NOTES
TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2021
(Unaudited)
1.
Basis of Presentation and Significant Accounting Policies
The
Company, incorporated in the state of New York in May 1984 has conducted business in the name of Document Security Systems, Inc. On September
16, 2021, the board of directors approved an agreement and plan of merger with a wholly-owned subsidiary, DSS, Inc. (a New York corporation,
incorporated in August 2020), for the sole purpose of effecting a name change from Document Security Systems, Inc. to DSS, Inc. This
change became effective on September 30, 2021. DSS, Inc. maintained the same trading symbol “DSS” and updated its CUSIP number
to 26253C 102.
DSS, Inc. (together with its
consolidated subsidiaries, referred to herein as “DSS,” “we,” “us,” “our” or the “Company”)
currently operates nine (9) distinct business lines with operations and locations around the globe. These business lines are: (1) Premier
Packaging, (2) IP Monetization, (3) Direct Marketing/Online Sales Group, (4) Blockchain Technology, (5) Securities and Fintech Group,
(6) BioHealth Group, (7) Secure Living, (8) Energy Group, and (9) Investment Banking. Each of these business lines are in different
stages of development, growth, and income generation.
Of the nine business
lines, two of the those have historically been the led by core subsidiaries of the Company: (1) Premier Packaging Corporation
(“Premier Packaging”), and (2) DSS Technology Management, Inc. (“IP Monetization”). Premier Packaging
operates in the paper board folding carton, smart 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 designed to provide functionality, marketability, and sustainability to product packaging while providing
counterfeit protection and consumer engagement platform. DSS Technology Management Inc., manages, licenses, and acquires
intellectual property assets for the purpose of monetizing these assets through a variety of value-enhancing initiatives, including,
but not limited to, investments in the development and commercialization of patented technologies, licensing, strategic
partnerships, and commercial litigation. The activities surrounding our IP Technology Management segment have significantly
decreased. In 2020, under its (3) Decentralize Sharing Systems, Inc. (“Decentralized”) subsidiary, the Company created a
third business segment, Direct Marketing/Online Sales Group (“Direct”). This group provides services to assist companies
in the growing gig economic business model of peer-to-peer direct marketing. Direct specializes in marketing and distributing its
products and services through its subsidiaries, partner networks, and online marketplaces. Products include health and wellness for
personal care, healthy living and lifestyle, and travel. Direct will also help to support the direct selling industry by offering
services to its piers that streamline operations, enhance financing, and provide back-end business continuity.
In addition to the three business
lines and subsidiaries listed above, in 2020 and 2021, DSS has created four new business lines, and wholly owned
subsidiaries. (4) Blockchain Technology, led by DSS Blockchain Security, Inc (“DSS Blockchain”)., a Nevada
corporation, specializes in the development of blockchain security technologies for tracking and tracing solutions for supply chain
logistics and cyber securities across global markets. (5) Securities and Fintech, led by DSS Securities, Inc. (“DSS
Securities”), a Nevada corporation, 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. (6) BioHealth Group, led by DSS BioHealth Security, Inc. (“DSS BioHealth”), a
Nevada corporation, is our business line which we will intend to invest in or to acquire companies related to the bio-health and
biomedical field, including businesses focused on the research to advance drug discovery and development for the prevention,
inhibition, and treatment of neurological, oncology and immuno-related diseases. This new division will place special focus on
open-air defense initiatives, which curb transmission of air-borne infectious diseases such as tuberculosis and influenza, among
others. (7) Secure Living, led by DSS Secure Living, Inc. (“DSS Secure Living”), a Nevada Corporation, will
develop top of the line advanced technology, energy efficiency, quality of life living environments and home security for everyone
for new construction and renovations of residential single and multifamily living facilities. The activity in DSS Blockchain and DSS
Secure Living has been minimal or in various start-up or organizational phases. (8) Energy Group, organized under the
Company’s subsidiary Alset Energy, Inc., a Texas corporation, has
been established to help lead the Company’s clean energy future with a focus on environmental responsibility and
sustainability measures. (9) Investment Banking, created in September 2021 as part of the Company’s acquisition of American
Pacific Bancorp. Inc., a Texas corporation, is organized for the purposes of being a financial network holding company, focused on
providing commercial loans and 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.
On
August 21, 2020, the Company, completed its acquisition of Impact BioMedical, Inc. (“Impact BioMedical”), pursuant to a Share
Exchange Agreement by and among the Company, DSS BioHealth Security, Inc. (“DSS BioHealth”), Alset International Limited
(formally Singapore eDevelopment Ltd.), and Global Biomedical Pte Ltd. (“GBM”), which was previously approved by the Company’s
shareholders (the “Share Exchange”). Under the terms of the Share Exchange, the Company issued 483,334 shares of the Company’s
common stock, par value $0.02 per share, nominally valued at $6.48 per share, and 46,868 newly issued shares of the Company’s Series
A Convertible Preferred Stock (“Series A Preferred Stock”). As a result of the Share Exchange, Impact BioMedical is now a
wholly owned subsidiary of DSS BioHealth, the Company’s wholly owned subsidiary (see Note 5).
Impact
BioMedical strives to leverage its scientific know-how and intellectual property rights to provide solutions that have been plaguing
the biomedical field for decades. By tapping into the scientific expertise of its partners, Impact BioMedical has undertook a concerted
effort in the research and development (R&D), drug discovery and development for the prevention, inhibition, and treatment of neurological,
oncological, and immune related diseases.
On
September 9, 2021, the Company finalized a stock purchase agreement (the “SPA”) with American Pacific Bancorp, Inc.
(“APB”), which provided for an investment of $40,000,200
by the Company into APB for an aggregate of 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
became the majority owner of APB. (see Note 5).
On
September 13, 2021, the Company finalized a shareholder agreement and joint venture between its subsidiary, DSS Financial Management,
Inc. (“DFMI”) and HR1 Holdings Limited (“HR1”), a company incorporated in the British Virgin Islands, for the
purpose to operate a vehicle for private and institutional investors seeking a highly liquid investment fund with attractive risk adjusted
returns relative to market unpredictability and volatility. Under the terms of this agreement, 4000 shares or 40% of the Company’s
subsidiary Liquid Asset Limited Management Limited (“LVAM”), a Hong Kong company was transferred to HR1 whereas at the conclusion
of the transaction DFMI would own 60% of LVAM and HR1 would own 40%. LVAM executes within reliable platforms and broad market access
and uses proprietary systems and algorithms to trade liquid exchange-traded funds (ETFs), stocks, futures or crypto. Aimed at providing
consistent returns while offering the unique ability to liquidate the portfolio within 5 to 10 minutes under normal market conditions,
LVAM provides an array of advanced tools and products enabling customers to explore multiple opportunities, strengthen and diversify
their portfolios, and meet their individual investing goals. LVAM had minimal activity at September 30, 2021, which have been consolidated into the accompanying financial statements.
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted
accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 8.03
of Regulation S-X for smaller reporting companies. Accordingly, these statements do not include all the information and footnotes required
by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying balance sheets and related interim statements
of operations and cash flows include all adjustments considered necessary for their fair presentation in accordance with U.S. GAAP. All
significant intercompany transactions have been eliminated in consolidation.
Interim
results are not necessarily indicative of results expected for the full year. For further information regarding the Company’s accounting
policies, refer to the audited consolidated financial statements and footnotes thereto included in the Company’s Form 10-K for
the fiscal year ended December 31, 2020.
Principles
of Consolidation - The consolidated financial statements include the accounts of Document Security Systems, Inc. and its subsidiaries.
All significant intercompany balances and transactions have been eliminated in consolidation.
Use
of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted
in the United States requires the Company to make estimates and assumptions that affect the amounts reported and disclosed in the financial
statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, the Company
evaluates its estimates, including those related to the accounts receivable, convertible notes receivable, inventory, fair values of
investments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of options and
warrants to purchase the Company’s common stock, preferred stock, deferred revenue and income taxes, among others. The Company
bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which
form the basis for making judgments about the carrying values of assets and liabilities.
Reclassifications
- Certain amounts on the accompanying consolidated
balance sheets for the year ended December 31, 2020, have been reclassified to conform to current period presentation.
Restricted cash
– Amounts included in restricted cash at September 30, 2021, represents customer deposits placed in escrow with a subsidiary
of the Company, Alset Title, Inc., in connection with potential real estate acquisitions.
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.
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 6 for further
discussion on investments.
Fair
Value of Financial Instruments - Fair value is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurement Topic
of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) establishes a
three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). These tiers include:
●
Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets.
●
Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted
prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active;
and
●
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions,
such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The
carrying amounts reported in the 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 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.
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.
Related
Party Liabilities – On April 1, 2020 the
Company’s HWH World, Inc subsidiary has a service agreement with HWH Korea, a subsidiary of Alset International Limited (“Alset
Intl.”) (formally Singapore eDevelopment Limited). 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 Company also owns approximately 127,179,000
shares of Alset Intl, a company publicly listed
on the Singapore Exchange Limited. This service agreement will allow HWH Korea to utilize the Company’s merchant account in connection
with their direct marketing network with periodic remittance of the cash collected to them for a fee of 2.5%
of amounts collected. As of September 30, 2021, the Company had collected approximately $0
as compared to $1,100,000
as of December 31, 2020, on behalf of HWH Korea,
which is included in Accrued expenses and deferred revenue on the consolidated balance sheet. There were no amounts outstanding to
this related party at September 30, 2021.
Acquisitions
- In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”)
2017-01, Business Combinations (“Topic 805”): Clarifying the Definition of a Business (“ASU 2017-01”). The guidance
is intended to assist entities with evaluating whether a set of transferred assets and activities is a business. Under this guidance,
an entity first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable
asset or a group of similar identifiable assets. If this threshold is met, the set is not a business. If the threshold is not met, the
entity then evaluates whether the set meets the requirement that a business include, at a minimum, an input and a substantive process
that together significantly contribute to the ability to create outputs. See Note 5 regarding the 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 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.
Discontinued
Operations – On April 20, 2020, the Company executed a nonbinding letter of intent with a perspective buyer for the sale
of certain assets of its plastic printing business line, which it operated under Plastic Printing Professionals, Inc. (“DSS Plastics”),
a wholly owned subsidiary of the Company. That sale was consummated and closed on August 14, 2020. The remaining assets of DSS Plastics
were either sold, separately disposed, or retained by other existing DSS businesses lines. Accordingly, the operations of DSS Plastics
have been discontinued. Based on the magnitude of DSS Plastics’ historical revenue to the Company and because the Company has exited
the production of laminated and surface printed cards, this sale represented a significant strategic shift that has a material effect
on the Company’s operations and financial results. Accordingly, the Company has applied discontinued operations treatment for this
sale as required by Accounting Standards Codification 210-05—Discontinued Operations. The major classes of assets and liabilities
of DSS Plastics are classified as Held For Sale – 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 11.
On
May 7, 2021, the Company completed the sale of 100% of the capital stock of DSS Digital Inc. (“DSS Digital”), the Company’s
wholly owned subsidiary, which researched, developed, marketed, and sold the Company’s digital products worldwide. Based on the
magnitude of DSS Digital’s historical revenue to the Company and because the Company has exited the brand authentication services,
functional anti-counterfeiting technology and technologies to satisfy commercial and consumer product needs for branding, intelligent
packaging, and marketing, this sale represented a significant strategic shift that has a material effect on the Company’s operations
and financial results. Accordingly, the Company has applied discontinued operations treatment for this sale as required by Accounting
Standards Codification 210-05—Discontinued Operations. See Note 11.
(Loss)
Earnings Per Common Share
- The Company presents basic and diluted (loss) earnings per share. Basic (loss) earnings per share reflect the actual
weighted average of shares issued and outstanding during the period. Diluted (loss) earnings per share are computed including
the number of additional shares from outstanding warrants, stock options and preferred stock that would have been outstanding if dilutive
potential shares had been issued and is calculated utilizing the treasury stock method. In a loss period, the calculation for basic and
diluted (loss) earnings per share is the same, as the impact of potential common shares is anti-dilutive.
Concentration
of Credit Risk - The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured
limits. The Company believes it is not exposed to any significant credit risk as a result of any non-performance by the financial institutions.
During
the nine months ended September 30, 2021, two customers accounted for 43%
of our consolidated revenue. As of September 30, 2021, these two customers
accounted for 73%
of our consolidated trade accounts receivable balance. During the
nine-months ended September 30, 2020, these two customers accounted for 37%
of our consolidated revenue and 48%
of our consolidated trade accounts receivable balance.
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.
Recent
Accounting Pronouncements - In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial
Instruments-Credit Losses (Topic 326)”, which requires entities to measure all expected credit losses for financial assets held
at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the
existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This
guidance is effective for the Company for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022.
The Company is currently assessing the impact that adopting this new accounting standard will have on our consolidated financial statements.
Impact
of COVID-19 Outbreak - The COVID-19 pandemic has created global economic turmoil and has potentially permanently impacted how
many businesses operate and how individuals will socialize and shop in the future. We continue to feel the effect of the COVID-19 business
shutdowns and consumer stay-at-home protections. But the effect of the economic shutdown has impacted our business lines differently,
some more severely than others. In most cases, we believe the negative economic trends and reduced sales will recover over time. Additionally,
it is reasonably possible that estimates made in the financial statements have been, or will be, materially and adversely impacted in
the near term as a result of these conditions, including losses on inventory; impairment losses related to goodwill and other long-lived
assets and current obligations.
2.
Revenue
The
Company recognizes its products and services revenue based on when the title passes to the customer or when the service is completed
and accepted by the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for shipped
product or service provided. Sales and other taxes billed and collected from customers are excluded from revenue. The Company recognizes
rental income associated with its REIT, including 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 generates
revenue from its direct marketing line of business primarily through internet sales and recognizes revenue as items are shipped.
As
of September 30, 2021, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater
than one year. Pursuant to Topic 606, the Company has applied the practical expedient with respect to disclosure of the deferral and
future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. The Company elected
the practical expedient allowing it to not recognize as a contract asset the commission paid to its salesforce on the sale of its products
as an incremental cost of obtaining a contract with a customer but rather recognize such commission as expense when incurred as the amortization
period of the asset that the Company would have otherwise recognized is one year or less.
Accounts
Receivable
The
Company extends credit to its customers in the normal course of business. The Company performs ongoing credit evaluations and generally
does not require collateral. Payment terms are generally 30 days but up to net 105 for certain customers. The Company carries its trade
accounts receivable at invoice amount less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts
receivable and establishes an allowance for doubtful accounts based upon management’s estimates that include a review of the history
of past write-offs and collections and an analysis of current credit conditions. At September 30, 2021, the Company established a reserve
for doubtful accounts of approximately $84,000 ($25,000 – December 31, 2020). The Company does not accrue interest on past due
accounts receivable.
Sales
Commissions
Sales
commissions are expensed as incurred for contracts with an expected duration of one year or less. There were no sales commissions capitalized
as of September 30, 2021.
Shipping
and Handling Costs
Costs
incurred by the Company related to shipping and handling are included in cost of products sold. Amounts charged to customers pertaining
to these costs are reflected as revenue.
See
Note 14 for disaggregated revenue information.
3.
Notes Receivable
Century
TBD Holdings, LLC
On
October 10, 2019, the Company entered into a convertible promissory note (“TBD Note”) with Century TBD Holdings, LLC (“TBD”),
a Florida limited liability company. The Company loaned the principal sum of $500,000,
of which up to $500,000
and all accrued interest can be paid by an “Optional
Conversion” of such amount up to 19.8%
(non-dilutable) of all outstanding membership interest in TBD. This TBD Note accrues interest at 6%
and matures on October
9, 2021. As of September 30, 2021, and December
31, 2020, this TBD Note had outstanding principal and interest of approximately $537,000.
This asset was classified as Current portion of notes receivable on the consolidated balance sheet as September 30, 2021, and as Notes
receivable on the consolidated balance sheet as of December 31, 2020. On December 30, 2020, the Company signed a
binding letter of intent with West Park Capital, Inc (“West Park”) and TBD where the parties agreed to prepare a note and
stock exchange agreement whereby DSS will assign the TBD Note to West Park and West Park shall issue to DSS a stock certificate reflecting
7.5%
of the issued and outstanding shares of West Park. This note and stock exchange agreement is expected to be finalized sometime during
the fourth quarter of 2021.
GSX
Group Limited
On
February 8, 2021, the Company entered into a convertible promissory note (“GSX Note”) with GSX Group Limited (“GSX”),
a company registered in Gibraltar. The Company loaned the principal sum of $800,000,
with principal and interest at a rate of 4%,
due in one year from date of issuance. The outstanding principal and interest as of September 30, 2021, approximated $821,000,
and is classified as a Current Asset on the Consolidated Balance Sheets
at September 30, 2021. The GSX Note shall be converted, at the Company’s option, into shares of GSX at the conversion price of
$1.05
per share.
On
February 3, 2021, USX Holdings Company, Inc., a subsidiary of the Company entered into a binding joint venture term sheet (“GSX
JV”) for the creation of a USA based joint venture alternative trading system or exchange (“JV Exchange”). During
the nine-months ended September 30, 2021, the Company and GSX finalized the terms of the JV Exchange.
Dustin
Crum
On
February 21, 2021, Impact BioMedical, Inc. a subsidiary of the Company, entered into a promissory note (“Crum Note”)
with Dustin Crum (“ Mr. Crum”). The Company loaned the principal sum of $206,000,
with interest at a rate of 6.5%,
and maturity date of August
19, 2022. Monthly payments are due on the
twenty-first day of each month and continuing each month thereafter until August 19, 2022, at which time all accrued interest and
the entire remaining principal shall be due and payable in full. This note is secured by certain real property situated in Collier
County, Florida. The outstanding principal and interest as of September 30, 2021, approximated $197,000 and
is classified in current notes receivable on the accompanying consolidated balance sheets.
Sharing
Services Global Corporation
On
April 5, 2021, Decentralized Sharing Systems, Inc., a subsidiary of the Company entered into a convertible promissory note (“SHRG
Note”) with Sharing Services Global Corporation (“SHRG”), a company registered in the state of Nevada. The Company
loaned the principal sum of $30,000,000, with interest at a rate of 8%, and shall be due and payable in full on demand by the Company,
or if the demand is not sooner made, April 5, 2024. The interest shall be prepaid annually in cash or Class A Common Shares. At any time
during the term of the SHRG Note, at the sole discretion of the Company, the outstanding principal can be converted in whole or in part
into whole shares of SHRG Class A Common Stock at a conversion rate of $0.20. The Company received a $3,000,000 loan origination fee
associated with this note which has been recorded as an offset to the SHRG Note and will be amortized monthly in the amount of approximately
$83,000 through the term of the SHRG Note. Accordingly, in April 2021, the SHRG issued to the Company 27,000,000 shares of its Class
A Common Stock, including 15,000,000 shares in payment of the loan origination fee and 12,000,000 shares in prepayment of interest for
the first year In addition, the Company received 150,000,000 warrants both issued and vested on April 5, 2021. These warrants have an
exercise price of $0.22 and expire April 5, 2026. Under ASC 815 (“Topic 815”), the warrants received with the SHRG Note do
not meet the definition of a derivative but do require treatment as an equity investment (See Note 6). Accordingly, the value of the
note was allocated between current portion of notes receivable and other investments on the consolidated balance sheet. The SHRG Note
was valued at $15,043,000 as of April 5, 2021, net of discount. As of September 30, 2021, the amortized value of the note approximates
$16,830,000 and approximates fair value.
The
Company, via three (3) of the Company’s existing board members, currently holds three (3) of the five (5) SHRG board of director
seats. Mr. John “JT” Thatch, DSS’s Lead Independent Director and as well the CEO of SHRG is on the SHRG Board, along
with Mr. Chan, DSS’s Executive Chairman of the board of directors (joined the SHRG Board effective May 4, 2020), and Mr. Frank
D. Heuszel, the CEO of the Company (joined the SHRG Board effective September 29, 2020).
Sentinel
Brokers Company, Inc.
On
May 13, 2021, a subsidiary of the Company entered a revolving credit promissory note (“Sentinel Note”) with Sentinel Brokers
Company, Inc. (“Sentinel”), a company registered in the state of New York. The Sentinel Note has an aggregate principal balance
up to $600,000,
to be funded at request of Sentinel. The Sentinel Note, which incurs interest at a rate of 6.65%
is payable in areas until the principal is paid in full at the maturity date of May
13, 2023. As of September 30, 2021, there is
$0
outstanding on the Sentinel Note. Also on
May 13, 2021, the Company entered into a stock purchase agreement (“Sentinel Agreement”) to acquire a 24.9%
equity position of Sentinel for the purchase price of $300,000.
See Note 6.
Puradigm,
LLC
On
May 14, 2021, DSS Pure Air, Inc. a subsidiary of the Company entered into a convertible promissory note (“Puradigm Note”)
with Puradigm, LLC (“Puradigm”), a company registered in the state of Texas. The Puradigm Note has an aggregate principal
balance up to $5,000,000, to be funded at request of Puradigm. The Puradigm Note, which incurs interest at a rate of 6.5% due quarterly,
has a maturity date of May 14, 2023. The Puradigm Note contains an options conversion clause that allows the Company to convert all,
or a portion of all, into new issued member units of Puradigm with the maximum principal amount equal to 18% of the total equity position
of Puradigm at conversion. The outstanding principal and interest as of September 30, 2021, approximated $4,156,000. On October 8, 2021,
the Company advanced an additional $400,000 toward the Puradigm Note.
Harris-Montgomery
Counties Management District
On
September 23, 2021, APB entered into refunding bond anticipatory note (“District Note”) with Harris-Montgomery Counties Management
District (the “District”), which operates as a conservation and reclamation district pursuant to Chapter 3891, Texas Special
District Local Laws Code; Chapter 375, Texas Local Government Code; and Chapter 49, Texas Water Code. The District Note was in the sum
of $3,500,000
and incurs interest at a rate of 4.15%
per annum. Principal and interest are
due in full on September
22, 2022. This
note may be redeemed prior to maturity with 10 days written notice to APB at a price equal to principal plus interest accrued on the
redemption date. The District Note is included
in current portion of notes receivable on the consolidated balance sheet at September 30, 2021.
4.
Financial Instruments
Cash,
Cash Equivalents, Restricted Cash and Marketable Securities
The
following tables show the Company’s cash, cash equivalents, restricted cash, and marketable securities by significant
investment category as of September 30, 2021, and December 31, 2020:
Schedule of Cash and Marketable Securities by Significant Investment Category
|
|
2021
|
|
|
|
Adjusted
Cost
|
|
|
Unrealized
Gain/(Loss)
|
|
|
Fair
Value
|
|
|
Cash,
Cash
Equivalents,
and Restricted Cash
|
|
|
Marketable
Securities
|
|
|
Investments
|
|
Cash and cash equivalents
|
|
$
|
51,438,000
|
|
|
$
|
-
|
|
|
$
|
51,438,000
|
|
|
$
|
51,438,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Restricted cash
|
|
|
350,000
|
|
|
|
-
|
|
|
|
350,000
|
|
|
|
350,000
|
|
|
|
-
|
|
|
|
-
|
|
Level 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
|
17,699,000
|
|
|
|
-
|
|
|
|
17,699,000
|
|
|
|
17,699,000
|
|
|
|
-
|
|
|
|
-
|
|
Marketable Securities
|
|
|
6,608,000
|
|
|
|
2,599,000
|
|
|
|
9,207,000
|
|
|
|
-
|
|
|
|
9,207,000
|
|
|
|
-
|
|
Level 2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
15,657,000
|
|
|
|
(9,121,000
|
)
|
|
|
6,536,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,536,000
|
|
Total
|
|
$
|
91,752,000
|
|
|
$
|
(6,522,000
|
)
|
|
$
|
85,230,000
|
|
|
$
|
69,487,000
|
|
|
$
|
9,207,000
|
|
|
$
|
6,536,000
|
|
|
|
2020
|
|
|
|
Adjusted
Cost
|
|
|
Unrealized
Gain/(Loss)
|
|
|
Fair
Value
|
|
|
Cash and
Cash
Equivalents
|
|
|
Marketable
Securities
|
|
|
Investment
|
|
Cash and cash equivalents
|
|
$
|
1,690,000
|
|
|
$
|
-
|
|
|
$
|
1,690,000
|
|
|
$
|
1,690,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Level 1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money Market Funds
|
|
|
3,493,000
|
|
|
|
-
|
|
|
|
3,493,000
|
|
|
|
3,493,000
|
|
|
|
-
|
|
|
|
-
|
|
Marketable Securities
|
|
|
5,641,000
|
|
|
|
3,495,000
|
|
|
|
9,136,000
|
|
|
|
-
|
|
|
|
9,136,000
|
|
|
|
-
|
|
Level 2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
700,000
|
|
|
|
356,000
|
|
|
|
1,056,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,056,000
|
|
Total
|
|
$
|
11,524,000
|
|
|
$
|
3,851,000
|
|
|
$
|
15,375,000
|
|
|
$
|
5,183,000
|
|
|
$
|
9,136,000
|
|
|
$
|
1,056,000
|
|
The
Company typically invests in highly rated securities, 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.
5.
Acquisitions
American
Medical REIT Inc.
On
March 3, 2020, the Company, via its subsidiary DSS Securities, entered into a share subscription agreement and loan arrangement with
LiquidValue Asset Management Pte Ltd., AMRE Asset Management, Inc. and American Medical REIT Inc. under which it acquired a 52.5% controlling
ownership interest in AMRE Asset Management Inc. (“AAMI”) which currently has a 93% equity interest in American Medical REIT
Inc. (“AMRE”). AAMI is a real estate investment trust (“REIT”) management company that sets the strategic vision
and formulate investment strategy for AMRE. It manages the REIT’s assets and liabilities and provides recommendations to AMRE on
acquisition and divestments in accordance with the investment strategies. AMRE is a Maryland corporation, 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. AMRE was formed to originate, acquire,
and lease a credit-centric portfolio of licensed medical real estate. AMRE is planned to qualify as a Real Estate Investment Trust for
federal income tax purposes, which will provide. AMRE’s investors the opportunity for direct ownership of Class A licensed medical
real estate.
Effective
on March 3, 2020, the Company entered into a Promissory Note with AMRE, pursuant to which AMRE has issued the Company a promissory note
for the principal amount of $800,000
(the “Note”). The Note matures on
March
3, 2022 and accrues interest at the rate of 8.0%
per annum and shall be payable in accordance with the terms set forth in the Note. Under the Note, AMRE may prepay or repay all or any
portion of the Note at any time, without a premium or penalty. If not sooner prepaid, the entire unpaid principal balance of the Note
including accrued interest will be due and payable in full on March 3, 2022. The Note also provides the Company an option to provide
AMRE an additional $800,000
on the same terms and conditions as the Note,
including the issuance of warrants as described below. As further incentive to enter into the Note, AMRE issued the Company warrants
to purchase 160,000
shares of AMRE common stock (the “Warrants”).
The Warrants have an exercise price of $5.00
per share, subject to adjustment as set forth
in the Warrants, and expire on March
3, 2024. Pursuant to the Warrants, if AMRE files
a registration statement with the Securities and Exchange Commission for an initial public offering (“IPO”) of AMRE’s
common stock and the IPO price per share offered to the public is less than $10.00
per share, the exercise price of the Warrants
shall be adjusted downward to 50%
of the IPO price. The Warrants also grants piggyback registration rights to the Company as set forth in the Warrants. As of September
30, 2021, this Note had outstanding principal and interest of approximately $898,000.
Upon consolidation this Note is eliminated. AMRE entered into a $200,000
unsecured promissory note with LiquidValue
Asset Management Pte Ltd (“LVAMPTE”). The Note calls for interest to be paid annually on March 2 with interest fixed
at 8.0%.
See Note 7 for further details. LVAMPTE is majority owned subsidiary of Alset International Limited whose Chief Executive Office and
largest shareholder is Heng Fai Ambrose Chan, the Chairman of the Board and largest shareholder of the Company.
On
June 18, 2021, DSS Securities, entered into a stock purchase agreement with AMRE to acquire 264,525 Class A Common Shares of AMRE at
a per share price of $10, for a total consideration of $2,645,250. The additional 264,525 Class A Common Shares acquired increases the
Company’s total equity interest in AMRE to approximately 93%.
On
June 18, 2021, AMRE Shelton, LLC., (“AMRE Shelton”) a subsidiary of AMRE financed the purchase of a 40,000 square foot, 2.0
story, Class A+ multi-tenant medical office building located on a 13.62-acre site in Shelton, Connecticut (See Note 7) for the purchase
price of $7,150,000. In accordance with Topic 805, the acquisition of the medical facility has been determined to be an acquisition of
assets as substantially all of the fair value of the gross assets acquired is concentrated in a
single identifiable asset or a group of similar identifiable assets. These assets are classified as investments, real estate on
the consolidated balance sheet. The purchase price has been allocated as $4,640,000, $1,600,000, and $325,000 for the facility, land
and tenant improvements respectively. Also include in the value of the property is $585,000 of intangible assets with an estimated useful
life approximating 3 years. All assets were allocated on a relative fair value basis. Contained within the sale-purchase agreement for
this facility, is a $1,500,000 earnout due to the seller if certain criteria are met. As of September 30, 2021, no liability has been
recorded for this earnout.
During
the three- and nine-months ended September 30, 2021, AMRE had net losses of $545,000 and $778,000, respectively, of which $38,000 and
$131,000, respectively is attributable to the non-controlling interest.
Impact
BioMedical, Inc.
On
August 21, 2020, the Company, completed its acquisition of Impact BioMedical, Inc. (“Impact”), pursuant to a Share Exchange
Agreement by and among the Company, DSS BioHealth, and related parties Alset Intl (formally Singapore eDevelopment Limited), and Global
Biomedical Pte Ltd. (“GBM”) which was previously approved by the Company’s shareholders (the “Share Exchange”).Under
the terms of the Share Exchange, the Company issued 483,334
shares of the Company’s common stock, par
value $0.02
per share, nominally valued at $6.48
per share, and 46,868
newly issued shares of the Company’s Series
A Convertible Preferred Stock (“Series A Preferred Stock”), with a stated value of $46,868,000,
or $1,000 per share, for a total consideration of $50
million to acquire 100%
of the outstanding shares of Impact. The acquisition was done to add assets and a foundation of products with international market opportunities
and demand, and which can be structured into long- term scalable, reoccurring license revenue within the DSS BioHealth line of business.
Due to several factors, including a discount for illiquidity, the value of the Series A Preferred Stock was discounted from $46,868,000
to $35,187,000,
thus reducing the final consideration given to approximately $38,319,000.
The Company incurred approximately $295,000
in cost associated with the acquisition of Impact
which were recorded as general and administrative expenses. As a result of the Share Exchange, Impact is now a wholly owned subsidiary
of DSS BioHealth, the Company’s wholly owned subsidiary and operating results of the acquisition are included in the Company’s
financial statements beginning August 21, 2020. Impact BioMedical has several subsidiaries that are not wholly owned by Impact and have
an ownership percentage ranging from 63.6%
to 100%.
During the three and nine months ended September 30, 2021, Impact has incurred approximately $657,000
and $1,964,000
respectively of net losses, of which
$115,000
and $281,000
respectively of loss incurred is attributable
to non-controlling interest. Although Impact historically, and to date has not generated any revenues, the acquisition of Impact 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.
American
Pacific Bancorp.
On
September 9, 2021, the Company finalized a stock purchase agreement (the “SPA”) with American Pacific Bancorp (“APB”),
which provided for an investment of $40,000,000
by the Company into APB for an aggregate
of 6,666,700
shares of the APB’s Class A Common Stock,
par value $0.01
per share. Subject to the terms and conditions
contained in the SPA, the shares issued at a purchase price of $6.00
per share. As a result of this transaction, DSS
owns approximately 53%
of APB, and as a result its operating results
will be included in the Company’s financial statements beginning September 9, 2021. The Company incurred approximately $36,000
in cost associated with the acquisition of
APB which were recorded as general and administrative expenses. The acquisition of APB meets the definition of a business
with inputs, processes and outputs, and therefore, the Company has concluded to account for this transaction in accordance with the acquisition
method of accounting under Topic 805. Activity from September 9, 2021, to September 30, 2021, was not significant. The next largest
shareholder of APB is Alset EHome International, Inc. (“AEI”). AEI’s Chairman and CEO, Heng Fai Chan, and a member
of the AEI’s Board of Directors, Wu Wai Leung William, each serve on both the AEI Board and the Board of the Company. The CEO
of the Company, Mr. Frank D. Heuszel, also has an approximate 2% equity position of APB.
The
following summary, prepared on a proforma basis, combines the consolidated results of operations of the Company with those of APB as
if the acquisition took place on January 1. The pro forma consolidated results include the impact of certain adjustments.
Schedule of Business Acquisition, Pro Forma Information
|
|
2021
|
|
|
2020
|
|
Revenue
|
|
$
|
13,280,000
|
|
|
$
|
10,233,000
|
|
Net (loss)/income
|
|
$
|
(19,215,000
|
)
|
|
$
|
1,778,000
|
|
Basic (loss)/earnings per share
|
|
$
|
(0.46
|
)
|
|
$
|
0.63
|
|
Diluted (loss)/earnings per share
|
|
$
|
(0.46
|
)
|
|
$
|
0.46
|
|
We are currently in the
process of completing the purchase price accounting and related allocations associated with the acquisition of APB. The Company is
in the process of completing valuations and useful lives for certain assets acquired in the transaction and the purchase price
allocation will be completed with finalization of those valuations. We expect the preliminary purchase price accounting to be
completed during the three months ending December 31, 2021. For the purposes of these financial statements, $16,945,000
and $20,301,000
of the purchase price has been allocated to Goodwill and Non-controlling interest in subsidiary, respectively, on the consolidate
balance sheet at September 30, 2021. Net assets acquired were approximately $3,400,000 and included approximately
$1,250,000 in cash, $1,900,000 in marketable securities, $330,000 in notes receivable and $101,000 of accounts payable and accrued liabilities.
APB and the company in which APB owns marketable securities share a common director.
6.
Investments
Alset
International Limited (formally Singapore eDevelopment Limited)
The
Company owns 127,179,311
shares or approximately 7%
of the outstanding shares of Alset International Limited (“Alset Intl”), formerly named Singapore eDevelopment Limited (“SED”),
a company incorporated in Singapore and publicly listed on the Singapore Exchange Limited as of September 30, 2021, and December 31,
2020. This investment is classified as a marketable security and is classified as long-term assets on the consolidated balance sheets
as the Company has the intent and ability to hold the investments for a period of at least one year. The Chairman of the Company, Mr.
Heng Fai Ambrose Chan, is the Executive Director and Chief Executive Officer of Alset Intl. Mr. Chan is also the majority shareholder
of Alset Intl as well as the largest shareholder of the Company. The fair value of the marketable security as of September 30, 2021,
and December 31, 2020, was approximately $5,990,000
and $6,830,000
respectively. During the three
months ended September 30, 2021, the Company recorded unrealized gain on this investment of approximately $127,000,
and during the nine months ended September 30, 2021, the Company recorded an unrealized loss of approximately $839,000.
Sharing
Services Global Corp. (“SHRG”)
As
of and through September 30, 2020, the Company classified its investment in Sharing Services Global Corp. (“SHRG”), a publicly
traded company, as marketable equity security and measured it at fair value with gains and losses recognized in other income. In July
2020, through continued acquisition of common stock, as detailed below, the Company obtained greater than 20% ownership of SHRG, and
thus has the ability to exercise significant influence over it. The Company currently accounts for its investment in SHRG using the equity
method in accordance with ASC Topic 323, Investments—Equity Method and Joint Ventures recognizing our share of SHRG’s
earnings and losses within our consolidated statement of operations.
On
July 22, 2020, Chan Heng Fai Ambrose, the Chairman of the Company’s board of directors, assigned a Stock Purchase and Share Subscription
Agreement by and between Mr. Chan and SHRG, pursuant to which the Company purchased 30,000,000
shares of Class A common stock and 10,000,000
warrants to purchase Class A common stock for
$3
million, causing the Company’s ownership
in SHRG to exceed 20%.
The warrants have an average exercise price of $0.20,
immediately vested and may be exercised at any time commencing on the date of issuance and ending three years from such date.
The warrants are considered an equity investment that is recorded at fair value with gains and losses recorded through earnings. These
warrants have been recorded at the fair value of $324,000
as of September 30, 2021, as compared to $1,056,000
at December 31, 2020 on the Company’s consolidated
balance sheet and are included in “other investments” with the decrease representing an unrealized loss of $224,000
and $732,000
respectively during the three and nine months
ended September 30, 2021.
As
of July 22, 2020, the carrying value of the Company’s equity method investment exceeded our share of the book value of the
investee’s underlying net assets by approximately $9,192,000 which
represents primarily intangible assets in the form of a distributor lists and goodwill arising from acquisitions. These intangible
assets have been valued at approximately $1,148,000 and
$8,044,000,
respectively. The intangible asset arising from the distributor list has a five-year
useful life. The Company has recorded amortization of $57,000 and
$287,000 for
the three- and nine-months ended September 30, 2021, respectively, on the consolidated statement of operations. On
April 5, 2021, a subsidiary of the Company entered into a convertible promissory note (“SHRG Note”) with SHRG (see Note
3). The Company loaned the principal sum of $30,000,000.
Accordingly, in April 2021, the SHRG issued to the Company 27,000,000 shares
of its Class A Common Stock, including 15,000,000 shares
in payment of the loan origination fee and 12,000,000 shares
in prepayment of interest for the first year. In addition, the Company received 150,000,000 warrants
both issued and vested on April 5, 2021. These warrants have an exercise price of $0.22 and
expire April
5, 2026. As of the date of issuance the
warrants the consideration paid allocated to the warrants amounted to approximately $14,957,000.
The warrants are considered an equity investment that is recorded at fair value with gains and losses recorded through earnings.
These warrants have been recorded at the fair value of $6,212,000 as
of September 30, 2021, on the Company’s consolidated balance sheet and are included in “other investments” with
the decrease representing an unrealized loss of $2,780,000 and
$8,745,000,
respectively, during the three- and nine-months ended September 30, 2021. As of September 30, 2021, the Company held 91,460,978 class
A common shares equating to a 46.8%
ownership interest in SHRG. SHRG change its fiscal year end from April 30 to March 31, and due to this change and the
difference in fiscal year ends between the two companies, effective for the three- and nine-month ended September 30, 2021,
DSS changed its previous election to recognized its portion of SHRG’s earnings and losses on a two-month lag as of June 30,
2021 and has elected to recognize its portion of SHRG’s earnings and losses on a three-month lag basis going
forward and utilized SHRG’s three-month ended June 30, 2021, reported results to recognize a loss on the equity method
investment of approximately $1,645,000. This
change represents a change in accounting principle under ASC 250 “Accounting Changes and Error Corrections”. The
aggregate fair value of the Company’s investment in SHRG at September 30, 2021 was approximately $8,688,000.
The
following table represents SHRG operating results for the three-months ended June 30, 2021:
Schedule of Operating Result
|
|
|
|
|
Net sales
|
|
$
|
11,211,526
|
|
Gross profit
|
|
$
|
7,857,716
|
|
Operating loss
|
|
$
|
(2,021,069
|
)
|
Income tax benefit
|
|
$
|
747,889
|
|
Net loss
|
|
$
|
(3,548,007
|
)
|
BMI
Capital International LLC
On
September 10, 2020, the Company’s wholly owned subsidiary DSS Securities, Inc. entered into membership interest purchase agreement
with BMI Financial Group, Inc. a Delaware corporation (“BMIF”) and BMI Capital International LLC, a Texas limited liability
company (“BMIC”) whereas DSS Securities, Inc. purchased 14.9% membership interests in BMIC for $100,000. DSS Securities also
had the option to purchase an additional 10% of the outstanding membership interest which it exercised in January of 2021 and increased
its ownership to 24.9%. Upon achieving greater than 20% ownership in BMIC during the quarter ended March 31, 2021, and September 30,
2021, the Company is currently accounting for this investment under the equity method of accounting per ASC 323. The Company’s
portion of net income in BMIC during the three and nine months ended September 30, 2021, was not significant.
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 this joint venture.
Alset
Title Company
On
or about August 28, 2020, the Company’s wholly owned subsidiary, DSS Securities, Inc. entered into a corporate venture to form
and operate a real estate title agency, under the name of Alset Title Company, Inc, a Texas corporation (“ATC”).
DSS Securities, Inc. shall own 70% of this venture with the other two shareholders being attorneys necessary to the state application
and permitting process. ATC have initiated or have pending applications to do business in a number of states, including Texas, Tennessee,
Connecticut, Florida, and Illinois. For the purpose of organization and the state application 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 three and
nine months ended September 30, 2021.
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 525 ordinary shares or 4.99% of BioMed at a purchase
price of approximately $630,000. The Subscription Agreement provides, among other things, the Company has the right to appoint a new
director to the board of BioMed. With respect to an issuance of shares to a third party by BioMed, the Company will have the right of
first refusal to purchase such shares, as well as customary tag-along rights. In connection with the Subscription Agreement, Impact entered
into an exclusive distribution agreement (the “Distribution Agreement”) with BioMed, to directly market, advertise, promote,
distribute, and sell certain BioMed products, which focus on manufacturing natural probiotics, to resellers. This investment is valued
at cost as it does not have a readily determined fair value.
BioMed
focuses on manufacturing natural probiotics, pursuant to which the Company will directly market, advertise, promote, distribute and sell
certain BioMed products to resellers. The products to be distributed by the Company include BioMed’s PGut Premium Probiotics®,
PGut Allergy Probiotics®, PGut SupremeSlim Probiotics®, PGut Kids Probiotics®, and PGut
Baby Probiotics®.
Under
the terms of the Distribution Agreement, the Company will have exclusive rights to distribute the products within the United States,
Canada, Singapore, Malaysia, and South Korea and non-exclusive distribution rights in all other countries. In exchange, the Company agreed
to certain obligations, including mutual marketing obligations to promote sales of the products. This agreement is for ten years with
an 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 500,000 shares of its common stock at the per share price
of $1.00, with an option to purchase 1,500,000 additional shares at the per share price of $1.00. This option will terminate upon one
of the following events: (i) Vivacitas’ board of directors cancels this option because it is no longer in the best interest of
the Company; (ii) December 31, 2021; or (iii) the date on which Vivacitas receives more than $1.00 per share of the Company’s common
stock in a private placement with gross proceeds of $500,000. Under the terms of the Vivacitas Agreement #1, the Company will be allocated
two seats on the board of Vivacitas. On March 18, 2021, the Company entered into an agreement with Alset EHome International, Inc. (“Seller”)
to purchase from the Seller’s its wholly owned subsidiary Impact Oncology PTE Ltd. (“IOPL”) for a purchase price $2,480,000.
The acquisition of IOPL has been treated as an asset acquisition as IOPL does not meet the definition of a business as defined in Topic
805. IOPL owns 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. Chan Heng Fai Ambrose, the Chairman of the Company’s board of directors and its largest
shareholder.
On
April 1, 2021, the Company entered into an additional stock purchase agreement with Vivacitas (“Vivacitas Agreement #2”),
whereas Vivacities wished to employ the service of the Chief Business Officer of Impact Biomedical, and in return for the services
of this individual, Vivacitas shall issue to the Company, the aggregate purchase price for the Class A Common Shares of Vivacitas at
the value of $1.00 per share shall be $120,000 to be paid in twelve (12) equal monthly installments for the period between April 1, 2021
and March 31, 2022. As of September 30, 2021, the Company has received 60 Common A Shares of Vivacitas.
On
July 22, 2021, the Company exercised 1,000,000 of the available options under the Vivacitas Agreement #1 for $1,000,000. This, along
with the shares received as part Vivacitas Agreement #2 increased the Company’s equity position in Vivacitas to approximately 19%
as of September 30, 2021.
Sentinel
Brokers Company, Inc.
On
May 13, 2021, a Sentinel Brokers, LLC., subsidiary of the Company entered into a stock purchase agreement (“Sentinel
Agreement”) to acquire a 24.9%
equity position of Sentinel Brokers Company, Inc. (“Sentinel”), a company registered in the state of New York, for the
purchase price of $300,000. During
the three months ended September 30, 2021, the Company contributed and additional $750,000
capital into Sentinel, increasing its total capital investment to $1,050,000
as of September 30, 2021. Under the terms of this agreement, the Company as the option to purchase an additional 50.1%
of the outstanding Class A Common Shares. Upon the exercising of this option, but no earlier than one year following the effective
date the Sentinel Agreement, Sentinel has the option to sell the remaining 25%
to the Company. In consideration of purchase price investment in Sentinel, the Company is entitled to an additional 50.1% of the net
profits of Sentinel. The Company currently accounts for its investment in Sentinel using the equity method in accordance with ASC
Topic 323, as it currently owns 24.9%
of Sentinel. The Company currently accounts for its investment in Sentinel using the equity method in accordance with ASC Topic 323, Investments—Equity
Method and Joint Ventures recognizing our share of Sentinel’s earnings and losses within our consolidated statement of
operations. The Company recognized a gain on the equity method investment of approximately $11,000 for
the three-months ended September 30, 2021, and a loss of $6,000 on
the equity investment for the nine-months ended September 30, 2021.
Sentinel
is a broker-dealer operating primarily as a fiduciary intermediary, facilitating intuitional trading of municipal and corporate bonds
as well as preferred stock, and is registered with the Securities and Exchange Commission, is a member of the Financial Industry Regulatory
Authority, Inc. (“FINRA”), and is a member of the Securities Investor Protection Corporation (“SIPC”).
7.
Short-Term and Long-Term Debt
Revolving
Credit Lines - The Company’s subsidiary Premier Packaging Corporation (“Premier Packaging”) has a revolving
credit line with Citizens Bank (“Citizens”) of up to $800,000 that bears interest at 1 Month LIBOR plus 2.0%. This revolving
line of credit was renewed and has a maturity date of May 31, 2021 and is renewable annually. This renewal was not exercised by Premier
Packaging. As December 31, 2020, the revolving line had a balance of $0.
On
July 26, 2017, Premier Packaging entered into a Loan Agreement and accompanying Term Note Non-Revolving Line of Credit Agreement with
Citizens pursuant to which Citizens agreed to lend up to $1,200,000 to permit Premier Packaging to purchase equipment from time to time
that it may need for use in its business. The aggregate principal balance outstanding under the Equipment Acquisition Line of Credit
shall bear interest thereon at a per annum rate of 2% above the LIBOR Advantage Rate until the Conversion Date (as defined in the Term
Note Non-Revolving Line of Credit). Effective on the Conversion Date, the interest shall be adjusted to a fixed rate equal to 2% above
the bank’s Cost of Funds, as determined by Citizens. Current maturities of long-term debt are based on an estimated 48-month amortization
which will be adjusted upon conversion. As of December 31, 2020, the Term Note had a balance of $771,000. The Term Note was paid in full
in July 2021.
Equipment
Line of Credit - On July 31, 2020, Premier Packaging entered into a Loan Agreement and accompanying Term Note Non-Revolving Line
of Credit Agreement with Citizens pursuant to which Citizens agreed to lend up to $900,000 to permit Premier Packaging to purchase equipment
from time to time that it may need for use in its business. The aggregate principal balance outstanding under the Equipment Acquisition
Line of Credit shall bear interest thereon at a per annum rate of 2% above the LIBOR Advantage Rate until the Conversion Date (as defined
in the Term Note Non-Revolving Line of Credit). Effective on the Conversion Date, the interest shall be adjusted to a fixed rate equal
to 2% above the bank’s Cost of Funds, as determined by Citizens. With a maturity date of July 28, 2021, this equipment line is
renewable annually. As of December 31, 2020, the loan had a balance of $0. Premier did not exercise its right to renew this line of credit.
Promissory
Notes - On June 27, 2019, Premier Packaging refinanced and consolidated the outstanding principal associated with the two promissory
notes for its packaging plant located in Victor, New York, for $1,200,000 with Citizens Bank. The new Promissory Note calls for monthly
payments of $7,000, with interest fixed at 4.22%. The new Promissory Note matures on June 27, 2029, at which time a balloon payment of
$708,000 is due. As of December 31, 2020, the new, consolidated Promissory Note had a balance of $ $1,100,000. In July of 2021, Premier
Packaging repaid this note in full.
The
Citizens credit facilities to each of the Company’s subsidiaries, Premier Packaging, contain various covenants including fixed
charge coverage ratio, tangible net worth and current ratio covenants which are tested annually at December 31. For the year ended December
31, 2020, Premier Packaging was in compliance with the annual covenants.
On
March 2, 2020, AMRE entered into a $200,000
unsecured promissory note with LVAMPTE.
The Note calls for interest to be paid annually on March 2 with interest fixed at 8.0%.
As of December 31, 2020, accrued interest is included in the outstanding balance. If not paid sooner, the entire unpaid principal balance
is due in full on March
2, 2022. 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).
The value of the warrants is not considered to be material. The holder is a related party owned by the Chairman of the Company’s
board of directors. As of September 30, 2021, the new promissory note, inclusive of unpaid interest, had a balance of $226,000.
During
Q2 2020, the Company received loan proceeds for Premier Packaging, DSS Digital, and AAMI in the amount of approximately $1,078,000 under
the Paycheck Protection Program (“PPP”). The PPP, established as part of the Coronavirus Aid, Relief and Economic Security
Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll
expenses of the qualifying business. These funds were used for payroll, benefits, rent, mortgage interest, and utilities. As of August
4, 2020, pursuant to the terms of the SBA PPP program, the Company submitted applications for Premier Packaging and DSS Digital for a
requested 100% loan forgiveness. During the fourth quarter 2020, both these notes approximating $969,000 were forgiven in full and recognized
as a gain on the extinguishment of debt on the accompanying consolidated financial statements as of December 31, 2020. AAMI, pursuant
to the terms of the SBA PPP program, submitted its application for 100% loan forgiveness in October 2020, and received confirmation of
forgiveness in January 2021.
On
March 16, 2021, American Medical REIT, Inc. received loan proceeds in the amount of approximately $110,000 under the Paycheck Protection
Program (“PPP”) with a fixed rate of 1% and a 60-month maturity term. The PPP, established as part of the Coronavirus Aid,
Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of
the average monthly payroll expenses of the qualifying business. These funds were used for payroll, benefits, rent, mortgage interest,
and utilities.
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 in an amount not to exceed $3,200,000 to purchase a new Heidelberg XL 106-7+L printing press. The aggregate principal
balance outstanding under the BOA Note shall bear interest at a variable rate on or before the loan closing. At closing, the interest
rate shall be fixed for the duration of the Loan. As of September 30, 2021, the outstanding principal on the BOA Note was $1,855,000
and had an interest rate of 2.42%.
On
June 18, 2021, AMRE Shelton, LLC., (“AMRE Shelton”) a subsidiary of AMRE, entered into a loan agreement (“Shelton Agreement”)
with Patriot Bank, N.A. (“Patriot Bank”) in an amount up to $6,155,000, with the amount financed approximating $5,105,000.
The Shelton Agreement contains monthly payments of principal and an initial interest 4.25%. The interest will be adjusted commencing
on July 1, 2026 and continuing for the next succeeding 5 year period shall be determined one month prior to the change date and shall
be an interest rate equal to two hundred fifty (250) basis points above the Federal Home Loan Bank Boston 5-Year/25-Year amortizing
advance rate, but in no event less than 4.25% for the term of 120 months with a balloon payment approximating $2,829,000 due at term
end. This agreement contains certain covenants that are analyzed on an annual basis, starting December 31, 2021. The funds borrowed were
used to purchase a 40,000 square foot, 2.0 story, Class A+ multi-tenant medical office building located on a 13.62 acre site (See Note
5). Of the total financed, approximately $191,000 is classified as current portion of long-term debt, net, and the remaining balance
of approximately $4,699,000 recorded as long-term debt, net of $185,000 in deferred financing costs.
8.
Lease Liability
The
Company has operating leases predominantly for operating facilities. As of September 30, 2021, the remaining lease terms on our operating
leases range from less than one to five years. Renewal options to extend our leases have not been exercised due to uncertainty. Termination
options are not reasonably certain of exercise by the Company. There is no transfer of title or option to purchase the leased assets
upon expiration. There are no residual value guarantees or material restrictive covenants. There are no significant finance leases as
of September 30, 2021.
Future
minimum lease payments as of September 30, 2021, are as follows:
Maturity
of Lease Liability
Schedule of Future Minimum Lease Payments
|
|
Totals
|
|
2021
|
|
$
|
59,000
|
|
2022
|
|
|
88,000
|
|
2023
|
|
|
50,000
|
|
2024
|
|
|
4,000
|
|
2025
|
|
|
4,000
|
|
2026
|
|
|
2,000
|
|
Total lease payments
|
|
|
207,000
|
|
Less: Imputed Interest
|
|
|
(10,000
|
)
|
Present value of remaining lease payments
|
|
$
|
197,000
|
|
|
|
|
|
|
Current
|
|
$
|
122,000
|
|
Noncurrent
|
|
$
|
75,000
|
|
|
|
|
|
|
Weighted-average remaining lease term (years)
|
|
|
0.85
|
|
|
|
|
|
|
Weighted-average discount rate
|
|
|
5.4
|
%
|
9.
Commitments and Contingencies
The
Apple Litigation
On
November 26, 2013, DSS Technology Management, Inc. (“DSSTM”) filed suit against Apple, Inc. (“Apple”) in the
United States District Court for the Eastern District of Texas, for patent infringement (the “Apple Litigation”). The complaint
alleges infringement by Apple of DSSTM’s patents that relate to systems and methods of using low power wireless peripheral devices.
DSSTM is seeking a judgment for infringement, injunctive relief, and compensatory damages from Apple. On October 28, 2014, the case was
stayed by the District Court pending a determination of Apple’s motion to transfer the case to the Northern District of California.
On November 7, 2014, Apple’s motion to transfer the case to the Northern District of California was granted. On December 30, 2014,
Apple filed two Inter Partes Review (“IPR”) petitions with the Patent Trial and Appeal Board (“PTAB”) for review
of the patents at issue in the case. The PTAB instituted the IPRs on June 25, 2015. The California District Court then stayed the case
pending the outcome of those IPR proceedings. Oral arguments of the IPRs took place on March 15, 2016, and on June 17, 2016, PTAB ruled
in favor of Apple on both IPR petitions. DSSTM then filed an appeal with the U.S. Court of Appeals for the Federal Circuit (the “Federal
Circuit”) seeking reversal of the PTAB decisions. Oral arguments for the appeal were held on August 9, 2017. On March 23, 2018,
the Federal Circuit reversed the PTAB, finding that the PTAB erred when it found the claims of U.S. Patent No. 6,128,290 to be unpatentable.
The Federal Circuit affirmed its decision on July 12, 2018, when it denied Apple’s petition for panel rehearing of the Federal
Circuit’s Opinion and Judgment issued on March 23, 2018. On July 27, 2018, the District Court judge lifted the Stay resuming the
litigation, which had a trial date set for the week of February 24, 2020. On January 14, 2020, the Court in the case DSS Technology Management,
Inc. v. Apple, Inc., 4:14-cv-05330-HSG pending in the Northern District of California issued an order that denied DSS’ motion to
amend its infringement contentions. In the same Order, the Court granted Apple’s motion to strike DSS’ infringement expert
report. DSS filed a motion for leave to file a motion for reconsideration of the Court’s order denying DSS the right to amend its
infringement contentions and motion to strike DSS infringement expert report. On February 18, 2020, the Court denied DSS’s motion
for leave to file a motion for reconsideration. On February 24, 2020, the Court signed a Final Judgment stipulating that Apple was “entitled
to a judgment of non-infringement of U.S. Patent No. 6,128,290 as a matter of law.” On March 10, 2020, DSS filed an appeal of this
Final Judgment to the United States Court of Appeals for the Federal Circuit under DSS Technology Management v. Apple, Federal Circuit
Docket no. 2020-1570. On April 27, 2021, the Court of Appeals heard oral argument, and on April 30, 2021, the Court affirmed the District
Court’s judgment. After considering all factors the Company has elected to not pursue any further appeals on this matter. Case
is deemed closed.
The
Ronaldi Litigation
In
April 2019 DSS commenced an action in New York State Supreme Court, Monroe County, Index No. E2019003542, against Jeffrey Ronaldi, our
former Chief Executive Officer. This New York action seeks a declaratory judgment that, contrary to informal claims made by him, Mr.
Ronaldi’s employment agreement with us expired by its terms and that he is not entitled to any cash bonuses or other unpaid amounts.
The lawsuit also seeks an injunction against Mr. Ronaldi from interfering with any of DSS’ IP litigation. Mr. Ronaldi subsequently
commenced an action against DSS in the Superior Court of California, County of San Diego, on November 8, 2019, under case number 37-2019-00059664-CU-CO-CTL,
in which he alleged that DSS terminated his employment in April 2019 in order to avoid paying him certain employment-related amounts.
DSS was successful in dismissing the California case and consolidating it with the action pending in Monroe County, New York. Mr. Ronaldi
asserted counterclaims in the Monroe County, New York action similar to those he originally brought in California. Mr. Ronaldi claims
that his termination violated an alleged employment agreement or implied-in-fact employment agreement and that he should have remained
employed through 2019. Mr. Ronaldi seeks to recover: (i) $144,658 in wages from April 11, 2019 through December 31, 2019; (ii) $769 in
alleged unpaid based salary for time worked before April 11, 2019; (iii) $15,385 in alleged paid time off compensation; (iv) $3,077 in
alleged unpaid sick time compensation; (v) $26,077 in waiting-time penalties; (vi) $91,000 in unspecified expense reimbursement; (vii)
$300,000 in alleged cash bonuses ($100,000 per year) based on DSS’s performance in 2017, 2018 and 2019; and (viii) a $450,000 performance
bonus based on the result of certain alleged net proceeds from patent infringement litigation. He further claims an interest in any recovery
in DSS Technology Management v. Apple, Inc., Case No. 4:14-cf05330-HSG. The parties are now engaged in discovery.
Additionally,
on March 2, 2020, DSS and DSSTM filed a second litigation action against Jeffrey Ronaldi in the State of New York, Supreme Court, County
of Monroe, Document Security Systems, Inc. and DSS Technology Management, Inc. vs. Jeffrey Ronaldi, Index No.: 2020002300, alleging acts
of self-dealing and conflicts of interest while he served as CEO of both DSS and DSS TM. Mr. Ronaldi filed a Notice of Removal of this
civil litigation to the United States District Court for the Western District of New York where it was assigned Case No. 6:20-cv-06265-EAW.
Mr. Ronaldi filed a motion seeking to compel DSS to advance his legal fees to defend the action, which motion was fully briefed as of
June 30, 2020, and remains pending and undecided. On March 16, 2021, the Western District of New York granted Mr. Ronaldi’s motion
to have his defense costs advanced to him during the pendency of the action as they are incurred. On March 26, 2021, Mr. Ronaldi applied
to the court for reimbursement of $160,896 in legal fees. The Company has objected to the size of that bill as it was based on out-of-town
billing rates and the result of an excessive number of hours spent on litigation. The parties now engaged in discovery, awaiting a decision
on the Company’s objection to Mr. Ronaldi’s fee application. The parties engaged in court-ordered mediation on June 17, 2021,
but the matter did not resolve. Following mediation, the Company moved to stay the federal court action pending the outcome of the state
court action to avoid inconsistent rulings on common issues of law and fact. The motion to stay is pending. The Company intends to vigorously
defend its position.
Maiden
Biosciences Litigation
On
February 15, 2021, Maiden Biosciences, Inc. (“Maiden”) commenced an action against Document Security Stems, Inc. (“DSS”),
Decentralized Sharing Systems, Inc. (“Decentralized”), HWH World, Inc. (“HWH”), RBC Life International, Inc.,
RBC Life Sciences, Inc (“RBC”)., Frank D. Heuszel (“Heuszel”), 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 $800,000. 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 Decentralize’s subsequent Article
9 foreclosure or deed-in-lieu debt conveyances. In the instant lawsuit, Maiden asserts claims against Defendants for unjust enrichment,
fraudulent transfer under the Texas Uniform Fraudulent Transfer Act, and violation of the Racketeer Influenced and Corrupt Organizations
Act. Maiden also seeks 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
seeks to recover from Defendants: (1) treble damages or, alternatively, damages in the amount of their underlying judgment plus the other
creditors’ claims or the value of the assets transferred, whichever is less, plus punitive or exemplary damages; (2) pre and post-judgment
interest; and (3) attorneys’ fees and cost.
On
March 30, 2021, Defendants DSS, Decentralized, HWH, RBC Life International, Inc., 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, Inc. 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 Life International, Inc.,
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 Life International, Inc., and Heuszel, (2) the TUFTA claim against DSS, and (3) the unjust
enrichment claim against DSS and RBC Life International, Inc. Notably, the Court declined the request to dismiss the TUFTA claim against
RBC Life International, Inc. The Court granted Maiden leave to file an amended complaint. Maiden’s deadline to do so is Monday,
September 6, 2021. The Company intends to vigorously defend its position. On September 3, 2021, Maiden filed its amended complaint, asserting
a single cause of action against the DSS Defendants and RBC for an alleged TUFTA violation. Generally, Maiden is seeking the same relief
requested in its original complaint. Maiden, however, has 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. Further, the motion to dismiss
also seeks the dismissal of Maiden’s TUFTA claim against Heuszel. The DSS Defendants’ motion to dismiss the amended complaint
will be ripe for determination on or after October 22, 2021. Trial is currently set for December 5, 2022 on the Court’s two-week
docket.
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.
10.
Stockholders’ Equity
Sales
of Equity –
In
connection with the Share Exchange for Impact BioMedical described in Note 5, on August 18, 2020, the Company filed a Certificate of
Amendment of its Certificate of Incorporation (the “Certificate of Amendment”) to increase the number of authorized shares
of the Company, including 47,000 shares of Preferred Stock, with a par value of $0.02, of which 47,000 shares were designated Series
A Preferred Stock. The Certificate of Amendment, the form of which was previously disclosed in a Schedule 14A Definitive Proxy Statement
filed with the Securities and Exchange Commission on July 14, 2020. As described in Note 5, this transaction is a related party transaction.
Holders
of the Series A Preferred Stock have no voting rights, except as required by applicable law or regulation, and no dividends accrue or
are payable on the Series A Preferred Stock. The holders of Series A Preferred Stock are entitled to a liquidation preference at a liquidation
value of $1,000 per share aggregating to $46,868,000, and the Company has the right to redeem all or any portion of the then outstanding
shares of Series A Preferred Stock, pro rata among all holders, at a redemption price per share equal to such liquidation value per share.
The Series A Preferred Stock ranks senior to Common Stock and any other class of securities that is specifically designated as junior
to the Series A Preferred Stock with respect to rights on the distribution of assets on any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the Company, in respect of a liquidation preference equal to its par value of $1,000. A holder of Series
A Preferred Stock has the option to convert each share of Series A Preferred Stock into a number of common shares in the Company equal
to the $1,000 liquidation preference divided by a conversion price of $6.48 or 154.32 shares subject to a Beneficial Ownership Limitation
of 19.99%, as defined in the Share Exchange Agreement. Additionally, the Company has the option to require conversion of all outstanding
Series A Preferred Stock into common stock at any time, subject to the Beneficial Ownership Limitation discussed. In aggregate the Series
A Preferred Shares are convertible into 7,232,670 shares of the Company’s common stock at the date of issuance. The Company evaluated
the classification of the Series A Preferred Shares under the guidance enumerated in ASC 470, 480, and 815 and determined that based
on the features noted above the instruments are accounted for as permanent equity. On October 16, 2020, GBM converted 4,293 shares of
the Series A Convertible Preferred Stock into 662,500 shares of the Company’s common A Shares. On May 28, 2021, GBM converted 35,316
shares of the Series A Convertible Preferred Stock into 5,450,000 shares of the Company’s common A Shares. On June 21, 2021, GBM
converted 7,259 shares of the Series A Convertible Preferred Stock into 1,120,170 shares of the Company’s common A Shares.
On
January 19, 2021, the Company entered into an underwriting agreement, as amended by Amendment No. 1 effective as of January 19, 2021
(the “Jan. 2021 Underwriting Agreement”), with Aegis Capital Corp., as representative of the underwriters, which provided
for the issuance and sale by the Company and the purchase by the underwriters, in a firm commitment underwritten public offering (the
“Jan. 2021 Offering”), of 6,666,666 shares of the Company’s common stock, $0.02 par value per share. Subject to the
terms and conditions contained in the Jan. 2021 Underwriting Agreement, the shares were offered in a public offering at a price of $3.60
per share, less certain underwriting discounts and commissions. The Company also granted the underwriters a 45-day option to purchase
up to 1,000,000 additional shares of the Company’s common stock on the same terms and conditions for the purpose of covering any
over-allotments in connection with the Jan. 2021 Offering. This overallotment was exercised in full. The net offering proceeds to the
Company from the Jan. 2021 Offering are approximately $24.9 million, after deducting estimated underwriting discounts and commissions
and other estimated offering expenses
On
February 4, 2021, the Company entered into an underwriting agreement (the “Feb. 2021 Underwriting Agreement”) with Aegis
Capital Corp., as representative of the underwriters named therein, which provided for the issuance and sale by the Company and the purchase
by the underwriters, in a firm commitment underwritten public offering (the “Feb. 2021 Offering”), of 12,319,346 shares of
the Company’s common stock, $0.02 par value per share. Subject to the terms and conditions contained in the Feb. 2021 Underwriting
Agreement, the shares were sold at a public offering price of $2.80 per share, less certain underwriting discounts and commissions. The
Company also granted the underwriters a 45-day option to purchase up to 1,847,901 additional shares of the Company’s common stock
on the same terms and conditions for the purpose of covering any over-allotments in connection with the Feb. 2021 Offering, which over-allotment
option was exercised in full on February 9, 2021. The net offering proceeds to the Company from the Feb. 2021 Offering are approximately
$36.14 million, including the exercise of the underwriter’s over-allotment option, and after deducting estimated underwriting discounts
and commissions and other estimated offering expenses.
On
May 26, 2021, the Company entered into an underwriting agreement (the “May 2021 Underwriting Agreement”) with Aegis Capital
Corp., as representative of the underwriters named therein, which provided for the issuance and sale by the Company and the purchase
by the underwriters, in a firm commitment underwritten public offering (the “May 2021 Offering”), of 29,000,000 shares of
the Company’s common stock, $0.02 par value per share. Subject to the terms and conditions contained in the May 2021 Underwriting
Agreement, the shares were sold at a public offering price of $1.50 per share, less certain underwriting discounts and commissions. The
Company also granted the underwriters a 45-day option to purchase up to 4,350,000 additional shares of the Company’s common stock
on the same terms and conditions for the purpose of covering any over-allotments in connection with the May 2021 Offering, which over-allotment
option was exercised in full on June 16, 2021. The net offering proceeds to the Company from the May 2021 Offering are approximately
$45.75 million, including the exercise of the underwriter’s over-allotment option, and after deducting estimated underwriting discounts
and commissions and other estimated offering expenses.
On
September 3, 2021, DSS entered into a subscription agreement (the “AEI Subscription Agreement”) with AEI, which provided
for an investment of up to $15,000,000 by AEI into the Company in exchange of an aggregate of 12,156,000 shares of the Company’s
common stock, $0.02 par value per share. Subject to the terms and conditions contained in the AEI Subscription Agreement, the shares
were issued at a purchase price of $1.234 per share. Prior to this transaction, AEI indirectly held a significant investment in the Company
through majority-owned subsidiaries. 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.
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 three and nine months ended
September 30, 2021, the Company’s stock compensation approximated $13,000 and $42,000, respectively or less than $.01 basic and
diluted loss per share.
On
June 4, 2020, the Company entered into an agreement with an investor relations firm to provide services over a 14-month period in exchange
for 21,000 shares of common stock. The shares were issued on the date of the agreement and were valued by the Company at $210,000. The
value assigned to the shares is included in other assets on the accompanying consolidated balance sheets and will be expensed into marketing
expense as it is earned. For the three- and nine-month period ending September 30, 2021, the Company recognized $15,000 and $105,000 respectively.
11.
Discontinued Operations
On
August 14, 2020, the Company entered into a final Asset Purchase Agreement and the Company terminated its production and office personnel
and maintained only a few employees to assist in and facilitate the sale of its assets. The financial results for these subsidiaries
have been presented as discontinued operations in the accompanying consolidated financial statements.
The
consideration paid to the Company under the Asset Purchase Agreement for the sale of the assets included a one-time cash payment of $683,000
and an additional contingent earn-out payment
of an aggregate amount of up to $517,000
based on future quarterly gross revenue of the
business to be conducted by the buyer with the sold assets. Consistent with the Company’s policy for accounting for gain contingencies,
the earn out will be recorded when determined realizable. As of September 30, 2021, the Company has recognized $390,000
of this earn out, all of which was recognized
during the year ended December 31, 2020. The net effect of all assets disposed of resulted in a net loss of $111,000
to the third quarter 2020. These amounts are
included in Loss from Discontinued Operations. Included in its Right-of-use assets is the lease of the Company’s facility in Brisbane,
Ca. In April 2021, the Company terminated this lease with the landlord effective March 31, 2021, and therefore, wrote off the asset and
corresponding liability associated with the lease at March 31, 2021. As of December 31, 2020, $744,000
was record as non-current asset held for sale
– discontinued operations on the consolidated balance sheet. Also recorded was $240,000
of current liabilities held for sale –
discontinued operations and $505,000
of non-current liabilities held for sale –
discontinued operations. The Company has incurred $204,000 of cost associated with wind-down activities for the nine-months ended
September 30, 2021.
The
following table shows the results of operations of the discontinued operation.
Schedule of Discontinued Operations
Plastic
Printing Professionals, Inc.
Consolidated
Statements of Operations and Comprehensive Loss - Discontinued Operations
(unaudited)
|
|
For the Three Months Ended
|
|
|
For the Nine
Months Ended
|
|
|
|
September 30, 2020
|
|
|
September 30, 2020
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
Printed products
|
|
$
|
243,000
|
|
|
$
|
1,626,000
|
|
Total revenue
|
|
|
243,000
|
|
|
|
1,626,000
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Cost of revenue, exclusive of depreciation and amortization
|
|
|
382,000
|
|
|
|
1,644,000
|
|
Selling, general and administrative (including stock-based compensation)
|
|
|
130,000
|
|
|
|
715,000
|
|
Depreciation and amortization
|
|
|
37,000
|
|
|
|
152,000
|
|
Impairment of goodwill
|
|
|
-
|
|
|
|
685,000
|
|
Total costs and expenses
|
|
|
549,000
|
|
|
|
3,196,000
|
|
Operating loss
|
|
|
(306,000
|
)
|
|
|
(1,570,000
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(7,000
|
)
|
|
|
(21,000
|
)
|
Loss on sale of assets held for sale
|
|
|
(111,000
|
)
|
|
|
(111,000
|
)
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
-
|
|
|
|
-
|
|
Income (loss) from discontinued operations
|
|
|
(424,000
|
)
|
|
|
(1,702,000
|
)
|
On
May 7, 2021, the Company completed the sale of 100% of the capital stock of DSS Digital Inc., the Company’s wholly-owned subsidiary
(“DSS Digital”), to Proof Authentication Corporation (the “Buyer”) pursuant to a stock purchase agreement (the
“Digital Purchase Agreement”). Pursuant to the terms of the Digital Purchase Agreement, the Buyer purchased DSS Digital for
a purchase price of $5,000,000, consisting of $3 million in cash; $1.5 million in potential earn-out if certain performance targets are
met during an earn-out period commencing on the one-year anniversary of the closing and ending the day before the six-year of the closing;
and $0.5 million in trade credit or license fee rebates. Consistent with the Company’s policy for accounting for gain contingencies,
the earn out will be recorded when determined realizable which did not occur during the three- and nine-months ended September 30, 2021.
Also, the Company has not utilized the $0.5 million trade credit as of September 30, 2021. The net effect of sale of DSS Digital, inclusive
of income tax, is a net gain of $2,226,000. This amount is included in Income (loss) from Discontinued Operations on the accompanying
consolidated statement of operations.
The
following tables show the major classes of assets and liabilities held for sale and results of operations of the discontinued operation.
Schedule of Assets and Liabilities Held for Sale
DSS
Digital, Inc.
Consolidated
Balance Sheets - Assets and Liabilities Held for Sale
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
unaudited
|
|
|
unaudited
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
-
|
|
|
$
|
43,000
|
|
Accounts receivable, net
|
|
|
-
|
|
|
|
321,000
|
|
Prepaid expenses and other current assets
|
|
|
-
|
|
|
|
167,000
|
|
Total current assets
|
|
|
-
|
|
|
|
531,000
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
-
|
|
|
|
46,000
|
|
Total assets
|
|
|
-
|
|
|
|
577,000
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
-
|
|
|
$
|
25,000
|
|
Accrued expenses and deferred revenue
|
|
|
-
|
|
|
|
9,000
|
|
Total current liabilities
|
|
|
-
|
|
|
|
34,000
|
|
DSS
Digital, Inc.
Consolidated
Statements of Operations - Discontinued Operations
(unaudited)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
For the Three Months Ended
|
|
|
For the Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology sales, services and licensing
|
|
$
|
-
|
|
|
$
|
483,000
|
|
|
$
|
535,000
|
|
|
$
|
1,315,000
|
|
Total revenue
|
|
|
-
|
|
|
|
483,000
|
|
|
|
535,000
|
|
|
|
1,315,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue, exclusive of depreciation and amortization
|
|
|
-
|
|
|
|
70,000
|
|
|
|
87,000
|
|
|
|
209,000
|
|
Selling, general and administrative (including stock-based compensation)
|
|
|
-
|
|
|
|
226,000
|
|
|
|
338,000
|
|
|
|
835,000
|
|
Depreciation and amortization
|
|
|
-
|
|
|
|
4,000
|
|
|
|
5,000
|
|
|
|
12,000
|
|
Total costs and expenses
|
|
|
-
|
|
|
|
300,000
|
|
|
|
430,000
|
|
|
|
1,056,000
|
|
Operating income
|
|
|
-
|
|
|
|
183,000
|
|
|
|
105,000
|
|
|
|
259,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Income from discontinued operations
|
|
$
|
-
|
|
|
$
|
183,000
|
|
|
$
|
105,000
|
|
|
$
|
259,000
|
|
12.
Income Taxes
Our
effective tax rate for the nine-months ended September 30, 2021, was 17.3%
on continuing operations. There was no tax provision for September 30, 2020, due to the expected tax benefit from net operating
losses (NOLs) being fully offset by an increase in the valuation allowance. The Company also recorded a discrete tax expense in
the nine-month period ended September 30, 2021, of $83,000
related to the sale of DSS Digital which is included in discontinued operations. This
discrete item relates to the tax effect of the GAAP over tax basis of a subsidiary that was sold in the nine-month period ended
September 30, 2021. This discrete tax expense is included in the total tax provision of $596,000
which is in discontinued operations.
As
of December 31, 2020, the Company has domestic net operating loss (“NOL”) carryforwards of approximately $56.7 million. The
utilization of these NOLs is limited under Sec. 382 of the Internal Revenue Code. A valuation allowance has been recorded to reduce the
deferred tax asset to the expected realizable amount, leaving $2.1 million available for use.
As
of September 30, 2021, no benefit for losses incurred by our foreign subsidiaries have been recorded as those losses are not anticipated
to provide any tax benefits in future periods.
There
were no unrecognized tax benefits related to uncertain tax positions at September 30, 2021 and December 31, 2020.
As
a result of our operations, we file income tax returns in various jurisdictions including U.S. federal, U.S. state and foreign jurisdictions.
We are routinely subject to examination by taxing authorities in these various jurisdictions. At September 30, 2021, there are no ongoing
income tax audits.
13.
Supplemental Cash Flow Information
The
following table summarizes supplemental cash flows for the nine-months ended September 30, 2021, and 2020:
Schedule of Supplemental Cash Flow Information
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
139,000
|
|
|
$
|
73,000
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Termination of right of use lease asset
|
|
$
|
(744,000
|
)
|
|
$
|
-
|
|
Termination of right of use lease liability
|
|
$
|
744,000
|
|
|
$
|
-
|
|
Shares received for loan origination fee
|
|
$
|
(3,000,000
|
)
|
|
$
|
-
|
|
Shares received for prepaid loan interest
|
|
$
|
(2,440,000
|
)
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred Shares issued for Impact BioMedical
|
|
$
|
-
|
|
|
$
|
35,187,000
|
|
Common Shares issued for Impact Biomedical
|
|
$
|
-
|
|
|
$
|
3,132,000
|
|
Long-lived assets acquired through settlement of notes receivable
|
|
$
|
-
|
|
|
$
|
838,000
|
|
Acquisition of APB net assets
|
|
$
|
38,765,000
|
|
|
|
-
|
|
Shares issued for marketing services
|
|
$
|
-
|
|
|
$
|
210,000
|
|
14.
Segment Information
The
Company’s nine businesses lines are organized, managed and internally reported as five operating
segments. One of these operating segments, Premier Packaging, is the Company’s packaging and printing group. Premier 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, BioHealth Group,
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. The BioHealth Group is also targeting unmet, urgent medical needs. A third operating segment, Securities and Fintech
Group (“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 Marketing/Online Sales Group, 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, Investment Banking, is organized for the purposes of
being a financial network holding company, focused providing commercial loans and on acquiring equity positions in (i) undervalued
commercial bank(s), bank holding companies and nonbanking licensed financial companies operating in the United States, South East
Asia, Taiwan, Japan and South Korea, and (ii) companies engaged in—nonbanking activities closely related to banking, including
loan syndication services, mortgage banking, trust and escrow services, banking technology, loan servicing, equipment leasing,
problem asset management, SPAC (special purpose acquisition company) consulting, and advisory capital raising services. From this
financial platform, the Company shall provide an integrated suite of financial services for businesses that shall include commercial
business lines of credit, land development financing, inventory financing, third party loan servicing, and services that address the
financial needs of the world Gig Economy.
Our
segment structure presented below represents a change from the prior year for the inclusion of our BioHealth Group, Securities, and
Investment Banking 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 three-
and nine-months ended September 30, 2021 and 2020, as necessary, below for reconciliation purposes.
Approximate
information concerning the Company’s operations by reportable segment for the three and nine months ended September 30, 2021, and
2020 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
Three Months Ended
September 30, 2021
|
|
Packaging and Printing
|
|
Investment Banking
|
|
|
Direct Marketing
|
|
|
Biohealth Group
|
|
|
Securities
|
|
|
Corporate
|
|
|
Total
|
|
Revenue
|
|
$
|
3,416,000
|
|
$
|
-
|
|
|
$
|
966,000
|
|
|
$
|
-
|
|
|
$
|
184,000
|
|
|
$
|
-
|
|
|
$
|
4,566,000
|
|
Depreciation and amortization
|
|
|
152,000
|
|
|
-
|
|
|
|
100,000
|
|
|
|
278,000
|
|
|
|
135,000
|
|
|
|
74,000
|
|
|
|
739,000
|
|
Interest expense
|
|
|
11,000
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,000
|
|
|
|
(17,000
|
)
|
|
|
31,000
|
|
Stock based compensation
|
|
|
1,000
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,000
|
|
|
|
13,000
|
|
Net income (loss) from continuing operations
|
|
|
358,000
|
|
|
64,000
|
|
|
|
(1,304,000
|
)
|
|
|
(647,000
|
)
|
|
|
(835,000
|
)
|
|
|
(4,311,000
|
)
|
|
|
(6,675,000
|
)
|
Capital expenditures
|
|
|
1,399,000
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
186,000
|
|
|
|
55,000
|
|
|
|
1,640,000
|
|
Identifiable assets
|
|
|
24,752,000
|
|
|
60,388,000
|
|
|
|
43,695,000
|
|
|
|
55,848,000
|
|
|
|
11,376,000
|
|
|
|
23,017,000
|
|
|
|
219,076,000
|
|
Three Months Ended
September 30,2020
|
|
Packaging and Printing
|
|
|
Direct Marketing
|
|
|
Biohealth Group
|
|
|
Securities
|
|
|
Corporate
|
|
|
Total
|
|
Revenue
|
|
$
|
2,971,000
|
|
|
$
|
715,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,686,000
|
|
Depreciation and amortization
|
|
|
165,000
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
78,000
|
|
|
|
244,000
|
|
Interest expense
|
|
|
24,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,000
|
|
|
|
29,000
|
|
Stock based compensation
|
|
|
3,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
125,000
|
|
|
|
128,000
|
|
Net income (loss) from continuing operations
|
|
|
136,000
|
|
|
|
(1,139,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
6,185,000
|
|
|
|
5,182,000
|
|
Capital expenditures
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000
|
|
Identifiable assets
|
|
|
10,013,000
|
|
|
|
1,809,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
68,305,000
|
|
|
|
80,127,000
|
|
Nine Months Ended
September 30, 2021
|
|
Packaging and Printing
|
|
Investment Banking
|
|
|
Direct Marketing
|
|
|
Biohealth Group
|
|
|
Securities
|
|
|
Corporate
|
|
|
Total
|
|
Revenue
|
|
$
|
10,652,000
|
|
$
|
-
|
|
|
$
|
2,382,000
|
|
|
$
|
-
|
|
|
$
|
184,000
|
|
|
$
|
-
|
|
|
$
|
13,218,000
|
|
Depreciation and amortization
|
|
|
459,000
|
|
|
-
|
|
|
|
419,000
|
|
|
|
835,000
|
|
|
|
134,000
|
|
|
|
228,000
|
|
|
|
2,075,000
|
|
Interest expense
|
|
|
49,000
|
|
|
-
|
|
|
|
2,000
|
|
|
|
1,000
|
|
|
|
87,000
|
|
|
|
18,000
|
|
|
|
157,000
|
|
Stock based compensation
|
|
|
2,000
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,000
|
|
|
|
42,000
|
|
Net income (loss) from continuing operations
|
|
|
641,000
|
|
|
64,000
|
|
|
|
(9,088,000
|
)
|
|
|
(1,955,000
|
)
|
|
|
(1,066,000
|
)
|
|
|
(10,058,000
|
)
|
|
|
(21,462,000
|
)
|
Capital expenditures
|
|
|
2,621,000
|
|
|
-
|
|
|
|
6,000
|
|
|
|
-
|
|
|
|
6,750,000
|
|
|
|
4,000
|
|
|
|
9,381,000
|
|
Identifiable assets
|
|
|
24,752,000
|
|
|
60,388,000
|
|
|
|
43,695,000
|
|
|
|
55,848,000
|
|
|
|
11,376,000
|
|
|
|
23,017,000
|
|
|
|
219,076,000
|
|
Nine Months Ended
September 30,2020
|
|
Packaging and Printing
|
|
|
Direct Marketing
|
|
|
Biohealth Group
|
|
|
|
Securities
|
|
|
Corporate
|
|
|
Total
|
|
Revenue
|
|
$
|
8,409,000
|
|
|
$
|
1,793,000
|
|
|
$
|
-
|
|
$
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
10,202,000
|
|
Depreciation and amortization
|
|
|
584,000
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
227,000
|
|
|
|
812,000
|
|
Interest expense
|
|
|
79,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
23,000
|
|
|
|
102,000
|
|
Stock based compensation
|
|
|
11,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
170,000
|
|
|
|
181,000
|
|
Net income (loss) from continuing operations
|
|
|
222,000
|
|
|
|
(960,000
|
)
|
|
|
-
|
|
|
|
|
-
|
|
|
|
4,249,000
|
|
|
|
3,511,000
|
|
Capital expenditures
|
|
|
91,000
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
1,000
|
|
|
|
93,000
|
|
Identifiable assets
|
|
|
10,013,000
|
|
|
|
1,809,000
|
|
|
|
-
|
|
|
|
|
-
|
|
|
|
68,305,000
|
|
|
|
80,127,000
|
|
The
following tables disaggregate our business segment revenues by major source:
Schedule of Disaggregation of Revenue
Printed Products Revenue Information:
Three months ended September 30, 2021
|
|
|
|
Packaging Printing and Fabrication
|
|
$
|
3,373,000
|
|
Commercial and Security Printing
|
|
|
43,000
|
|
Total Printed Products
|
|
$
|
3,416,000
|
|
Three months ended September 30, 2020
|
|
|
|
Packaging Printing and Fabrication
|
|
$
|
2,568,000
|
|
Commercial and Security Printing
|
|
|
403,000
|
|
Total Printed Products
|
|
$
|
2,971,000
|
|
Nine months ended September 30, 2021
|
|
|
|
Packaging Printing and Fabrication
|
|
$
|
10,428,000
|
|
Commercial and Security Printing
|
|
|
224,000
|
|
Total Printed Products
|
|
$
|
10,652,000
|
|
Nine months ended September 30, 2020
|
|
|
|
Packaging Printing and Fabrication
|
|
$
|
7,635,000
|
|
Commercial and Security Printing
|
|
|
774,000
|
|
Total Printed Products
|
|
$
|
8,409,000
|
|
Direct Marketing
Three months ended September 30, 2021
|
|
|
|
Direct Marketing Internet Sales
|
|
$
|
966,000
|
|
Total Direct Marketing
|
|
$
|
966,000
|
|
Three months ended September 30, 2020
|
|
|
|
Direct Marketing Internet Sales
|
|
$
|
715,000
|
|
Total Direct Marketing
|
|
$
|
715,000
|
|
Nine months ended September 30, 2021
|
|
|
|
Direct Marketing Internet Sales
|
|
$
|
2,382,000
|
|
Total Direct Marketing
|
|
$
|
2,382,000
|
|
Nine months ended September 30, 2020
|
|
|
|
Direct Marketing Internet Sales
|
|
$
|
1,793,000
|
|
Total Direct Marketing
|
|
$
|
1,793,000
|
|
Securities
Three months ended September 30, 2021
|
|
|
|
Rental Income
|
|
$
|
184,000
|
|
Total Rental Income
|
|
$
|
184,000
|
|
Three months ended September 30, 2020
|
|
|
|
|
Rental Income
|
|
$
|
-
|
|
Total Rental Income
|
|
$
|
-
|
|
Nine months ended September 30, 2021
|
|
|
|
Rental Income
|
|
$
|
184,000
|
|
Total Rental Income
|
|
$
|
184,000
|
|
Nine months ended September 30, 2020
|
|
|
|
|
Rental Income
|
|
$
|
-
|
|
Total Rental Income
|
|
$
|
-
|
|
15.
Subsequent Events
On
October 13, 2021, DFMI entered into a loan agreement with LVAM, whereby DFMI would lend to LVAM a principal sum not to exceed $3,000,000 with
interest charged at a variable rate and maturing on October
12, 2022, with an auto renewal period
of three months.
On
November 4, 2021, AMRE acquired three medical facilities located in Fort Worth, Texas, Plano, Texas, and Pittsburgh, Pennsylvania
for a purchase price of $62,000,000.
These facilities are tenanted and operated by LifeCare Hospitals, a specialty hospital operator with a focus on long-term acute and
critical care. The
medical facilities acquired by AMRE are currently under an 18-year
lease with eleven
years remaining and an option to renew for an additional five years. These facilities have a total capacity of 195
hospital beds spanning a gross floor area of approximately 320,000
square feet. The purchase price was funded through multiple borrowing facilities, including $13,940,000
in the form of a convertible promissory note from APB, a related party, and $8,350,000
from Alset International Limited. The terms under the convertible promissory note with APB, includes interest on the outstanding
balance at a rate of eight percent (8.00%) per annum and is to be payable in cash quarterly in arrears commencing on the 29th day of
January 2022, and continue on the 29th day of each April, July, October and January thereafter through maturity. AMRE may prepay or
repay all or any portion of the note in cash upon thirty (30) days written notice to the Company, without premium or penalty. At the
option of the Company, the unpaid principal and interest balance on the note may be converted, in whole or in part, at any time on
or before the maturity date, into fully-paid and non-assessable shares of common stock par value $0.001 per share of common stock of
AMRE at a conversion rate equal to $10.00 per share. These
facilities have varying maturity dates through November 2023.