DSS.AMEXDss, INC
10-K: DSS Inc. Reports Mixed Results in 2023 Annual Filing, Navigates Strategic Shifts and Financial Challenges
Sentiment:
Annual Results
DSS Inc.'s 2023 annual report reveals a complex year marked by strategic business line adjustments, revenue declines, and significant impairment charges, alongside some positive developments in its packaging division.
Capital raiseThe company expects that it will need to raise additional funds in the future to finance its internal growth, merger and acquisition plans, investment activities, continued research and product development, and for other reasons.The company believes that it will have access to sources of capital from the sale of its equity securities and debt financing.
Worse than expectedThe company experienced a significant decrease in total revenue and a substantial net loss, indicating worse than expected financial performance.The company incurred significant losses on investments and impairment charges, further contributing to the worse than expected results.The company's direct marketing segment experienced a major decline in revenue, highlighting a significant underperformance.
Summary
- DSS Inc. reported a 36% decrease in total revenue for 2023, falling to approximately $30.3 million from $47.3 million in 2022.
- The company experienced a 72% decrease in direct marketing revenue, primarily due to the deconsolidation of Sharing Services Global Corporation (SHRG) in April 2023.
- Premier Packaging division saw a 3% increase in revenue and a 126% increase in net income year-over-year.
- Commercial Lending issued over $14 million in new loans and over $4 million in renewal loans during 2023.
- The company incurred significant losses on investments, totaling approximately $33 million, and impairment charges on real estate, goodwill, and intangible assets.
- Net loss attributable to common stockholders was approximately $80.6 million, compared to $59.8 million in the previous year.
- The company distributed shares of Sharing Services Global Corporation and Impact BioMedical Inc. as stock dividends to shareholders.
- A 1-for-20 reverse stock split was implemented in January 2024 to maintain NYSE American listing compliance.
- The company is transitioning away from certain industries like direct marketing and focusing more on growing its inventory/equipment loan portfolio.
- The company is planning to launch a Total Return Bond Fund in the first half of the year.
Sentiment
Score: 4
Explanation: The document presents a mixed picture with some positive developments in the packaging division and strategic shifts, but the significant revenue decline, substantial losses, and identified weaknesses in internal controls create a negative overall sentiment. The company faces significant challenges and risks, requiring careful management and strategic execution to improve its financial performance.
Positives
- Premier Packaging division showed strong growth with increased revenue and net income.
- Commercial Lending saw significant loan issuance and renewal activity.
- The company is actively pursuing strategic growth opportunities in specialized lending areas.
- The company is planning to launch a Total Return Bond Fund to capitalize on higher interest rates.
- The company has a strong focus on innovation and sustainability in its packaging division.
- The company is actively working to improve its financial performance and operational efficiencies.
Negatives
- Total revenue decreased by 36% year-over-year.
- Direct marketing revenue declined by 72% due to the deconsolidation of SHRG.
- The company incurred significant losses on investments, totaling approximately $33 million.
- The company recorded substantial impairment charges on real estate, goodwill, and intangible assets.
- Net loss attributable to common stockholders was approximately $80.6 million.
- The company has identified weaknesses in its internal control over financial reporting structure.
- The company has significant amounts of outstanding indebtedness, some of which are in default.
Risks
- The company faces risks related to its secured indebtedness and may be unable to satisfy obligations.
- A significant portion of revenue is derived from two customers, posing a risk if those relationships are lost.
- The company may face intellectual property infringement claims.
- The company's recently developed products may not achieve commercial acceptance.
- The company operates in highly competitive markets.
- The company's investments in Asia are subject to unique risks and uncertainties.
- The company has identified weaknesses in its internal control over financial reporting structure.
- The company may need to raise additional funds in the future, which could result in dilution to shareholders.
- The company is subject to numerous laws and regulations, which may increase costs.
- The company may be delisted from the NYSE American LLC Exchange if it fails to comply with continued listing standards.
Future Outlook
The company plans to pursue IPOs for its businesses, launch a Total Return Bond Fund, and focus on growing its inventory/equipment loan portfolio while transitioning away from certain industries like direct marketing. The company also expects Impact BioMedical to provide the first opportunity to clearly demonstrate a core tenant of its vision sharing our success with our shareholders.
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 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 several competitive industries, including packaging, biotechnology, commercial lending, and securities. The company is adapting to changing market conditions by focusing on high-growth areas and divesting from underperforming segments. The company is also leveraging technology and strategic partnerships to enhance its competitive position.
Comparison to Industry Standards
- The 3% revenue growth in the printed products segment is below the average growth rate for the packaging industry, which has seen a surge in demand due to e-commerce and sustainability trends. Companies like WestRock and Graphic Packaging Holding Company have reported higher growth rates in their packaging divisions.
- The 72% decrease in direct marketing revenue is significantly worse than industry averages, indicating a major challenge in this segment. Companies in the direct marketing space have been adapting to digital marketing trends, and DSS's performance suggests a need for a significant strategic shift.
- The commercial lending segment's loan issuance of $14 million is relatively small compared to larger commercial banks and financial institutions. Companies like JP Morgan Chase and Bank of America have much larger loan portfolios and a broader range of lending products.
- The significant losses on investments and impairment charges are concerning and suggest that the company's investment strategy may not be aligned with industry best practices. Other companies in the investment management space have reported more stable and profitable investment portfolios.
- The company's plan to launch a Total Return Bond Fund is a common strategy in the current higher interest rate environment, but its success will depend on the fund's performance and the company's ability to attract investors. Companies like BlackRock and Vanguard have established bond funds with strong track records and large assets under management.
Legal Proceedings
- The company settled the Maiden Biosciences litigation for $8.75 million, vacating the court's judgment and dismissing the case with prejudice.
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 a convertible promissory note with Alset International Limited.
- The company has also engaged in transactions with Alset EHome International Inc., including stock purchase agreements and the acquisition of True Partners Capital Holdings Limited shares.
Stakeholder Impact
- Shareholders experienced a significant decrease in the value of their investment due to the company's net loss and stock dilution.
- Employees may be affected by the company's cost-cutting measures and strategic shifts.
- Customers of the direct marketing segment may be impacted by the deconsolidation of SHRG.
- Suppliers may be affected by the company's financial challenges and strategic changes.
- Creditors face increased risk due to the company's outstanding indebtedness and defaults.
Next Steps
- The company plans to pursue Initial Public Offerings (IPOs) for its businesses.
- The company plans to launch a Total Return Bond Fund.
- The company will continue to monitor its managed loan portfolio.
- The company will continue to add capabilities in key areas that increase operational efficiencies.
- The company will continue to take measures to materially reduce expenses and cash burn.
- The company will continue to explore future opportunities in specialized areas of lending like broker/dealer loans.
Key Dates
| Date | Description |
|---|---|
| 2013-06-20 | Date of adoption of the 2013 Employee, Director and Consultant Equity Incentive Plan. |
| 2019-12-09 | Date of adoption of the 2020 Employee, Director and Consultant Equity Incentive Plan. |
| 2020-03-02 | Date of unsecured promissory note with American Medical REIT Inc. |
| 2020-09-10 | Date of membership interest purchase agreement with BMI Capital International LLC. |
| 2020-12-29 | Date of binding letter of intent with West Park Capital, Inc. |
| 2021-02-14 | Date of action against DSS, Inc. by Maiden Biosciences, Inc. |
| 2021-03-14 | Date of Stock Purchase Agreement with Vivacitas Oncology Inc. |
| 2021-05-13 | Date of stock purchase agreement with Sentinel Brokers, LLC. |
| 2021-05-14 | Date of convertible promissory note with Borrower 1. |
| 2021-08-01 | Date of loan agreement with Patriot Bank, N.A. |
| 2021-09-23 | Date of refunding bond anticipatory note with Borrower 2. |
| 2021-10-25 | Date of loan agreement with Borrower 3. |
| 2021-11-02 | Date of loan agreement with Pinnacle Bank. |
| 2021-11-30 | Date of convertible promissory note with Alset International Limited. |
| 2022-01-24 | Date of promissory note with Borrower 7. |
| 2022-02-28 | Date of Amendment to Stock Purchase Agreement with Alset EHome International Inc. |
| 2022-03-17 | Date of term loan with Pinnacle Bank. |
| 2022-05-09 | Date of promissory note with Borrower 9. |
| 2022-05-17 | Shareholders approved the issuance of shares to Alset International and the acquisition of True Partners Capital Holdings Limited. |
| 2022-06-15 | Date of convertible promissory note with Borrower 12. |
| 2022-07-26 | Date of promissory note with Borrower 11. |
| 2022-08-11 | Date of promissory note with Borrower 18. |
| 2022-08-24 | Date of asset purchase agreement with Celios Corporation. |
| 2022-08-29 | Date of promissory note with Borrower 10. |
| 2023-03-30 | Date of loan and security agreement with Union Bank & Trust Company. |
| 2023-04-17 | DSS, Inc. announced that Jason Grady will be presenting at the Emerging Growth Virtual Conference. |
| 2023-04-19 | DSS, Inc. announced plans to distribute common stock of Sharing Services Global Corporation. |
| 2023-05-01 | DSS, Inc. announced the distribution date for the common stock of Sharing Services Global Corporation. |
| 2023-05-16 | DSS, Inc reported earnings results for the First Quarter Ended March 31, 2023. |
| 2023-06-26 | DSS, Inc Announces Record and Distribution Date for Impact BioMedical Spin-Off Special Dividend. |
| 2023-06-30 | DSS, Inc announced updated shareholder of record date for Spin-Off of Impact BioMedical, Inc. |
| 2023-07-31 | DSS, Inc. announced the distribution date for the stock dividend of Impact BioMedical Inc. |
| 2023-09-28 | Date of promissory note with Borrower 17. |
| 2023-10-23 | DSS, Inc. announced that a registration statement on Form S-1 was filed for the IPO of Impact Biomedical. |
| 2023-10-26 | DSS, Inc. received a letter from NYSE American LLC regarding low share price. |
| 2023-11-08 | Impact BioMedical Inc. disclosed a reverse stock split. |
| 2023-11-14 | DSS, Inc. announced a court decision rejecting Nichia Corp.'s challenge to a U.S. patent. |
| 2023-11-28 | Premier Packaging secured a contract extension with a major retailer. |
| 2023-12-22 | DSS, Inc. announced a 1-for-20 reverse stock split. |
| 2024-01-08 | Reverse stock split was effective. |
| 2024-03-01 | Number of shares of the registrants common stock outstanding as of March 1, 2024, was 7,066,772. |
Keywords
packaging, biotechnology, commercial lending, securities, investment management, direct marketing, reverse stock split, financial results, impairment, revenue, debt, stock dividend, IPO
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