DSS, INC. quarterly report, Q1 FY2024

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DSS, Inc. — Q1 2024 Form 10-Q

Reporting period: Three months ended March 31, 2024; filed May 14, 2024. DSS operates across packaging, biotechnology, direct marketing, commercial lending, and securities and investment management. SHRG was deconsolidated effective May 1, 2023, making year-over-year comparisons materially affected by the change in consolidation.

Financial performance and liquidity

  • Revenue: $3.871 million, down 68% from $11.926 million. Printed-products revenue fell 50% to $3.073 million; rental income fell 76% to $0.400 million; direct marketing revenue was zero versus $3.994 million, principally reflecting SHRG’s deconsolidation. Commission revenue was $0.303 million.
  • Profitability: Cost of revenue was $4.990 million, exceeding revenue and producing a gross loss of approximately $1.119 million (calculated gross margin: approximately -29%). Operating loss was $4.680 million versus $5.580 million. Net loss was $5.109 million versus $8.633 million; loss attributable to DSS common stockholders was $4.072 million, or $0.58 per share, versus $8.035 million, or $1.16 per share.
  • Cash flow: Operating activities used $2.150 million, compared with $14.199 million used in Q1 2023. Investing activities provided $5.097 million, including $3.971 million of note receipts and $1.160 million from marketable-security sales. Financing activities used $0.310 million. Cash increased $2.637 million to $9.252 million.
  • Balance sheet and liquidity: Total assets were $148.500 million; current assets $72.164 million; current liabilities $56.213 million; and total equity $78.104 million at March 31. Marketable securities were $8.483 million, in addition to cash. Assets held for sale totaled $51.624 million.
  • Debt: Current portion of long-term debt was $47.509 million and long-term debt was $7.431 million, both net of applicable amounts. The $42.308 million LifeCare loan is in default and past due after a demand for final payment by December 22, 2023. The $2.987 million Winter Haven loan is also described as currently due; its maturity was extended to July 7, 2024.

Changes, outlook, and risks

  • Management attributes the lower net loss and expense base largely to SHRG’s deconsolidation. Packaging sales also declined; rental receipts fell because AMRE LifeCare tenants were unable to pay, and some lending income declined as loans went on non-accrual.
  • Management says it expects available cash, potential marketable-security sales, note collections, proposed real-estate sales, and expense reductions to support operations for at least 12 months from the filing date, and states that substantial doubt about going concern has been alleviated. This depends in part on asset sales and collections; the filing provides no numerical forecast or formal revenue guidance.
  • Credit risk is significant: one customer represented approximately 25% of quarterly revenue and 44% of trade receivables. The company recorded loan-loss provisions and disclosed multiple defaulted, reserved, or renegotiated notes, including related-party exposures.
  • Disclosure controls and procedures were deemed ineffective at quarter-end because material weaknesses disclosed in the 2023 Form 10-K remained. Remediation had begun but was not complete or fully tested.
  • The filing’s cover-page response indicates DSS had not filed all required reports during the preceding 12 months. The filing does not explain the response; its status and implications merit verification.
  • No material changes to previously disclosed risk factors were reported. A 1-for-20 reverse stock split took effect January 4, 2024.

Important facts for investors to verify

  1. Confirm the status, amount, and enforcement risk of the defaulted LifeCare debt and currently due Winter Haven loan, and whether property-sale plans can address these obligations.
  2. Assess the realizable value and timing of the $51.624 million of assets held for sale, and whether the company’s liquidity assumptions depend on completing those sales.
  3. Review note-receivable collectability, non-accruals, reserves, and related-party loans; management’s expected collections are not assured.
  4. Verify the cover-page indication that required reports had not all been filed, and the progress and testing of internal-control remediation.
  5. Reconcile interest expense disclosures: the statements of operations report $48,000, while segment information reports $1.146 million and the debt note describes substantial loan interest expense.