DSS, INC. 10-K

ITEM 5 - MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock is listed on the NYSE American LLC Exchange, where it trades under the symbol “DSS”. Holders of Record As of March 16, 2021, we had 252 record holders of our common stock. This number does not include the number of persons whose shares are in nominee or in “street name” accounts through brokers. 20 Dividends We did not pay dividends during 2020 or 2019. We anticipate that we will retain any earnings and other cash resources for investment in our business. The payment of dividends on our common stock is subject to the discretion of our board of directors and will depend on our operations, financial position, financial requirements, general business conditions, restrictions imposed by financing arrangements, if any, legal restrictions on the payment of dividends and other factors that our board of directors deems relevant. However, the Company has announced its decision to issue shares of Impact BioMedical, Inc. to its shareholders of record at a to be determined record date that will correspond with the registration of Impact BioMedical’s common stock. The Company announced that it intended to issue four (4) shares of Impact BioMedical stock for each share of DSS common stock held by DSS shareholders (with the exception of shares beneficially held by Alset International Ltd). Securities Authorized for Issuance Under Equity Compensation Plans As of December 31, 2020, securities issued and securities available for future issuance under both our 2013 and 2020 Employee, Director and Consultant Equity Incentive Plan (the “Plans”) is as follows: Restricted stock to be issued upon vesting Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance (under equity compensation Plans (excluding securities reflected in column (a & b)) Plan Category (a) (b) (c) (d) Equity compensation plans approved by security holders 2013 Employee, Director and Consultant Equity Incentive Plan - options - 19,261 $ 150.44 - 2013 Employee, Director and Consultant Equity Incentive Plan - warrants - 36,514 $ 33.92 - 2020 Employee, Director and Consultant Equity Incentive Plan - - $ - 191,314 Total - 55,775 $ 74.16 191,314 The warrants listed in the table above were issued to third party service providers in partial or full payment for services rendered and in conjunction with third party funding agreements. Recent Issuances of Unregistered Securities Information regarding any equity securities we have sold during the period covered by this Report that were not registered under the Securities Act of 1933, as amended, and was not included in a quarterly report on Form 10-Q or in a current report on Form 8-K, is set forth below. Each such transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(a)(2) of the Securities Act or Rule 506 of Regulation D promulgated by the SEC, unless otherwise noted. Unless stated otherwise: (i) the securities were offered and sold only to accredited investors; (ii) there was no general solicitation or general advertising related to the offerings; (iii) each of the persons who received these unregistered securities had knowledge and experience in financial and business matters which allowed them to evaluate the merits and risk of the receipt of these securities, and that they were knowledgeable about our operations and financial condition; (iv) no underwriter participated in, nor did we pay any commissions or fees to any underwriter in connection with the transactions; and, (v) each certificate issued for these unregistered securities contained a legend stating that the securities have not been registered under the Securities Act and setting forth the restrictions on the transferability and the sale of the securities. Shares Repurchased by the Registrant We did not purchase or repurchase any of our securities in the fiscal year ended December 31, 2020, including the fourth quarter. ITEM 6 - SELECTED FINANCIAL DATA Not applicable. 21 ITEM 7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement Regarding Forward-Looking Statements The SEC encourages companies to disclose forward-looking information so that investors can better understand a company’s future prospects and make informed investment decisions. Forward-looking statements that may appear in this Annual Report, including without limitation, statements related to the Company’s plans, strategies, objectives, expectations, intentions, and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act and contain the words “believes,” “anticipates,” “expects,” “plans,” “intends” and similar words and phrases. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the results projected in any forward-looking statement. The forward-looking statements are made as of the date of this Annual Report, and we assume no obligation to update the forward-looking statements, or to update the reasons why actual results could differ from those projected in the forward-looking statements. Investors should consult all the information set forth in this Annual Report and the other information set forth from time to time in our reports filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934, including our reports on Forms 10-Q and 8-K. The following discussion and analysis provides information that our management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read in conjunction with the financial statements and footnotes included in Item 8 of this Annual Report. Overview Document Security Systems, Inc. (together with its consolidated subsidiaries (unless the context otherwise requires), referred to herein as “Document Security Systems,” “DSS,” “we,” “us,” “our” or the “Company”) was formed in New York in 1984 and, in 2002, chose to strategically focus on becoming a developer and marketer of secure document and product technologies. At the time, we specialize in creating dynamic solutions that protect against fraud and ensure the well-being of consumers worldwide. Our mission was to make and deliver world-class authentication, counterfeit prevention and consumer engagement technology attainable and integrated into every product we offerred. The Company holds numerous patents for optical deterrent and authentication technologies that provide protection of printed information from unauthorized alterations, scanning and copying. We also license our anti-counterfeiting technologies to printers and brand-owners. In addition, through our digital division, we provide cloud computing services for our customers, including disaster recovery, back-up and data security services. 22 Prior to 2006, our primary revenue source in our document security division was derived from the licensing of our technology. In 2006, we began a series of acquisitions designed to expand our ability to produce products for end-user customers. In 2006, we acquired Plastic Printing Professionals, Inc., a privately held plastic cards manufacturer located in the San Francisco, California, area (referred to herein as the “DSS Plastics Group”). This was sold in August 2020. In 2008, we acquired DPI of Rochester, LLC, a privately held commercial printer located in Rochester, New York. In 2010, we acquired Premier Packaging Corporation, a privately held packaging company located in Victor, New York (referred to herein as the “DSS Packaging and Printing Group”). In May 2011, we acquired ExtraDev, Inc., a privately held information technology and cloud computing company located in Rochester, New York. In 2016, ExtraDev, Inc. changed its name to DSS Digital Inc. DSS Digital Inc. is also referred to herein as the “DSS Digital Group.” In July 2013, the Company expanded its business focus by acquiring Lexington Technology Group, Inc. (“Lexington”), a private intellectual property monetization company. Lexington’s business was primarily to acquire intellectual property assets for the purpose or monetizing these assets through a variety of value-enhancing initiatives, including, but not limited to, investments in the development and commercialization of patented technologies, licensing, strategic partnerships and litigation. DSS Technology Management, Inc., which is also referred to herein as “DSS Technology Management,” was established as a DSS subsidiary to house, account for and further develop this line of business. While similar to Lexington’s business model, DSS Technology Management focuses on extracting the economic benefits of intellectual property assets through acquiring or internally developing patents or other intellectual property assets (or interests therein) and then monetizing such assets through a variety of value enhancing initiatives. However, the Company, as we elaborate below, has determined that it is in the best interests of the Company and its stockholders to wind down our intellectual property monetization business and refocus our efforts on our other existing businesses as well as explore potential new business lines In January 2018, we commenced international operations for our Digital Group with its wholly owned subsidiary, DSS Asia Limited, in our office in Hong Kong. In December 2018, this division acquired a license from Guangzhou Hotapps Technology Ltd, a Chinese company enabling us to do business in China. In 2019, the Company’s Board of Directors decided to restructure and reorganize the Company. At that time, the Company operated four (4) business lines: IP Technology, Premier Packaging, DSS Plastics, and Digital. But due in part to the declining revenue and historic business losses of the Company, the Board set forth a new vision for the Company and instructed management to develop new business models and business lines that would create long term shareholder value through asset growth and revenue growth. The Board was no longer content to wait for results of IP monetization litigation to determine the financial fate of the Company; it sought immediate change. It mandated that a new business model be designed for the Company in which the Company could directly control and manage its outcome daily. The Board insisted upon a three-year business plan to turn to Company profitable. Toward that vision and goal, the Board selected and appointed a new management team, and the management team set about restructuring the Company’s businesses, business models and defining long-term business goals. In November 2019, the new executive management announced that the Company’s 2019-2020 strategic business plan to carry out the Board’s directive. The business plan provided five (5) fundamental building blocks to revitalize the company by (i) strengthening the organization by exiting unprofitable business lines, (ii) investing in and reviving the Company’s core businesses, (iii) improving top line revenues and net margins, (iv) controlling costs and (v) creating or acquiring new long-term scalable, recurring revenue streams. As part of the implementation of that plan, management discontinue operations of unprofitable business lines and reducing capital and cash burn. But in addition, the Company identified six (6) new business lines that it wanted to advance. In addition to the existing Premier Packaging group, Digital Group and IP Technology, the Company created the following new business lines: 1. Direct Marketing/Online Sales Group, 2. BioHealth Group, 3. Securities and Fintech Group, 4. Energy Division, 5. Secure Living, and 6. Blockchain Technology. As a result of this 2019 Board directive, the Company was reborn in 2020. The Company now has nine (9) active divisions, and it has actively taken steps to acquire assets and resources for each of these divisions in 2020 (and as reported for the 1 st quarter of 2021). Over the past 12 months, the Company has performed a substantial business turnaround. Significant and material assets have been acquired or developed for almost every new division. For the other divisions and the existing divisions, the Company is engaged in obtaining significant additions or acquisitions for these divisions over the coming 2021 year. Each of these new business lines are intended to eventually generate top line reoccurring scalable income. Each of the divisions are on a different growth path with some designed to start generating revenue in 2021, while others are programmed to deliver revenue and growth in 2022, and 2023. The success of the ongoing turnaround of the Company is reflected in its 2020 financials as set forth herein. For 2020, Company assets grew from $20,146,000 for the period ending 12/31/2019 to $91,919,000 for the period ending 12/31/2020. Stockholder’s Equity rose from the period ending 12/31/2019 of $12,303,000 to $76,545,000 for the period ending 12/31/2020. Net Income attributable to stockholders for the 12-month period ending 12/31/2020 was $1,899,000 compared to a $2,889,000 loss for the 12-month period ended 12/31/2019. Impact of COVID-19 Outbreak On January 30, 2020, the World Health Organization declared the coronavirus outbreak a “Public Health Emergency of International Concern” and on March 10, 2020, declared it to be a pandemic. Actions taken around the world to help mitigate the spread of the coronavirus include restrictions on travel, and quarantines in certain areas, and forced closures for certain types of public places and businesses. The coronavirus and actions taken to mitigate it have had and are expected to continue to have an adverse impact on the economies and financial markets of many countries, including the geographical area in which the Company operates. While the closures and limitations on movement, domestically and internationally, are expected to be temporary, if the outbreak continues on its current trajectory the duration of the supply chain disruption could reduce the availability, or result in delays, of materials or supplies to and from the Company, which in turn could materially interrupt the Company’s business operations. Given the speed and frequency of the continuously evolving developments with respect to this pandemic, the Company cannot reasonably estimate the magnitude of the impact to its consolidated results of operations. The Company’s manufacturing facilities in both California and New York support business that have been deemed essential by their respective state governments and remain operational. We have taken every precaution possible to ensure the safety of our employees. It is reasonably possible that estimates made in the financial statements have been, or will be, materially and adversely impacted in the near term as a result of these conditions, including losses on inventory; impairment losses related to goodwill and other long-lived assets and current obligations. 23 Additionally, management had determined that one of its business lines, DSS Plastics, has been more severely impacted by the pandemic than our other divisions and we do not believe this is a short-term phenomenon. As a result, management has decided to fully impair its goodwill related to DSS Plastics. The impact to DSS’s first quarter earnings of this impairment was approximately $685,000. RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2020 AND 2019 Revenue Year ended December 31, 2020 Year ended December 31, 2019 % Change Revenue Printed products $ 13,000,000 $ 13,230,000 -2 % Technology sales, services and licensing 2,085,000 2,148,000 -3 % Direct marketing 2,326,000 172,000 1252 % Total Revenue $ 17,411,000 $ 15,550,000 12 % Revenue - For the year ended December 31, 2020, revenue increased 12% to approximately $17.4 million as compared to revenues of $15.6 million for the year ended December 31, 2019. Printed products sales, which include sales of packaging and printing products, decreased 2% in 2020 as compared to 2019. The Company’s technology sales, services and licensing revenues decreased 3% in 2020, as compared to 2019. Both decreases in sales were due primarily to the impact of the COVID-19 pandemic as key customers saw a decline in business. A significant part of this decline however was offset by onboarding several new customers throughout the year. The Company’s direct marketing revenues increased 1252% in 2020 as compared to 2019. This is primarily due to the division starting during the fourth quarter 2019. Costs and Expenses Year ended December 31, 2020 Year ended December 31, 2019 % Change Costs and expenses Costs of revenue, exclusive of depreciation and amortization $ 11,207,000 $ 10,342,000 8 % Sales, general and administrative compensation 7,873,000 3,450,000 128 % Depreciation and amortization 1,084,000 1,151,000 -6 % Professional fees 3,345,000 1,974,000 69 % Stock based compensation 188,000 422,000 -55 % Sales and marketing 2,838,000 557,000 410 % Rent and utilities 359,000 491,000 -27 % Research and development 210,000 (12,000 ) 1850 % Other operating expenses 1,054,000 (208,000 ) -607 % Total costs and expenses $ 28,158,000 $ 18,167,000 55 % 24 Costs of revenue, exclusive of depreciation and amortization includes all direct costs of the Company’s printed products, including its packaging and printing sales and its direct marketing sales, materials, direct labor, transportation, and manufacturing facility costs. In addition, this category includes all direct costs associated with the Company’s technology sales, services and licensing including hardware and software that are resold, third-party fees, and fees paid to inventors or others as a result of technology licenses or settlements, if any. Costs of revenue increased 8% in 2020 as compared to 2019, primarily due the increase price of paper as well as cost associated with direct marketing product manufacturing and procurement. Sales, general and administrative compensation costs, increased 128% in 2020 as compared to 2019, primarily due a bonus of approximately $4.3 million accrued for Mr. Heng Fai Ambrose Chan, an executive of the Company’s DSS Cyber Security Pte. Ltd subsidiary in accordance with the terms of his employment contract as compared to $62,000 accrued in 2019. Depreciation and amortization include the depreciation of machinery and equipment used for production, depreciation of office equipment and building and leasehold improvements, amortization of software, and amortization of acquired intangible assets such as customer lists, trademarks, non-competition agreements and patents, and internally developed patent assets. Depreciation and amortization expense decreased by 6% during 2020, as compared to 2019, primarily due the expiration of the non-compete agreement with a former executive, as well as a large 10-year asset becoming fully depreciated. Professional fees increased 69% in 2020 as compared to 2019, primarily due to an increase in legal fees associated with the direct marketing division, due diligence fees, as well as costs associated with acquisitions. Stock based compensation includes expense charges for all stock-based awards to employees, directors, and consultants. Such awards include option grants, warrant grants, and restricted stock awards. Stock-based compensation costs decreased 55% in 2020 as compared to 2019 due to one-time stock grants that took place in 2019 to directors and certain officers with no similar offerings or grants in 2020. Sales and marketing costs, which includes internet and trade publication advertising, travel and entertainment costs, sales-broker commissions, and trade show participation expenses, increased 410% during 2020 as compared to 2019, primarily due to direct marketing distributor commissions. Rent and utilities decreased 27% during 2020 as compared to 2019 due to the relocation of DSS Digital to smaller office space, and the inclusion of our Plastic groups 2019 rent and utilities expense of approximately $325,000 now included in Loss from discontinued operations. Research and development costs consist primarily of third-party research costs and consulting costs. During the year ended December 31, 2020, Research and development costs increased 1850% as compared to the same period in 2019 primarily due to acquisition of Impact Biomedical Inc and their related research costs . Other operating expenses consist primarily of equipment maintenance and repairs, office supplies, IT support, bad debt expense, insurance costs, and corporate travel. Other operating expenses increased 607% in 2020 compared to 2019 which is primarily due to a software setup expense for MLM division and D&O insurance increase year over year, as well as amortizing on a pro-rata basis over the expected remaining life of the monetization period of the LED Patent Portfolio through November 30, 2019 of approximately $86,000 per month. 25 Other Income and Expense Year ended December 31, 2020 Year ended December 31, 2019 % Change Other Income (Expense) Interest Income $ 69,000 $ 25,000 176 % Interest Expense (185,000 ) (125,000 ) 48 % Other income 1,000 - N/A Unrealized gains 10,609,000 - N/A Income from equity method investment 604,000 - N/A Gain on extinguishment of debt 969,000 - N/A Amortization of deferred financing costs and debt discount (8,000 ) (3,000 ) 167 % Total other income $ 12,059,000 $ (103,000 ) 11808 % Interest income increased 176%, during the year ended December 31, 2020, as compared to the same period in 2019, due to interest recognized on the Company’s money market account and notes receivable. Interest expense increased 48%, during the year ended December 31, 2020, as compared to the same period in 2019, due to the interest expense incurred on notes payable, in particular, twelve months of interest associated with the utilization of Premier Packaging equipment line of credit in 2020 versus three months in 2019. Amortized debt discount increased 167% during the year ended December 31, 2020, as compared to the same period in 2019, due to a balance of debt issue costs expensed in 2020. Unrealized gains is recognized on the change in fair market value on our common stock investment in Sharing Services Global Corp $7.1 million and related warrants, Alset International Limited. $3.4 million and other marketable securities $0.1 million for the year 2020. Income from equity method investment represents the Company’s prorated portion of Sharing Services Global Corp’s earnings for the three-months ended October 31, 2020. See Note 6. Gain on extinguishment of debt in April and May 2020 respectively, the Packaging and Digital divisions of the Company received funds from the SBA Paycheck Protection Program of $619,000 and $344,000. As of August 4, 2020, pursuant to the terms of the SBA PPP program, the Company submitted applications for Premier Packaging and DSS Digital for a requested 100% loan forgiveness. During the fourth quarter 2020, both these notes were forgiven in full. 26 During 2020, the Company had net income of $1.4 million as compared to a net loss of $2.9 million in 2019, representing a 149% increase. This achievement of net income in 2020 is primarily due to the impact of a one-time net gain from extinguishment of debt of approximately $1 million, which occurred during the fourth quarter of 2020 and unrealized gains Liquidity and Capital Resources The Company has historically met its liquidity and capital requirements primarily through the sale of its equity securities and debt financings. As of December 31, 2020, the Company had cash of approximately $5.2 million. As of December 31, 2020, the Company believes that it has sufficient cash to meet its cash requirements for at least the next 12 months from the filing date of this Annual Report. In addition, the Company believes that it will have access to sources of capital from the sale of its equity securities and debt financings. Operating Cash Flow - During 2020, the Company expended approximately $5.7 million for operations, which generally reflected by fluctuations in accounts receivable, inventory, and prepaid and other current assets, accrued expenses and other liabilities. Investing Cash Flow - During 2020, the Company expended approximately $10.7 million in investing activities. This includes $0.3 million on equipment for its packaging and direct marketing operations for various pieces of machinery, equipment, and software. In addition, the Company expended approximately $9.8 million on purchases of investments. Financing Cash Flows - During 2020, the Company generated $20.7 million from financing activities, which includes $20.2 million from new issuances of common stock and $1.3 million from the borrowings of long-term debt. This is offset by principal payments on long-term debt of approximately $0.3 million, and payments on its revolving line of credit of $0.5 million. Continuing Operations and Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should we be unable to continue as a going concern. While the Company has approximately $5.2 million in cash, and a positive working capital position of approximately $3.6 million as of December 31, 2020, the Company has incurred operating losses as well as negative cash flows from operating and investing activities over the past two years. To continue as a going concern, during the twelve months ended December 31, 2020, the Company through multiple underwriting agreements with Aegis Capital Corp. (“Aegis”), acting as representative of the several underwriters, provided the issuance and sale by the Company in an underwritten public offering shares of the Company’s common stock. The net offering proceeds to the Company approximated $20.2 million. Also, through two separate public offerings underwritten by Aegis during the first quarter of 2021, the Company received net proceeds of approximately $61.0 million. The Company’s management intends to take actions necessary to continue as a going concern. Management’s plans concerning these matters includes, among other things, continued growth among our operating segments, and tightly controlling operating costs and reducing spending growth rates wherever possible to return to profitability. In addition, the Company has taken steps, and will continue to take measures, to materially reduce the expenses and cash burn at all corporate and business line levels. During the twelve months ended December 31, 2020, steps were taken to materially reduce or eliminate cash burns in the IP Monetization program, the DSS Digital Group and the DSS Plastics group. 27 At the Company’s current operating levels and capital usage, we believe that without any further acquisition or investments, our $5.2 million in aggregate cash, cash equivalents, as of December 31, 2020, along with the $61.0 million raised during the first quarter of 2021, would allow us to fund our nine business lines current and planned operations through March 2022. Based on this, the Company has concluded that substantial doubt of its ability to continue as a going concern has been alleviated Off-Balance Sheet Arrangements We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, an effect on our financial condition, financial statements, revenues or expenses. Inflation Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during 2020 or 2019 as we are generally able to pass the increase in our material and labor costs to our customers or absorb them as we improve the efficiency of our operations. Critical Accounting Policies The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the U.S. (“U.S. GAAP”) requires management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. The Company’s consolidated financial statements for the fiscal year ended December 31, 2020 describe the significant accounting policies and methods used in the preparation of the consolidated financial statements. Fair Value of Financial Instruments - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurement Topic of the FASB ASC establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include: ● Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets. ● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and ● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. The carrying amounts reported in the balance sheet of cash and cash equivalents, accounts receivable, prepaids, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. Marketable securities classify as a Level 1 fair value financial instrument. The fair value of notes receivable approximates their carrying value as the stated or discounted rates of the notes do not reflect recent market conditions. The fair value of revolving credit lines notes payable and long-term debt approximates their carrying value as the stated or discounted rates of the debt reflect recent market conditions. The fair value of investments carried at cost less impairment; however, the fair value is not considered readily determinable based on the lack of liquidity for the shares owned. Investments – Investments in equity securities with a readily determinable fair value, not accounted for under the equity method, are recorded at that value with unrealized gains and losses included in earnings. For equity securities without a readily determinable fair value, the investment is recorded at cost, less any impairment, plus or minus adjustments related to observable transactions for the same or similar securities, with unrealized gains and losses included in earnings. For equity method investments, the Company regularly reviews its investments to determine whether there is a decline in fair value below book value. If there is a decline that is other-than-temporary, the investment is written down to fair value. See Note 6 for further discussion on investments. Related Party Liabilities - The Company’s HWH World, Inc subsidiary has a service agreement pending with HWH Korea, a subsidiary of Alset International Limited (formally Singapore eDevelopment Limited), and thus a related party. This service agreement will allow HWH Korea to utilize the Company’s merchant account in connection with their direct marketing network with periodic remittance of the cash collected to them. As of December 31, 2020, the Company has collected approximately $1,100,000 on behalf of HWH Korea did remit amounts during the first quarter of 2021. The related party liability is included in “Other current liabilities” on the accompanying consolidated balance sheets. Revenue - The Company recognizes its products and services revenue based on when the title passes to the customer or when the service is completed and accepted by the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for shipped product or service provided. Sales and other taxes billed and collected from customers are excluded from revenue. The Company also derives revenue from royalties from third parties which are typically based on licensees’ net sales of products that utilize the Company’s technology, or on a per item usage of the technology on the customers’ printed products. The Company recognizes license revenue at the time it is reported by the licensee. From time to time, the Company generates license revenues through litigation settlements. For these, the Company recognizes revenue upon the execution of the agreement, when collectability is reasonably assured, or upon receipt of the minimum upfront fee for term agreement renewals, and when all other revenue recognition criteria have been met. The Company generates revenue from its direct marketing line of business primarily through internet sales and recognizes revenue as items are shipped. As of December 31, 2020, the Company had no unsatisfied performance obligations for contracts with an original expected duration of greater than one year. Pursuant to Topic 606, the Company has applied the practical expedient with respect to disclosure of the deferral and future expected timing of revenue recognition for transaction price allocated to remaining performance obligations. The Company elected the practical expedient allowing it to not recognize as a contract asset the commission paid to its salesforce on the sale of its products as an incremental cost of obtaining a contract with a customer but rather recognize such commission as expense when incurred as the amortization period of the asset that the Company would have otherwise recognized is one year or less. Business Combinations - Business combinations and non-controlling interests are recorded in accordance with FASB ASC 805 Business Combinations. Under the guidance, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition and all acquisition costs are expensed as incurred. The excess of the purchase price over the estimated fair values is recorded as goodwill. If the fair value of the assets acquired exceeds the purchase price and the liabilities assumed, then a gain on acquisition is recorded. The application of business combination accounting requires the use of significant estimates and assumptions. See Note 7 regarding the acquisitions in 2020. Discontinued Operations – On April 20, 2020, the Company executed a nonbinding letter of intent with a perspective buyer for the sale of certain assets of its plastic printing business line, which it operated under Plastic Printing Professionals, Inc. (“DSS Plastics”), a wholly-owned subsidiary of the Company. That sale was consummated and closed on August 14, 2020. The remaining assets of DSS Plastics were either sold, separately disposed, or retained by other existing DSS businesses lines. Accordingly, the operations of DSS Plastics have been discontinued. Based on the magnitude of DSS Plastics’ historical revenue to the Company and because the Company has exited the production of laminated and surface printed cards, this sale represented a significant strategic shift that has a material effect on the Company’s operations and financial results. Accordingly, the Company has applied discontinued operations treatment for this sale as required by Accounting Standards Codification 210-05—Discontinued Operations. The major classes of assets and liabilities of DSS Plastics are classified as Held For Sale – Discontinued Operations on the Consolidated Balance Sheets and the operating results of the discontinued operations is reflected on the Consolidated Statements of Operations and Comprehensive Income (Loss) as Loss from Discontinued Operations. See Note 16. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 28