Certain statements contained herein this report constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "1995 Reform Act"). Except for the historical information contained herein, this report contains forward-looking statements (identified by words such as "estimate", "project", "anticipate", "plan", "expect", "intend", "believe", "hope", "strategy" and similar expressions), which are based on our current expectations and speak only as of the date made. These forward-looking statements are subject to various risks, uncertainties and factors, that could cause actual results to differ materially from the results anticipated in the forward-looking statements. Overview The Company, incorporated in the state of
New Yorkin May 1984has 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 Yorkcorporation, 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 Packagingline is led by Premier Packaging Corporation, Inc.("Premier"), a New Yorkcorporation. 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, Japanand 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 trust ("REIT"), organized for the purposes of acquiring hospitals and other acute or post-acute care centers from leading clinical operators with dominant market share in secondary and tertiary markets, and leasing each property to a single operator under a triple-net lease. the REIT was formed to originate, acquire, and lease a credit-centric portfolio of licensed medical real estate. (6) Alternative Trading was established to develop and/or acquire assets and investments in the securities trading and/or funds management arena. Alt. Trading, in partnership with recognized global leaders in alternative trading systems, intends to own and operate in the US a single or multiple vertical digital asset exchanges for securities, tokenized assets, utility tokens, and cryptocurrency via an alternative trading platform using blockchain technology. The scope of services within this section is planned to include asset issuance and allocation (securities and cryptocurrency), 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. 29
February 8, 2021, DSS Securitiesannounced that it entered into a joint venture ("JV") with Coinstreet Partners("Coinstreet"), a global decentralized digital investment banking group and digital asset financial service firm, and GSX Group("GSX"), a global digital exchange ecosystem for the issuance, trading, and settlement of tokenized securities, using its proprietary blockchain solution. The JV leverages the operational strengths and assets of three key leaders in their field, combining traditional capital market experience, Fintech innovations, and business networks from three continents, North America, Europe, and Asia, to capitalize on unique digital asset opportunities. The JV reported that it intended to first pursue a digital securities exchange license in the US. Moving forward, this JV will be the key operational company building and operating a digital securities exchange that utilizes the GSX STACS blockchain technology, serving corporate issuers and investors in the sector. On February 25, 2021, DSS Securitiesannounced its acquisition of an equity interest in WestPark Capital, Inc.("WestPark") and an investment in BMI Capital International LLC("BMICI"). DSS Securitiesexecuted two separate transactions that were designed to grow the securities division by signing a binding note and stock exchange letter of intent to own 7.5% of the issued and outstanding shares of WestPark and acquiring 24.9% of BMICI through a purchase agreement. WestPark is a full-service investment banking and securities brokerage firm which serves the needs of both private and public companies worldwide, as well as individual and institutional investors. BMI is a private investment bank specializing in corporate finance advising, raising equity, and venture services, providing a global "one-stop" corporate consultancy to listed companies. From corporate finance to professional valuation, corporate communications to event management, BMICI services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia. On March 1, 2021, Decentralized Sharing Systems, Inc.("Decentralized") announced that it increased its investment in Sharing Services Global Corporation ("Sharing Services" or "SHRG"), a publicly traded company dedicated to maximizing shareholder value through the acquisition and development of innovative companies, products, and technologies in the direct selling industry, through a $30 millionconvertible promissory note dated April 5, 2021. Decentralized's financing was made as an investment that would help accelerate Sharing Services sales and growth, as well as international expansion, with the expectation that such capital reserves would help make Sharing Services a dominant player in the global marketplace over the next two years. It was reported that the new $30 millioninvestment would have the potential to exponentially increase Sharing Services sales channels and substantially expand its product portfolio, and to position Sharing Services to capitalize on consolidation and roll up opportunities of other direct selling companies. In the joint announcement, Sharing Services reported that the additional funding would now allow it to accelerate its global expansion with a direct focus on the Asian markets, and specifically in countries such as South Korea, Japan, Hong Kong, China, Singapore, Taiwan, Thailand, Malaysia, and the Philippines. In accordance with the April 5, 2021, convertible promissory note, SHRG issued to the Company 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of the loan origination fee and 12,000,000 shares in prepayment of interest for the first year. As of and through September 30, 2020, the Company classified its investment in Sharing Services Global Corp. ("SHRG"), a publicly traded company, as marketable equity security and measured it at fair value with gains and losses recognized in other income. In July 2020, through continued acquisition of common stock, as detailed below, the Company obtained greater than 20% ownership of SHRG, and thus has the ability to exercise significant influence over it. During the quarter ended September 30, 2020, the Company began to account for its investment in SHRG using the equity method in accordance with ASC Topic 323, Investments-Equity Method and Joint Venturesrecognizing our share of SHRG's earnings and losses within our consolidated statement of operations. Through a series of transactions, DSS increased its ownership of voting shares in SHRG to approximately 58% on December 23, 2021. The 58% ownership of SHRG meets the definition of a business with inputs, processes, and outputs, and therefore, the Company has concluded to account for this transaction in accordance with the acquisition method of accounting under Topic 805 and began consolidating the financial results of SHRG as of December 31, 2021. On January 24, 2022, the Company exercised 50,000,000 warrants received as part of a consulting agreement with SHRG at the exercise price of $0.0001, bring its ownership percentage of voting shares to approximately 65%. The Company, via three (3) of the Company's existing board members, currently holds four (4) of the five (5) SHRG board of director seats. Mr. John "JT" Thatch, DSS's Lead Independent Director and as well the CEO of SHRG is on the SHRG Board, along with Mr. Heng Fai Ambrose Chan, DSS's Executive Chairman of the board of directors (joined the SHRG Board effective May 4, 2020), and Mr. Frank D. Heuszel, the CEO of the Company (joined the SHRG Board effective September 29, 2020). On March 15, 2021, the Company, through one of its subsidiaries, DSS BioMedical International, Inc.entered into a Stock Purchase Agreement (the "Agreement") with Vivacitas Oncology Inc.("Vivacitas"), to purchase 500,000 shares of its common stock at the per share price of $1.00, with an option to purchase 1,500,000 additional shares at the per share price of $1.00. In addition, under the terms of the Agreement, the Company will be allocated two seats on the board of Vivacitas. On March 18, 2021, the Company entered into an agreement with Alset EHome International, Inc. ("Seller") to acquire the Seller's wholly owned subsidiary Impact Oncology PTE Ltdfor the purchase price of $2,480,000to effectively purchase ownership of 2,480,000 shares of common stock of Vivacitas. This agreement includes an option to purchase an additional 250,000 shares of common stock. As a result of these two transactions, which were closed on March 21, 2021, and March 29, 2021, respectively, the Company owns an approximate 15.7% equity position in Vivacitas. The Seller's largest shareholder is Mr. Heng Fai Ambrose Chan, the Chairman of the Company's board of directors and its largest shareholder. On July 22, 2021, the Company exercised 1,000,000 of the available options under the Vivacitas Agreement #1. The Company's current equity position in Vivacitas approximates 16%. 30 On April 21, 2021, the Company announced its wholly owned subsidiary, Premier Packaging Corporation'sintentions to relocate from its current 48,000 square-foot manufacturing facility from Victor, NYto a new 105,000 square-foot facility in the Town of Henrietta, NYapproximately 15 miles from its Victorlocation by the end of 2021. In connection with this relocation, Premier Packaginghas entered into an agreement to sell its current Victorlocation and closed on the transaction in March 2022. On May 13, 2021, Sentinel Brokers, LLC., a subsidiary of the Company entered into a stock purchase agreement ("Sentinel Agreement") to acquire a 24.9% equity position of Sentinel Brokers Company, Inc.("Sentinel"), a company registered in the state of New York, for the purchase price of $300,000. Under the terms of this agreement, the Company as the option to purchase an additional 50.1% of the outstanding Class A Common Shares. Upon the exercising of this option, but no earlier than one year following the effective date the Sentinel Agreement, Sentinel has the option to sell the remaining 25% to the Company. In consideration of purchase price investment in Sentinel, the Company is entitled to an additional 50.1% of the net profits of Sentinel On May 14, 2021, the Company announced that its wholly owned subsidiary, DSS PureAir, Inc., a Texascorporation ("DSS PureAir"), closed on a Securities Purchase Agreement with Puradigm LLC, a Nevadalimited liability corporation ("Puradigm"). Pursuant to the terms of the Securities Purchase Agreement, DSS PureAir agreed to provide Puradigm a secured convertible promissory note in the maximum principal amount of $5,000,000.00(the "Puradigm Note"). The Puradigm Note has a two-year term with interest at 6.65% payable quarterly. All, or part of the Puradigm Note principal balance can be converted at the sole discretion of DSS PureAir for up to an 18% membership interest in Puradigm LLC. The Puradigm Note is secured by all the assets of Puradigm under a security agreement with Puradigm. The outstanding principal and interest as of September 30, 2022and December 31, 2021, approximated $5,333,000and $5,081,000, respectively, which is included in Current portion of notes receivable on the accompanying consolidated balance sheet. On June 18, 2021, AMRE Shelton, LLC., ("AMRE Shelton") a subsidiary of AMRE financed the purchase of a 40,000 square foot, 2.0 story, Class A+ multi-tenant medical office building located on a 13.62-acre site in Shelton, Connecticut(See Note 7). In accordance with Topic 805, the acquisition of the medical acquired has been determined to be an acquisition of assets as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. This property was appraised at approximately $7,150,000, of which $6,027,000and $815,000was allocated to the facility and land respectively. Also include in the value of the property is $308,000of intangible assets with an estimated useful life of 11 years. Contained within the sale-purchase agreement for this facility, is a $1,500,000earnout due to the seller if certain criteria are met. As of September 30, 2022, no liability has been recorded for this earnout as management determined it is currently remote. On September 9, 2021, the Company finalized a stock purchase agreement (the "SPA") with American Pacific Bancorp("APB"), which provided for an investment of $40,000,000by the Company into APB for an aggregate of 6,666,700 shares of the APB's Class A Common Stock, par value $0.01per share. Subject to the terms and conditions contained in the SPA, the shares issued at a purchase price of $6.00per share. As a result of this transaction, DSS became the majority owner of APB. APB 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, Japanand South Korea, and (ii) companies engaged in-nonbanking activities closely related to banking, including loan syndication services, mortgage banking, trust and escrow services, banking technology, loan servicing, equipment leasing, problem asset management, SPAC (special purpose acquisition company) consulting, and advisory capital raising services. From this financial platform, the Company shall provide an integrated suite of financial services for businesses that shall include commercial business lines of credit, land development financing, inventory financing, third party loan servicing, and services that address the financial needs of the world Gig Economy. On September 13, 2021, the Company finalized a shareholder agreement and joint venture between its subsidiary, DSS Financial Management, Inc.("DFMI") and HR1 Holdings Limited("HR1"), a company incorporated in the British Virgin Islands, for the purpose to operate a vehicle for private and institutional investors seeking a highly liquid investment fund with attractive risk adjusted returns relative to market unpredictability and volatility. Under the terms of this agreement, 4000 shares or 40% of the Company's subsidiary Liquid Asset Limited Management Limited("LVAM"), a Hong Kongcompany was transferred to HR1 whereas at the conclusion of the transaction DFMI would own 60% of LVAM and HR1 would own 40%. LVAM executes within reliable platforms and broad market access and uses proprietary systems and algorithms to trade liquid exchange-traded funds (ETFs), stocks, futures or crypto. Aimed at providing consistent returns while offering the unique ability to liquidate the portfolio within 5 to 10 minutes under normal market conditions, LVAM provides an array of advanced tools and products enabling customers to explore multiple opportunities, strengthen and diversify their portfolios, and meet their individual investing goals. On April 7, 2021, the Company entered into a transfer and assignment agreement ("RIA Agreement") between DSS Securities, Inc.("DSSS") and AmericaFirst Capital Management, LLC("Advisor"), a Californialimited liability company and the registered investment advisor ("RIA") to all the funds within the AmericaFirst Quantitative Funds Trust ("Trust"). In September of 2021, with the approval of the Trust's Board of Trusteesand its shareholders, and with the consideration of $600,000paid, DSSS became the new registered investment advisor to the Trust. Upon the completion of the transfer, the Trust was renamed to the DSS AmericaFirst Quantitative Trust. The DSS AmericaFirst Quantitative Trustis a Delawarebusiness trust established in 2012. The Trust currently consists of 4 mutual funds managed by DSS Wealth Management, Inc.: The DSS AmericaFirst Income Trends Fund, DSS AmericaFirst Defensive Growth Fund, DSS AmericaFirst Risk-On Risk-Off Fund, and DSS AmericaFirst Large Cap Buyback Fund. The funds seek to outperform their respective benchmark indices by applying a quantitative rules-based approach to security selection. The DSS AmericaFirst Quantitative Funds is a suite of mutual funds managed by DSS Wealth Management, Inc.that will expand into numerous investment platforms including additional mutual funds, exchange-traded funds, unit investment trusts and closed-end funds. We see substantial growth opportunities in each of these platforms as we are committed to building and expanding upon an experienced distribution infrastructure. For DSSS services rendered in its role as RIA, the Trust shall pay a fee for each fund calculated as a percentage of the average daily net assets. The $600,000consideration given is recorded as an Other intangible asset, net on the Consolidated Balance Sheet at September 30, 2022. As the RIA Agreement has no defined period, this asset has been deemed an infinite life asset and no amortization has been taken. On November 4, 2021, AMRE LifeCare Portfolio, LLC. ("AMRE LifeCare"), a subsidiary of AMRE, acquired three medical facilities located in Fort Worth, Texas, Plano, Texas, and Pittsburgh, Pennsylvaniafor a purchase price of $62,000,000. In accordance with Topic 805, the acquisition of the medical facility has been determined to be an acquisition of assets as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. These assets are classified as investments, real estate on the consolidated balance sheet. The purchase price has been allocated as $32,100,000, $12,100,000, and $1,500,000for the facility, land and site improvements respectively. Also include in the value of the property is $16,321,000of intangible assets with estimated useful lives ranging from 1 to 11 years. All assets were allocated on a relative fair value basis. On December 21, 2021, AMRE Winter Haven, LLC. ("AMRE Winter Haven"), a subsidiary of AMRE, acquired a medical facility located in Winter Haven, Floridafor a purchase price of $4,500,000. In accordance with Topic 805, the acquisition of the medical facility has been determined to be an acquisition of assets as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. These assets are classified as investments, real estate on the consolidated balance sheet. The purchase price has been approximately allocated as $3,200,000, $1,000,000, and $222,000for the facility, land and site and tenant improvements respectively. Also include in the value of the property is $29,000of intangible assets with an estimated useful life of approximating 5 years. All assets were allocated on a relative fair value basis. 31
December 23, 2021, DSS purchased 50,000,000 shares at $0.06per share of Sharing Services Global Corporation ("SHRG") via a private placement. With this purchase, DSS increased its ownership of voting shares from approximately 47% of SHRG to approximately 58%. On January 24, 2022, the Company exercised 50,000,000 warrants received as part of a consulting agreement with SHRG at the exercise price of $0.0001, bringing its ownership percentage of voting shares to approximately 65%. SHRG aims to build shareholder value by developing or acquiring businesses that increase the Company's product and 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 Pacificregion using a direct selling business model. The Company markets its products and services through its independent sales force, using its proprietary websites, including: www.elevacity.com and www.thehappyco.com. The Company, headquartered in Plano, Texas, was incorporated in the State of Nevadaon April 24, 2015, and is an emerging growth company. The Company's Common Stock is traded, under the symbol "SHRG," in the OTCQB Market, an over-the-counter trading platforms market operated by OTC Markets Group Inc. 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 $8,350,000and accrued but unpaid interest of $367,400through 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 exchangein 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, 2022with the issuance of DSS shares, which were valued at $0.34per share, to Alset EHome. On August 25, 2022, DSS PureAir, a subsidiary of the Company finalized an asset purchase agreement with Celios Corporation("Celios") to acquire inventory, patents associated with that inventory, and other intangible assets from Celios for $900,000. In accordance with Topic 805, the acquisition of the inventory and related patents acquired has been determined to be an acquisition of assets as substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. The inventory acquired was valued at $491,000, while the related patents were valued at $340,000with an estimated remaining useful life of 20 years.
The five reporting segments are as follows:
Premier Packaging: Premier Packaging Corporationprovides custom packaging services and serves clients in the pharmaceutical, nutraceutical, consumer goods, beverage, specialty foods, confections, photo packaging and direct marketing industries, among others. The group also provides active and intelligent packaging and document security printing services for end-user customers. In addition, the division produces a wide array of printed materials, such as folding cartons and paperboard packaging, security paper, vital records, prescription paper, birth certificates, receipts, identification materials, entertainment tickets, secure coupons and parts tracking forms. The division also provides resources and production equipment for our ongoing research and development of security printing, brand protection, consumer engagement and related technologies. Premier is nearing completion of its facility expansion with operations expected to begin at the new 105,000 sq. ft. facility in early March 2022.
For over 25 years, Premier has been a market leader in providing solutions for paperboard packaging from consumer retail packaging and heavy mailing envelopes, to sophisticated custom folding cartons and complex three-dimensional direct mail solutions. Premier's innovative products and design team delivers packaging that provides functionality, marketability, and sustainability, with its fiber-based packing solutions providing an alternative to traditional plastic packaging.
Since 2019, we have accelerated the transformation of Premier's operations, investing in state-of-the-art manufacturing equipment, people, and processes to increase its capacity, improve quality and delivery, and to ensure it has the resources to support its growing customer base and their evolving supply chain demands. Commercial Lending: ("Commercial Lending") through its operating company,
American Pacific Bancorp("APB") provides an integrated suite of financial services for businesses that include commercial business lines of credit, land development financing, inventory financing, third party loan, servicing, and services that address the financial needs of the world Gig Economy. APB intends to continue to develop and expand its lending platform to serve the small to mid-size commercial borrower and to continue to acquire equity positions of commercial banks in the US to develop its lending network and to provide global banking services to clients worldwide, including servicing markets with limited access to traditional US banking services. APB's target customers are businesses with annual revenues of $5 millionto $50+ million, including manufacturers, wholesalers, retailers, distributors, importers, and service companies. APB has expertise in, and services tailored for, specific industries, including beverage, food and agribusiness, technology, healthcare, government, higher education, clean technology, and environmental services. Biotechnology: ("Biotech") This sector, through its subsidiary Impact BioMedical, Inc.targets unmet, urgent medical needs and expands the borders of medical and pharmaceutical science. Impact drives mission-oriented research, development, and commercialization of solutions for medical advances in human wellness and healthcare. By leveraging technology and new science with strategic partnerships, Impact Bio provides advances in drug discovery for the prevention, inhibition, and treatment of neurological, oncology and immuno-related diseases. Other exciting technologies include a breakthrough alternative sugar aimed to combat diabetes and functional fragrance formulations aimed at the industrial and medical industry.
The business model of BioHealth and Impact BioMedical revolves around two
methodologies – Licensing and Sales Distribution.
1) Impact develops valuable and unique patented technologies which will be
licensed to pharmaceutical, large consumer package goods companies and venture
capitalists in exchange for usage licensing and royalties.
2) Impact utilizes the DSS ecosystem to leverage its sister companies that have in place distribution networks on a global scale. Impact will engage in branded and private labelling of certain products for sales generation through these channels. This global distribution model will give direct access to end users of Impact's nutraceutical and health related products. 32 Securities and Investment Management: ("Securities") Securities was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, real estate investment funds, broker dealers, and mutual funds management. This business sector has already established the following business lines and associated products and services:
Medical REIT”) and its management company AAMI (“
Through AAMI/AMRE, a medical real estate investment trust, fulfills community
needs for quality healthcare facilities while enabling care providers to
allocate their capital to growth and investment in their contemporary clinical
and critical care businesses. Urban and suburban communities are in need of
modern healthcare facilities that provide a range of medical outpatient
services. The funds ultimate product is an investor opportunity in a managed
medical real estate investment trust.
? Real Estate Title Services:
sellers, and brokers alike confidence during big real estate transactions, not
just in a transaction, but in the property itself. Through bundled services,
escrow agent assistance.
? Sentinel: Sentinel primarily operates as a financial intermediary,
facilitating institutional trading of municipal and corporate bonds as well as
preferred stock, and accelerates the trajectory of the DSS digital securities
? WestPark: WestPark, a company we hold a minority interest in, is a
full-service investment banking and securities brokerage firm which serves the
needs of both private and public companies worldwide, as well as individual
and institutional investors.
? BMI: BMI is a private investment bank specializing in corporate finance
advising, raising equity, and venture services, providing a global “one-stop”
corporate consultancy to listed companies. From corporate finance to
professional valuation, corporate communications to event management, BMI
services companies in the US,
? DSS AmericaFirst: DSS AmericaFirst is a suite of mutual funds managed by DSS
Wealth Management. DSS AmericaFirst expects to expand into numerous investment
platforms including additional mutual funds, exchange-traded funds, unit
investment trusts, and closed-end funds. DSS AmericaFirst currently consists
of four mutual funds that seek to outperform their respective benchmark
indices by applying a quantitative rules-based approach to security selection.
Direct Marketing: (“Direct”) Through its holding company,
Global Corporation provide an array of products and services, through an
independent contractor network.
For example, Decentralized's wholly owned subsidiary,
HWH World, Inc.promotes products and services that fulfill its corporate position of health, wealth, and happiness. The HWH Marketplacethrough its brands desires to help its customers become the healthiest, happiest versions of themselves. For the health component, the company offers herbal alternatives of nutraceutical, consumables and topicals, dietary supplements, beauty and skin care products, personal care, gut health products, aloe vera based supplements, and other wellness products. As to the wealth component, the company is developing educational tools to its users to better manage individual finances and savings programs to help its consumers find each consumer's individual financial goal. As to the happiness component, the company is working with other partners to either acquire or partner in products and/or services to allow its consumers to enjoy and healthy living, including a global travel membership network. Further, Sharing Services, through its subsidiary Elevacity, markets and distributes health and wellness products under the "Elevate" brand, primarily in the United Statesand Canada. Sharing Services markets its products and services through its independent contractor distribution system and using its proprietary website: www.elevacity.com. In February 2021, the Company launched its new business brand, " The Happy Co.," at its Elevacity division. Elevacity as several well-known and signature products, including its top product lines of "Happy Coffees" and "Nootropic Beverages". Elevacity also sells a "healthy shake", a "Keto Coffee Booster", "Energy Caps", "XanthoMax© Happy Caps", "Wellness Vitamin Patches", various beauty and skin care products, and other wellness products.
Results of operations for the three and nine months ended
compared to the three and nine months ended
This discussion should be read in conjunction with the financial statements and footnotes contained in this Quarterly Report and in our Annual Report on Form 10-K and 10K/A for the year ended
December 31, 2021. Revenue Three months Three months Nine months ended Nine months ended ended September ended September September 30, September 30, 30, 2022 30, 2021 % Change 2022 2021 % Change Printed products $ 5,032,000 $ 3,416,00047 % $ 12,650,000 $ 10,652,00019 % Rental income 1,485,000 184,000 707 % 4,656,000 184,000 2430 % Management fee income 38,000 - N/A 38,000 - N/A Net investment income 370,000 - N/A 644,000 - N/A Direct marketing 4,937,000 966,000 411 % 17,939,000 2,382,000 653 % Total Revenue $ 11,862,000 $ 4,566,000160 % $ 35,927,000 $ 13,218,000172 % For the three and nine months ended September 30, 2022, total revenue increased 160% and 172% respectively, as compared to the three and nine months ended September 30, 2021. Revenues from the sale of Printed products increased 47% and 19% during the three and nine months ended September 30, 2022, as compared to the same period in 2021, primarily due to efforts to meet customer demands after manufacturing down time that occurred during Q1 2022 related to relocating Premier's manufacturing plant during Q1 2022. Rental income increased 707% and 2430% for the three and nine months ended September 30, 2022as compared to the same period in 2021 as it represented new revenue stream beginning in June 2021. Net investment income of $370,000and $644,000for the three and nine months ended represents a new revenue stream beginning in September 2021for the Company associated with our Commercial Lending business segment. The Company's Direct Marketing revenues increased 411% and 653% for the three and nine months ended September 30, 2022as compared to 2021 due primarily to the increase sales in our Asian markets, and the inclusion of SHRG revenue for the period January 1, 2022, to September 30, 2022. 33 Costs and expenses Three months Three months Nine months Nine months ended September ended September ended September ended September 30, 2022 30, 2021 % Change 30, 2022 30,2021 % Change Cost of revenue, inclusive of depreciation and amortization $ 11,368,000 $ 3,406,000234 % $ 27,653,000 $ 10,045,000175 % Sales, general and administrative compensation 6,968,000 3,242,000 115 % 20,117,000 9,569,000 111 % Professional fees 2,919,000 1,245,000 134 % 6,416,000 3,444,000 86 % Stock based compensation - 13,000
-100 % 4,000 42,000 -90 % Sales and marketing 3,110,000 1,060,000 193 % 9,952,000 2,586,000 285 % Rent and utilities 295,000 42,000 602 % 632,000 175,000 261 %
Research and development 331,000 190,000 74 % 705,000 645,000 9 % Other operating expenses 1,054,000 913,000 15 % 2,430,000 2,703,000 -10 % Total costs and expenses
$ 26,045,000 $ 10,111,000
$ 67,969,000 $ 29,209,000133 % Costs of revenue, inclusive of depreciation and amortization includes all direct costs of direct marketing and printed products revenues, including materials, direct labor, transportation, manufacturing facility costs and depreciation. Costs of goods sold increased 234% and 175% for the three and nine months ended September 30, 2022, respectively as compared to the same periods in 2021. This increase is driven primarily by an increase in depreciation and amortization associated with assets acquired by our REIT line of business as well as increases in manufacturing costs associated with the products sold as part of our Direct Marketing, and Packaging and Printing segments, in particular, increases in freight, paper, and overhead costs.
Sales, general and administrative compensation costs, excluding stock-based
compensation, increased 115% and 111% for the three and nine months ended
additional head count associated with the inclusion of SHRG compensation costs
for the beginning on
Professional fees increased 134% and 86%, during the three and nine months ended
September 30, 2022, as compared to the same periods in 2021 respectively, primarily due to an increase in legal fees associated with the direct marketing segment, accounting fees, and due diligence fees related to potential acquisitions. Stock based compensation includes expense charges for all stock-based awards to employees, directors and consultants. Such awards include option grants, warrant grants, and restricted stock awards. Stock based compensation decreased 100% and 90% during the three and nine months ended September 30, 2022, as compared to the same periods in 2021 respectively, driven by the expiration of options awarded to employees no longer with the Company. Sales and marketing which include internet and trade publication advertising, travel and entertainment costs, sales-broker commissions, and trade show participation expenses. Sales and marketing increased 193% and 261% during the three and nine months ended September 30, 2022as compared to the same periods in 2021 respectively, is a result of the commissions paid to brokers associated with the Company's Direct Marketing segment, and in particular, the inclusion of SHRG financial results for the three and nine months ended September 30, 2022. Rent and utilities increased 602% and 261% during the three and nine months ended September 30, 2022, as compared to the same period in 2021 respectively, primarily due to a new facility lease in Houston, Texasstarted during the first quarter of 2021 as well as Premier Packaging'sleased facility beginning in March 2022. Research and development costs increased 74% and 9% during the three and nine months ended September 30, 2022, as compared to the same period in 2021 respectively, due to a increase in such activities at our Impact Biomedical, Inc.subsidiary.
Other operating expenses consist primarily of equipment maintenance and repairs,
office supplies, IT support, and insurance costs. During the three and nine
decreased 10% as compared to the same period in 2021 respectively, due to
increased software costs associated with enhancements to the Company’s ERP
system as well as new software implement as part of the Company’s Direct
Marketing segment and increased D&O insurance premiums.
34 Other Income (Expense) Three months Three months Nine months Nine months ended September ended September ended September ended September 30, 2022 30, 2021 % Change 30, 2022 30,2021 % Change Interest Income
$ 319,000 $ 1,593,000-80 % $ 613,000 $ 3,130,000-80 % Interest Expense (606,000 ) (31,000 )
1855 % (2,105,000 ) (157,000 ) 1241 %
Other Income (expense)
3,627,000 325,000 1016 % 4,203,000 575,000 631 % Loss on investments (14,302,000 ) (2,996,000 ) 377 % (10,479,000 ) (10,894,000 ) -4 % Gain/(loss) on equity method investment 344,000 (1,645,000 ) -121 % 134,000 (2,556,000 ) -105 % Gain/(Loss) on extinguishment of debt - - N/A 110,000 116,000 -5 % Gain on disposal of operations, net of taxes - - N/A 405,000 - N/A Total other income
$ (10,618,000 ) $ (2,754,000 )-286 % $ (7,119,000 ) $ (9,786,000 )27 %
Interest income is recognized on the Company’s money markets, and a portion of
notes receivable, identified in Note 4.
Other income (expense) for the nine months ended
the impairment of investments and notes receivables for SHRG approximating
Interest expense increased 1855% and 1241% during the three and nine months
increasing debt balances, in particular within our REIT business line.
Loss on investments consists of net realized losses on marketable securities which are recognized as the difference between the purchase price and sale price of the common stock investment. Also included are net unrealized losses on marketable securities which are recognized on the change in fair market value on our common stock investment. Loss on equity method investment is the Company's prorated portion of earnings on its investments treated under the equity method of account for the three and nine months ended
September 30, 2022. Gain on extinguishment of debt consists of funds received by AAMI in April 2020, by the SBA Paycheck Protection Program of $116,000. As of January 8, 2021, this note was forgiven in full. Also, during the nine months ended September 30, 2022, SHRG's $110,000SBA Paycheck Protection Program was forgiven in full.
Gain on sale of assets is driven by the Company’s gain on the sale of Premier’s
manufacturing facility in
Net Loss from Continuous Operations
Three months Three months Nine months Nine months ended September ended September ended September ended September 30, 2022 30, 2021 % Change 30, 2022 30,2021 % Change
Loss from continuing operations
Income from discontinued operations, net of tax - - NA - 2,129,000 100 % Net loss
$ (24,801,000 ) $ (6,675,000 )
$ (39,161,000 ) $ (19,333,000 )-103 % For the three and nine months ended September 30, 2022, the Company recorded net losses of $24,801,000and $39,161,000, respectively as compared to net losses of $6,675,000and $21,462,000, respectively for September 30, 2021. The increase in net loss during the three and nine months ended September 30, 2022, as compared to the same periods in 2021 primarily reflect the performance of Company investments. 35
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its liquidity and capital requirements primarily through the sale of its equity securities and debt financings. As of
September 30, 2022the Company had cash of approximately $22.8 million. As of September 30, 2022, the Company believes that it has sufficient cash to meet its cash requirements for at least the next 12 months from the filing date of this Annual Report. In addition, the Company believes that it will have access to sources of capital from the sale of its equity securities and debt financings.
Cash Flow from Operating Activities
Net cash used in operating activities was
Cash Flow from Investing Activities
Net cash used in investing activities was
$17,816,000for the nine months ended September 30, 2022as compared to $53,215,000for the nine months ended September 30, 2021. During the nine months ended September 30, 2022, we purchased $1,349,000in property, plant, and equipment, purchased $14,254,000in marketable securities, and issued $4,687,000in new notes receivable. This was offset by cash received on the disposal of assets approximating $2,557,000.
Cash Flow from Financing Activities
Net cash provided from financing activities was
$7,317,000for the nine months ended September 30, 2022as compared to $126,760,000for the nine months ended September 30, 2021. During the nine months ended September 30, 2022, we borrowed $6,360,00of long-term debt, had new issuances of common stock in the amount of $1,518,000. This was offset by payments of debt of $561,000.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements that have, or are
reasonably likely to have, an effect on our financial condition, financial
statements, revenues or expenses.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity with
U.S.GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in our financial statements and accompanying notes. The financial statements as of December 31, 2021, describe the significant accounting policies and methods used in the preparation of the financial statements. There have been no material changes to such critical accounting policies as of the Quarterly Report on Form 10-Q for the quarter ended September 30, 2022.
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