DSS, INC. 10-Q

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS Certain statements contained herein this report constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “1995 Reform Act”). Except for the historical information contained herein, this report contains forward-looking statements (identified by words such as “estimate”, “project”, “anticipate”, “plan”, “expect”, “intend”, “believe”, “hope”, “strategy” and similar expressions), which are based on our current expectations and speak only as of the date made. These forward-looking statements are subject to various risks, uncertainties and factors, that could cause actual results to differ materially from the results anticipated in the forward-looking statements. Overview Document Security Systems, Inc. (the “Company of DSS”) operates seven (7) business lines through seven (7) DSS subsidiaries located around the globe. Of the seven subsidiaries, two of those have historically been the core subsidiaries of the Company: (1) Premier Packaging Corporation (“Premier Packaging”), and (2) DSS Technology Management, Inc. (“IP Technology”). Premier Packaging operates in the paper board folding carton, smart packaging, and document security printing markets. It markets, manufactures, and sells mailers, photo sleeves, sophisticated custom folding cartons, and complex 3-dimensional direct mail solutions designed to provide functionality, marketability, and sustainability to product packaging while providing counterfeit protection and consumer engagement platform. IP Technology Management Inc., manages, licenses, and acquires intellectual property assets for the purpose of 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 commercial litigation. In 2020, under its (3) Decentralize Sharing Systems, Inc. subsidiary, created a fourth business segment, Direct Marketing/Online Sales Group. This group provides services to assist companies in the emerging growth gig business model of peer-to-peer decentralized sharing marketplaces. Direct specializes in marketing and distributing its products and services through its subsidiary and partner network, using the popular gig economic marketing strategy as a form of direct marketing. In addition to the three subsidiaries listed above, in 2019 and early 2020, DSS has created four new, wholly owned subsidiaries. (4) DSS Blockchain Security, Inc., a Nevada corporation, specializes in the development of blockchain security technologies for tracking and tracing solutions for supply chain logistics and cyber securities across global markets. (5) DSS Securities, Inc., a Nevada corporation, was established to develop and/or acquire assets and investments in the securities trading and/or funds management arena. Further, Securities, in partnership with recognized global leaders in alternative trading systems, intends to own and operate in the US a single or multiple vertical digital asset exchanges for securities, tokenized assets, utility tokens, stable coins and cryptocurrency via a digital asset trading platform using blockchain technology. The scope of services within this section is planned to include asset issuance and allocation (securities and cryptocurrency), FPO, IPO, ITO, PPO, STO and UTO listings on a primary market(s), asset digitization/tokenization (securities, currency and cryptocurrency), and the listing and trading of digital assets (securities and cryptocurrency) on a secondary market(s). Also in this segment is the Company’s real estate investment trust (“REIT”), organized for the purposes of acquiring hospitals and other acute or post-acute care centers from leading clinical operators with dominant market share in secondary and tertiary markets, and leasing each property to a single operator under a triple-net lease. the REIT was formed to originate, acquire, and lease a credit-centric portfolio of licensed medical real estate. (6) DSS BioHealth Security, Inc., a Nevada corporation, is our business line which we will intend to invest in or to acquire companies related to the bio-health and biomedical field, including businesses focused on the research to advance drug discovery and development for the prevention, inhibition, and treatment of neurological, oncology and immuno-related diseases. This new division will place special focus on open-air defense initiatives, which curb transmission of air-borne infectious diseases such as tuberculosis and influenza, among others. (7) DSS Secure Living, Inc., a Nevada Corporation, develops top of the line advanced technology, energy efficiency, quality of life living environments and home security for everyone for new construction and renovations of residential single and multifamily living facilities. The activity in DSS Blockchain and DSS Secure Living has been minimal or in various start-up or organizational phases. 26 On March 3, 2020, the Company, via its subsidiary DSS Securities, entered into a share subscription agreement and loan arrangement with LiquidValue Asset Management Pte Ltd., AMRE Asset Management, Inc. and American Medical REIT Inc. under which it acquired a 52.5% controlling ownership interest in AMRE Asset Management Inc. (“AAMI”) which currently has a 93% equity interest in American Medical REIT Inc. (“AMRE”). AAMI is a real estate investment trust (“REIT”) management company that sets the strategic vision and formulate investment strategy for AMRE. It manages the REIT’s assets and liabilities and provides recommendations to AMRE on acquisition and divestments in accordance with the investment strategies. AMRE is a Maryland corporation, organized for the purposes of acquiring hospitals and other acute or post-acute care centers from leading clinical operators with dominant market share in secondary and tertiary markets, and leasing each property to a single operator under a triple-net lease. AMRE was formed to originate, acquire, and lease a credit-centric portfolio of licensed medical real estate. AMRE is planned to qualify as a Real Estate Investment Trust for federal income tax purposes, which will provide. AMRE’s investors the opportunity for direct ownership of Class A licensed medical real estate. On June 18, 2021, DSS Securities, entered into a stock purchase agreement with AMRE to acquire 264,525 Class A Common Shares of AMRE at a per share price of $10, for a total consideration of $2,645,250. The additional 264,525 Class A Common Shares acquired increases the Company’s total equity interest in AMRE to approximately 93%. On August 21, 2020, the Company, completed its acquisition of Impact BioMedical, Inc. (“Impact BioMedical”), pursuant to a Share Exchange Agreement by and among the Company, DSS BioHealth Security, Inc. (“DSS BioHealth”), Alset International Limited (formally Singapore eDevelopment Ltd.), and Global Biomedical Pte Ltd. (“GBM”), which was previously approved by the Company’s shareholders (the “Share Exchange”). Under the terms of the Share Exchange, the Company issued 483,334 shares of the Company’s common stock, par value $0.02 per share, nominally valued at $6.48 per share, and 46,868 newly issued shares of the Company’s Series A Convertible Preferred Stock (“Series A Preferred Stock”). As a result of the Share Exchange, Impact BioMedical is now a wholly owned subsidiary of DSS BioHealth, the Company’s wholly owned subsidiary. Impact BioMedical strives to leverage its scientific know-how and intellectual property rights to provide solutions that have been plaguing the biomedical field for decades. By tapping into the scientific expertise of its partners, Impact BioMedical has undertook a concerted effort in the research and development (R&D), drug discovery and development for the prevention, inhibition, and treatment of neurological, oncological and immune related diseases. In August 2020, the Company’s wholly owned subsidiary, DSS Securities, Inc. entered into a corporate venture to form and operate a real estate title agency, under the name and flagging of Alset Title Company, Inc, a Texas corporation (“ATC”). DSS Securities, Inc. shall own 70% of this venture with the other two shareholders being attorneys necessary to the state application and permitting process. On October 7, 2020, DSS Securities took part in an initial public offering of Presidio Property Trust, Inc. (“Presidio”), a Maryland corporation, that invests primarily in commercial properties, such as office, industrial and retail properties, as well as in residential across the United States. As part of this offering, we purchased 200,000 shares of Presidio’s Series A Common Stock at $5.00 per share for a total purchase price of $1,000,000. Effective December 9, 2020, Impact BioMedical entered into an exclusive distribution agreement with BioMed Technologies Asia Pacific Holdings Limited (“BioMed”), which is focused on manufacturing natural probiotics. Under the terms of this distribution agreement, Impact BioMedical will directly market, advertise, promote, distribute and sell certain BioMed products to resellers. The products to be distributed by Impact BioMedical include BioMed’s PGut Premium ProbioticsTM, PGut Allergy ProbioticsTM, PGut SupremeSlim ProbioticsTM, PGut Kids ProbioticsTM, and PGut Baby ProbioticsTM. Under the terms of the ten-year distribution agreement, Impact BioMedical will have exclusive rights to distribute the products within the United States, Canada, Singapore, Malaysia, and South Korea and non-exclusive distribution rights in all other countries. On February 8, 2021, DSS Securities announced that it entered into a joint venture (“JV”) with Coinstreet Partners (“Coinstreet”), a global decentralized digital investment banking group and digital asset financial service firm, and GSX Group (“GSX”), a global digital exchange ecosystem for the issuance, trading, and settlement of tokenized securities, using its proprietary blockchain solution. The JV leverages the operational strengths and assets of three key leaders in their field, combining traditional capital market experience, Fintech innovations, and business networks from three continents, North America, Europe, and Asia, to capitalize on unique digital asset opportunities. The JV reported that it intended to first pursue a digital securities exchange license in the US. Moving forward, this JV will be the key operational company building and operating a digital securities exchange that utilizes the GSX STACS blockchain technology, serving corporate issuers and investors in the sector. On February 25, 2021, DSS Securities announced its acquisition of an equity interest in WestPark Capital, Inc.(“WestPark”) and an investment in BMI Capital International LLC (“BMICI”). DSS Securities executed two separate transactions that were designed to grow the securities division by signing a binding note and stock exchange letter of intent to own 7.5% of the issued and outstanding shares of WestPark and acquiring 24.9% of BMICI through a purchase agreement. WestPark is a full-service investment banking and securities brokerage firm which serves the needs of both private and public companies worldwide, as well as individual and institutional investors. BMI is a private investment bank specializing in corporate finance advising, raising equity, and venture services, providing a global “one-stop” corporate consultancy to listed companies. From corporate finance to professional valuation, corporate communications to event management, BMICI services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia. On March 1, 2021, Decentralized Sharing Systems, Inc. (“Decentralized”) announced that it increased its investment in Sharing Services Global Corporation (“Sharing Services” or “SHRG”), a publicly traded company dedicated to maximizing shareholder value through the acquisition and development of innovative companies, products, and technologies in the direct selling industry, through a $30 million convertible promissory note dated April 5, 2021. Decentralized’s financing was made as an investment that would help accelerate Sharing Services sales and growth, as well as international expansion, with the expectation that such capital reserves would help make Sharing Services a dominant player in the global marketplace over the next two years. It was reported that the new $30 million investment would have the potential to exponentially increase Sharing Services sales channels and substantially expand its product portfolio, and to position Sharing Services to capitalize on consolidation and roll up opportunities of other direct selling companies. In the joint announcement, Sharing Services reported that the additional funding would now allow it to accelerate its global expansion with a direct focus on the Asian markets, and specifically in countries such as South Korea, Japan, Hong Kong, China, Singapore, Taiwan, Thailand, Malaysia, and the Philippines. In accordance with the April 5, 2021 convertible promissory note, SHRG issued to the Company 27,000,000 shares of its Class A Common Stock, including 15,000,000 shares in payment of the loan origination fee and 12,000,000 shares in prepayment of interest for the first year. As of June 30, 2021, the Company held 91,207,378 class A common shares equating to a 46.7% ownership interest in SHRG with aggregate fair value of the Company’s investment in SHRG at June 30, 2021 of approximately $12,769,000. The Company, via three (3) of the Company’s existing board members, currently holds four (4) of the five (5) SHRG board of director seats. Mr. John “JT” Thatch, DSS’s Lead Independent Director and as well the CEO of SHRG is on the SHRG Board, along with Mr. Heng Fai Ambrose Chan, DSS’s Executive Chairman of the board of directors (joined the SHRG Board effective May 4, 2020), and Mr. Frank D. Heuszel, the CEO of the Company (joined the SHRG Board effective September 29, 2020). On March 15, 2021, the Company, through one of its subsidiaries, DSS BioMedical International, Inc. entered into a Stock Purchase Agreement (the “Agreement”) with Vivacitas Oncology Inc. (“Vivacitas”), to purchase 500,000 shares of its common stock at the per share price of $1.00, with an option to purchase 1,500,000 additional shares at the per share price of $1.00. In addition, under the terms of the Agreement, the Company will be allocated two seats on the board of Vivacitas. On March 18, 2021, the Company entered into an agreement with Alset EHome International, Inc. (“Seller”) to acquire the Seller’s wholly owned subsidiary Impact Oncology PTE Ltd for the purchase price of $2,480,000 to effectively purchase ownership of 2,480,000 shares of common stock of Vivacitas.. This agreement includes an option to purchase an additional 250,000 shares of common stock. As a result of these two transactions, which were closed on March 21, 2021 and March 29, 2021, respectively, the Company owns an approximate 15.7% equity position in Vivacitas. The Seller’s largest shareholder is Mr. Heng Fai Ambrose Chan, the Chairman of the Company’s board of directors and its largest shareholder. On July 22, 2021, the Company exercised 1,000,000 of the available options under the Vivacitas Agreement #1, increasing the Company’s equity position in Vivacitas to 19.3%. On April 21, 2021, the Company announced its wholly owned subsidiary, Premier Packaging Corporation’s intentions to relocate from its current 48,000 square-foot manufacturing facility from Victor, NY to a new 105,000 square-foot facility in the Town of Henrietta, NY approximately 15 miles from its Victor location by the end of 2021. In connection with this relocation, Premier Packaging has entered into an agreement to sell its current Victor location with the anticipated closing date of January 31, 2022. On May 13, 2021, Sentinel Brokers, LLC., a subsidiary of the Company entered into a stock purchase agreement (“Sentinel Agreement”) to acquire a 24.9% equity position of Sentinel Brokers Company, Inc. (“Sentinel”), a company registered in the state of New York, for the purchase price of $300,000. Under the terms of this agreement, the Company as the option to purchase an additional 50.1% of the outstanding Class A Common Shares. Upon the exercising of this option, but no earlier than one year following the effective date the Sentinel Agreement, Sentinel has the option to sell the remaining 25% to the Company. In consideration of purchase price investment in Sentinel, the Company is entitled to an additional 50.1% of the net profits of Sentinel On May 19, 2021, the Company announced that its wholly owned subsidiary, DSS PureAir, Inc., a Texas corporation (“DSS PureAir”), closed on a Securities Purchase Agreement with Puradigm LLC, a Nevada limited liability corporation (“Puradigm”). Pursuant to the terms of the Securities Purchase Agreement, DSS PureAir agreed to provide Puradigm a secured convertible promissory note in the maximum principal amount of $5,000,000.00 (the “Puradigm Note”). The Puradigm Note has a two year term with interest at 6.65% payable quarterly. All, or part of the Puradigm Note principal balance can be converted at the sole discretion of DSS PureAir for up to an 18% membership interest in Puradigm LLC. The Puradigm Note is secured by all the assets of Puradigm under a security agreement with Puradigm. On June 18, 2021, AMRE Shelton, LLC., (“AMRE Shelton”) a subsidiary of AMRE financed the purchase of a 40,000 square foot, 2.0 story, Class A+ multi-tenant medical office building located on a 13.62 acre site in Shelton, Connecticut (See Note 7). In accordance with Topic 805, the acquisition of the medical acquired has been determined to be an acquisition of assets as s ubstantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. This property was appraised at approximately $7,150,000, of which $6,027,000 and $815,000 was allocated to the facility and land respectively. Also include in the value of the property is $308,000 of intangible assets with an estimated useful life of 11 years. Contained within the sale-purchase agreement for this facility, is a $1,500,000 earnout due to the seller if certain criteria are met. As of June 30, 2021, no liability has been recorded for this earnout as management determined it is currently remote. The four reporting segments are as follows: Premier Packaging: (“Premier”) The Company’s consumer packaging and security printing group is coordinated by the wholly owned subsidiary, Premier Packaging Corporation, a New York corporation. Premier operates in the paper board folding carton, smart packaging, and document security printing markets. It markets, manufactures, and sells mailers, photo sleeves, sophisticated custom folding cartons, and complex 3-dimensional direct mail solutions. These products are designed to provide functionality and marketability while also providing counterfeit protection. Premier is currently located in Victor, NY and serves the US market. BioHealth Group: (“BioHealth”) The BioHealth Group is our business line created to invest in, or acquire companies in the biohealth and biomedical fields, including businesses focused on the advancement of drug discovery and prevention, inhibition, and treatment of neurological, oncological, and immune related diseases. This division is also developing open-air defense initiatives, which curb transmission of air-borne infectious diseases, such as tuberculosis and influenza. The BioHealth Group is also targeting unmet, urgent medical needs. Assets of this group are organized under the holding company, DSS BioHealth Security, Inc. Its subsidiaries are currently headquartered in Rochester, NY. The group also has a research facility in Winter Haven, Florida. 27 Securities and Fintech Group: (“Securities”) Securities was established to develop and/or acquire assets and investments in the securities trading and/or funds management arena. Further, Securities, in partnership with recognized global leaders in alternative trading systems, intends to own and operate in the US a single or multiple vertical digital asset exchanges for securities, tokenized assets, utility tokens, stable coins and cryptocurrency via a digital asset trading platform using blockchain technology. The scope of services within this section is planned to include asset issuance and allocation (securities and cryptocurrency), FPO, IPO, ITO, PPO, STO and UTO listings on a primary market(s), asset digitization/tokenization (securities, currency and cryptocurrency), and the listing and trading of digital assets (securities and cryptocurrency) on a secondary market(s). Also in this segment is the Company’s real estate investment trust (“REIT”), organized for the purposes of acquiring hospitals and other acute or post-acute care centers from leading clinical operators with dominant market share in secondary and tertiary markets, and leasing each property to a single operator under a triple-net lease. the REIT was formed to originate, acquire, and lease a credit-centric portfolio of licensed medical real estate. This group is headquartered in Huston, Texas. Direct Marketing/Online Sales Group: (“Direct” or “DM”) Led by the holding corporation, Decentralize Sharing Systems, Inc. (“Decentralized”, this group provides services to assist companies in the emerging growth gig business model of peer-to-peer direct marketing. Direct specializes in marketing and distributing its products and services through its subsidiaries, partner networks, and online marketplaces. Direct marketing products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific and Eastern Europe. Over the past 18 months, Direct has made substantial investments in acquiring marketing software, product opportunities, and operational capabilities in this marketplace. Additionally, it has acquired and developed an independent contractor sales force. It has also made substantial investments into other direct marketing companies, including its investment and partnership with Sharing Services Global Corporation (OTCQB: SHRG) (“Sharing Services” or “SHRG”), which as of June 30, 2021, Decentralized owned approximately 47% of the outstanding shares of Sharing Services. Currently, Direct and SHRG operate offices in USA, Canada, Hong Kong, Singapore, S. Korea, Australia, New Zealand, Malaysia, and Singapore, with additional offices or presence being added monthly. Decentralized sharing systems’ mission is to become the leading direct sales platform, training, developing and empowering leaders on a global scale to achieve maximum human and economic potential. Results of operations for the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020. This discussion should be read in conjunction with the financial statements and footnotes contained in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2020. Revenue Three months ended June 30, 2021 Three months ended June 30, 2020 % Change Six months ended June 30, 2021 Six months ended June 30, 2020 % Change Revenue Printed products $ 3,376,000 $ 2,272,000 49 % $ 7,237,000 $ 5,438,000 33 % Direct marketing 809,000 506,000 60 % 1,416,000 1,078,000 31 % Total Revenue $ 4,185,000 $ 2,778,000 51 % $ 8,653,000 $ 6,516,000 33 % For the three and six months ended June 30, 2021, total revenue increased 51% and 33% respectively, as compared to the three and six months ended June 30, 2020. Revenues from the sale of Printed products increased 49%, and 33% during the three and six months ended June 30, 2021, respectively, as compared to the same period in 2020, primarily due to an increase in packaging sales due to the addition of new customers and existing customers return to pre-Covid 19 operations. Direct marketing revenue increase illustrates the Company’s continued expansion into the direct marketing industry and its associated opportunities. Costs and expenses Three months ended June 30, 2021 Three months ended June 30, 2020 % Change Six months ended June 30, 2021 Six months ended June 30,2020 % Change Costs and expenses Cost of revenue, exclusive of depreciation and amortization $ 3,042,000 $ 1,729,000 76 % $ 6,330,000 $ 4,302,000 47 % Sales, general and administrative compensation 4,609,000 749,000 515 % 6,337,000 1,393,000 355 % Depreciation and amortization 821,000 273,000 201 % 1,335,000 573,000 133 % Professional fees 1,235,000 692,000 78 % 2,205,000 1,272,000 73 % Stock based compensation (30,000 ) 47,000 -164 % ( 15,000 ) 54,000 -128 % Sales and marketing 896,000 340,000 164 % 1,570,000 664,000 136 % Rent and utilities 75,000 78,000 -4 % 108,000 178,000 -39 % Research and development 211,000 - N/A 455,000 - N/A Other operating expenses 381,000 133,000 186 % 774,000 317,000 144 % Total costs and expenses $ 11,240,000 $ 4,041,000 178 % $ 19,099,000 $ 8,753,000 118 % 28 Costs of revenue, exclusive of depreciation and amortization includes all direct costs of direct marketing and printed products revenues, including materials, direct labor, transportation and manufacturing facility costs. Costs of goods sold increased 76% and 47% for the three and six months ended June 30, 2021, respectively as compared to the same periods in 2020. This increase is driven primarily by an increase in manufacturing costs associated with the products sold as part of our Direct Marketing, and Packaging and Printing segments, in particular, increases in freight and overhead costs. Sales, general and administrative compensation costs, excluding stock-based compensation, increased 515% and 355% during the three and six months ended June 30, 2020, respectively, as compared to the same periods in 2020, primarily due to changes in headcount year over year associated with addition of our Direct Marketing and BioHealth business segments, and performance bonus accruals approximating $4,574,000. 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-compete agreements and patents, and internally developed patent assets. For the three and six months ended June 30, 2021, depreciation and amortization expense increased 201% and 133% respectively as compared to the same periods in 2020 due to sale and disposal of assets and amortization on newly acquired intangibles assets. Professional fees increased 78% and 73% respectively during the three and six months ended June 30, 2021, as compared to the same periods in 2020, mostly due to increases in legal services related to the Direct Marketing business segment, and yearly audit fees. 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 decreased 164% and 128% respectively during the three and six ended June 30, 2021 as compared to the same periods in 2020, driven by the expiration of options awarded to employees no longer with the company Sales and marketing which include internet and trade publication advertising, travel and entertainment costs, sales-broker commissions, and trade show participation expenses increased 164% and 136% respectively during the three and six months ended June 30, 2021, as compared to the same periods in 2020, resulting from an increase in commissions paid to brokers associated with the Company’s Direct Marketing segment. Rent and utilities decreased by 4% and of 39% respectively during the three and six months ended June 30, 2021, as compared to the same period in 2020, primarily due to a decrease in facilities maintenance costs and utilities for the Company. This was offset by a new facility lease in Houston, Texas started during the first quarter of 2021. Research and development costs increased $211,000 and $455,000 during the three and six months ended June 30, 2021 respectively as compared to the same period in 2020 due to the acquisition of Impact Biomedical, Inc. in 2020 and the related costs for continued research and development of the acquired product formulations. Other operating expenses consist primarily of equipment maintenance and repairs, office supplies, IT support, and insurance costs. During the three and six months ended June 30, 2021, other operating expenses increased 191% and 186% respectively as compared to the same period in 2020 due to increased software costs associated with enhancements to the Company’s ERP system as well as new software implement as part of the Company’s Direct Marketing segment and increased D&O insurance. 29 Other Income (Expense) Three months ended June 30, 2021 Three months ended June 30, 2020 % Change Six months ended June 30, 2021 Six months ended June 30,2020 % Change Other Income (Expense) Interest Income $ 1,485,000 $ 27,000 5400 % $ 1,537,000 $ 50,000 2974 % Other Income 250,000 - N/A 250,000 - N/A Interest Expense (106,000 ) (42,000 ) 152 % (126,000 ) (73,000 ) 73 % Loss on equity method investment (332,000 ) - N/A (911,000 ) - N/A (Loss) gain on investments (6,821,000 ) 580,000 -1276 % (7,898,000 ) 584,000 -1452 % Gain/(Loss) on extinguishment of debt - - N/A 116,000 - N/A Total other income $ (5,524,000 ) $ 565,000 1078 % $ (7,032,000 ) $ 561,000 1353 % Interest income is recognized on the Company’s money markets as well as the accretion of the discount on convertible notes receivable identified in Note 3. Other income represents recognition of amortization of note origination fees. Interest expense increased 152% and 73% during the three and six months ended June 30, 2021 respectively, as compared to the same period in 2020, due to increasing debt balances. Unrealized loss on equity investment Loss from equity method investment is driven by the Company’s prorated portion of Sharing Services Global Corp’s earnings for the three and six months ended June 30, 2021. (Loss) gain on investments consists of realized losses on marketable securities which are recognized as the difference between the purchase price and sale price of the common stock investment. For the three and six months ended June 30, 2021, $509,000 and $519,000 respectively, realized loss was recorded. Also unrealized losses on marketable securities which are recognized on the change in fair market value on our common stock investment driven by unrealized losses on Alset International Limited of approximately $967,000 for six months ended June 30, 2021. Also included are the loss of approximately $6,589,000 on warrants which are recognized as the change in option value of warrants held at June 30, 2021 (See Note 6). Gain on extinguishment of debt in April 2020, AAMI received funds from the SBA Paycheck Protection Program of $116,000. As of January 8, 2021, this note was forgiven in full. Net Loss Three months ended June 30, 2021 Three months ended June 29, 2020 % Change Six months ended June 30, 2021 Six months ended June 30,2020 % Change Loss from continuing operations $ (10,725,000 ) $ (698,000 ) -1437 % $ (14,787,000 ) $ (1,676,000 ) -782 % Income (loss) from discontinued operations 2,079,000 (208,000 ) 1100 % 2,129,000 (1,197,000 ) 278 % Net loss $ (8,646,000 ) $ (906,000 ) -854 % $ (12,658,000 ) $ (2,873,000 ) -341 % For the three and six months ended June 30, 2021, the Company recorded net loss from continuing operations of $10,725,000 and $14,787,000 respectively, as compared to a net loss of $698,000 and $1,676,000 during the same periods in 2020. The increase in net loss during the three and six months ended June 30, 2021 as compared to the same periods in 2020 primarily reflect the company’s unrealized losses on its marketable securities, and warrants, increased costs associated with new business lines, as well as increases in performance based compensation. The gain from continuing operations for the three and six months ended June 30, 2021 is inclusive of a $2,079,000 and 2,129,000 respectively, income tax benefit as compared to the losses of $208,000 and $1,197,000 for the three and six months ended June 30, 2020. Our effective tax rate for the six month periods ended June 30, 2021 is 17.3%. There was no tax provision for June 30, 2020 due to the expected tax benefit from net operating losses (NOLs) being fully offset by an increase in the valuation allowance. 30 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 June 30, 2021, the Company had cash of approximately $65.6 million. As of June 30, 2021, 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. Off-Balance Sheet Arrangements We do not have any material off-balance sheet arrangements that have, or are reasonably likely to have, an effect on our financial condition, financial statements, revenues or expenses. Critical Accounting Policies and Estimates The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make judgments, assumptions and estimates that affect the amounts reported in our financial statements and accompanying notes. The financial statements as of December 31, 2020 describe the significant accounting policies and methods used in the preparation of the financial statements. There have been no material changes to such critical accounting policies as of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2021.