Dss, Inc 10-K/A for FY2023
Dss, Inc. (DSS)
About this 10-K/A
Dss, Inc filed this 10-K/A on October 22, 2024, covering the fiscal year ended December 31, 2023 (FY2023).
Headline figures
Fiscal year ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $25.93M
- down 8.6% from $28.38M a year earlier
- Net loss
- $60.63M
- compared with a net loss of $59.84M a year earlier
- Diluted EPS
- -$8.20
- compared with -$6.84 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended
or
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to __________
Commission
file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S.Employer Identification No.) |
(Address of principal executive offices)
| (Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. YES ☐ ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act
| Large Accelerated Filer ☐ | Accelerated Filer ☐ |
| Smaller
Reporting Company | |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. Yes ☐ No
Indicate by check mark whether the registrant
is a shell company (as defined by Rule 12b-2 of the Act). Yes ☐ No
If
securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant
included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐
The aggregate market value of the registrant’s
common stock held by non-affiliates of the registrant computed by reference to the price at which the common stock was last sold, as
reported on the NYSE American LLC exchange on June 30, 2023 was $
The number of shares of the registrant’s common stock outstanding as of October 9, 2024, was .
DOCUMENTS INCORPORATED BY REFERENCE
EXPLANATORY NOTE
Restatement Background
On May 4, 2023, the Company distributed approximately 280 million shares of Sharing Service Global Corporation (“SHRG”), beneficially held by the Company, in the form of a dividend to the shareholders of the Company’s common stock. Upon completion of this distribution, the Company retained an ownership interest in SHRG of approximately 7%. Effective May 1, 2023, SHRG was deconsolidated from the consolidated financial statements (the “Deconsolidation”). The consolidated statement of operations does not include SHRG activity after April 30, 2023, and the assets and liabilities of SHRG are no longer included within the Company’s consolidated balance sheet. In the June 30, 2023 10-Q, the Company recorded an approximate $29.9 million loss on deconsolidation. The Company also recorded an decrease in accumulated deficit of $18.7 million to reflect the reversal of balances as of deconsolidation. In preparation of the Form S-3 as well as the September 30, 2024 10-Q filing, this transaction was revisited and it was determined that loss was unintentionally overstated by approximately $23.5 million driven primarily by the increases in accumulated deficit that should have been recorded as an offset to the initial income statement loss. In addition, the Company has determined that Deconsolidation also requires the recognition of discontinued operations. Management and the Audit Committee of the Company has concluded that restatement of its December 31, 2023 financial statements, filed on March 27, 2024, which would include the reclassification of discontinued operations for the year ended December 31, 2023 and 2022, is required.
Effects of Restatement
See Note 2 to the Notes to audited financial statements included in Part II, Item 8 of this Amendment for additional information on the restatement and the related financial statement effects.
Items Amended in this Form 10-K/A
This Form 10-K/A presents the Original Report, amended and restated with modifications as necessary to reflect the restatements. The following items have been amended to reflect the restatement:
Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Part II, Item 8. Financial Statements and Supplementary Data
Part II, Item 9A – Controls and Procedures
In addition, the Company’s Interim Chief Executive Officer and Chief Financial Officer have provided new certifications dated as of the date of this filing in connection with this Form 10-K/A.
DSS, INC. & SUBSIDIARIES
Table of Contents
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PART I
ITEM 1 - BUSINESS
Overview
DSS, Inc. (together with its consolidated subsidiaries (unless the context otherwise requires), referred to herein as “DSS,” “we,” “us,” “our” or the “Company”, currently operates five distinct business lines operate around the globe with primary operations in North America and Asia. The six divisions are:
| 1. | Product Packaging, | |
| 2. | Biotechnology, | |
| 3. | Commercial Lending, | |
| 4. | Securities and Investment Management, and | |
| 5. | Alternative Trading, | |
| 6. | Direct Marketing, |
Each of these business lines are in various stages of development, growth, and income generation. Due to these variations in the business cycle, including differences in revenue and assets acquired, the company is currently reporting financial information for five of these operating segments:
| 1. | Product Packaging, | |
| 2. | Commercial Lending, | |
| 3. | Biotechnology, | |
| 4. | Direct Marketing, and | |
| 5. | Securities and Investment Management |
As the other divisions grow and start generating material operations and revenue, those operating segments will be added to our financial segmental reporting.
Our divisions, their business lines, subsidiaries, and operating territories:
| 1. | Product Packaging: The Company’s consumer packaging and security printing business is led by its wholly owned subsidiary, Premier Packaging Corporation, Inc. (“Premier”), a New York corporation. Premier operates in the paper board and fiber based folding carton, consumer product packaging, and document security printing markets. It markets, manufactures, and sells sophisticated custom folding cartons, mailers, photo sleeves and complex 3-dimensional direct mail solutions. Premier is currently located in its new facility in Rochester, NY, and primarily serves the US market. |
| 2. | Biotechnology: (“Biotech”) Biotechnology, a science-driven industry sector that uses living organisms and molecular biology to produce healthcare-related products, progressed on multiple fronts in 2021. This business line was created to invest in or acquire companies in the BioHealth and BioMedical fields, including businesses focused on the advancement of drug discovery and prevention, inhibition, and treatment of neurological, oncological, and immune related diseases. This division is also targeting unmet, urgent medical needs, and is developing open-air defense initiatives, which curb transmission of air-borne infectious diseases, such as tuberculosis and influenza. We had a productive year including key patent awards, the advancement of key programs, the release of positive study results, and several projects now in global licensing discussions. Assets of this group are organized under the holding company, DSS BioHealth Security, Inc. Its subsidiaries are currently operating in Houston, TX and Rochester, NY. The group also has a research facility in Winter Haven, Florida. |
| 3. | Commercial Lending: American Pacific Bancorp, Inc. (“APB”) represents our banking and financing business line. During 2023, APB issued more than $14 million in new loans, and over $4 million in renewal loan to customers with strong credit quality across a diverse portfolio of businesses. Looking ahead, to better meet the needs of the current financial market, the company is looking to transition away from certain industries like direct marketing and focus more on growing its inventory / equipment loan portfolio as well as engaging in more specialized areas of lending like broker/dealer loans. We will continue to monitor our managed loan portfolio of more than $22 million, which earns 1.25% annually in service charges, and explore future opportunities. Importantly, the equity portfolio as a bank holding company is anticipated to remain relatively stable, regardless of stock market fluctuations. |
| 4. | Securities and Investment Management: In 2023, DSS continued our strategic investments in three broker dealers; WestPark Capital, BMI Capital Investments, and Sentinel Brokers Company, Inc. Additionally, we have become the Registered Investment Advisor (“RIA”) for DSS AmericaFirst Quantitative Funds (DSS AmericaFirst) family. This group of businesses is led by its holding company, DSS Securities, Inc., (“DSS Securities”) and the group is currently headquartered in Houston, Texas, with operations in Chicago, Illinois, Sacramento, California, Los Angeles, California, and New York, NY. Also in this segment is the Company’s real estate investment trusts (“REITs”), organized for the purposes of acquiring hospitals and other acute or post-acute care centers from leading clinical operators with dominant market share in secondary and tertiary markets, and leasing each property to a single operator under a triple-net lease. The REIT was formed to originate, acquire, and lease a credit-centric portfolio of licensed medical real estate. This group is headquartered in Houston, Texas. |
| 5. | Alternative Trading: (“Alt. Trading”) This Division was established to develop and/or acquire assets and investments in the securities trading and/or funds management arena. Alt. Trading, in partnership with recognized global leaders in alternative trading systems, intends to obtain a broker-dealer license and launch an Alternative Trading System (“ATS”). The ATS, focusing on financial market inefficiencies, will utilize a blockchain based financial market infrastructure (‘FMI’) that will trade digital asset securities exempt from registration, or ‘private securities’. The digital FMI will allow for T+0 settlement, which USX believes can be used to attract liquidity. The platform will generate trading liquidity for the ‘middle’ market – companies that are seeking to raise under $150M USD, can pursue private placements, which have lower compliance costs that public offerings. USX Holdings Company, Inc. (“USX”), a subsidiary of the DSS Blockchain, Inc., is a collaboration between the GSX Group, Coinstreet Partners and DSS, Inc. This collaboration is currently in the planning stages. The Alt. Trading division is currently headquartered in Houston, TX. |
| 6. | Digital Transformation (Legacy): This division was established to serve as a Preferred Technology Partner and Application Development Solution for mid-cap brands across various industries, including the direct selling and affiliate marketing sector. Digital Transformation enhanced marketing, communications, and operational processes through tailored software development and implementation. It successfully launched several mobile applications for direct sales businesses, seamlessly integrating back-office and social networking functions. Please note that Digital Transformation was headquartered in Hong Kong until its discontinuation in 2023. |
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| 7. | Secure Living (Legacy): This division had embarked on a mission to create fully sustainable, secure, connected, and health-focused living communities, featuring homes equipped with advanced technology, energy-efficient solutions, and high-quality living environments, catering to both new construction and renovation projects for single and multi-family residential housing. Secure Living had been actively collaborating with various land development partners across the United States to develop complete, fully sustainable single-family subdivisions promoting healthy living. Secure Living was headquartered in Houston, Texas, until it was wound down in 2023. |
| 8. | Alternative Energy (Legacy): This group was established with the vision to lead the company into the clean energy sector, focusing on environmentally responsible and sustainable initiatives. Alset Energy, Inc., the holding company for this group, and its wholly owned subsidiary, Alset Solar, Inc., were dedicated to the development of utility-scale solar farms to support regional power grids in the United States and provide small microgrids for independent energy on underutilized properties. In addition to solar farms, solar battery banks, and residential energy creation and storage, Alset Energy also explored alternative energy investment and development opportunities. Our overarching goal was to make a significant impact in mitigating the negative effects of climate change by reducing air pollution and expanding access to clean energy, thus contributing to global economic well-being. Alset Energy was headquarters in Houston, Texas until its discontinuation in 2023. |
| 9. | Direct Marketing: (“Direct”) Led by the holding corporation, Decentralized Sharing Systems, Inc. (“Decentralized”) provides services to assist companies in the emerging growth “Gig” business model of peer-to-peer decentralized sharing marketplaces. Direct specializes in licensing its products and services through its subsidiary HWH World, Inc. (“HWH World”) using the popular gig economic marketing strategy as a form of direct marketing. Direct’s products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific, Middle East, and Eastern Europe. |
2023 RECAP
The following is a summary of the DSS reported transactions and investments since January 2023 that reflect the active advancements and investments in these business lines:
On April 17, 2023, DSS, Inc.. announced today that Jason Grady, Chief Operating Officer of DSS, will be presenting at the Emerging Growth Virtual Conference on Wednesday, April 19 from 1:45-2:15 PM.
On April 19, 2023, DSS, Inc. announced that the Company plans to distribute to its stockholders common stock of Sharing Services Global Corporation (“Sharing Services” or “SHRG”) that is beneficially held by DSS, directly and through its subsidiary, Decentralized Sharing Systems, Inc. (“DSSI”). Sharing Services is a diversified direct marketing company that is currently listed on the OTC (OTC: SHRG) and is in the process of up-listing to Nasdaq.
On May 1, 2023, DSS, Inc. announced today the distribution date for the common stock of Sharing Services Global Corporation (“Sharing Services” or “SHRG”) that is beneficially held by DSS, directly and through its subsidiary, Decentralized Sharing Systems, Inc. (“DSSI”). As previously announced, DSS Inc., together with its subsidiary DSSI, distributed (the “Distribution”) approximately 280 million shares of Sharing Services’ common stock beneficially held by DSS and DSSI in a distribution to holders of DSS common stock, par value $0.02 per share (“DSS Common Stock”) as of April 28, 2023. Each share of DSS Common Stock outstanding as of 5:00 p.m., New York City time, held on April 28, 2023, will entitle the holder thereof to receive two (2) SHRG common stock shares to be distributed on May 4, 2023.
On May 16, 2023, DSS, Inc reported earnings results for the First Quarter Ended March 31, 2023. Premier Packaging division had a stellar quarter in booking a 72% increase in revenues in the first quarter compared to the First Quarter of 2022 as a result of our capital investments completed over the past year.”
On June 26, 2023, DSS, Inc Announces Record and Distribution Date for Impact BioMedical Spin-Off Special Dividend. DSS, Inc. has filed for the distribution of a special stock dividend to DSS Inc. shareholders of record on June 30th for distribution on July 14, 2023. DSS shareholders of record as of 4:00 p.m. ET on June 30, 2023 (the “record date”) will receive four (4) shares of Impact Biomedical, Inc. for every one (1) share of DSS.
On June 30, 2023, DSS, Inc announced updated shareholder of record date for Spin-Off of Impact BioMedical, Inc. DSS, Inc. filed for the distribution of a special stock dividend of Impact Biomedical Inc. to DSS Inc. shareholders of record on July 10, 2023, pending SEC clearance. DSS shareholders of record as of 5:00 p.m. ET on July 10, 2023 (the “record date”) were entitled to four (4) shares of Impact Biomedical Inc. for every one (1) share of DSS on the distribution date.
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On July 31, 2023, DSS, Inc. announced today the distribution date for the previously announced stock dividend of Impact BioMedical Inc. DSS Inc. shareholders of record on July 10, 2023 will be entitled to four (4) shares of Impact Biomedical Inc. for every one (1) share of DSS to be distributed on August 8, 2023.
On October 23, 2023, DSS, Inc. announced that a registration statement on Form S-1 was filed with the U.S. Securities and Exchange Commission (“SEC”) relating to the proposed initial public offering of DSS’s wholly-owned subsidiary, Impact Biomedical.
On October 26, 2023, DSS, Inc. announced that the Company received a letter (the “Letter”) from the staff of NYSE American LLC (the “Exchange”) stating that the Company’s securities have been selling for a low price per share for a substantial period of time and, pursuant to Section 1003(f)(v) of the NYSE American Company Guide. The Company’s continued listing is predicated on it effecting a reverse stock split of its common stock or otherwise demonstrating sustained price improvement within a reasonable period of time, which the Exchange has determined to be no later than April 20, 2024.
On November 8, 2023, Impact BioMedical Inc. (“Impact”) filed a Current Report on Form 8-K with the Securities and Exchange Commission on November 6, 2023, disclosing that Impact effected a reverse stock split of its issued and outstanding common stock by a ratio of 1 for 55. Impact did not effectuate a reverse split of its authorized capital stock and no amendment to the articles of incorporation or bylaws was made. Impact received approval from its majority stockholder and the Company’s Board of Directors to effectuate the reverse split.
On November 14, 2023, DSS, Inc. announced that, in a unanimous decision, the Court of Appeals for the Federal Circuit (CAFC) rejected Nichia Corp.’s challenge to U.S. Patent No. 6,879,040 (the ‘040 Patent). U.S. Chief Circuit Judge Kimberly Moore, who authored the opinion, and U.S. Circuit Judges Kara Stoll and Tiffany Cunningham sat on the panel for the Federal Circuit.
On November 28, 2023, Premier Packaging, a Wholly-Owned Subsidiary of DSS, Inc., Secures Contract Extension with Major Retailer Worth Up to $15 Million over Four Years. DSS, Inc. announced today that its wholly-owned subsidiary, Premier Packaging signed a contract extension with an existing client for the next three years totaling a minimum of $12 Million with a fourth year extension option bringing the potential total revenue to over $15 Million.
On December 22, 2023, DSS, Inc. announced that it will proceed with a 1-for-20 reverse stock split (the “Reverse Split”) of its issued and outstanding shares of common stock, par value $0.02, following authorization by its Board of Directors and majority shareholders to effect a reverse split by a ratio of not less than 1-for-20 and not more than 1-for-40 (the “Reverse Split Range”), at any time on or before April 20, 2024, with the Board having the discretion as to whether or not the Reverse Split is to be effected, and with the exact ratio to be set at a whole number within the Reverse Split Range as determined by the Chief Executive Officer in his discretion. The reverse split was effective January 8, 2024.
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STRATEGIC BUSINESS PLAN AND 2023 PROGRESSION
Here we highlight three specific developments:
We are preparing for an Initial Public Offering (“IPO”) of our majority owned subsidiary, Impact Biomedical, Inc. (“IBIO”), after distributing four shares of IBIO for every share of DSS held as of the record date of July 10, 2023.
Once the IPO has been completed, these stock dividend shares will not be eligible for resale until 180 days from the effective date of the IPO, a restriction that can be lifted at the discretion of IBIO. The structure of this spinoff is designed for DSS to maintain the consolidation of IBIO’s financials, ensuring our shareholders receive the benefits of IBIO’s success on a go forward basis. Our license agreement with ProPhase Labs (Nasdaq: PRPH) is resulting in promising clinical advancement in the development of our Linebacker and Equivir assets. Impact Biomedical is actively considering various ways to maximize the value of its investments and assets. The company is excited about the opportunities that the IPO will create and is looking forward to introducing its shareholders to subsequent spinoffs or similar liquidity events.
Turning to our product packaging division, Premier Packaging Corporation, Inc., net income increased 126% year over year. Premier Packaging Corporation is experiencing a positive trend in its financial performance, thanks to strategic investments and operational improvements.
Our commitment to reinforcing our leadership dynamics is evident in the recent enhancement of the management team at DSS Wealth Management, Inc. This deliberate move is aimed at fostering a legacy of investment excellence and scaling our assets under management. We are planning to launch a Total Return Bond Fund, to capitalize on the prevailing higher interest rates.
Three-Stage Development for Exponential Growth
For every completed acquisition, and taking into consideration market conditions and other constraints, we adhere to a well-structured three-stage development process with the goal of maximizing value creation and propelling our growth by expanding our capabilities, strength, and scale.
Stage 1: Asset Acquisition and Organizational Development In this initial phase, our focus lies in identifying and acquiring assets, vehicles, asset structures, and assembling the necessary talent and organizations. This strategic step serves as the strong foundation upon which we build future growth.
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Stage 2: Revenue Generation and Operational Excellence Our second stage revolves around driving revenue through diverse channels, including revenue streams, licensing, and other scalable sources. Our primary objective during this phase is the creation of efficient and well-operating businesses that excel in operational performance. The success achieved in this stage in 2022, evidenced by substantial revenue growth, is a testament to our efforts.
Stage 3: Profitability and Positive EBITDA The third and final stage focuses on achieving positive EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and profitability. This is realized through the optimization of business operations, capitalizing on scale and efficiency to generate sustained profits.
Growth Strategies
IPOs as a Growth Strategy: Our company has plans to pursue Initial Public Offerings (IPOs) as a means to share its success with shareholders. We aim to take our businesses public once they reach an optimal point for effective leverage and meet internal goals and expectations.
Decentralized Sharing Model: We firmly believe in our unique decentralized sharing model, combined with the three-stage development process, to create substantial shareholder value. This model involves distributing dividends from potential IPOs directly to benefit shareholders.
In summary, our strategy delineates a methodical approach encompassing asset acquisition, revenue generation, operational efficiency, profitability, and ultimately, taking businesses public through IPOs to reward our shareholders. We place a strong emphasis on our decentralized sharing model, ensuring that the benefits of our success are shared directly with our valued shareholders.
Premier Packaging Secures Contract Extension with Major Retailer
Our Premier Packaging Corporation, Inc. (“Premier”) subsidiary provides a clear example of the second stage of our development process as it began operations at its new 105,000 sq. ft. facility in Western New York in the first half of 2022. The increased production capacity at the new facility, which has enabled us to meet growing customer demand, was a key driver behind our nearly 3% year-over-year revenue growth for this segment in the most recently reported quarter as well as net income increase of 126% year over year.
Since 2019, we have accelerated the transformation of Premier’s operations, investing in state-of-the-art manufacturing equipment, people, and processes to increase its capacity, improve quality and delivery, and to ensure it has the resources to support its growing customer base and their evolving supply chain demands. Utilizing these investments, we design and manufacture folding cartons that attract the consumer’s attention when and where it matters most at the point of sale.
In 2023, Premier Packaging signed a contract extension with an existing client for the next three years with expected revenue to approximate $12 Million with a fourth-year extension.
We are very pleased to see that our capital investment to increase production capacity and economies of scale at Premier Packaging continues to result in satisfied clients and increasing revenues. Since inaugurating Premier’s state-of-the-art 105,000 sq. ft. facility in 2022, our packaging division has expanded its customer base and built a competitive advantage in the packaging industry. We will continue to add capabilities in key areas that increase operational efficiencies to strengthen Premier’s foundation and offerings while continuing to provide world-class service to our customers.
Premier specializes in creating innovative fiber-based, folding cartons and packaging solutions which provide a sustainable alternative to traditional plastic packaging.
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Impact BioMedical Share Distribution and IPO
In the field of Biotechnology and Biomedical, Impact Biomedical Inc. is dedicated to the discovery, validation, and patenting of innovative scientific advancements and technologies that lead to new developments in human healthcare and well-being. Once these breakthroughs are ready for implementation, IBIO collaborates closely with various partners through licensing agreements, co-development initiatives, joint ventures, and other strategic relationships to facilitate the introduction of these novel healthcare solutions to the market. Their mission is to advance and bring to fruition cutting-edge innovations that have the potential to significantly impact and improve the field of human health and wellness.
In 2023, Impact BioMedical, a vital component of our BioHealth group, made significant strides in various areas. These achievements included promising initial test results related to new bioplastics, the reinforcement of intellectual property safeguards, and the establishment of licensing agreements with ProPhase Biopharma, a wholly-owned subsidiary of ProPhase Labs, Inc. (Nasdaq: PRPH). ProPhase Labs, an extensively diversified diagnostic company with a track record spanning over three decades, dedicated to enhancing wellness and improving health through both over-the-counter (OTC) and prescription products. They have shown strong belief in Impact BioMedical’s Linebacker compounds, recognizing their potential value in the multi-billion-dollar range as co-therapies for cancer. Furthermore, ProPhase Labs anticipates the launch of Equivir as an OTC supplement in late 2023. Additionally, ProPhase BioPharma is preparing to submit an Investigational New Drug (“IND”) application to the US FDA for Equivir G as a prescription antiviral.
Impact BioMedical effectively utilizes its scientific expertise and intellectual property rights to provide innovative solutions to long-standing challenges within the biomedical field. The company’s primary focus lies in dedicated research and discovery efforts aimed at developing promising products for the prevention, inhibition, and treatment of neurological, oncological, and immuno-related diseases. For further details about Impact BioMedical, you can visit their website at http://impactbiomedinc.com/.
With a strengthened foundation now in place, we expect Impact BioMedical to provide us with the first opportunity to clearly demonstrate a core tenant of our vision – sharing our success with our shareholders. In August of 2023, DSS, Inc. distributed a stock dividend of four (4) shares of Impact BioMedical Inc. to all DSS Inc. shareholders of record on July 10, 2023. Each share of Impact BioMedical distributed as part of the distribution will not be eligible for resale until 180 days from the date Impact BioMedical’s initial public offering becomes effective under the Securities Act, subject to the discretion of the Company to lift the restriction sooner.
Importantly, Impact BioMedical is just one of multiple assets we believe can have liquidity events in 2024 as we continue to diligently move our growing portfolio of businesses through our unique and strategic value creation process.
Key Upcoming Milestone for AmericaFirst Quantitative Funds
AmericaFirst Quantitative Funds, part of our Securities and Investment Management segment, showed improved performance versus benchmarks for three of the four mutual funds under management since the new investment advisory team took over in May 2023. In addition to focusing on improved relative performance, the team expects to enhance marketing and sales efforts to grow assets under management, continue to improve operational efficiencies, and plans to launch a Total Return Bond Fund in the first half of the year.
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Reporting Operating Segments:
As we have reported above, we financially report business operating results on five operating segments, which we believe will certainly increase and transition as the newer lines of business develop and mature. However, the five business segments that we are reporting on in 2023 are as follows:
Premier Packaging: (“Premier”) Premier Packaging Corporation provides custom packaging services and serves clients in the pharmaceutical, nutraceutical, consumer goods, beverage, specialty foods, confections, photo packaging and direct marketing industries, among others. The group also provides active and intelligent packaging and document security printing services for end-user customers. In addition, the division produces a wide array of printed materials, such as folding cartons and paperboard packaging, security paper, vital records, prescription paper, birth certificates, receipts, identification materials, entertainment tickets, secure coupons and parts tracking forms. The division also provides resources and production equipment for our ongoing research and development of security printing, brand protection, consumer engagement and related technologies.
For over 25 years, Premier has been a market leader in providing solutions for paperboard packaging from consumer retail packaging and heavy mailing envelopes, to sophisticated custom folding cartons and complex three-dimensional direct mail solutions. Premier’s innovative products and design team delivers packaging that provides functionality, marketability, and sustainability, with its fiber-based packing solutions providing an alternative to traditional plastic packaging.
Since 2019, we have accelerated the transformation of Premier’s operations, investing in state-of-the-art manufacturing equipment, people, and processes to increase its capacity, improve quality and delivery, and to ensure it has the resources to support its growing customer base and their evolving supply chain demands.
We will continue to add capabilities in key areas that increasing operational efficiencies to strengthen our foundation and offerings to our customers while continuing to provide world-class customer service to the customers we serve.
Commercial Lending: (“Commercial Lending”) through its operating company, American Pacific Bancorp, Inc. (“APB”) represents our banking and financing business line. Looking ahead, to better meet the needs of the current financial market, the company is looking to transition away from certain industries like direct marketing and focus more on growing its inventory / equipment loan portfolio as well as engaging in more specialized areas of lending like broker/dealer loans. We will continue to monitor our managed loan portfolio of more than $6 million, which earns 1.25% annually in service charges, and explore future opportunities. Importantly, the equity portfolio as a bank holding company is anticipated to remain relatively stable, regardless of stock market fluctuations.
Biotechnology: (“Biotech”) Impact BioMedical, Inc. targets unmet, urgent medical needs and expands the borders of medical and pharmaceutical science. Impact drives mission-oriented research, development, and commercialization of solutions for medical advances in human wellness and healthcare. By leveraging technology and new science with strategic partnerships, Impact BioMedical provides advances in drug discovery for the prevention, inhibition, and treatment of neurological, oncology and immuno-related diseases. Other exciting technologies include a breakthrough alternative sugar aimed to combat diabetes and functional fragrance formulations aimed at the industrial and medical industry.
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Impact BioMedical has several important and valuable products, technology or compounds that are in continuing development and/or licensing stages:
| ● | LineBacker: Multi-faceted therapeutic platform for metabolic, neurologic, cancer, and infectious diseases. | |
| ● | Equivir: A polyphenol compound that is believed to be successful in antiviral infection treatments. Equivir/Nemovir technology is a novel blend of FDA Generally Recognized as Safe (“GRAS”) eligible polyphenols (e.g., Myricetin, Hesperetin, Piperine) which have demonstrated antiviral effects with additional potential application as health supplements or medication. Polyphenols are sourced from fruits, vegetables, and other natural substances. Myricetin is a member of the flavonoid class of polyphenolic compounds with antioxidant properties. Hesperitin is a flavanone and Piperine is an alkaloid, commonly found in black pepper. | |
| ● | Procombin: Applications as food additive, and natural preservative for beauty and person care products as well as natural food preservative. | |
| ● | VanXin: Food preservative booster made up of polyphenols that extend the shelf life. | |
| ● | Bioplastics: Advanced bio-compatible plastics that mitigate accumulation of plastics in oceans and landfills and provide UVA and UVB protection for many types of material for including containers, hard surfaces, and fibers for clothing. The technology is presently in development and testing antimicrobial plastics for consumer products that control the spread of active pathogens such as SARS-CoV-2, Influenza, E. coli, Staph, and Rhinovirus, by exploiting key strategies found in the biological realm. These new plastics are specifically focused on solutions for common products such as cups, plates, utensils, plastic bags, and countertops. The first prototypes are currently undergoing antimicrobial resistance testing. | |
| ● | Laetose: Laetose technology is derived from a unique combination of sugar and inositol, which demonstrates the ability to inhibit the inflammatory and metabolic response of sugar alone. A sugar alternative which is believed to lower human glycemic indexes and is believed to be a breakthrough alternative sugar aimed to combat diabetes. The use of Laetose in a daily diet, compared to sugar, could result in 30% lower sugar consumption and lower glycemic index/load. | |
| ● | 3F: A botanical compound believed to serve as an insect repellent and anti-microbial agent. 3F is a unique formulation of specialized ingredients (e.g. terpenes) from botanical sources with demonstrated effect as an insect repellent and an antimicrobial. | |
| ● | 3F Mosquito Repellent: 3F repellent contains botanical ingredients that mosquitos avoid. These ingredients are scientifically proven1 to affect the mosquito’s receptors, essentially making the insect blind to a human’s presence. This can be utilized as a stand-alone repellent or as an additive in detergents, lotions, shampoo, and other substances to provide mosquito protection. | |
| ● | 3F Antimicrobial: 3F antimicrobial contains botanical ingredients known to kill viruses. These ingredients are scientifically proven to inhibit viral replication. This can be utilized as a stand-alone antimicrobial or as an additive in detergents, lotions, shampoo, fabrics, and other substances. | |
| ● | Quantum: The solution to the Patent Cliff accomplished by creating a new class of medicinal chemistry that uses advanced methods to increase effectiveness and persistence of natural compounds and existing drugs. The safety attributes of the original molecules are maintained. Typically, drug discovery processes modify functional groups. Quantum’s new techniques alter behavior of molecules at the sub-molecular level. It is estimated that 65% of the World Health Organization Essential Medicines List can be improved and re-patented using Quantum and these methods can be used to enhance and patent natural compounds including many substances used in traditional medicines around the world. | |
| ● | Bio Med (license): A probiotic gut health product that helps to regulate many physiological functions, ranging from energy regulation and cognitive processes to toxin neutralization and immunity against pathogens. |
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The business model of Impact BioMedical revolves around two methodologies – Licensing and Sales Distribution.
1) Impact develops valuable and unique patented technologies which will be licensed to pharmaceutical, large consumer package goods companies and venture capitalists in exchange for usage licensing and royalties.
2) Impact utilizes the DSS ecosystem to leverage its sister companies that have in place distribution networks on a global scale. Impact will engage in branded and private labelling of certain products for sales generation through these channels. This global distribution model will give direct access to end users of Impact’s nutraceutical and health related products.
Securities and Investment Management: (“Securities”) Securities was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, real estate investment funds, broker dealers, and mutual funds management. This business sector has already established the following business lines/investments and associated products and services:
| ● | REIT Management Fund: In March 2020, DSS Securities formed AMRE (“American Medical REIT”) and its management company AAMI (“AMRE Asset Management, Inc.) Through AAMI/AMRE, a medical real estate investment trust, fulfills community needs for quality healthcare facilities while enabling care providers to allocate their capital to growth and investment in their contemporary clinical and critical care businesses. Urban and suburban communities are in need of modern healthcare facilities that provide a range of medical outpatient services. The funds ultimate product is an investor opportunity in a managed medical real estate investment trust. | |
| ● | Sentinel: Sentinel primarily operates as a financial intermediary, facilitating institutional trading of municipal and corporate bonds as well as preferred stock, and accelerates the trajectory of the DSS digital securities business. | |
| ● | WestPark: WestPark is a full-service investment banking and securities brokerage firm which serves the needs of both private and public companies worldwide, as well as individual and institutional investors. | |
| ● | BMIC: BMIC is a private investment bank specializing in corporate finance advising, raising equity, and venture services, providing a global “one-stop” corporate consultancy to listed companies. From corporate finance to professional valuation, corporate communications to event management, BMIC services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia. | |
| ● | DSS Wealth Management: AmericaFirst is a suite of mutual funds managed by DSS Wealth Management. AmericaFirst expects to expand into numerous investment platforms including additional mutual funds and exchange-traded funds. AmericaFirst currently consists of four mutual funds that seek to outperform their respective benchmark indices by applying top-down, fundamental research, quantitative and technical analysis to stock selection and portfolio management. |
Direct Marketing Segment: Prior to June 2023, the Direct Marketing business segment, operated through its holding company, Decentralized Sharing Systems, Inc., along with its subsidiaries and partners, including Sharing Services Global Corporation, offered a diverse range of products and services through an extensive independent contractor network until its transition to SHRG in late 2023 to effect DSS’s refocus on core business lines.
For instance, one of Decentralized’s wholly-owned subsidiaries, HWH World, Inc., was dedicated to promoting products and services that aligned with its core values of health, wealth, and happiness. Within the HWH Marketplace and its associated brands, the primary goal was to assist customers in achieving their healthiest and happiest selves. In terms of health-related offerings, the company provided herbal alternatives, nutraceuticals, consumables, topicals, dietary supplements, beauty and skincare products, personal care items, gut health products, aloe vera-based supplements, and various wellness products. In the wealth sector, the company developed educational tools to help users manage their finances effectively and offered savings programs to assist consumers in reaching their financial goals. In pursuit of happiness, the company collaborated with partners to acquire or establish products and services that enabled consumers to enjoy a healthy lifestyle, including access to a global travel membership network.
Sharing Services Global Corporation (“SHRG”), founded in Nevada on April 24, 2015, is focused on enhancing shareholder value by developing or acquiring businesses and technologies that expand its product and services portfolio, enhance its business capabilities, and broaden its geographic presence. Sharing Services’ integrated platform harnesses the expertise of various companies engaged in direct-to-consumer product marketing through independent contractors. Their shared services platform caters to the direct selling “gig economy” sector by providing essential services such as equity and inventory financing, advisory services, mobile application tools, merchant processing services, commercial insurance, and event planning to smaller direct sales companies. Sharing Services, through its subsidiaries, currently markets and distributes health and wellness products, including subscription-based travel services, in the United States, Canada, and Mexico, utilizing a direct selling business model. Their growth strategy involves both organic expansion and strategic acquisitions that complement their product range, enhance their business capabilities, and align with their overall growth objectives.
Beginning in July 2023, Direct now specializes in licensing its products and services through its subsidiary HWH World, Inc. (“HWH World”) using the popular gig economic marketing strategy as a form of direct marketing. Direct’s products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific, Middle East, and Eastern Europe.
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Intellectual Property
Patents
Impact Biomedical Inc. has nine (9) patents issued, one(1) allowed, and over forty (40) patents pending worldwide with expiration of US patents between 2029 and 2040. Pending patents could extend this exclusivity period in all regions.
The issued and allowed patents include composition and method of application for Linebacker, Equivir, 3F (Functional Fragrance), and Laetose.
Trademarks
We have several trademarks related to our DSS, Inc. businesses.
Websites:
The primary corporate website we maintain is www.dssworld.com. Our other sites are:
American Medical REIT, Inc: http://www.americanmedreit.com
DSS AmericaFirst: https://www.afcm-quant.com
American Pacific Bancorp (“APB”): https://www.ampacbancorp.com
DSS PureAir, Inc.: https://dsspureair.com/
Premier Packaging: https://www.premiercustompkg.com
Impact Biomedical: https://www.impactbiomedinc.com
In addition to the active websites, the Company is building multiple new sites and owns several other domain names reserved for future use or for strategic competitive reasons. Information on our websites or any other website does not constitute a part of this annual report.
Markets and Competition
Product Packaging: Within our packaging division, we face competition from numerous national and regional companies, many of which operate independently and are privately held. The major players in this market are primarily concentrated in long-term consumer packaged goods and health and beauty sectors. These include prominent integrated paper companies like West Rock Company and Graphic Packaging Holding Company.
Commercial Lending: American Pacific Bancorp, our commercial lending company, offers a comprehensive range of financial services tailored to businesses. Our services encompass commercial business lines of credit, land development financing, inventory financing, third-party loan servicing, and solutions designed to meet the diverse financial requirements of various business sectors. In this competitive landscape, APB competes with a wide array of traditional commercial banks and investment banking firms.
Biotechnology: Impact Biomedical Inc. is dedicated to the discovery, confirmation, and patenting of unique scientific advancements and technologies, which lead to innovative solutions in the realm of human healthcare and wellness. IBIO collaborates closely with licensing partners, engages in co-development initiatives, forms joint ventures, and nurtures other valuable relationships to effectively introduce these groundbreaking solutions to the market.
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Securities and Investment Management: Was established to develop and/or acquire assets in the securities trading or management arena. These efforts and established business lines compete with individual money managers, companies or organizations that engage in the business of trading securities and derivatives for the benefit of their customers. Traditional RIA’s, Brokers Dealers, REIT’s and other personal investment companies would also be considered competition.
Customers
Product Packaging: During 2023, one customer accounted for approximately 20% of our consolidated revenue and second customer accounted for approximately 11% of our consolidated revenue. Customer diversification improvements have produced several new customers to our overall customer base and will continue to do so in 2024.
Commercial Lending: Since 2021, American Pacific Bancorp, Inc. has issued nearly $26 million in new loans since September 2021 to customers across a diverse portfolio of businesses.
Securities and Investment Management: Our Securities and Investment Management division has a mixture of retail and institutional investors.
Raw Materials
Product Packaging: The primary raw materials the Company uses in its business are paper, paperboard, corrugated board and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies and uses a wide variety of paper grades, formats, ink formulations and colors. The good news is that while there are materials that remain challenging, raw materials have begun to improve in terms of cost and availability. The good news is that while there are materials that remain challenging, raw materials have begun to improve in terms of cost and availability in late 2023. Procurement sustainability as a crucial element and it involves not only ensuring that suppliers meet sustainability standards, but also a commitment to ongoing internal improvement in sustainability practices. Premier is proactively engaged in setting high standards and ensuring that these standards are followed by its supply chain partners, contributing to the improvement and compliance of the broader industry. During 2023, one vendor accounted for approximately 25% and second vendor accounted for approximately 13% of our paper and paperboard purchases.
Direct Marketing: Sources its products from 3rd party suppliers for nutritional, performance, and health and beauty product ingredients. We rely on our extensive supplier network for the availability of an extensive range of vitamins, minerals, botanicals, plant, and herb extracts, as well as nutritional supplements.
Environmental Compliance
It is the Company’s policy to conduct its operations in accordance with all applicable laws, regulations, and other requirements. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.
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Government Regulation
Our biotechnology business is faced with potential government regulations. If new legislation, regulations, or rules are implemented either by Congress, the U.S. Patent and Trademark Office (the “USPTO”), or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our patent monetization efforts and, in turn, our assets, expenses and revenue. United States patent laws have been amended by the Leahy-Smith America Invents Act. The America Invents Act includes several significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities. In addition, the U.S. Department of Justice (“DOJ”) has conducted reviews of the patent system to evaluate the impact of patent assertion entities, such as our Company, on industries in which those patents relate. It is possible that the findings and recommendations of the DOJ could adversely impact our ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.
Moreover, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions.
Corporate History
The Company, incorporated in the state of New York in May 1984 has formally conducted business in the name of Document Security Systems, Inc. On September 16, 2021, the board of directors approved an agreement and plan of merger with a wholly owned subsidiary, DSS, Inc. (a New York corporation, incorporated in August 2020), for the sole purpose of effecting a rebranding from Document Security Systems, Inc. to DSS, Inc. This change became effective on September 30, 2021. DSS, Inc. maintained the same trading symbol “DSS” and updated its CUSIP number to 26253C-102. In January 2024, in conjunction with a reverse split, DSS now operates under the CUSIP 26253C 201. See the “Overview” section above for further details about our acquisitions.
Human Capital Resources
As of December 31, 2023, DSS, Inc. had 95 employees worldwide. We continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are in good standing.
Available information
Our website address is www.dssworld.com. Information on our website is not incorporated herein by reference. We make available free of charge through our website our press releases, Annual Report on Form 10-K/A, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after electronically filed with or furnished to the Securities and Exchange Commission.
ITEM 1A – RISK FACTORS
Investing in our common stock involves risk. Before deciding whether to invest in our common stock, you should carefully consider the risks and uncertainties described below. There may be other unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our future results. If any of these risks actually occur, our business, business prospects, financial condition or results of operations could be seriously harmed. This could cause the trading price of our common stock to decline, resulting in a loss of all or part of your investment. Please also read carefully the section contained in Part II, Item 7, below, entitled “Cautionary Statement Regarding Forward-Looking Statements.”
We have identified the following risks and uncertainties that may have a material adverse effect on our business, financial condition or results of operations in the future. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business operations. If any of these risks occur, our business, results of operations or financial condition could suffer, the market price of our common stock could decline, and you could lose all or part of your investment in our common stock.
The value of our intangible assets and investments may not be equal to their carrying values.
As of December 31, 2023, we had approximately $20.2 million of net intangible assets. Approximately $18.9 million is associated with the acquisition of Impact Biomedical, Inc. The Company has completed valuations for certain developed technology assets acquired in the transaction as well as the non-controlling interest portion of Impact BioMedical, Inc. and its subsidiaries. If licensing efforts are not successful, the values of these assets could be reduced. We are required to evaluate the carrying value of such intangibles and goodwill and the fair value of investments whenever events or changes in circumstances indicate that the carrying value of an intangible asset, including goodwill, and investment may not be recoverable. If any of our intangible assets, goodwill or investments are deemed to be impaired then it will result in a significant reduction of the operating results in such period.
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We have secured indebtedness, and a potential risk exists that we may be unable to satisfy our obligations to pay interest and principal thereon when due or negotiate acceptable extensions or settlements.
We have outstanding indebtedness (described below), most of which is secured by assets of various DSS subsidiaries and guaranteed by the Company. Given our history of operating losses and our cash position, there is a risk that we may not be able to repay indebtedness when due. If we were to default on any of our other indebtedness that require payments of cash to settle such default and we do not receive an extension or a waiver from the creditor and the creditor were to foreclose on the secured assets, it could have a material adverse effect on our business, financial condition, and operating results.
As of December 31, 2023, we had the following significant amounts of outstanding indebtedness:
| ● | Premier Packaging entered into master loan and security agreement (“BOA Note”) with Bank of America, N.A. (“BOA”) to secure financing approximating $3,710,000 to purchase a new Heidelberg XL 106-7+L printing press. The aggregate principal balance outstanding under the BOA Note shall bear interest at a variable rate on or before the loan closing. As of December 31, 2023, and December 31, 2022, the outstanding principal on the BOA Note was $2,932,000 and $3,406,000, respectively and had an interest rate of 4.63%. As of December 31, 2023, $491,000 was included in the current portion of long-term debt, net, and the remaining balance of approximately $2,442,000 recorded as long-term debt, The BOA Note contains certain covenants that are analyzed annually. As of December 31, 2023, Premier is in compliance with these covenants. | |
| ● | AMRE Shelton, LLC., (“AMRE Shelton”) a subsidiary of AMRE, entered into a loan agreement (“Shelton Agreement”) with Patriot Bank, N.A. (“Patriot Bank”) in an amount up to $6,155,000, with the amount financed approximating $5,105,000. The Shelton Agreement contains monthly payments of principal and an initial interest of 4.25%. The interest will be adjusted commencing on July 1, 2026 and continuing for the next succeeding 5-year period shall be determined one month prior to the change date and shall be an interest rate equal to two hundred fifty (250) basis points above the Federal Home Loan Bank Boston 5-Year/25-Year amortizing advance rate, but in no event less than 4.25% for the term of 120 months with a balloon payment approximating $2,829,000 due at term end. The net book value of these assets as of December 31, 2023 approximated $6,279,000. | |
| ● | $3,000,000 loan agreement with BMIC (“BMIC Loan”), between LVAM and BMIC with interest to be charged at a variable rate to be calculated at the maturity date. The BMIC Loan matured on October 12, 2022 and both parties agree based on the language of the loan documents that the loan will keep extending an additional 3 months until either party cancels the extension. | |
| ● | $41,331,000 remaining principal balance, net of deferred financing costs, loan agreement (“LifeCare Agreement”) between AMRE LifeCare Portfolio, LLC (“AMRE LifeCare”) a subsidiary of AMRE, and Pinnacle Bank (“Pinnacle”). The LifeCare Agreement has a variable interest rate which equated to 9.6% on December 31, 2023. This note is due as of the date of this filing. | |
| ● | AMRE Winter Haven, LLC (“AMRE Winter Haven”) and Pinnacle Bank (“Pinnacle”) entered a term loan (“Pinnacle Loan”) whereas Pinnacle lent to AMRE Winter Haven the principal sum of $2,990,000, maturing on March 7, 2024. Payments are to be made in equal, consecutive installments based on a 25-year amortization period with interest at 4.28%. The outstanding principal and interest, net of debt issuance costs of $17,000, approximates $2,977,000 and is included in long-term debt, net on the accompanying consolidated balance sheet at December 31, 2023. This note is in default and demand was made for final payment to be made by December 22, 2023. This amount is past due. |
Both the Winter Haven and LifeCare agreements contain various covenants which are tested annually as of December 31. For the year ended December 31, 2023, AMRE Winter Haven and LifeCare were not in compliance with the annual covenants and these loans are in default.
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A significant amount of our revenue is derived by two customers.
As of December 31, 2022, two customers accounted for approximately 14% and 6% of our consolidated revenue and these two customers accounted for approximately 36% and 17% of our consolidated trade accounts receivable balance. As of December 31, 2023, two customers accounted for approximately 20% and 11% of our consolidated revenue and 39% and 30% of our trade accounts receivable balance. If we were to lose this customer or if the amount of business we do with this customer declines significantly, our business would be adversely affected.
We may face intellectual property infringement or other claims against us, our customers or our intellectual property that could be costly to defend and result in our loss of significant rights.
Although we have received patents with respect to certain of our core business technologies, there can be no assurance that these patents will afford us any meaningful protection. Although we believe that our use of the technology and products we have developed, and other trade secrets used in our operations do not infringe upon the rights of others, our use of the technology and trade secrets we developed may infringe upon the patents or intellectual property rights of others. In the event of infringement, we could, under certain circumstances, be required to obtain a license or modify aspects of the technology and trade secrets we developed or refrain from using the same. We may not be able to successfully terminate any infringement in a timely manner, upon acceptable terms and conditions or at all. Failure to do any of the foregoing could have a material adverse effect on our operations and our financial condition. Moreover, if the patents, technology, or trade secrets we developed or use in our business are deemed to infringe upon the rights of others, we could, under certain circumstances, become liable for damages, which could have a material adverse effect on our operations and our financial condition. As we continue to market our products, we could encounter patent barriers that are not known today. A patent search may not disclose all related applications that are currently pending in the United States Patent Office, and there may be one or more such pending applications that would take precedence over any or all of our applications.
Furthermore, third parties may assert that our intellectual property rights are invalid, which could result in significant expenditures by us to refute such assertions. If we become involved in litigation, we could lose our proprietary rights, be subject to damages and incur substantial unexpected operating expenses. Intellectual property litigation is expensive and time-consuming, even if the claims are subsequently proven unfounded, and could divert management’s attention from our business. If there is a successful claim of infringement, we may not be able to develop non-infringing technology or enter into royalty or license agreements on acceptable terms, if at all. If we are unsuccessful in defending claims that our intellectual property rights are invalid, we may not be able to enter into royalty or license agreements on acceptable terms, if at all. Moreover, if we are unsuccessful in our pending patent infringement litigation, we could lose certain patents that have been collateralized by third party funding partners. This could prohibit us from providing our products and services to customers, which could have a material adverse effect on our operations and our financial condition.
Certain of our recently developed products are not yet commercially accepted and there can be no assurance that those products will be accepted, which would adversely affect our financial results.
We’ve acquired several patents in the bio-health field through our acquisition if Impact Biomedical, Inc. Our business plan includes plans to incur significant marketing, intellectual property development and sales costs for the bio-health related products. If we are not able to develop and sell these new products, our financial results will be adversely affected.
The results of our research and development efforts are uncertain and there can be no assurance of the commercial success of our products.
We believe that we will need to continue to incur research and development expenditures to remain competitive. The products we are currently developing or may develop in the future may not be technologically successful. In addition, the length of our product development cycle may be greater than we originally expected, and we may experience delays in future product development. If our resulting products are not technologically successful, they may not achieve market acceptance or compete effectively with our competitors’ products.
The markets in which we operate are highly competitive, and we may not be able to compete effectively, especially against established industry competitors with greater market presence and financial resources.
Our markets are highly competitive and characterized by rapid technological change and product innovations. Our competitors may have advantages over us because of their longer operating histories, more established products, greater name recognition, larger customer bases, and greater financial, technical and marketing resources. As a result, they may be able to adapt more quickly to new or emerging technologies and changes in customer requirements and devote greater resources to the promotion and sale of their products. Competition may also force us to decrease the price of our products and services. We cannot assure you that we will be successful in developing and introducing new technology on a timely basis, new products with enhanced features, or that these products, if introduced, will enable us to establish selling prices and gross margins at profitable levels.
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If we are unable to respond to regulatory or industry standards effectively, our growth and development could be delayed or limited.
Our future success will depend in part on our ability to enhance and improve the functionality and features of our products and services in accordance with regulatory or industry standards. Our ability to compete effectively will depend in part on our ability to influence and respond to emerging industry governmental standards in a timely and cost-effective manner. If we are unable to influence these or other standards or respond to these or other standards effectively, our growth and development of various products and services could be delayed or limited.
Breaches in security, whether cyber or physical, and other disruptions and/or our inability to prevent or respond to such breaches, could diminish our ability to generate revenues or contain costs, compromise our assets, and negatively impact our business in other ways.
We face certain security threats, including threats to our information technology infrastructure, attempts to gain access to our proprietary or classified information, and threats to physical and cyber security. Our information technology networks and related systems are critical to the operation of our business and essential to our ability to successfully perform day-to-day operations. The risks of a security breach, cyber-attack, cyber intrusion, or disruption, particularly through actions taken by computer hackers, foreign governments and cyber terrorists, have increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Although we have acquired and developed systems and processes designed to protect our proprietary and/or classified information, they may not be sufficient and the failure to prevent these types of events could disrupt our operations, require significant management attention and resources, and could negatively impact our reputation among our customers and the public, which could have a negative impact on our financial condition, and weaken our results of operations and liquidity.
Our investments in Asia are subject to unique risks and uncertainties, including tariffs and trade restrictions.
Our investment in Alset International Limited, presents risks including, but not limited to, changes in share price of investments, changes in local regulatory requirements, changes in labor laws, local wage laws, environmental regulations, taxes and operating licenses, compliance with U.S. regulatory requirements, including the Foreign Corrupt Practices Act, uncertainties as to application and interpretation of local laws and enforcement of contract and intellectual property rights, currency restrictions, currency exchange controls, fluctuations of currency, and currency revaluations, eminent domain claims, civil unrest, power outages, water shortages, labor shortages, labor disputes, increase in labor costs, rapid changes in government, economic and political policies, political or civil unrest, acts of terrorism, or the threat of boycotts, other civil disturbances and the possible impact of the imposition of tariffs as a result of the tariff dispute between the U.S. and China as well as any retaliating trade policies or restrictions. Any such disruptions could depress our earnings and have other material adverse effects on our business, financial condition and results of operations.
Future growth in our business could make it difficult to manage our resources.
Future business expansion could place a significant strain on our management, administrative and financial resources. Significant growth in our business may require us to implement additional operating, product development and financial controls, improve coordination among marketing, product development and finance functions, increase capital expenditures and hire additional personnel. There can be no assurance that we will be able to successfully manage any substantial expansion of our business, including attracting and retaining qualified personnel. Any failure to properly manage our future growth could negatively impact our business and operating results.
If we fail to retain certain of our key personnel and attract and retain additional qualified personnel, we might not be able to remain competitive, continue to expand our technology or pursue growth.
Our future success depends upon the continued service of certain of our executive officers and other key sales and research personnel who possess longstanding industry relationships and technical knowledge of our products and operations. Although we believe that our relationship with these individuals is positive, there can be no assurance that the services of these individuals will continue to be available to us in the future. There can be no assurance that these persons will agree to continue to be employed by us after the expiration dates of their current contracts.
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We have identified weaknesses in our internal control over financial reporting structure; any material weaknesses may cause errors in our financial statements that could require restatements of our financial statements and investors may lose confidence in our reported financial information, which could lead to a decline in our stock price.
Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal control over financial reporting as of the end of each year, and to include a management report assessing the effectiveness of our internal control over financial reporting in each Annual Report on Form 10-K/A. We have had previously identified weaknesses in our internal control over financial reporting following management’s annual assessment of internal controls over financial reporting and, as a result of that assessment, management had concluded our controls associated may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
We do not intend to pay cash dividends.
We do not intend to declare or pay cash dividends on our common stock in the foreseeable future. We anticipate that we will retain any earnings and other cash resources for investment in our business. The payment of dividends on our common stock is subject to the discretion of our board of directors and will depend on our operations, financial position, financial requirements, general business conditions, restrictions imposed by financing arrangements, if any, legal restrictions on the payment of dividends and other factors that our board of directors deems relevant.
We may seek to develop additional new inventions and intellectual property, which would take time and would be costly. Moreover, the failure to obtain or maintain intellectual property rights for such inventions would lead to the loss of our investments in such activities.
Part of our business may include the development of new inventions and intellectual property that we would seek to monetize. However, this aspect of our business would likely require significant capital and would take time to achieve. Such activities could also distract our management team from our present business initiatives, which could have a material and adverse effect on our business. There is also the risk that these initiatives would not yield any viable new inventions or technology, which would lead to a loss of our investments in time and resources in such activities.
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In addition, even if we are able to develop new inventions, in order for those inventions to be viable and to compete effectively, we would need to develop and maintain, and we would heavily rely on, a proprietary position with respect to such inventions and intellectual property. However, there are significant risks associated with any such intellectual property we may develop principally including the following:
| ● | patent applications we may file may not result in issued patents or may take longer than we expect to result in issued patents; | |
| ● | we may be subject to interference proceedings; | |
| ● | we may be subject to opposition proceedings in the U.S. or foreign countries; | |
| ● | any patents that are issued to us may not provide meaningful protection; | |
| ● | we may not be able to develop additional proprietary technologies that are patentable; | |
| ● | other companies may challenge patents issued to us; | |
| ● | other companies may design around technologies we have developed; and | |
| ● | enforcement of our patents may be complex, uncertain and very expensive. |
We cannot be certain that patents will be issued as a result of any future applications, or that any of our patents, once issued, will provide us with adequate protection from competing products. For example, issued patents may be circumvented or challenged, declared invalid or unenforceable, or narrowed in scope. In addition, since publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot be certain that it will be the first to make our additional new inventions or to file patent applications covering those inventions. It is also possible that others may have or may obtain issued patents that could prevent us from commercializing our products or require us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those patents that we may license or otherwise monetize, our rights will depend on maintaining our obligations to the licensor under the applicable license agreement, and we may be unable to do so. Our failure to obtain or maintain intellectual property rights for our inventions would lead to the loss of our investments in such activities, which would have a material and adverse effect on our business.
Moreover, patent application delays could cause delays in recognizing revenue from our internally generated patents and could cause us to miss opportunities to license patents before other competing technologies are developed or introduced into the market.
Changes in the laws and regulations to which we are subject may increase our costs.
We are subject to numerous laws and regulations, including, but not limited to, environmental and health and welfare benefit regulations, as well as those associated with being a public company. These rules and regulations may be changed by local, state, provincial, national or foreign governments or agencies. Such changes may result in significant increases in our compliance costs. Compliance with changes in rules and regulations could require increases to our workforce, and could result in increased costs for services, compensation and benefits, and investment in new or upgraded equipment.
Declines in general economic conditions or acts of war and terrorism may adversely impact our business.
Demand for printing services is typically correlated with general economic conditions. The prolonged decline in United States economic conditions associated with the great recession adversely impacted our business and results of operations and may do so again. The overall business climate of our industry may also be impacted by domestic and foreign wars or acts of terrorism, which events may have sudden and unpredictable adverse impacts on demand for our products and services.
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If we fail to comply with the continued listing standards of the NYSE American LLC Exchange, it may result in a delisting of our common stock from the exchange.
Our common stock is currently listed for trading on the NYSE American LLC Exchange (“NYSE American”), and the continued listing of our common stock on the NYSE American is subject to our compliance with a number of listing standards.
If our common stock were no longer listed on the NYSE American, investors might only be able to trade our shares on the OTC Bulletin Board ® or in the Pink Sheets ® (a quotation medium operated by Pink Sheets LLC). This would impair the liquidity of our common stock not only in the number of shares that could be bought and sold at a given price, which might be depressed by the relative illiquidity, but also through delays in the timing of transactions and reduction in media coverage.
If we are delisted from the NYSE American, your ability to sell your shares of our common stock may be limited by the penny stock restrictions, which could further limit the marketability of your shares.
If our common stock is delisted from the NYSE American, it could come within the definition of a “penny stock” as defined in the Exchange Act and could be covered by Rule 15g-9 of the Exchange Act. That rule imposes additional sales practice requirements on broker-dealers who sell securities to persons other than established customers and accredited investors. For transactions covered by Rule 15g-9, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser’s written agreement to the transaction prior to the sale. Consequently, Rule 15g-9, if it were to become applicable, would affect the ability or willingness of broker-dealers to sell our securities, and accordingly would affect the ability of stockholders to sell their securities in the public market. These additional procedures could also limit our ability to raise additional capital in the future.
If our common stock is not listed on a national securities exchange, compliance with applicable state securities laws may be required for certain offers, transfers and sales of the shares of our common stock.
Because our common stock is listed on the NYSE American, we are not required to register or qualify in any state the offer, transfer or sale of the common stock. If our common stock is delisted from the NYSE American and is not eligible to be listed on another national securities exchange, sales of stock pursuant to the exercise of warrants and transfers of the shares of our common stock sold by us in private placements to U.S. holders may not be exempt from state securities laws. In such event, it will be the responsibility of us in the case of warrant exercises or the holder of privately placed shares to register or qualify the shares for any offer, transfer or sale in the United States or to determine that any such offer, transfer or sale is exempt under applicable state securities laws.
If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business. Our research coverage by industry and financial analysts is currently limited. Even if our analyst coverage increases, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
Because certain of our stockholders control a significant number of shares of our common stock, they may have effective control over actions requiring stockholder approval.
As of March 1,2024, our directors, executive officers and principal stockholders (those beneficially owning in excess of 5%), and their respective affiliates, beneficially own approximately 59% of our outstanding shares of common stock. As a result, these stockholders, acting together, could have the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. As such, these stockholders, acting together, could have the ability to exert influence over the management and affairs of our company. Accordingly, this concentration of ownership might harm the market price of our common stock by: delaying, deferring or preventing a change in corporate control; impeding a merger, consolidation, takeover or other business combination involving us; or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us.
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Additional financing or future equity issuances may result in future dilution to our shareholders.
We expect that we will need to raise additional funds in the future to finance our internal growth, our merger and acquisition plans, investment activities, continued research and product development, and for other reasons. Any required additional financing may not be available on terms acceptable to us, or at all. If we raise additional funds by issuing equity securities, you may experience significant dilution of your ownership interest and the newly issued securities may have rights senior to those of the holders of our common stock. The price per share at which we sell additional securities in future transactions may be higher or lower than the price per share in this offering. Alternatively, if we raise additional funds by obtaining loans from third parties, the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operational flexibility and would also require us to fund additional interest expense. If adequate additional financing is not available when required or is not available on acceptable terms, we may be unable to successfully execute our business plan.
ITEM 1B – UNRESOLVED STAFF COMMENTS
None.
ITEM 1C - CYBERSECURITY
We have a range of security measures that are designed to protect against the unauthorized access to and misappropriation of our information, corruption of data, intentional or unintentional disclosure of confidential information, or disruption of operations. These security measures include controls, security processes and monitoring of our manufacturing systems. We have cloud security tools and governance processes designed to assess, identify and manage material risks from cybersecurity threats. In addition, we maintain an information security training program designed to address phishing and email security, password security, data handling security, cloud security, operational technology security processes, and cyber-incident response and reporting processes.
Our Company is committed to maintaining the highest standards of cybersecurity to protect our data, intellectual property, and customer information from cyber threats. As part of this commitment, we leverage a sophisticated cybersecurity framework that integrates the robust capabilities of the Microsoft cloud ecosystem with the specialized services of a leading third-party cybersecurity service provider.
The Microsoft cloud ecosystem, including Microsoft 365, Azure, SharePoint Online, Microsoft Defender, and Microsoft InTune, forms the backbone of our cybersecurity infrastructure. These platforms offer advanced security features such as data encryption in transit and at rest, network security controls, identity and access management, and threat protection capabilities. Microsoft’s constant investment in cybersecurity research and development ensures that we benefit from cutting-edge security technologies and practices.
In addition to utilizing the Microsoft cloud ecosystem, we have engaged a third-party service provider to enhance our cybersecurity posture further. This provider brings additional layers of security through services including:
| ● | Software Security Management: Ensuring that applications such as Office 365 and Azure are configured, maintained and following best security practices. | |
| ● | Security Monitoring and Consultation Services: Continuous monitoring of our systems for suspicious activities and providing expert consultation to address and mitigate potential threats. |
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| ● | Data Storage and Backup of Source Systems: Implementing robust data storage solutions and backup protocols to ensure data integrity and availability. | |
| ● | Security Policy Management: Developing and enforcing comprehensive security policies that govern all aspects of our cybersecurity efforts. | |
| ● | Threat Response Management: Rapid identification and response to security incidents to minimize impact. | |
| ● | Security Software Implementation: Deployment of state-of-the-art security software solutions that complement the security features of the Microsoft cloud ecosystem. |
Our approach to cybersecurity is proactive and multifaceted, combining the scalability and reliability of the Microsoft cloud services with the agility and expertise of our third-party cybersecurity partner. Together, these resources form a comprehensive defense mechanism against a wide range of cyber threats, from phishing and malware attacks to sophisticated nation-state sponsored cyber-attacks. We continuously evaluate and adapt our cybersecurity strategy to respond to evolving threats and to align with best practices and regulatory requirements. Our commitment to cybersecurity is integral to our business operations, and we believe our strategic investments in this area significantly mitigate the risk of cybersecurity incidents that could impact our company’s reputation, financial position, or operational capabilities.
Governance
The management of the Company is responsible for overseeing risk for the Company and has delegated to the VP, Engineering & Technology (“VPE&T”) the responsibility for overseeing the cybersecurity risk management strategy for the Company. Management receives regular updates on our cybersecurity risk management process from the VPE&T. The VPE&T reviews our comprehensive cybersecurity framework, including reviewing our cybersecurity reporting protocol that provides for the notification, escalation and communication of significant cybersecurity events to the management team.
The Company’s cybersecurity program is overseen by our VPE&T, who is responsible for global information technology, including cybersecurity. Our VPE&T, is primarily responsible for assessing and managing material risks from cybersecurity threats, including monitoring the measures used for prevention, detection, mitigation and remediation of cybersecurity incidents. The information security organization is comprised of internal IBIO employees and external security suppliers who provide security monitoring and response.
ITEM 2 - PROPERTIES
The corporate group and the packaging division has occupied an approximate 105,000 square foot leased facility, located at 275 Wiregrass Parkway, Henrietta, New York since March 2022. This lease expires twelve years and 3 months later. Base rents escalate from $61,000 per month in year one to $78,000 per month in year twelve. In March 2021, the Company leased Suite 100 for approximately 3,800 sq. ft. in Houston for approximately $4,400 per month, in October 2022 the Company expanded the space by acquiring neighboring Suite 130. The Company currently leases both Suite 100 and Suite 130 at approximately 3,855 square feet for approximately $5,000 per month. The office is in Houston, Texas at 1400 Broadfield Blvd., Suite 100 and Suite 130, for corporate offices and subsidiary expansion. Ate 30 Old Kings Highway South in Darien, CT we have a flexible executive office suite facility that we use for DSS Wealth Management Office. The cost for this service is nominal at only $85/month.
ITEM 3 - LEGAL PROCEEDINGS
On February 15, 2021, Maiden Biosciences, Inc. (“Maiden”) commenced an action against DSS, Inc. (“DSS”), Decentralized Sharing Systems, Inc. (“Decentralized”), HWH World, Inc. (“HWH”), RBC Life International, Inc. (RBC International) (together, the “DSS Defendants”), Frank D. Heuszel (“Heuszel”), RBC Life Sciences, Inc (“RBC”), Steven E. Brown, Clinton Howard, and Andrew Howard (collectively, “Defendants”). The lawsuit is currently pending in the United States District Court Northern District of Texas, Dallas Division, and is styled and numbered Maiden Biosciences, Inc. v. Document Security Stems, Inc., et al., Case No. 3:21-cv-00327.
This lawsuit relates to two promissory notes executed by RBC in the 4th quarter of 2019 in favor of Decentralized and HWH, totaling approximately $1,000,000. Maiden, a 2020 default judgment creditor of RBC, in the principal amount of $4,329,000, now complains about those notes, the funding of those notes, the subsequent default of those notes by RBC, and HWH and Decentralized’s subsequent Article 9 foreclosure or deed-in-lieu debt conveyances. In the instant lawsuit, Maiden first asserted claims against Defendants for unjust enrichment, fraudulent transfer under the Texas Uniform Fraudulent Transfer Act (“TUFTA”), and violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Maiden also sought a judgment from the court declaring: “(1) Defendants lacked a valid security interest in RBC and RBC Subsidiaries’ assets and therefore lacked the authority to sell the assets during the public foreclosure sale; (2) Defendant Heuszel’s low bid at the public foreclosure sale was invalid and void; (3) the public foreclosure sale was conducted in a commercially unreasonable manner; and (4) Defendants do not have the legal authority to transfer RBC and RBC’s Subsidiaries assets to Heuszel and HWH.” Maiden sought to recover from Defendants: (1) treble damages or, alternatively, damages in the amount of their underlying judgment plus the other creditors’ claims or the value of the assets transferred, whichever is less, plus punitive or exemplary damages; (2) pre- and post-judgment interest; and (3) attorneys’ fees and cost.
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On March 30, 2021, Defendants DSS, Decentralized, HWH, RBC International, and Heuszel filed a motion to dismiss seeking to dismiss Maiden’s unjust enrichment, exemplary damages, and RICO claims against DSS, Decentralized, HWH, RBC Life International, Inc., and Heuszel, as well as Maiden’s fraudulent transfer claims against DSS and RBC International. On August 9, 2021, the Court then entered an order granting in part the motion to dismiss filed on behalf of DSS, Decentralized, HWH, RBC International, and Heuszel. Among other things, the Court held that Maiden failed to plausibly plead certain causes of action, including (1) the civil RICO claim against DSS, Decentralized, HWH, RBC International, and Heuszel, (2) the TUFTA claim against DSS, and (3) the unjust enrichment claim against DSS and RBC International. Notably, the Court declined the request to dismiss the TUFTA claim against RBC International. On September 3, 2021, Maiden filed its first amended complaint, asserting a single cause of action against the DSS Defendants, Heuszel, and RBC for an alleged TUFTA violation.
Generally, Maiden sought the same relief requested in its original complaint. Maiden, however, abandoned its request for treble damages. On September 17, 2021, the DSS Defendants filed a motion to dismiss the amended complaint seeking to dismiss Maiden’s TUFTA claim to the extent it seeks to avoid a transfer of assets owned by any of RBC’s subsidiaries, including but not limited to RBC Life Sciences USA, Inc. (“RBC USA”). Further, the motion to dismiss sought the dismissal of Maiden’s TUFTA claim against Heuszel. On November 19, 2021, the Court granted the motion to dismiss in part, dismissing Maiden’s claim against Heuszel and determined Maiden failed to plead that it was a creditor of RBC USA or RBC’s other subsidiaries. However, the Court permitted Maiden to replead once again.
On December 17, 2021, Maiden filed its second amended complaint which asserted a single TUFTA claim against only the DSS Defendants, RBC, and RBC USA. During the discovery period, the Parties conducted written discovery, production of documents, and depositions of fact witnesses and expert witnesses. The discovery period closed on August 9, 2022. The DSS Defendants have engaged Stout Risius Ross, LLC (“Stout”) to provide expert opinions regarding the value of the assets at issue.
The trial in this matter began on December 12, 2022. The Company vigorously defended its position that Maiden should recover nothing on its TUFTA claim. The DSS Defendants’ experts at Stout provided expert opinions regarding the value of the assets at issue and the deficiencies with Maiden’s designated expert’s opinions. The jury returned a verdict in favor of Maiden, and the Court entered a judgment on December 20, 2022. The DSS Defendants filed post-judgment motions seeking reversal of the judgment for several reasons, including that: (1) the evidence does not support Maiden’s claim against the Company; (2) recovery of exemplary damages under TUFTA is unsupported; and (3) the evidence established that the DSS Defendants are entitled to judgment in their favor on their affirmative defenses. After the DSS Defendants filed their post-judgment motions, the case was settled for $8.75 million, the Court’s December 20, 2022 judgment was vacated, and the case was dismissed with prejudice.
In addition to the foregoing, we may become subject to other legal proceedings that arise in the ordinary course of business and have not been finally adjudicated. Adverse decisions in any of the foregoing may have a material adverse effect on our results of operations, cash flows or our financial condition. The Company accrues for potential litigation losses when a loss is probable and estimable.
ITEM 4 - MINE SAFETY DISCLOSURES
Not applicable.
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Part II
ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed on the NYSE American LLC Exchange, where it trades under the symbol “DSS”.
Holders of Record
As of March 1, 2024, we had 310 record holders of our common stock. This number does not include the number of persons whose shares are in nominee or in “street name” accounts through brokers.
Dividends
We did not pay dividends during 2022. In 2023, we did not pay cash dividends. In April 2023, DSS distributed to its shareholders two (2) shares of its beneficially owned common stock of Sharing Services Global Corporation (OTC: SHRG) for each share of DSS common stock owned. In August of 2023, the Company issued four (4) shares of Impact BioMedical, Inc., formerly a wholly-owned subsidiary of the Company, to its shareholders of record on July 10, 2023.
The payment of dividends on our common stock is subject to the discretion of our board of directors and will depend on our operations, financial position, financial requirements, general business conditions, restrictions imposed by financing arrangements, if any, legal restrictions on the payment of dividends and other factors that our board of directors deems relevant.
Securities Authorized for Issuance Under Equity Compensation Plans
As of December 31, 2023, securities issued and securities available for future issuance under both our 2013 and 2020 Employee, Director and Consultant Equity Incentive Plan (the “Plans”) is as follows:
| Restricted stock to be issued upon vesting | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance (under equity compensation Plans (excluding securities reflected in column (a & b)) | |||||||||||||
| Plan Category | (a) | (b) | (c) | (d) | ||||||||||||
| Equity compensation plans approved by security holders | ||||||||||||||||
| 2013 Employee, Director and Consultant Equity Incentive Plan - options | - | - | $ | - | - | |||||||||||
| 2013 Employee, Director and Consultant Equity Incentive Plan - warrants | - | - | $ | - | - | |||||||||||
| 2020 Employee, Director and Consultant Equity Incentive Plan | - | - | $ | - | 460,846 | |||||||||||
| Total | - | - | $ | - | 460,846 | |||||||||||
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Recent Issuances of Unregistered Securities
Information regarding any equity securities we have sold during the period covered by this Report that were not registered under the Securities Act of 1933, as amended, and was not included in a quarterly report on Form 10-Q or in a current report on Form 8-K, is set forth below. Each such transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D promulgated by the SEC, unless otherwise noted. Unless stated otherwise: (i) the securities were offered and sold only to accredited investors; (ii) there was no general solicitation or general advertising related to the offerings; (iii) each of the persons who received these unregistered securities had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the receipt of these securities, and that they were knowledgeable about our operations and financial condition; (iv) no underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with the transactions; and, (v) each certificate issued for these unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities.
Shares Repurchased by the Registrant
We did not purchase or repurchase any of our securities in the fiscal year ended December 31, 2023.
ITEM 6 - SELECTED FINANCIAL DATA
Not applicable.
ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain statements contained herein this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Reform Act”). Except for the historical information contained herein, this report contains forward-looking statements (identified by words such as “estimate”, “project”, “anticipate”, “plan”, “expect”, “intend”, “believe”, “hope”, “strategy” and similar expressions), which are based on our current expectations and speak only as of the date made. These forward-looking statements are subject to various risks, uncertainties, and factors, that could cause actual results to differ materially from the results anticipated in the forward-looking statements.
Overview
The Company, which was incorporated in the state of New York in May 1984, previously conducted its business under the name of Document Security Systems, Inc On September 16, 2021, our board of directors approved an agreement and plan of merger with a wholly owned subsidiary, DSS, Inc. This subsidiary, incorporated in August 2020, was created for the sole purpose of facilitating a transformational name change from Document Security Systems, Inc. to DSS, Inc. This significant shift in our identity became official on September 30, 2021. With the name change, DSS, Inc. retained its trading symbol, “DSS,” and is currently trading under its CUSIP number to 26253C 201. This change reflects not only our evolution as a company but also our commitment to adapting and growing in an ever-changing business landscape. DSS, Inc. (referred to herein as “DSS,” “we,” “us,” or “our”) now operates across five distinct business lines, each with its own unique scope and presence on a global scale. These business lines encompass a wide range of industries and sectors, including:
Product Packaging: Our involvement in product packaging represents our dedication to delivering innovative and sustainable packaging solutions that meet the evolving needs of various markets.
Biotechnology: In the field of biotechnology, we are focused on pioneering scientific advancements and technologies that have the potential to transform human healthcare and wellness.
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Direct Marketing: Our direct marketing endeavors involve strategic efforts to engage with customers and clients, providing tailored solutions and services that enhance their experiences.
Commercial Lending: We are actively engaged in commercial lending, offering a suite of financial services that cater to the unique needs of businesses, ranging from commercial lines of credit to land development financing.
Securities and Investment Management: In the world of securities and investment management, we aim to provide expertise and guidance to help our clients navigate the complexities of the financial markets and achieve their investment goals.
Each of these business lines is at a different stage of development, growth, and income generation, reflecting the diversity of our operations. This multi-faceted approach allows us to adapt to changing market conditions and explore new opportunities for expansion and success. We are committed to our continued evolution and to delivering value to our stakeholders across these diverse business lines.
The Company, initially incorporated in the state of New York in May 1984, had historically conducted its business under the name Document Security Systems, Inc. However, on September 16, 2021, our board of directors approved an agreement and plan of merger with a wholly owned subsidiary, DSS, Inc. (incorporated in August 2020). The primary purpose of this merger was to affect a name change from Document Security Systems, Inc. to DSS, Inc., which officially took effect on September 30, 2021. This change did not affect our trading symbol, which remained as “DSS,” and is currently trading under its CUSIP number to 26253C 201.
Diverse Business Lines and Global Presence:
Under the banner of DSS, Inc., we have diversified our operations into nine distinct business lines, each with its own unique scope and geographical footprint. These business lines include:
Product Packaging: Led by Premier Packaging Corporation, Inc. (“Premier”), a New York corporation, this segment specializes in paperboard and fiber-based folding carton manufacturing, consumer product packaging, and document security printing. Premier is headquartered in its newly established facility in Rochester, NY, primarily serving the US market.
Biotechnology: This business line is dedicated to investing in or acquiring companies in the BioHealth and BioMedical fields, focusing on drug discovery, prevention, treatment of various diseases, and open-air defense initiatives against infectious diseases.
Direct Marketing: Operating under the umbrella of Decentralized Sharing Systems, Inc. (“Decentralized”), this division provides services to companies in the emerging growth “Gig” business model of peer-to-peer decentralized sharing marketplaces. It specializes in marketing and distributing products and services across North America, Asia Pacific, Middle East, and Eastern Europe.
Commercial Lending: American Pacific Bancorp, Inc. (“APB”) represents our banking and financing business line. During 2023, APB issued more than $14 million in new loans, and over $4 million in renewal loan to customers with strong credit quality across a diverse portfolio of businesses. Looking ahead, to better meet the needs of the current financial market, the company is looking to transition away form certain industries like direct marketing and focus more on growing its inventory / equipment loan portfolio as well as engaging in more specialized areas of lending like broker/dealer loans. We will continue to monitor our managed loan portfolio of more than $6 million, which earns 1.25% annually in service charges, and explore future opportunities. Importantly, the equity portfolio as a bank holding company is anticipated to remain relatively stable, regardless of stock market fluctuations.
Securities and Investment Management: This division focuses on acquiring assets in the securities trading and management arena, including broker-dealers and mutual funds management. It also oversees a real estate investment trust (REIT) that acquires hospitals and care centers.
Alternative Trading: Established to acquire assets and investments in the securities trading and funds management arena, this segment, in partnership with recognized global leaders, intends to operate a blockchain-based Alternative Trading System (“ATS”) for digital asset securities, exempt from registration. The ATS aims to provide T+0 settlement and foster liquidity for middle-market companies.
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Digital Transformation: This division serves as a Preferred Technology Partner and Application Development Solution for mid-cap brands, enhancing marketing, communications, and operational processes through custom software development. Digital Transformation was headquartered in Hong Kong until its discontinuation in 2023.
Secure Living: Focused on creating fully sustainable, secure, connected, and healthy living communities, this division designs advanced technology-infused, energy-efficient homes for new construction and renovations, catering to single and multi-family residential housing. Secure Living was headquartered in Houston, Texas, until it was wound down in 2023.
Alternative Energy: Alset Energy, Inc., our holding company for this group, and its subsidiary Alset Solar, Inc., pursue utility-scale solar farms to serve regional power grids and provide microgrids for independent energy. The group is dedicated to environmentally responsible and sustainable energy solutions. Alset Energy was headquarters in Houston, Texas until its discontinuation in 2023.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER 31,
Revenue
Year ended December 31, 2023 (as restated) | Year ended December 31, 2022 (as restated) | % Change | ||||||||||
| Revenue | ||||||||||||
| Printed products | $ | 18,497,000 | $ | 17,973,000 | 3 | % | ||||||
| Rental income | 3,647,000 | 6,287,000 | -42 | % | ||||||||
| Management fee income | - | 134,000 | -100 | % | ||||||||
| Net investment income | 385,000 | 630,000 | -39 | % | ||||||||
| Commission Revenue | 1,641,000 | 294,000 | 458 | % | ||||||||
| Direct marketing | 1,763,000 | 3,065,000 | -42 | % | ||||||||
| Total Revenue | $ | 25,933,000 | $ | 28,383,000 | -9 | % | ||||||
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Revenue - For the year ended December 31, 2023, revenue decreased 9% to approximately $25.9 million as compared to revenues of approximately $28.4 million for the year ended December 31, 2022. Printed products sales, which include sales of packaging and printing products, increased 3% in 2023 as compared to 2022. The increases in sales were due primarily to the addition of several new customers during 2023 as well as key customers returned to pre-Covid 19 pandemic numbers. Net investment income of $385,000 as of December 31, 2023 decreased 39% from $630,000 as of December 31, 2022 due to a number of notes receivable deemed uncollectible and impaired during 2023. Rental income decreased 42% due a tenant at our AMRE LifeCare subsidiary not making rent payments. The Company’s Direct Marketing revenues decreased 42% in 2023 as compared to 2022 primarily to due to decreased sales in our HWH products worldwide. Commission revenue, associated with Sentinel Brokers Company subsidiary, increase 458% due to consolidating a full year of result in 2023 versus 1 month in 2022.
Costs and Expenses
Year ended December 31, 2023 (as restated) | Year ended December 31, 2022 (as restated) | % Change | ||||||||||
| Cost of revenue - printed products | $ | 15,282,000 | $ | 16,960,000 | -10 | % | ||||||
| Cost of revenue - securities | 8,003,000 | 11,784,000 | -32 | % | ||||||||
| Cost of revenue – biotechnology | 77,000 | - | N/A | |||||||||
| Cost of revenue – commercial lending | 1,139,000 | 1,041,000 | 9 | % | ||||||||
| Cost of revenue – direct marketing | 818,000 | 2,573,000 | -68 | % | ||||||||
| Cost of revenue – other | 71,000 | 634,000 | -89 | % | ||||||||
| Sales, general and administrative compensation | 5,662,000 | 6,592,000 | -14 | % | ||||||||
| Professional fees | 3,708,000 | 9,186,000 | -60 | % | ||||||||
| Stock based compensation | - | 4,000 | -100 | % | ||||||||
| Sales and marketing | 2,356,000 | 3,309,000 | -29 | % | ||||||||
| Rent and utilities | 790,000 | 975,000 | -19 | % | ||||||||
| Research and development | 1,147,000 | 1,256,000 | -9 | % | ||||||||
| Other operating expenses | 6,680,000 | 4,047,000 | 65 | % | ||||||||
| Total costs and expenses | $ | 45,733,000 | $ | 58,361,000 | -22 | % | ||||||
Costs of revenue includes all direct costs of the Company’s printed products, including its packaging and printing sales and its direct marketing sales, materials, direct labor, transportation, and manufacturing facility costs. In addition, this category includes all direct costs associated with the Company’s technology sales, services and licensing including hardware and software that are resold, third-party fees, and fees paid to inventors or others because of technology licenses or settlements, if any. Cost of revenue for our REIT line of business includes all direct cost associated with the maintenance and upkeep of the related facilities, depreciation, amortization and the costs to acquire the facilities. Our Commercial Lending operating segment has costs of revenue associated with the impairment of notes receivable for those amounts at risk of collection. Total costs of revenue decreased 23% in 2023 as compared to 2022, primarily due to a decrease in cost of revenue within our printed products division, in particular paper costs as well as cost associated with our REIT line of business, and the sale of our Asian direct marketing business line.
Sales, general and administrative compensation costs, decreased 14% in 2023 as compared to 2022, primarily due to the reduction of head count within our Direct Marketing business segment.
Professional fees decreased 60% in 2023 as compared to 2022, primarily due to a decrease in legal fees associated with the direct marketing segment, accounting fees, and due diligence fees related to potential acquisitions.
Stock based compensation includes expense charges for all stock-based awards to employees, directors, and consultants. Such awards include option grants, warrant grants, and restricted stock awards. There was no stock based compensation during the year ended December 31, 2023.
Sales and marketing costs, which includes internet and trade publication advertising, travel and entertainment costs, sales-broker commissions, and trade show participation expenses, decreased 29% during 2023 as compared to 2022, primarily due to decreased direct marketing distributor commissions within our direct marketing line of business as well as the sale of our HWH World Holdings subsidiary in June 2023.
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Rent and utilities decreased 19% during the year ended December 31, 2023, as compared to the same period in 2022 respectively, primarily due to end of the lease in Tennessee for AMRE office space and California for the Company’s DSS Wealth Management subsidiary as well as the deconsolidation of SHRG. The Company rented additional space at our facility leased in Houston, Texas started during the 2022 as well as Premier Packaging’s leased facility beginning in March 2022.
Research and development costs consist primarily of third-party research costs and consulting costs. During the year ended December 31, 2023, Research and development costs decreased 9% as compared to the same period in 2022 primarily due to decrease in such activities at our Impact Biomedical, Inc. subsidiary.
Other operating expenses consist primarily of equipment maintenance and repairs, office supplies, IT support, and insurance costs. During the year ended December 31, 2023, other operating expenses increased 65% as compared to the same period in 2022, due primarily to the reserves put against rent receivables at our AMRE subsidiary approximating $2.4 million.
Other Income and Expense
Year ended December 31, 2023 (as restated) | Year ended December 31, 2022 (as restated) | % Change | ||||||||||
| Interest income | $ | 1,283,000 | $ | 629,000 | 104 | % | ||||||
| Interest expense | (553,000 | ) | (126,000 | ) | 339 | % | ||||||
| Dividend Income | 16,000 | 159,000 | -90 | % | ||||||||
| Other income | 532,000 | 1,518,000 | -65 | % | ||||||||
| Loss on investments | (4,967,000 | ) | (1,196,000 | ) | 315 | % | ||||||
Impairment of assets upon deconsolidation | (6,220,000 | ) | - | N/A | ||||||||
| Loss from equity method investment | (34,000 | ) | 129,000 | -126 | % | |||||||
| Impairment of fixed assets | - | - | N/A | |||||||||
| Impairment of real estate investments | (8,230,000 | ) | - | N/A | ||||||||
| Impairment of investment | - | (5,637,000 | ) | -100 | % | |||||||
| Litigation loss | - | (8,750,000 | ) | -100 | % | |||||||
| Impairment of goodwill | (30,978,000 | ) | - | N/A | ||||||||
| Provision for loan losses | (3,794,000 | ) | - | N/A | ||||||||
| Gain on extinguishment of debt | - | 110,000 | -100 | % | ||||||||
| Loss on sale of assets | (1,300,000 | ) | 405,000 | -421 | % | |||||||
| Total other expense | $ | (54,239,000 | ) | $ | (12,759,000 | ) | -325 | % | ||||
Interest income is recognized on the Company’s money markets, and notes receivable identified in Note 5.
Interest expense increased 339% year-over-year primarily due to the increase in debt at Premier Packaging during 2023 as well an increase in interest rate associated with the debt at LVAM.
Dividend income for the years ended December 31, 2023 and 2022 represent dividends received on certain marketable securities owned by the Company.
Other income decreased 65% during the year 2023 as compared to 2022 and is driven by normal business operations.
Loss on investments consists of net realized and unrealized losses on marketable securities which are recognized as the difference between the purchase price and sale price of the common stock investment, and net unrealized losses on marketable securities which are recognized on the change in fair market value on our common stock investment.
Impairment of assets upon deconsolidation is driven by the Company’s distribution of approximately 280 million shares of SHRG in May 2023 which resulted in a decrease in its ownership percentage of SHRG’s common stock from approximately 81% to 7%.
Impairment of investments is driven by the Company impairment of its investment in Vivacitas approximately $4,100,000 as of December 31, 2022.
Gain (loss) from equity method investment represents the Company’s prorated portion of earnings for its investments accounted for under the equity method for the year ended December 31, 2023, and 2022.
Impairment of fixed assets as of December 31, 2022 is associated with the write down of fair value of SHRG’s Lindon, Utah property.
Impairment of investments in real estate At December 31, 2023, the Company performed an assessment of the fair value of its AMRE LifeCare and AMRE Winter Haven properties and determined an impairment was necessary.
| 29 |
Litigation loss represents the Company’s cost to settle its litigation with Maiden Biosciences litigation, which was settled, and the Court’s December 20, 2022 judgment was vacated, and the case was dismissed with prejudice (see Note 18).
Impairment of goodwill during the 4th quarter of 2023, the Company performed qualitative and quantitative assessments of the goodwill value associated with its APB and Sentinel subsidiaries and determined that as of December 31, 2023 both assets required impairment. At December 31, 2023, the Company fully impaired the value of APB and Sentinel goodwill of approximately $29,744,000 and $1,234,000, respectively.
Provision for loan losses during the year ended December 31, 2023, the Company reviewed the entire loan portfolio and determined specific loans required an allowance for credit losses. See Note 6.
Gain on extinguishment of debt During the three months ended June 30, 2022, AAMI $110,000 SBA Paycheck Protection Program was forgiven in full.
Loss on sale of assets is driven by the Company’s loss on the sale of equity of HWH Holdings Inc and loss on sale of assets of HWH World as identified in Note 8.
Liquidity and Capital Resources
The Company has historically met its liquidity and capital requirements primarily through the sale of its equity securities and debt financing. As of December 31, 2023, the Company had cash of approximately $6.6 million. As of December 31, 2023, the Company believes that it has sufficient cash to meet its cash requirements for at least the next 12 months from the filing date of this Annual Report. In addition, the Company believes that it will have access to sources of capital from the sale of its equity securities and debt financing.
Cash Flow from Operating Activities
Net cash used by operating activities was approximately $19.2 million for the year ended December 31, 2023 as compared to approximately $27.0 million for the year ended December 31, 2022. This decrease is driven by a decrease in net loss from operations with adjustments to reconcile net loss from operations to net cash used by operating activities of approximately $30.8 million year over year, offset by increase in payments of accrued expenses of approximately $20.1 million and accounts payable of $1.8 million year over year.
Cash Flow from Investing Activities
Net cash provided by investing activities was approximately $8.9 million for year ended December 31, 2023 as compared to net cash used approximately $18.0 million for the year ended December 31, 2022. During the year ended December 31, 2022, we purchased $2.3 million in property, plant, and equipment, $14.9 million of marketable securities, and issued $3.6 million in new notes receivable. In comparison, the Company sold $9.5 million in marketable securities and issued $1.0 million in new notes receivable for the year ended December 31, 2023.
Cash Flow from Financing Activities
Net cash used by financing activities was approximately $2.4 million for the year ended December 31, 2023 as compared to net cash provided $7.6 million for the year ended December 31, 2022. During the year ended December 31, 2022, we borrowed $9.6 million of long-term debt as compared to $1.8 million during the year ended December 31, 2023.
Continuing Operations and Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should we be unable to continue as a going concern. While the Company has approximately $6.6 million in cash, the Company has incurred operating losses as well as negative cash flows from operating and investing activities over the past two years.
Aside from its $6.6 million in cash as of December 31, 2023, the Company believes it can continue as a going concern, due to its ability to generate operating cash through the sale of its $10.0 million of Marketable Securities, and the anticipated receipts of principal and interest on its Notes receivable of approximately $8.8 million through December 31, 2024. The Company has also taken steps to sell its real estate holdings in Utah, Texas, Pennsylvania, and Florida. These properties approximate $51.6 million in assets and are identified on the accompanying balance sheet as Held for sale. In addition, the Company has taken steps, and will continue to take measures, to materially reduce the expenses and cash burn at all corporate and business line levels. Although there are no assurances, we believe the above would allow us to fund our nine business lines current and planned operations for the twelve months from the filing date of this Annual Report. Based on this, the Company has concluded that substantial doubt of its ability to continue as a going concern has been alleviated.
| 30 |
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, an effect on our financial condition, financial statements, revenues or expenses.
Inflation
Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during 2023 or 2022 as we are generally able to pass the increase in our material and labor costs to our customers or absorb them as we improve the efficiency of our operations.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in our financial statements and accompanying notes. The financial statements as of December 31, 2023, describe the significant accounting policies and methods used in the preparation of the financial statements. There have been no material changes to such critical accounting policies as of the Annual Report on Form 10-K/A for the year ended December 31, 2022.
Allowance For Loans and Lease Losses
On January 1, 2022, the Company adopted amended accounting guidance “ASU No.2016-13 – Credit Losses” which requires an allowance for credit losses to be deducted from the amortized cost basis of financial assets to present the net carrying value at the amount that is expected to be collected over the contractual term of the asset considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. In estimating expected losses in the loan and lease portfolio, borrower-specific financial data and macro-economic assumptions are utilized to project losses over a reasonable and supportable forecast period. Assumptions and judgment are applied to measure amounts and timing of expected future cash flows, collateral values and other factors used to determine the borrowers’ abilities to repay obligations. After the forecast period, the Company utilizes longer-term historical loss experience to estimate losses over the remaining contractual life of the loans. Prior to 2022, the allowance for credit losses represented the amount that in management’s judgment reflected incurred credit losses inherent in the loan and lease portfolio as of the balance sheet date.
| 31 |
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurement Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
● Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets.
● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The carrying amounts reported in the consolidated balance sheet of cash and cash equivalents, accounts receivable, prepaids, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. Marketable securities classify as a Level 1 fair value financial instrument. The fair value of notes receivable approximates their carrying value as the stated or discounted rates of the notes do not reflect recent market conditions. The fair value of revolving credit lines notes payable and long-term debt approximates their carrying value as the stated or discounted rates of the debt reflect recent market conditions. The fair value of investments where the fair value is not considered readily determinable, are carried at cost.
Investments
Investments in equity securities with a readily determinable fair value, not accounted for under the equity method, are recorded at that value with unrealized gains and losses included in earnings. For equity securities without a readily determinable fair value, the investment is recorded at cost, less any impairment, plus or minus adjustments related to observable transactions for the same or similar securities, with unrealized gains and losses included in earnings.
For equity method investments, the Company regularly reviews its investments to determine whether there is a decline in fair value below book value. If there is a decline that is other-than-temporary, the investment is written down to fair value. See Note 9 for further discussion on investments.
Revenue
The Company recognizes its revenue based on when the title passes to the customer or when the service is completed and accepted by the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for shipped product or service provided. Sales and other taxes billed and collected from customers are excluded from revenue. The Company recognizes rental income associated with its REIT, net of amortization of favorable/unfavorable lease terms relative to market and includes rental abatements and contractual fixed increases attributable to operating leases, where collection has been considered probable, on a straight-line basis over the term of the related lease. The Company recognizes net investment income from its investment banking line of business as interest owed to the Company occurs. The Company generates revenue from its direct marketing line of business primarily through internet sales and recognizes revenue as items are shipped.
As of December 31, 2023, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Topic 606, the Company has applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. The Company elected the practical expedient allowing it to not recognize as a contract asset the commission paid to its salesforce on the sale of its products as an incremental cost of obtaining a contract with a customer but rather recognize such commission as expense when incurred as the amortization period of the asset that the Company would have otherwise recognized is one year or less.
Discontinued Operations
On May 4, 2023, the Company distributed approximately 280 million shares of Sharing Service Global Corporation (“SHRG”), beneficially held by the Company, in the form of a dividend to the shareholders of the Company’s common stock. Upon completion of this distribution, the Company retained an ownership interest in SHRG of approximately 7%. Effective May 1, 2023, SHRG was deconsolidated from the consolidated financial statements (the “Deconsolidation”). The consolidated statement of operations does not include SHRG activity after April 30, 2023 and the assets and liabilities of SHRG are no longer included within the Company’s consolidated balance sheet. The deconsolidation of SHRG is a strategic shift, as a significant portion of the Direct Marketing line of business was eliminated. While the Decentralized Sharing Systems part of the business will continue to provide these services, SHRG was a significant portion of this segment as it made up approximately 47% and 20%, respectively, of the total DSS revenue in 2022 and 2023. Accordingly, the Company has applied discontinued operations treatment for this deconsolidation as required by Accounting Standards Codification 205—Discontinued Operations. The major classes of assets and liabilities of SHRG are classified as Discontinued Operations on the Consolidated Balance Sheets and the operating results of the discontinued operations is reflected on the Consolidated Statements of Operations as Loss from Discontinued Operations. See Note 19.
Acquisitions
Business combinations and non-controlling interests are recorded in accordance with FASB ASC 805 Business Combinations. Under the guidance, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition and all acquisition costs are expensed as incurred. The excess of the purchase price over the estimated fair values is recorded as goodwill. If the fair value of the assets acquired exceeds the purchase price and the liabilities assumed, then a gain on acquisition is recorded. The application of business combination accounting requires the use of significant estimates and assumptions.
Acquisition of assets are recorded at their relative fair value based on total accumulated costs of the acquisition. Direct acquisition-related costs are expensed as incurred. This includes all costs related to finding, analyzing and negotiating a transaction. The allocation of the purchase price is an area that requires judgment and significant estimates. Tangible and intangible assets include land, building and improvements, furniture, fixtures and equipment, acquired above market and below market leases, in-place lease value (if applicable). Acquisition-date fair values of assets and assumed liabilities are determined based on replacement costs, appraised values, and estimated fair values using methods like those used by independent appraisers and that use appropriate discount and/or capitalization rates and available market information.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
| 32 |
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements
DSS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
| Page | |
| Reports of Independent Registered Public Accounting Firm (PCAOB ID: |
34 |
| Consolidated Financial Statements: | |
| Consolidated Balance Sheets | 36 |
| Consolidated Statements of Operations | 37 |
| Consolidated Statements of Cash Flows | 38 |
| Consolidated Statements of Changes in Stockholders’ Equity | 39 |
| Notes to the Consolidated Financial Statements | 40 |
| 33 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of DSS, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of DSS, Inc, and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Restatement of Financial Statements
As discussed in Note 2 to the consolidated financial statements, the Company’s consolidated financial statements as of and for the years ended December 31, 2023 and 2022 have been restated to correct certain misstatements.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Investments in real estate
As described in Note 10 to the consolidated financial statements, the Company owns real estate properties through their subsidiaries with a net book value of approximately $6,279,000, with an additional $51,595,000 classified as held for sale. We identified the value of the real estate to be a critical audit matter.
The principal consideration for our determination of management’s assessment of impairment of the real estate as a critical audit matter is the high degree of subjective auditor judgment associated with evaluating management’s determination of impairment of the real estate properties, which is primarily due to the complexity of the valuation models used and the sensitivity of the underlying significant assumptions. The key assumptions used within the valuation models included site valuations and various approaches such as cost, sales comparison, etc. The calculated fair values are sensitive to changes in these key assumptions.
| 34 |
How the Critical Audit Matter was addressed in the Audit
Our audit procedures related to the determination of the fair value of the real estate properties included the following, among others:
| a) | We obtained management’s rollforward of investments in real estate from December 31, 2022, to December 31, 2023 and tested any material additions by vouching to invoices and contracts. | |
| b) | We obtained third party valuations that assess the fair value of the properties from management. | |
| c) | We assessed the qualifications and competence of management and the qualifications, competence and objectivity of third-party specialist. | |
| d) | We engaged a valuation firm to review the valuation reports provided by management to determine if the reports were reasonable and acceptable based on the methodologies used by management’s third-party valuation firm. We also assessed the qualifications and competence of the valuation firm. | |
| e) | We compared the net book value of the real estate properties to the fair values of the properties per the third-party valuations to determine that the carrying value is less than fair value and impairment was addressed properly. During the year ended December 31, 2023, Management reclassified the land and building related to AMRE LifeCare and AMRE Winter Haven to assets held for sale. | |
| f) | We assessed the sufficiency of the Company’s disclosure of its accounting for these real estate properties included in Notes 3 and 10. |
Evaluation of Intangible Assets and Goodwill for Impairment
As described in Notes 3 and 11 to the consolidated financial statements, the Company holds Intangible Assets and Goodwill through its subsidiaries with a net book value of approximately $20,193,000 and $26,862,000, respectively. We identified the value of Intangible Assets and Goodwill to be a critical audit matter.
The principal consideration for our determination of management’s assessment of impairment of the Intangible Assets and Goodwill as a critical audit matter is the high degree of subjective auditor judgment associated with evaluating management’s determination of impairment of Intangible Assets and Goodwill, which is primarily due to the complexity of the valuation models used and the sensitivity of the underlying significant assumptions. The key assumptions used within the valuation models included qualitative and quantitative assessments. The calculated fair values are sensitive to changes in these key assumptions.
How the Critical Audit Matter was addressed in the Audit
Our audit procedures related to the determination of the fair value of the Intangible Assets and Goodwill included the following, among others:
| a) | We obtained management’s rollforward of Intangible Assets and Goodwill in from December 31, 2022, to December 31, 2023 and tested any material additions and disposals by vouching to agreements. | |
| b) | We obtained management’s qualitative and quantitative assessments and third-party valuations that assess the fair value of the Intangible Assets and Goodwill. | |
| c) | We assessed the qualifications and competence of management and the qualifications, competence and objectivity of third-party specialists. | |
| d) | We reviewed the valuation reports provided by management to determine if the reports were reasonable and acceptable based on the methodologies used by management’s third-party valuation firm. | |
| e) | We audited the critical inputs used in the valuation calculations and utilized the services of an independent auditor engaged specialist to ensure the methodologies and assumptions utilized by the Company’s independent specialists were reasonable and in accordance with industry standards. | |
| f) | We assessed the sufficiency of the Company’s disclosure of its accounting for Intangible Assets and Goodwill included in Notes 3 and 11. |
| /s/
|
|
| We have served as the Company’s auditor since 2022. | |
| March 27, 2024, except for Notes 2, 3, 4, 7, 10, 11, 12, 19, and 21, as to which date is October 22, 2024 | |
| 35 |
DSS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
As of December 31,
| 2023 (as restated) | 2022 (as restated) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Assets held for sale | ||||||||
Current assets - discontinued operations | ||||||||
Current portion of notes receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Investment in real estate, net | ||||||||
| Other investments | ||||||||
| Investment, equity method | ||||||||
| Marketable securities | ||||||||
| Notes receivable | ||||||||
Non-current assets - discontinued operations | ||||||||
| Other assets | ||||||||
| Right-of-use assets | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and deferred revenue | ||||||||
| Other current liabilities | ||||||||
Current Liabilities - discontinued operations | ||||||||
| Current portion of lease liability | ||||||||
| Current portion of long-term debt, net | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net | ||||||||
| Long term lease liability | ||||||||
| Non-current liabilities - discontinued operations | ||||||||
| Other long-term liabilities | ||||||||
| Deferred tax liability, net | ||||||||
| Commitments and contingencies (Note 18) | ||||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $ par value; shares authorized, shares issued and outstanding ( on December 31, 2022); Liquidation value $ | ||||||||
| Common stock, $ par value; shares authorized, shares issued and outstanding ( on December 31, 2022) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total DSS stockholders’ equity | ||||||||
| Non-controlling interest in subsidiaries | ||||||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
See accompanying notes.
| 36 |
DSS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended December 31,
| 2023 (as restated) | 2022 (as restated) | |||||||
| Revenue: | ||||||||
| Printed products | $ | $ | ||||||
| Rental income | ||||||||
| Management fee income | ||||||||
| Net investment income | ||||||||
| Direct marketing | ||||||||
| Commission revenue | ||||||||
| Total revenue | ||||||||
| Costs and expenses: | ||||||||
| Cost of revenue | ||||||||
| Selling, general and administrative (including stock based compensation) | ||||||||
| Total costs and expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest income | ||||||||
| Dividend income | ||||||||
| Other income (expense) | ||||||||
| Interest expense | ( | ) | ( | ) | ||||
| Litigation loss | ( | ) | ||||||
| Gain on extinguishment of debt | ||||||||
| (Loss)/gain on equity method investment | ( | ) | ||||||
| Loss on investments | ( | ) | ( | ) | ||||
| Impairment of investment | ( | ) | ||||||
| Impairment of intangible assets | ( | ) | ||||||
| Impairment of real estate assets | ( | ) | ||||||
| Impairment of fixed assets | ||||||||
Impairment of assets upon deconsolidation | ( | ) | ||||||
| Provision for loan losses | ( | ) | ||||||
| Impairment of goodwill | ( | ) | ||||||
| (Loss)/gain on sale | ( | ) | ||||||
| Loss from continuing operations before income taxes | ( | ) | ( | ) | ||||
| Income tax loss | ( | ) | ( | ) | ||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
Loss from discontinued operations, net of tax | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Loss attributed to noncontrolling interest | ||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | ||
Amounts attributable to DSS stockholders | ||||||||
| Loss from continuing operations net of taxes | $ | ( | ) | $ | ( | ) | ||
Loss from discontinued operations net of taxes | ( | ) | ( | ) | ||||
Net loss attributable to DSS stockholders | $ | ( | ) | $ | ( | ) | ||
| Loss per common share attributable to common stockholders – continuing operations | ||||||||
| Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Loss per common share attributable to common stockholders - discontinued operations | ||||||||
Basic | $ | ( | ) | $ | ( | ) | ||
| Diluted | $ | ( | ) | $ | ( | ) | ||
| Shares used in computing loss per common share: | ||||||||
| Basic | ||||||||
| Diluted | ||||||||
See accompanying notes.
| 37 |
DSS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31,
| 2023 (as restated) | 2022 (as restated) | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
Loss from discontinued operations | ( | ) | ( | ) | ||||
| Loss from continuing operations | ( | ) | ( | ) | ||||
| Adjustments to reconcile net loss from operations to net cash used by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock based compensation | ||||||||
| Gain/(loss) on equity method investment | ( | ) | ||||||
| Loss on investments | ||||||||
| Change in ROU assets | ( | ) | ||||||
| Gain on extinguishment of debt | ( | ) | ||||||
| Deferred tax loss | ||||||||
| Loss on sales of assets | ||||||||
| Impairment of fixed assets | ||||||||
| Impairment of assets upon deconsolidation | ||||||||
| Impairment of intangible assets | ||||||||
| Impairment of real estate | ||||||||
Impairment of Goodwill | ||||||||
| Impairment of accounts receivable | ||||||||
| Impairment of notes receivable | ||||||||
| Impairment of other investments | ||||||||
| Decrease (increase) in assets: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other current assets | ||||||||
| Other assets | ( | ) | ||||||
| Increase (decrease) in liabilities: | ||||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ( | ) | ||||||
| Change in ROU liabilities | ( | ) | ||||||
| Other liabilities | ( | ) | ||||||
| Net cash (used) provided by operating activities - continuing operations | ( | ) | ||||||
Net cash used by operating activities - discontinued operations | ( | ) | ( | ) | ||||
Net cash used by operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property, plant and equipment | ( | ) | ( | ) | ||||
| Purchase of real estate | ( | ) | ||||||
| Purchase of investment | ( | ) | ||||||
| Purchase of marketable securities | ( | ) | ||||||
| Disposal of property, plant & equipment | ||||||||
| Asset acquired with APB acquisition | ( | ) | ||||||
| Asset acquired with Sentinel acquisition | ||||||||
| Conversion of SHRG to consolidation | ||||||||
| Change in Equity investment | ( | ) | ||||||
| Issuance of new notes receivable, net origination fees | ( | ) | ( | ) | ||||
| Payment received on notes receivable | ||||||||
| Sale of marketable securities | ||||||||
| Purchase of intangible assets | ( | ) | ||||||
Net cash provided (used) by investing activities - continuing operations | ( | |||||||
Net cash used by investing activities - discontinued operations | ( | |||||||
| Net cash provided (used) by investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Payments of long-term debt | ( | ) | ( | ) | ||||
| Borrowings of long-term debt | ||||||||
| Issuances of common stock, net of issuance costs | ||||||||
| Net cash (used) provided by financing activities - continuing operations | ( | ) | ||||||
Net cash used provided by financing activities - discontinued operations | ( | ) | ||||||
| Net cash (used) provided by financing activities | ( | ) | ||||||
| Net (decrease) increase in cash – continuing operations | ( | ) | ||||||
| Net decrease in cash – discontinued operations | ( | ) | ( | ) | ||||
| Cash and cash equivalents at beginning of year | ||||||||
| Cash and cash equivalents at end of year | $ | $ | ||||||
See accompanying notes.
| 38 |
DSS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders’ Equity
For the Years Ended December 31,
| Common Stock | Preferred Stock | Additional Paid-in | Accumulated | Total DSS | Non- controlling Interest in | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit (as restated) | Equity (as restated) | Subsidiary
(as restated) | Total (as restated) | ||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Issuance of common stock, net of expenses | - | |||||||||||||||||||||||||||||||||||
| Acquisition of Sentinel Brokers Company, Inc. | - | - | ||||||||||||||||||||||||||||||||||
| Acquisition of Sharing Services Global Corporation | - | - | ||||||||||||||||||||||||||||||||||
| Stock based payments | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Common Stock | Preferred Stock | Additional Paid-in | Accumulated | Total DSS | Non- controlling Interest in | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit
(as restated) | Equity
(as restated) | Subsidiary
(as restated) | Total
(as restated) | ||||||||||||||||||||||||||||
| Balance, December 31, 2022 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Issuance of common stock, net of expenses | - | |||||||||||||||||||||||||||||||||||
| Acquisition of Sentinel Brokers Company, Inc. shares | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Fractional shares as a result of reverse stock split | - | |||||||||||||||||||||||||||||||||||
Dividend in kind - Deconsolidation of Sharing Services Global Corporation | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Deconsolidation of SHRG | - | |||||||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, December 31, 2023 | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||
See accompanying notes.
| 39 |
DSS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Description of Business
The Company, incorporated in the state of New York in May 1984 has conducted business in the name of Document Security Systems, Inc. On September 16, 2021, the board of directors approved an agreement and plan of merger with a wholly owned subsidiary, DSS, Inc. (a New York corporation, incorporated in August 2020), for the sole purpose of effecting a name change from Document Security Systems, Inc. to DSS, Inc. This change became effective on September 30, 2021. DSS, Inc. maintained the same trading symbol “DSS”.
DSS, Inc. (together with its consolidated subsidiaries, referred to herein as “DSS,” “we,” “us,” “our” or the “Company”) currently operates nine (9) distinct business lines with operations and locations around the globe. These business lines are: (1) Product Packaging, (2) Biotechnology, (3) Direct, (4) Commercial Lending, (5) Securities and Investment Management, (6) Alternative Trading (7) Digital Transformation (discontinued in 2023), (8) Secure Living (discontinued in 2023), and (9) Alternative Energy (discontinued in 2023). Each of these business lines are in different stages of development, growth, and income generation.
Our divisions, their business lines, subsidiaries, and operating territories: (1) Our Product Packaging line is led by Premier Packaging Corporation, Inc. (“Premier”), a New York corporation. Premier operates in the paper board and fiber based folding carton, consumer product packaging, and document security printing markets. It markets, manufactures, and sells sophisticated custom folding cartons, mailers, photo sleeves and complex 3-dimensional direct mail solutions. Premier is currently located in its new facility in Rochester, NY, and primarily serves the US market. (2) The Biotechnology business line was created to invest in or acquire companies in the BioHealth and BioMedical fields, including businesses focused on the advancement of drug discovery and prevention, inhibition, and treatment of neurological, oncological, and immune related diseases. This division is also targeting unmet, urgent medical needs, and is developing open-air defense initiatives, which curb transmission of air-borne infectious diseases, such as tuberculosis and influenza. (3) Direct Marketing, led by the holding corporation, Decentralized Sharing Systems, Inc. (“Decentralized”) provides services to assist companies in the emerging growth “Gig” business model of peer-to-peer decentralized sharing marketplaces. Direct Marketing’s products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific, Middle East, and Eastern Europe. (4) Our Commercial Lending business division, driven by American Pacific Bancorp (“APB”), is organized for the purposes of being a financial network holding company, focused on acquiring equity positions in (i) undervalued commercial bank(s), bank holding companies and nonbanking licensed financial companies operating in the United States, South East Asia, Taiwan, Japan and South Korea, and (ii) companies engaged in—nonbanking activities closely related to banking, including loan syndication services, mortgage banking, trust and escrow services, banking technology, loan servicing, equipment leasing, problem asset management, SPAC (special purpose acquisition company) consulting services, and advisory capital raising services. (5) Securities and Investment Management was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, broker dealers, and mutual funds management. Also in this segment is the Company’s real estate investment trusts (“REIT”), organized for the purposes of acquiring hospitals and other acute or post-acute care centers from leading clinical operators with dominant market share in secondary and tertiary markets, and leasing each property to a single operator under a triple-net lease. the REIT was formed to originate, acquire, and lease a credit-centric portfolio of licensed medical real estate. (6) Alternative Trading was established to develop and/or acquire assets and investments in the securities trading and/or funds management arena. Alternative Trading, in partnership with recognized global leaders in alternative trading systems, intends to own and operate in the US a single or multiple vertical digital asset exchanges for securities, tokenized assets, utility tokens, and cryptocurrency via an alternative trading platform using blockchain technology. The scope of services within this section is planned to include asset issuance and allocation (securities and cryptocurrency), FPO, IPO, ITO, PPO, and UTO listings on a primary market(s), asset digitization/tokenization (securities, currency, and cryptocurrency), and the listing and trading of digital assets (securities and cryptocurrency) on a secondary market(s). (7) Digital Transformation was established to be a Preferred Technology Partner and Application Development Solution for mid cap brands in various industries including the direct selling and affiliate marketing sector. Digital improves marketing, communications and operations processes with custom software development and implementation (discontinued in 2023). (8) The Secure Living division has developed a plan for fully sustainable, secure, connected, and healthy living communities with homes incorporating advanced technology, energy efficiency, and quality of life living environments both for new construction and renovations for single and multi-family residential housing (discontinued in 2023). (9) The Alternative Energy group was established to help lead the Company’s future in the clean energy business that focuses on environmentally responsible and sustainable measures. Alset Energy, Inc, the holding company for this group, and its wholly owned subsidiary, Alset Solar, Inc., pursue utility-scale solar farms to serve US regional power grids and to provide underutilized properties with small microgrids for independent energy (discontinued in 2023).
On
May 13, 2021, Sentinel Brokers, LLC. (“Sentinel LLC”), subsidiary of the Company entered into a stock purchase agreement
(“Sentinel Agreement”) to acquire a
On
February 28, 2022, DSS entered into an Amendment to Stock Purchase Agreement (the “Amendment”) with its shareholder Alset
EHome International Inc. (“AEI”), pursuant to which the Company and AEI have agreed to amend certain terms of the Stock Purchase
Agreement dated January 25, 2022 (the “SPA”). Pursuant to the SPA, AEI had agreed to purchase up to shares of
the Company’s common stock for a purchase price of $ per share, for an aggregate purchase price of $
On
May 17, 2022, the shareholders of the Company approved the issuance of up to Shares of our Common Stock to Alset International,
a related party, to purchase the Convertible Promissory Note issued by American Medical REIT, Inc. with a principal amount of $
On May 17, 2022, the shareholders of the Company approved the acquisition of shares of True Partners Capital Holdings Limited (“True Partners”), a company publicly traded on the Hong Kong stock exchange in exchange for shares of DSS stock. The True Partner shares were acquired from Alset EHome International, Inc. (“Alset EHome”), a related party. Mr. Heng Fai Ambrose Chan, our director and Executive Chairman, is also Chairman of the Board, Chief Executive Officer, and the largest beneficial owner of the outstanding shares of Alset EHome. This transaction was completed with the transfer of DSS share to Alset EHome on July 1, 2022 with the issuance of DSS shares, which were valued at $ per share, to Alset EHome.
| 40 |
2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
Restatement of Previously Issued Financial Statements
The Company has restated the accompanying financial statements for the year ended December 31, 2023 and 2022, along with certain notes to such restated financial statements. The adjustments recorded were related to the correction of an error identified by management. The nature and impact of this adjustment on the Company’s previously issued financial statements is summarized as follows and the effects by impacted line items are detailed in the tables below. Impacted amounts and associated disclosures are restated within the accompanying notes to the financial statements.
On May 4, 2023, the Company distributed approximately
million shares of Sharing Service Global Corporation (“SHRG”), beneficially held by the Company, in the form of a
dividend to the shareholders of the Company’s common stock. Upon completion of this distribution, the Company retained an ownership
interest in SHRG of approximately
The following tables summarize the effect of the restatement on each financial statement line items as of the December 31, 2023 and 2022:
Schedule of Restatement of Previously Issued Financial Statements
| As Previously Reported | Adjustments | As Restated | ||||||||||
| Consolidated Balance Sheets as of December 31, 2022 | ||||||||||||
| Cash and cash equivalents | $ | ( | ) | $ | ||||||||
| Accounts receivable, net | $ | ( | ) | $ | ||||||||
| Inventory | $ | ( | ) | $ | ||||||||
| Current portion of notes receivable | $ | ( | ) | $ | ||||||||
| Prepaid expenses and other current assets | $ | ( | ) | $ | ||||||||
| Current assets - discontinued operations | $ | $ | ||||||||||
| Property, plant and equipment, net | $ | ( | ) | $ | ||||||||
| Other investments | $ | ( | ) | $ | ||||||||
| Marketable securities | $ | ( | ) | $ | ||||||||
| Other assets | $ | ( | ) | $ | ||||||||
| Right-of-use assets | $ | ( | ) | $ | ||||||||
| Other intangible assets, net | $ | ( | ) | $ | ||||||||
| Non-current assets - discontinued operations | $ | $ | ||||||||||
| Accounts payable | $ | ( | ) | $ | ||||||||
| Accrued expenses and deferred revenue | $ | ( | ) | $ | ||||||||
| Current portion of lease liability | $ | ( | ) | $ | ||||||||
| Current Liabilities - discontinued operations | $ | $ | ||||||||||
| Long term lease liability | $ | ( | ) | $ | ||||||||
| Non-current liabilities - discontinued operations | $ | $ | ||||||||||
| Consolidated Statements of Operations Loss for the year ended December 31, 2022 | ||||||||||||
| Direct marketing revenue | $ | ( | ) | $ | ||||||||
| Total revenue | $ | ( | ) | $ | ||||||||
| Cost of revenue | $ | ( | ) | $ | ||||||||
| Selling, general and administrative (including stock based compensation) | $ | ( | ) | $ | ||||||||
| Total costs and expenses | $ | ( | ) | $ | ||||||||
| Operating loss | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Other income (expense) | $ | ( | ) | $ | ||||||||
| Interest expense | $ | $ | ||||||||||
| Gain (loss) on investments | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Impairment of fixed assets | $ | ( | ) | ( | ) | $ | ||||||
| Loss form continuing operations before taxes | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Loss from discontinued operations, net of taxes | $ | $ | ||||||||||
| Loss per common share - basic earnings per share | $ | ( | ) | $ | ( | ) | ||||||
| Loss per common share - diluted earnings per share | $ | ( | ) | $ | ( | ) | ||||||
| Loss per common share - discontinued operations basic | $ | ( | ) | $ | ( | ) | ||||||
| Loss per common share - discontinued operations diluted | $ | ( | ) | $ | ( | ) | ||||||
| Consolidated Statements of Cash Flows for the year ended December 31, 2022 | ||||||||||||
| Loss from discontinued operations | $ | $ | ( | ) | ||||||||
| Loss from continuing operations | $ | $ | ( | ) | ||||||||
| Depreciation and amortization | $ | ( | ) | $ | ||||||||
| Loss (gain) on investments | $ | $ | ||||||||||
| Change in ROU assets | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Impairment of fixed assets | $ | ( | ) | $ | ||||||||
| Accounts receivable | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Inventory | $ | ( | ) | $ | ( | ) | ||||||
| Prepaid expenses and other current assets | $ | ( | ) | $ | ||||||||
| Other assets | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Accounts payable | $ | $ | ||||||||||
| Accrued expenses | $ | $ | ||||||||||
| Change in ROU liabilities | $ | ( | ) | $ | ||||||||
| Other liabilities | $ | ( | ) | $ | ||||||||
| Net cash used by operating activities - continuing operations | $ | ( | ) | $ | ||||||||
| Net cash used by operating activities - discontinued operations | $ | ( | ) | $ | ( | ) | ||||||
| Purchase of property, plant and equipment | $ | ( | ) | $ | ( | ) | ||||||
| Purchase of marketable securities | $ | ( | ) | $ | ( | ) | ||||||
| Issuance of new notes receivable, net origination fees | $ | ( | ) | $ | ( | ) | ||||||
| Net cash used by investing activities - continuing operations | $ | ( | ) | $ | ( | ) | ||||||
| Net cash used by investing activities - discontinued operations | $ | ( | ) | $ | ( | ) | ||||||
| Payments of long-term debt | $ | ( | ) | $ | ( | ) | ||||||
| Net cash used by financing activities - continuing operations | $ | $ | ||||||||||
| Net cash used by financing activities - discontinued operations | $ | ( | ) | $ | ( | ) | ||||||
| Net increase (decrease) in cash - continuing operations | $ | ( | ) | $ | ||||||||
| Net increase (decrease) in cash - discontinued operations | $ | ( | ) | $ | ( | ) | ||||||
| Consolidated Statements of Operations Income (Loss) for the year ended December 31, 2023 | ||||||||||||
| Direct marketing revenue | $ | ( | ) | $ | ||||||||
| Total revenue | $ | ( | ) | $ | ||||||||
| Cost of revenue | $ | ( | ) | $ | ||||||||
| Selling, general and administrative (including stock based compensation) | $ | ( | ) | $ | ||||||||
| Total costs and expenses | $ | ( | ) | $ | ||||||||
| Operating loss | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Loss on investment | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Impairment of assets due to deconsolidation | $ | $ | ( | ) | ||||||||
| Loss from continuing operations before income taxes | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Loss from discontinued operations, net of tax | $ | ( | ) | $ | ( | ) | ||||||
| Net loss | $ | ( | ) | ( | ) | ( | ) | |||||
| Net loss attributable to common stockholders | $ | ( | ) | ( | ) | ( | ) | |||||
| Loss per common share - basic earnings per share | $ | ( | ) | $ | ( | ) | ||||||
| Loss per common share - diluted earnings per share | $ | ( | ) | $ | ( | ) | ||||||
| Loss per common share - discontinued operations basic | $ | ( | ) | $ | ( | ) | ||||||
| Loss per common share - discontinued operations diluted | $ | ( | ) | $ | ( | ) | ||||||
| Consolidated Statements of Cash Flows for the year ended December 31, 2023 | ||||||||||||
| Net loss | $ | ( | ) | ( | ) | $ | ( | ) | ||||
| Loss from discontinued operations | $ | $ | ( | ) | ||||||||
| Loss from continuing operations | $ | $ | ( | ) | ||||||||
| Loss (gain) on investments | $ | ( | ) | $ | ||||||||
| Impairment of assets | $ | $ | ||||||||||
| Net cash used by operating activities - continuing operations | $ | $ | ( | ) | ||||||||
| Net cash used by operating activities - discontinued operations | $ | $ | ( | ) | ||||||||
| Net decrease in cash - continuing operations | $ | $ | ( | ) | ||||||||
| Net decrease in cash - discontinued operations | $ | $ | ( | ) | ||||||||
| Consolidated Statements of Changes in Stockholders’ Equity for the year ended December 31, 2023 | ||||||||||||
| Dividend in kind - Deconsolidation of Sharing Services Global Corporation | $ | $ | ( | ) | ||||||||
| Net loss - total | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Net loss - accumulated deficit | $ | ( | ) | ( | ) | $ | ( | ) | ||||
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Summary of Significant Accounting Policies
Principles of Consolidation – The consolidated financial statements include the accounts of DSS and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Deconsolidation
of Sharing Services Global Corporation - On May 4, 2023, the Company distributed approximately million shares of SHRG beneficially
held by DSS and Decentralized Sharing Systems in the form of a dividend to the shareholders of DSS common stock. Upon completion of this
distribution, DSS will retain an ownership interest in SHRG of approximately
Upon
Deconsolidation, we recognized an impairment of assets due to the
deconsolidation of SHRG approximately $
Use of Estimates – The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, the Company evaluates its estimates, including those related to the accounts receivable, convertible notes receivable, inventory, fair values of investments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of options and warrants to purchase the Company’s common stock, preferred stock, deferred revenue, and income taxes, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
| 41 |
Reclassifications – Interest expense associated with the debt owed by AMRE has been reclassed from Interest expense to Cost of revenue for the year ended December 31, 2022 to conform to current period presentation.
Cash Equivalents – All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. Amounts included in cash equivalents in the accompanying consolidated balance sheets are money market funds whose adjusted costs approximates fair value.
Accounts Receivable – The Company extends credit to its customers in the normal course of business. The Company performs ongoing credit evaluations and generally does not require collateral. Payment terms are generally 30 days but up to net 120 for certain customers. The Company carries its trade accounts receivable at invoice amounts and its rent receivables at contract amounts, less an allowance for credit losses. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for credit losses based upon management’s estimates that include a review of the history of past write-offs and collections and an analysis of current credit conditions. In estimating expected losses in the accounts receivable portfolio, customer-specific financial data and macro-economic assumptions are utilized to project losses over a reasonable and supportable forecast period. Assumptions and judgment are applied to measure amounts and timing of expected future cash flows, collateral values and other factors used to determine the customers’ abilities to pay.
At December 31, 2023,
and December 31, 2022, the Company established a reserve for credit losses of approximately $
Concentration
of Credit Risk - The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured limits.
The Company believes it is not exposed to any significant credit risk because of any non-performance by the financial institutions. As
of December 31, 2022, two customers accounted for approximately
Notes receivable, unearned interest, and related recognition - The Company records all future payments of principal and interest on notes as notes receivable, which are then offset by the amount of any related unearned interest income. For financial statement purposes, the Company reports the net investment in the notes receivable on the consolidated balance sheet as current or long-term based on the maturity date of the underlying notes. Such net investment is comprised of the amount advanced on the loans, adjusting for net deferred loan fees or costs incurred at origination, amounts allocated to warrants received upon origination, and any payments received in advance. The unearned interest is recognized over the term of the notes and the income portion of each note payment is calculated so as to generate a constant rate of return on the net balance outstanding. Net deferred loan fees or costs, together with discounts recognized in connection with warrants acquired at origination, are accreted as an adjustment to yield over the term of the loan.
Allowance For Loans And Lease Losses - On January 1, 2022, the Company adopted amended accounting guidance “ASU No.2016-13 – Credit Losses” which requires an allowance for credit losses to be deducted from the amortized cost basis of financial assets to present the net carrying value at the amount that is expected to be collected over the contractual term of the asset considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. In estimating expected losses in the loan and lease portfolio, borrower-specific financial data and macro-economic assumptions are utilized to project losses over a reasonable and supportable forecast period. Assumptions and judgment are applied to measure amounts and timing of expected future cash flows, collateral values and other factors used to determine the borrowers’ abilities to repay obligations. After the forecast period, the company utilizes longer-term historical loss experience to estimate losses over the remaining contractual life of the loans. Prior to 2022, the allowance for credit losses represented the amount that in management’s judgment reflected incurred credit losses inherent in the loan and lease portfolio as of the balance sheet date.
Investments – Investments in equity securities with a readily determinable fair value, not accounted for under the equity method, are recorded at fair value with unrealized gains and losses included in earnings. For equity securities without a readily determinable fair value, the investment is recorded at cost, less any impairment, plus or minus adjustments related to observable transactions for the same or similar securities, with unrealized gains and losses included in earnings. For equity method investments, the Company regularly reviews its investments to determine whether there is a decline in fair value below book value. If there is a decline that is other-than-temporary, the investment is written down to fair value. See Note 9 for further discussion on investments.
| 42 |
Fair Value of Financial Instruments - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurement Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
● Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets.
● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and
● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The carrying amounts reported in the consolidated balance sheet of cash and cash equivalents, accounts receivable, prepaids, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. Marketable securities classify as a Level 1 fair value financial instrument. The fair value of notes receivable approximates their carrying value as the stated or discounted rates of the notes do not reflect recent market conditions. The fair value of revolving credit lines notes payable and long-term debt approximates their carrying value as the stated or discounted rates of the debt reflect recent market conditions. The fair value of investments where the fair value is not considered readily determinable, are carried at cost.
Inventory –
Inventories consist primarily of paper, pre-printed security paper, paperboard, fully prepared packaging, air filtration systems,
and health and beauty products which and are stated at the lower of cost or net realizable value on the first-in, first-out
(“FIFO”) method. Packaging work-in-process and finished goods included the cost of materials, direct labor and overhead.
At the closing of each reporting period, the Company evaluates its inventory in order to adjust
the inventory balance for obsolete and slow-moving items. An allowance for obsolescence of approximately $
Property, Plant and Equipment – Property, plant and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives or lease period of the assets whichever is shorter. Expenditures for renewals and betterments are capitalized. Expenditures for minor items, repairs and maintenance are charged to operations as incurred. Any gain or loss upon sale or retirement due to obsolescence is reflected in the operating results in the period the event takes place.
Investments in real estate, net – Acquisition of assets are recorded at their relative fair value based on total accumulated costs of the acquisition. Direct acquisition-related costs are capitalized as a component of the acquired assets. This includes all costs related to finding, analyzing and negotiating a transaction. The allocation of the purchase price is an area that requires judgment and significant estimates. Tangible and intangible assets include land, building and improvements, furniture, fixtures and equipment, acquired above market and below market leases, in-place lease value (if applicable). Acquisition-date fair values of assets and assumed liabilities are determined based on replacement costs, appraised values, and estimated fair values using methods similar to those used by independent appraisers and that use appropriate discount and/or capitalization rates and available market information. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets. During 2023, the land and buildings related to AMRE LifeCare and AMRE Winter Haven were reclassified to Assets held for sale.
Leases - ASC 842 requires recognition of leases on the consolidated balance sheets as right-of-use (“ROU”) assets and lease liabilities. ROU assets represent the Company’s right to use underlying assets for the lease terms and lease liabilities represent the Company’s obligation to make lease payments arising from the leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value and future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company used its estimated incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. A number of the lease agreements contain options to renew and options to terminate the leases early. The lease term used to calculate ROU assets and lease liabilities only includes renewal and termination options that are deemed reasonably certain to be exercised.
| 43 |
The Company recognized lease liabilities, with corresponding ROU assets, based on the present value of unpaid lease payments for existing operating leases longer than twelve months.. Operating lease cost is recognized as a single lease cost on a straight-line basis over the lease term and is recorded in selling, general and administrative expenses. Variable lease payments for common area maintenance, property taxes and other operating expenses are recognized as expense in the period incurred. The Company has elected to separate lease and non-lease components for all property leases for the purposes of calculating ROU assets and lease liabilities.
Impairment of Long-Lived Assets and Goodwill - The Company monitors the carrying value of long-lived assets for potential impairment and tests the recoverability of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If a change in circumstance occurs, the Company performs a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If cash flows cannot be separately and independently identified for a single asset, the Company will determine whether impairment has occurred for the group of assets for which the Company can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, the Company measures any impairment by comparing the fair value of the asset or asset group to its carrying value.
Assets held
for sale – The Company has several buildings and
the associated land they occupy for sale as of December 31, 2023. These consist of primarily of retail space in Lindon, Utah approximating
$
Goodwill
– Goodwill is the excess of cost of an acquired entity over the fair value of amounts assigned to assets acquired
and liabilities assumed in a business combination. Goodwill is subject to impairment testing at least annually and will be tested for
impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. FASB
ASC Topic 350 provides an entity with the option to first assess qualitative factors to determine whether the existence of events or
circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying
amount. If, after completing the assessment, it is determined that it is more likely than not that the fair value of a reporting unit
is less than its carrying value, the Company will proceed to a quantitative test. The Company may also elect to perform a quantitative
test instead of a qualitative test for any or all of our reporting units. The test compares the fair value of an entity’s reporting
units to the carrying value of those reporting units. This quantitative test requires various judgments and estimates. The Company estimates
the fair value of the reporting unit using a market approach in combination with a discounted operating cash flow approach. Impairment
of goodwill is measured as the excess of the carrying amount of goodwill over the fair values of recognized and unrecognized assets and
liabilities of the reporting unit. The Company performed its annual goodwill impairment test as of December 31, 2023, and no impairment
was deemed necessary for the goodwill associated with Premier Packaging Company, and Impact BioMedical of $
Intangible
Assets - The estimated fair values of acquired intangibles are generally determined based upon future economic
benefits such as earnings and cash flows. Acquired identifiable intangible assets are recorded at fair value and are amortized over
their estimated useful lives. Acquired intangible assets with an indefinite life are not amortized but are reviewed for impairment
at least annually or more frequently whenever events or changes in circumstances indicate that the carrying amounts of those assets
are below their estimated fair values. Impairment is tested under ASC 350. At December 31, 2023, The Company impaired approximately
$
Revenue - The Company recognizes its revenue based on when the title passes to the customer or when the service is completed and accepted by the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for shipped product or service provided. Sales and other taxes billed and collected from customers are excluded from revenue. The Company recognizes rental income associated with its REIT, net of amortization of favorable/unfavorable lease terms relative to market and includes rental abatements and contractual fixed increases attributable to operating leases, where collection has been considered probable, on a straight-line basis over the term of the related lease. The Company recognizes net investment income from its investment banking line of business as interest and management fees related to loans managed for third parties owed to the Company occurs. The Company generates revenue from its direct marketing line of business primarily through internet sales and recognizes revenue as items are shipped.
| 44 |
As of December 31, 2023, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Topic 606, the Company has applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. The Company elected the practical expedient allowing it to not recognize as a contract asset the commission paid to its salesforce on the sale of its products as an incremental cost of obtaining a contract with a customer but rather recognize such commission as expense when incurred as the amortization period of the asset that the Company would have otherwise recognized is one year or less.
Costs of revenue - Costs of revenue includes all direct cost of the Company’s packaging, commercial and security printing sales, primarily, paper, inks, dies, and other consumables, and direct labor, transportation, amortization, deprecation, and manufacturing facility costs. In addition, this category includes all direct costs associated with the manufacturing and procurement of the products sold in the Company’s Direct Marketing line of business as well as with the Company’s technology sales, services and licensing including hardware and software that is resold, third-party fees, and fees paid to inventors or others as a result of technology licenses or settlements, if any. Cost of revenue for our REIT line of business includes all direct cost associated with the maintenance and upkeep of the related facilities, depreciation, amortization and the costs to acquire the facilities. Our Commercial Lending operating segment has costs of revenue associated with the impairment of notes receivable for those amounts at risk of collection. Costs of revenue do not include expenses related to product development, integration, and support. These costs are included in research and development, which is a component of selling, general and administrative expenses on the consolidated statement of operations. Legal costs are included in selling, general and administrative.
Shipping and Handling Costs - Costs incurred by the Company related to shipping and handling are included in cost of revenue. Amounts charged to customers pertaining to these costs are reflected as revenue.
Sales
Commissions - Sales commissions are expensed as incurred for contracts with an expected duration of one year or less.
A significant portion of the Company’s sales commissions expense is generated from its direct marketing line of business. These
commissions are based on current month shipments and are paid one month in arrears. There were
Contingent Legal Expenses - Contingent legal fees are expensed in the consolidated statements of operations in the period that the related revenues are recognized. In instances where there are no recoveries from potential infringers, no contingent legal fees are paid; however, the Company may be liable for certain out of pocket legal costs incurred pursuant to the underlying legal services agreement that will be paid out from the proceeds from settlements or licenses that arise pursuant to an enforcement action, which will be expensed as legal fees in the period in which the payment of such fees is probable. Any unamortized patent acquisition costs will be expensed in the period a conclusion is reached in an enforcement action that does not yield future royalties potential.
Research
and Development - Research and development costs are expensed as incurred. Research and development costs consist primarily
of third-party research costs and consulting costs. The Company recognized costs of approximately $
Income Taxes - The Company recognizes estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income items is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized. We recognize penalties and accrued interest related to unrecognized tax benefits in income tax expense.
| 45 |
Discontinued
Operations - On May 4, 2023, the Company distributed approximately million shares of Sharing Service Global Corporation (“SHRG”),
beneficially held by the Company, in the form of a dividend to the shareholders of the Company’s common stock. Upon completion
of this distribution, the Company retained an ownership interest in SHRG of approximately
Acquisitions - Business combinations and non-controlling interests are recorded in accordance with FASB ASC 805 Business Combinations. Under the guidance, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition and all acquisition costs are expensed as incurred. The excess of the purchase price over the estimated fair values is recorded as goodwill. If the fair value of the assets acquired exceeds the purchase price and the liabilities assumed, then a gain on acquisition is recorded. The application of business combination accounting requires the use of significant estimates and assumptions.
Acquisition of assets are recorded at their relative fair value based on total accumulated costs of the acquisition. Direct acquisition-related costs are expensed as incurred. This includes all costs related to finding, analyzing and negotiating a transaction. The allocation of the purchase price is an area that requires judgment and significant estimates. Tangible and intangible assets include land, building and improvements, furniture, fixtures and equipment, acquired above market and below market leases, in-place lease value (if applicable). Acquisition-date fair values of assets and assumed liabilities are determined based on replacement costs, appraised values, and estimated fair values using methods similar to those used by independent appraisers and that use appropriate discount and/or capitalization rates and available market information.
Business Combinations - Business combinations and non-controlling interests are recorded in accordance with FASB ASC 805 Business Combinations. Under the guidance, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition and all acquisition costs are expensed as incurred. The excess of the purchase price over the estimated fair values is recorded as goodwill. If the fair value of the assets acquired exceeds the purchase price and the liabilities assumed, then a gain on acquisition is recorded. The application of business combination accounting requires the use of significant estimates and assumptions.
Continuing
Operations and Going Concern - The accompanying
consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting
contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. These consolidated financial
statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary
should we be unable to continue as a going concern. While the Company has approximately $
Aside
from its $
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4. Inventory
Inventory consisted of the following as of December 31:
Schedule of Inventory
| 2023 | 2022 | |||||||
| Finished Goods | $ | $ | ||||||
| Work in Process | ||||||||
| Raw Materials | ||||||||
| Inventory Gross | $ | $ | ||||||
| Less allowance for obsolescence | ( | ) | ( | ) | ||||
| Inventory Net | $ | $ | ||||||
5. Notes Receivable
Note 1
On May 14, 2021,
DSS Pure Air, Inc. a subsidiary of the Company entered a convertible promissory note (“Note 1”) with Borrower 1, a company
registered in the state of Texas. Note 1 has an aggregate principal balance up to $
Note 2
On September 23,
2021, APB entered into refunding bond anticipatory note (“Note 2”) with Borrower 2, which operates as a conservation and
reclamation district pursuant to Chapter 3891, Texas Special District Local Laws Code ; Chapter 375, Texas Local Government Code; and
Chapter 49, Texas Water Code. The District Note was in the sum of $
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Note 3
On October 25, 2021,
APB entered into a loan agreement (“Note 3”) with Borrower 3, a company registered in the state of Utah. Note 3 has an initial
aggregate principal balance up to $
Note 4
On May 14, 2021,
APB extended the credit (“Note 4”) to an individual (“Borrower 4”) in the form of two promissory notes for $
Note 5
On October 27, 2021,
HWH World, Inc., a subsidiary of the Company entered a revolving loan commitment (“Note 5”) with Borrower 5, a company registered
in Taiwan. The outstanding principal and interest at December 31, 2023 and December 31, 2022 is $
Note 6
On December 28, 2021,
APB entered into a promissory note (“Note 6”) with Borrower 6, a company registered in the state of California. Note 6 has
a principal balance of $
Note 7
On January 24, 2022,
APB and Borrower 7 entered into a promissory note (“Note 7”) in the principal sum of $
Note 8
On March 2, 2022,
APB and Borrower 8, a corporation organized under the laws of the Republic of Korea entered into a promissory note (“Note 8”).
Under the terms of Note 8, APB at its discretion, may lend up to the principal sum of $
Note 9
On May 9, 2022,
DSS PureAir and Borrower 9 entered into a promissory note (“Note 9”) in the principal sum of $
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Note 10, related party
On August 29,
2022, DSS Financial Management Inc and Borrower 10, a related party, entered into a promissory note (“Note 10”) in the principal sum of
$
Note 11, related party
On July 26, 2022,
APB and Borrower 11 entered into a promissory note (“Note 11”) in the principal sum of $
Note 12, related party
On June 15,
2022, DSS and Borrower 12, entered into a convertible promissory note (“Note 12”) in the principal sum of $
Note 13
On February 19, 2021, Impact BioMedical,
Inc, entered into a promissory note with an individual. The Company loaned the principal sum of $
Note 14
On May 8, 2023, DSS
Financial Management Inc and Borrower 14 entered into a promissory note (“Note 14”) in the principal sum of $
Note 15
On June 27, 2023,
DSS and Borrower 15 entered into a convertible promissory note (“Note 15”) in the principal sum of $
Note 16
On March 31,2023,
DSS Biohealth Security, Inc and Borrower 16 entered into a promissory note (“Note 16”) in the principal sum of $
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Note 17
On September 28,
2023, APB and Borrower 17 entered into a promissory note (“Note 17”) in the principal sum of $
Note 18
On August 11, 2022,
APB and Borrower 18 entered into a promissory note (“Note 18”) in the principal sum of $
6. Provision for Credit Losses
Effective January 1, 2022, the Company adopted amended accounting guidance “ASU No.2016-13 – Credit Losses” for the measurement of credit losses on financial instruments and other financial assets. That guidance requires an allowance for credit losses to be deducted from the amortized cost basis of financial assets to present the net carrying value that is expected to be collected over the contractual term of the assets considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. The guidance replaced the previous incurred loss model for determining the allowance for credit losses.
Accounts receivable are stated at the amount owed by the customer. The Company maintains an allowance for credit losses for accounts receivable and unbilled receivables, based on expected credit losses resulting from the inability of our customers to make required payments. The allowance for credit losses is estimated based on historical experience, current economic conditions and the creditworthiness of customers. Receivables are charged to the allowance when determined to be no longer collectible. The Company regularly monitors and assesses its risk of not collecting amounts owed by customers and records its allowance for credit losses based on the results of this analysis.
As of December 31, 2023, we have reviewed the entire loan portfolio as well as all financial assets of the Company for the purpose of evaluating the loan portfolio and the loan balances, including a review of individual and collective portfolio loan quality, loan(s) performance, including past due status and covenant defaults, assessment of the ability of the borrower to repay the loan on the loan terms, whether any loans should be placed on nonaccrual or returned to accrual, any concentrations in any single borrower and/or industry that we might need to further manage, and if any specific or general loan loss reserve should be established for the entire loan portfolio or for any specific loan.
We analyzed the loan
loss reserve from three basis: general loan portfolio reserves; industry portfolio reserves, and specific loan loss reserves. As of
year-ended December 31, 2023 and December 2022, the Company recorded a Loan loss reserve of approximately $
General
Loan Portfolio Reserve - Based upon a relatively young loan portfolio that are relatively new loans to generally credit
worthy borrowers, we do not believe that a substantial general loan portfolio reserve is due at this time. However, we do recognize
that some inherent risks are in all loan portfolios, thus we recorded a general contingent portfolio reserve of $
Industry Portfolio Reserves – Given the relatively young loan portfolio and a diversification of the portfolio over several different loan products, the risk is reduced. Accordingly, we have not recorded a discretionary reserve as of December 31, 2023 and December 31, 2022
Specific
Loan Reserves - Previously, we had identified credit weaknesses and borrower repayment weakness in the Borrower 4 loan, which
has a current principal and interest balance of $
The following table identifies the loan loss reserve for the period ending December 31, :
Schedule of Loan Loss Reserve
| 2023 | 2022 | |||||||
| General Loan Portfolio Reserve | $ | $ | ||||||
| Specific Loan Reserves | $ | $ | ||||||
| Total | $ | $ |
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Changes in the allowance for doubtful accounts and loan loss reserve were as follows:
| Allowance for credit losses | Loan loss reserve | Total | ||||||||||
| Balance at January 1, 2022 | $ | $ | $ | |||||||||
| Adoption of CECL | ||||||||||||
| Bad debt expense | ||||||||||||
| Write-offs | ||||||||||||
| Recoveries | ||||||||||||
| Balance at December 31, 2022 | ||||||||||||
| Bad debt expense | ||||||||||||
| Write-offs | ||||||||||||
| Recoveries | ( | ) | ( | ) | ||||||||
| Balance at December 31, 2023 | $ | $ | $ | |||||||||
7. FINANCIAL INSTRUMENTS
Financial Instruments
Cash, Cash Equivalents and Marketable Securities
The following tables show the Company’s cash and marketable securities by significant investment category as of December 31:
Schedule of Cash and Marketable Securities by Significant Investment Category
| 2023 | ||||||||||||||||||||
| Cost | Unrealized Gain/Loss | Fair Value | Cash And Cash Equivalents | Marketable Securities | ||||||||||||||||
| Cash | $ | $ | $ | $ | $ | |||||||||||||||
| Level 1 | ||||||||||||||||||||
| Money Market Funds | ||||||||||||||||||||
| Marketable Securities | ( | ) | ||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | |||||||||||||
| 2022 | ||||||||||||||||||||||||
Cost | Unrealized Gain/(Loss) | Fair Value | Cash and Cash Equivalents | Marketable Securities | Investment | |||||||||||||||||||
| Cash | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Level 1 | ||||||||||||||||||||||||
| Money Market Funds | ||||||||||||||||||||||||
| Marketable Securities | ( | ) | ||||||||||||||||||||||
| Level 2 | ||||||||||||||||||||||||
| Warrants | ||||||||||||||||||||||||
| Convertible securities | ||||||||||||||||||||||||
| Total | $ | $ | ( | ) | $ | $ | $ | $ | ||||||||||||||||
The following tables shows the Company’s net unrealized (loss) gain recognized during the year on marketable securities still held as of December 31:
Schedule of Net Unrealized (Loss) Gain Recognized on marketable Securities
| 2023 | 2022 | |||||||
| Net gains (losses) recognized during the year on marketable securities | $ | ( | ) | $ | ( | ) | ||
| Less: Net gains (losses) realized during the year on marketable securities sold during the period | ( | ) | ||||||
| Net unrealized gain (loss) recognized during the reporting year on marketable securities still held at the reporting date | $ | ( | ) | $ | ( | ) | ||
The Company typically invests with the primary objective of minimizing the potential risk of principal loss. The Company’s investment policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. Fair values were determined for each individual security in the investment portfolio.
8. Disposal of assets
Disposal of Assets
On July 1st,
2023, The Company intended to sell its subsidiary, HWH World, Inc. to SHRG. The proposed transaction had the Company sell shares
of common stock, representing all the issued and outstanding common stock shares of HWH World for the sum $
On July 1st,
2023, The Company sold
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9. Investments
Alset International Limited, related party
The Company owns
shares or approximately % of the outstanding shares of Alset International Limited (“Alset Intl”), a company
incorporated in Singapore and publicly listed on the Singapore Exchange Limited. This investment is classified as a marketable security
and is classified as long-term assets on the consolidated balance sheets as the Company has the intent and ability to hold the investments
for a period of at least one year. The Chairman of the Company, Mr. Heng Fai Ambrose Chan, is the Executive Director and Chief Executive
Officer of Alset Intl. Mr. Chan is also the majority shareholder of Alset Intl as well as the largest shareholder of the Company. The
fair value of the marketable security as of December 31, 2023, and December 31, 2022, was approximately $
West Park Capital, Inc.
On December 30,
2020, the Company signed a binding letter of intent with West Park Capital, Inc (“West Park”) and Century TBD Holdings,
LLC (“TBD”) where the parties agreed to prepare a note and stock exchange agreement whereby DSS will assign the TBD Note
to West Park and West Park shall issue to DSS a stock certificate reflecting
BMI Capital International LLC
On September 10,
2020, the Company’s wholly owned subsidiary DSS Securities, Inc. entered into membership interest purchase agreement with BMI Financial
Group, Inc. a Delaware corporation (“BMIF”) and BMI Capital International LLC, a Texas limited liability company (“BMIC”)
whereas DSS Securities, Inc. purchased
BMIC is a broker-dealer registered with the Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”), and is a member of the Securities Investor Protection Corporation (“SIPC”). The Company’s chairman of the board and another independent board member of the Company also have ownership interest in BMIC.
BioMed Technologies Asia Pacific Holdings Limited
On December 19,
2020, Impact BioMedical, a wholly owned subsidiary of the Company, entered into a subscription agreement (the “Subscription Agreement”)
with BioMed Technologies Asia Pacific Holdings Limited (“BioMed”), a limited liability company incorporated in the British
Virgin Islands, pursuant to which the Company agreed to purchase ordinary shares or
| 52 |
Under the terms of the Distribution Agreement, the Company will have exclusive rights to distribute the products within the United States, Canada, Singapore, Malaysia, and South Korea and non-exclusive distribution rights in all other countries. In exchange, the Company agreed to certain obligations, including mutual marketing obligations to promote sales of the products. This agreement is for ten years with a one year auto-renewal feature.
Vivacitas Oncology, Inc.
On March 15, 2021,
the Company, through one of its subsidiaries, entered into a Stock Purchase Agreement (the “Vivacitas Agreement #1”) with
Vivacitas Oncology Inc. (“Vivacitas”), to purchase shares of its common stock at the per share price of $, with
an option to purchase additional shares at the per share price of $. This option will terminate upon one of the following
events: (i) Vivacitas’ board of directors cancels this option because it is no longer in the best interest of the Company; (ii)
December 31, 2022; or (iii) the date on which Vivacitas receives more than $ per share of the Company’s common stock in a private
placement with gross proceeds of $
On April 1, 2021,
On July 22, 2021,
the Company exercised of the available options under the Vivacitas Agreement #1 for $
Stemtech Corporation
In September 2021,
the Company’s former subsidiary SHRG, Stemtech Corporation (“Stemtech”) and Globe Net Wireless Corp. (“GNTW”)
entered into a Securities Purchase Agreement (the “SPA”) pursuant to which SHRG invested $
In September 2021,
SHRG entered into a Membership Unit Purchase Agreement pursuant to which the SHRG acquired a
10. PROPERTY PLANT AND EQUIPMENT AND INVESTMENT IN REAL ESTATE, NET
Property Plant and Equipment and Investment in Real Estate, Net
Property, plant and equipment consisted of the following as of December 31, 2023:
Schedule of Property, Plant and Equipment
| Estimated | ||||||||||
| Useful Life | 2023 | 2022 | ||||||||
| Machinery and equipment | $ | $ | ||||||||
| Building and improvements | ||||||||||
| Land | ||||||||||
| Furniture and fixtures | ||||||||||
| Software and websites | ||||||||||
| Construction in progress | ||||||||||
| Total Cost | ||||||||||
| Less accumulated depreciation | ||||||||||
| Property, plant and equipment, net | $ | $ | ||||||||
Depreciation expense
for the years ended December 31, 2023 and 2022 was $
| 53 |
Real Estate consisted of the following at December 31:
Schedule of Investment in Real Estate
| Estimated | ||||||||||
| Useful Life | 2023 | 2022 | ||||||||
| Building and improvements | $ | $ | ||||||||
| Land | ||||||||||
| Total Cost | ||||||||||
| Less: accumulated depreciation | ||||||||||
| Investment in real estate | $ | $ | ||||||||
Depreciation expense
for the years ended December 31, 2023 and 2022 was $
11. INTANGIBLE ASSETS
Intangible Assets
On
August 25, 2022, DSS PureAir, a subsidiary of the Company finalized an asset purchase agreement with Celios Corporation (“Celios”)
to acquire inventory, patents, and other intangible assets associated with that inventory, and other intangible assets from Celios for
$
Intangible assets are comprised of the following as of December 31:
Schedule of Intangible Assets
| 2023 | 2022 | |||||||||||||||||||||||||||||
| Useful Life | Gross Carrying Amount | Accumulated Amortization | Impairment | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||
| Developed technology assets | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| Acquired intangibles customer lists, licenses, non-compete agreements, branding, product formulas, tenant improvements, in-place, favorable and unfavorable leases | ||||||||||||||||||||||||||||||
| Acquired intangibles patents and patent rights | ||||||||||||||||||||||||||||||
| Patent application costs | ||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| (1) |
| 54 |
Amounts
amortized for the year ended December 31, 2023 and 2022 was approximately $
Expected amortization for each of the five succeeding fiscal years is as follows:
Schedule of Estimated Future Amortization of Intangible Assets
| Year | Amount | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
Thereafter | ||||
12. ACCRUED EXPENSES AND DEFERRED REVENUE
Accrued Expenses and Deferred Revenue
Accrued expenses and deferred revenue consist of the following for the year ended December 31:
Summary of Accrued Expenses and Deferred Revenue
| 2023 | 2022 | |||||||
| Customer deposits | $ | $ | ||||||
| Deferred revenue | ||||||||
| Accrued wages | ||||||||
| Settlement liability | ||||||||
| Uncertain tax positions | ||||||||
| Accrued expenses | ||||||||
| Income tax payable | ||||||||
| Sales tax payable | ||||||||
| Accrued expenses and deferred revenue | $ | $ | ||||||
13. SHORT TERM AND LONG-TERM DEBT
Short Term and Long-Term Debt
Promissory
Notes - On March 2, 2020, AMRE entered into a $
On May 20, 2021,
Premier Packaging entered into master loan and security agreement (“BOA Note”) with Bank of America, N.A. (“BOA”)
to secure financing approximating $
| 55 |
On August 1, 2021,
AMRE Shelton, LLC., (“AMRE Shelton”) a subsidiary of AMRE, entered into a loan agreement (“Shelton Agreement”)
with Patriot Bank, N.A. (“Patriot Bank”) in an amount up to $
On October 13, 2021,
LVAM entered into loan agreement with BMIC (“BMIC Loan”), a related party, whereas LVAM borrowed the principal amount of
$
On October 13, 2021,
LVAM entered into a loan agreement with Lee Wilson Tsz Kin (“Wilson Loan”), a related party, whereas LVAM borrowed the principal
amount of $
On November 2,
2021, AMRE LifeCare entered into a loan agreement (“LifeCare Agreement”) with Pinnacle Bank, (“Pinnacle
Bank”) in the amount of $
| 56 |
In November 2021, AMRE entered into
a convertible promissory note (“Alset Note”) with Alset International Limited (“Alset International”), a
related party, for the principal amount of $
On
March 17, 2022, AMRE Winter Haven, LLC (“AMRE Winter Haven”) and Pinnacle Bank (“Pinnacle”) entered into a
term loan (“Pinnacle Loan”) whereas Pinnacle lent to AMRE Winter Haven the principal sum of $
On
March 30, 2023, Premier Packaging, a subsidiary of the Company entered into a loan and security agreement with Union Bank & Trust
Company for the principal amount of $
A summary of scheduled principal payments of long-term debt, not including revolving lines of credit, subsequent to December 31, 2023 are as follows:
Schedule of Notes Payable and Long-term Debt
| Year | Amount | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total | $ | |||
14. Lease Liability
The
Company has operating leases predominantly for operating facilities. As of December 31, 2023, the remaining lease terms on our operating
leases range from less than to
| 57 |
Future minimum lease payments as of December 31, 2023, are as follows:
Maturity of Lease Liability:
Schedule of Future Minimum Lease Payments
| Totals | ||||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| After | ||||
| Total lease payments | ||||
| Less: Imputed Interest | ( | ) | ||
| Present value of remaining lease payments | $ | |||
| Current | $ | |||
| Noncurrent | $ | |||
| Weighted-average remaining lease term (years) | ||||
| Weighted-average discount rate | % | |||
In
March of 2022, Premier Packaging began leasing its relocated manufacturing facilities to West Henrietta, New York. This lease
contains an escalating payment clause, ranging from $
15. STOCKHOLDERS’ EQUITY
Stockholders’ Equity
Equity transactions –
On
February 28, 2022, DSS entered into an Amendment to Stock Purchase Agreement (the “Amendment”) with its shareholder Alset
EHome International Inc. (“AEI”), pursuant to which the Company and AEI have agreed to amend certain terms of the Stock Purchase
Agreement dated January 25, 2022 (the “SPA”). Pursuant to the SPA, AEI had agreed to purchase up to shares of
the Company’s common stock for a purchase price of $ per share, for an aggregate purchase price of $
On
March 10, 2022, the Company issued shares of common stock to Mr. Heng Fai Ambrose Chan pursuant to his employment agreement.
These shares were issued in consideration of $
On
May 5, 2022, the Company issued shares of common stock to Mr. Frank Heuszel, CEO of DSS, pursuant to his employment agreement.
These shares were issued in consideration of $
On
May 25, 2022, the Company issued shares of common stock to Mr. Heng Fai Ambrose Chan pursuant to his employment agreement.
These shares were issued in consideration of $
On
May 17, 2022, the shareholders of the Company approved the issuance of up to Shares of our Common Stock to Alset International,
a related party, to purchase the Convertible Promissory Note issued by American Medical REIT, Inc. with a principal amount of $
On May 17, 2022, the shareholders of the Company approved the acquisition of shares of True Partners Capital Holdings Limited (“True Partners”), a company publicly traded on the Hong Kong stock exchange in exchange for shares of DSS stock value on the agreed upon date of February 18, 2022 which was approximately $ per share. The True Partner shares were acquired from Alset EHome International, Inc. (“Alset EHome”), a related party. Mr. Heng Fai Ambrose Chan, our director and Executive Chairman, is also Chairman of the Board, Chief Executive Officer, and the largest beneficial owner of the outstanding shares of Alset EHome. This transaction was completed with the transfer of DSS share to Alset EHome on July 1, 2022.
On April 10, 2023, the Company
issued shares of common stock to Mr. Frank Heuszel, CEO of DSS, pursuant to his employment agreement. These shares were issued
to settle a previously recorded liability of approximately $
On
January 4, 2024 the Company effected a reverse stock split of
| 58 |
Stock-Based Compensation – The Company records stock-based payment expense related to options and warrants based on the grant date fair value in accordance with FASB ASC 718. Stock-based compensation includes expense charges for all stock-based awards to employees, directors and consultants. Such awards include option grants, warrant grants, and restricted stock awards. During the year ended December 31, 2022, the Company’s stock compensation approximated $. During the year ended December 31, 2023 there were .
Stock Warrants – The Company did not issue any warrants in 2023 or 2022, nor did it have any outstanding warrants as of December 31, 2023 and 2022.
Equity
Incentive Plan – On December 9, 2019, the Company’s shareholders adopted the 2020 Employee, Director and Consultant
Equity Incentive Plan (the “2020 Plan”). The 2020 Plan provides for the issuance of an initial shares of common stock
authorized to be issued for grants of options, restricted stock and other forms of equity to employees, directors and consultants.
Stock Options – On June 20, 2013, the Company’s shareholders adopted the 2013 Employee, Director and Consultant Equity Incentive Plan (the “2013 Plan”). The 2013 Plan provides for the issuance of up to a total of shares of common stock authorized to be issued for grants of options, restricted stock and other forms of equity to employees, directors and consultants. Under the terms of the 2013 Plan, options granted thereunder may be designated as options which qualify for incentive stock option treatment (“ISOs”) under Section 422A of the Internal Revenue Code, or options which do not qualify (“NQSOs”). During the year ended December 31, 2023, options were forfeited. As of December 31, 2023, shares remained available under this plan.
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Impact BioMedical, Inc. Equity Transactions –
On August 8, 2023 DSS BioHealth Securities, Inc. (“DSS BioHealth”), a wholly-owned subsidiary of the Company, and the sole shareholder of Impact BioMedical Inc., distributed to the shareholders of DSS on record as of July 10, 2023 4 shares of Impact Bio’s stock for 1 share they owned of DSS stock. Each share of Impact BioMedical distributed as part of the distribution will not be eligible for resale until 180 days from the date Impact BioMedical’s initial public offering becomes effective under the Securities Act, subject to the discretion of the Company to lift the restriction sooner.
On October 31,
2023, Impact BioMedical effected a
16. INCOME TAXES
Income Taxes
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities. Deferred tax assets are reduced, if deemed necessary, by a valuation allowance for the amount of tax benefits which are not expected to be realized.
The following is a summary of the components giving rise to the income tax provision (benefit) for the years ended December 31:
The provision (benefit) for income taxes consists of the following:
Schedule of Income Tax Provision
| 2023 | 2022 | |||||||
| Currently payable: | ||||||||
| Federal | $ | $ | ||||||
| State | ||||||||
| Foreign | ||||||||
| Total currently payable | ||||||||
| Deferred: | ||||||||
| Federal | ( | ) | ( | ) | ||||
| State | ( | ) | ( | ) | ||||
| Foreign | ( | ) | ( | ) | ||||
| Total deferred | ( | ) | ( | ) | ||||
| Less: increase in allowance | ||||||||
| Net deferred | ||||||||
| Total income tax loss (benefit) | $ | $ | ||||||
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Individual components of deferred tax assets and liabilities are as follows:
Schedule of Deferred Tax Assets and Liabilities
| 2023 | 2022 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry forwards | $ | $ | ||||||
| Net operating loss IRC 382 limited | ||||||||
| Unrealized loss on securities | ||||||||
| Equity issued for services | ||||||||
| Goodwill and other intangibles | ||||||||
| Investment in pass-through entity | ||||||||
| Deferred revenue | ||||||||
| Operating Lease Liability | ||||||||
| Depreciation and amortization | ||||||||
| Other | ||||||||
| Gross deferred tax assets | ||||||||
| Deferred tax liabilities: | ||||||||
| Goodwill and other intangibles | ||||||||
| Depreciation and amortization | ( | ) | ||||||
| Right -of-use asset | ||||||||
| Gross deferred tax liabilities | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax liabilities | $ | $ | ( | ) | ||||
At
December 31, 2023 and 2022, the Company has approximately $
The
valuation allowance for deferred tax assets increased approximately $
The differences between the United States statutory federal income tax rate and the effective income tax rate in the accompanying consolidated statements of operations are as follows:
Schedule of Effective Income Tax Rate Reconciliation
| 2023 | 2022 | ||||||
| Statutory United States federal rate | % | % | |||||
| State income taxes net of federal benefit | % | % | |||||
| Permanent differences | ( | )% | % | ||||
| Other | ( | )% | % | ||||
| Foreign taxes | % | ( | )% | ||||
| Change in valuation allowance | ( | )% | ( | )% | |||
| Effective rate | % | ( | )% | ||||
The
Company recognizes interest accrued and penalties related to unrecognized tax benefits in tax expense. During the years ended December
31, 2023 and 2022 the Company recognized
The Company files income tax returns in the U.S. federal jurisdiction and various states. The tax years 2020-2023 generally remain open to examination by major taxing jurisdictions to which the Company is subject.
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17. DEFINED CONTRIBUTION PENSION PLAN
Defined Contribution Pension Plan
The
Company maintains a qualified employee savings plans (the “401(k) Plan”) that qualifies as a deferred salary arrangement
under Section 401(k) of the Internal Revenue Code and which covers all eligible employees. Employees generally become eligible to participate
in the 401(k) Plan two months following the employee’s hire date. Employees may contribute a percentage of their earnings, subject
to the limitations of the Internal Revenue Code. Commencing on January 1, 2018, the Company matched
18. COMMITMENTS AND CONTINGENCIES
Commitments and Contingencies
License
Agreement – On March 19, 2022, Impact BioMedical entered into a License Agreement (“Equivir License”) with
a third-party (“Licensee”) where the Licensor is granted the right, amongst other things, to develop, commercialize, and
sell the Company’s Equivir technology.
Employment Agreements – As of December 31, 2023, the Company has no employment or severance agreements with members of its management team.
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Legal Proceedings – Maiden Biosciences Litigation
On February 15, 2021, Maiden Biosciences, Inc. (“Maiden”) commenced an action against DSS, Inc. (“DSS”), Decentralized Sharing Systems, Inc. (“Decentralized”), HWH World, Inc. (“HWH”), RBC Life International, Inc. (RBC International) (together, the “DSS Defendants”), Frank D. Heuszel (“Heuszel”), RBC Life Sciences, Inc (“RBC”), Steven E. Brown, Clinton Howard, and Andrew Howard (collectively, “Defendants”). The lawsuit is currently pending in the United States District Court Northern District of Texas, Dallas Division, and is styled and numbered Maiden Biosciences, Inc. v. Document Security Stems, Inc., et al., Case No. 3:21-cv-00327.
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On March 30, 2021, Defendants DSS, Decentralized, HWH, RBC International, and Heuszel filed a motion to dismiss seeking to dismiss Maiden’s unjust enrichment, exemplary damages, and RICO claims against DSS, Decentralized, HWH, RBC Life International, Inc., and Heuszel, as well as Maiden’s fraudulent transfer claims against DSS and RBC International. On August 9, 2021, the Court then entered an order granting in part the motion to dismiss filed on behalf of DSS, Decentralized, HWH, RBC International, and Heuszel. Among other things, the Court held that Maiden failed to plausibly plead certain causes of action, including (1) the civil RICO claim against DSS, Decentralized, HWH, RBC International, and Heuszel, (2) the TUFTA claim against DSS, and (3) the unjust enrichment claim against DSS and RBC International. Notably, the Court declined the request to dismiss the TUFTA claim against RBC International. On September 3, 2021, Maiden filed its first amended complaint, asserting a single cause of action against the DSS Defendants, Heuszel, and RBC for an alleged TUFTA violation.
Generally, Maiden sought the same relief requested in its original complaint. Maiden, however, abandoned its request for treble damages. On September 17, 2021, the DSS Defendants filed a motion to dismiss the amended complaint seeking to dismiss Maiden’s TUFTA claim to the extent it seeks to avoid a transfer of assets owned by any of RBC’s subsidiaries, including but not limited to RBC Life Sciences USA, Inc. (“RBC USA”). Further, the motion to dismiss sought the dismissal of Maiden’s TUFTA claim against Heuszel. On November 19, 2021, the Court granted the motion to dismiss in part, dismissing Maiden’s claim against Heuszel and determined Maiden failed to plead that it was a creditor of RBC USA or RBC’s other subsidiaries. However, the Court permitted Maiden to replead once again.
On December 17, 2021, Maiden filed its second amended complaint which asserted a single TUFTA claim against only the DSS Defendants, RBC, and RBC USA. During the discovery period, the Parties conducted written discovery, production of documents, and depositions of fact witnesses and expert witnesses. The discovery period closed on August 9, 2022. The DSS Defendants have engaged Stout Risius Ross, LLC (“Stout”) to provide expert opinions regarding the value of the assets at issue.
The
trial in this matter began on December 12, 2022. The Company vigorously defended its position that Maiden should recover nothing on its
TUFTA claim. The DSS Defendants’ experts at Stout provided expert opinions regarding the value of the assets at issue and the deficiencies
with Maiden’s designated expert’s opinions. The jury returned a verdict in favor of Maiden, and the Court entered a judgment
on December 20, 2022. The DSS Defendants filed post-judgment motions seeking reversal of the judgment for several reasons, including
that:
In addition to the foregoing, we may become subject to other legal proceedings that arise in the ordinary course of business and have not been finally adjudicated. Adverse decisions in any of the foregoing may have a material adverse effect on our results of operations, cash flows or our financial condition. The Company accrues for potential litigation losses when a loss is probable and estimable.
Contingent Litigation Payments – The Company retains the services of professional service providers, including law firms that specialize in intellectual property licensing, enforcement and patent law. These service providers are often retained on an hourly, monthly, project, contingent or a blended fee basis. In contingency fee arrangements, a portion of the legal fee is based on predetermined milestones or the Company’s actual collection of funds. The Company accrues contingent fees when it is probable that the milestones will be achieved, and the fees can be reasonably estimated. As of December 31, 2023 and 2022 the Company had not accrued any contingent legal fees pursuant to these arrangements.
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Contingent Payments – The Company is party to certain agreements with funding partners who have rights to portions of intellectual property monetization proceeds that the Company receives. As of December 31, 2023 and 2022, there are no contingent payments due.
19. DISCONTINUED OPERATIONS
On
May 4, 2023, the Company distributed approximately million shares of SHRG beneficially held by DSS and Decentralized Sharing Systems
in the form of a dividend to the shareholders of DSS common stock. Upon completion of this distribution, DSS will retain an ownership
interest in SHRG of approximately
Upon
Deconsolidation, we recognized an impairment of assets due to the deconsolidation of SHRG approximately $
The following tables show the major classes of assets and liabilities held for sale and results of operations of the discontinued operation:
SCHEDULE OF MAJOR CLASSES OF ASSETS AND LIABILITIES HELD FOR SALE AND RESULTS OF OPERATIONS
Sharing Services Global Corporation
Balance Sheets - Discontinued Operations
As of December 31,
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory | ||||||||
| Current portion of notes receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Other investments | ||||||||
| Marketable securities | ||||||||
| Other assets | ||||||||
| Right-of-use assets | ||||||||
| Other intangible assets, net | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses and deferred revenue | ||||||||
| Current portion of lease liability | ||||||||
| Current portion of long-term debt, net | ||||||||
| Total current liabilities | ||||||||
| Long term lease liability | ||||||||
Sharing Services Global Corporation
Statements of Operations Loss - Discontinued Operations
For the Years Ended December 31,
| 2023 | 2022 | |||||||
| For the Year Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue: | ||||||||
| Direct marketing | $ | $ | ||||||
| Total revenue | ||||||||
| Costs and expenses: | ||||||||
| Cost of revenue | ||||||||
| Selling, general and administrative | ||||||||
| Total costs and expenses | ||||||||
| Operating loss | ( | ) | ||||||
| Other income (expense): | ||||||||
| Other income (expense) | ( | ) | ||||||
| Interest income | ) | |||||||
| Gain (loss) on investments | ( | ) | ||||||
| Impairment of assets | ( | ) | ||||||
| Loss from discontinued operations before income taxes | ( | ) | ( | ) | ||||
| Income tax benefit/(loss) | ||||||||
| Loss from discontinued operations | ( | ) | ( | ) | ||||
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20. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental Cash Flow Information
Supplemental cash flow information for the years ended December 31:
Schedule of Supplemental Cash Flow Information
| 2023 | 2022 | |||||||
| Cash paid for interest | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Right of use asset | $ | $ | ||||||
| Shares issued in lieu of bonus cash | $ | $ | ||||||
| Purchase of notes receivable with company stock | $ | $ | ||||||
| Purchase of marketable security with Company stock | $ | $ | ||||||
| Third party Note receivable received in lieu of cash | $ | |||||||
21. SEGMENT INFORMATION
Segment Information
The Company’s nine businesses lines are organized, managed, and internally reported as five operating segments. One of these operating segments, Product Packaging, is the Company’s packaging and printing group. Product Packaging operates in the paper board folding carton, smart packaging, and document security printing markets. It markets, manufactures, and sells mailers, photo sleeves, sophisticated custom folding cartons, and complex 3-dimensional direct mail solutions. These products are designed to provide functionality and marketability while also providing counterfeit protection. A second, Biotechnology, invests in, or acquires companies in the biohealth and biomedical fields, including businesses focused on the advancement of drug discovery and prevention, inhibition, and treatment of neurological, oncological, and immune related diseases. This division is also developing open-air defense initiatives, which curb transmission of air-borne infectious diseases, such as tuberculosis and influenza. Biotechnology is also targeting unmet, urgent medical needs. A third operating segment, Securities and Investment Management (“Securities”) was established to develop and/or acquire assets and investments in the securities trading and/or funds management arena. Further, Securities, in partnership with recognized global leaders in alternative trading systems, intends to own and operate in the US a single or multiple vertical digital asset exchanges for securities, tokenized assets, utility tokens, stable coins and cryptocurrency via a digital asset trading platform using blockchain technology. The scope of services within this section is planned to include asset issuance and allocation (securities and cryptocurrency), FPO, IPO, ITO, PPO, STO and UTO listings on a primary market(s), asset digitization/tokenization (securities, currency, and cryptocurrency), and the listing and trading of digital assets (securities and cryptocurrency) on a secondary market(s). Also in this segment is the Company’s real estate investment trust (“REIT”), organized for the purposes of acquiring hospitals and other acute or post-acute care centers from leading clinical operators with dominant market share in secondary and tertiary markets, and leasing each property to a single operator under a triple-net lease. the REIT was formed to originate, acquire, and lease a credit-centric portfolio of licensed medical real estate. The fourth segment, Direct, provides services to assist companies in the emerging growth gig business model of peer-to-peer decentralized sharing marketplaces. It specializes in marketing and distributing its products and services through its subsidiary and partner network, using the popular gig economic marketing strategy as a form of direct marketing. Direct marketing products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific and Eastern Europe. The fifth business line, Commercial Banking, is organized for the purposes of being a financial network holding company, focused providing commercial loans and on acquiring equity positions in (i) undervalued commercial bank(s), bank holding companies and nonbanking licensed financial companies operating in the United States, South East Asia, Taiwan, Japan and South Korea, and (ii) companies engaged in—nonbanking activities closely related to banking, including loan syndication services, mortgage banking, trust and escrow services, banking technology, loan servicing, equipment leasing, problem asset management, SPAC (special purpose acquisition company) consulting, and advisory capital raising services. From this financial platform, the Company shall provide an integrated suite of financial services for businesses that shall include commercial business lines of credit, land development financing, inventory financing, third party loan servicing, and services that address the financial needs of the world Gig Economy.
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Our segment structure presented below represents a change from the prior year for the inclusion of our Biotechnology, Securities, and Commercial Lending segments and the removal of our Plastics segment, Digital Group and IP Technology Management segment as the Plastics segment was discontinued in 2020, DSS Digital was sold and discontinued in May 2021 and activities surrounding our IP Technology Management segment have significantly decreased. The amounts for these segments have been included in the Corporate reporting segment for the year ended December 31, 2023 and 2022, as necessary, below for reconciliation purposes.
Approximate information concerning the Company’s operations by reportable segment for the twelve months ended December 31, 2023 and 2022 is as follows. The Company relies on intersegment cooperation and management does not represent that these segments, if operated independently, would report the results contained herein:
Schedule of Operations by Reportable Segment
| Year Ended December 31, 2023 | Product Packaging | Commercial Lending | Direct Marketing | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Assets held for sale | ||||||||||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||||||||||
| Interest expense | ( | ) | ||||||||||||||||||||||||||
| Interest Income | ||||||||||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||||||
| Net income (loss) from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||
| Capital expenditures | ||||||||||||||||||||||||||||
| Identifiable assets | ||||||||||||||||||||||||||||
| Year Ended December 31,2022 | Product Packaging | Commercial Lending | Direct | Biotechnology | Securities | Corporate | Total | |||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| Depreciation and amortization | ||||||||||||||||||||||||||||
| Cost of revenue | ||||||||||||||||||||||||||||
| Interest expense | ( | ) | ||||||||||||||||||||||||||
| Stock based compensation | ||||||||||||||||||||||||||||
| Net income (loss) from continuing operations | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Capital expenditures | ||||||||||||||||||||||||||||
| Identifiable assets | ||||||||||||||||||||||||||||
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International
revenue, which consists of sales to customers with operations in Canada, Western Europe, Latin America, Africa, the Middle East and Asia
comprised
The following tables disaggregate our business segment revenues by major source:
Printed Products Revenue Information:
Schedule of Disaggregation of Revenue
| Twelve months ended December 31, 2023 | ||||
| Packaging Printing and Fabrication | $ | |||
| Commercial and Security Printing | ||||
| Total Printed Products | $ | |||
| Twelve months ended December 31, 2022 | ||||
| Packaging Printing and Fabrication | $ | |||
| Commercial and Security Printing | ||||
| Total Printed Products | $ | |||
Direct Marketing
| Twelve months ended December 31, 2023 | ||||
| Direct Marketing Internet Sales | $ | |||
| Total Direct Marketing | $ | |||
| Twelve months ended December 31, 2022 | ||||
| Direct Marketing Internet Sales | $ | |||
| Total Direct Marketing | $ | |||
Rental Income
| Twelve months ended December 31, 2023 | ||||
| Rental income | $ | |||
| Total Rental Income | $ | |||
| Twelve months ended December 31, 2022 | ||||
| Rental income | $ | |||
| Total Rental Income | $ | |||
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Commission Income
| Twelve months ended December 31, 2023 | ||||
| Commission income | $ | |||
| Total commission income | $ | |||
| Twelve months ended December 31, 2022 | ||||
| Commission income | $ | |||
| Total commission income | $ | |||
Management Fee Income
| Twelve months ended December 31, 2023 | ||||
| Management fee income | $ | |||
| Total Management fee income | $ | |||
| Twelve months ended December 31, 2022 | ||||
| Management fee income | $ | |||
| Total Management fee income | $ | |||
Net Investment Income
| Twelve months ended December 31, 2023 | ||||
| Net investment income | $ | |||
| Total Net Investment Income | $ | |||
| Twelve months ended December 31, 2022 | ||||
| Net investment income | $ | |||
| Total Net Investment Income | $ | |||
22. Related Party Transactions
The
Company owns shares or approximately
On
March 2, 2020, AMRE entered into a $
On
March 18, 2021, the Company entered into an agreement with Alset EHome International, Inc. (“Seller”), a related party, to
purchase from the Seller’s its wholly owned subsidiary Impact Oncology PTE Ltd. (“IOPL”) for a purchase price $
| 69 |
On
October 13, 2021, LVAM entered into loan agreement with BMIC (“BMIC Loan”), a related party, whereas LVAM borrowed the principal
amount of $
On
October 13, 2021, LVAM entered into a loan agreement with Lee Wilson Tsz Kin (“Wilson Loan”), a related party, whereas LVAM
borrowed the principal amount of $
In
November 2021, AMRE entered into a convertible promissory note (“Alset Note”) with Alset International Limited (“Alset
International”), a related party, for the principal amount of $
| 70 |
On
February 28, 2022, DSS entered into an Amendment to Stock Purchase Agreement (the “Amendment”) with its shareholder Alset
EHome International Inc. (“AEI”), pursuant to which the Company and AEI have agreed to amend certain terms of the Stock Purchase
Agreement dated January 25, 2022 (the “SPA”). Pursuant to the SPA, AEI had agreed to purchase up to shares of
the Company’s common stock for a purchase price of $ per share, for an aggregate purchase price of $
On July 26, 2022, APB and Borrower 11 entered into a promissory note (“Note
11”) in the principal sum of $
In
October 2017, Sharing Services issued a Convertible Promissory Note in the principal amount of $
On May 17, 2022, the shareholders of the Company approved the acquisition of shares of True Partners Capital Holdings Limited (“True Partners”), a company publicly traded on the Hong Kong stock exchange in exchange for shares of DSS stock. The True Partner shares were acquired from Alset EHome International, Inc. (“Alset EHome”), a related party. Mr. Heng Fai Ambrose Chan, our director and Executive Chairman, is also Chairman of the Board, Chief Executive Officer, and the largest beneficial owner of the outstanding shares of Alset EHome. This transaction was completed with the transfer of DSS share to Alset EHome on July 1, 2022 with the issuance of DSS shares, which were valued at $ per share, to Alset EHome.
On August 29, 2022, DSS Financial
Management Inc and Borrower 10, a related party, entered into a promissory note (“Note 10”) in the principal sum of $
23. SUBSEQUENT EVENTS
Subsequent Events
The Company has evaluated all subsequent events and transactions through March 26, 2024, the date that the consolidated financial statements were available to be issued and other then the reverse stock split identified in Note 15 and noted no subsequent events requiring financial statement recognition or disclosure.
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ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On June 29, 2022, the Company’s Board of Directors (the “Board”) approved replacing Turner, Stone & Company, LLP (the “Former Accountant”) as our independent registered public accounting firm, with Grassi & Co. CPAs, P.C. (the “New Accountant”) as our independent registered public accounting firm, effective July 1, 2022. The engagement of the New Accountant was recommended and approved by the Board.
The Former Accountant’s audit report on our financial statements for the year ended December 31, 2021 contained no adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles. The audit report of Turner, Stone & Company, LLP on our financial statements for the year ended December 31, 2021 contained no adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles.
For the year ended December 31, 2021 and the interim period ending June 30, 2022, there were no “disagreements” (as such term is defined in Item 304 of Regulation S-K) with the Former Accountant or the Previous Accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of the Former Accountant or Previous Accountant, would have caused them to make reference thereto in their reports on the financial statements for such periods.
Prior to retaining the New Accountant, the Company did not consult with the New Accountant regarding either: (i) the application of accounting principles to a specified transaction, either contemplated or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements; or (ii) any matter that was the subject of a “disagreement” or a “reportable event” (as those terms are defined in Item 304 of Regulation S-K).
ITEM 9A - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
An evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 as of December 31, 2023. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2023, to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there were resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Management’s Annual Report on Internal Control over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023. In making this assessment, management used the framework established in “Internal Control—Integrated Framework” promulgated by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, commonly referred to as the “COSO” criteria. Based on our assessment, we concluded that, as of December 31, 2023, our internal control over financial reporting was not effective based on those criteria.
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In connection with management’s assessment of our internal control over financial reporting described above, the following weaknesses have been identified in the Company’s internal control over financial reporting as of December 31, 2023:
| 1. | The Company did not maintain a sufficient complement of qualified accounting personnel and controls associated with segregation of duties over complex transactions. | |
| 2. | There was no systematic method of documenting that timely and complete monthly reconciliation and closing procedures take place. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
Remediation of the Material Weaknesses
Management believes it has taken significant steps during 2022, and subsequently in 2023, to strengthen our overall internal controls and eliminate the material weakness of those controls. During the 2024 fiscal year, the Company will document and test the remediations put in place. Such remediation includes the following:
| ● | The Company hired a Controller, Director of External Reporting, Senior Accountant and Cost Accountant in 2022. The Company has re-assigned responsibilities of other staff members to assist in the Company’s financial reporting as well as segregating duties to serve as a check and balance on employees’ integrity and to maintain the best control system possible. |
| ● | The Company has centralized its accounting functions across all divisions. The goal of this process is to support the segregation of duties and to allow the Chief Financial Officer to focus on ensuring reporting packages, reconciliations, and other financial reports are accurate and timely reported. |
| ● | A monthly operations and financial review is performed with key members of the management team, executive committee, and accounting team which has enhanced the timeliness, formality and rigor of our financial statement preparation, review and reporting process. |
| ● | The Director of External Reporting will complete the appropriate disclosure check list for the required filings. The CFO will review the completion of this checklist in a timely manner for inclusion of all necessary disclosures. |
| ● | Routine account reconciliations for all key balance sheet accounts have been initiated. These account reconciliations are reviewed timely by an independent person. |
| ● | Procedures have been enhanced and count sheets modified to ensure accuracy of physical inventory counts. |
| ● | The Company will engage an external, independent expert to review significant and/or complex accounting transactions, when appropriate, to ensure the proper accounting treatment is applied. |
The Company is committed to maintaining a strong internal control environment and believes that these remediation efforts will represent significant improvements in our controls. The Company has started to implement these steps, however, some of these steps will take time to be fully integrated and confirmed to be effective and sustainable. Additional controls may also be required over time.
Changes in Internal Control over Financial Reporting
While changes in the Company’s internal control over financial reporting occurred during the year ended December 31, 2023 as the Company continued to implement the remediation steps described above, we have not been able to fully document and test these controls to ensure their effectiveness over financial reporting during the year ended December 31, 2023, and thus cannot conclude that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B - OTHER INFORMATION
Please see the disclosure related to the winding down of our intellectual property monetization business included in ITEM 1 – BUSINESS, Overview, Strategic Business Plan, Exiting Unprofitable Business Lines, which information is incorporated in this Item 9B by reference.
DSS intends to hold its 2023 Annual Meeting of Stockholders at the end of the third quarter of 2024.
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PART III
ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our executive officers and directors as of the date of this report are as follows:
| NAME | POSITION | |
Frank D. Heuszel Jason Grady Todd D. Macko Ambrose Chan Heng Fai
José Escudero
Wai Leung William Wu Tung Moe Chan Hiu Pan Joanne Wong Shui Yeung Frankie Wong Lim Sheng Hon Danny |
Chief Executive Officer, Director Chief Operating Officer Chief Financial Officer Director, Chairman
Independent Director
Lead Independent Director Director Independent Director Independent Director Director |
Biographical and certain other information concerning the Company’s officers and directors is set forth below. Except for Mr. Ambrose Chan Heng Fai and his son Mr. Tung Moe Chan, there are no familial relationships among any of our directors. Except as indicated below, none of our directors is a director of any other reporting companies. None of our directors has been affiliated with any company that has filed for bankruptcy within the last ten years. We are not aware of any proceedings to which any of our directors, or any associate of any such director is a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries. Each executive officer serves at the pleasure of the Board of Directors.
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| Name | Age | Director/Officer Since | Principal Occupation or Occupations and Directorships | |||
| Frank D. Heuszel | 67 | 2018 | Frank D. Heuszel currently serves as the Chief Executive Officer of DSS, Inc., a NYSE American publicly traded company. He manages the strategic direction, growth, day to day operations, and governance of the New York based multinational company operating businesses in biohealth and bioscience, healthcare, securities trading and management platforms, blockchain technology, direct marketing, real estate, alternative energy, brand protection technology and securitized digital assets.
Mr. Heuszel became DSS’s Chief Executive Officer and Interim Chief Financial Officer in April 2019, prior to 2019 Mr. Heuszel was retired. He has served as a member of DSS’s board of directors since July 2018 and served as chairman of the company’s Audit Committee from July 2018 to April 2019.
Heuszel has extensive expertise in a wide array of strategic, business, turnaround, and regulatory matters across several industries as a result of his executive management, educational, and operational experience. Prior to joining DSS, Mr. Heuszel had a very successful career in commercial banking. For over 35 years, Heuszel served in many senior executive roles with major US and international banking organizations. As a banker, Mr. Heuszel has served as General Counsel, Director of Special Assets, Credit Officer, Chief Financial Officer and Auditor. Mr. Heuszel currently serves as CEO of the Texas bank holding company, American Pacific Bancorp. Mr. Heuszel also operates a successful law practice focuses on the regulation and operation of banks, management of bank litigation, corporate restructures, and merger and acquisitions. In addition to being an attorney and executive manager, Mr. Heuszel is also a Certified Public Accountant (retired), and a Certified Internal Auditor.
Mr. Heuszel also serves as a director of a Texas community bank, Herring Bank of Amarillo, Texas and Mr. Heuszel serves as Chairman of the Audit Committee. Mr. Heuszel was appointed to this position in May 2022.
Frank D. Heuszel was born in Branson, Missouri, graduated from the University of Texas at Austin from the McCombs School of Business in 1979 and received his Doctorate of Jurisprudence with honors from South Texas College of Law in 1990. Frank received his certification as a Certified Public Accountant and as a Certified Internal Auditor in 1985.
Mr. Heuszel is also a member of the Texas State Bar, the Houston Bar Association, Association of Corporate Counsel, Texas Society of Certified Public Accountants, and the State Bar of Texas Bankruptcy Section.
Mr. Heuszel’s years of experience with the Company and decades of experience in banking and law make him an asset to the Board
|
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| Jason Grady | 50 | 2018 |
Mr. Jason Grady has held the position of Chief Operating Officer at the Company since August 2019. Concurrently, since July 2018, Mr. Grady has served as President of Premier Packaging Corporation, a folding carton and consumer packaging manufacturer and wholly-owned subsidiary of the Company. Previously, from April 2010 to July 2018, Mr. Grady served as the Company’s Vice President of Sales & Business Development. In his capacity as COO, Mr. Grady oversees the operational management of multiple divisions, provides guidance for the company’s newly-formed subsidiaries, and conducts research and development into emerging market opportunities across various business operations. His responsibilities encompass strategic leadership, driving key initiatives such as operations optimization, sales organization re-engineering, new business development, international sales, sales management, and corporate marketing. He has directed the overall management of multi-divisional operations and sales, including bio-health, nutraceuticals, wealth management, commercial lending, anti-counterfeit and authentication solutions, enterprise security software technologies, and document security printing. Prior to his tenure at DSS, Mr. Grady held positions as Vice President of Marketing at Parlec Corporation, Director of Business Development at Berlin Packaging Corporation, and served as a sales and marketing executive at OutStart, Inc., an enterprise e-learning software company. Mr. Grady earned an undergraduate degree in Marketing and Communications and a Master’s Degree in Business Administration from the Rochester Institute of Technology. |
| Todd D. Macko | 51 | 2020 | Mr. Todd D. Macko was promoted to Chief Financial Officer on August 16, 2021. Mr. Macko previously served as the Interim Chief Financial Officer and Vice President of Finance of DSS. As the Interim Chief Financial Officer and Vice President of Finance, Mr. Macko’s responsibilities included assisting DSS’s Chief Executive Officer in all aspects of financial and regulatory reporting. In addition, his responsibilities included the day-to-day management of the Company’s Accounting and Finance team and the financial leadership in the directing and improving of the accounting, reporting, audit, and tax activities. Prior to his role as Vice President of Finance for the Company, Mr. Macko joined the wholly owned subsidiary of DSS, Premier Packaging Corporation in January 2019, as its Vice President of Finance. Mr. Macko is a Certified Public Accountant with over 25 years of public and corporate financial management, business leadership and corporate strategy. Mr. Macko brings a wealth of experience with strengths in financial planning and analysis, business process re-engineering, budgeting, merger and acquisitions, financial reporting systems, project evaluation and treasury and capital management. Prior to joining the Company, Mr. Macko served as the Corporate Controller for Baldwin Richardson Foods, a leading custom ingredients manufacturer for the food and beverage industry from November 2015 until January 2019. Prior to that, Mr. Macko served as the Controller for The Outdoor Group, LLC., Genesis Vision, Inc., Complemar Partners, Inc., and Level 3 Communications, Inc. Mr. Macko obtained is Bachelor of Science in Accounting from Rochester Institute of Technology. |
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| José Escudero | 48 | 2019 |
Mr. Escudero’s career is focused on business transformations, including turnaround, growth and M&A situations. He has led large performance transformation programs within companies of various industries and countries, including retail, fashion & luxury, hotel and the new economy related to digitalization transformation and crypto world. Mr. Escudero has been member of different Boards of Directors and Direction Committees of many companies in different countries. He has been also working as expert for the leading private equity firms like: Harvard Investment Group (HIG), Advent, Goldman Sachs, etc. He has been working in financial analysis, transactional support and strategy business development as well as operating management in first level of international companies. Also, he has worked in more than 10 countries along his career (Singapore, HK, US, UK, Brazil, Spain, etc.).
Mr. Escudero worked as a Partner at BMI Capital Partners from September 2013 to November 2019. Mr. Ecudero has worked as Certisign’s Chief Strategy and M&A Officer since November 2019. He is currently working as partner of the Managing Consulting firm Hallman & Burke, and previously worked for the Spanish M&A boutique Ambers & Co. He started his career in PwC.
Mr. Escudero has a B.Sc. in Economics from the Francisco de Vitoria University (Madrid, Spain) where he ranked number one of the promotion. He has a Masters degree in Corporate Finance and Investment Banking from the Options & Futures Institute. Currently he is enrolled in Harvard University in Business Postgraduate studies. He collaborates with different Organizations and Business Schools as speaker and professor:
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| ● | TED | |||||||
| ● | Ie - Instituto de Empresa | |||||||
| ● | Raffles University of Hong Kong | |||||||
| ● | IED - Istituto Europeo di Design | |||||||
| ● | ISDE - Instituto Superior de Derecho y Economía | |||||||
| ● | CEF - Centro de Estudios Financieros |
Mr. Escudero’s experience in mergers and acquisitions, corporate finance, and international trade along with his education in economics and finance and investment banking qualify him to serve on the Company’s Board of Directors and as a member of the Compensation and Management Resources Committee and the Nominating and Corporate Governance Committee. |
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| Wai Leung William Wu | 57 | 2019 |
Mr. Wai Leung William Wu has served as a director of the Company since October 20, 2019. He served as the managing director of Investment Banking at Glory Sun Securities Limited since January 2019. Mr. Wu previously served as the executive director and chief executive officer of Power Financial Group Limited from November 2017 to January 2019. Mr. Wu has served as a director of Asia Allied Infrastructure Holdings Limited since February 2015. Mr. Wu previously served as a director and chief executive officer of RHB Hong Kong Limited from April 2011 to October 2017. Mr. Wu served as the chief executive officer of SW Kingsway Capital Holdings Limited (now known as Sunwah Kingsway Capital Holdings Limited) from April 2006 to September 2010.
Mr. Wu serves as a director and is on the audit committees of Alset Inc., traded on The Nasdaq Stock Market LLC; JY GrandMark Holdings Limited listed on the Hong Kong Stock Exchange; and Asia Allied Infrastructure Holdings Limited listed on the Hong Kong Stock Exchange.
Mr. Wu holds a Bachelor of Business Administration degree and a Master of Business Administration degree of Simon Fraser University in Canada. He was qualified as a chartered financial analyst of The Institute of Chartered Financial Analysts in 1996.
Mr. Wu previously worked for a number of international investment banks and possesses over 26 years of experience in the investment banking, capital markets, institutional broking and direct investment businesses. He is a registered license holder to carry out Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong). Mr. Wu has served as a member of the Guangxi Zhuang Autonomous Region Committee of the Chinese People’s Political Consultative Conference in January 2013.
Mr. Wu’s experience in banking, capital markets, investment banking, Asian economic and banking dynamics, and education in corporate finance and asset management qualify him to serve on the Company’s Board as Lead Independent Director, Chair of the Audit Committee and member of the Compensation and Management Resources Committee. |
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Tung Moe Chan
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45 | 2020 |
Mr. Tung Moe Chan has served as a director of the Company since September 2020. In addition, since August 2020, he has served as Director of Corporate Development of American Medical REIT Inc., a subsidiary of the Company.
Mr. Tung Moe Chan has served as the Co-Chief Executive Officer of Alset Inc., a Nasdaq listed company since July 2021 and as the Executive Director since October 2022. Mr. Tung Moe Chan also serves as the Co-Chief Executive Officer and Executive Director of Alset International Limited, a diversified holding company listed on the Catalist of the Singapore Exchange Securities Trading Limited. Mr. Moe Chan is responsible for Alset International Limited’s international real estate business (including serving as Co-Chief Executive Officer-International and a member of the Board of its subsidiary LiquidValue Development Inc.).
From April 2014 to June 2015, Mr. Moe Chan was the Chief Operating Officer of Zensun Enterprises Limited (formerly known as ZH International Holdings Limited and Heng Fai Enterprises Limited), an investment holding company listed on the HKSE and was responsible for that company’s global business operations consisting of REIT ownership and management, property development, hotels and hospitality, as well as property and securities investment and trading. Prior to that, Mr. Moe Chan was an executive director (from March 2006 to February 2014) and the Chief of Project Development (from April 2013 to February 2014) of SingHaiyi Group Ltd (now known as SingHaiyi Group Pte. Ltd.), a property development company in Singapore which was listed on the Singapore Exchange Mainboard, overseeing its property development projects. Mr. Moe Chan was also a non-executive director of the Toronto Stock Exchange-listed RSI International Systems Inc., a hotel software company and the developer of RoomKeyPMS, a web-based property management system, from July 2007 to August 2016.
Mr. Tung Moe Chan holds a Master’s Degree in Business Administration with honors from the University of Western Ontario, a Master’s Degree in Electro-Mechanical Engineering with honors and a Bachelor’s Degree in Applied Science with honors from the University of British Columbia
Mr. Tung Moe Chan’s experience with the Company and experience with global business operations makes him an asset to the Board. | |||
| Shui Yeung Frankie Wong | 53 | 2022 | Wong Shui Yeung joined the Board of Directors of the Company in July 2022. Mr. Wong is a practicing member and fellow member of Hong Kong Institute of Certified Public Accountants and a member of Hong Kong Securities and Investment Institute and holds a bachelor’s degree in business administration. Mr. Wong is a Certified Public Accountant admitted to practice in Hong Kong and he serves as the sole proprietor of S.Y.WONG. He has over 20 years’ experience in accounting, auditing, corporate finance, corporate investment and development, and company secretarial practice.
Mr. Wong previously worked for a number of listed companies as the Chief Financial Officer and/or Company Secretary for over 20 years. He was the CFO and/or Company Secretary of Lerthai Group Limited from September 2016 to December 2020, the shares of which were listed on the Hong Kong Stock Exchange. Mr. Wong has served as a member of the Board of Directors of Alset Capital Acquisition Corp. and Alset Inc. since January 2022 and November 2021 respectively, the shares of which are listed on NASDAQ. Mr. Wong has served as an independent non-executive director of Alset International Limited since June 2017, the shares of which are listed on the Catalist Board of Singapore Stock Exchange. Mr. Wong has served as a member of the Board of Directors of Value Exchange International, Inc. since April 2022, the shares of which are listed on the OTCQB. Mr. Wong was an independent non-executive director of SMI Holdings Group Limited from April 2017 to December 2020, the shares of which were listed on the Main Board of The Stock Exchange of Hong Kong Limited and was an independent non-executive director of SMI Culture & Travel Group Holdings Limited from December 2019 to November 2020, the shares of which are listed on the Main Board of The Stock Exchange of Hong Kong Limited. Mr. Wong’s experience with accounting, public companies, and development make him an asset to the Board and qualify him to act as Chairman of the Nominating and Corporate Governance Committee. |
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Wong Shui Yeung joined the Board of Directors of the Company in July 2022. Mr. Wong is a practicing member and fellow member of Hong Kong Institute of Certified Public Accountants and a member of Hong Kong Securities and Investment Institute and holds a bachelor’s degree in business administration. Mr. Wong is a Certified Public Accountant admitted to practice in Hong Kong and he serves as the sole proprietor of S.Y.WONG. He has over 20 years’ experience in accounting, auditing, corporate finance, corporate investment and development, and company secretarial practice.
Mr. Wong previously worked for a number of listed companies as the Chief Financial Officer and/or Company Secretary for over 20 years. He was the CFO and/or Company Secretary of Lerthai Group Limited from September 2016 to December 2020, the shares of which were listed on the Hong Kong Stock Exchange. Mr. Wong has served as a member of the Board of Directors of Alset Capital Acquisition Corp. and Alset Inc. since January 2022 and November 2021 respectively, the shares of which are listed on NASDAQ. Mr. Wong has served as an independent non-executive director of Alset International Limited since June 2017, the shares of which are listed on the Catalist Board of Singapore Stock Exchange. Mr. Wong has served as a member of the Board of Directors of Value Exchange International, Inc. since April 2022, the shares of which are listed on the OTCQB. Mr. Wong was an independent non-executive director of SMI Holdings Group Limited from April 2017 to December 2020, the shares of which were listed on the Main Board of The Stock Exchange of Hong Kong Limited and was an independent non-executive director of SMI Culture & Travel Group Holdings Limited from December 2019 to November 2020, the shares of which are listed on the Main Board of The Stock Exchange of Hong Kong Limited. Mr. Wong’s experience with accounting, public companies, and development make him an asset to the Board and qualify him to act as Chairman of the Nominating and Corporate Governance Committee. | ||||||
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Wong Shui Yeung joined the Board of Directors of the Company in July 2022. Mr. Wong is a practicing member and fellow member of Hong Kong Institute of Certified Public Accountants and a member of Hong Kong Securities and Investment Institute and holds a bachelor’s degree in business administration. Mr. Wong is a Certified Public Accountant admitted to practice in Hong Kong and he serves as the sole proprietor of S.Y.WONG. He has over 20 years’ experience in accounting, auditing, corporate finance, corporate investment and development, and company secretarial practice.
Mr. Wong previously worked for a number of listed companies as the Chief Financial Officer and/or Company Secretary for over 20 years. He was the CFO and/or Company Secretary of Lerthai Group Limited from September 2016 to December 2020, the shares of which were listed on the Hong Kong Stock Exchange. Mr. Wong has served as a member of the Board of Directors of Alset Capital Acquisition Corp. and Alset Inc. since January 2022 and November 2021 respectively, the shares of which are listed on NASDAQ. Mr. Wong has served as an independent non-executive director of Alset International Limited since June 2017, the shares of which are listed on the Catalist Board of Singapore Stock Exchange. Mr. Wong has served as a member of the Board of Directors of Value Exchange International, Inc. since April 2022, the shares of which are listed on the OTCQB. Mr. Wong was an independent non-executive director of SMI Holdings Group Limited from April 2017 to December 2020, the shares of which were listed on the Main Board of The Stock Exchange of Hong Kong Limited and was an independent non-executive director of SMI Culture & Travel Group Holdings Limited from December 2019 to November 2020, the shares of which are listed on the Main Board of The Stock Exchange of Hong Kong Limited. Mr. Wong’s experience with accounting, public companies, and development make him an asset to the Board and qualify him to act as Chairman of the Nominating and Corporate Governance Committee. |
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| Hiu Pan Joanne Wong | 56 | 2022 | Ms. Joanne Wong has been Director and Responsible Officer (SFC), BMI Funds Management Limited since August 6, 2014. She has participated as the management role in fund administrator activities in A-Link Services Limited and Global Intelligence Trust Limited since 2020 and 2018. Ms. Joanne Wong graduated from The Chinese University of Hong Kong (CUHK) with an Honors Bachelor’s degree in Chemistry 1999. She has expertise in an array of strategic, business, turnaround and regulatory matters spanning across several industries. Ms. Joanne Wong’s experience in turnaround and regulatory matters across several industries makes her an asset to the Board. | |||
| Lim Sheng Hon Danny | 32 | 2023 | Mr. Lim Sheng Hon Danny has served as a director of the Company since 2023.
Mr. Lim Sheng Hon Danny has served as Senior Vice President, Business Development and as Executive Director of Alset International Limited, a diversified holding company listed on the Catalist of the Singapore Exchange Securities Trading Limited, since 2020. Mr. Lim Sheng Hon Danny has served as an Executive Director of Alset Inc., a Nasdaq listed company, since October 2022. Mr. Lim Sheng Hon Danny has served as Chief Operating Officer of HWH International Inc., a publicly traded company on the Nasdaq stock exchange since February 2024 and also serves as its Chief Strategy Officer.
Mr. Lim has over 7 years of experience in business development, merger & acquisitions, corporate restructuring and strategic planning and execution. Mr. Lim manages the Group’s business development efforts, focusing on corporate strategic planning, merger and acquisition and capital markets activities. He oversees and ensures the executional efficiency of the Group and facilitates internal and external stakeholders on the implementation of the Group’s strategies. Mr. Lim liaises with corporate partners or investment prospects for potential working/ investment collaborations, operational subsidiaries locally and overseas to augment close parent-subsidiary working relationship.
Mr. Lim graduated from Singapore Nanyang Technological University with a Bachelor’s Degree with Honors in Business, specializing in Banking and Finance. | |||
| Ambrose Chan Heng Fai | 79 | 2017 | Mr. Ambrose Chan Heng Fai has served as a director of the Company since February 12, 2017 and became Chairman of the Board of Directors on March 27, 2019. He has also served as an officer of the Company’s wholly-owned subsidiaries, DSS International Inc. since July of 2017, as the Chief Executive Officer of DSS Digital Transformation Limited and DSS Cyber Security Pte. Ltd. since July 2019.
Mr. Chan is an expert in banking and finance, with 45 years of experience in these industries. He has also restructured numerous companies in various industries and countries during the past 40 years.
Mr. Chan has served as the Chairman of the Board and Chief Executive Officer of Alset Inc., a Nasdaq listed company, since March 2018. Mr. Chan has served as the Chief Executive Officer of Alset International Limited, a diversified holding company listed on the Catalist of the Singapore Exchange Securities Trading Limited, since April 2014, and has served as a director of that company since May of 2013. Mr. Chan has served as the Chairman of HWH International Inc. (formerly known as Alset Capital Acquisition Corp.), a Nasdaq listed company, since October 2021. Mr. Chan has served as a member of the Board of Directors of Hapi Metaverse Inc. (formerly known as GigWorld Inc.), a technology company since October of 2014, as Executive Chairman since December 2017 and served as the Acting Chief Executive Officer of Hapi Metaverse Inc. from August 2018 until September 2020, having previously served as Chief Executive Officer from December of 2014 until June of 2017. Mr. Chan served as a non-executive director of Holista CollTech Ltd., an ASX listed company, from July 2013 to June 2021. Mr. Chan served as a director of OptimumBank Holdings, Inc. from June 2018 to April 2022. Mr. Chan has served as a director of Sharing Services Global Corporation, an OTCQB since April 2020 and as the Chairman of the Board since July 2021.
Mr. Chan’s previous experiences include serving as Managing Chairman of Zensun Enterprises Limited (formerly known as ZH International Holdings Limited and Heng Fai Enterprises Limited), an investment holding company listed on the HKSE, from 1992 to 2015. Mr. Chan was formerly the Managing Director of SingHaiyi Group Ltd. (now known as SingHaiyi Group Pte. Ltd.), a property development company in Singapore which was listed on the Singapore Exchange Mainboard, from March 2003 to September 2013, and the Executive Chairman of China Gas Holdings Limited, a Hong Kong listed investor and operator of city gas pipeline infrastructure in China from 1997 to 2002. Mr. Chan served on the Board of RSI International Systems, Inc., a Toronto Stock Exchange-listed, the developer of RoomKeyPMS, a web-based property management system, from June 2014 to February 2019.
Mr. Chan has also served as a director of Global Medical REIT Inc., a healthcare facility real estate company, from December 2013 to July 2015. He was a director of American Housing REIT Inc. from October of 2013 to July of 2015. He served as a director of Skywest Ltd., a public Australian airline company from 2005 to 2006. Mr. Chan was a director of Global Med Technologies, Inc., a medical company engaged in the design, development, marketing and support information for management software products for healthcare-related facilities, from May 1998 until December 2005.
Mr. Chan’s international business contacts and experience qualify him to serve on our Board of Directors. |
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Board of Directors and Committees
The Company has determined that each of Mr. Wai Leung William Wu, Mr. Shui Yeung Frankie Wong, Ms. Hiu Pan Joanne Wong and Mr. José Escudero qualify as independent directors (as defined under Section 803 of the NYSE American LLC Company Guide).
In fiscal 2023, each of the Company’s independent directors attended or participated in approximately 92% or more of the aggregate of (i) the total number of meetings of the Board of Directors held during the period in which each such director served as a director and (ii) the total number of meetings held by all committees of the Board of Directors during the period in which each such director served on such committee. All directors attended last year’s annual general meeting. During the fiscal year ended December 31, 2023, the Board held three meetings and acted by written consent on fourteen occasions.
Effective July 8, 2022, the Board of Directors elected Mr. Shui Yeung Frankie Wong as a non-executive member of the Company’s Board of Directors. Mr. Wong will serve as an independent director and serve on the Audit Committee and the Nominating and Corporate Governance Committee.
Effective July 11, 2022, the Board of the Company elected Ms. Hiu Pan Joanne Wong as an independent, non-executive director of the Board.
On or around June 2022, Mr. John Thatch was no longer considered an independent director under the New York Stock Exchange listing standards. Mr. Thatch remains a member of the Company’s Board. On July 22, 2022, Mr. Wai Leung William Wu was appointed Lead Independent Director and Chairman of the Audit Committee.
Effective August 31, 2023, the Board of the Company elected Mr. Lim Sheng Hon Danny as a, non-executive director of the Board.
Mr. John Thatch resigned from the Board on September 1, 2023. Mr. Thatch did not resign from the Board as a result of any disagreement related to the Company’s operations, policies or practices.
Mr. Sassuan Samson Lee resigned from the Board on February 8, 2024. Mr. Lee did not resign from the Board as a result of any disagreement related to the Company’s operations, policies or practices.
Audit Committee
The Company has separately designated an Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Audit Committee held six meetings in 2023 and did not acted by written consent. The Audit Committee is responsible for, among other things, the appointment, compensation, removal and oversight of the work of the Company’s independent registered public accounting firm, overseeing the accounting and financial reporting process of the Company, and reviewing related person transactions. As of December 31, 2023 and December 31, 2022, the Audit Committee is comprised of Mr. Wu, who serves as Chairman of the Audit Committee, Mr. Wong, and Mr. Escudero. Each of Messrs. Wu and Escudero is qualified as a “financial expert” as defined in Item 407 under Regulation S-K of the Securities Act of 1933, as amended (the “Securities Act”). Mr. Wong is financially sophisticated. Each of Mr. Wu, Mr. Escudero and Mr. Wong is an independent director (as defined under Section 803 of the NYSE American LLC Company Guide). The Audit Committee operates under a written charter adopted by the Board of Directors, which can be found in the Investors/Corporate Governance section of our web site, www.dsssecure.com.
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Compensation and Management Resources Committee
The purpose of the Compensation and Management Resources Committee is to assist the Board in discharging its responsibilities relating to executive compensation, succession planning for the Company’s executive team, and to reviewing and making recommendations to the Board regarding employee benefit policies and programs, incentive compensation plans and equity-based plans. The Compensation and Management Resources Committee met twice in 2023. The Compensation and Management Resources Committee is responsible for, among other things, (a) reviewing all compensation arrangements for the executive officers of the Company and (b) administering the Company’s stock option plans. The Compensation and Management Resources Committee consists of Mr. Escudero, Mr. Wu and Mr. Wong, with Mr. Escudero as the Chairman. Each of the members of the Compensation and Management Resources Committee is an independent director (as defined under Section 803 of the NYSE American Company Guide). The Compensation and Management Resource Committee operates under a written charter adopted by the Board of Directors, which can be found in the Investors/Corporate Governance section of our web site, www.dsssecure.com. The duties and responsibilities of the Compensation and Management Resources Committee in accordance with its charter, are to review and discuss with management and the Board the objectives, philosophy, structure, cost and administration of the Company’s executive compensation and employee benefit policies and programs; no less than annually, review and approve, with respect to the Chief Executive Officer and the other executive officers (a) all elements of compensation, (b) incentive targets, (c) any employment agreements, severance agreements and change in control agreements or provisions, in each case as, when and if appropriate, and (d) any special or supplemental benefits; make recommendations to the Board with respect to the Company’s major long-term incentive plans applicable to directors, executives and/or non-executive employees of the Company and approve (a) individual annual or periodic equity-based awards for the Chief Executive Officer and other executive officers and (b) an annual pool of awards for other employees with guidelines for the administration and allocation of such awards; recommend to the Board for its approval a succession plan for the Chief Executive Officer, addressing the policies and principles for selecting a successor to the Chief Executive Officer, both in an emergency situation and in the ordinary course of business; review programs created and maintained by management for the development and succession of other executive officers and any other individuals identified by management or the Compensation and Management Resources Committee; review the establishment, amendment and termination of employee benefits plans, review employee benefit plan operations and administration; and any other duties or responsibilities expressly delegated to the Compensation and Management Resources Committee by the Board from time to time relating to the Committee’s purpose. The Compensation and Management Resources Committee may request any officer or employee of the Company or the Company’s outside counsel to attend a meeting of the Compensation and Management Resources Committee or to meet with any members of, or consultants to, the Compensation and Management Resources Committee. The Company’s Chief Executive Officer does not attend any portion of a meeting where the Chief Executive Officer’s performance or compensation is discussed, unless specifically invited by the Compensation and Management Resources Committee.
The Compensation and Management Resources Committee has the sole authority to retain and terminate any compensation consultant to be used to assist in the evaluation of director, Chief Executive Officer or other executive officer compensation or employee benefit plans and has sole authority to approve the consultant’s fees and other retention terms. The Compensation and Management Resources Committee also has the authority to obtain advice and assistance from internal or external legal, accounting or other experts, advisors and consultants to assist in carrying out its duties and responsibilities and has the authority to retain and approve the fees and other retention terms for any external experts, advisors or consultants.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is responsible for overseeing the appropriate and effective governance of the Company, including, among other things, (a) nominations to the Board of Directors and making recommendations regarding the size and composition of the Board of Directors and (b) the development and recommendation of appropriate corporate governance principles. At December 31, 2023, the Nominating and Corporate Governance Committee consisted of Mr. Wu, Mr. Wong and Mr. Escudero, each of whom is an independent director (as defined under Section 803 of the NYSE American LLC Company Guide Mr. Wong was appointed to the Nominating and Corporate Governance Committee as Chair of the Committee.
The Nominating and Corporate Governance Committee met once during 2023 and did not act by written consent in 2023. The Nominating and Corporate Governance Committee operates under a written charter adopted by the Board of Directors, which can be found in the Investors/Corporate Governance section of our web site, www.dsssecure.com. The Nominating and Corporate Governance Committee adheres to the Company’s By-Laws provisions and Securities and Exchange Commission rules relating to proposals by stockholders when considering director candidates that might be recommended by stockholders, along with the requirements set forth in the committee’s Policy with Regard to Consideration of Candidates Recommended for Election to the Board of Directors, also available on our website. The Nominating and Corporate Governance Committee of the Board of Directors is responsible for identifying and selecting qualified candidates for election to the Board of Directors prior to each annual meeting of the Company’s stockholders. In identifying and evaluating nominees for director, the Committee considers each candidate’s qualities, experience, background and skills, as well as other factors, such as the individual’s ethics, integrity and values which the candidate may bring to the Board of Directors. Currently, the Nominating and Corporate Governance Committee does not have an explicit policy regarding diversity, however, when considering candidates nominees shall not be discriminated against based on race, religion, national origin, sex, disability or any other basis proscribed by applicable law.
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Code of Ethics
The Company has adopted a Code of Ethics that establishes the standards of ethical conduct applicable to all directors, officers and employees of the Company. A copy of the Code of Ethics covering all of our employees, directors and officers, and all other corporate governance documents, are available on the Corporate Governance section of our web site at www.dsssecure.com.
Information about our Executive Officers
On April 17, 2019, Frank D. Heuszel became the Chief Executive Officer of the Company. On August 16, 2021, Todd D. Macko was appointed Chief Financial Officer of the Company. On July 15, 2019, Jason Grady was appointed Chief Operating Officer of the Company. The biographies for Messrs. Heuszel, Macko and Grady are contained herein in the information disclosures relating to the Company’s directors above.
Involvement in Certain Legal Proceedings
None of our directors or executive officers has been involved in any legal proceedings in the past 10 years that would require disclosure under Item 401(f) of Regulation S-K.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires the Company’s directors and executive officers, and persons who own more than ten percent of a registered class of the Company’s equity securities to file with the SEC initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Officers, directors and holders of more than ten percent of the Company’s Common Stock are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
To the Company’s knowledge, based solely upon review of the copies of such reports filed with the SEC and written representations that no other reports were required, during the fiscal year ended December 31, 2023 all Section 16(a) filing requirements applicable to the Company’s officers, directors and holders of more than ten percent of the Company’s common stock were satisfied.
ITEM 11 - EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth the compensation earned by each of the persons serving as the Company’s Chief Executive Officer, Chief Financial Officer, Chief Operating Officer, referred to herein collectively as the “Named Executive Officers”, or NEOs, for services rendered to us for the years ended December 31, 2023 and 2022:
| Name and principal position | Year | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Nonqualified Deferred Compensation Earnings | All Other Compensation (1)(2) | Total | |||||||||||||||||||||||||||
| Frank D. Heuszel, Chief Executive Officer | 2022 | $ | 260,000 | 28,442 | - | - | - | - | $ | 146,196 | $ | 314,639 | ||||||||||||||||||||||||
| 2023 | $ | 260,000 | 268,000 | - | - | - | - | 147,973 | 555,973 | |||||||||||||||||||||||||||
| Jason T. Grady, Chief Operating Officer | 2022 | $ | 210,000 | 10,000 | - | - | - | - | $ | 16,735 | $ | 236,735 | ||||||||||||||||||||||||
| 2023 | $ | 247,344 | 78,319 | - | - | - | - | 19,460 | $ | 345,123 | ||||||||||||||||||||||||||
| Todd D. Macko, Chief Financial Officer | 2022 | $ | 198,000 | $ | 42,887 | $ | 17,154 | 258,041 | ||||||||||||||||||||||||||||
| 2023 | $ | 235,609 | 55,400 | - | - | - | - | 19,196 | $ | 310,205 | ||||||||||||||||||||||||||
| (1) | Includes health insurance premiums, retirement matching funds and automobile expenses paid by the Company. |
| (2) | As part of a consulting agreement Mr. Heuszel had with APB prior to becoming the CEO of the Company, he is compensated $120,000 annual for various responsibilities. |
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Employment and Severance Agreements
On December 12, 2023, Frank D. Heuszel, the Chief Executive Officer (“CEO”) of DSS, Inc. (the “Company”) and the Company executed a letter agreement (“Heuszel Interim Agreement”) pursuant to which Mr. Heuszel agreed to act as CEO of the Company on a month-to-month basis beginning January 1, 2024 until a new employment agreement is executed (the “Heuszel Interim Period”). Mr. Heuszel’s current employment agreement pursuant to which he serves as CEO expires on December 31, 2023. In accordance with the Heuszel Interim Agreement, Mr. Heuszel will continue to act as CEO until either a new employment agreement is successfully negotiated and executed or if the Heuszel Interim Agreement is terminated by either party by giving one month’s written notice to the other party. Pursuant to the Heuszel Interim Agreement, Mr. Heuszel’s base salary is $260,000 per annum, which will be payable to him monthly in arrears. There will be no bonus accrued or payable during the Heuszel Interim Period.
On December 15, 2023, Jason Grady, the Chief Operating Officer (“COO”) of the Company and the Company executed a letter agreement (the “Grady Interim Agreement”) pursuant to which Mr. Grady agreed to act as COO of the Company on a month-to-month basis beginning January 1, 2024 until a new employment agreement is executed (the “Grady Interim Period”). Mr. Grady’s current employment agreement pursuant to which he serves as COO expires on December 31, 2023. In accordance with the Grady Interim Agreement, Mr. Grady will continue to act as COO until either a new employment agreement is successfully negotiated and executed or if the Grady Interim Agreement is terminated by either party by giving one month’s written notice to the other party. Pursuant to the Grady Interim Agreement, Mr. Grady’s base salary is $260,000 per annum, which will be payable to him monthly in arrears. There will be no bonus accrued or payable during the Grady Interim Period.
Also on December 15, 2023, Todd Macko, the Chief Financial Officer (“CFO”) of the Company and the Company executed a letter agreement (the “Macko Interim Agreement”) pursuant to which Mr. Macko agreed to act as CFO of the Company on a month-to-month basis beginning January 1, 2024 until a new employment agreement is executed (the “Macko Interim Period”). Mr. Macko’s current employment agreement pursuant to which he serves as CFO expires on December 31, 2023. In accordance with the Macko Interim Agreement, Mr. Macko will continue to act as CFO until either a new employment agreement is successfully negotiated and executed or if the Macko Interim Agreement is terminated by either party by giving one month’s written notice to the other party. Pursuant to the Macko Interim Agreement, Mr. Macko’s base salary is $248,000 per annum, which will be payable to him in accordance with the payroll policies of the Company. There will be no bonus accrued or payable during the Macko Interim Period.
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Outstanding Equity Awards at Fiscal Year-End
As of December 31, 2023, there were no outstanding equity awards to our Named Executive Officers.
Director Compensation
The following table sets forth cash compensation and the value of stock options awards granted to the Company’s non-employee independent directors for their service in 2023:
| Name | Fees Earned or Paid in Cash | Stock Awards | All Other Compensation | Total | ||||||||||||
| Current Directors | ||||||||||||||||
| Frank D. Heuszel | $ | - | $ | - | $ | - | $ | - | ||||||||
| Heng Fai Ambrose Chan | $ | - | $ | - | $ | - | $ | - | ||||||||
| Lim Sheng Hon Danny | $ | - | $ | - | $ | - | $ | - | ||||||||
| José Escudero | $ | 27,150 | $ | - | $ | - | $ | 27,150 | ||||||||
| Wai Leung William Wu | $ | 27,150 | $ | - | $ | - | $ | 27,150 | ||||||||
| Hiu Pan Joanne Wong | $ | 21,100 | $ | - | $ | - | $ | 21,100 | ||||||||
| Wong Shui Yueng | $ | 27,150 | $ | - | $ | - | $ | 27,150 | ||||||||
| Sassuan Samson Lee | $ | 22,100 | $ | - | $ | - | $ | 22,100 | ||||||||
| Tung Moe Chan | $ | - | $ | - | $ | - | $ | - | ||||||||
Each independent director (as defined under Section 803 of the NYSE MKT LLC Company Guide) is entitled to receive base cash compensation of $18,000 annually, provided such director attends at least 75% of all Board of Director meetings, and all scheduled committee meetings. Each independent director is entitled to receive an additional $1,000 for each Board of Director meeting he attends, and an additional $500 for each nominating and compensation committee meeting he attends and $750 for each audit and executive committee meeting he attends, provided such committee meeting falls on a date other than the date of a full Board of Directors meeting. Each of the independent directors is also eligible to receive discretionary grants of options or restricted stock under the Company’s 2020 Equity Incentive Plan. Non-independent members of the Board of Directors do not receive compensation in their capacity as directors, except for reimbursement of travel expenses.
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ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth beneficial ownership of Common Stock as of March 1, 2024 by each person known by the Company to beneficially own more than 5% of the Common Stock, each director and each of the executive officers named in the Summary Compensation Table (see “Executive Compensation” above), and by all of the Company’s directors and executive officers as a group. Each person has sole voting and dispositive power over the shares listed opposite his name except as indicated in the footnotes to the table and each person’s address is c/o DSS, Inc., 275 Wiregrass Parkway, West Henrietta, New York 14586.
For purposes of this table, beneficial ownership is determined in accordance with the Securities and Exchange Commission rules, and includes investment power with respect to shares owned and shares issuable pursuant to warrants for March 1, 2024.
The percentages of shares beneficially owned are based on 7,066,772 shares of our Common Stock issued and outstanding as of March 1, 2024, and is calculated by dividing the number of shares that person beneficially owns by the sum of (a) the total number of shares outstanding on March 1, 2024, plus (b) the number of shares such person has the right to acquire within 60 days of March 1, 2024.
| Percentage of | ||||||||
| Number of Shares | Outstanding Share | |||||||
| Name | Beneficially Owned | Beneficially Owned | ||||||
| Heng Fai Ambrose Chan (1) | 4,122,916 | 58.3 | % | |||||
| José Escudero | 51 | * | ||||||
| Frank D. Heuszel | 65,639 | * | ||||||
| Wai Leung William Wu | - | * | ||||||
| Jason Grady | 125 | * | ||||||
| Todd D. Macko | 83 | * | ||||||
| Lim Sheng Hon Danny | - | * | ||||||
| Tung Moe Chan | - | * | ||||||
| Sassuan Samson Lee | 51 | * | ||||||
| Frankie Wong | - | * | ||||||
| Joanne Wong | - | * | ||||||
| All officers and directors as a group (8 persons) | 4,188,865 | 59.3 | % | |||||
| 5% Shareholders | ||||||||
| Alset International limited | 1,068,309 | 15.1 | % | |||||
| Alset, Inc. | 1,760,671 | 24.9 | % | |||||
| * Less than 1%. | ||
| (1) | The beneficial ownership of Heng Fai Chan includes 4,122,916 shares of common stock, consisting of (a) 2,978 shares of common stock held by Heng Fai Holdings Limited, an entity controlled by Heng Fai Chan; (b) 979,325 shares of common stock held by Heng Fai Chan directly; (C) 311,634 shares of common stock held by Global Biomedical Pte. Ltd.; and (d) 1,068,309 shares of common stock held by Alset International Limited (e) 1,760,671 shares of common stock held by Alset Inc. | |
Equity Compensation Plans Information
The following table sets forth information about our equity compensation plans as of December 31, 2023.
| Restricted stock to be issued upon vesting | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance (under equity compensation Plans (excluding securities reflected in column (a & b)) | |||||||||||||
| Plan Category | (a) | (b) | (c) | (d) | ||||||||||||
| Equity compensation plans approved by security holders | ||||||||||||||||
| 2013 Employee, Director and Consultant Equity Incentive Plan - options | - | - | $ | - | - | |||||||||||
| 2013 Employee, Director and Consultant Equity Incentive Plan - warrants | - | - | $ | - | - | |||||||||||
| 2020 Employee, Director and Consultant Equity Incentive Plan | - | - | - | 460,846 | ||||||||||||
| Total | - | - | $ | - | 460,846 | |||||||||||
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ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
Except as disclosed herein, no director, executive officer, shareholder holding at least 5% of shares of our common stock, or any family member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction since January 1, 2020, in which the amount involved in the transaction exceeds the lesser of $120,000 or one percent of the average of our total assets at the year-end for the last two completed fiscal years.
The Company owns 127,179,291 shares or approximately 4% of the outstanding shares of Alset International Limited (“Alset Intl”), a company incorporated in Singapore and publicly listed on the Singapore Exchange Limited. This investment is classified as a marketable security and is classified as long-term assets on the consolidated balance sheets as the Company has the intent and ability to hold the investments for a period of at least one year. The Chairman of the Company, Mr. Heng Fai Ambrose Chan, is the Executive Director and Chief Executive Officer of Alset Intl. Mr. Chan is also the majority shareholder of Alset Intl as well as the largest shareholder of the Company. The fair value of the marketable security as of December 31, 2023, and December 31, 2022, was approximately $3,269,000 and $3,319,000 respectively. During the year ended December 31, 2023 and December 31, 2022, the Company recorded unrealized loss on this investment of approximately $177,000 and unrealized loss of $1,590,000, respectively.
On March 2, 2020, AMRE entered into a $200,000 unsecured promissory note with LVAMPTE, a related party. The Note calls for interest to be paid annually on March 2 with interest fixed at 8.0%. As further incentive to enter into this Note, AMRE granted LVAMPTE warrants to purchase shares of common stock of AMRE (the “Warrants”). The amount of the warrants granted is the equivalent of the Note Principal divided by the Exercise Price. The Warrants are exercisable for four years and are exercisable at $5.00 per share (the “Exercise” Price). In March 2022, this debt was converted into equity in AMRE, and LVAMPTE exercised the warrants for $200,000 (see the consolidated statement of changes in stockholders’ equity) The holder is a related party owned by the Chairman of the Company’s board of directors.
On March 18, 2021, the Company entered into an agreement with Alset EHome International, Inc. (“Seller”), a related party, to purchase from the Seller’s its wholly owned subsidiary Impact Oncology PTE Ltd. (“IOPL”) for a purchase price $2,480,000. The acquisition of IOPL has been treated as an asset acquisition as IOPL does not meet the definition of a business as defined in Topic 805. IOPL owns 2,480,000 shares of common stock of Vivacitas along with the option to purchase an additional 250,000 shares of common stock. The Sellers largest shareholder is Mr. Heng Fai Ambrose Chan, the Chairman of the Company’s board of directors and its largest shareholder. At December 31, 2022 the full value of this investment was impaired.
On August 28, 2020, the Company’s wholly owned subsidiary, DSS Securities, Inc. entered into a corporate venture to form and operate a real estate title agency, under the name of Alset Title Company, Inc, a Texas corporation (“ATC”). DSS Securities, Inc. shall own 70% of this venture with the other two shareholders being attorneys necessary to the state application and permitting process. The Company’s CEO, who is a licensed attorney, has a stated non-compensated 15% ownership interest in the venture. There was minimal activity for the year ended December 31, 2022.
On September 9, 2021, the Company finalized a stock purchase agreement (the “SPA”) with American Pacific Bancorp (“APB”), which provided for an investment of $40,000,200 by the Company into APB for an aggregate of 6,666,700 shares of the APB’s Class A Common Stock, par value $0.01 per share. Subject to the terms and conditions contained in the SPA, the shares issued at a purchase price of $6.00 per share. As a result of this transaction, DSS owns approximately 53% of APB, and as a result its operating results have been included in the Company’s financial statements beginning September 9, 2021. The Company incurred approximately $36,000 in cost associated with the acquisition of APB which were recorded as general and administrative expenses. The acquisition of APB meets the definition of a business with inputs, processes and outputs, and therefore, the Company has concluded to account for this transaction in accordance with the acquisition method of accounting under Topic 805. Since acquisition, APB has incurred approximately $895,000 of net losses, of which approximately $361,000 of loss incurred is attributable to non-controlling interest. The next largest shareholder of APB is Alset EHome International, Inc. (“AEI”). AEI’s Chairman and CEO, Heng Fai Chan, and a member of the AEI’s Board of Directors, Wu Wai Leung William, each serve on both the AEI Board and the Board of the Company. The CEO of the Company, Mr. Frank D. Heuszel, also has an approximate 2% equity position of APB.
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On October 27, 2021, HWH World, Inc., a subsidiary of the Company entered a revolving loan commitment (“Note 5”) with Borrower 5, a company registered in Taiwan. The outstanding principal and interest at December 31, 2023 and December 31, 2022 is $0 and $63,000, respectively, and was included in Notes receivable current portion. This note has been written-off during the third quarter 2023.
On October 13, 2021, LVAM entered into loan agreement with BMIC (“BMIC Loan”), a related party, whereas LVAM borrowed the principal amount of $3,000,000, with interest to be charged at a variable rate to be adjusted at the maturity date. The BMIC Loan matures on October 12, 2022, and contains an auto renewal period of three months. As of December 31, 2023 and December 31, 2022, $547,000 and $3,000,000, respectively, are included in Current portion of long-term debt, net on the consolidated balance sheet.
On October 13, 2021, LVAM entered into a loan agreement with Lee Wilson Tsz Kin (“Wilson Loan”), a related party, whereas LVAM borrowed the principal amount of $3,000,000, with interest to be charged at a variable rate to be calculated at the maturity date. The Wilson Loan matures on October 12, 2022, and contains an auto renewal period of nine months. This loan was funded during March 2022. As of December 31, 2023 $2,131,000 is included in the Current portion of long-term debt, net on the consolidated balance sheet. As of December 31, 2022 $3,000,000 is included in the Current portion of long-term debt, net on the consolidated balance sheet.
On November 2, 2021, AMRE LifeCare entered into a loan agreement (“LifeCare Agreement”) with Pinnacle Bank, (“Pinnacle Bank”) in the amount of $40,300,000. The LifeCare Agreement supported the acquisition of three medical facilities located in Fort Worth, Texas, Plano, Texas, and Pittsburgh, Pennsylvania for a purchase price of $62,000,000. These assets are classified as investments, real estate on the consolidated balance sheet. The purchase price has been allocated as $32,100,000, $12,100,000, and $1,500,000 for the facility, land and site improvements, respectively. Also included in the value of the property is $15,901,000 of intangible assets with estimated useful lives ranging from 1 to 11 years. The net book value of the assets acquired as of December 31, 2022 is approximately $52,407,000. The LifeCare Agreement calls for the principal amount of the in equal, consecutive monthly installments based upon a twenty-five (25) year amortization of the original principal amount of the LifeCare Agreement at an initial rate of interest equal to the interest rate determined in accordance as of July 29, 2022 provided, however, such rate of interest shall not be less than 4.28%, with the first such installment being payable on August 29, 2022 and subsequent installments being payable on the first day of each succeeding month thereafter until the maturity date, at which time any outstanding principal and interest is due in full. The affective interest rate at December 31, 2022 was 8.46%. The maturity date of November 2, 2023, may be extended to November 2, 2024. As of December 31, 2022, the outstanding principal and interest of the LifeCare agreement approximates $40,193,000, net of deferred financing costs of $270,000. As of December 31, 2023, the outstanding principal and interested approximates $41,331,000. Interest expense for the year-ended December 31, 2023 and 2022 approximated $1,142,000 and $952,000, respectively. The LifeCare agreement is currently in default. The Company is in the process of remediating the related issues and continues to negotiate the extension of the loan.
On February 28, 2022, DSS entered into an Amendment to Stock Purchase Agreement (the “Amendment”) with its shareholder Alset EHome International Inc. (“AEI”), pursuant to which the Company and AEI have agreed to amend certain terms of the Stock Purchase Agreement dated January 25, 2022 (the “SPA”). Pursuant to the SPA, AEI had agreed to purchase up to 44,619,423 shares of the Company’s common stock for a purchase price of $0.3810 per share, for an aggregate purchase price of $17,000,000. Pursuant to the Amendment, the number of shares of the common stock of the Company that the AEI will purchase has been reduced to 3,986,877 shares for an aggregate purchase price of $1,519,000. This transaction was completed on March 9, 2022. In addition, the Company’s Executive Chairman and a significant stockholder, Heng Fai Ambrose Chan, is the Chairman, Chief Executive Officer and largest shareholder of AEI.
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In October 2017, Sharing Services issued a Convertible Promissory Note in the principal amount of $ 50,000 (the “Note”) to HWH International, Inc. (“HWH” or the “Holder”), a related party. HWH is affiliated with Heng Fai Ambrose Chan, who became a Director of the Company in April 2020. The Note is convertible into 333,333 shares of the Company’s Common Stock. Concurrent with issuance of the Note, the Company issued to HWH a detachable stock warrant to purchase up to an additional 333,333 shares of the Company’s Common Stock, at an exercise price of $0.15 per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to certain financing rights. If the Company enters into more favorable transactions with a third-party investor, it must notify the Holder and may have to amend and restate the Note and the detachable stock warrant to be identical. On August 9, 2022, HWH and the Company executed an agreement to settle the Note and cancel the related stock warrant for $78,635.62, which amount represents the principal plus accrued interest. The Company made the payment to HWH on August 9, 2022.
On May 17, 2022, the shareholders of the Company approved the acquisition of 62,122,908 shares of True Partners Capital Holdings Limited (“True Partners”), a company publicly traded on the Hong Kong stock exchange in exchange for 17,570,948 shares of DSS stock. The True Partner shares were acquired from Alset EHome International, Inc. (“Alset EHome”), a related party. Mr. Heng Fai Ambrose Chan, our director and Executive Chairman, is also Chairman of the Board, Chief Executive Officer, and the largest beneficial owner of the outstanding shares of Alset EHome. This transaction was completed with the transfer of DSS share to Alset EHome on July 1, 2022 with the issuance of DSS shares, which were valued at $0.34 per share, to Alset EHome.
In November 2021, AMRE entered into a convertible promissory note (“Alset Note”) with Alset International Limited (“Alset International”), a related party, for the principal amount of $8,350,000. The Alset Note accrues interest at 8% per annum and matures in December 2023, with interest due quarterly and the principal due at maturity. Principal and interest of approximately $8,805,000 is included in long-term debt, net on the accompanying consolidated balance sheet on December 31, 2022. On May 17, 2022, the shareholders of the Company approved the issuance of up to 21,366,177 Shares our Common Stock to Alset International to purchase the Convertible Promissory Note issued by American Medical REIT, Inc. with a principal amount of $8,350,000 and accrued unpaid interest of $119,000 through December 31, 2022. This transaction was finalized in July 2022 and is eliminated upon consolidation into DSS. Interest expense for this note totaled $796,000 in December 2023 and $346,000 in December 2022.
On February 28, 2022, DSS entered into an Amendment to Stock Purchase Agreement (the “Amendment”) with its shareholder Alset EHome International Inc. (“AEI”), pursuant to which the Company and AEI have agreed to amend certain terms of the Stock Purchase Agreement dated January 25, 2022 (the “SPA”). Pursuant to the SPA, AEI had agreed to purchase 44,619,423 shares of the Company’s common stock for a purchase price of $0.3810 per share, for an aggregate purchase price of $17,000,000. Pursuant to the Amendment, the number of shares of the common stock of the Company that the AEI will purchase has been reduced to 3,986,877 shares for an aggregate purchase price of $1,519,000. This transaction was completed on March 9, 2022. In addition, the Company’s Executive Chairman and a significant stockholder, Heng Fai Ambrose Chan, is the Chairman, Chief Executive Officer and largest shareholder of AEI.
On May 13, 2021, and later amended in April 2022, Sentinel Brokers, LLC, a subsidiary of the Company entered a revolving credit promissory note (“Note 3”) with Borrower 3, a company registered in the state of New York and related party. Note 3 has an aggregate principal balance up to $3,000,000, to be funded at request of Borrower 3. Note 3, which incurs interest at a rate of 6.65% is payable in areas until the principal is paid in full at the maturity date of May 13, 2023. As of December 31, 2022 and December 31, 2021, there was $309,000 and $0, respectively, outstanding on the, and is included in current notes receivable on the accompanying consolidated balance sheet. During the three months ended September 30, 2022, Sentinel Brokers converted approximately $1,364,000 of Note 3 into 13.64 preferred shares of Borrower 3. In December 2022, Sentinel LLC obtained 75% ownership of Sentinel Co. and all transaction are eliminated upon consolidation into DSS.
In October 2017, Sharing Services issued a Convertible Promissory Note in the principal amount of $ 50,000 (the “Note”) to HWH International, Inc. (“HWH” or the “Holder”), a related party. HWH is affiliated with Heng Fai Ambrose Chan, who became a Director of the Company in April 2020. The Note is convertible into 333,333 shares of the Company’s Common Stock. Concurrent with issuance of the Note, the Company issued to HWH a detachable stock warrant to purchase up to an additional 333,333 shares of the Company’s Common Stock, at an exercise price of $0.15 per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to certain financing rights. If the Company enters into more favorable transactions with a third-party investor, it must notify the Holder and may have to amend and restate the Note and the detachable stock warrant to be identical. On August 9, 2022, HWH and the Company executed an agreement to settle the Note and cancel the related stock warrant for $78,635.62, which amount represents the principal plus accrued interest. The Company made the payment to HWH on August 9, 2022.
On May 17, 2022, the shareholders of the Company approved the issuance of up to 21,366,177 Shares our Common Stock to Alset International Limited (“Alset International”), a related party, to purchase the Convertible Promissory Note issued by American Medical REIT, Inc. with a principal amount of $8,350,000 and accrued but unpaid interest of $367,400 through May 15, 2022. This transaction was finalized in July 2022.
On May 17, 2022, the shareholders of the Company approved the acquisition of 62,122,908 shares of True Partners Capital Holdings Limited (“True Partners”), a company publicly traded on the Hong Kong stock exchange in exchange for 17,570,948 shares of DSS stock. The True Partner shares were acquired from Alset EHome International, Inc. (“Alset EHome”), a related party. Mr. Heng Fai Ambrose Chan, our director and Executive Chairman, is also Chairman of the Board, Chief Executive Officer, and the largest beneficial owner of the outstanding shares of Alset EHome. This transaction was completed with the transfer of DSS share to Alset EHome on July 1, 2022 with the issuance of DSS shares, which were valued at $0.34 per share, to Alset EHome.
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Sharing Services Global Corp
In November 2021, SHRG and Hapi Café, Inc, a company affiliated with Heng Fai Ambrose Chan, a Director of the Company, entered into a Master Franchise Agreement pursuant to which Sharing Services acquired the exclusive franchise rights in North America to the brand “Hapi Café.” Under the terms, Sharing Services, directly or through its subsidiaries, has the right to operate no less than five (5) corporate-owned stores and can offer to the public sub-franchise rights to own and operate other stores, subject to the terms and conditions contained in the Master Franchise Agreement.
In October 2017, Sharing Services issued a Convertible Promissory Note in the principal amount of $50,000 (the “Note”) to HWH International, Inc. (“HWH” or the “Holder”). HWH is affiliated with Heng Fai Ambrose Chan, who became a Director of the Company in April 2020. The Note is convertible into 333,333 shares of the Company’s Common Stock. Concurrent with issuance of the Note, the Company issued to HWH a detachable stock warrant to purchase up to an additional 333,333 shares of the Company’s Common Stock, at an exercise price of $0.15 per share. Under the terms of the Note and the detachable stock warrant, the Holder is entitled to certain financing rights. If the Company enters into more favorable transactions with a third-party investor, it must notify the Holder and may have to amend and restate the Note and the detachable stock warrant to be identical. On August 9, 2022, HWH and the Company executed an agreement to settle the Note and cancel the related stock warrant for $78,636, which amount represents the principal plus accrued interest. The detachable stock warrant to purchase the additional 333,333 shares of the Company’s Common Stock was forfeited by the Holder upon payment. The Company made the payment to HWH on August 9, 2022.
In the nine months ended December 31, 2021, a wholly owned subsidiary of the SHRG purchased skin care products manufactured by K Beauty Research Lab. Co., Ltd (“K Beauty”), a South Korean-based supplier of skin care products that is affiliated with Heng Fai Ambrose Chan, a Director of the Company, in the aggregate amount of $2.3 million. The Company’s affiliates operating in Asia intend to distribute skin care and other products in South Korea and other countries, including skin care products procured from K Beauty, as part of the Company’s previously announced strategic growth plans.
In February 2020, the Company, Alchemist Holdings, LLC (“Alchemist”), and a former Company officer entered into a Settlement Accommodation Agreement (the “Accommodation Agreement”) pursuant to which Alchemist and the former Company officer agreed to transfer to the Company 22.7 million shares of the Company’s Common Stock held by Alchemist, in settlement of certain obligations to the Company. Under the terms of the Accommodation Agreement, Alchemist and the former Company officer also agreed to transfer to the Company 15.6 million shares of the Company’s Common Stock held by Alchemist, to offset certain legal and other expenses incurred by the Company in connection with various related-party legal claims. Accordingly, in the fiscal year ended March 31, 2021, the Company and Alchemist caused the transfer to the Company, in the aggregate, of 38.3 million shares of the Company’s Common Stock then held by Alchemist, and the Company retired such redeemed shares. In May 2022, the Company and certain of its subsidiaries, on the one hand, and Alchemist, the former officer and certain entities affiliated with the former officer, on the other hand, entered into a Confidential Settlement Agreement with Mutual Releases (the “May 2022Settlement Agreement”) pursuant to which the parties amicably settled all claims and disputes among them; (b) the former officer sold to the Company 26,091,136 shares of the Company’s common stock then under the voting and dispositive control of the former officer; (c)the Company made a one-time payment of $1,043,645; and (d) the Company and its relevant subsidiaries, on the one hand, and the former officer and relevant entities affiliated with the former officer, on the other hand, exchanged customary mutual releases of any prior obligations among them. On May 19, 2022, the closing price for the Company’s common stock was $0.25 per share. During the nine months ended December 31, 2022, the Company measured and recognized the repurchase of its common stock at its fair value of $626,187, derecognized its remaining liability under the Co-Founder’s Agreement, and recognized a recovery of $324,230 in connection with the previously recognized loss related to the Co-Founder’s Agreement.
In July 2021, the Company, and American Premium Water Corporation (“American Premium”) entered into a business consulting agreement pursuant to which the Company provides consulting services to American Premium in exchange for a monthly fee of $4,166. Mr. John “JT” Thatch, a director of the Company, also serves on the Board of Directors of American Premium. During the three and nine months ended December 31, 2022, the Company recognized consulting fee income of $12,498 and 37,494, respectively. In August 2022, the Company executed a non-binding letter of intent with American Wealth Mining Corporation (“AWM”), a related party, allowing AWM to be the exclusive franchisee of Hapi Café in the State of New York.
Review, Approval or Ratification of Transactions with Related Persons
The Board conducts an appropriate review of and oversees all related party transactions on a continuing basis and reviews potential conflict of interest situations where appropriate. The Board has adopted formal standards to apply when it reviews, approves or ratifies any related party transaction. In addition, the Board applies the following standards to such reviews: (i) all related party transactions must be fair and reasonable and on terms comparable to those reasonably expected to be agreed to with independent third parties for the same goods and/or services at the time they are authorized by the Board and (ii) all related party transactions should be authorized, approved or ratified by the affirmative vote of a majority of the directors who have no interest, either directly or indirectly, in any such related party transaction.
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ITEM 14 - PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
Audit fees consist of fees for professional services rendered for the audit of the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K/A, the review of financial statements included in the Company’s Quarterly Reports on Form 10-Q, and for services that are normally provided by the auditor in connection with statutory and regulatory filings or engagements. The aggregate fees billed for professional services rendered by our independent public accounting firm, Grassi & Co. CPAs, P.C., Jericho, NY, for audit and review services for the fiscal year ended December 31, 2023 were approximately $365,000. The aggregate fees build for professional services rendered by Grassi&Co for audit and review services for the fiscal year ended December 31, 2022 was approximately $325,000.
Tax Fees
The aggregate fees billed for professional services rendered by our principal accountant, Freed Maxick CPAs, P.C., for tax compliance, tax advice and tax planning during the years ended December 31, 2023 and 2022 were approximately $143,000 and $143,000 respectively. DSS has engaged Greendyke Jencik & Associates CPAs, PLLC to render quarterly and year end tax provisions. The aggregate fees for 2023 and 2022 were approximately $8,000 and $8,000.
All Other Fees
There were fees billed for professional services rendered by our principal accountant, Grassi & Co. CPAs, P.C., associated with the Company’s S-1 filings for Impact BioMedical approximating $87,000 for the years ended December 31, 2023.
Administration of the Engagement; Pre-Approval of Audit and Permissible Non-Audit Services
The Company’s Audit Committee Charter requires that the Audit Committee establish policies and procedures for pre-approval of all audit or permissible non-audit services provided by the Company’s independent auditors. Our Audit Committee approved, in advance, all work performed for year ended December 31, 2023 by our principal accountant, Grassi & Co. CPAs, P.C. The Audit Committee may establish, either on an ongoing or case-by-case basis, pre-approval policies and procedures providing for delegated authority to approve the engagement of the independent registered public accounting firm, provided that the policies and procedures are detailed as to the particular services to be provided, the Audit Committee is informed about each service, and the policies and procedures do not result in the delegation of the Audit Committee’s authority to management. In accordance with these procedures, the Audit Committee pre-approved all services performed by Grassi & Co. CPAs, P.C.
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PART IV
ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(b) Exhibits
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| 94 |
| 101.INS | Inline XBRL Instance Document* | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document* | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document* | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document* | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document* | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document* | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document)* |
* Filed herewith
ITEM 16 – Form 10K/A SUMMARY
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
DSS, INC.
| October 22, 2024 | By: | /s/ Jason Grady |
| Jason Grady | ||
| Interim Chief Executive Officer | ||
| (Principal Executive Officer) |
| October 22, 2024 | By: | /s/ Todd D. Macko |
| Todd D. Macko | ||
| Chief
Financial Officer
(Principal Financial and Accounting Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| October 22, 2024 | By: | /s/ Todd D. Macko |
| Todd D. Macko | ||
| Chief
Financial Officer
(Principal Financial and Accounting Officer) | ||
| October 22, 2024 | By: | /s/ Jason Grady |
Jason Grady Interim Chief Executive Officer | ||
| October 22, 2024 | By: | /s/ Heng Fai Ambrose Chan |
Heng Fai Ambrose Chan Chairman of the Board and CEO of DSS International, Inc. | ||
| October 22, 2024 | By: | /s/ Hiu Pan Joanne Wong |
Hiu Pan Joanne Wong
Director | ||
| October 22, 2024 | By: | /s/ José Escudero |
José Escudero Director | ||
| October 22, 2024 | By: | /s/ Shui Yeung Frankie Wong |
Shui Yeung Frankie Wong
Director | ||
| October 22, 2024 | By: | /s/ Tung Moe Chan |
| Tung Moe Chan | ||
| Director | ||
| October 22, 2024 | By: | /s/ Lim Sheng Hon Danny |
| Lim Sheng Hon Danny | ||
| Director | ||
| October 22, 2024 | By: | /s/ Wai Leung William Wu |
William Wu Director |
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Exhibit 4.1
Description of Securities Registered Pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended
General
Our authorized capital stock consists of 200,000,000 shares of common stock, $0.02 par value per share, 62,086,099 of which were issued and outstanding as of March 20, 2020.
The following description of our common stock summarizes the material terms and provisions of the common stock that we may offer under this prospectus but is not complete. For the complete terms of our common stock, please refer to our certificate of incorporation, as amended, (the “Certificate of Incorporation”) which may be further amended from time to time, and our fifth amended and restated by-laws, as further amended from time to time (the “By-laws”). The New York Business Corporation Law (“NYBCL”) may also affect the terms of these securities.
Holders of our common stock: (i) have equal rights to dividends from funds legally available therefore, ratably when as and if declared by the Company’s board of directors; (ii) are entitled to share ratably in all assets of the Company available for distribution to holders of common stock upon liquidation, dissolution, or winding up of the affairs of the Company; (iii) do not have preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions applicable thereto; (iv) are entitled to one non-cumulative vote per share of common stock, on all matters which stockholders may vote on at all meetings of stockholders; and (v) the holders of common stock have no conversion, preemptive or other subscription rights. There is no cumulative voting for the election of directors. Each holder of our common stock is entitled to one vote for each share of our common stock held on all matters submitted to a vote of stockholders.
Anti-Takeover Effects of Certain Provisions of our Certificate of Incorporation, By-laws and the NYBCL
Section 912 of the NYBCL generally provides that a New York corporation may not engage in a business combination with an interested stockholder for a period of five years following the interested stockholder’s becoming such. Such a business combination would be permitted where it is approved by the board of directors before the interested stockholder’s becoming such. Covered business combinations include certain mergers and consolidations, dispositions of assets or stock, plans for liquidation or dissolution, reclassifications of securities, recapitalizations and similar transactions. An interested stockholder is generally a stockholder owning at least 20% of a corporation’s outstanding voting stock. In addition, New York corporations may not engage at any time with any interested stockholder in a business combination other than: (i) a business combination approved by the board of directors before the stock acquisition, or where the acquisition of the stock had been approved by the board of directors before the stock acquisition; (ii) a business combination approved by the affirmative vote of the holders of a majority of the outstanding voting stock not beneficially owned by the interested stockholder at a meeting called for that purpose no earlier than five years after the stock acquisition; or (iii) a business combination in which the interested stockholder pays a formula price designed to ensure that all other stockholders receive at least the highest price per share that is paid by the interested stockholder and that meets certain other requirements.
A corporation may opt out of the interested stockholder provisions described in the preceding paragraph by expressly electing not to be governed by such provisions in its by-laws, which must be approved by the affirmative vote of a majority of votes of the outstanding voting stock of such corporation and is subject to further conditions. However, our By-laws do not contain any provisions electing not to be governed by Section 912 NYBCL. Under our By-laws, any corporate action to be taken by vote of the shareholders, shall be authorized by a majority of votes cast at a meeting of shareholders by the holders of shares entitled to vote thereon.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is American Stock Transfer and Trust Company, LLC, 6201 15th Ave., Brooklyn, NY 11219, USA, +1-800-937-5449 or +1-718-921-8124.
Listing
Our Common Stock is listed on the New York Stock Exchange under the ticker symbols “DSS.”
Exhibit 10.18
APPENDIX A
DOCUMENT SECURITY SYSTEMS, INC.
2020 EMPLOYEE, DIRECTOR AND CONSULTANT EQUITY INCENTIVE PLAN
1. DEFINITIONS.
Unless otherwise specified or unless the context otherwise requires, the following terms, as used in this Document Security Systems, Inc. 2020 Employee, Director and Consultant Equity Incentive Plan, have the following meanings:
Administrator means the Board of Directors, unless it has delegated power to act on its behalf to the Committee, in which case the Administrator means the Committee.
Affiliate means a corporation which, for purposes of Section 424 of the Code, is a parent or subsidiary of the Company, direct or indirect.
Agreement means an agreement between the Company and a Participant delivered pursuant to the Plan and pertaining to a Stock Right, in such form as the Administrator shall approve.
Board of Directors means the Board of Directors of the Company.
Cause means, with respect to a Participant (a) dishonesty with respect to the Company or any Affiliate, (b) insubordination, substantial malfeasance or non-feasance of duty, (c) unauthorized disclosure of confidential information, (d) breach by a Participant of any provision of any employment, consulting, advisory, nondisclosure, non-competition or similar agreement between the Participant and the Company or any Affiliate, and (e) conduct substantially prejudicial to the business of the Company or any Affiliate; provided, however, that any provision in an agreement between a Participant and the Company or an Affiliate, which contains a conflicting definition of Cause for termination and which is in effect at the time of such termination, shall supersede this definition with respect to that Participant. The determination of the Administrator as to the existence of Cause will be conclusive on the Participant and the Company.
Code means the United States Internal Revenue Code of 1986, as amended including any successor statute, regulation and guidance thereto.
Committee means the committee of the Board of Directors to which the Board of Directors has delegated power to act under or pursuant to the provisions of the Plan.
Common Stock means shares of the Company’s common stock, $0.02 par value per share.
Company means Document Security Systems, Inc., a New York corporation.
Consultant means any natural person who is an advisor or consultant that provides bona fide services to the Company or its Affiliates, provided that such services are not in connection with the offer or sale of securities in a capital raising transaction, and do not directly or indirectly promote or maintain a market for the Company’s or its Affiliates’ securities.
Disability or Disabled means permanent and total disability as defined in Section 22(e)(3) of the Code.
Employee means any employee of the Company or of an Affiliate (including, without limitation, an employee who is also serving as an officer or director of the Company or of an Affiliate), designated by the Administrator to be eligible to be granted one or more Stock Rights under the Plan.
Exchange Act means the Securities Exchange Act of 1934, as amended.
Fair Market Value of a Share of Common Stock means:
(1) If the Common Stock is listed on a national securities exchange or traded in the over-the-counter market and sales prices are regularly reported for the Common Stock, the closing or, if not applicable, the last price of the Common Stock on the composite tape or other comparable reporting system for the trading day on the applicable date and if such applicable date is not a trading day, the last market trading day prior to such date;
(2) If the Common Stock is not traded on a national securities exchange but is traded on the over-the-counter market, if sales prices are not regularly reported for the Common Stock for the trading day referred to in clause (1), and if bid and asked prices for the Common Stock are regularly reported, the mean between the bid and the asked price for the Common Stock at the close of trading in the over-the-counter market for the trading day on which Common Stock was traded on the applicable date and if such applicable date is not a trading day, the last market trading day prior to such date; and
(3) If the Common Stock is neither listed on a national securities exchange nor traded in the over-the-counter market, such value as the Administrator, in good faith, shall determine.
ISO means an option intended to qualify as an incentive stock option under Section 422 of the Code.
Non-Qualified Option means an option which is not intended to qualify as an ISO.
Option means an ISO or Non-Qualified Option granted under the Plan.
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Participant means an Employee, officer, director, Consultant or advisor of the Company or an Affiliate to whom one or more Stock Rights are granted under the Plan. As used herein, “Participant” shall include “Participant’s Survivors” where the context requires.
Plan means this Document Security Systems, Inc. 2019 Employee, Director and Consultant Equity Incentive Plan.
Securities Act means the Securities Act of 1933, as amended.
Shares means shares of the Common Stock as to which Stock Rights have been or may be granted under the Plan or any shares of capital stock into which the Shares are changed or for which they are exchanged within the provisions of Paragraph 3 of the Plan. The Shares issued under the Plan may be authorized and unissued shares or shares held by the Company in its treasury, or both.
Stock-Based Award means a grant by the Company under the Plan of an equity award or an equity based award which is not an Option or a Stock Grant.
Stock Grant means a grant by the Company of Shares under the Plan.
Stock Right means a right to Shares or the value of Shares of the Company granted pursuant to the Plan — an ISO, a Non-Qualified Option, a Stock Grant or a Stock-Based Award.
Survivor means a deceased Participant’s legal representatives and/or any person or persons who acquired the Participant’s rights to a Stock Right by will or by the laws of descent and distribution.
2. PURPOSES OF THE PLAN.
The Plan is intended to encourage ownership of Shares by Employees and directors of and certain Consultants to the Company and its Affiliates in order to attract and retain such people, to induce them to work for the benefit of the Company or of an Affiliate and to provide additional incentive for them to promote the success of the Company or of an Affiliate. The Plan provides for the granting of ISOs, Non-Qualified Options, Stock Grants and Stock-Based Awards.
3. SHARES SUBJECT TO THE PLAN.
(a) The number of Shares which may be issued from time to time pursuant to this Plan shall be twenty percent (20%) of the total issued and outstanding shares of Common Stock as of December 31, 2019, or the equivalent of such number of Shares after the Administrator, in its sole discretion, has interpreted the effect of any stock split, stock dividend, combination, recapitalization or similar transaction in accordance with Paragraph 24 of the Plan.
In addition, on the first day of each calendar year, for a period of not more than ten (10) years, commencing January 1, 2021, or the first business day of the calendar year if the first day of the calendar year falls on a Saturday or Sunday, the Shares available under this Plan will automatically increase in an amount equal to the lesser of (i) five percent (5%) of the total number of shares of Common Stock outstanding as of December 31 of the preceding fiscal year or (ii) such number of shares of Common Stock as determined by the Board of Directors.
(b) If an Option ceases to be “outstanding”, in whole or in part (other than by exercise), or if the Company shall reacquire (at not more than its original issuance price) any Shares issued pursuant to a Stock Grant or Stock-Based Award, or if any Stock Right expires or is forfeited, cancelled, or otherwise terminated or results in any Shares not being issued, the unissued or reacquired Shares which were subject to such Stock Right shall again be available for issuance from time to time pursuant to this Plan. Notwithstanding the foregoing, if a Stock Right is exercised, in whole or in part, by tender of Shares or if the Company’s or an Affiliate’s tax withholding obligation is satisfied by withholding Shares, the number of Shares deemed to have been issued under the Plan for purposes of the limitation set forth in Paragraph 3(a) above shall be the number of Shares that were subject to the Stock Right or portion thereof, and not the net number of Shares actually issued. However, in the case of ISOs, the foregoing provisions shall be subject to any limitations under the Code.
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4. ADMINISTRATION OF THE PLAN.
The Administrator of the Plan will be the Board of Directors, except to the extent the Board of Directors delegates its authority to the Committee, in which case the Committee shall be the Administrator. Subject to the provisions of the Plan, the Administrator is authorized to:
(a) Interpret the provisions of the Plan and all Stock Rights and to make all rules and determinations which it deems necessary or advisable for the administration of the Plan;
(b) Determine which Employees, directors and Consultants shall be granted Stock Rights;
(c) Determine the number of Shares for which a Stock Right or Stock Rights shall be granted, provided, however, that in no event shall Stock Rights with respect to more than 20% of the total Shares available under this Plan in any fiscal year be granted to any Participant in such fiscal year;
(d) Specify the terms and conditions upon which a Stock Right or Stock Rights may be granted;
(e) Amend any term or condition of any outstanding Stock Right, including, without limitation, to accelerate the vesting schedule or extend the expiration date, provided that (i) such term or condition as amended is permitted by the Plan; (ii) any such amendment shall not impair the rights of a Participant under any Stock Right previously granted without such Participant’s consent or in the event of death of the Participant the Participant’s Survivors; and (iii) any such amendment shall be made only after the Administrator determines whether such amendment would cause any adverse tax consequences to the Participant, including, but not limited to, the annual vesting limitation contained in Section 422(d) of the Code and described in Paragraph 6(b)(iv) below with respect to ISOs and pursuant to Section 409A of the Code; and
(f) Adopt any appendices applicable to residents of any specified jurisdiction as it deems necessary or appropriate in order to comply with or take advantage of any tax or other laws applicable to the Company, any Affiliate or to Participants or to otherwise facilitate the administration of the Plan, which appendices may include additional restrictions or conditions applicable to Stock Rights or Shares issuable pursuant to a Stock Right; provided, however, that all such interpretations, rules, determinations, terms and conditions shall be made and prescribed in the context of not causing any adverse tax consequences under Section 409A of the Code and preserving the tax status under Section 422 of the Code of those Options which are designated as ISOs. Subject to the foregoing, the interpretation and construction by the Administrator of any provisions of the Plan or of any Stock Right granted under it shall be final, unless otherwise determined by the Board of Directors, if the Administrator is the Committee. In addition, if the Administrator is the Committee, the Board of Directors may take any action under the Plan that would otherwise be the responsibility of the Committee.
To the extent permitted under applicable law, the Board of Directors or the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any portion of its responsibilities and powers to any other person selected by it. The Board of Directors or the Committee may revoke any such allocation or delegation at any time. Notwithstanding the foregoing, only the Board of Directors or the Committee shall be authorized to grant a Stock Right to any director of the Company or to any “officer” of the Company as defined by Rule 16a-1 under the Exchange Act.
5. ELIGIBILITY FOR PARTICIPATION.
The Administrator will, in its sole discretion, name the Participants in the Plan; provided, however, that each Participant must be an Employee, director or Consultant of the Company or of an Affiliate at the time a Stock Right is granted. Notwithstanding the foregoing, the Administrator may authorize the grant of a Stock Right to a person not then an Employee, director or Consultant of the Company or of an Affiliate; provided, however, that the actual grant of such Stock Right shall be conditioned upon such person becoming eligible to become a Participant at or prior to the time of the execution of the Agreement evidencing such Stock Right. ISOs may be granted only to Employees who are deemed to be residents of the United States for tax purposes. Non-Qualified Options, Stock Grants and Stock-Based Awards may be granted to any Employee, director or Consultant of the Company or an Affiliate. The granting of any Stock Right to any individual shall neither entitle that individual to, nor disqualify him or her from, participation in any other grant of Stock Rights or any grant under any other benefit plan established by the Company or any Affiliate for Employees, directors or Consultants.
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6. TERMS AND CONDITIONS OF OPTIONS.
Each Option shall be set forth in writing in an Option Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Administrator may provide that Options be granted subject to such terms and conditions, consistent with the terms and conditions specifically required under this Plan, as the Administrator may deem appropriate including, without limitation, subsequent approval by the shareholders of the Company of this Plan or any amendments thereto. The Option Agreements shall be subject to at least the following terms and conditions:
(a) Non-Qualified Options: Each Option intended to be a Non-Qualified Option shall be subject to the terms and conditions which the Administrator determines to be appropriate and in the best interest of the Company, subject to the following minimum standards for any such Non-Qualified Option:
(i) Exercise Price: Each Option Agreement shall state the exercise price (per share) of the Shares covered by each Option, which exercise price shall be determined by the Administrator and shall be at least equal to the Fair Market Value per share of Common Stock on the date of grant of the Option provided, that if the exercise price is less than Fair Market Value, the terms of such Option must comply with the requirements of Section 409A of the Code unless granted to a Consultant to whom Section 409A of the Code does not apply.
(ii) Number of Shares: Each Option Agreement shall state the number of Shares to which it pertains.
(iii) Option Periods: Each Option Agreement shall state the date or dates on which it first is exercisable and the date after which it may no longer be exercised, and may provide that the Option rights accrue or become exercisable in installments over a period of months or years, or upon the occurrence of certain conditions or the attainment of stated goals or events.
(iv) Option Conditions: Exercise of any Option may be conditioned upon the Participant’s execution of a Share purchase agreement in form satisfactory to the Administrator providing for certain protections for the Company and its other shareholders, including requirements that:
A. The Participant’s or the Participant’s Survivors’ right to sell or transfer the Shares may be restricted; and
B. The Participant or the Participant’s Survivors may be required to execute letters of investment intent and must also acknowledge that the Shares will bear legends noting any applicable restrictions.
(v) Term of Option: Each Option shall terminate not more than ten years from the date of the grant or at such earlier time as the Option Agreement may provide.
(b) ISOs: Each Option intended to be an ISO shall be issued only to an Employee who is deemed to be a resident of the United States for tax purposes, and shall be subject to the following terms and conditions, with such additional restrictions or changes as the Administrator determines are appropriate but not in conflict with Section 422 of the Code and relevant regulations and rulings of the Internal Revenue Service:
(i) Minimum standards: The ISO shall meet the minimum standards required of Non-Qualified Options, as described in Paragraph 6(a) above, except clause (i) and (v) thereunder.
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(ii) Exercise Price: Immediately before the ISO is granted, if the Participant owns, directly or by reason of the applicable attribution rules in Section 424(d) of the Code:
A. 10% or less of the total combined voting power of all classes of stock of the Company or an Affiliate, the exercise price per share of the Shares covered by each ISO shall not be less than 100% of the Fair Market Value per share of the Common Stock on the date of grant of the Option; or
B. More than 10% of the total combined voting power of all classes of stock of the Company or an Affiliate, the exercise price per share of the Shares covered by each ISO shall not be less than 110% of the Fair Market Value per share of the Common Stock on the date of grant of the Option.
(iii) Term of Option: For Participants who own:
A. 10% or less of the total combined voting power of all classes of stock of the Company or an Affiliate, each ISO shall terminate not more than ten years from the date of the grant or at such earlier time as the Option Agreement may provide; or
B. More than 10% of the total combined voting power of all classes of stock of the Company or an Affiliate, each ISO shall terminate not more than five years from the date of the grant or at such earlier time as the Option Agreement may provide.
(iv) Limitation on Yearly Exercise: The Option Agreements shall restrict the amount of ISOs which may become exercisable in any calendar year (under this or any other ISO plan of the Company or an Affiliate) so that the aggregate Fair Market Value (determined on the date each ISO is granted) of the stock with respect to which ISOs are exercisable for the first time by the Participant in any calendar year does not exceed $100,000.
7. TERMS AND CONDITIONS OF STOCK GRANTS.
Each Stock Grant to a Participant shall state the principal terms in an Agreement duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Agreement shall be in a form approved by the Administrator and shall contain terms and conditions which the Administrator determines to be appropriate and in the best interest of the Company, subject to the following minimum standards:
(a) Each Agreement shall state the purchase price per share, if any, of the Shares covered by each Stock Grant, which purchase price shall be determined by the Administrator but shall not be less than the minimum consideration required by the Delaware General Corporation Law, if any, on the date of the grant of the Stock Grant;
(b) Each Agreement shall state the number of Shares to which the Stock Grant pertains; and
(c) Each Agreement shall include the terms of any right of the Company to restrict or reacquire the Shares subject to the Stock Grant, including the time and events upon which such rights shall accrue and the purchase price therefor, if any.
8. TERMS AND CONDITIONS OF OTHER STOCK-BASED AWARDS.
The Administrator shall have the right to grant other Stock-Based Awards based upon the Common Stock having such terms and conditions as the Administrator may determine, including, without limitation, the grant of Shares based upon certain conditions, the grant of securities convertible into Shares and the grant of stock appreciation rights, phantom stock awards or stock units. The principal terms of each Stock-Based Award shall be set forth in an Agreement, duly executed by the Company and, to the extent required by law or requested by the Company, by the Participant. The Agreement shall be in a form approved by the Administrator and shall contain terms and conditions which the Administrator determines to be appropriate and in the best interest of the Company.
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The Company intends that the Plan and any Stock-Based Awards granted hereunder be exempt from the application of Section 409A of the Code or meet the requirements of paragraphs (2), (3) and (4) of subsection (a) of Section 409A of the Code, to the extent applicable, and be operated in accordance with Section 409A so that any compensation deferred under any Stock-Based Award (and applicable investment earnings) shall not be included in income under Section 409A of the Code. Any ambiguities in the Plan shall be construed to affect the intent as described in this Paragraph 8.
9. EXERCISE OF OPTIONS AND ISSUE OF SHARES.
An Option (or any part or installment thereof) shall be exercised by giving written notice to the Company or its designee (in a form acceptable to the Administrator, which may include electronic notice), together with provision for payment of the aggregate exercise price in accordance with this Paragraph for the Shares as to which the Option is being exercised, and upon compliance with any other condition(s) set forth in the Option Agreement. Such notice shall be signed by the person exercising the Option (which signature may be provided electronically in a form acceptable to the Administrator), shall state the number of Shares with respect to which the Option is being exercised and shall contain any representation required by the Plan or the Option Agreement. Payment of the exercise price for the Shares as to which such Option is being exercised shall be made (a) in United States dollars in cash or by check, or (b) at the discretion of the Administrator, through delivery of shares of Common Stock held for at least six months (if required to avoid negative accounting treatment) having a Fair Market Value equal as of the date of the exercise to the aggregate cash exercise price for the number of Shares as to which the Option is being exercised, or (c) at the discretion of the Administrator, by having the Company retain from the Shares otherwise issuable upon exercise of the Option, a number of Shares having a Fair Market Value equal as of the date of exercise to the aggregate exercise price for the number of Shares as to which the Option is being exercised, or (d) at the discretion of the Administrator, in accordance with a cashless exercise program established with a securities brokerage firm, and approved by the Administrator, or (e) at the discretion of the Administrator, by any combination of (a), (b), (c), and (d) above or (f) at the discretion of the Administrator, by payment of such other lawful consideration as the Administrator may determine. Notwithstanding the foregoing, the Administrator shall accept only such payment on exercise of an ISO as is permitted by Section 422 of the Code.
The Company shall then reasonably promptly deliver the Shares as to which such Option was exercised to the Participant (or to the Participant’s Survivors, as the case may be). In determining what constitutes “reasonably promptly,” it is expressly understood that the issuance and delivery of the Shares may be delayed by the Company in order to comply with any law or regulation (including, without limitation, state securities or “blue sky” laws) which requires the Company to take any action with respect to the Shares prior to their issuance. The Shares shall, upon delivery, be fully paid, non-assessable Shares.
10. PAYMENT IN CONNECTION WITH THE ISSUANCE OF STOCK GRANTS AND STOCK-BASED AWARDS AND ISSUE OF SHARES.
Any Stock Grant or Stock-Based Award requiring payment of a purchase price for the Shares as to which such Stock Grant or Stock-Based Award is being granted shall be made (a) in United States dollars in cash or by check, or (b) at the discretion of the Administrator, through delivery of shares of Common Stock held for at least six months (if required to avoid negative accounting treatment) and having a Fair Market Value equal as of the date of payment to the purchase price of the Stock Grant or Stock-Based Award, or (c) at the discretion of the Administrator, by any combination of (a) and (b) above; or (d) at the discretion of the Administrator, by payment of such other lawful consideration as the Administrator may determine.
The Company shall when required by the applicable Agreement, reasonably promptly deliver the Shares as to which such Stock Grant or Stock-Based Award was made to the Participant (or to the Participant’s Survivors, as the case may be), subject to any escrow provision set forth in the applicable Agreement. In determining what constitutes “reasonably promptly,” it is expressly understood that the issuance and delivery of the Shares may be delayed by the Company in order to comply with any law or regulation (including, without limitation, state securities or “blue sky” laws) which requires the Company to take any action with respect to the Shares prior to their issuance.
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11. RIGHTS AS A SHAREHOLDER.
No Participant to whom a Stock Right has been granted shall have rights as a shareholder with respect to any Shares covered by such Stock Right except after due exercise of an Option or issuance of Shares as set forth in any Agreement, tender of the aggregate exercise or purchase price, if any, for the Shares being purchased and registration of the Shares in the Company’s share register in the name of the Participant.
12. ASSIGNABILITY AND TRANSFERABILITY OF STOCK RIGHTS.
By its terms, a Stock Right granted to a Participant shall not be transferable by the Participant other than (i) by will or by the laws of descent and distribution, or (ii) as approved by the Administrator in its discretion and set forth in the applicable Agreement provided that no Stock Right may be transferred by a Participant for value. Notwithstanding the foregoing, an ISO transferred except in compliance with clause (i) above shall no longer qualify as an ISO. The designation of a beneficiary of a Stock Right by a Participant, with the prior approval of the Administrator and in such form as the Administrator shall prescribe, shall not be deemed a transfer prohibited by this Paragraph. Except as provided above during the Participant’s lifetime a Stock Right shall only be exercisable by or issued to such Participant (or his or her legal representative) and shall not be assigned, pledged or hypothecated in any way (whether by operation of law or otherwise) and shall not be subject to execution, attachment or similar process. Any attempted transfer, assignment, pledge, hypothecation or other disposition of any Stock Right or of any rights granted thereunder contrary to the provisions of this Plan, or the levy of any attachment or similar process upon a Stock Right, shall be null and void.
13. EFFECT ON OPTIONS OF TERMINATION OF SERVICE OTHER THAN FOR CAUSE OR DEATH OR DISABILITY.
Except as otherwise provided in a Participant’s Option Agreement, in the event of a termination of service (whether as an Employee, director or Consultant) with the Company or an Affiliate before the Participant has exercised an Option, the following rules apply:
(a) A Participant who ceases to be an Employee, director or Consultant of the Company or of an Affiliate (for any reason other than termination for Cause, Disability, or death for which events there are special rules in Paragraphs 14, 15, and 16, respectively), may exercise any Option granted to him or her to the extent that the Option is exercisable on the date of such termination of service, but only within such term as the Administrator has designated in a Participant’s Option Agreement.
(b) Except as provided in Subparagraph (c) below, or Paragraph 15 or 16, in no event may an Option intended to be an ISO, be exercised later than three months after the Participant’s termination of employment.
(c) The provisions of this Paragraph, and not the provisions of Paragraph 15 or 16, shall apply to a Participant who subsequently becomes Disabled or dies after the termination of employment, director status or consultancy; provided, however, in the case of a Participant’s Disability or death within three months after the termination of employment, director status or consultancy, the Participant or the Participant’s Survivors may exercise the Option within one year after the date of the Participant’s termination of service, but in no event after the date of expiration of the term of the Option.
(d) Notwithstanding anything herein to the contrary, if subsequent to a Participant’s termination of employment, termination of director status or termination of consultancy, but prior to the exercise of an Option, the Administrator determines that, either prior or subsequent to the Participant’s termination, the Participant engaged in conduct which would constitute Cause, then such Participant shall forthwith cease to have any right to exercise any Option.
(e) A Participant to whom an Option has been granted under the Plan who is absent from the Company or an Affiliate because of temporary disability (any disability other than a Disability as defined in Paragraph 1 hereof), or who is on leave of absence for any purpose, shall not, during the period of any such absence, be deemed, by virtue of such absence alone, to have terminated such Participant’s employment, director status or consultancy with the Company or with an Affiliate, except as the Administrator may otherwise expressly provide; provided, however, that, for ISOs, any leave of absence granted by the Administrator of greater than ninety days, unless pursuant to a contract or statute that guarantees the right to reemployment, shall cause such ISO to become a Non-Qualified Option on the 181st day following such leave of absence.
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(f) Except as required by law or as set forth in a Participant’s Option Agreement, Options granted under the Plan shall not be affected by any change of a Participant’s status within or among the Company and any Affiliates, so long as the Participant continues to be an Employee, director or Consultant of the Company or any Affiliate.
14. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR CAUSE.
Except as otherwise provided in a Participant’s Option Agreement, the following rules apply if the Participant’s service (whether as an Employee, director or Consultant) with the Company or an Affiliate is terminated for Cause prior to the time that all his or her outstanding Options have been exercised:
(a) All outstanding and unexercised Options as of the time the Participant is notified his or her service is terminated for Cause will immediately be forfeited.
(b) Cause is not limited to events which have occurred prior to a Participant’s termination of service, nor is it necessary that the Administrator’s finding of Cause occur prior to termination. If the Administrator determines, subsequent to a Participant’s termination of service but prior to the exercise of an Option, that either prior or subsequent to the Participant’s termination the Participant engaged in conduct which would constitute Cause, then the right to exercise any Option is forfeited.
15. EFFECT ON OPTIONS OF TERMINATION OF SERVICE FOR DISABILITY.
Except as otherwise provided in a Participant’s Option Agreement:
(a) A Participant who ceases to be an Employee, director or Consultant of the Company or of an Affiliate by reason of Disability may exercise any Option granted to such Participant:
(i) To the extent that the Option has become exercisable but has not been exercised on the date of the Participant’s termination of service due to Disability; and
(ii) In the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of the Participant’s termination of service due to Disability of any additional vesting rights that would have accrued on the next vesting date had the Participant not become Disabled. The proration shall be based upon the number of days accrued in the current vesting period prior to the date of the Participant’s termination of service due to Disability.
(b) A Disabled Participant may exercise the Option only within the period ending one year after the date of the Participant’s termination of service due to Disability, notwithstanding that the Participant might have been able to exercise the Option as to some or all of the Shares on a later date if the Participant had not been terminated due to Disability and had continued to be an Employee, director or Consultant or, if earlier, within the originally prescribed term of the Option.
(c) The Administrator shall make the determination both of whether Disability has occurred and the date of its occurrence (unless a procedure for such determination is set forth in another agreement between the Company and such Participant, in which case such procedure shall be used for such determination). If requested, the Participant shall be examined by a physician selected or approved by the Administrator, the cost of which examination shall be paid for by the Company.
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16. EFFECT ON OPTIONS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
Except as otherwise provided in a Participant’s Option Agreement:
(a) In the event of the death of a Participant while the Participant is an Employee, director or Consultant of the Company or of an Affiliate, such Option may be exercised by the Participant’s Survivors:
(i) To the extent that the Option has become exercisable but has not been exercised on the date of death; and
(ii) In the event rights to exercise the Option accrue periodically, to the extent of a pro rata portion through the date of death of any additional vesting rights that would have accrued on the next vesting date had the Participant not died. The proration shall be based upon the number of days accrued in the current vesting period prior to the Participant’s date of death.
(b) If the Participant’s Survivors wish to exercise the Option, they must take all necessary steps to exercise the Option within one year after the date of death of such Participant, notwithstanding that the decedent might have been able to exercise the Option as to some or all of the Shares on a later date if he or she had not died and had continued to be an Employee, director or Consultant or, if earlier, within the originally prescribed term of the Option.
17. EFFECT OF TERMINATION OF SERVICE ON STOCK GRANTS AND STOCK-BASED AWARDS.
In the event of a termination of service (whether as an Employee, director or Consultant) with the Company or an Affiliate for any reason before the Participant has accepted a Stock Grant or a Stock-Based Award and paid the purchase price, if required, such grant shall terminate.
For purposes of this Paragraph 17 and Paragraph 18 below, a Participant to whom a Stock Grant has been issued under the Plan who is absent from work with the Company or with an Affiliate because of temporary disability (any disability other than a Disability as defined in Paragraph 1 hereof), or who is on leave of absence for any purpose, shall not, during the period of any such absence, be deemed, by virtue of such absence alone, to have terminated such Participant’s employment, director status or consultancy with the Company or with an Affiliate, except as the Administrator may otherwise expressly provide.
In addition, for purposes of this Paragraph 17 and Paragraph 18 below, any change of employment or other service within or among the Company and any Affiliates shall not be treated as a termination of employment, director status or consultancy so long as the Participant continues to be an Employee, director or Consultant of the Company or any Affiliate.
18. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE OTHER THAN FOR CAUSE OR DEATH OR DISABILITY.
Except as otherwise provided in a Participant’s Stock Grant Agreement, in the event of a termination of service (whether as an Employee, director or Consultant), other than termination for Cause, Disability, or death for which events there are special rules in Paragraphs 19, 20, and 21, respectively, before all forfeiture provisions or Company rights of repurchase shall have lapsed, then the Company shall have the right to cancel or repurchase that number of Shares subject to a Stock Grant as to which the Company’s forfeiture or repurchase rights have not lapsed.
19. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR CAUSE.
Except as otherwise provided in a Participant’s Stock Grant Agreement, the following rules apply if the Participant’s service (whether as an Employee, director or Consultant) with the Company or an Affiliate is terminated for Cause:
(a) All Shares subject to any Stock Grant whether or not then subject to forfeiture or repurchase shall be immediately subject to repurchase by the Company at par value.
(b) Cause is not limited to events which have occurred prior to a Participant’s termination of service, nor is it necessary that the Administrator’s finding of Cause occur prior to termination. If the Administrator determines, subsequent to a Participant’s termination of service, that either prior or subsequent to the Participant’s termination the Participant engaged in conduct which would constitute Cause, then all Shares subject to any Stock Grant that remained subject to forfeiture provisions or as to which the Company had a repurchase right on the date of termination shall be immediately forfeited to the Company.
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20. EFFECT ON STOCK GRANTS OF TERMINATION OF SERVICE FOR DISABILITY.
Except as otherwise provided in a Participant’s Stock Grant Agreement, the following rules apply if a Participant ceases to be an Employee, director or Consultant of the Company or of an Affiliate by reason of Disability: to the extent the forfeiture provisions or the Company’s rights of repurchase have not lapsed on the date of Disability, they shall be exercisable; provided, however, that in the event such forfeiture provisions or rights of repurchase lapse periodically, such provisions or rights shall lapse to the extent of a pro rata portion of the Shares subject to such Stock Grant through the date of Disability as would have lapsed had the Participant not become Disabled. The proration shall be based upon the number of days accrued prior to the date of Disability.
The Administrator shall make the determination both as to whether Disability has occurred and the date of its occurrence (unless a procedure for such determination is set forth in another agreement between the Company and such Participant, in which case such procedure shall be used for such determination). If requested, the Participant shall be examined by a physician selected or approved by the Administrator, the cost of which examination shall be paid for by the Company.
21. EFFECT ON STOCK GRANTS OF DEATH WHILE AN EMPLOYEE, DIRECTOR OR CONSULTANT.
Except as otherwise provided in a Participant’s Stock Grant Agreement, the following rules apply in the event of the death of a Participant while the Participant is an Employee, director or Consultant of the Company or of an Affiliate: to the extent the forfeiture provisions or the Company’s rights of repurchase have not lapsed on the date of death, they shall be exercisable; provided, however, that in the event such forfeiture provisions or rights of repurchase lapse periodically, such provisions or rights shall lapse to the extent of a pro rata portion of the Shares subject to such Stock Grant through the date of death as would have lapsed had the Participant not died. The proration shall be based upon the number of days accrued prior to the Participant’s date of death.
22. PURCHASE FOR INVESTMENT.
Unless the offering and sale of the Shares shall have been effectively registered under the Securities Act, the Company shall be under no obligation to issue Shares under the Plan unless and until the following conditions have been fulfilled:
(a) The person who receives a Stock Right shall warrant to the Company, prior to the receipt of Shares, that such person is acquiring such Shares for his or her own account, for investment, and not with a view to, or for sale in connection with, the distribution of any such Shares, in which event the person acquiring such Shares shall be bound by the provisions of the following legend (or a legend in substantially similar form) which shall be endorsed upon the certificate evidencing the Shares issued pursuant to such exercise or such grant:
“The shares represented by this certificate have been taken for investment and they may not be sold or otherwise transferred by any person, including a pledgee, unless (1) either (a) a Registration Statement with respect to such shares shall be effective under the Securities Act of 1933, as amended, or (b) the Company shall have received an opinion of counsel satisfactory to it that an exemption from registration under such Act is then available, and (2) there shall have been compliance with all applicable state securities laws.”
(b) At the discretion of the Administrator, the Company shall have received an opinion of its counsel that the Shares may be issued in compliance with the Securities Act without registration thereunder.
23. DISSOLUTION OR LIQUIDATION OF THE COMPANY.
Upon the dissolution or liquidation of the Company, all Options granted under this Plan which as of such date shall not have been exercised and all Stock Grants and Stock-Based Awards which have not been accepted, to the extent required under the applicable Agreement, will terminate and become null and void; provided, however, that if the rights of a Participant or a Participant’s Survivors have not otherwise terminated and expired, the Participant or the Participant’s Survivors will have the right immediately prior to such dissolution or liquidation to exercise or accept any Stock Right to the extent that the Stock Right is exercisable or subject to acceptance as of the date immediately prior to such dissolution or liquidation. Upon the dissolution or liquidation of the Company, any outstanding Stock-Based Awards shall immediately terminate unless otherwise determined by the Administrator or specifically provided in the applicable Agreement.
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24. ADJUSTMENTS.
Upon the occurrence of any of the following events, a Participant’s rights with respect to any Stock Right granted to him or her hereunder shall be adjusted as hereinafter provided, unless otherwise specifically provided in a Participant’s Agreement:
(a) Stock Dividends and Stock Splits. If (i) the shares of Common Stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of Common Stock as a stock dividend on its outstanding Common Stock, or (ii) additional shares or new or different shares or other securities of the Company or other non-cash assets are distributed with respect to such shares of Common Stock, each Stock Right and the number of shares of Common Stock deliverable thereunder shall be appropriately increased or decreased proportionately, and appropriate adjustments shall be made including, in the exercise or purchase price per share, to reflect such events. The number of Shares subject to the limitations in Paragraph 3(a) and 4(c) shall also be proportionately adjusted upon the occurrence of such events.
(b) Corporate Transactions. If the Company is to be consolidated with or acquired by another entity in a merger, consolidation, or sale of all or substantially all of the Company’s assets other than a transaction to merely change the state of incorporation (a “Corporate Transaction”), the Administrator or the board of directors of any entity assuming the obligations of the Company hereunder (the “Successor Board”), shall, as to outstanding Options, either (i) make appropriate provision for the continuation of such Options by substituting on an equitable basis for the Shares then subject to such Options either the consideration payable with respect to the outstanding shares of Common Stock in connection with the Corporate Transaction or securities of any successor or acquiring entity; or (ii) upon written notice to the Participants, provide that such Options must be exercised (either (A) to the extent then exercisable or, (B) at the discretion of the Administrator, any such Options being made partially or fully exercisable for purposes of this Subparagraph), within a specified number of days of the date of such notice, at the end of which period such Options which have not been exercised shall terminate whether or not vested; or (iii) terminate such Options in exchange for payment of an amount equal to the consideration payable upon consummation of such Corporate Transaction to a holder of the number of shares of Common Stock into which such Option would have been exercisable (either (A) to the extent then exercisable or, (B) at the discretion of the Administrator, any such Options being made partially or fully exercisable for purposes of this Subparagraph) less the aggregate exercise price thereof. For purposes of determining the payments to be made pursuant to Subclause (iii) above, in the case of a Corporate Transaction the consideration for which, in whole or in part, is other than cash, the consideration other than cash shall be valued at the fair value thereof as determined in good faith by the Board of Directors.
With respect to outstanding Stock Grants, the Administrator or the Successor Board, shall make appropriate provision for the continuation of such Stock Grants on the same terms and conditions by substituting on an equitable basis for the Shares then subject to such Stock Grants either the consideration payable with respect to the outstanding Shares of Common Stock in connection with the Corporate Transaction or securities of any successor or acquiring entity. In lieu of the foregoing, in connection with any Corporate Transaction, the Administrator may provide that, upon consummation of the Corporate Transaction, each outstanding Stock Grant shall be terminated in exchange for payment of an amount equal to the consideration payable upon consummation of such Corporate Transaction to a holder of the number of shares of Common Stock comprising such Stock Grant (to the extent such Stock Grant is no longer subject to any forfeiture or repurchase rights then in effect or, at the discretion of the Administrator, all forfeiture and repurchase rights being waived upon such Corporate Transaction).
In taking any of the actions permitted under this Paragraph 24(b), the Administrator shall not be obligated by the Plan to treat all Stock Rights, all Stock Rights held by a Participant, or all Stock Rights of the same type, identically.
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(c) Recapitalization or Reorganization. In the event of a recapitalization or reorganization of the Company other than a Corporate Transaction pursuant to which securities of the Company or of another corporation are issued with respect to the outstanding shares of Common Stock, a Participant upon exercising an Option or accepting a Stock Grant after the recapitalization or reorganization shall be entitled to receive for the price paid upon such exercise or acceptance if any, the number of replacement securities which would have been received if such Option had been exercised or Stock Grant accepted prior to such recapitalization or reorganization.
(d) Adjustments to Stock-Based Awards. Upon the happening of any of the events described in Subparagraphs (a), (b) or (c) above, any outstanding Stock-Based Award shall be appropriately adjusted to reflect the events described in such Subparagraphs. The Administrator or the Successor Board shall determine the specific adjustments to be made under this Paragraph 24, including, but not limited to the effect of any, Corporate Transaction and, subject to Paragraph 4, its determination shall be conclusive.
(e) Modification of Options. Notwithstanding the foregoing, any adjustments made pursuant to Subparagraph (a), (b) or (c) above with respect to Options shall be made only after the Administrator determines whether such adjustments would (i) constitute a “modification” of any ISOs (as that term is defined in Section 424(h) of the Code) or (ii) cause any adverse tax consequences for the holders of Options, including, but not limited to, pursuant to Section 409A of the Code. If the Administrator determines that such adjustments made with respect to Options would constitute a modification or other adverse tax consequence, it may refrain from making such adjustments, unless the holder of an Option specifically agrees in writing that such adjustment be made and such writing indicates that the holder has full knowledge of the consequences of such “modification” on his or her income tax treatment with respect to the Option. This paragraph shall not apply to the acceleration of the vesting of any ISO that would cause any portion of the ISO to violate the annual vesting limitation contained in Section 422(d) of the Code, as described in Paragraph 6(b)(iv).
25. ISSUANCES OF SECURITIES.
Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares subject to Stock Rights. Except as expressly provided herein, no adjustments shall be made for dividends paid in cash or in property (including without limitation, securities) of the Company prior to any issuance of Shares pursuant to a Stock Right.
26. FRACTIONAL SHARES.
No fractional shares shall be issued under the Plan and the person exercising a Stock Right shall receive from the Company cash in lieu of such fractional shares equal to the Fair Market Value thereof.
27. CONVERSION OF ISOs INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOs.
The Administrator, at the written request of any Participant, may in its discretion take such actions as may be necessary to convert such Participant’s ISOs (or any portions thereof) that have not been exercised on the date of conversion into Non-Qualified Options at any time prior to the expiration of such ISOs, regardless of whether the Participant is an Employee of the Company or an Affiliate at the time of such conversion. At the time of such conversion, the Administrator (with the consent of the Participant) may impose such conditions on the exercise of the resulting Non-Qualified Options as the Administrator in its discretion may determine, provided that such conditions shall not be inconsistent with this Plan. Nothing in the Plan shall be deemed to give any Participant the right to have such Participant’s ISOs converted into Non-Qualified Options, and no such conversion shall occur until and unless the Administrator takes appropriate action. The Administrator, with the consent of the Participant, may also terminate any portion of any ISO that has not been exercised at the time of such conversion.
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28. WITHHOLDING.
In the event that any federal, state, or local income taxes, employment taxes, Federal Insurance Contributions Act (“F.I.C.A.”) withholdings or other amounts are required by applicable law or governmental regulation to be withheld from the Participant’s salary, wages or other remuneration in connection with the issuance of a Stock Right or Shares under the Plan or for any other reason required by law, the Company may withhold from the Participant’s compensation, if any, or may require that the Participant advance in cash to the Company, or to any Affiliate of the Company which employs or employed the Participant, the statutory minimum amount of such withholdings unless a different withholding arrangement, including the use of shares of the Company’s Common Stock or a promissory note, is authorized by the Administrator (and permitted by law). For purposes hereof, the fair market value of the shares withheld for purposes of payroll withholding shall be determined in the manner set forth under the definition of Fair Market Value provided in Paragraph 1 above, as of the most recent practicable date prior to the date of exercise. If the Fair Market Value of the shares withheld is less than the amount of payroll withholdings required, the Participant may be required to advance the difference in cash to the Company or the Affiliate employer. The Administrator in its discretion may condition the exercise of an Option for less than the then Fair Market Value on the Participant’s payment of such additional withholding.
29. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION.
Each Employee who receives an ISO must agree to notify the Company in writing immediately after the Employee makes a Disqualifying Disposition of any Shares acquired pursuant to the exercise of an ISO. A Disqualifying Disposition is defined in Section 424(c) of the Code and includes any disposition (including any sale or gift) of such Shares before the later of (a) two years after the date the Employee was granted the ISO, or (b) one year after the date the Employee acquired Shares by exercising the ISO, except as otherwise provided in Section 424(c) of the Code. If the Employee has died before such Shares are sold, these holding period requirements do not apply and no Disqualifying Disposition can occur thereafter.
30. TERMINATION OF THE PLAN.
The Plan will terminate on January 1, 2030, the date which is ten years from the earlier of the date of its adoption by the Board of Directors and the date of its approval by the shareholders of the Company. The Plan may be terminated at an earlier date by vote of the shareholders or the Board of Directors of the Company; provided, however, that any such earlier termination shall not affect any Agreements executed prior to the effective date of such termination. Termination of the Plan shall not affect any Stock Rights theretofore granted.
31. AMENDMENT OF THE PLAN AND AGREEMENTS.
The Plan may be amended by the shareholders of the Company. The Plan may also be amended by the Administrator, including, without limitation, to the extent necessary to qualify any or all outstanding Stock Rights granted under the Plan or Stock Rights to be granted under the Plan for favorable federal income tax treatment as may be afforded incentive stock options under Section 422 of the Code (including deferral of taxation upon exercise), and to the extent necessary to qualify the Shares issuable under the Plan for listing on any national securities exchange or quotation in any national automated quotation system of securities dealers. In addition, if NYSE Amex amends its corporate governance rules so that such rules no longer require stockholder approval of “material amendments” of equity compensation plans, then, from and after the effective date of such an amendment to such rules, no amendment of the Plan which (i) materially increases the number of shares to be issued under the Plan (other than to reflect a reorganization, stock split, merger, spin-off or similar transaction); (ii) materially increases the benefits to Participants, including any material change to: (a) permit a repricing (or decrease in exercise price) of outstanding Options, (b) reduce the price at which Shares or Options may be offered, or (c) extend the duration of the Plan; (iii) materially expands the class of Participants eligible to participate in the Plan; or (iv) expands the types of awards provided under the Plan shall become effective unless stockholder approval is obtained. Any amendment approved by the Administrator which the Administrator determines is of a scope that requires shareholder approval shall be subject to obtaining such shareholder approval. Any modification or amendment of the Plan shall not, without the consent of a Participant, adversely affect his or her rights under a Stock Right previously granted to him or her. With the consent of the Participant affected, the Administrator may amend outstanding Agreements in a manner which may be adverse to the Participant but which is not inconsistent with the Plan. In the discretion of the Administrator, outstanding Agreements may be amended by the Administrator in a manner which is not adverse to the Participant.
32. EMPLOYMENT OR OTHER RELATIONSHIP.
Nothing in this Plan or any Agreement shall be deemed to prevent the Company or an Affiliate from terminating the employment, consultancy or director status of a Participant, nor to prevent a Participant from terminating his or her own employment, consultancy or director status or to give any Participant a right to be retained in employment or other service by the Company or any Affiliate for any period of time.
33. GOVERNING LAW.
This Plan shall be construed and enforced in accordance with the law of the State of New York.
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Exhibit 10.53
DSS, INC.
CLAWBACK POLICY
Introduction
The Board of Directors (“Board”) of DSS, Inc. (the “Company”) believes that it is in the best interests of the Company and its stockholders to adopt this policy which provides for the recoupment of certain executive compensation in the event of an accounting restatement resulting from material noncompliance with financial reporting requirements under the federal securities laws (the “Policy”). This Policy is designed to comply with Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rule 10D-1 promulgated under the Exchange Act (“Rule 10D-1”), and Section 811 of the NYSE American Company Guide (“NYSE American”).
Administration
This Policy shall be administered by the Board or, if so designated by the Board, the Compensation Committee of the Board (the “Compensation Committee”) or the Audit Committee of the Board (the “Audit Committee”), or any special committee comprised of members of the Compensation Committee or Audit Committee (the “Administrator”). Any determinations made by the Administrator shall be final and binding on all affected individuals. Subject to any limitation at applicable law, the Administrator may authorize and empower any officer or employee of the Company to take any and all actions necessary or appropriate to carry out the purpose and intent of this Policy (other than with respect to any recovery under this Policy involving such officer or employee).
Covered Executives
This Policy applies to the Company’s current and former executive officers, as determined by the Administrator in accordance with Section 10D of the Exchange Act and the listing standards of the national securities exchange on which the Company’s securities are listed, and such other senior executives/employees who may from time to time be deemed subject to the Policy by the Administrator (each, a “Covered Executive”).
For the purposes of this Policy, “executive officers” shall include persons subject to reporting and short-swing liability provisions of Section 16 under the Exchange Act. This shall include the Company’s president, principal financial officer, principal accounting officer (or if there is no such accounting officer, the controller), any vice president in charge of a principal business unit, division, or function (such as sales, administration, or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the Company and any person identified under Regulation S-K Item 401(b) in the Company’s annual reports and proxy statements. Executive officers of a parent or subsidiary are deemed executive officers of the listed company if they perform such policy-making functions for the listed company or such parent or subsidiary. The policy-making function is not intended to include policy-making functions that are not significant.
Recoupment; Accounting Restatement
In the event the Company is required to prepare an accounting restatement of its financial statements due to the Company’s material noncompliance with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period, the Administrator will require, as promptly as it reasonably can, reimbursement or forfeiture of any Incentive Compensation, as defined below, received by any Covered Executive during the three (3) completed fiscal years immediately preceding the date on which the Company is required to prepare an accounting restatement (the “Restatement Date”), so long as the Incentive Compensation received by such Covered Executive is in excess of what would have been awarded or vested after giving effect to the accounting restatement. The amount to be recovered will be the excess of Incentive Compensation paid to the Covered Executive based on the erroneous data in the original financial statements over the Incentive Compensation that would have been paid to the Covered Executive had it been based on the restated results, without respect to any taxes paid.
The Restatement Date is defined as the earlier of (i) the date the Board, a Board committee, or management (if no Board action is required) concludes, or reasonably should have concluded, that the Company is required to prepare an accounting restatement or (ii) the date a court, regulator, or other legally authorized body directs the Company to prepare an accounting restatement.
Incentive Compensation
For purposes of this Policy, “Incentive Compensation” means any of the following; provided that, such compensation is granted, earned, or vested based wholly or in part on the attainment of a financial reporting measure:
| ● | Annual bonuses and other short- and long-term cash incentives. | |
| ● | Stock options. | |
| ● | Stock appreciation rights. | |
| ● | Restricted stock. | |
| ● | Restricted stock units. | |
| ● | Performance shares. | |
| ● | Performance units. | |
| ● | Non-equity incentive plan awards. |
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Financial reporting measures include any measure that is determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measure that is derived wholly or in-part from such measure. The following examples (and any measures derived therefrom) are non-exhaustive:
| ● | Company stock price. | |
| ● | Total shareholder return. | |
| ● | Revenues. | |
| ● | Net income. | |
| ● | Operating income. | |
| ● | Earnings before interest, taxes, depreciation, and amortization (EBITDA). | |
| ● | Funds from operations and adjusted funds from operations. | |
| ● | Liquidity measures such as working capital or operating cash flow. | |
| ● | Return measures such as return on invested capital or return on assets. | |
| ● | Earnings measures such as earnings per share. | |
| ● | Profitability of one or more reportable segments. | |
| ● | Financial ratios such as accounts receivable turnover. | |
| ● | Cost per employee, where cost is subject to any accounting restatement. | |
| ● | Any of such financial reporting measures relative to a peer group, where the Company’s financial reporting measure is subject to an accounting restatement and tax basis income. | |
| ● | Capital raised through debt or equity financing. | |
| ● | Reductions in accounts receivables. |
For the avoidance of doubt, Incentive Compensation does not include annual salary, compensation awarded based on completion of a specified period of service, or compensation awarded based on subjective standards, strategic measures, or operational measures.
Incentive Compensation includes incentive-based compensation received by a person:
| ● | after beginning service as an executive officer; | |
| ● | who serves as an executive officer at any time during the performance period for the incentive-based compensation; | |
| ● | who served as an executive officer while the Company has a class of securities listed on a national securities exchange; and |
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| ● | who serves as an executive officer during the three (3) fiscal years preceding the Restatement Date. |
For the avoidance of doubt, subsequent changes in a Covered Executive’s employment status, including retirement or termination of employment, do not affect the Company’s rights to recover incentive-based compensation pursuant to this Policy.
Excess Incentive Compensation: Amount Subject to Recovery
The amount to be recovered will be the excess of the Incentive Compensation paid to the Covered Executive based on the erroneous data over the Incentive Compensation that would have been paid to the Covered Executive had it been based on the restated results, as determined by the Administrator. Incentive Compensation is deemed “received” during the fiscal period during which the financial reporting measure specified in the incentive-based compensation award is attained, even if payment or grant of the Incentive Compensation occurs after the end of the period.
If the Administrator cannot determine the amount of excess Incentive Compensation received by the Covered Executive directly from the information in the accounting restatement, then it will make its determination based on a reasonable estimate of the effect of the accounting restatement.
Method of Recoupment
The Administrator will determine, in its sole discretion, the method for recouping excess Incentive Compensation hereunder, which may include, without limitation:
| ● | requiring reimbursement of cash Incentive Compensation previously paid; | |
| ● | seeking recovery of any gain realized on the vesting, exercise, settlement, sale, transfer, or other disposition of any equity-based awards; | |
| ● | offsetting the recouped amount from any compensation otherwise owed by the Company to the Covered Executive; | |
| ● | canceling outstanding vested or unvested equity awards; and/or | |
| ● | taking any other remedial and recovery action permitted by law, as determined by the Administrator. |
No Indemnification of Covered Executives
The Company shall not indemnify any current or former Covered Executive against the loss of any incorrectly awarded Incentive Compensation, and shall not pay, or reimburse any Covered Executive for premiums for any insurance policy to fund such executive’s potential recovery obligations.
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Indemnification of the Administrator
Any members of the Administrator who assist in the administration of this Policy, shall not be personally liable for any action, determination, or interpretation made with respect to this Policy and shall be fully indemnified by the Company to the fullest extent under applicable law and Company policy with respect to any such action, determination, or interpretation. The foregoing sentence shall not limit any other rights to indemnification of the Administrator under applicable law or Company policy.
Interpretation
The Administrator is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate, or advisable for the administration of this Policy. It is intended that this Policy be interpreted in a manner that is consistent with the requirements of Section 10D of the Exchange Act, Rule 10D-1, Section 811 of the NYSE American Company Guide, and any other applicable rules or standards adopted by the Securities and Exchange Commission or any national securities exchange on which the Company’s securities are then listed.
Effective Date
This Policy shall be effective as of the date it is adopted by the Administrator (the “Effective Date”) and shall apply to Incentive Compensation that is approved, awarded, or granted to any Covered Executive on or after that date.
Amendment; Termination
The Board may amend this Policy from time to time in its discretion and shall amend this Policy as it deems necessary to reflect final regulations adopted by the Securities and Exchange Commission under Section 10D of the Exchange Act, Rule 10D-1, and Section 811 of the NYSE American Company Guide and to comply with any other rules or standards adopted by a national securities exchange on which the Company’s securities are then listed. The Board may terminate this Policy at any time.
Other Recoupment Rights
The Administrator intends that this Policy will be applied to the fullest extent of the law. The Administrator may require that any employment agreement, equity award agreement, or similar agreement entered into on or after the Effective Date shall, as a condition to the grant of any benefit thereunder, require a Covered Executive to agree to abide by the terms of this Policy. Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment that may be available to the Company pursuant to the terms of any similar policy in any employment agreement, equity award agreement, or similar agreement and any other legal remedies available to the Company.
Impracticability
The Administrator shall recover any excess Incentive Compensation in accordance with this Policy unless such recovery would be impracticable, as determined by the Administrator in accordance with Rule 10D-1 of the Exchange Act and the listing standards of the national securities exchange on which the Company’s securities are listed.
Successors
This Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators, or other legal representatives.
Exhibit Filing Requirement
A copy of this Policy and any amendments thereto shall be posted on the Company’s website and filed as an exhibit to the Company’s Annual Report on Form 10-K/A.
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Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
| Name | State of Incorporation | |
| DSS, Inc. | New York | |
| American Pacific Bancorp | Texas | |
| Alset Energy, Inc. | Texas | |
| Alset Innovations, Inc. | Texas | |
| Alset OpenBiz, Inc. | Texas | |
| Alset Solar, Inc. | Nevada | |
| Alset Title Company Inc | Texas | |
| Alset, Inc. | Texas | |
| American Home REIT, Inc. | Maryland | |
| AMRE Asset Management, Inc. - AAMI | Nevada | |
| BioLife Sugar, Inc. | Nevada | |
| Decentralized Sharing Systems, Inc. | Nevada | |
| DSS Administrative Group, Inc. | New York | |
| DSS Asset Management, Inc. | Texas | |
| DSS BioHealth Security, Inc. | Nevada | |
| DSS Biolife International, Inc. | Nevada | |
| DSS BioMedical International, Inc. | Nevada | |
| DSS Blockchain Security, Inc. | Nevada | |
| DSS Financial Management, Inc. | Texas | |
| DSS International, Inc. | Nevada | |
| DSS PureAir, Inc. | Texas | |
| DSS Secure Living, Inc. | Texas | |
| DSS Securities, Inc. | Nevada | |
| DSS Technology Management, Inc. | Nevada | |
| DSS Wealth Management, Inc. | Texas | |
| Gigenomics Solutions, Inc | Texas | |
| Global BioLife, Inc. | Texas | |
| Global BioMedical, Inc. | Nevada | |
| Global Sugar Solutions, Inc | Nevada | |
| Happy Sugar, Inc. | Nevada | |
| HWH World, Inc. | Texas | |
| Impact BioLife Science, Inc. | Nevada | |
| Impact BioMedical, Inc. | Nevada | |
| Impact Oncology Pte | Nevada | |
| Premier Packaging Corporation | New York | |
| Sentinel Brokers LLC | Texas | |
| Sentinel Brokers Company | New York | |
| Sweet Sense, Inc. | Nevada | |
| USX Holdings Company, Inc. | Texas |
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the following Registration Statements of DSS, Inc.:
| ● | Registration Statement (Form S-8 No. 333-190870) | |
| ● | Registration Statement (Form S-3 No. 333-230740) | |
| ● | Registration Statement (Form S-8 No. 333-235745) | |
| ● | Registration Statement (Form S-1 No. 333-236082) | |
| ● | Registration Statement (Form S-1 No. 333-238587) | |
| ● | Registration Statement (Form S-1 No. 333-249857) | |
| ● | Registration Statement (Form S-1 No. 333-252239) | |
| ● | Registration Statement (Form S-3 No. 333-252757) | |
| ● | Registration Statement (Form S-3 No. 333-256446) |
of our report dated March 31, 2022, (except for the 2021 Restatement described in Note 2 and the effects thereof, as to which the date is August 17, 2022) relating to the consolidated financial statements of DSS, Inc. and Subsidiaries, appearing in the Annual Report on Form 10-K of DSS, Inc. for the year ended December 31, 2021
/s/ TURNER, STONE & COMPANY, LLP
Dallas, Texas
August 17, 2022
Exhibit 31.1
RULE 13a-14(a)/15d-14(a) CERTIFICATION OF INTERIM CHIEF EXECUTIVE OFFICER
I, Jason Grady, certify that:
1. I have reviewed this annual report on Form 10-K/A of DSS, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: October 22, 2024
| /s/ Jason Grady | |
Jason Grady Interim Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
RULE 13a-14(a)/15d-14(a) CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Todd D. Macko, certify that:
1. I have reviewed this annual report on Form 10-K/A of DSS, Inc.
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: October 22, 2024
| /s/ Todd D. Macko | |
| Todd D. Macko | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of DSS, Inc. (the “Company”) on Form 10-K/A for the year ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jason Grady, Interim Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: October 22, 2024
| /s/ Jason Grady | |
| Jason Grady | |
| Interim Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of DSS, Inc. (the “Company”) on Form 10-K/A for the year ended December 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Todd D. Macko, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: October 22, 2024
| /s/ Todd D. Macko | |
| Todd D. Macko | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |