NOTES
TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2023
(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) Product Packaging, (2) Biotechnology, (3) Direct Marketing, (4) Commercial Lending, (5) Securities and Investment
Management, (6) Alternative Trading (7) Digital Transformation, (8) Secure Living, and (9) Alternative Energy. Each of these business
lines are in different stages of development, growth, and income generation.
Our
divisions, their business lines, subsidiaries, and operating territories: (1) Our Product Packaging line is led by Premier Packaging
Corporation, Inc. (“Premier”), a New York corporation. Premier operates in the paper board and fiber based folding carton,
consumer product packaging, and document security printing markets. It markets, manufactures, and sells sophisticated custom folding
cartons, mailers, photo sleeves and complex 3-dimensional direct mail solutions. Premier is currently located in its new facility in
Rochester, NY, and primarily serves the US market. (2) The Biotechnology business line was created to invest in or acquire companies
in the BioHealth and BioMedical fields, including businesses focused on the advancement of drug discovery and prevention, inhibition,
and treatment of neurological, oncological, and immune related diseases. This division is also targeting unmet, urgent medical needs,
and is developing open-air defense initiatives, which curb transmission of air-borne infectious diseases, such as tuberculosis and influenza.
(3) Direct Marketing, led by the holding corporation, Decentralized Sharing Systems, Inc. (“Decentralized”) provides services
to assist companies in the emerging growth “Gig” business model of peer-to-peer decentralized sharing marketplaces. Direct
specializes in marketing and distributing its products and services through its subsidiary and partner network, using the popular gig
economic marketing strategy as a form of direct marketing. Direct Marketing’s products include, among other things, nutritional
and personal care products sold throughout North America, Asia Pacific, Middle East, and Eastern Europe. (4) Our Commercial Lending business
division, driven by American Pacific Bancorp (“APB”), is organized for the purposes of being a financial network holding
company, focused on acquiring equity positions in (i) undervalued commercial bank(s), bank holding companies and nonbanking licensed
financial companies operating in the United States, South East Asia, Taiwan, Japan and South Korea, and (ii) companies engaged in—nonbanking
activities closely related to banking, including loan syndication services, mortgage banking, trust and escrow services, banking technology,
loan servicing, equipment leasing, problem asset management, SPAC (special purpose acquisition company) consulting services, and advisory
capital raising services. (5) Securities and Investment Management was established to develop and/or acquire assets in the securities
trading or management arena, and to pursue, among other product and service lines, broker dealers, and mutual funds management. Also
in this segment is the Company’s real estate investment trusts (“REIT”), organized for the purposes of acquiring hospitals
and other acute or post-acute care centers from leading clinical operators with dominant market share in secondary and tertiary markets,
and leasing each property to a single operator under a triple-net lease. the REIT was formed to originate, acquire, and lease a credit-centric
portfolio of licensed medical real estate. (6) Alternative Trading was established to develop and/or acquire assets and investments in
the securities trading and/or funds management arena. Alternative Trading, in partnership with recognized global leaders in alternative
trading systems, intends to own and operate in the US a single or multiple vertical digital asset exchanges for securities, tokenized
assets, utility tokens, and cryptocurrency via an alternative trading platform using blockchain technology. The scope of services within
this section is planned to include asset issuance and allocation (securities and cryptocurrency), FPO, IPO, ITO, PPO, and UTO listings
on a primary market(s), asset digitization/tokenization (securities, currency, and cryptocurrency), and the listing and trading of digital
assets (securities and cryptocurrency) on a secondary market(s). (7) Digital Transformation was established to be a Preferred Technology
Partner and Application Development Solution for mid cap brands in various industries including the direct selling and affiliate marketing
sector. Digital improves marketing, communications and operations processes with custom software development and implementation. (8)
The Secure Living division has developed a plan for fully sustainable, secure, connected, and healthy living communities with homes incorporating
advanced technology, energy efficiency, and quality of life living environments both for new construction and renovations for single
and multi-family residential housing. (9) The Alternative Energy group was established to help lead the Company’s future in the
clean energy business that focuses on environmentally responsible and sustainable measures. Alset Energy, Inc, the holding company for
this group, and its wholly owned subsidiary, Alset Solar, Inc., pursue utility-scale solar farms to serve US regional power grids and
to provide underutilized properties with small microgrids for independent energy.
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 between its subsidiary, DSS Financial Management, Inc. (“DFMI”)
and HR1 Holdings Limited (“HR1”), a company incorporated in the British Virgin Islands, for the purpose of operating a vehicle
for private and institutional investors seeking a highly liquid investment fund with attractive risk adjusted returns relative to market
unpredictability and volatility. Under the terms of this agreement, 4000 shares or 40% of the Company’s subsidiary Liquid Asset
Limited Management Limited (“LVAM”), a Hong Kong company was transferred to HR1 whereas at the conclusion of the transaction
DFMI would own 60% of LVAM and HR1 would own 40%. LVAM executes within reliable platforms and broad market access and uses proprietary
systems and algorithms to trade liquid exchange-traded funds (ETFs), stocks, futures or crypto. Aimed at providing consistent returns
while offering the unique ability to liquidate the portfolio within 5 to 10 minutes under normal market conditions, LVAM provides an
array of advanced tools and products enabling customers to explore multiple opportunities, strengthen and diversify their portfolios,
and meet their individual investing goals.
On
December 23, 2021, DSS purchased 50,000,000 shares at $0.06 per share of Sharing Services Global Corporation (“SHRG”) via
a private placement. With this purchase, DSS increased its ownership of voting shares from approximately 47% of SHRG to approximately
58%. SHRG aims to build shareholder value by developing or acquiring businesses that increase the Company’s product and services
portfolio, business competencies and geographic reach. Currently, the Company, through its subsidiaries, markets and distributes its
health and wellness and other products primarily in the United States, Canada, and the Asia Pacific region using a direct selling business
model. SHRG markets its products and services through its independent sales force, using its proprietary websites, including: www.elevacity.com
and www.thehappyco.com. SHRG, headquartered in Plano, Texas, was incorporated in the State of Nevada on April 24, 2015, and is an emerging
growth company. SHRG Common Stock is traded, under the symbol “SHRG,” in the OTCQB Market, an over-the-counter trading platforms
market operated by OTC Markets Group Inc.
On
May 13, 2021, Sentinel Brokers, LLC. (“Sentinel LLC”), subsidiary of the Company entered into a stock purchase agreement
(“Sentinel Agreement”) to acquire a 24.9% equity position of Sentinel Brokers Company, Inc. (“Sentinel Co.”),
a company registered in the state of New York, and in December 2022, Sentinel LLC exercised this option to increase its equity position
to 75%. Sentinel is a broker-dealer operating primarily as a fiduciary intermediary, facilitating intuitional trading of municipal and
corporate bonds as well as preferred stock, and is registered with the Securities and Exchange Commission, is a member of the Financial
Industry Regulatory Authority, Inc. (“FINRA”), and is a member of the Securities Investor Protection Corporation (“SIPC”).
On
January 24, 2022, DSS entered into a business consulting agreement with Sharing Services Global Corporation (“SHRG”). As
part of this agreement, 50,000,000 warrants were exercised, which increased the Company’s ownership of SHRG to approximately 65%.
On
February 28, 2022, DSS entered into an Amendment to Stock Purchase Agreement (the “Amendment”) with its shareholder Alset
EHome International Inc. (“AEI”), pursuant to which the Company and AEI have agreed to amend certain terms of the Stock Purchase
Agreement dated January 25, 2022 (the “SPA”). Pursuant to the SPA, AEI had agreed to purchase up to 44,619,423 shares of
the Company’s common stock for a purchase price of $0.3810 per share, for an aggregate purchase price of $17,000,000. Pursuant
to the Amendment, the number of shares of the common stock of the Company that the AEI will purchase has been reduced to 3,986,877 shares
for an aggregate purchase price of $1,519,000. This transaction was completed on March 9, 2022. In addition, the Company’s Executive
Chairman and a significant stockholder, Heng Fai Ambrose Chan, is the Chairman, Chief Executive Officer and largest shareholder of AEI.
On
May 17, 2022, the shareholders of the Company approved the issuance of up to 21,366,177
Shares of our Common Stock to Alset International, a related party, to purchase the Convertible Promissory Note issued by American
Medical REIT, Inc. with a principal amount of $8,350,000
and accrued but unpaid interest of $367,000
through May 15, 2022. This transaction was finalized in July 2022.
On
May 17, 2022, the shareholders of the Company approved the acquisition of 62,122,908 shares of True Partners Capital Holdings Limited
(“True Partners”), a company publicly traded on the Hong Kong stock exchange in exchange for 17,570,948 shares of DSS stock.
The True Partner shares were acquired from Alset EHome International, Inc. (“Alset EHome”), a related party. Mr. Heng Fai
Ambrose Chan, our director and Executive Chairman, is also Chairman of the Board, Chief Executive Officer, and the largest beneficial
owner of the outstanding shares of Alset EHome. This transaction was completed with the transfer of DSS share to Alset EHome on July
1, 2022 with the issuance of DSS shares, which were valued at $0.34 per share, to Alset EHome.
The
accompanying condensed consolidated financial statements contain all adjustments (consisting of normal recurring adjustments) necessary
to present fairly our consolidated financial position as of March 31, 2023 and December 31, 2022, and the results of our consolidated
operations for the interim periods presented. We follow the same accounting policies when preparing quarterly financial data as we use
for preparing annual data. These statements should be read in conjunction with the consolidated financial statements and the notes included
in our latest annual report on Form 10-K for the fiscal year ended December 31, 2022 (“Form 10-K”), and our other reports
on file with the Securities and Exchange Commission (the “SEC”).
Principles
of Consolidation - The consolidated financial statements include the accounts of DSS, 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 -
For the three months ended March 31, 2022, $577,000 of was reclassified from Interest expense, to Cost of revenue
on the consolidated income statements to conform to current period presentation.
Cash
Equivalents – All highly liquid investments with maturities of three months or less at the date of purchase are classified
as cash equivalents. Amounts included in cash equivalents in the accompanying consolidated balance sheets are money market funds whose
adjusted costs approximate fair value.
Accounts
Receivable – The Company extends credit to its customers in the normal course of business. The Company performs
ongoing credit evaluations and generally do 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. As of March 31, 2023, the Company established a reserve for doubtful accounts of approximately $29,000
($29,000 –
December 31, 2022). The Company does not accrue interest on past due accounts receivable.
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.
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 consolidated balance sheet of cash and cash equivalents, accounts receivable, prepaids, accounts payable
and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. Marketable
securities classify as a Level 1 fair value financial instrument. The fair value of notes receivable approximates their carrying value
as the stated or discounted rates of the notes do not reflect recent market conditions. The fair value of revolving credit lines notes
payable and long-term debt approximates their carrying value as the stated or discounted rates of the debt reflect recent market conditions.
The fair value of investments where the fair value is not considered readily determinable, are carried at cost.
Inventory
– Inventories consist primarily of paper, pre-printed security paper, paperboard, fully prepared packaging, air filtration
systems, and health and beauty products which and are stated at the lower of cost or net realizable value on the first-in, first-out
(“FIFO”) method. Packaging work-in- process and finished goods included the cost of materials, direct labor and overhead.
At the closing of each reporting period, the Company evaluates its inventory in order to adjust the inventory balance for obsolete and
slow-moving items. An allowance for obsolescence of approximately $57,000 and $742,000 associated with the inventory at our SHRG subsidiary
was recorded as of March 31, 2023, and December 31, 2022, respectively. Write- downs and write-offs are charged to cost of revenue.
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.
Business
Combinations - Business combinations and non-controlling interests are recorded in accordance with FASB ASC 805 Business Combinations.
Under the guidance, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition
and all acquisition costs are expensed as incurred. The excess of the purchase price over the estimated fair values is recorded as goodwill.
If the fair value of the assets acquired exceeds the purchase price and the liabilities assumed, then a gain on acquisition is recorded.
The application of business combination accounting requires the use of significant estimates and assumptions.
(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. For the three months ended March 31, 2023, potential dilutive instruments included
warrants of 5,000
and for the three months ended March 31, 2022
potential dilutive instruments included both warrants and options of 3,556 and 11,930.
Concentration
of Credit Risk - The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured
limits. The Company believes it is not exposed to any significant credit risk because of any non-performance by the financial institutions.
As
of December 31, 2022, two customers accounted for approximately 14% and 6% of our consolidated revenue and these two customers accounted
for approximately 36% and 17% of our consolidated trade accounts receivable balance.
As
of March 31, 2023, one customer accounted for approximately 23%
of our consolidated revenue and 47%
of our 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.
Allowance
For Loans And Lease Losses - On January 1, 2023, the Company adopted amended accounting guidance “ASU No.2016-13 –
Credit Losses” which requires an allowance for credit losses to be deducted from the amortized cost basis of financial assets
to present the net carrying value at the amount that is expected to be collected over the contractual term of the asset considering relevant
information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported
amount. In estimating expected losses in the loan and lease portfolio, borrower-specific financial data and macro-economic assumptions
are utilized to project losses over a reasonable and supportable forecast period. Assumptions and judgment are applied to measure amounts
and timing of expected future cash flows, collateral values and other factors used to determine the borrowers’ abilities to repay
obligations. After the forecast period, the company utilizes longer-term historical loss experience to estimate losses over the remaining
contractual life of the loans. Prior to 2023, the allowance for credit losses represented the amount that in management’s judgment
reflected incurred credit losses inherent in the loan and lease portfolio as of the balance sheet date.
Going Concern - The accompanying consolidated financial statements have been prepared assuming that the Company
will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities
in the normal course of business. These consolidated financial statements do not include any adjustments to the specific amounts and
classifications of assets and liabilities, which might be necessary should we be unable to continue as a going concern. While the Company
has approximately $13.7 million in cash, the Company has incurred operating losses as well as negative cash flows from operating and
investing activities over the past two years.
Aside
from its $13.7
million in cash as of March 31, 2023, the Company believes it can continue as a going concern, due to its ability to generate
operating cash through the sale of its $13.4
million of Marketable Securities, and the anticipated receipts of principal and interest on its Notes receivable of approximately
$12
million through March 31, 2024. Also, our subsidiary Impact BioMedical is in the process of an IPO in which DSS projects to maintain
a minimum of 55%
ownership. Initial conversations with underwriters are providing an estimate of $30
- $50
million potential capital raise. This is expected to close early 3rd quarter 2023. SHRG is in the process of up
listing to NASDQ and conversations with the underwriter involved illustrate an approximate raise of $15
million dollars. A significant portion of the funds raised from this up listing will be used to repay loans SHRG owes to DSS.
Additionally, we are in negotiations with Pinnacle Bank to extend our note payable, approximating $40.2 million
through November 2024.
The
Company’s management intends to take actions necessary to continue as a going concern. Management’s plans concerning these
matters include, among other things, continued growth among our operating segments, and tightly controlling operating costs and reducing
spending growth rates wherever possible to return to profitability. In addition, the Company has taken steps, and will continue to take
measures, to materially reduce the expenses and cash burn at all corporate and business line levels.
At
the Company’s current operating levels and capital usage, we believe that without any further acquisition or investments, our $13.7
million in aggregate cash, as of March 31, 2023, along with the $13.4 million of Marketable Securities, and the anticipated receipts
of principal and interest on its Notes receivable of approximately $12 million through March 2024, would allow us to fund our nine business
lines current and planned operations through March 2024. Based on this, the Company has concluded that substantial doubt of its ability
to continue as a going concern has been alleviated.
2.
Revenue
The
Company recognizes its products and services revenue based on when the title passes to the customer or when the service is completed
and accepted by the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for shipped
product or service provided. Sales and other taxes billed and collected from customers are excluded from revenue. The Company recognizes
rental income associated with its REIT, net of amortization of favorable/unfavorable lease terms relative to market and includes rental
abatements and contractual fixed increases attributable to operating leases, where collection has been considered probable, on a straight-line
basis over the term of the related lease. The Company recognizes net investment income from its investment banking line of business as
interest owed to the Company occurs. The Company generates revenue from its direct marketing line of business primarily through internet
sales and recognizes revenue as items are shipped.
As
of March 31, 2023, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater
than one year. Pursuant to Topic 606, the Company has applied the practical expedient with respect to disclosure of the deferral and
future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. The Company elected
the practical expedient allowing it to not recognize as a contract asset the commission paid to its salesforce on the sale of its products
as an incremental cost of obtaining a contract with a customer but rather recognize such commission as expense when incurred as the amortization
period of the asset that the Company would have otherwise recognized is one year or less.
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 March 31, 2023, and December 31, 2022, the Company
established a reserve for doubtful accounts of approximately $29,000 and $29,000 respectively. The Company does not accrue interest on
past due accounts receivable.
Sales
Commissions
Sales
commissions are expensed as incurred for contracts with an expected duration of one year or less. There were no sales commissions capitalized
as of March 31, 2023.
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. Inventory
Inventory consisted of the following
as of:
Schedule
of Inventory
| |
| | | |
| | |
| |
March 31, 2023 | | |
December 31,
2022 | |
Finished Goods | |
$ | 5,596,000 | | |
$ | 6,779,000 | |
Work in Process | |
| 536,000 | | |
| 403,000 | |
Raw Materials | |
| 1,187,000 | | |
| 1,281,000 | |
Inventory Gross | |
$ | 7,319,000 | | |
$ | 8,463,000 | |
Less allowance for obsolescence | |
| (57,000 | ) | |
| (742,000 | ) |
Inventory Net | |
$ | 7,262,000 | | |
$ | 7,721,000 | |
4.
Notes Receivable
Note
1
On
February 8, 2021, the Company entered into a convertible promissory note (“Note 1”) with Borrower 1, 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 the date
of issuance. Borrower 2 repaid the principal and interest in full in April 2022.
Note
2
On
May 14, 2021, DSS Pure Air, Inc. a subsidiary of the Company entered a convertible promissory note (“Note 2”) with Borrower
2, a company registered in the state of Texas. Note 3 has an aggregate principal balance up to $5,000,000, to be funded at the request of
Borrower 2. Note 2, which incurs interest at a rate of 6.65% due quarterly, has a maturity date of May 1, 2023. Note 2 contains an optional
conversion clause that allows the Company to convert all, or a portion of all, into newly issued member units of Borrower 2 with the maximum
principal amount equal to 18% of the total equity position of Borrower 2 at conversion. The outstanding principal and interest as of
March 31, 2023, and December 31, 2022, approximated $5,503,000 and $5,420,000, respectively, which is included in current notes receivable
on the accompanying consolidated balance sheet.
Note
3
On
September 23, 2021, APB entered into refunding bond anticipatory note (“Note 3”) with Borrower 3, 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 5.59% per annum. Principal
and interest are due in full on September 22, 2022, and later amended to extend the maturity date to September 22, 2023. This note may
be redeemed prior to maturity with 10 days written notice to APB at a price equal to principal plus interest accrued on the redemption
date. The outstanding principal and interest of $3,751,000 and $3,701,000 of Note 3 is included in current portion of notes receivable
on the consolidated balance sheet at March 31, 2023 and December 31, 2022, respectively.
Note
4
On
October 25, 2021, APB entered into loan agreement (“Note 4”) with Borrower 4, a company registered in the state of Utah.
Note 4 has an initial aggregate principal balance up to $1,000,000, to be funded at the request of Borrower 4, with an option to increase
the maximum principal borrowing to $3,000,000. Note 4, which incurs interest at a rate of 8.0% with principal and interest due at the
maturity date of October 25, 2022. This note contains an optional conversion feature allowing APB to convert the outstanding principal
to a 10% membership interest. APB, as holder of Note 5, has the right to elect one member to the Board of Managers. The outstanding principal
and interest of approximately $884,000 and $896,000 of the note is included in current portion of notes receivable on the consolidated
balance sheet at March 31, 2023 and December 31, 2022, respectively. As of December 31, 2022, this note is in default. The Company has
placed a reserve of $896,000 against this note as of December 31, 2022.
Note
5
On
May 14, 2021, APB extended the credit (“Note 5”) to an individual (“Borrower 5”) in the form of two promissory
notes for $250,000 and $10,000 respectively, bearing interest at 12.5%, with a maturity date of May 15, 2023. This promissory note is
secured by a deed of trust on a tract of land, which is approximately 315 acres, and located in Coke County, Texas. The outstanding principal
and interest of approximately $260,000 and $9,300 are included in current portion of Notes receivable on the consolidated balance sheet
at March 31, 2023 and $252,000 and $9,000 are included in Note receivable at December 31, 2022.
Note
6
On
October 27, 2021, HWH World, Inc., a subsidiary of the Company entered a revolving loan commitment (“Note 6”) with
Borrower 8, a company registered in Taiwan. Note 6 has a principal balance of $52,000
and incurred no interest through the maturity date of December
31, 2021. The outstanding principal at March 31, 2023 and December 31, 2022 is $66,000
and $63,000,
respectively, and is included in the current portion of notes receivable. This note
was amended in April 2022 to borrow up to $102,000
and extend the maturity date through April 2023 bearing interest rate of 18%. The due date of this loan is currently being re-negotiated.
Note
7
On
December 28, 2021, APB entered into promissory note (“Note 7”) with Borrower 7, a company registered in the state of California.
Note 8 has a principal balance of $700,000. Note 7, which incurs interest at a rate of 12.0% with principal and interest due at the
maturity date of December 28, 2022. On December 29, 2022, the maturity date of this note was extended to May 31, 2023. The outstanding
principal and interest of $707,000 and $701,000 of Note 7 is included in current portion of notes receivable on the consolidated balance
sheet at March 31, 2023 and December 31, 2022, respectively.
Note
8
On
January 24, 2022, APB and Borrower 8 entered into a promissory note (“Note 8”) in the principal sum of $100,000 with interest
of 6%, due annually, and maturing in January 2024. The outstanding principal and interest at March 31, 2023 approximates $107,000 and
at December 31, 2022 approximates $106,000, and is included in Notes receivable on the accompanying consolidate balance sheet.
Note
9
On
March 2, 2022, APB and Borrower 9, a corporation organized under the laws of the Republic of Korea entered into a promissory note (“Note
9”). Under the terms of Note 9, APB at its discretion, may lend up to the principal sum of $892,500 with an interest rate of
8%, and matures in March 2024, with interest payable quarterly. The outstanding principal and interest at March 31, 2023 is $766,000,
net of $23,000 of unamortized origination fees, of which $376,000 is included in current notes receivable on the accompanying consolidated
balance sheet. The outstanding principal and interest at December 31, 2022 is $874,000 net of $25,000 of unamortized origination
fees.
Note
10
On
May 9, 2022, DSS PureAir and Borrower 11 entered into a promissory note (“Note 10”) in the principal sum of $210,000
with interest of 10%,
is due in three quarterly installments beginning on August 9, 2022, with the first two payment consisting of interest only. All
unpaid principal and interest are due on February
9, 2023. The outstanding principal and interest at March 31, 2023 approximates $221,000
and is included in current portions of notes receivable on the accompanying consolidate balance sheet. The outstanding principal and interest at December 31, 2022 approximates
$213,000, and is included in current portions of notes receivable on the accompanying consolidate balance sheet.
Note
11
On
August 29, 2022, DSS Financial Management Inc and Borrower 11 entered into a promissory note (“Note 11”) in the
principal sum of $100,000
with interest of 8%,
is due in three quarterly installments beginning on September 14, 2022. All unpaid principal and interest is due on August
29, 2025. The outstanding principal and interest at March 31, 2023 approximates $101,000 and at December 31, 2022 was $100,000,
and is included in Notes receivable on the accompanying consolidate balance sheet.
Note
12
On
July 26, 2022, APB and Borrower 12 entered into a promissory note (“Note 12”) in the principal sum of $1,000,000 with interest
of 8%. All unpaid principal and interest due on July 26, 2024. The outstanding principal and interest on March 31, 2023, approximates
$440,000, net of $80,000 of unamortized origination fees and is included in Notes receivable on the accompanying consolidate balance
sheet. The outstanding principal and interest at December 31, 2022 approximates $924,000, net of $66,000 of unamortized
origination fees and is included in Notes receivable on the accompanying consolidate balance sheet.
5.
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 March 31, 2023, and December 31, 2022:
Schedule
of Cash and Marketable Securities by Significant Investment Category
| |
2023 | |
| |
Adjusted Cost | | |
Unrealized Gain/(Loss) | | |
Fair Value | | |
Cash and Cash Equivalents | | |
Marketable Securities | | |
Investments | |
Cash | |
$ | 13,668,000 | | |
$ | - | | |
$ | 13,668,000 | | |
$ | 13,668,000 | | |
$ | - | | |
$ | - | |
Level 1 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Money Market Funds | |
| 64,000 | | |
| - | | |
| 64,000 | | |
| 64,000 | | |
| - | | |
| - | |
Marketable Securities | |
| 20,195,000 | | |
| (6,804,000 | ) | |
| 13,391,000 | | |
| - | | |
| 13,391,000 | | |
| - | |
Level 2 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Warrants | |
| 3,318,000 | | |
| (3,174,000 | ) | |
| 144,000 | | |
| - | | |
| - | | |
| 144,000 | |
Convertible securities | |
| 1,023,000 | | |
| (979,000 | ) | |
| 44,000 | | |
| - | | |
| - | | |
| 44,000 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Total | |
$ | 38,268,000 | | |
$ | (10,957,000 | ) | |
$ | 27,311,000 | | |
$ | 13,732,000 | | |
$ | 13,391,000 | | |
$ | 188,000 | |
| |
2022 | |
| |
Adjusted Cost | | |
Unrealized Gain/(Loss) | | |
Fair Value | | |
Cash and Cash Equivalents | | |
Marketable Securities | | |
Investments | |
Cash | |
$ | 19,226,000 | | |
$ | - | | |
$ | 19,226,000 | | |
$ | 19,226,000 | | |
$ | - | | |
$ | - | |
Level 1 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Money Market Funds | |
| 64,000 | | |
| - | | |
| 64,000 | | |
| 64,000 | | |
| - | | |
| - | |
Marketable Securities | |
| 36,263,000 | | |
| (3,659,000 | ) | |
| 27,307,000 | | |
| - | | |
| 27,307,000 | | |
| - | |
Level 2 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Warrants | |
| 3,318,000 | | |
| - | | |
| 140,000 | | |
| - | | |
| - | | |
| 140,000 | |
Convertible securities | |
| 1,023,000 | | |
| - | | |
| 39,000 | | |
| - | | |
| - | | |
| 39,000 | |
Total | |
| 59,894,000 | | |
$ | (3,659,000 | ) | |
$ | 46,776,000 | | |
$ | 19,290,000 | | |
$ | 27,307,000 | | |
$ | 179,000 | |
The
Company typically invests with the primary objective of minimizing the potential risk of principal loss. The Company’s investment
policy generally requires securities to be investment grade and limits the amount of credit exposure to any one issuer. Fair values were
determined for each individual security in the investment portfolio.
6.
Provision for Credit Losses
Effective December 31, 2022, the
Company adopted amended accounting guidance “ASU No.2016-13 – Credit Losses” for the measurement of credit losses
on financial instruments and other financial assets. That guidance requires an allowance for credit losses to be deducted from the amortized
cost basis of financial assets to present the net carrying value that is expected to be collected over the contractual term of the assets
considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability
of the reported amount. The guidance replaced the previous incurred loss model for determining the allowance for credit losses.
As of December 31, 2022, and March
31, 2023 we have reviewed the entire loan portfolio as well as all financial assets of the Company for the purpose of evaluating the loan
portfolio and the loan balances, including a review of individual and collective portfolio loan quality, loan(s) performance, including
past due status and covenant defaults, assessment of the ability of the borrower to repay the loan on the loan terms, whether any loans
should be placed on nonaccrual or returned to accrual, any concentrations in any single borrower and/or industry that we might need to
further manage, and if any specific or general loan loss reserve should be established for the entire loan portfolio or for any specific
loan.
We analyzed the loan loss reserve
from three basis: general loan portfolio reserves; industry portfolio reserves, and specific loan loss reserves.
General Loan Portfolio Reserve
- Based upon a relatively young loan portfolio that are relatively new loans to generally credit worthy borrowers, we do not believe
that a substantial general loan portfolio reserve is due at this time. However, we do recognize that some inherent risks are in all loan
portfolios, thus we recorded a general contingent portfolio reserve of $145,000 or approximately ¼ of 1% of the loan portfolio
loan balance as of December 31, 2022 and March 31, 2023.
Industry Portfolio Reserves
- Given the relatively young loan portfolio and a diversification of the portfolio over several different loan products, the risk
is reduced. Accordingly, we have not recorded a discretionary reserve as of December 31, 2022 and March 31, 2023.
Specific Loan Reserves
- Previously, we had identified credit weaknesses and borrower
repayment weakness in the Borrow 6 loan, which has a current principal and interest balance of $896,000. As of December 31, 2022 and
March 31, 2023 we have recorded a specific loan loss reserve for the full balance due the Company.
The following table identifies the loan loss reserve for the period ending
March 31, 2023 and December 31, 2022:
Schedule of Loan loss reserve
| |
| | |
General Loan Portfolio Reserve | |
$ | 145,000 | |
Specific Loan Reserves | |
$ | 896,000 | |
Total | |
$ | 1,041,000 | |
7.
Investments
Alset
International Limited, related party
The
Company owns 127,179,291 shares or approximately 4% of the outstanding shares of Alset International Limited (“Alset Intl”),
a company incorporated in Singapore and publicly listed on the Singapore Exchange Limited. This investment is classified as a marketable
security and is classified as long-term assets on the consolidated balance sheets as the Company has the intent and ability to hold the
investments for a period of at least one year. The Chairman of the Company, Mr. Heng Fai Ambrose Chan, is the Executive Director and
Chief Executive Officer of Alset Intl. Mr. Chan is also the majority shareholder of Alset Intl as well as the largest shareholder of
the Company. The fair value of the marketable security as of March 31, 2023, and December 31, 2022, was approximately $2,289,000 and $3,319,000
respectively. During the three month ended March 31, 2023 and March 31, 2022, the Company recorded unrealized loss on this investment
of approximately $1,156,000 and $305,000, respectively.
West
Park Capital, Inc.
On
October 10, 2019, the Company entered 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.
On
December 30, 2020, the Company signed a binding letter of intent with West Park Capital, Inc (“West Park”) and TBD where
the parties agreed to prepare a note and stock exchange agreement whereby DSS will assign the TBD Note to West Park and West Park shall
issue to DSS a stock certificate reflecting 7.5%
of the issued and outstanding shares of West Park. This note and stock exchange agreement was finalized during the first quarter 2022
and valued at approximately $500,000
and is included in Investments on the consolidated
balance sheet on December 31, 2022 and as of March 31, 2023.
BMI
Capital International LLC
On
September 10, 2020, the Company’s wholly owned subsidiary DSS Securities, Inc. entered into membership interest purchase agreement
with BMI Financial Group, Inc. a Delaware corporation (“BMIF”) and BMI Capital International LLC, a Texas limited liability
company (“BMIC”) whereas DSS Securities, Inc. purchased 14.9% membership interests in BMIC for $100,000. DSS Securities also
had the option to purchase an additional 10% of the outstanding membership interest which it exercised for $100,000 in January of 2021
and increased its ownership to 24.9%. Upon achieving greater than 20% ownership in BMIC during the quarter ended September 30, 2021,
the Company is currently accounting for this investment under the equity method of accounting per ASC 323. The Company’s portion
of net loss in BMIC during the three months ended March 31, 2023, approximated $4,300.
BMIC
is a broker-dealer registered with the Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority,
Inc. (“FINRA”), and is a member of the Securities Investor Protection Corporation (“SIPC”). The Company’s
chairman of the board and another independent board member of the Company also have ownership interest in BMIC.
BioMed
Technologies Asia Pacific Holdings Limited
On
December 19, 2020, Impact BioMedical, a wholly owned subsidiary of the Company, entered into a subscription agreement (the “Subscription
Agreement”) with BioMed Technologies Asia Pacific Holdings Limited (“BioMed”), a limited liability company incorporated
in the British Virgin Islands, pursuant to which the Company agreed to purchase 525 ordinary shares or 4.99% of BioMed at a purchase
price of approximately $632,000. The Subscription Agreement provides, among other things, the Company has the right to appoint a new
director to the board of BioMed. With respect to an issuance of shares to a third party by BioMed, the Company will have the right of
first refusal to purchase such shares, as well as customary tag-along rights. In connection with the Subscription Agreement, Impact Biomedical
entered into an exclusive distribution agreement (the “Distribution Agreement”) with BioMed, to directly market, advertise,
promote, distribute, and sell certain BioMed products, which focus on manufacturing natural probiotics, to resellers. This investment
is valued at cost as it does not have a readily determined fair value.
Under
the terms of the Distribution Agreement, the Company will have exclusive rights to distribute the products within the United States,
Canada, Singapore, Malaysia, and South Korea and non-exclusive distribution rights in all other countries. In exchange, the Company agreed
to certain obligations, including mutual marketing obligations to promote sales of the products. This agreement is for ten years with
a one year auto-renewal feature.
Vivacitas
Oncology, Inc.
On
March 15, 2021, the Company, through one of its subsidiaries, entered into a Stock Purchase Agreement (the “Vivacitas Agreement
#1”) with Vivacitas Oncology Inc. (“Vivacitas”), to purchase 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, 2022; 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.
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
16%
as of December 31, 2022. As of December 31, 2022, the Company determined to impair 100%
of its investment in Vivacitas, in the amount of $4,100,000.
Stemtech
Corporation
In
September 2021, the Company’s subsidiary SHRG, Stemtech Corporation (“Stemtech”) and Globe Net Wireless Corp.
(“GNTW”) entered into a Securities Purchase Agreement (the “SPA”) pursuant to which SHRG invested $1.4 million
in Stemtech in exchange for: (a) a Convertible Promissory Note in the amount of $ 1.4 million
in favor of the Company (the “Convertible Note”) and (b) a detachable Warrant to purchase shares GNTW common stock (the
“GNTW Warrant”). Stemtech is a subsidiary of GNTW. As an inducement to enter into the SPA, GNTW agreed to pay to the
SHRG an origination fee of $500,000,
payable in shares of GNTW’s common stock. The Convertible Note matures on September
9, 2024, bears interest at the annual rate
of 10%,
and is convertible, at the option of the holder, into shares of GNTW’s common stock at a conversion rate calculated based on
the closing price per share of GNTW’s common stock during the 30-dayperiod ended September 19, 2021. The GNTW Warrant expires
on September 13, 2024 and conveys the right to purchase up to 1.4 million
shares of GNTW’s common stock at a purchase price calculated based on the closing price per share of GTNW’s common stock
during the 10-day period ended September 13, 2021. In September 2021, GNTW issued to the Company 154,173 shares
of its common stock, or less than 1% of the shares of GNTW then issued and outstanding, in payment of the origination fee. In
November 2021, Globe Net Wireless Corp. changed its corporate name to Stemtech Corporation. In connection therewith, the
investee’s common stock is now traded under the symbol “STEK”. The SHRG carries its investment in the Convertible
Note, the GNTW Warrant and the shares of GNTW common stock at fair value in accordance with GAAP. As of March 31, 2023 and
December 31, 2022 the investment in the the GNTW Warrant and Convertible Note, were
valued at $144,000, and $44,000 and $140,000 and $39,000 respectively.
In
September 2021, SHRG entered into a Membership Unit Purchase Agreement pursuant to which the SHRG acquired a 30.75% equity interest in
MojiLife, LLC, a limited liability company organized in the State of Utah, in exchange for $1,537,000. MojiLife is an emerging growth
distributor of technology-based consumer products for the home and car. MojiLife’s products include esthetically attractive, cordless
scent diffusers for the home or for the car, as well as proprietary home cleaning products and accessories. On a quarterly basis, SHRG
evaluates the recoverability of its investments and reviews current economic trends to determine the adequacy of its allowance for impairment
losses based on each investee financial performance data and other relevant information. An estimate for impairment losses is recognized
when recovery in full of SHRG’s investment is no longer probable. Investment balances are written off against the allowance after
the potential for recovery is considered remote. In March of 2022, SHRG impaired the MojiLife investment as the evaluation at such time
determined the investment was not fully recoverable and 100% valuation was reserved.
8.
Acquisitions
Sentinel
Brokers Company, Inc.
On
May 13, 2021, Sentinel Brokers, LLC. (“Sentinel LLC”), subsidiary of the Company entered into a stock purchase agreement
(“Sentinel Agreement”) to acquire a 24.9% equity position of Sentinel Brokers Company, Inc. (“Sentinel Co.”),
a company registered in the state of New York, for the purchase price of $300,000. During the nine months ended September 30, 2021, the
Company contributed and additional $750,000 capital into Sentinel, increasing its total capital investment to $1,050,000 as of September
30, 2021. Up to and through November 30, 2022, Sentinel LLC accounted for its investment in Sentinel Co. using the equity method in accordance
with ASC Topic 323, Investments—Equity Method and Joint Ventures recognizing our share of Sentinel’s earnings and
losses within our consolidated statement of operations. Under the terms of this agreement, the Company had the option to purchase an
additional 50.1% of the outstanding Class A Common Shares. In December 2022, Sentinel LLC exercised this option to increase its equity
position to 75%. The acquisition of Sentinel Co. meets the definition of a business with inputs, processes, and outputs, and therefore,
the Company has concluded to account for this transaction in accordance with the acquisition method of accounting under Topic 805.
The
following summary, prepared on a proforma basis, combines the consolidated results of operations of the Company with those of Sentinel
Co as if the acquisition took place on January 1. The pro forma consolidated results include the impact of certain adjustments.
Schedule
of Business Acquisition, Pro Forma Information
| |
2022 (unaudited) | |
Revenue | |
$ | 49,076,804 | |
Net loss | |
$ | (61,680,088 | ) |
Basic loss per share | |
$ | (0.55 | ) |
Diluted loss per share | |
$ | (0.55 | ) |
We
are currently in the process of completing the purchase price accounting and related allocations associated with the acquisition of Sentinel
Co. Assets included in this acquisition are cash of $3,977,000, receivables of $344,000 and fixed assets of $1,000. The Company is in
the process of completing valuations and useful lives for certain assets acquired in the transaction. We expect the preliminary purchase
price accounting to be completed during the year ending December 31, 2023.
Sentinel
is a broker-dealer operating primarily as a fiduciary intermediary, facilitating intuitional trading of municipal and corporate bonds
as well as preferred stock, and is registered with the Securities and Exchange Commission, is a member of the Financial Industry Regulatory
Authority, Inc. (“FINRA”), and is a member of the Securities Investor Protection Corporation (“SIPC”).
9.
Short-Term and Long-Term Debt
DSS,
Inc.
Promissory
Notes - On March 2, 2020, AMRE entered into a $200,000 unsecured promissory note with LVAMPTE, a related party. The Note calls
for interest to be paid annually on March 2 with interest fixed at 8.0%. As further incentive to enter into this Note, AMRE granted LVAMPTE
warrants to purchase shares of common stock of AMRE (the “Warrants”). The amount of the warrants granted is the equivalent
of the Note Principal divided by the Exercise Price. The Warrants are exercisable for four years and are exercisable at $5.00 per share
(the “Exercise” Price). In March 2022, this debt was converted into equity in AMRE, and LVAMPTE exercised the warrants for
$200,000 (see the consolidated statement of changes in stockholders’ equity) The holder is a related party owned by the Chairman
of the Company’s board of directors.
On
March 16, 2021, American Medical REIT, Inc. received loan proceeds in the amount of approximately $110,000 under the Paycheck Protection
Program (“PPP”) with a fixed rate of 1% and a 60-month maturity term. The PPP, established as part of the Coronavirus Aid,
Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of
the average monthly payroll expenses of the qualifying business. These funds were used for payroll, benefits, rent, mortgage interest,
and utilities. As of December 31, 2021, the outstanding principal and interest approximated $111,000 is included in long-term debt, net
on the consolidated balance sheet. During the year ended December 31, 2022, the PPP loan was forgiven in full and recorded as a gain
on extinguishment of debt on the accompanying consolidated statement of operations.
On
May 20, 2021, Premier Packaging entered into master loan and security agreement (“BOA Note”) with Bank of America, N.A. (“BOA”)
to secure financing approximating $3,710,000 to purchase a new Heidelberg XL 106-7+L printing press. The aggregate principal balance
outstanding under the BOA Note shall bear interest at a variable rate on or before the loan closing. As of March 31, 2023, and December
31, 2022, the outstanding principal on the BOA Note was $3,290,000 and $3,406,000, respectively and had an interest rate of 4.63%. The
outstanding balance at March 31, 2023 is included in Long-term debt, net on the consolidated balance sheet. As of March 31, 2023, $479,000
was included in current portion of long-term debt, net, and the remaining balance of approximately $2,810,000 recorded as long-term debt,
The BOA Note contains certain covenants that are analyzed annual. As of March 31, 2023, Premier is in compliance with these covenants.
On
August 1, 2021, AMRE Shelton, LLC., (“AMRE Shelton”) a subsidiary of AMRE, entered into a loan agreement (“Shelton
Agreement”) with Patriot Bank, N.A. (“Patriot Bank”) in an amount up to $6,155,000,
with the amount financed approximating $5,105,000.
The Shelton Agreement contains monthly payments of principal and an initial interest 4.25%.
The
interest will be adjusted commencing on July 1, 2026 and continuing for the next succeeding 5 year period shall be determined one month
prior to the change date and shall be an interest rate equal to two hundred fifty (250) basis points above the Federal Home Loan Bank
Boston 5-Year/25-Year amortizing advance rate, but in no event less than 4.25% for the term of 120 months with
a balloon payment approximating $2,829,000
due at term end. The affective interest rate
at December 31, 2022 was 4.25%.
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. 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. The net book value of these asset as of
March 31, 2023 approximated $6,727,000.
Of the total financed, approximately $183,000
of principal and accrued interest is classified
as current portion of long-term debt, net, and the remaining balance of approximately $4,790,000
recorded as long-term debt, net of $17,500
in deferred financing costs.
On
October 13, 2021, LVAM entered into loan agreement with BMIC (“BMIC Loan”), a related party, whereas LVAM borrowed the principal
amount of $3,000,000, with interest to be charged at a variable rate to be adjusted at the maturity date. The BMIC Loan matures on October
12, 2022, and contains an auto renewal period of three months. As of March 31, 2023 and December 31, 2022, $512,000 and $3,000,000,
respectively, is included in Current portion of long-term debt, net on the consolidated balance sheet.
On
October 13, 2021, LVAM entered into loan agreement with Lee Wilson Tsz Kin (“Wilson Loan”), a related party, whereas
LVAM borrowed the principal amount of $3,000,000,
with interest to be charged at a variable rate to be calculated at the maturity date. The Wilson Loan matures on October
12, 2022, and contains an auto renewal period of nine months. This loan was funded during March 2022. As of March 31, 2023
$1,997,000
is included in Current portion of long-term debt, net on the consolidated balance sheet. As of December 31, 2022 $3,000,000 is included in Current portion of
long-term debt, net on the consolidated balance sheet.
On
October 27, 2021, HWH World, Inc., a subsidiary of the Company entered a revolving loan commitment (“Note 8”) with
Borrower 8, a company registered in Taiwan. Note 8 has a principal balance of $52,000
and incurred no interest through the maturity date of December
31, 2021. The outstanding principal at March 31, 2023 and December 31, 2022 is $66,000
and $63,000,
respectively, and is included in the current portion of notes receivable. This note was amended in April 2022 to extend the maturity
date through April 2023 bearing interest rate of 18%. This note is in the process of being extended.
On
November 2, 2021, AMRE LifeCare entered into a loan agreement (“LifeCare Agreement”) with Pinnacle Bank,
(“Pinnacle Bank”) in the amount of $40,300,000.
The LifeCare Agreement supported the acquisition of three medical facilities located in Fort Worth, Texas, Plano, Texas, and
Pittsburgh, Pennsylvania for a purchase price of $62,000,000.
These assets are classified as investments, real estate on the consolidated balance sheet. The purchase price has been allocated as
$32,100,000,
$12,100,000,
and $1,500,000
for the facility, land and site improvements respectively. Also include in the value of the property is $15,901,000
of intangible assets with estimated useful lives ranging from 1
to 11
years. The net book value of the assets acquired as of December 31, 2022 approximated $52,407,000. The
LifeCare Agreement calls for the principal amount of the in equal, consecutive monthly installments based upon a twenty-five (25)
year amortization of the original principal amount of the LifeCare Agreement at an initial rate of interest equal to the interest
rate determined in accordance as of July 29, 2022 provided, however, such rate of interest shall not be less than 4.28%, with the
first such installment being payable on August 29, 2022 and subsequent installments being payable on the first day of each
succeeding month thereafter until the maturity date, at which time any outstanding principal and interest is due in full. The
affective interest rate at March 31, 2023 was 8.46%.
The maturity date of November
2, 2023, may be extended to November
2, 2024. As of December 31, 2022, the outstanding principal and interest of the LifeCare agreement approximates $40,193,000,
net of deferred financing costs of $270,000.
As of March 31, 2023, the outstanding principal and interested approximates $40,486,000,
net of deferred financing costs of $270,000
is included in current portion of long-term debt, on the consolidated balance sheet. Interest expense totaled $297,000
and $156,000 in March 2023 and March 2022 respectively.
In
November 2021, AMRE entered into a convertible promissory note (“Alset Note”) with Alset International Limited
(“Alset International”), a related party, for the principal amount of $8,350,000.
The Alset Note accrues interest at 8%
per annum and matures
in December 2023, with interest due quarterly and the principal due at maturity. Principal and interest of approximately
$8,805,000
is included in long-term debt, net on the accompanying consolidated balance sheet on December 31, 2022. On May 17, 2022, the
shareholders of the Company approved the issuance of up to 21,366,177
Shares our Common Stock to Alset International to purchase the Convertible Promissory Note issued by American Medical REIT, Inc.
with a principal amount of $8,350,000
and accrued unpaid interest of $119,000
through March 31, 2023. This transaction was finalized in July 2022 and is eliminated upon consolidation into DSS. Interest expense
for this note totaled $286,000
in March 2023 and $338,000 in March 2022.
On
March 17, 2022, AMRE Winter Haven, LLC (“AMRE Winter Haven”) and Pinnacle Bank (“Pinnacle”) entered into a
term loan (“Pinnacle Loan”) whereas Pinnacle lent to AMRE Winter Haven the principal sum of $2,990,000,
maturing on March
7, 2024 to acquire a medical facility located in Winter Haven, Florida for a purchase price of $4,500,000.
The assets acquired are classified as investments, real estate on the consolidated balance sheet. The purchase price has been
allocated as $3,200,000,
$1,000,000,
and $222,000
for the facility, land and site and tenant improvements respectively. Also include in the value of the property is $29,000
of intangible assets with an estimated useful life of approximating 5
years. The net book value of the assets acquired as of December 31, 2022 approximated $4,450,000.
Payments are to be made in equal, consecutive installments based on a 25-year
amortization period with interest at 4.28%.
The first installment is due January 1, 2023. The Pinnacle Loan contains certain covenants that are to be tested annually. At
December 31, 2022, AMRE is in compliance with all covenants. The outstanding principal and interest, net of debt issuance costs of
$69,000,
approximates $2,982,000
and is included in long-term debt, net on the accompanying consolidated balance sheet at March 31, 2023. Interest expense equaled
$23,000
for March 2023 and $5,000 in March 2022.
On
March 30, 2023, Premier Packaging, a subsidiary of the Company entered into a loan and security agreement with Union Bank & Trust
Company for the principal amount of $790,000 and shall accrued interest at the rate of 7.44%. Principal and interest shall be repaid
in the approximate amount of $14,000 through March 2029. This loan is collateralized by a Bobst Model Novacut and is guaranteed by DSS,
Inc.
A
summary of scheduled principal payments of long-term debt, not including revolving lines of credit, subsequent to December 31,
2022, are as follows:
Schedule
of Notes Payable and Long-term Debt
Year | |
Amount | |
2023 | |
$ | 43,275,000 | |
2024 | |
| 3,801,000 | |
2025 | |
| 858,000 | |
2026 | |
| 901,000 | |
2027 | |
| 947,000 | |
Thereafter | |
| 4,769,000 | |
10.
Lease Liability
The
Company has operating leases predominantly for operating facilities. As of March 31, 2023, 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 March 31, 2023.
Future
minimum lease payments as of March 31, 2023, are as follows:
Maturity
of Lease Liability:
Schedule
of Future Minimum Lease Payments
| |
Totals | |
2023 | |
| 941,000 | |
2024 | |
| 1,050,000 | |
2025 | |
| 906,000 | |
2026 | |
| 899,000 | |
2027 | |
| 916,000 | |
2028 | |
| 935,000 | |
2029 | |
| 954,000 | |
After | |
| 4,015,000 | |
Total lease payments | |
| 10,616,000 | |
Less: Imputed Interest | |
| (2,043,000 | ) |
Present value of remaining lease payments | |
$ | 8,573,000 | |
| |
| | |
Current | |
$ | 800,000 | |
Noncurrent | |
$ | 7,773,000 | |
| |
| | |
Weighted-average remaining lease term (years) | |
| 14.3 | |
| |
| | |
Weighted-average discount rate | |
| 4.3 | % |
In
March of 2022, Premier Packaging began leasing its relocated manufacturing facilities to West Henrietta, New York. This lease
contains an escalating payment clause, ranging from $61,000
per month to $78,000
per month, over the twelve-year term of the lease.
11.
Commitments and Contingencies
License
Agreement – On March 19, 2022, Impact BioMedical entered into a License Agreement (“Equivir License”) with
a third-party (“Licensee”) where the Licensor is granted the right, amongst other things, to develop, commercialize, and
sell the Company’s Equivir technology. In exchange, the Licensee shall pay the Company a royalty of 5.5% of net sales. Under the
terms of the Equivir Agreement, the Company shall reimburse the Licensee for 50% of the development costs provided that the development
costs shall not exceed $1,250,000. As of March 31, 2023 and December 31, 2022, no liability has been recorded in relation to the Equivir
License as development of the Equivir technology has not begun and no reasonable amount can be estimated.
12.
Stockholders’ Equity
Sales
of Equity –
On
February 28, 2022, DSS entered into an Amendment to Stock Purchase Agreement (the “Amendment”) with its shareholder Alset
EHome International Inc. (“AEI”), pursuant to which the Company and AEI have agreed to amend certain terms of the Stock Purchase
Agreement dated January 25, 2022 (the “SPA”). Pursuant to the SPA, AEI had agreed to purchase up to 44,619,423 shares of
the Company’s common stock for a purchase price of $0.3810 per share, for an aggregate purchase price of $17,000,000. Pursuant
to the Amendment, the number of shares of the common stock of the Company that the AEI will purchase has been reduced to 3,986,877 shares
for an aggregate purchase price of $1,519,000. This transaction was completed on March 9, 2022. In addition, the Company’s Executive
Chairman and a significant stockholder, Heng Fai Ambrose Chan, is the Chairman, Chief Executive Officer and largest shareholder of AEI.
On
March 10, 2022, the Company issued 894,084 shares of common stock to Mr. Heng Fai Ambrose Chan pursuant to his employment agreement.
These shares were issued in consideration of $340,000 due under this employment agreement.
On
May 5, 2022, the Company issued 63,205 shares of common stock to Mr. Frank Heuszel, CEO of DSS, pursuant to his employment agreement.
These shares were issued in consideration of $29,000 due under this employment agreement.
On
May 25, 2022, the Company issued 15,389,995 shares of common stock to Mr. Heng Fai Ambrose Chan pursuant to his employment agreement.
These shares were issued in consideration of $5,848,000 due under this employment agreement.
On
May 17, 2022, the shareholders of the Company approved the issuance of up to 21,366,177 Shares of our Common Stock to Alset International,
a related party, to purchase the Convertible Promissory Note issued by American Medical REIT, Inc. with a principal amount of $8,350,000
and accrued but unpaid interest of $367,000 through May 15, 2022. This transaction was finalized in July 2022.
On
May 17, 2022, the shareholders of the Company approved the acquisition of 62,122,908 shares of True Partners Capital Holdings Limited
(“True Partners”), a company publicly traded on the Hong Kong stock exchange in exchange for 17,570,948 shares of DSS stock
value on the agreed upon date of February 18, 2022 which was approximately $0.41 per share. The True Partner shares were acquired from
Alset EHome International, Inc. (“Alset EHome”), a related party. Mr. Heng Fai Ambrose Chan, our director and Executive Chairman,
is also Chairman of the Board, Chief Executive Officer, and the largest beneficial owner of the outstanding shares of Alset EHome. This
transaction was completed with the transfer of DSS share to Alset EHome on July 1, 2022.
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 months ended March
31, 2022, the Company’s stock compensation approximated $4,000.
13.
Supplemental Cash Flow Information
The
following table summarizes supplemental cash flows for the three-months ended March 31, 2023, and 2022:
Schedule
of Supplemental Cash Flow Information
| |
2023 | | |
2022 | |
| |
| | |
| |
Cash paid for interest | |
$ | 249,000 | | |
$ | 1,378,000 | |
14.
Segment Information
The
Company’s nine businesses lines are organized, managed, and internally reported as five operating segments. One of these operating
segments, Product Packaging, is the Company’s packaging and printing group. Product Packaging operates in the paper board folding
carton, smart packaging, and document security printing markets. It markets, manufactures, and sells mailers, photo sleeves, sophisticated
custom folding cartons, and complex 3-dimensional direct mail solutions. These products are designed to provide functionality and marketability
while also providing counterfeit protection. A second, Biotechnology, invests in, or acquires companies in the biohealth and biomedical
fields, including businesses focused on the advancement of drug discovery and prevention, inhibition, and treatment of neurological,
oncological, and immune related diseases. This division is also developing open-air defense initiatives, which curb transmission of air-borne
infectious diseases, such as tuberculosis and influenza. Biotechnology is also targeting unmet, urgent medical needs. A third operating
segment, Securities and Investment Management (“Securities”) was established to develop and/or acquire assets and investments
in the securities trading and/or funds management arena. Further, Securities, in partnership with recognized global leaders in alternative
trading systems, intends to own and operate in the US a single or multiple vertical digital asset exchanges for securities, tokenized
assets, utility tokens, stable coins and cryptocurrency via a digital asset trading platform using blockchain technology. The scope of
services within this section is planned to include asset issuance and allocation (securities and cryptocurrency), FPO, IPO, ITO, PPO,
STO and UTO listings on a primary market(s), asset digitization/tokenization (securities, currency and cryptocurrency), and the listing
and trading of digital assets (securities and cryptocurrency) on a secondary market(s). Also in this segment is the Company’s real
estate investment trust (“REIT”), organized for the purposes of acquiring hospitals and other acute or post-acute care centers
from leading clinical operators with dominant market share in secondary and tertiary markets, and leasing each property to a single operator
under a triple-net lease. the REIT was formed to originate, acquire, and lease a credit-centric portfolio of licensed medical real estate.
The fourth segment, Direct, provides services to assist companies in the emerging growth gig business model of peer-to-peer decentralized
sharing marketplaces. It specializes in marketing and distributing its products and services through its subsidiary and partner network,
using the popular gig economic marketing strategy as a form of direct marketing. Direct marketing products include, among other things,
nutritional and personal care products sold throughout North America, Asia Pacific and Eastern Europe. The fifth business line, Commercial
Banking, is organized for the purposes of being a financial network holding company, focused providing commercial loans and on acquiring
equity positions in (i) undervalued commercial bank(s), bank holding companies and nonbanking licensed financial companies operating
in the United States, South East Asia, Taiwan, Japan and South Korea, and (ii) companies engaged in—nonbanking activities closely
related to banking, including loan syndication services, mortgage banking, trust and escrow services, banking technology, loan servicing,
equipment leasing, problem asset management, SPAC (special purpose acquisition company) consulting, and advisory capital raising services.
From this financial platform, the Company shall provide an integrated suite of financial services for businesses that shall include commercial
business lines of credit, land development financing, inventory financing, third party loan servicing, and services that address the
financial needs of the world Gig Economy.
Our
segment structure presented below represents a change from the prior year for the inclusion of our Biotechnology, Securities, and Commercial
Lending segments and the removal of our Plastics segment, Digital Group and IP Technology Management segment as the Plastics segment
was discontinued in 2020, DSS Digital was sold and discontinued in May 2021 and activities surrounding our IP Technology Management segment
have significantly decreased. The amounts for these segments have been included in the corporate reporting segment for the year ended
March 31, 2023 and 2022, as necessary, below for reconciliation purposes.
Approximate
information concerning the Company’s operations by reportable segment for the three months ended March 31, 2023 and 2022 is as
follows. The Company relies on intersegment cooperation and management does not represent that these segments, if operated independently,
would report the results contained herein:
Schedule
of Operations by Reportable Segment
Three Months Ended March 31, 2023 | |
Product Packaging | | |
Commercial Lending | | |
Direct Marketing | | |
Biotechnology | | |
Securities | | |
Corporate | | |
Total | |
Revenue | |
$ | 6,130,000 | | |
$ | 117,000 | | |
$ | 3,994,000 | | |
$ | - | | |
$ | 1,685,000 | | |
$ | - | | |
$ | 11,926,000 | |
Depreciation and amortization | |
| 188,000 | | |
| - | | |
| 46,000 | | |
| 298,000 | | |
| 743,000 | | |
| 58,000 | | |
| 1,334,000 | |
Interest expense | |
| 39,000 | | |
| - | | |
| - | | |
| - | | |
| 210,000 | | |
| - | | |
| 249,000 | |
Interest Income | |
| - | | |
| - | | |
| 4,000 | | |
| 94,000 | | |
| 32,000 | | |
| - | | |
| 130,000 | |
Net income (loss) from continuing operations | |
| 696,000 | | |
| (564,000 | ) | |
| (3,187,000 | ) | |
| (848,000 | ) | |
| (2,028,000 | ) | |
| (2,702,000 | ) | |
| (8,633,000 | ) |
Capital expenditures | |
| 576,000 | | |
| - | | |
| (15,000 | ) | |
| 5,000 | | |
| 28,000 | | |
| - | | |
| 594,000 | |
Identifiable assets | |
| 25,217,000 | | |
| 43,133,000 | | |
| 20,539,000 | | |
| 52,983,000 | | |
| 76,003,000 | | |
| 8,875,000 | | |
| 226,750,000 | |
Three Months Ended March 31,2022 | |
Product Packaging | | |
Commercial Lending | | |
Direct Marketing | | |
Biotechnology | | |
Securities | | |
Corporate | | |
Total | |
Revenue | |
$ | 3,569,000 | | |
$ | 129,000 | | |
$ | 6,932,000 | | |
$ | - | | |
$ | 1,674,000 | | |
$ | - | | |
$ | 12,304,000 | |
Depreciation and amortization | |
| 180,000 | | |
| - | | |
| 48,000 | | |
| 278,000 | | |
| 2,685,000 | | |
| 74,000 | | |
| 3,266,000 | |
Interest expense | |
| 24,000 | | |
| - | | |
| 687,000 | | |
| - | | |
| 801,000 | | |
| - | | |
| 802,000 | |
Stock based compensation | |
| 1,000 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 3,000 | | |
| 4,000 | |
Net income (loss) from continuing operations | |
| (42,000 | ) | |
| 181,000 | | |
| (4,486,000 | ) | |
| (616,000 | ) | |
| (2,508,000 | ) | |
| (1,480,000 | ) | |
| (8,951,000 | ) |
Capital expenditures | |
| 923,000 | | |
| - | | |
| 2,000 | | |
| - | | |
| 13,000 | | |
| 4,000 | | |
| 942,000 | |
Identifiable assets | |
| 23,371,000 | | |
| 57,259,000 | | |
| 45,788,000 | | |
| 56,276,000 | | |
| 85,178,000 | | |
| 13,987,000 | | |
| 281,859,000 | |
The
following tables disaggregate our business segment revenues by major source:
Printed
Products Revenue Information:
Schedule
of Disaggregation of Revenue
Three months ended March 31, 2023 | |
| |
Packaging Printing and Fabrication | |
$ | 5,865,000 | |
Commercial and Security Printing | |
| 265,000 | |
Total Printed Products | |
$ | 6,130,000 | |
Three months ended March 31, 2022 | |
| |
Packaging Printing and Fabrication | |
$ | 3,516,000 | |
Commercial and Security Printing | |
| 53,000 | |
Total Printed Products | |
$ | 3,569,000 | |
Direct
Marketing
Three months ended March 31, 2023 | |
| |
Direct Marketing Internet Sales | |
$ | 3,994,000 | |
Total Direct Marketing | |
$ | 3,994,000 | |
Three months ended March 31, 2022 | |
| |
Direct Marketing Internet Sales | |
$ | 6,932,000 | |
Total Direct Marketing | |
$ | 6,932,000 | |
Rental
Income
Three months ended March 31, 2023 | |
| |
Rental income | |
$ | 1,685,000 | |
Total Rental Income | |
$ | 1,685,000 | |
Three months ended March 31, 2022 | |
| |
Rental income | |
$ | 1,663,000 | |
Total Rental Income | |
$ | 1,663,000 | |
Management
Fee Income
Three months ended March 31, 2023 | |
| |
Management fee income | |
$ | - | |
Total Management fee income | |
$ | - | |
Three months ended March 31, 2022 | |
| |
Management fee income | |
$ | 11,000 | |
Total Management fee income | |
$ | 11,000 | |
Net
Investment Income
Three months ended March 31, 2023 | |
| |
Net investment income | |
$ | 117,000 | |
Total Investment income | |
$ | 117,000 | |
Three months ended March 31, 2022 | |
| |
Net Investment income | |
$ | 129,000 | |
Total Investment income | |
$ | 129,000 | |
15.
Related Party Transactions
The
Company owns 127,179,291
shares or approximately 4%
of the outstanding shares of Alset International Limited (“Alset Intl”), a company incorporated in Singapore and
publicly listed on the Singapore Exchange Limited. This investment is classified as a marketable security and is classified as
long-term assets on the consolidated balance sheets as the Company has the intent and ability to hold the investments for a period
of at least one year. The Chairman of the Company, Mr. Heng Fai Ambrose Chan, is the Executive Director and Chief Executive Officer
of Alset Intl. Mr. Chan is also the majority shareholder of Alset Intl as well as the largest shareholder of the Company. The fair
value of the marketable security as of March 31, 2023, and December 31, 2022, was approximately $2,289,000
and $3,319,000
respectively. During the three-month ended March 31, 2023 and December 31, 2022, the Company recorded unrealized loss on this
investment of approximately $1,156,000
and $1,590,000,
respectively.
On
March 2, 2020, AMRE entered into a $200,000 unsecured promissory note with LVAMPTE, a related party. The Note calls for interest to be
paid annually on March 2 with interest fixed at 8.0%. As further incentive to enter into this Note, AMRE granted LVAMPTE warrants to
purchase shares of common stock of AMRE (the “Warrants”). The amount of the warrants granted is the equivalent of the Note
Principal divided by the Exercise Price. The Warrants are exercisable for four years and are exercisable at $5.00 per share (the “Exercise”
Price). In March 2022, this debt was converted into equity in AMRE, and LVAMPTE exercised the warrants for $200,000 (see the consolidated
statement of changes in stockholders’ equity) The holder is a related party owned by the Chairman of the Company’s board
of directors.
On
March 18, 2021, the Company entered into an agreement with Alset EHome International, Inc. (“Seller”), a related party, to
purchase from the Seller’s its wholly owned subsidiary Impact Oncology PTE Ltd. (“IOPL”) for a purchase price $2,480,000.
The acquisition of IOPL has been treated as an asset acquisition as IOPL does not meet the definition of a business as defined in Topic
805. IOPL owns 2,480,000 shares of common stock of Vivacitas along with the option to purchase an additional 250,000 shares of common
stock. The Sellers largest shareholder is Mr. Heng Fai Ambrose Chan, the Chairman of the Company’s board of directors and its largest
shareholder. At December 31, 2022 the full value of this investment was impaired.
On
October 13, 2021, LVAM entered into loan agreement with BMIC (“BMIC Loan”), a related party, whereas LVAM borrowed the principal
amount of $3,000,000, with interest to be charged at a variable rate to be adjusted at the maturity date. The BMIC Loan matures on October
12, 2022, and contains an auto renewal period of three months. As of March 31, 2023 and December 31, 2022, $512,000 and $3,000,000,
respectively, is included in Current portion of long-term debt, net on the consolidated balance sheet.
On
October 13, 2021, LVAM entered into loan agreement with Lee Wilson Tsz Kin (“Wilson Loan”), a related party, whereas
LVAM borrowed the principal amount of $3,000,000,
with interest to be charged at a variable rate to be calculated at the maturity date. The Wilson Loan matures on October
12, 2022, and contains an auto renewal period of nine months. This loan was funded during March 2022. As of March 31, 2023
$1,997,000
is included in Current portion of long-term debt, net on the consolidated balance sheet. Interest expense equaled $8,000
in 2023.
On
November 2021, AMRE entered into a convertible promissory note (“Alset Note”) with Alset International Limited (“Alset
International”), a related party, for the principal amount of $8,350,000. The Alset Note accrues interest at 8% per annum and matures
in December 2023, with interest due quarterly and the principal due at maturity. Principal and interest of approximately $8,469,000 is
included in long-term debt, net on the accompanying consolidated balance sheet on December 31, 2022. On May 17, 2022, the shareholders
of the Company approved the issuance of up to 21,366,177 Shares our Common Stock to Alset International Limited (“Alset International”),
a related party, to purchase the Convertible Promissory Note issued by American Medical REIT, Inc. with a principal amount of $8,350,000
and accrued but unpaid interest of $367,400 through May 15, 2022. This transaction was finalized in July 2022.
On
February 28, 2022, DSS entered into an Amendment to Stock Purchase Agreement (the “Amendment”) with its shareholder Alset
EHome International Inc. (“AEI”), pursuant to which the Company and AEI have agreed to amend certain terms of the Stock Purchase
Agreement dated January 25, 2022 (the “SPA”). Pursuant to the SPA, AEI had agreed to purchase up to 44,619,423 shares of
the Company’s common stock for a purchase price of $0.3810 per share, for an aggregate purchase price of $17,000,000. Pursuant
to the Amendment, the number of shares of the common stock of the Company that the AEI will purchase has been reduced to 3,986,877 shares
for an aggregate purchase price of $1,519,000. This transaction was completed on March 9, 2022. In addition, the Company’s Executive
Chairman and a significant stockholder, Heng Fai Ambrose Chan, is the Chairman, Chief Executive Officer and largest shareholder of AEI.
In
October 2017, Sharing Services issued a Convertible Promissory Note in the principal amount of $ 50,000 (the “Note”) to HWH
International, Inc. (“HWH” or the “Holder”), a related party. HWH is affiliated with Heng Fai Ambrose Chan, who
became a Director of the Company in April 2020. The Note is convertible into 333,333 shares of the Company’s Common Stock. Concurrent
with issuance of the Note, the Company issued to HWH a detachable stock warrant to purchase up to an additional 333,333 shares of the
Company’s Common Stock, at an exercise price of $0.15 per share. Under the terms of the Note and the detachable stock warrant,
the Holder is entitled to certain financing rights. If the Company enters into more favorable transactions with a third-party investor,
it must notify the Holder and may have to amend and restate the Note and the detachable stock warrant to be identical. On August 9, 2022,
HWH and the Company executed an agreement to settle the Note and cancel the related stock warrant for $78,635.62, which amount represents
the principal plus accrued interest. The Company made the payment to HWH on August 9, 2022.
On
May 17, 2022, the shareholders of the Company approved the acquisition of 62,122,908 shares of True Partners Capital Holdings Limited
(“True Partners”), a company publicly traded on the Hong Kong stock exchange in exchange for 17,570,948 shares of DSS stock.
The True Partner shares were acquired from Alset EHome International, Inc. (“Alset EHome”), a related party. Mr. Heng Fai
Ambrose Chan, our director and Executive Chairman, is also Chairman of the Board, Chief Executive Officer, and the largest beneficial
owner of the outstanding shares of Alset EHome. This transaction was completed with the transfer of DSS share to Alset EHome on July
1, 2022 with the issuance of DSS shares, which were valued at $0.34 per share, to Alset EHome.
16.
Subsequent Events
On
May 4, 2023, the Company distributed approximately 280 million shares of SHRG beneficially held by DSS and Decentralized Sharing Systems
in the form of a dividend to the shareholders of DSS common stock. Upon completion of this distribution, DSS will retain an ownership
interest in SHRG of approximately 7%.