DSS, Inc. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. This is an annual report; the supplied filing does not provide separate fourth-quarter results. DSS operates nine business lines globally and reports five operating segments: Product Packaging, Commercial Lending, Direct Marketing, Biotechnology, and Securities and Investment Management.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $20.3 million | $15.4 million |
| Operating loss | $(21.4) million | $(11.4) million |
| Net loss/income | $(31.9) million | $1.4 million |
| Net loss/income attributable to common stockholders | $(31.0) million | $1.9 million |
| Cash from operating activities | $(9.0) million | $(6.8) million |
| Cash from investing activities | $(122.0) million | $(10.7) million |
| Cash from financing activities | $179.2 million | $20.7 million |
| Cash and cash equivalents at year-end | $56.6 million | $5.2 million |
| Total assets | $284.8 million | $91.9 million |
| Long-term debt, net | $55.7 million | $2.0 million |
Revenue grew 32%. Printed-products revenue rose 19% to $15.5 million, direct-marketing revenue rose 40% to $3.3 million, and new revenue streams included $1.2 million of rental income, $250,000 of net investment income, and $24,000 of management fees. Approximate gross profit was $8.0 million, or 39% of revenue; the filing does not present gross margin as a reported metric.
Current assets were $82.4 million and current liabilities $27.8 million, implying working capital of about $54.6 million. Total current and long-term debt, net, was approximately $59.6 million; cash exceeded this amount by about $3.0 million. Major debt included $39.4 million, net, on the LifeCare portfolio and $5.0 million on the Shelton property. Scheduled debt payments include $48.5 million in 2023. Management said cash was sufficient for at least 12 months from the filing date.
Material changes and unusual items
- Revenue increased, but operating loss widened and the company moved from net income to a substantial net loss. Expenses rose 56% to $41.7 million, including higher compensation, depreciation and amortization, professional fees, marketing, and R&D.
- Other income and expense shifted from $11.7 million of net other income in 2020 to $16.7 million of net other expense in 2021. Results included $12.0 million of investment losses and $9.9 million of losses from equity-method investments, partly offset by $4.6 million of interest income.
- Financing funded a major expansion: cash proceeds included $121.7 million from common-stock issuances and $60.9 million from long-term borrowings. The three 2021 public offerings and related equity issuances materially increased the share count and diluted existing holders.
- DSS invested $40 million to acquire majority control of American Pacific Bancorp (APB), and increased its SHRG ownership to approximately 58%, resulting in consolidation. DSS also expanded its medical-property portfolio through AMRE acquisitions, including three hospitals for $62 million.
- DSS sold DSS Digital in May 2021 for $3 million cash, with potential additional earn-out and trade credits. It reported a $2.1 million net gain from discontinued operations in 2021; no 2021 DSS Digital revenue is included in continuing operations.
- Management attributed the $7.9 million increase in accrued compensation for Chairman Heng Fai Ambrose Chan to a contractual bonus; the filing reports $7.3 million accrued for him at year-end.
Outlook, risks, and contingencies
Management described 2022 as a potential “breakout year,” focusing on revenue growth, diversification, and profitability. It said consolidated revenue could exceed $50 million in 2022, potentially more than 150% above 2021, largely reflecting SHRG’s expected contribution. This is management’s expectation, not a formal guarantee or quantified earnings guidance. Management also anticipated a possible first Impact BioMedical licensing deal and continued growth in APB lending and AMRE real estate.
- Execution and valuation: Many businesses are new or at an early stage. DSS reported $56.6 million of goodwill and $38.6 million of net intangible assets; unsuccessful commercialization or licensing could lead to impairment. SHRG acquisition accounting was still being completed.
- Concentration: Two customers accounted for approximately 41% of consolidated revenue and 48% of trade receivables in 2021.
- Controls and reporting: Management concluded that disclosure controls and internal control over financial reporting were ineffective at December 31, 2021, citing insufficient qualified accounting staff and inadequate documentation of monthly close and reconciliations. The auditor did not provide an internal-control attestation. Management described remediation efforts but had not fully tested them.
- Debt and defaults: A $829,000 GSX note was in default as of filing, with terms being renegotiated. A $52,000 HWH World Ltd. note was also in default. SHRG’s $100,000 April 2018 note was reported in default. The filing also identifies risks of secured-debt default and covenant compliance.
- Litigation: The Apple patent case was closed after DSS’s appeal was unsuccessful. The Ronaldi disputes and Maiden Biosciences lawsuit remained ongoing; adverse outcomes could materially affect results, cash flows, or financial condition.
- Related parties and dilution: The Chairman is a significant shareholder and has roles or interests involving several counterparties. The filing discloses related-party transactions, including the Chairman’s bonus and SHRG’s purchases from an affiliated supplier. Further equity financing could dilute shareholders.
- Other risks: COVID-19 effects, rising paper and input costs, supply-chain pressures, biotechnology regulation and commercialization, competition, cybersecurity, Asian-market exposure, and potential NYSE American listing compliance issues.
The financial statements received an unmodified audit opinion. The independent accounting firm changed in December 2021; the new auditor identified acquired-asset and real-estate valuation as a critical audit matter. The filing reports no dividends in 2021 or 2020 and no intention to pay cash dividends in the foreseeable future.
Key facts investors should verify
- Whether the projected 2022 revenue above $50 million is achieved, and how much depends on SHRG consolidation versus organic growth.
- SHRG’s acquisition accounting, reported operating contribution, and the valuation and recoverability of DSS’s investment-related assets.
- Cash conversion, recurring operating cash burn, near-term financing needs, and the ability to meet significant 2023 debt maturities.
- Progress on internal-control remediation, including documented and tested monthly close and reconciliation procedures.
- Customer concentration, related-party transactions and compensation, and the status and potential exposure from pending litigation and defaulted notes.
- Share-count and dilution figures: the filing reports differing 2021 year-end common shares in its balance sheet and equity statement, while separately reporting 83,732,763 shares outstanding as of March 14, 2022. Reconcile these figures against subsequent issuances and conversions.