DSS, Inc. — Form 10-Q Summary
Business context and reporting period
Unaudited results cover the three months ended March 31, 2022. DSS operates across nine business lines, reported in five segments: Product Packaging, Commercial Lending, Direct Marketing, Biotechnology, and Securities and Investment Management. The company is diversifying through acquisitions and investments. Comparisons with Q1 2021 are significantly affected by acquisitions and changes in consolidation, particularly the inclusion of Sharing Services Global Corporation (SHRG) in 2022.
Financial performance and position
| Metric | Q1 2022 / March 31, 2022 | Prior comparable period / year-end |
|---|---|---|
| Revenue | $12.304 million | $4.469 million in Q1 2021 |
| Operating loss | $6.743 million | $3.392 million in Q1 2021 |
| Net loss | $8.951 million | $4.012 million in Q1 2021 |
| Net loss attributable to common stockholders | $8.048 million; loss per share $0.10 | $3.981 million; loss per share $0.21 |
| Cash and cash equivalents | $53.811 million | $56.595 million at December 31, 2021 |
| Net cash used by operating activities | $6.070 million | $8.031 million in Q1 2021 |
| Net cash used by investing activities | $5.359 million | $6.449 million in Q1 2021 |
| Net cash provided by financing activities | $8.645 million | $61.089 million in Q1 2021 |
| Current assets / current liabilities | $78.300 million / $26.744 million | $82.424 million / $27.811 million at year-end |
| Long-term debt, net, plus current portion | $66.233 million | $59.627 million at year-end |
| Total assets / stockholders’ equity | $281.859 million / $194.055 million | $284.826 million / $200.304 million at year-end |
Revenue grew 175%, led by Direct Marketing revenue of $6.932 million, versus $608,000 a year earlier, and newly reported rental income of $1.663 million. Printed-products revenue declined 8% to $3.569 million. The filing attributes the Direct Marketing increase partly to Asian-market sales and the inclusion of SHRG results; therefore, the year-over-year revenue comparison is not fully like-for-like. Cost of revenue was $5.443 million, leaving approximately $6.861 million before other operating costs. Operating expenses rose to $19.047 million, including higher selling and administrative costs and $3.266 million of depreciation and amortization.
Cash declined by $2.784 million during the quarter. Financing inflows included $6.193 million of long-term borrowings and $1.858 million of net common-stock issuance proceeds. Debt figures are reported net of certain financing costs; lease liabilities were separately reported at $1.322 million.
Material changes versus the prior period
- SHRG was consolidated beginning December 31, 2021; its Q1 2022 revenue and expenses are included, while the 2021 comparison did not include a full comparable consolidated quarter.
- Direct Marketing revenue increased sharply, while packaging revenue fell amid manufacturing downtime associated with Premier’s facility relocation.
- Operating loss more than doubled, and net loss increased to $8.951 million. Management cited SHRG’s inclusion as a primary driver of the higher net loss.
- Depreciation and amortization and interest expense rose substantially, reflecting acquired real estate and intangible assets and increased debt balances.
- Common shares outstanding increased from 79.7 million at December 31, 2021 to 84.6 million at March 31, 2022. The quarter included a related-party share sale to AEI for $1.519 million and shares issued for $340,000 of executive compensation.
Outlook, risks, contingencies, and unusual items
- Management stated it believed cash and expected access to equity and debt financing would be sufficient to meet requirements for at least 12 months from the filing date. No quantified earnings or revenue guidance was provided.
- The company recorded approximately $1.637 million of impairment expense associated with SHRG notes receivable and other investments. SHRG also recorded an approximately $1.5 million impairment of its MojiLife investment.
- AMRE was seeking a waiver from Pinnacle Bank for certain debt covenants and stated it believed it would obtain one. Premier was reported in compliance with its Bank of America loan covenants.
- Disclosure controls and procedures were deemed ineffective at March 31, 2022 because previously reported material weaknesses remained. Remediation was underway but not yet fully implemented or tested.
- Legal matters include the ongoing Ronaldi disputes and Maiden Biosciences litigation. A shareholder lawsuit filed April 29, 2022 challenged certain proxy-related transactions; the company said it would supplement its proxy disclosures, and the plaintiff withdrew a request to enjoin the proposals.
- Related-party relationships and transactions include dealings involving the company’s Chairman and AEI, Alset International, and other entities. The filing also describes credit exposure from notes receivable, including a defaulted HWH World note for which the company was seeking revised terms.
Important facts for investors to verify
- How much of revenue growth and the reported loss reflects SHRG’s consolidation, and how SHRG’s operating performance develops in subsequent filings.
- The status and terms of the requested Pinnacle Bank covenant waivers, and the company’s capacity to service approximately $66.2 million of debt.
- Progress in remediating the material weaknesses and whether disclosure controls become effective.
- Recoverability and collection of notes receivable and investments, including defaulted or impaired balances.
- Final purchase-price accounting for SHRG, potential dilution from share issuances and proposed transactions, and material developments in the disclosed litigation.