impactby an increase in depreciation and amortization associated with assets acquired by our REIT line of $207,500 of compensation cost sharing amounts received by the Companybusiness as well as increases in conjunction with an intellectual property monetization program management arrangement the Company entered into in November of 2016 for which the Company received funds to offset certain of its compensation expensesmanufacturing costs associated with the monetization program.products sold as part of our Direct Marketing, and Packaging and Printing segments, in particular, increases in freight, paper, and overhead costs.
Professional feesSales, general and administrative compensation costs, excluding stock-based compensation, increased 22% during115% and 111% for the three and nine months ended September 30, 2017,2022 as compared to the same periodperiods in 2016. The increase is2021 primarily due to additional head count associated with the additioninclusion of investor relationsSHRG compensation costs for the beginning on January 1, 2022.
Professional fees increased 134% and sales86%, during the three and marketing consultants. For the nine months ended September 30, 2017, professional fees decreased by 21%2022, as compared to the same periodperiods in 2016 as a result of a significant reduction2021 respectively, primarily due to an increase in legal fees incurred byassociated with the Company.direct marketing segment, accounting fees, and due diligence fees related to potential acquisitions.
Stock-basedStock based compensation includes expense charges for all stock-based awards to employees, directors and consultants. Such awards include option grants, warrant grants, and restricted stock awards. Stock-basedStock based compensation increased 500%decreased 100% and 131%, respectively,90% during the three and nine months ended September 30, 2017,2022, as compared to the same periods in 2016, due2021 respectively, driven by the expiration of options awarded to employees no longer with the costs of restricted stock grants to certain management members during the fourth quarter of 2016 and the first quarter of 2017 that have vested during 2017.Company.
Sales and marketing costs, which includesinclude internet and trade publication advertising, travel and entertainment costs, sales-broker commissions, and trade show participation expensesexpenses. Sales and marketing increased 48%193% and 19%, respectively,261% during the three and nine months ended September 30, 20172022 as compared to the same periods in 2021 respectively, is a result of the commissions paid to brokers associated with the Company’s Direct Marketing segment, and in particular, the inclusion of SHRG financial results for the three and nine months ended September 30, 2016, primarily due to increased travel and entertainment costs related to the Company’s 2017 shareholders’ meeting.2022.
Rent and utilitiesincreased by 2%602% and 3%, respectively,261% during the three and nine months ended September 30, 2017,2022, as compared to the same periodsperiod in 2016,2021 respectively, primarily due to increasesa new facility lease in rentHouston, Texas started during the first quarter of 2021 as well as Premier Packaging’s leased facility beginning in March 2022.
Research and development costs forincreased 74% and 9% during the Company.three and nine months ended September 30, 2022, as compared to the same period in 2021 respectively, due to a increase in such activities at our Impact Biomedical, Inc. subsidiary.
Other operating expensesconsist primarily of equipment maintenance and repairs, office supplies, IT support, bad debt expense and insurance costs. OtherDuring the three and nine months ended September 30, 2022, other operating expenses increased 15% and decreased 10% as compared to the same period in 2021 respectively, due to increased software costs associated with enhancements to the Company’s ERP system as well as new software implement as part of the Company’s Direct Marketing segment and increased D&O insurance premiums.
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Other Income (Expense)
| Three months ended September 30, 2022 | Three months ended September 30, 2021 | % Change | Nine months ended September 30, 2022 | Nine months ended September 30,2021 | % Change | |||||||||||||||||||
| Interest Income | $ | 319,000 | $ | 1,593,000 | -80 | % | $ | 613,000 | $ | 3,130,000 | -80 | % | ||||||||||||
| Interest Expense | (606,000 | ) | (31,000 | ) | 1855 | % | (2,105,000 | ) | (157,000 | ) | 1241 | % | ||||||||||||
| Other Income (expense) | 3,627,000 | 325,000 | 1016 | % | 4,203,000 | 575,000 | 631 | % | ||||||||||||||||
| Loss on investments | (14,302,000 | ) | (2,996,000 | ) | 377 | % | (10,479,000 | ) | (10,894,000 | ) | -4 | % | ||||||||||||
| Gain/(loss) on equity method investment | 344,000 | (1,645,000 | ) | -121 | % | 134,000 | (2,556,000 | ) | -105 | % | ||||||||||||||
| Gain/(Loss) on extinguishment of debt | - | - | N/A | 110,000 | 116,000 | -5 | % | |||||||||||||||||
| Gain on disposal of operations, net of taxes | - | - | N/A | 405,000 | - | N/A | ||||||||||||||||||
| Total other income | $ | (10,618,000 | ) | $ | (2,754,000 | ) | -286 | % | $ | (7,119,000 | ) | $ | (9,786,000 | ) | 27 | % | ||||||||
Interest income is recognized on the Company’s money markets, and a portion of notes receivable, identified in Note 4.
Other income (expense) for the nine months ended September 30, 2022 is driven by 7%the impairment of investments and 19%, respectively,notes receivables for SHRG approximating $1,745,000, offset by income tax benefits at SHRG approximating $4,109,000
Interest expense increased 1855% and 1241% during the three and nine months ended September 30, 2017,2022, as compared to the same periodsperiod in 2016, primarily2021, due to increasing debt balances, in particular within our REIT business line.
Loss on investments consists of net realized losses on marketable securities which are recognized as the resultdifference between the purchase price and sale price of a decreasethe common stock investment. Also included are net unrealized losses on marketable securities which are recognized on the change in insurance costs, office expensesfair market value on our common stock investment.
Loss on equity method investment is the Company’s prorated portion of earnings on its investments treated under the equity method of account for the three and nine months ended September 30, 2022.
Gain on extinguishment of debt consists of funds received by AAMI in April 2020, by the write-offSBA Paycheck Protection Program of previously expensed customer related fees.$116,000. As of January 8, 2021, this note was forgiven in full. Also, during the nine months ended September 30, 2022, SHRG’s $110,000 SBA Paycheck Protection Program was forgiven in full.
Other IncomeGain on sale of assets is driven by the Company’s gain on the sale of Premier’s manufacturing facility in Victor, NY, as well as other capital assets.
Net Loss from Continuous Operations
| Three months ended September 30, 2022 | Three months ended September 30, 2021 | % Change | Nine months ended September 30, 2022 | Nine months ended September 30,2021 | % Change | |||||||||||||||||||
| Loss from continuing operations | $ | (24,801,000 | ) | $ | (6,675,000 | ) | -272 | % | $ | (39,161,000 | ) | $ | (21,462,000 | ) | -82 | % | ||||||||
| Income from discontinued operations, net of tax | - | - | NA | - | 2,129,000 | 100 | % | |||||||||||||||||
| Net loss | $ | (24,801,000 | ) | $ | (6,675,000 | ) | -272 | % | $ | (39,161,000 | ) | $ | (19,333,000 | ) | -103 | % | ||||||||
For the three and Expense
| Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | % change | Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | % change | |||||||||||||||||||
| Other expenses | ||||||||||||||||||||||||
| Interest expense | $ | (58,000 | ) | $ | (68,000 | ) | -15 | % | $ | (171,000 | ) | $ | (218,000 | ) | -22 | % | ||||||||
| Amortized debt discount | (41,000 | ) | - | 100 | % | (113,000 | ) | - | 100 | % | ||||||||||||||
| Other expense | $ | (99,000 | ) | $ | (68,000 | ) | 46 | % | $ | (284,000 | ) | $ | (218,000 | ) | 30 | % | ||||||||
Interest expense decreased 15%nine months ended September 30, 2022, the Company recorded net losses of $24,801,000 and 22%,$39,161,000, respectively as compared to net losses of $6,675,000 and $21,462,000, respectively for September 30, 2021. The increase in net loss during the three and nine months ended September 30, 2017,2022, as compared to the same periods in 2016, due to a decrease in2021 primarily reflect the total debt carried by theperformance of Company in 2017 as compared to 2016. Amortized debt discount amounts in 2017 are due to the commencement of debt discount amortization related to a funding agreement entered into by the Company during the fourth quarter of 2016.investments.
Net Loss
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| Three Months Ended September 30, 2017 | Three Months Ended September 30, 2016 | % change | Nine Months Ended September 30, 2017 | Nine Months Ended September 30, 2016 | % change | |||||||||||||||||||
| Net loss | $ | (277,000 | ) | $ | (27,000 | ) | 926 | % | $ | (726,000 | ) | $ | (969,000 | ) | -25 | % | ||||||||
| Loss per common share: | ||||||||||||||||||||||||
| Basic and diluted | $ | (0.02 | ) | $ | (0.00 | ) | 100 | % | $ | (0.05 | ) | $ | (0.07 | ) | -29 | % | ||||||||
For the three months ended September 30, 2017, net loss was approximately $277,000, a 926% increase from a net loss of $27,000 during the three months ended September 30, 2016. The increase in net loss is primarily due to the impact of significant decreases in packaging sales. For the nine months ended September 30, 2017, net loss was approximately $726,000, a decrease of 25% from a net loss of $969,000 in the nine months ended September 30, 2016. The decrease in net loss is primarily due to the combined impact of increases in technology card sales and AuthentiGuard sales, in addition to an overall reduction in operating costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its liquidity and capital requirements primarily through the sale of its equity securities and debt financings. As of September 30, 2017,2022 the Company had cash of approximately $4,223,000 and restricted cash of approximately $336,000. In addition, the Company had $800,000 available to its packaging division under a revolving credit line. While the Company has a negative net working capital of approximately $1.5 million as of September 30, 2017, approximately $3,612,000 of short-term debt and $450,000 of short term other liabilities which are due in February 2018 can be settled by the Company by the transfer and assignment of certain of the Company’s patent assets and therefore, will not require the use of the Company’s cash or other current assets to settle.$22.8 million. As of September 30, 2017,2022, the Company believes that it has sufficient cash to meet its cash requirements for at least the next 12 months from the filing date of this Annual Report. In addition, the Company believes that it will have access if needed, to sources of capital from the sale of its equity securities and debt financings.
Cash Flow from Operating Activities
Operating Cash Flow – DuringNet cash used in operating activities was $23,251,000 for the first nine months of 2017, the Company used approximately $1.4 million of cash for operationsended September 30, 2022 as compared to $12,448,000 for the generation of cash by operation during the first nine months of 2016 of approximately $384,000. The significantended September 30, 2021. This increase in operating cash use in 2017 was primarily due to the use of cash to pay-down accounts payable and accrued expenses,is driven by an increase in net restrictedloss of $4,833,000 as well as an increase in accounts receivable of $4,146,000.
Cash Flow from Investing Activities
Net cash used in investing activities was $17,816,000 for the nine months ended September 30, 2022 as compared to $53,215,000 for the nine months ended September 30, 2021. During the nine months ended September 30, 2022, we purchased $1,349,000 in property, plant, and equipment, purchased $14,254,000 in marketable securities, and issued $4,687,000 in new notes receivable. This was offset by cash received on the disposal of approximately $159,000 during 2017, andassets approximating $2,557,000.
Cash Flow from Financing Activities
Net cash provided from financing activities was $7,317,000 for the build-upnine months ended September 30, 2022 as compared to $126,760,000 for the nine months ended September 30, 2021. During the nine months ended September 30, 2022, we borrowed $6,360,00 of inventory by the Company’s packaging division in anticipationlong-term debt, had new issuances of salescommon stock in the fourth quarteramount of 2017.
Investing Cash Flow – During the first nine months$1,518,000. This was offset by payments of 2017, the Company expended approximately $438,000 on equipment for its packaging and plastic card operations and approximately $5,000 for the prosecution of several patent applications. During the first nine months of 2016, the Company expended approximately $193,000 on equipment for its packaging and plastic card operations and approximately $73,000 for the prosecution of several patent applications. The Company also received $495,000 for the sale of certain of its patent assets in conjunction with a settlement with a former litigant in one of the Company’s patent infringement suits.
Financing Cash Flows - During the first nine months of 2017, the Company made aggregate principal payments for long-term debt of approximately $612,000, and received proceeds of approximately $783,000 from the sale of the Company’s common stock.$561,000.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements that have, or are reasonably likely to have, an effect on our financial condition, financial statements, revenues or expenses.
Critical Accounting Policies and Estimates
AsThe preparation of September 30, 2017,financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in our financial statements and accompanying notes. The financial statements as of December 31, 2021, describe the significant accounting policies and methods used in the preparation of the financial statements. There have been no material changes to such critical accounting policies and estimates have not changed materially from those set forth in our Annualas of the Quarterly Report on Form 10-K10-Q for the yearquarter ended December 31, 2016.September 30, 2022.
ITEM 4 - CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures for the quarter ended JuneSeptember 30, 2017,2022, pursuant to Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation and on the material weaknessweaknesses disclosed in our Annual Report on Form 10-K and 10-K/A for the year ended December 31, 20162021 which remained as of September 30, 2017,2022, our principal executive officer and principal financial officer concluded that as of September 30, 2017,2022, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in reports filed or submitted under the Securities Exchange Act is being recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that our disclosure controls are not effectively designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act is being accumulated and communicated to management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management has also concluded that our internal control over financial reporting was not effective. In connection with management’s assessment of our internal control over financial reporting described above, the following weakness have been identified in the Company’s internal control over financial reporting as of December 31, 2021: (1) the Company did not maintain a sufficient complement of qualified accounting personnel and controls associated with segregation of duties over complex transactions, and (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.
Plan for Remediation of Material Weaknesses
In responseAs discussed in our Annual Report on Form 10-K/A for the year ended December 31, 2021, the Company has a remediation plan and is committed to the identified material weaknesses identified above, management, with oversight from the Company’s audit committee, plans to continue to monitor and review ourmaintaining a strong internal control environment and believes that these remediation efforts will represent significant improvements in our controls. The Company has started to evaluate whether costimplement these steps, however, some of these steps will take time to be fully integrated and confirmed to be effective solutionsand sustainable. Additional controls may also be required over time. Until the remediation steps set forth above are available to remedyfully implemented and tested, the identified material weaknesses by expanding the resources availabledescribed above will continue to the financial reporting process.exist.
Changes in Internal Control over Financial Reporting
There have been noWhile changes to ourin the Company’s internal controlscontrol over financial reporting occurred during the quarter ended September 30, 2022, as defined in Rule 13a-15(f) and Rule 15d-15(f)the Company began implementation of the Exchange Actremediation steps described above, we believe that there were no changes in the Company’s internal control over financial reporting during the second quarter of 2017ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, ourthe Company’s internal controlscontrol over financial reporting.
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PART II
OTHER INFORMATION
On August 15, 2017, Document Security Systems, Inc. (“DSS”) filed a patent infringement lawsuit against Lite-On, Inc.,See commentary in Note 9 Commitments and Lite-On Technology Corporation in the United States District Court for the Central District of California, alleging infringement of certain of DSS’s LED patents. DSS is seeking a judgement for infringement of the patents along with other relief including, but not limited to, money damages, costs and disbursements. The case is currently pending as of the date of this Report.Contingencies.
There have been no material changes to the discussion of risk factors previously disclosed in our most recently filed Annual Report on Form 10-K.10-K for the year ended December 31, 2021.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On November 1, 2017,January 25, 2022, the Company issued 500,000 shares of its commonentered into a stock par value $0.02 per sharepurchase agreement with Alset EHome International, Inc. (the “Common Stock”“January 25, 2022 SPA”) and a three-year warrant, pursuant to purchasewhich the Company agreed to issue to Alset EHome International, Inc. (“AEI”) up to 125,000 additional44,619,423 shares of the Company’s Common Stock at an exercisecommon stock (the “Shares”) for a purchase price of $1.00$0.3810 per share (the “Warrant”share. On February 28, 2022, the Company entered into an Amendment to Stock Purchase Agreement, pursuant to which the Company and AEI agreed to amend certain terms of the January 25, 2022 SPA. Pursuant to the Amendment, the number of shares of the common stock of the Company that the AEI will purchase has been reduced from 44,619,423 to 3,986,877 shares for an aggregate purchase price of $1,519,000.
On January 18, 2022, the Company entered into a stock purchase agreement with AEI, pursuant to which AEI sold to the Company 100% of the shares of common stock of its wholly owned subsidiary True Partner International Limited (HK) (“TP”), and also madeall of TP’s 62,122,908 ordinary shares of True Partner Capital Holding Limited, for a cash paymentpurchase price of $125,000, to Nix, Patterson & Roach LLP (“NPR”), a law firm, for11,397,080 newly issued shares of the purpose of settling all accrued and outstanding billed and unbilled invoices for expenses owed byCompany’s common stock. This agreement was terminated on February 25, 2022. On February 28, 2022, the Company entered into a Stock Purchase Agreement with Alset EHome International Inc. (the “True Partner Revised Stock Purchase Agreement”), pursuant to NPRwhich AEI has agreed to sell a subsidiary holding 62,122,908 shares of stock of True Partner Capital Holding Limited in connection with various litigation matters handled by NPR on behalfexchange for 17,570,948 shares of common stock of the Company. The total amount owedOn July 7, 2022, the Company issued 17,570,948 shares to NPR for litigation related expenses was approximately $714,000. The Warrant does not provide for a cashless exercise feature.Alset EHome International Inc. (“AEI”).
Neither the Common Stock, the Warrant, nor the Common Stock issuable upon exercise of the Warrant (collectively, the “Securities”) have been registered under the Securities Act of 1933, as amended (the “Securities Act”), and were issued in reliance upon the exemption from registration contained in Section 4(2) of the Securities Act. These Securities may not be offered or sold by the recipient in the United States in the absence of an effective registration statement or an applicable exemption from registration requirements.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 –- MINE SAFETY DISCLOSURES
None.Not applicable.
None.
ITEM 6 - EXHIBITS
| 101.INS | Inline XBRL Instance Document* | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document* | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document* | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document)* |
*Filed herewith.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| November 14, | By: | /s/ | |
Frank D. Heuszel | |||
| Chief Executive Officer | |||
| (Principal Executive Officer) | |||
| November 14, | By: | /s/ | |
Todd D. Macko | |||
| Chief Financial Officer | |||
| 39 |