10-K/A: DSS Inc. Files Amended 10-K After $23.5 Million Restatement

DSS Inc. has filed an amended 10-K report to restate its financial statements for 2023 and 2022, correcting a $23.5 million overstatement of a loss related to the deconsolidation of Sharing Services Global Corporation.

Summary

• DSS Inc. filed an amended 10-K report to restate its financial statements for the years ended December 31, 2023 and 2022.
• The restatement was necessary due to an unintentional overstatement of a loss by approximately $23.5 million related to the deconsolidation of Sharing Services Global Corporation (SHRG).
• The company distributed approximately 280 million shares of SHRG in May 2023, retaining a 7% ownership interest.
• The consolidated statement of operations does not include SHRG activity after April 30, 2023.
• The restatement also includes the reclassification of discontinued operations for the years ended December 31, 2023 and 2022.
• The company's common stock is listed on the NYSE American under the ticker symbol DSS.
• As of October 9, 2024, there were 7,066,772 shares of common stock outstanding.
• The aggregate market value of the company's common stock held by non-affiliates was $20,278,452 as of June 30, 2023.
• The company operates five distinct business lines: Product Packaging, Biotechnology, Commercial Lending, Securities and Investment Management, and Direct Marketing.
• Premier Packaging, a subsidiary, experienced a 72% increase in revenues in the first quarter of 2023 compared to the first quarter of 2022.
• American Pacific Bancorp issued over $14 million in new loans and over $4 million in renewal loans in 2023.
• The company is preparing for an IPO of its majority-owned subsidiary, Impact BioMedical, Inc.
• Premier Packaging's net income increased 126% year-over-year.
• The company plans to launch a Total Return Bond Fund to capitalize on higher interest rates.
• The company's strategy includes a three-stage development process: asset acquisition, revenue generation, and profitability.
• The company distributed a stock dividend of four shares of Impact BioMedical for every share of DSS held as of July 10, 2023.
• The company's managed loan portfolio is more than $22 million, earning 1.25% annually in service charges.
• The company's Premier Packaging division secured a contract extension with a major retailer worth up to $15 million over four years.
• The company effected a 1-for-20 reverse stock split on January 8, 2024.

Sentiment

Score: 4

Explanation: The document contains both positive and negative elements. While there are some positive developments in certain business segments, the restatement of financials, identified weaknesses in internal controls, and the significant losses and impairments indicate a negative sentiment overall. The company is also facing significant risks and challenges.

Positives

• Premier Packaging experienced a 72% increase in revenues in the first quarter of 2023 compared to the first quarter of 2022.
• American Pacific Bancorp issued over $14 million in new loans and over $4 million in renewal loans in 2023.
• Premier Packaging's net income increased 126% year-over-year.
• The company plans to launch a Total Return Bond Fund to capitalize on higher interest rates.
• Premier Packaging secured a contract extension with a major retailer worth up to $15 million over four years.

Negatives

• The company restated its financial statements for 2023 and 2022 due to a $23.5 million overstatement of a loss.
• The company's rental income decreased 42% due to a tenant not making rent payments.
• The company's direct marketing revenues decreased 42% in 2023 compared to 2022.
• The company's net investment income decreased 39% due to uncollectible notes receivable.
• The company has identified weaknesses in its internal control over financial reporting structure.

Risks

• The value of intangible assets and investments may not be equal to their carrying values.
• The company has secured indebtedness and may be unable to satisfy its obligations.
• A significant amount of the company's revenue is derived from two customers.
• The company may face intellectual property infringement claims.
• Certain of the company's recently developed products are not yet commercially accepted.
• The markets in which the company operates are highly competitive.
• Breaches in security, whether cyber or physical, could negatively impact the business.
• The company's investments in Asia are subject to unique risks and uncertainties.
• Future growth in the company's business could make it difficult to manage resources.
• The company may fail to retain key personnel and attract additional qualified personnel.
• The company has identified weaknesses in its internal control over financial reporting structure.
• The company does not intend to pay cash dividends.
• The company may seek to develop additional new inventions and intellectual property, which would take time and would be costly.
• Changes in the laws and regulations to which the company is subject may increase costs.
• Declines in general economic conditions or acts of war and terrorism may adversely impact the business.
• Failure to comply with the continued listing standards of the NYSE American LLC Exchange may result in a delisting of the company's common stock.
• Additional financing or future equity issuances may result in future dilution to shareholders.

Future Outlook

The company believes it has sufficient cash to meet its cash requirements for at least the next 12 months and anticipates access to capital through the sale of equity securities and debt financing. The company is also taking steps to sell real estate holdings and reduce expenses.

Management Comments

• The structure of this spinoff is designed for DSS to maintain the consolidation of IBIOs financials, ensuring our shareholders receive the benefits of IBIOs success on a go forward basis.
• Our commitment to reinforcing our leadership dynamics is evident in the recent enhancement of the management team at DSS Wealth Management, Inc.
• We are planning to launch a Total Return Bond Fund, to capitalize on the prevailing higher interest rates.
• We firmly believe in our unique decentralized sharing model, combined with the three-stage development process, to create substantial shareholder value.
• We are very pleased to see that our capital investment to increase production capacity and economies of scale at Premier Packaging continues to result in satisfied clients and increasing revenues.
• Importantly, Impact BioMedical is just one of multiple assets we believe can have liquidity events in 2024 as we continue to diligently move our growing portfolio of businesses through our unique and strategic value creation process.

Industry Context

The company operates in diverse sectors including product packaging, biotechnology, commercial lending, securities and investment management, and direct marketing. The announcement reflects the company's efforts to streamline operations, focus on core business lines, and capitalize on growth opportunities in these sectors. The company's strategic focus on IPOs and decentralized sharing models aligns with current trends in the financial and technology industries.

Comparison to Industry Standards

• The company's Premier Packaging division competes with major integrated paper companies like West Rock Company and Graphic Packaging Holding Company.
• The company's commercial lending business competes with traditional commercial banks and investment banking firms.
• The company's securities and investment management division competes with individual money managers, RIAs, broker dealers, REITs and other personal investment companies.
• The company's biotechnology division competes with other companies in the BioHealth and BioMedical fields, including those focused on drug discovery and treatment of diseases.
• The company's direct marketing division competes with other companies in the direct-to-consumer product marketing space.

Legal Proceedings

• The company was involved in litigation with Maiden Biosciences, which was settled for $8.75 million.

Related Party Transactions

• The company has several related party transactions, including investments in Alset International Limited, loans with BMIC and Lee Wilson Tsz Kin, and transactions with Alset EHome International Inc.

Stakeholder Impact

• Shareholders will be impacted by the restatement of financial statements and the potential dilution from future equity issuances.
• Employees may be affected by changes in compensation and benefits.
• Customers may be impacted by changes in the company's product offerings and services.
• Suppliers may be affected by changes in the company's procurement practices.
• Creditors may be impacted by the company's ability to repay its debts.

Next Steps

• The company is preparing for an IPO of its majority-owned subsidiary, Impact BioMedical, Inc.
• The company plans to launch a Total Return Bond Fund.
• The company will continue to monitor its managed loan portfolio.
• The company will explore future opportunities in specialized areas of lending.
• The company will continue to add capabilities in key areas that increase operational efficiencies to strengthen its foundation and offerings.
• The company will continue to take measures to materially reduce expenses and cash burn at all corporate and business line levels.

Key Dates

Keywords

restatement, financial statements, deconsolidation, stock dividend, IPO, reverse stock split, Premier Packaging, Impact BioMedical, American Pacific Bancorp, biotechnology, commercial lending, securities, investment management, direct marketing