Dss, Inc 8-K/A, filed Nov 6, 2020
Dss, Inc. (DSS)
About this 8-K/A
Dss, Inc filed this 8-K/A on November 6, 2020, reporting on events of August 18, 2020.
Items reported
- Item 3.03: Change to shareholders' rights
- Item 5.03: Charter or bylaw amendment, or fiscal year change
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 18, 2020
DOCUMENT SECURITY SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
| New York | 001-32146 | 16-1229730 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
200 Canal View Boulevard Suite 104 Rochester, NY |
14623 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (585) 325-3610
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| [ ] | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| [ ] | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| [ ] | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| [ ] | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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 |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Explanatory Note
On August 27, 2020, Document Security Systems, Inc. (the “Company”) filed a Current Report on Form 8-K (the “Original Form 8-K”) to report (i) the completion of its acquisition of Impact BioMedical, Inc. (“Impact BioMedical”) and (ii) the filing of a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of New York to increase the number of authorized shares of the Company, including 200,000,000 shares of preferred stock, par value $0.02 (the “Preferred Stock”), in connection with the acquisition. This Amendment No. 1 to the Original Form 8-K amends and supplements the Initial Form 8-K (i) to include financial statements and pro forma financial information permitted to be filed by amendment no later than 71 calendar days after the date that the Initial Form 8-K was required to be filed with the Securities and Exchange Commission and (ii) to disclose that the Company has filed a Certificate of Correction with the Secretary State of New York to correct the number of authorized shares of Preferred Stock to 46,868. No other modifications to the Original 8-K are being made by this Amendment No. 1. This Amendment No. 1 should be read in connection with the Original 8-K.
The foregoing description of the Certificate of Correction does not purport to be complete and is qualified in its entirety by reference to the complete text of the Certificate of Correction, which is filed herewith as Exhibit 3.1 and incorporated herein by reference.
Item 3.03 Material Modification to Rights of Security Holders.
On August 18, 2020, the Company filed with the Secretary of State of the State of new York a Certificate of Amendment to increase the authorized number of shares of the Company, including 200,000,000 shares of Preferred Stock (the “Certificate of Amendment”). On November 5, 2020, the Company filed a Certificate of Correction of the Certificate of Amendment with the Secretary of State of the State of New York to correct the prior Certificate of Amendment to state that the correct number of authorized shares of the Company is 200,046,868, consisting of 200,000,000 shares of common stock, par value $0.02, and 46,868 shares of Preferred Stock, of which all 46,868 shares were designated as Series A Convertible Preferred Stock. In the interim, no shares of Preferred Stock were issued by the Company in excess of the Company’s 46,868 authorized shares of Preferred Stock.
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
The information set forth in Item 3.03 of this Current Report on Form 8-K is incorporated by reference into this Item 5.03.
Item 9.01 Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The unaudited condensed interim consolidated financial statements of Impact BioMedical, which include the consolidated balance sheets as of June 30, 2020 and December 31, 2019, the consolidated statement of operations for the three and six months ended June 30, 2020 and June 30, 2019, the consolidated statements of stockholders’ equity for the period ended June 30, 2020 and June 30, 2019, the consolidated statements of cash flows for the six months ended June 30, 2020 and June 30, 2019, and the notes related thereto, are included as Exhibit 99.1 and to this Current Report on Form 8-K and incorporated herein by reference.
(b) Pro Forma Financial Information.
The Company and Impact BioMedical’s unaudited pro forma condensed combined financial statements, which include the unaudited pro forma condensed combined balance sheet as of June 30, 2020, the unaudited pro forma condensed combined statement of operations for the three and six months ended June 30, 2020, and the notes related thereto, are included as Exhibit 99.2 and incorporated herein by reference.
| (d) | Exhibits |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.
| DOCUMENT SECURITY SYSTEMS, INC. | ||
| Dated: November 6, 2020 | By: | /s/ Frank D. Heuszel |
| Name: | Frank D. Heuszel | |
| Title: | Chief Executive Officer | |
Exhibit 3.1
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION
OF DOCUMENT SECURITY SYSTEMS, INC.
UNDER SECTION 105 OF THE BUSINESS CORPORATION LAW
FIRST: The name of the Corporation is Document Security Systems, Inc.
SECOND: The date the document to be corrected was filed by the Department of State is:
August 18, 2020
THIRD: The nature of the informality, error, incorrect statement or defect to be corrected is:
The number of authorized shares of preferred stock of the Corporation in the document is stated incorrectly.
FOURTH: The provision in the document, as corrected or eliminated or the proper execution, is as follows:
Paragraph (4) is corrected to read as follows:
| “(4) | The Corporation is currently authorized to issue 200,000,000 shares of Common Stock, with a par value of $0.02. The amendment to the Certificate of Incorporation effected by this Certificate of Amendment is to increase the total number of authorized shares the Corporation shall have the authority to issue by adding 46,868 shares of Preferred Stock, with a par value of $0.02, of which 46,868 shares will be designated Series A Convertible Preferred Stock for a total of 200,046,868 shares, with a par value of $0.02” |
The following WHEREAS clause of the Certificate of Incorporation of Document Security Systems, Inc., as amended, is eliminated in its entirety:
“WHEREAS, the Certificate of Incorporation authorizes the issuance of up to 200,000,000 shares of preferred stock, par value 0.02 per share, of the Corporation (“Preferred Stock”) in one or more series, and expressly authorizes the Board of Directors of the Corporation (the “Board”), subject to limitations prescribed by law, to provide, out of the unissued shares of Preferred Stock, for series of Preferred Stock, and, with respect to each such series, to establish and fix the number of shares to be included in any series of Preferred Stock and the designation, rights, preferences, powers, restrictions, and limitations of the shares of such series; and”
Paragraph FOURTH of the Certificate of Incorporation of Document Security Systems, Inc., as corrected, will read as follows:
“NOW, THEREFORE, BE IT RESOLVED, that the Board does hereby provide for the issue of a series of Preferred Stock and does hereby establish and fix and herein state and express the designation, rights, preferences, powers, restrictions, and limitations of such series of Preferred Stock, and paragraph FOURTH relating to the stock of the Corporation is hereby amended to read as follows:
FOURTH: The Corporation is authorized to issue 200,046,868 shares, with a par value of $0.02, consisting of 200,000,000 shares of Common Stock, with a par value of $0.02, and 46,868 shares of Series A Convertible Preferred Stock, with a par value of $0.02.
1. Designation. There shall be a series of Preferred Stock that shall be designated as “Series A Convertible Preferred Stock” (the “Series A Preferred Stock”) and the number of Shares constituting such series shall be Forty-six Thousand Eight Hundred Sixty-eight (46,868). The rights, preferences, powers, restrictions, and limitations of the Series A Preferred Stock shall be as set forth herein.
2. Defined Terms. For purposes hereof, the following terms shall have the following meanings:
“Beneficial Ownership Limitation” has the meaning set forth in Section 8.1(c)(ii).
“Board” has the meaning set forth in the Recitals.
“Business Day” means any day, except a Saturday, Sunday or legal holiday, on which banking institutions in the city of New York, New York, are authorized or obligated by law or executive order to close.
“Certificate of Designation” means this Certificate of Amendment.
“Certificate of Incorporation” has the meaning set forth in the Recitals.
“Common Stock” means the common stock, par value $0.02 per share, of the Corporation.
“Convertible Securities” means any securities (directly or indirectly) convertible into or exchangeable for Common Stock, but excluding Options.
“Corporation” has the meaning set forth in the Preamble.
“Conversion Price” shall initially be $6.48 per share of Common Stock, subject to adjustment s provided in Section 8.
“Conversion Shares” means the shares of Common Stock or other capital stock of the Corporation then issuable upon conversion of the Series A Preferred Stock in accordance with the terms of Section 8.
“Date of Issuance” means, for any Share of Series A Preferred Stock, the date on which the Corporation initially issues such Share (without regard to any subsequent transfer of such Share or reissuance of the certificate(s) representing such Share).
“Dollar” or “$” means the lawful currency of the United States of America.
“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect at the time.
“Fair Market Value” means, as of any particular date: (a) the volume weighted average of the closing sales prices of the Common Stock for such day on all domestic securities exchanges on which the Common Stock may at the time be listed; (b) if there have been no sales of the Common Stock on any such exchange on any such day, the average of the highest bid and lowest asked prices for the Common Stock on all such exchanges at the end of such day; (c) if on any such day the Common Stock is not listed on a domestic securities exchange, the closing sales price of the Common Stock as quoted on the OTC Markets or similar quotation system or association for such day; or (d) if there have been no sales of the Common Stock on the OTC Markets or similar quotation system or association on such day, the average of the highest bid and lowest asked prices for the Common Stock quoted on the Pink OTC Markets or similar quotation system or association at the end of such day; in each case, averaged over twenty (20) consecutive Business Days ending on the Business Day immediately prior to the day as of which “Fair Market Value” is being determined; provided, that if the Common Stock is listed on any domestic securities exchange, the term “Business Day” as used in this sentence means Business Days on which such exchange is open for trading. If at any time the Common Stock is not listed on any domestic securities exchange or quoted on the OTC Markets or similar quotation system or association, the “Fair Market Value” of the Common Stock shall be the fair market value per share as determined by the Board in good faith.
“Holder Controlled Persons” has the meaning set forth in Section 8.1(c)(ii).
“Junior Securities” means, collectively, the Common Stock and any other class of securities that is specifically designated as junior to the Series A Preferred Stock.
“Liquidation” has the meaning set forth in Section 5.1.
“Liquidation Value” means, with respect to any Share on any given date, One Thousand Dollars ($1,000) (as adjusted for any stock splits, stock dividends, recapitalizations, or similar transaction with respect to the Series A Preferred Stock).
“Options” means any warrants or other rights or options to subscribe for or purchase Common Stock or Convertible Securities.
“Person” means an individual, corporation, partnership, joint venture, limited liability company, governmental authority, unincorporated organization, trust, association, or other entity.
“Preferred Stock” has the meaning set forth in the Recitals.
“Principal Market” means the principal stock exchange or market on which the Corporation’s Common Stock is traded (or if not trading, the principal stock exchange or market on which listed or quoted), including any market operated by OTC Markets or any other stock exchange or market.
“Securities Act” means the U.S. Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations thereunder, which shall be in effect at the time.
“Series A Conversion Election Date” has the meaning set forth in Section 7.2.
“Series A Holder Conversion Notice” has the meaning set forth in Section 8.2(a).
“Series A Mandatory Conversion Notice” has the meaning set forth in Section 8.2(b).
“Series A Mandatory Conversion Date” has the meaning set forth in Section 8.2(b)(ii).
“Series A Preferred Stock” has the meaning set forth in Section 1.
“Series A Redemption” has the meaning set forth in Section 7.1.
“Series A Redemption Date” has the meaning set forth in Section 7.2.
“Series A Redemption Notice” has the meaning set forth in Section 7.2.
“Series A Redemption Price” has the meaning set forth in Section 7.1.
“Share” means a share of Series A Preferred Stock.
“Subsidiary” means, with respect to any Person, any other Person of which a majority of the outstanding shares or other equity interests having the power to vote for directors or comparable managers are owned, directly or indirectly, by the first Person.
“Supermajority Interest” means holders of not less than two-thirds of the then total outstanding Shares of Series A Preferred Stock.
3. Rank. With respect to payment distribution of assets upon liquidation, dissolution, or winding up of the Corporation, whether voluntary or involuntary, all Shares of the Series A Preferred Stock shall rank senior to all Junior Securities.
4. No Dividends. Notwithstanding any provision of the Certificate of Incorporation or of the NYBCL to the contrary, no dividends shall accrue or be payable upon the Series A Preferred Stock, whether or not any dividends are declared by the Board on the Common Stock or any other class or series of capital stock of the Corporation, and whether or not there are funds legally available for the payment of dividends.
5. Liquidation.
5.1 Liquidation. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation (a “Liquidation”), the holders of Shares of Series A Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, before any payment shall be made to the holders of Junior Securities by reason of their ownership thereof, an amount in cash equal to the aggregate Liquidation Value of all Shares held by such holder.
5.2 No Participation with Junior Securities on Liquidation. After payment in full of all preferential amounts required to be paid to the holders of Series A Preferred Stock upon a Liquidation under this Section 5, the holders of Shares of Series A Preferred Stock then outstanding shall not be entitled to participate with the holders of shares of Junior Securities or any other class or series of the Corporation’s capital stock then outstanding in the distribution of any of the remaining assets and funds of the Corporation available for distribution to its stockholders.
5.3 Insufficient Assets. If upon any Liquidation the remaining assets of the Corporation available for distribution to its stockholders shall be insufficient to pay the holders of the Shares of Series A Preferred Stock the full preferential amount to which they are entitled under Section 5.1, (a) the holders of the Shares shall share ratably in any distribution of the remaining assets and funds of the Corporation in proportion to the respective full preferential amounts which would otherwise be payable in respect of the Series A Preferred Stock in the aggregate upon such Liquidation if all amounts payable on or with respect to such Shares were paid in full, and (b) the Corporation shall not make or agree to make any payments to the holders of Junior Securities.
5.4 Notice. In the event of any Liquidation, the Corporation shall, within ten (10) Business Days after the date the Board approves such action, or no later than ten (10) Business Days prior to any stockholders’ meeting called to approve such action, or within ten (10) Business Days after the commencement of any involuntary proceeding, whichever is earlier, give each holder of Shares of Series A Preferred Stock written notice of the action or proposed action. Such written notice shall describe the material terms and conditions of such action or proposed action, including a description of the stock, cash, and property to be received by the holders of Shares upon consummation of the proposed action and the date of delivery thereof. If any material change in the facts set forth in the initial notice shall occur, the Corporation shall promptly give written notice to each holder of Shares of such material change.
6. No Voting Rights. Notwithstanding any provision of the Certificate of Incorporation to the contrary, unless and only to the extent expressly required by the NYBCL or other applicable law, rule or regulation (including the rules of any exchange upon which securities of the corporation may be listed), no holder of outstanding Shares of Series A Preferred Stock shall be entitled to vote on any matter presented or required to be presented to the stockholders of the Corporation for their action or consideration (including, without limitation, the election of directors of the Corporation), nor shall be entitled to notice of any stockholder meeting (or requests for written consent of stockholders).
7. Redemption.
7.1 Redemption. At any time and from time to time on or after the Date of Issuance, the Corporation shall have the right to redeem, out of funds legally available therefor, all or any portion of the then outstanding Shares of Series A Preferred Stock, pro rata among all holders of Series A Preferred Stock, redeemed by the Corporation (a “Series A Redemption”) for a price per Share equal to the Liquidation Value for such Share (the “Series A Redemption Price”). All holders of Series A Preferred Stock shall be bound by a Series A Redemption effected as provided in this Section 7 to have all, or in the case of an election by the Corporation to redeem less than all of the outstanding Shares of Series A Preferred Stock, the same pro rata portion of their Shares, redeemed pursuant to this Section 7; provided, that notwithstanding anything to the contrary contained herein, each holder of Shares of Series A Preferred Stock shall have the right to elect prior to the Series A Conversion Election Date to give effect to the conversion rights contained in Section 8 instead of giving effect to the provisions contained in this Section 7 with respect to all or any Shares of Series A Preferred Stock held by such holder. In exchange for the surrender to the Corporation by the respective holders of Shares of Series A Preferred Stock of their certificate or certificates representing such Shares in accordance with Section 7.4 below, the aggregate Series A Redemption Price for all Shares held by each holder of Shares shall be payable in cash (or tendered for payment) in immediately available funds to the respective holders of the Series A Preferred Stock on the applicable Series A Redemption Date, subject to the provisions of Sections 7.3 and 7.4.
7.2 Redemption Notice. Not less than thirty (30) days prior to the Series A Redemption Date, the Corporation shall send written notice (the “Series A Redemption Notice”) of a Series A Redemption to each holder of record of outstanding Series A Preferred Stock. Each Series A Redemption Notice shall state:
(a) the number of Shares of Series A Preferred Stock outstanding, the number of Shares of Series A Preferred Stock that the Corporation shall redeem in the aggregate, and the number of Shares of Series A Preferred Stock held by the holder that the Corporation shall redeem on the Series A Redemption Date specified in the Series A Redemption Notice;
(b) the date of the closing of the redemption (the applicable date, the “Series A Redemption Date”) and the Series A Redemption Price per share;
(c) the date upon which the holder’s right to convert its Shares pursuant to Section 8 terminates, which date shall be no earlier than five (5) days before the Series A Redemption Date (the applicable date, the “Series A Conversion Election Date”); and
(d) the manner and place designated for surrender by the holder to the Corporation of his, her or its certificate or certificates representing the Shares of Series A Preferred Stock to be redeemed, or, in the event a certificate or certificates are lost, stolen or missing, the manner and place of delivering an affidavit of loss with respect thereto.
7.3 Insufficient Funds; Remedies for Nonpayment.
(a) Insufficient Funds. If on any Series A Redemption Date, the assets of the Corporation legally available are insufficient to pay the full Series A Redemption Price for the total number of Shares elected to be redeemed pursuant to Section 7.1, the Corporation shall (i) take all appropriate action reasonably within its means to maximize the assets legally available for paying the Series A Redemption Price, (ii) redeem out of all such assets legally available therefor on the applicable Series A Redemption Date the maximum possible number of Shares that it can redeem on such date, pro rata among the holders of such Shares to be redeemed in proportion to the aggregate number of Shares elected to be redeemed by each such holder on the applicable Series A Redemption Date and (iii) following the applicable Series A Redemption Date, at any time and from time to time when additional assets of the Corporation become legally available to redeem the remaining Shares, the Corporation shall immediately use such assets to pay the remaining balance of the aggregate applicable Series A Redemption Price.
(b) Effect of Nonpayment. If on any Series A Redemption Date, all of the Shares elected to be redeemed pursuant to a Series A Redemption Notice are not redeemed in full by the Corporation by paying the entire Series A Redemption Price, until any such Shares are fully redeemed and the aggregate Series A Redemption Price paid in full, the unredeemed Shares shall remain outstanding and continue to have the rights, preferences, and privileges expressed herein.
7.4 Surrender of Certificates. On or before the Series A Redemption Date, each holder of Shares of Series A Preferred Stock not otherwise electing prior to the Series A Conversion Election Date to convert its Shares pursuant to Section 8 shall surrender the certificate or certificates representing such Shares to the Corporation, in the manner and place designated in the Series A Redemption Notice, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto), or, in the event the certificate or certificates are lost, stolen or missing, shall deliver an affidavit of loss, in the manner and place designated in the Series A Redemption Notice. Each surrendered certificate shall be canceled and retired, and the Corporation shall thereafter make payment of the applicable Series A Redemption Price by certified check or wire transfer to the holder of record of such certificate; provided, that if less than all the Shares represented by a surrendered certificate are redeemed, then a new stock certificate representing the unredeemed Shares shall be issued in the name of the applicable holder of record of canceled stock certificate.
7.5 Rights Subsequent to Redemption. If on the applicable Series A Redemption Date, the Series A Redemption Price is paid (or tendered for payment) for any of the Shares to be redeemed on such Series A Redemption Date, then on such date all rights of the holder in the Shares so redeemed and paid or tendered, including any rights to dividends on such Shares, shall cease, and such Shares shall no longer be deemed issued and outstanding.
8. Conversion.
8.1 Right to Convert; Mandatory Conversion; Limitations.
(a) Right to Convert. Subject to the provisions of this Section 8, at any time and from time to time on or after the Date of Issuance, any holder of Series A Preferred Stock shall have the right by written election to the Corporation to convert all or any portion of the outstanding Shares of Series A Preferred Stock (including any fraction of a Share) held by such holder into an aggregate number of shares of Common Stock as is determined by (i) multiplying the number of Shares (including any fraction of a Share) to be converted by the Liquidation Value thereof, and then (ii) dividing the result by the Conversion Price in effect immediately prior to such conversion.
(b) Mandatory Conversion. Subject to the provisions of this Section 8, at any time and from time to time on or after the Date of Issuance, the Corporation shall have the right to convert all or any portion of the then outstanding Shares of Series A Preferred Stock, pro rata among all holders of Series A Preferred Stock, without any action by the relevant holder of such Shares, into an aggregate number of shares of Common Stock as is determined by (i) multiplying the number of Shares (including any fraction of a Share) to be converted by the Liquidation Value thereof, and then (ii) dividing the result by the applicable Conversion Price then in effect.
(c) Limitations on Conversion. Notwithstanding Section 8.1(a), a holder of Series A Preferred Stock shall have no right to convert all or any portion of any Share of Series A Preferred Stock as and to the extent provided below:
(i) Insufficient Number of Authorized Shares. To the extent, and only to the extent, that the number of shares of the Corporation’s Common Stock to be issued upon such conversion exceeds the number of authorized but unissued shares of Common Stock.
(ii) Beneficial Ownership Limitation. To the extent that after giving effect to such issuance after conversion as set forth on the applicable Series A Holder Conversion Notice, the holder (together with the holder’s subsidiaries, and any other persons controlled by the holder (“Holder Controlled Persons”)) would beneficially own in excess of the Beneficial Ownership Limitation. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the holder and Holder Controlled Persons shall include the number of shares of Common Stock issuable upon conversion of the Shares of Series A Preferred Stock to be converted with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) conversion of the remaining, unconverted Shares of Series A Preferred Stock beneficially owned by the holder and Holder Controlled Persons and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Corporation subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the holder and Holder Controlled Persons. Except as set forth in the preceding sentence, for purposes of this Section 8.1(c)(ii), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the holder that the Corporation is not representing to the holder that such calculation is in compliance with Section 13(d) of the Exchange Act, and the holder is solely responsible for any forms or schedules required to be filed in connection therewith. To the extent that the limitation contained in this Section 8.1(c)(ii) applies, the determination of whether Shares of Series A Preferred Stock are convertible (in relation to other securities beneficially owned by the holder together with the and Holder Controlled Persons) and of what amount of Shares of Series A Preferred Stock are convertible shall be in the sole discretion of the holder, and the submission of a Series A Holder Conversion Notice shall be deemed to be the holder’s determination of whether Shares of Series A Preferred Stock are convertible (in relation to other securities beneficially owned by the holder together with the and Holder Controlled Persons) and of what amount of Shares of Series A Preferred Stock are convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the holder will be deemed to represent to the Corporation each time it delivers a Series A Holder Conversion Notice that such Notice of Conversion has not violated the restrictions set forth in this paragraph, and the Corporation shall have no obligation to verify or confirm the accuracy of such determination. For purposes of this Section 8.1(c)(ii), in determining the number of outstanding shares of Common Stock, a holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Corporation’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Corporation or (C) a more recent written notice by the Corporation or the Corporation’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a holder, the Corporation shall within two (2) Business Days confirm orally and in writing to the holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Corporation, including Shares of Series A Preferred Stock, by the holder or Holder Controlled Persons since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 19.99% (subject to decrease as provided below) of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of the Shares of Series A Preferred Stock to be converted. The holder may, at any time, decrease the Beneficial Ownership Limitation, effective immediately upon written notice to the Corporation. The provisions of this Section 8.1(c)(ii)shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 8.1(c)(ii) to correct this Section 8.1(c)(ii) (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.
(iii) Principal Market Regulation. If the issuance of such shares of Common Stock would exceed the aggregate number of shares of Common Stock which the Corporation may issue upon conversion of the Notes without breaching the Corporation’s obligations under the rules or regulations of the Principal Market (the “Exchange Cap”), if applicable, except that such limitation shall not apply in the event that the Corporation (A) obtains the approval of its stockholders as required by the applicable rules of the Principal Market for issuances of Common Stock in excess of such amount or (B) obtains a written opinion from outside counsel to the Corporation that such approval is not required.
8.2 Procedures for Conversion; Effect of Conversion.
(a) Procedures for Holder Conversion. In order to effectuate a conversion of Shares of Series A Preferred Stock pursuant to Section 8.1(a), a holder shall (a) submit a written election to the Corporation (a “Series A Holder Conversion Notice”) that such holder elects to convert Shares and the number of Shares elected to be converted, and (b) surrender, along with such written election, to the Corporation the certificate or certificates representing the Shares being converted, duly assigned or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto) or, in the event the certificate or certificates are lost, stolen, or missing, accompanied by an affidavit of loss executed by the holder. The conversion of such Shares hereunder shall be deemed effective as of the date of surrender of such Series A Preferred Stock certificate or certificates or delivery of such affidavit of loss executed by the holder. Upon the receipt by the Corporation of a written election and the surrender of such certificate(s) and accompanying materials, the Corporation shall as promptly as practicable (but in any event within ten (10) Business Days thereafter) deliver to the relevant holder (a) a certificate in such holder’s name (or the name of such holder’s designee as stated in the written election) for the number of shares of Common Stock to which such holder shall be entitled upon conversion of the applicable Shares as calculated pursuant to Section 8.1(a) and, if applicable (b) a certificate in such holder’s (or the name of such holder’s designee as stated in the written election) for the number of Shares of Series A Preferred Stock (including any fractional share) represented by the certificate or certificates delivered to the Corporation for conversion but otherwise not elected to be converted pursuant to the written election. All shares of capital stock issued hereunder by the Corporation shall be duly and validly issued, fully paid, and nonassessable, free and clear of all taxes, liens, charges, and encumbrances with respect to the issuance thereof.
(b) Procedures for Mandatory Conversion. To effect a mandatory conversion of Shares of Series A Preferred Stock as provided in Section 8.1(b) , not less than thirty (30) days prior to the Series A Mandatory Conversion Date, the Corporation shall send to each holder of Shares of Series A Preferred Stock written notice thereof (the “Series A Mandatory Conversion Notice”), which shall state:
(i) the number of Shares of Series A Preferred Stock outstanding, the number of Shares of Series A Preferred Stock that the Corporation shall convert in the aggregate, and the number of Shares of Series A Preferred Stock held by the holder that the Corporation shall convert on the Series A Mandatory Conversion Date specified in the Series A Redemption Notice;
(ii) the date of the conversion (the applicable date, the “Series A Mandatory Conversion Date”) and the Conversion Price per share in effect; and
(iii) the manner and place designated for surrender by the holder to the Corporation of his, her or its certificate or certificates representing the Shares of Series A Preferred Stock to be converted, or, in the event a certificate or certificates are lost, stolen or missing, the manner and place of delivering an affidavit of loss with respect thereto.
Upon receipt of such Series A Mandatory Conversion Notice, each holder shall surrender to the Corporation the certificate or certificates representing the Shares being converted, in the manner and place designated in the Series A Mandatory Conversion Notice, duly assigned, or endorsed for transfer to the Corporation (or accompanied by duly executed stock powers relating thereto) or, in the event the certificate or certificates are lost, stolen, or missing, an affidavit of loss executed by the holder, in the manner and place designated in the Series A Mandatory Conversion Notice. Upon the surrender of such certificate(s) and accompanying materials, the Corporation shall as promptly as practicable (but in any event within ten (10) Business Days thereafter) deliver to the relevant holder a certificate in such holder’s name (or the name of such holder’s designee as stated in the written election) for the number of shares of Common Stock to which such holder shall be entitled upon conversion of the applicable Shares. All shares of Common Stock issued hereunder by the Corporation shall be duly and validly issued, fully paid, and nonassessable, free and clear of all taxes, liens, charges, and encumbrances with respect to the issuance thereof.
(c) Effect of Conversion. All Shares of Series A Preferred Stock converted as provided in this Section 8.1 shall no longer be deemed outstanding as of the effective time of the applicable conversion and all rights with respect to such Shares shall immediately cease and terminate as of such time (including, without limitation, any right of redemption pursuant to Section 7), other than the right of the holder to receive shares of Common Stock and payment in lieu of any fraction of a Share as provided in Section 8.5 in exchange therefor.
8.3 Restricted Securities. The issuance of any shares of Common Stock upon conversion of Shares of Series A Preferred Stock will not have been registered under the Securities Act, and such shares of Common Stock will be “restricted securities” as defined in Rule 144 under the Securities Act (“Rule 144”). The certificate(s) representing any shares of Common Stock issued upon conversion of Shares of Series A Preferred Stock that are not eligible for immediate resale without restriction pursuant to the registration exemption afforded by Rule 144 at the time they are issued shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such certificates or other instruments):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS, AND NEITHER SUCH SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR OTHERWISE TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (2) AN EXEMPTION FROM SUCH REGISTRATION EXISTS AND THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF SUCH SECURITIES, WHICH COUNSEL AND OPINION ARE SATISFACTORY TO THE COMPANY, THAT SUCH SECURITIES MAY BE OFFERED, SOLD, PLEDGED, ASSIGNED OR TRANSFERRED IN THE MANNER CONTEMPLATED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS. HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS IN COMPLIANCE WITH THE SECURITIES ACT.
8.4 Reservation of Stock. The Corporation shall at all times when any Shares of Series A Preferred Stock is outstanding reserve and keep available out of its authorized but unissued shares of capital stock, solely for the purpose of issuance upon the conversion of the Series A Preferred Stock, such number of shares of Common Stock issuable upon the conversion of all outstanding Series A Preferred Stock pursuant to this Section 8, taking into account any adjustment to such number of shares so issuable in accordance with Section 8.7 hereof. The Corporation shall take all such actions as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). The Corporation shall not close its books against the transfer of any of its capital stock in any manner which would prevent the timely conversion of the Shares of Series A Preferred Stock.
8.5 No Charge or Payment; No Fractional Shares of Common Stock. The issuance of certificates for shares of Common Stock upon conversion of Shares of Series A Preferred Stock pursuant to Section 8.1 shall be made without payment of additional consideration by, or other charge, cost, or tax to, the holder in respect thereof. No fractional interest in a share of Common Stock shall be issued on redemption of any Shares of Series A Preferred Stock in accordance with Section 7 or conversion of any Shares of Series A Preferred Stock in accordance with Section 8. In lieu of delivering fractional shares, the Corporation shall pay in cash an amount equal to the product of (i) such fractional share that would otherwise be issuable multiplied by (ii) the Fair Market Value of a share of Common Stock.
8.6 Termination of Conversion Rights. In the event of a Series A Redemption Notice relating to a redemption of any Shares of Series A Preferred Stock pursuant to Section 7, the conversion rights described herein of the Shares designated for redemption shall terminate at the close of business on the applicable Series A Conversion Election Date, unless the Series A Redemption Price is not fully paid on such redemption date, in which case the conversion rights for such Shares shall continue until such price is paid in full.
8.7 Adjustments to Conversion Price.
(a) Adjustment to Conversion Price upon Dividend, Subdivision, or Combination of Common Stock. If the Corporation shall, at any time or from time to time after the Date of Issuance, (i) pay a dividend or make any other distribution upon the Common Stock or any other capital stock of the Corporation payable in shares of Common Stock or in Options or Convertible Securities, or (ii) subdivide (by any stock split, recapitalization, or otherwise) its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to any such dividend, distribution, or subdivision shall be proportionately reduced. If the Corporation at any time combines (by combination, reverse stock split, or otherwise) its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased. Any adjustment under this Section 8.7(a) shall become effective at the close of business on the date the dividend, subdivision, or combination becomes effective.
(b) Adjustment to Conversion Price and Conversion Shares upon Reorganization, Reclassification, Consolidation, or Merger. In the event of any (i) capital reorganization of the Corporation, (ii) reclassification of the stock of the Corporation (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), (iii) consolidation or merger of the Corporation with or into another Person, (iv) sale of all or substantially all of the Corporation’s assets to another Person or (v) other similar transaction (other than any such transaction covered by Section 8.7(a)), in each case which entitles the holders of Common Stock to receive (either directly or upon subsequent liquidation) stock, securities, or assets with respect to or in exchange for Common Stock, each Share of Series A Preferred Stock shall, immediately after such reorganization, reclassification, consolidation, merger, sale, or similar transaction, remain outstanding and shall thereafter, in lieu of or in addition to (as the case may be) the number of Conversion Shares then convertible for such Share, be exercisable for the kind and number of shares of stock or other securities or assets of the Corporation or of the successor Person resulting from such transaction to which such Share would have been entitled upon such reorganization, reclassification, consolidation, merger, sale, or similar transaction if the Share had been converted in full immediately prior to the time of such reorganization, reclassification, consolidation, merger, sale, or similar transaction and acquired the applicable number of Conversion Shares then issuable hereunder as a result of such conversion (without taking into account any limitations or restrictions on the convertibility of such Share, if any); and, in such case, appropriate adjustment shall be made with respect to such holder’s rights under this Certificate of Designation to insure that the provisions of this Section 8 hereof shall thereafter be applicable, as nearly as possible, to the Series A Preferred Stock in relation to any shares of stock, securities, or assets thereafter acquirable upon conversion of Series A Preferred Stock (including, in the case of any consolidation, merger, sale, or similar transaction in which the successor or purchasing Person is other than the Corporation, an immediate adjustment in the Conversion Price to the value per share for the Common Stock reflected by the terms of such consolidation, merger, sale, or similar transaction, and a corresponding immediate adjustment to the number of Conversion Shares acquirable upon conversion of the Series A Preferred Stock without regard to any limitations or restrictions on conversion, if the value so reflected is less than the Conversion Price in effect immediately prior to such consolidation, merger, sale, or similar transaction). The provisions of this Section 8.7(b) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales, or similar transactions. The Corporation shall not effect any such reorganization, reclassification, consolidation, merger, sale, or similar transaction unless, prior to the consummation thereof, the successor Person (if other than the Corporation) resulting from such reorganization, reclassification, consolidation, merger, sale, or similar transaction, shall assume, by written instrument substantially similar in form and substance to this Certificate of Designation, the obligation to deliver to the holders of Series A Preferred Stock such shares of stock, securities, or assets which, in accordance with the foregoing provisions, such holders shall be entitled to receive upon conversion of the Series A Preferred Stock. Notwithstanding anything to the contrary contained herein, with respect to any corporate event or other transaction contemplated by the provisions of this Section 8.7(b), each holder of Shares of Series A Preferred Stock shall have the right to elect prior to the consummation of such event or transaction, to give effect to the provisions of Section 7.1 or Section 8 hereunder, instead of giving effect to the provisions contained in this Section 8.7(b) with respect to such holder’s Series A Preferred Stock.
(c) Certain Events. If any event of the type contemplated by the provisions of this Section 8.5 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights, or other rights with equity features) occurs, then the Board shall make an appropriate adjustment in the Conversion Price and the number of Conversion Shares issuable upon conversion of Shares of Series A Preferred Stock so as to protect the rights of the holder of such Shares in a manner consistent with the provisions of this Section 8; provided, that no such adjustment pursuant to this Section 8.5 shall increase the Conversion Price or decrease the number of Conversion Shares issuable as otherwise determined pursuant to this Section 8.
(d) Certificate as to Adjustment.
(i) As promptly as reasonably practicable following any adjustment of the Conversion Price, but in any event not later than ten (10) Business Days thereafter, the Corporation shall furnish to each holder of record of Series A Preferred Stock at the address specified for such holder in the books and records of the Corporation (or at such other address as may be provided to the Corporation in writing by such holder) a certificate of an executive officer setting forth in reasonable detail such adjustment and the facts upon which it is based and certifying the calculation thereof.
(ii) As promptly as reasonably practicable following the receipt by the Corporation of a written request by any holder of Series A Preferred Stock, but in any event not later than ten (10) Business Days thereafter, the Corporation shall furnish to such holder a certificate of an executive officer certifying the Conversion Price then in effect and the number of Conversion Shares or the amount, if any, of other shares of stock, securities, or assets then issuable to such holder upon conversion of the Shares of Series A Preferred Stock held by such holder.
(e) Notices. In the event:
(i) that the Corporation shall take a record of the holders of its Common Stock (or other capital stock or securities at the time issuable upon conversion of the Series A Preferred Stock) for the purpose of entitling or enabling them to receive any dividend or other distribution, to vote at a meeting (or by written consent), to receive any right to subscribe for or purchase any shares of capital stock of any class or any other securities, or to receive any other security; or
(ii) of any capital reorganization of the Corporation, any reclassification of the Common Stock of the Corporation, any consolidation or merger of the Corporation with or into another Person, or sale of all or substantially all of the Corporation’s assets to another Person; or
(iii) of the voluntary or involuntary dissolution, liquidation, or winding-up of the Corporation;
then, and in each such case, the Corporation shall send or cause to be sent to each holder of record of Series A Preferred Stock at the address specified for such holder in the books and records of the Corporation (or at such other address as may be provided to the Corporation in writing by such holder) at least five (5) Business Days prior to the applicable record date or the applicable expected effective date, as the case may be, for the event, a written notice specifying, as the case may be, (A) the record date for such dividend, distribution, meeting or consent, or other right or action, and a description of such dividend, distribution, or other right or action to be taken at such meeting or by written consent, or (B) the effective date on which such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding-up is proposed to take place, and the date, if any is to be fixed, as of which the books of the Corporation shall close or a record shall be taken with respect to which the holders of record of Common Stock (or such other capital stock or securities at the time issuable upon conversion of the Series A Preferred Stock) shall be entitled to exchange their shares of Common Stock (or such other capital stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, or winding-up, and the amount per share and character of such exchange applicable to the Series A Preferred Stock and the Conversion Shares.
9. Reissuance of Series A Preferred Stock. Any Shares of Series A Preferred Stock redeemed, converted, or otherwise acquired by the Corporation or any Subsidiary shall be cancelled and retired as authorized and issued shares of capital stock of the Corporation and no such Shares shall thereafter be reissued, sold, or transferred.
10. Notices. Except as otherwise provided herein, all notices, requests, consents, claims, demands, waivers, and other communications hereunder shall be in writing and shall be deemed to have been given: (a) when delivered by hand (with written confirmation of receipt); (b) when received by the addressee if sent by a nationally recognized overnight courier (receipt requested); (c) on the date sent by facsimile or e-mail of a PDF document (with confirmation of transmission) if sent during normal business hours of the recipient, and on the next Business Day if sent after normal business hours of the recipient; or (d) on the third day after the date mailed, by certified or registered mail, return receipt requested, postage prepaid. Such communications must be sent (a) to the Corporation, at its principal executive offices and (b) to any stockholder, at such holder’s address at it appears in the stock records of the Corporation (or at such other address for a stockholder as shall be specified in a notice given in accordance with this Section 10).
11. Amendment and Waiver. No provision of this Certificate of Designation may be amended, modified, or waived except by an instrument in writing executed by the Corporation and a Supermajority Interest, and any such written amendment, modification, or waiver will be binding upon the Corporation and each holder of Series A Preferred Stock; provided, that no such action shall change or waive (a) the definition of Liquidation Value or Conversion Price, or (b) this Section 11, without the prior written consent of each holder of outstanding Shares of Series A Preferred Stock.”
Exhibit 99.1
FINANCIAL STATEMENTS
Impact BioMedical Inc and Subsidiaries
June 30, 2020 (Unaudited)
Table of Contents
| 1 |
Impact BioMedical Inc and Subsidiaries
Consolidated Balance Sheets
Impact Biomedical Inc. and Subsidiaries
Consolidated Balance Sheet
| June 30, 2020 | December 31, 2019 | |||||||
| (Unaudited) | ||||||||
| Asset | ||||||||
| Cash | $ | 75,608 | $ | 108,731 | ||||
| Prepaid Expense | 23,319 | 30,700 | ||||||
| Total Assets | $ | 98,927 | $ | 139,431 | ||||
| Liabilities | ||||||||
| Accounts Payable | $ | 7,902 | $ | 7,021 | ||||
| Total Liabilities | $ | 7,902 | $ | 7,021 | ||||
| Commitments and Contingencies (Note 6) | ||||||||
| Stockholders’ Equity | ||||||||
| Common Stock, $0.001 Par Value, 400,000,000 shares authorized, 125,073,621 and 9,000 Issued and Outstanding as of June 30, 2020 and December 31, 2019, respectively presented retroactively after 9:1 Stock Split on August 21, 2020 | $ | 125,074 | $ | 9 | ||||
| Additional Paid In Capital | 1,818,427 | 1,732,582 | ||||||
| Accumulated Deficit | (1,888,852 | ) | (1,646,208 | ) | ||||
| Total Stockholders’ Equity | 54,649 | 86,383 | ||||||
| Non-Controlling Interests | 36,376 | 46,027 | ||||||
| Total Stockholders’ Equity | $ | 91,025 | $ | 132,410 | ||||
| Total Liabilities & Shareholder’s Equity | $ | 98,927 | $ | 139,431 | ||||
| 2 |
Impact BioMedical Inc and Subsidiaries
Consolidated Statements of Operations
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Operating Expense | ||||||||||||||||
| Research & Development | $ | 147,064 | $ | 75,091 | $ | 219,031 | $ | 181,214 | ||||||||
| Professional Services | 83,532 | 44,376 | 134,857 | 49,021 | ||||||||||||
| Other General Expense | 4,941 | 11,509 | 7,119 | 13,484 | ||||||||||||
| Total Operating Expense | 235,537 | 130,976 | 361,007 | 243,719 | ||||||||||||
Other Expense | ||||||||||||||||
| Financial Services | 271 | 60 | 378 | 136 | ||||||||||||
| Loss from Security Investment by Equity Method | - | 9,604 | - | 12,810 | ||||||||||||
| Total Other Expense | 271 | 9,664 | 378 | 12,946 | ||||||||||||
| Net Loss | $ | (235,808 | ) | $ | (140,640 | ) | $ | (361,385 | ) | $ | (256,665 | ) | ||||
| Net Loss Attributable to Non-Controlling Interests | (76,921 | ) | (60,848 | ) | (118,741 | ) | (93,333 | ) | ||||||||
| Net Loss Attributable to Common Stockholders | $ | (158,887 | ) | $ | (79,792 | ) | $ | (242,644 | ) | $ | (163,332 | ) | ||||
| Net Loss Per Share - Basic and Diluted | $ | (0.00 | ) | $ | (8.87 | ) | $ | (0.00 | ) | $ | (18.15 | ) | ||||
| Weighted Average Common Shares Outstanding - Basic and Diluted | 125,073,621 | 9,000 | 63,236,114 | 9,000 | ||||||||||||
| 3 |
Impact BioMedical Inc and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Deficit)
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the Six Months Ended on June 30, 2020
(Unaudited)
| Common Stock | ||||||||||||||||||||||||
| Shares | Par Value $0.001 | Additional Paid in Capital | Accumulated Deficit | Non-controlling Interests | Total Stockholders Equity | |||||||||||||||||||
| Balance at January 1, 2020 | 9,000 | $ | 9 | $ | 1,732,582 | $ | (1,646,208 | ) | $ | 46,027 | $ | 132,410 | ||||||||||||
| Proceeds from the Shareholder | 210,910 | 109,090 | 320,000 | |||||||||||||||||||||
| Issuance of Common Stock | 125,064,621 | 125,065 | (125,065 | ) | - | |||||||||||||||||||
| Net loss | (242,644 | ) | (118,741 | ) | (361,385 | ) | ||||||||||||||||||
| Balance at June 30, 2020 | 125,073,621 | $ | 125,074 | $ | 1,818,427 | $ | (1,888,852 | ) | $ | 36,376 | $ | 91,025 | ||||||||||||
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the Six Months Ended on June 30, 2019
(Unaudited)
| Common Stock | |||||||||||||||||||||||
| Shares | Par Value $0.001 | Additional Paid in Capital | Accumulated Deficit | Non-controlling Interests | Total Stockholders Equity | ||||||||||||||||||
| Balance at January 1, 2019 | 9,000 | $ | 9 | $ | 1,183,127 | $ | (1,191,772 | ) | $ | (4,934 | ) | $ | (13,570 | ) | |||||||||
| Proceeds from the Shareholder | 190,909 | 109,091 | 300,000 | ||||||||||||||||||||
| Net loss | (163,331 | ) | (93,333 | ) | (256,664 | ) | |||||||||||||||||
| Balance at June 30, 2019 | 9,000 | $ | 9 | $ | 1,374,036 | $ | (1,355,103 | ) | $ | 10,824 | $ | 29,766 | |||||||||||
| 4 |
Impact BioMedical Inc and Subsidiaries
Consolidated Statements of Cash Flows
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Month Ended June 30, 2020 and 2019 (Unaudited)
| 2020 | 2019 | |||||||
| Cash Flows From Operating Activities | ||||||||
| Net Loss | $ | (361,385 | ) | $ | (256,665 | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||||||||
| Loss from Investment on Security by Equity Method | - | 12,810 | ||||||
| Changes in Operating Assets and Liabilities | ||||||||
| Prepaid Expense | 7,381 | (558 | ) | |||||
| Accounts Payable | 881 | (44,253 | ) | |||||
| Net Cash Used in Operating Activities | (353,123 | ) | (288,666 | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Investment in Joint Venture | - | (36,000 | ) | |||||
| Net Cash Used in Investing Activities | - | (36,000 | ) | |||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from Shareholders | 320,000 | 300,000 | ||||||
| Net Cash Provided by Financing Activities | 320,000 | 300,000 | ||||||
| Net Decrease in Cash | (33,123 | ) | (24,666 | ) | ||||
| Cash - Beginning of Year | 108,731 | 35,375 | ||||||
| Cash - End of Period | $ | 75,608 | $ | 10,709 | ||||
| 5 |
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1. Nature of Operations and Basis of Presentation
Nature of Operations
Impact BioMedical Inc (the “Company”) was incorporated in the State of Nevada as a for-profit company on October 16, 2018 and established a fiscal year end of December 31st. The Company issued 9,000 shares to Global BioMedical Pte. Ltd., which was wholly–owned by Singapore eDevelopment Limited (“SeD Ltd”), a multinational public company, listed on the Singapore Exchange Securities Trading Limited (“SGXST”). On March 31, 2020 the Company issued 125,064,621 shares of common stock to its sole shareholder Global BioMedical Pte. Ltd. On July 24, 2020, the Board approved the Stock Split, pursuant to which each share of the Company’s common stock issued and outstanding was split into nine shares of the Company’s common stock.
On March 12, 2020 Singapore eDevelopment Ltd., Global BioMedical Pte Ltd., Document Security Systems, Inc (“DSS”) and DSS BioHealth Security Inc. (“DSS BioHealth”) signed Term Sheets and subsequently on April 21, 2020, these four companies entered into Share Exchange Agreement, based on which Global BioMedical Pte Ltd. agreed to sell all of the issued and outstanding shares of the Company to DSS BioHealth in exchange for the combination of common and preferred shares of DSS. Our Company’s Chairman, who is also the largest shareholder of Singapore eDevelopment Ltd., is the beneficial owner of approximately 18.3% of the outstanding shares of DSS and is the Chairman of the Board of Directors of DSS. On August 21, 2020, the transaction was closed and the Company became a direct wholly owned subsidiary of DSS BioHealth.
The Company is committed to both funding research and developing intellectual property portfolio. Global BioLife, Inc. (“Global BioLife”), one of the Company’s subsidiaries and the main operating company of the group, focuses on research in three main areas: (i) development of a universal therapeutic drug platform; (ii) a new sugar substitute; and (iii) a multi-use fragrance. Global BioLife established a joint venture, Sweet Sense, Inc. (“Sweet Sense”), with Quality Ingredients, LLC for the development, manufacture, and global distribution of the new sugar substitute and owns 50% of Sweet Sense. On November 8, 2019, the Company purchased 50% of Sweet Sense, Inc. from Quality Ingredients, LLC for $91,000. Sweet Sense is now an 81.8% owned subsidiary of the Company.
Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, considered necessary for a fair presentation of such interim results.
The results for the consolidated statement of operations are not necessarily indicative of results to be expected for the year ending December 31, 2020 or for any future interim period. The consolidated balance sheet at June 30, 2020 has been derived from unaudited financial statements; however, it does not include all of the information and notes required by U.S. GAAP for complete financial statements. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2019, and notes thereto included in the Company’s audited report.
There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the Company’s audited report.
The Common Control Transactions resulted in the basis of accounting for the financial reporting period in 2019. The consolidated financial statements were retrospectively adjusted for the operating results of Global Biolife as of January 1, 2019 for comparative purposes as the entities were under common control. ASC 805-50-45 defines the transfer of a business among entities under common control at carrying amount with retrospective adjustment of prior period financial statements when reporting entity is changed. ASC 250 defines a change in the reporting entity as a change that results in financial statements that, in effect, are those of a different reporting entity. The Management believed that the acquisitions of Global BioMedical, Inc. and Global Biolife led to change in the reporting entity.
| 6 |
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include all accounts of the Company and its majority owned and controlled subsidiaries. The Company consolidates entities in which it owns more than 50% of the voting common stock and controls operations. All intercompany transactions and balances among consolidated subsidiaries have been eliminated.
The consolidated financial statements include all accounts of the entities as of the reporting period ending dates and for the reporting periods as follows:
| Name of consolidated subsidiary | State or other jurisdiction of incorporation or organization | Date of incorporation or formation | Attributable interest as of June 30, 2020 | Attributable interest as of December 31, 2019 | ||||||||
| Global BioMedical, Inc. | Nevada | April, 18, 2017 | 90.9 | % | 90.9 | % | ||||||
| Global BioLife, Inc. | Nevada | April 14, 2017 | 63.6 | % | 63.6 | % | ||||||
| Biolife Sugar, Inc | Nevada | April 23, 2018 | 63.6 | % | 63.6 | % | ||||||
| Happy Sugar Inc | Nevada | August 17, 2018 | 63.6 | % | 63.6 | % | ||||||
| Sweet Sense Inc. | Nevada | April 30, 2018 | 81.8 | % | 81.8 | % | ||||||
| SeD BioLife International, Inc. | Nevada | March 29, 2017 | 100 | % | 100 | % | ||||||
| SeD BioMedical International Inc. | Nevada | March 13, 2017 | 100 | % | 100 | % | ||||||
| Global Sugar Solutions Inc. | Nevada | November 7, 2019 | 80 | % | 80 | % | ||||||
All intercompany balances and transactions have been eliminated. Non–controlling interest represents the minority equity investment in the Company’s subsidiaries, plus the minority investors’ share of the net operating results and other components of equity relating to the non–controlling interest.
As of June 30, 2020 and December 31, 2019, the aggregate noncontrolling interest was $36,378 and $46,027, respectively, which are separately disclosed on the Consolidated Balance Sheets.
On the date of incorporation, Global BioLife issued 800 shares to Global BioMedical. Inc., 100 shares to GRDG Sciences, LLC (“GRDG”) and 100 to Holista Colltech Limited. Based on the Global BioLife’s Stockholders Agreement signed on April 26, 2017, Global BioMedical Inc agreed to transfer 10% of its ownership in Global BioLife to GRDG Sciences, LLC upon successful completion of certain goals. GRDG Sciences, LLC fulfilled required goals and 100 shares was transferred on September 12, 2017.
On November 7, 2018, the Company entered into two Capital Contribution Agreements. First Capital Contribution Agreement (“GBMI Agreement”), was entered between the Company, Global BioMedical Pte. Ltd. (“Global BioMedical”), a Singapore limited company, and Global BioMedical. Inc. (“GBMI”), a Nevada corporation. Prior to this agreement Global BioMedical owned 90.91% of the issued and outstanding capital equity in GBMI and 100% of issued and outstanding shares of the Company. Based on GBMI Agreement, Global BioMedical contributed all of its ownership in GBMI to the Company. Another Capital Contribution Agreement (“SeD BioLife Agreement”) was entered between the Company, Global BioMedical and SeD BioLife International, Inc. (“SeD BioLife”), a Nevada Corporation. Prior to this agreement Global BioMedical owned 100% of the issued and outstanding capital equity in SeD BioLife. Based on the SeD BioLife Agreement, Global BioMedical contributed all its ownership in SeD BioLife to the Company.
| 7 |
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
On March 12, 2020 Singapore eDevelopment Ltd., Global BioMedical Pte Ltd., Document Security Systems, Inc (“DSS”) and DSS BioHealth Security Inc. (“DSS BioHealth”) signed Term Sheets and subsequently on April 21, 2020, these four companies entered into Share Exchange Agreement, based on which Global BioMedical Pte Ltd. agreed to sell all of the issued and outstanding shares of the Company to DSS BioHealth in exchange for the combination of common and preferred shares of DSS. The closing of this transaction was contingent upon DSS shareholders’ approval and all parties meeting the conditions of the Share Exchange Agreement. Our Company’s Chairman, who is also the largest shareholder of Singapore eDevelopment Ltd., is the beneficial owner of approximately 18.3% of the outstanding shares of DSS and is the Chairman of the Board of Directors of DSS. On August 21, 2020, the transaction was closed and the Company became a direct wholly owned subsidiary of DSS BioHealth.
Note 2. Summary of Significant Accounting and Reporting Policy
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the balance sheets and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.
Earnings (Loss) per Share
Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders by weighted average number of shares of common stock outstanding during the period. Fully diluted earnings (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive financial instruments issued or outstanding for the periods ended June 30, 2020 or December 31, 2019.
On July 24, 2020, the Board approved the Stock Split, pursuant to which each share of the Company’s common stock issued and outstanding was split into nine shares of the Company’s common stock. The weighted average numbers of outstanding common stocks in the reporting periods were retrospectively adjusted for the stock split as 63,236,114 and 9,000 during the six months ended June 30, 2020 and 2019, respectively.
Fair Value of Financial Instruments
For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents. There were no cash equivalents as of June 30, 2020 and December 31, 2019.
Investment in Securities Under Equity Method Accounting
BioLife Sugar, Inc. (“BioLife”), a subsidiary consolidated under the Company, entered into a joint venture agreement on April 25, 2018 with Quality Ingredients, LLC (“QI”). The agreement created Sweet Sense which is 50% owned by BioLife and 50% owned by QI. Management believes its 50% investment represents significant influence over Sweet Sense and accounts for the investment under the equity method of accounting. As of December 31, 2018, BioLife contributed $55,000 to the joint venture and recorded its proportionate share losses totaling $49,687 recorded as loss on investment in security by equity method in the Consolidated Statements of Operations. As of November 08, 2019, the total investment in joint venture was equal to $91,000 and the proportionate losses totaled $90,001.
| 8 |
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
On November 8, 2019, the Company purchased 50% of Sweet Sense from QI for $91,000. Consequently, Sweet Sense is now an 81.8% owned subsidiary of the Company, and therefore, is now consolidated into the consolidated financial statements.
Research and Development
Research and development costs are expensed as incurred. Total research and development costs were $219,031 and
$181,214 for the six months ended June 30, 2020 and 2019, respectively.
Income taxes
Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carry-forwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records an estimated valuation allowance on its deferred income tax assets if it is more likely than not that these deferred income tax assets will not be realized.
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company has not recorded any unrecognized tax benefits. The Company’s policy is to recognize interest and penalties related to income taxes in income tax expense.
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before the financial statements are available to be issued.
The Company’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements are available to be issued.
Recent Accounting Standards
Financial Instruments
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) FASB ASU 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities – The changes to the current U.S. GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments.
Non-Controlling Interests
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). ASU 2017-11 is intended to simplify the accounting for financial instruments with characteristics of liabilities and equity. Among the issues addressed are: (i) determining whether an instrument (or embedded feature) is indexed to an entity’s own stock; (ii) distinguishing liabilities from equity for mandatorily redeemable financial instruments of certain nonpublic entities; and (iii) identifying mandatorily redeemable noncontrolling interests. The Company adopted ASU 2017-11 on January 1, 2019 and determined that this ASU did not have a material impact on the consolidated financial statements.
| 9 |
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
CARES Act
In response to the COVID-19 pandemic, the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) was signed into law in March 2020. The CARES Act lifts certain deduction limitations originally imposed by the Tax Cuts and Jobs Act of 2017 (“2017 Tax Act”). Corporate taxpayers may carryback net operating losses (NOLs) originating between 2018 and 2020 for up to five years, which was not previously allowed under the 2017 Tax Act. The CARES Act also eliminates the 80% of taxable income limitations by allowing corporate entities to fully utilize NOL carryforwards to offset taxable income in 2018, 2019 or 2020. Taxpayers may generally deduct interest up to the sum of 50% of adjusted taxable income plus business interest income (30% limit under the 2017 Tax Act) for 2019 and 2020. The CARES Act allows taxpayers with alternative minimum tax credits to claim a refund in 2020 for the entire amount of the credits instead of recovering the credits through refunds over a period of years, as originally enacted by the 2017 Tax Act.
In addition, the CARES Act raises the corporate charitable deduction limit to 25% of taxable income and makes qualified improvement property generally eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act did not result in any adjustments to our consolidated financial statements for the six months ended June 30, 2020.
Note 3. Prepaid Expenses
Prepaid expenses for the six months ended June 30, 2020 and year ended December 31, 2019 include mostly research and development fees paid to GRDG, a related party, in the amounts of $23,319 and $30,700, respectively.
Note 4. Stockholders’ Equity
On October 16, 2018, 1,000 shares of common stock were issued to Global BioMedical Pte. Ltd.
On November 21, 2018 the Company increased its authorized shares from 10,000 to 100,000,000 common shares with a par value of $0.001 per share. No preferred shares have been authorized or issued.
On March 31, 2020 the Company issued 13,896,069 shares of common stock to its sole shareholder Global BioMedical Pte. Ltd.
On July 24, 2020, the Board approved the Stock Split, pursuant to which each share of the Company’s common stock issued and outstanding was split into nine shares of the Company’s common stock. The numbers of authorized common stock and issued and outstanding common stock in the reporting periods were retrospectively adjusted for the stock split. As of June 30, 2020 and December 31, 2019, the numbers of issued and outstanding common stock were 125,073,621 and 9,000, respectively.
| 10 |
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 5. Related Party Transactions
Research and Development Activities
Based on Shareholders Agreement entered into on April 26, 2017, the Company should fund the scientific operations of GRDG, a company involved in research and development of biomedical products and owned by Daryl Thompson, a director of many subsidiaries of the Company, to do the development and research works on the biomedical products for the Company. Initial monthly payments were agreed to be $20,994 plus any additional amounts that would be necessary and agreed by the Board of Directors. The monthly payments were adjusted for the increase in rent of GRDG office and general inflation. Current monthly payments equal to $23,319. The Company incurred expenses of
$151,739 and $140,304 for the six months ended June 30, 2020 and 2019, respectively. On June 30, 2020 and December 31, 2019 the Company owed this related party $0 and had prepaid monthly fees of $23,319 and $30,700, respectively.
Administrative and Accounting Services
SeD Development Management, LLC, an indirect subsidiary of SeD Ltd, provided administrative and accounting services to the Company and its subsidiaries. The Company incurred expenses of $0 and $3,000 for the six months ended June 30, 2020 and 2019, respectively. On June 30, 2020 and December 31, 2019, the Company owed this related party $0. As of January 1, 2020, both parties agreed to stop paying the service fee.
Note 6. Commitments and Contingencies
Leases
At June 30, 2020, Impact BioMedical, Inc. had not entered into any leases, as the Company had no employees.
Royalty Agreement
On August 15, 2018, the Company entered into Royalty Agreement with Chemia Corporation (“Chemia”) pursuant to which Chemia transferred to the Company all of its right to 3F (Functional Fragrance Formulation). 3F consists of 3F Mosquito Repellant and 3F Anti-Viral formulations. Based on the Royalty Agreement, the Company should cover all the costs to prepare and finalize necessary patent application and other intellectual property related to 3F. Chemia agreed to support the Company in efforts leading to development of 3F intellectual property and it’s licensing. Based on Royalty Agreement any payments received from development, sales, licensing or transfer of 3F technology will be paid 50% to the Company and 50% to Chemia. On November 27, 2018, the Company and Chemia signed an Addendum to Royalty Agreement (“Addendum”), according to which the Company granted Chemia a royalty-based limited license for purposes of making and selling fragrances embodying the 3F technology. Based on the Addendum, Chemia should pay the Company 5% of net sales in royalty. On November 8, 2019, both companies entered into Amendment no.1 to Royalty Agreement, based on which certain expenses bore by the Company towards patent application and licensing should be reimbursed to the Company before any royalty payments are made. As on June 30, 2020 and December 31, 2019 there were no reimbursements or royalties paid to the Company and the Company cannot be assured that Chemia’s efforts will end up in any future sales of the technology.
Note 7. Subsequent Events
On July 24, 2020 the Board of Directors of the Company approved the Amendment to the Articles of Incorporation to increase the number of the Company’s authorized shares of common stock from 100,000,000 to 400,000,000 shares. At the same time, the Board approved the Stock Split, pursuant to which each share of the Company’s common stock issued and outstanding was split into nine shares of the Company’s common stock. The numbers of authorized common stock and issued and outstanding common stock in the reporting periods were retrospectively adjusted for the stock split. After this Stock Split, the Company has 125,073,621 common shares issued and outstanding.
| 11 |
Exhibit 99.2
DOCUMENT SECURITY SYSTEMS. INC.
Unaudited Pro Forma Condensed Consolidated Balance Sheet
June 30, 2020
Balance Sheet
Ended June 30, 2020
| Pre-Acquisition DSS (Purchaser) | Record Purchase | Post-acquisition DSS (Purchaser) | ImpactBio (Target) | Proforma Adjustment (Note 1) | Proforma Adjustment (Note 2) | Consolidated Financials | ||||||||||||||||||||||
| ASSETS | ||||||||||||||||||||||||||||
| Current Assets: | ||||||||||||||||||||||||||||
| Cash | $ | 7,176,000 | $ | 7,176,000 | $ | 76,000 | $ | 7,252,000 | ||||||||||||||||||||
| Accounts Receivable | 2,445,000 | 2,445,000 | - | 2,445,000 | ||||||||||||||||||||||||
| Inventory | 1,774,000 | 1,774,000 | - | 1,774,000 | ||||||||||||||||||||||||
| Current assets held for sale - discontinued operations | 236,000 | 236,000 | - | 236,000 | ||||||||||||||||||||||||
| Prepaid Expense and other current assets | 510,000 | 510,000 | 23,000 | 533,000 | ||||||||||||||||||||||||
| Total Current Assets | 12,141,000 | - | 12,141,000 | 99,000 | - | - | 12,240,000 | |||||||||||||||||||||
| Property plant and equipment, net | 4,257,000 | 4,257,000 | - | 4,257,000 | ||||||||||||||||||||||||
| Investment | 3,445,000 | 3,445,000 | - | 3,445,000 | ||||||||||||||||||||||||
| Marketable Securities | 1,976,000 | 1,976,000 | - | 1,976,000 | ||||||||||||||||||||||||
| Investment in Target | - | 38,319,000 | 38,319,000 | - | (90,000 | ) | (38,229,000 | ) | - | |||||||||||||||||||
| Notes Receivable | 522,000 | 522,000 | - | 522,000 | ||||||||||||||||||||||||
| Non-current assets held for sale - discontinued operations | 1,608,000 | 1,608,000 | ||||||||||||||||||||||||||
| Other assets | 311,000 | 311,000 | - | 311,000 | ||||||||||||||||||||||||
| Right-of -use assets | 37,000 | 37,000 | - | 37,000 | ||||||||||||||||||||||||
| Goodwill | 1,769,000 | 1,769,000 | - | 1,769,000 | ||||||||||||||||||||||||
| Other intangible assets, net | 1,347,000 | 1,347,000 | - | 38,319,000 | 39,666,000 | |||||||||||||||||||||||
| Total Assets | $ | 27,413,000 | $ | 38,319,000 | $ | 65,732,000 | $ | 99,000 | $ | (90,000 | ) | $ | 90,000 | $ | 65,831,000 | |||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||||||||||
| Accounts Payable | $ | 690,000 | $ | 690,000 | $ | 9,000 | $ | 699,000 | ||||||||||||||||||||
| Accrued expenses and deferred revenue | 883,000 | 883,000 | 883,000 | |||||||||||||||||||||||||
| Other current liabilities | 522,000 | 522,000 | 522,000 | |||||||||||||||||||||||||
| Current liabilities held for sale - discontinued operations | 274,000 | 274,000 | 274,000 | |||||||||||||||||||||||||
| Revolving line of credit | - | - | - | |||||||||||||||||||||||||
| Current portion of lease liabilities | 35,000 | 35,000 | 35,000 | |||||||||||||||||||||||||
| Current portion of long-term debt, net | 426,000 | 426,000 | 426,000 | |||||||||||||||||||||||||
| Total Current Liabilities | $ | 2,830,000 | $ | - | $ | 2,830,000 | $ | 9,000 | $ | - | $ | - | $ | 2,839,000 | ||||||||||||||
| Long-term debt, net | 3,388,000 | 3,388,000 | 3,388,000 | |||||||||||||||||||||||||
| Long term lease liability | 3,000 | 3,000 | 3,000 | |||||||||||||||||||||||||
| Non-current liabilities held for sale - discontinued operations | 677,000 | |||||||||||||||||||||||||||
| Other long-term liabilities | 507,000 | 507,000 | 507,000 | |||||||||||||||||||||||||
| Deferred tax liability, net | 44,000 | 44,000 | 44,000 | |||||||||||||||||||||||||
| Total Liabilities | $ | 7,449,000 | $ | - | $ | 7,449,000 | $ | 9,000 | $ | - | $ | - | $ | 7,458,000 | ||||||||||||||
| - | ||||||||||||||||||||||||||||
| Stockholders’ Equity | - | |||||||||||||||||||||||||||
| Common Stock | $ | 60,000 | $ | - | $ | 60,000 | $ | 125,000 | $ | (125,000 | ) | $ | 60,000 | |||||||||||||||
| Convertible Preferred Stock | - | 1,000 | 1,000 | - | 1,000 | |||||||||||||||||||||||
| Additional Paid in Capital | 126,058,000 | 38,318,000 | 164,376,000 | 1,818,000 | (1,818,000 | ) | 164,376,000 | |||||||||||||||||||||
| Accumulated Deficit | (105,973,000 | ) | (105,973,000 | ) | (1,889,000 | ) | 1,889,000 | (105,973,000 | ) | |||||||||||||||||||
| Total Stockholders’ Equity (Deficit) | 20,145,000 | 38,319,000 | 58,464,000 | 54,000 | (54,000 | ) | - | 58,464,000 | ||||||||||||||||||||
| Non-Controlling Interests | (181,000 | ) | (181,000 | ) | 36,000 | (36,000 | ) | 90,000 | (91,000 | ) | ||||||||||||||||||
| Total Stockholders’ Equity (Deficit) | $ | 19,964,000 | $ | 38,319,000 | $ | 58,283,000 | $ | 90,000 | $ | (90,000 | ) | $ | 90,000 | $ | 58,373,000 | |||||||||||||
| Total Liabilities & Stockholders’ Equity | $ | 27,413,000 | $ | 38,319,000 | $ | 65,732,000 | $ | 99,000 | $ | (90,000 | ) | $ | 90,000 | $ | 65,831,000 | |||||||||||||
Consolidated Statement of Operations
For the six months Ended June 30, 2020
| DSS (Purchaser) | Impact BioMedical (Target) | Proforma Adjustment (Note 1) | Proforma Adjustment (Note 2) | Consolidated Proforma | ||||||||||||||||
| Revenue: | ||||||||||||||||||||
| Printed products | $ | 5,434,000 | $ | - | $ | - | $ | - | $ | 5,434,000 | ||||||||||
| Technology sales, services and licensing | 836,000 | - | - | - | 836,000 | |||||||||||||||
| Direct selling | 1,078,000 | - | - | - | 1,078,000 | |||||||||||||||
| Total revenue | $ | 7,348,000 | $ | - | $ | - | $ | - | $ | 7,348,000 | ||||||||||
| Costs and expense | ||||||||||||||||||||
| Costs of revenue, exclusive of deprecation and amortization | $ | 4,439,000 | $ | - | $ | - | $ | - | $ | 4,439,000 | ||||||||||
| Selling, general and administrative (including stock based compensation) | 4,487,000 | 361,000 | - | - | 4,848,000 | |||||||||||||||
| Deprecation and amortization | 578,000 | - | - | - | 578,000 | |||||||||||||||
| Impairment of Goodwill | - | - | - | - | - | |||||||||||||||
| Total Operating Expense | 9,504,000 | 361,000 | - | - | 9,865,000 | |||||||||||||||
| Operating Loss | (2,156,000 | ) | (361,000 | ) | - | - | (2,517,000 | ) | ||||||||||||
| Other Income (expense) | ||||||||||||||||||||
| Interest Income | 51,000 | - | - | - | 51,000 | |||||||||||||||
| Interest Expense | (73,000 | ) | - | - | - | (73,000 | ) | |||||||||||||
| Unrealized gain on Marketable Securities | 584,000 | - | - | - | 584,000 | |||||||||||||||
| Amortization of deferred financing costs a debt discount | (1,000 | ) | - | - | - | (1,000 | ) | |||||||||||||
| Total Other Expense | 561,000 | - | - | - | 561,000 | |||||||||||||||
| Income (loss) before income tax | (1,595,000 | ) | (361,000 | ) | - | - | (1,956,000 | ) | ||||||||||||
| Income tax benefit | - | - | - | - | - | |||||||||||||||
| Loss from continuing operations | $ | (1,595,000 | ) | $ | (361,000 | ) | $ | - | $ | - | $ | (1,956,000 | ) | |||||||
| Loss from discontinued operations | (1,278,000 | ) | - | - | - | (1,278,000 | ) | |||||||||||||
| Net loss | (2,873,000 | ) | (361,000 | ) | - | - | (3,234,000 | ) | ||||||||||||
| Add: loss attributed to noncontrolling interest | 181,000 | 119,000 | - | - | 300,000 | |||||||||||||||
| Net Loss from continuing operations attributable to common stockholders | $ | (1,414,000 | ) | $ | (242,000 | ) | $ | - | $ | - | $ | (1,656,000 | ) | |||||||
| Other comprehensive income (loss) | ||||||||||||||||||||
| Interest rate swap loss | - | - | - | - | - | |||||||||||||||
| Settlement of Interest rate swap | - | - | - | - | - | |||||||||||||||
| Comprehensive income (loss) | $ | (2,873,000 | ) | $ | (361,000 | ) | $ | - | $ | - | $ | (3,234,000 | ) | |||||||
| Note 1: | Elimination of ImpactBio equity | Investment in subsidiary | 90,000 | ||
| Accumulated Deficit | 1,889,000 | ||||
| Common Stock | 125,000 | ||||
| Additional Paid in Capital | 1,818,000 | ||||
| Non-Controlling Interests | 36,000 | ||||
| Note 2: | Record assets acquired | Other intangible assets, net | 38,319,000 | ||
| Investment in subsidiary | 38,229,000 | ||||
| Non-Controlling Interests | 90,000 | ||||
| Note 3: | Document Security Systems, Inc. has determined that the accounting treatment of the perpetual convertible preferred shares offered should be treated as permanent equity and will be classified as such on the Company’s balance sheet. It was determined that due to several factors, including a discount for liquidation, the value of the Series A Preferred Stock was discounted from $46,868,000 to $35,187,000, thus reducing the total consideration given to approximately $38,319,000 from the initial purchase price of $50,000,000. | ||||
| Note 4: | Document Security Systems, Inc. is performing a valuation of the assets as well as the non-controlling interest portion of Impact BioMedical, Inc. and its subsidiaries. For purposes of this pro forma, and until the valuation is complete, the purchase price of $38,318,000 is included in Other intangible assets, net and no amortization recorded. | ||||