What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-14 compared with 2023-05-15 · 174 added, 152 removed, 364 unchanged (47% of the section changed)

101 unchanged sentences

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

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

As of and through June 30, 2020, the Company classified its investment in Sharing Services Global Corp.

a publicly traded company, as marketable equity security and measured it at fair value with gains and losses recognized in other

In July 2020, through continued acquisition of common stock, as detailed below, the Company obtained greater than 20%

ownership of SHRG, and thus has the ability to exercise significant influence over it.

(“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 and through June 30, 2020, the Company classified its investment in Sharing Services

(“SHRG”), a publicly traded company, as marketable equity security and measured it at fair value with gains

and losses recognized in other income.

In July 2020, through continued acquisition of common stock, as detailed below, the Company obtained

greater than 20% ownership of SHRG, and thus has the ability to exercise significant influence over it.

During the quarter ended September

the Company began to account for its investment in SHRG using the equity method in accordance with ASC Topic 323,

Investments—Equity Method and Joint Ventures recognizing our share of SHRG’s earnings and losses within our consolidated

statement of operations.

Through a series of transactions, DSS increased its ownership of voting shares in SHRG to approximately 58%

on December 23, 2021.

The 58% ownership of SHRG meets the definition of a business with inputs, processes, and outputs, and

therefore, the Company has concluded to account for this transaction in accordance with the acquisition method of accounting under

Topic 805 and began consolidating the financial results of SHRG as of December 31, 2021.

On January 24, 2022, the Company exercised

50,000,000 warrants received as part of a consulting agreement with SHRG at the exercise price of $0.0001, bring its ownership

percentage of voting shares to approximately 65%.

During the fourth quarter of 2022, SHRG purchased back a significant number of its

outstanding voting shares, increasing the Company’s ownership percentage of voting shares to approximately 73% at December 31,

During the first quarter of 2023, DSS converted both interest due from SHRG on notes receivable and warrants in SHRG shares

into newly issued common stock of SHRG totaling 84,619,047 shares, increasing DSS ownership of voting shares to approximately 80% at

March 31, 2023.

On May 4, 2023, the Company distributed approximately 280 million shares of SHRG beneficially held by DSS and

Decentralized Sharing Systems in the form of a dividend to the shareholders of DSS common stock.

Upon completion of this

distribution, DSS will retain an ownership interest in SHRG of approximately 7%.

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.

John “JT” Thatch,

DSS’s Lead Independent Director and as well the CEO of SHRG is on the SHRG Board, along with Mr.

30, 2020, the Company began to account for its investment in SHRG using the equity method in accordance with ASC Topic 323, Investments—Equity

Method and Joint Ventures recognizing our share of SHRG’s earnings and losses within our consolidated statement of operations.

Through a series of transactions, DSS increased its ownership of voting shares in SHRG to approximately 58% on December 23, 2021.

58% ownership of SHRG meets the definition of a business with inputs, processes, and outputs, and therefore, the Company has concluded

to account for this transaction in accordance with the acquisition method of accounting under Topic 805 and began consolidating the financial

results of SHRG as of December 31, 2021.

On January 24, 2022, the Company exercised 50,000,000 warrants received as part of a consulting

agreement with SHRG at the exercise price of $0.0001, bring its ownership percentage of voting shares to approximately 65%.

fourth quarter of 2022, SHRG purchased back a significant number of its outstanding voting shares, increasing the Company’s ownership

percentage of voting shares to approximately 73% at December 31, 2022.

During the first quarter of 2023, DSS converted both interest

due from SHRG on notes receivable and warrants in SHRG shares into newly issued common stock of SHRG totaling 84,619,047 shares, increasing

DSS ownership of voting shares to approximately 80% at March 31, 2023.

On May 4, 2023, the Company distributed approximately 280 million

shares of SHRG beneficially held by DSS and Decentralized Sharing Systems in the form of a dividend to the shareholders of DSS common

Upon completion of this distribution, DSS will retain an ownership interest in SHRG of approximately 7%.

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.

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.

the CEO of the Company (joined the SHRG Board effective September 29, 2020).

CEO of the Company (joined the SHRG Board effective September 29, 2020).

March 15, 2021, the Company, through one of its subsidiaries, DSS BioMedical International, Inc.

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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%

Under the terms of this agreement, the Company has 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

Upon the exercising of this option, but no earlier than one year following the effective date of

the Sentinel Agreement, Sentinel has the option to sell the remaining 25% to the Company.

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in Sentinel, the Company is entitled to an additional 50.1% of the net profits of Sentinel.

In December 2022, the Company exercised its option to obtain the additional

50.1% of Sentinel’s common stock and began consolidating its results affective December 1, 2022.

In December 2022, the Company exercised its

option to obtain the additional 50.1% of Sentinel’s common stock and began consolidating its results affective December 1, 2022.

May 19, 2021, the Company announced that its wholly owned subsidiary, DSS PureAir, Inc., a Texas corporation (“DSS PureAir”),

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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 substantially all of the

fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets.

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 March 31,

2022, no liability has been recorded for this earnout as management determined it is currently remote.

accordance with Topic 805, the acquisition of the medical acquired has been determined to be an acquisition of assets as

substantially 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 were allocated

to the facility and land respectively.

Also included 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, 2023, no liability has been recorded for this earnout as management determined it is

currently remote.

September 9, 2021, the Company finalized a stock purchase agreement (the “SPA”) with American Pacific Bancorp (“APB”),

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including Sharing Services Global Corporation provide an array of products and services, through an independent contractor network.

example, Decentralized’s wholly owned subsidiary, HWH World, Inc.

promotes products and services that fulfill its corporate position

of health, wealth, and happiness.

The HWH Marketplace through its brands desires to help its customers become the healthiest, happiest

versions of themselves.

For the health component , the company offers herbal alternatives of nutraceutical, consumables and topicals,

dietary supplements, beauty and skin care products, personal care, gut health products, aloe vera based supplements, and other wellness

As to the wealth component , the company is developing educational tools to its users to better manage individual finances

and savings programs to help its consumers find each consumer’s individual financial goal.

As to the happiness component ,

the company is working with other partners to either acquire or partner in products and/or services to allow its consumers to enjoy and

healthy living, including a global travel membership network.

example, DSS’s wholly owned subsidiary, HWH World, Inc.

promotes products and services that fulfill its corporate position of health,

wealth, and happiness.

The HWH Marketplace through its brands desires to help its customers become the healthiest, happiest versions

of themselves.

For the health component , the company offers herbal alternatives of nutraceutical, consumables and topicals, dietary

supplements, beauty and skin care products, personal care, gut health products, aloe vera based supplements, and other wellness products.

As to the wealth component , the company is developing educational tools to its users to better manage individual finances and

savings programs to help its consumers find each consumer’s individual financial goal.

As to the happiness component , the

company is working with other partners to either acquire or partner in products and/or services to allow its consumers to enjoy healthy

living, including a global travel membership network.

Sharing Services, through its subsidiary Elevacity, markets and distributes health and wellness products under the “Elevate”

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“The Happy Co.,” at its Elevacity division.

Elevacity as several well-known and signature products, including its top product

Elevacity has several well-known and signature products, including its top product

lines of “Happy Coffees” and “Nootropic Beverages”.

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beauty and skin care products, and other wellness products.

of operations for the three months ended March 31, 2023, as compared to the three months ended March31, 2022.

of operations for the six and three months ended June 30, 2023, as compared to the six and three months ended June 30, 2022.

discussion should be read in conjunction with the financial statements and footnotes contained in this Quarterly Report and in our Annual

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Three months ended

March 31, 2023

Three months ended

March 31, 2022

Six months ended

June 30, 2023

Six months ended

Printed products

Rental income

Management fee income

Net investment income

Commission revenue

Direct marketing

Total Revenue

the three months ended March 31, 2023, total revenue decreased 3% as compared to the three months ended March 31, 2022.

from the sale of Printed products increased 72% during the three months ended March 31, 2023, as compared to the same period in

Net investment income, Rental income and Management fee income, $117,000, $1,685,000 and $0 respectively, represent new

revenue streams in 2022 for the Company and are associated with our Securities and Commercial Lending business segments.

Company’s Direct Marketing revenues decreased 42% in 2023 as compared to 2022 due primarily to the decrease sales in our Asian

Three Months ended

March 31, 2023

Three months ended

March 31, 2022

Cost of revenue - printed products

Cost of revenue - securities

Cost of revenue – directing marketing

Cost of revenue – other

the three and six months ended June 30, 2023, total revenue decreased 39% and 21% respectively, as compared to the three and six

months ended June 30, 2022.

Revenues from the sale of Printed products decreased 10% during three months but increased 28% during six

months ended June 30, 2023, as compared to the same period in 2022 due primarily to orders expected to ship during the 4 th quarter

2022 being pushed to the 1 st quarter 2023.

Rental income, and Net investment income of $1,543,000, and

$197,000 respectively, for the three months ended June 30, 2023 and $1,508,000, and $145,000, respectively for the six months ended

June 30, 2022, represent new revenue streams for the Company and are associated with our Securities and Commercial Lending business

The Company’s Direct Marketing revenues decreased 74% and 57% for the three and six months ended June 30, 2023 as

compared to 2022 due primarily to the Deconsolidation of SHRG as described in Note 1.

Three months ended June 30, 2023

Three months ended June 30, 2022

Six months ended June 30, 2023

Six months ended June 30,2022

Cost of revenue

Printed products

Biotechnology

Direct marketing

Sales, general and administrative compensation

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Total costs and expenses

Costs of revenue includes

all direct costs of direct marketing and printed products revenues, including materials, direct labor, transportation, and manufacturing

facility costs.

Costs of goods sold decreased 4% for the three months ended March 31, 2023, respectively as compared to the same periods

This decrease is driven primarily by a decrease in manufacturing costs associated with the products sold as part of our Direct

Marketing, and Packaging and Printing segments, in particular, decreases in freight, and paper.

general and administrative compensation costs, excluding stock-based compensation, increased 19% during the three months ended March

31, 2023, as compared to the same periods in 2022.

fees decreased 54% during the three months ended March 31, 2023, as compared to the same periods in 2022, primarily due to a

decrease in legal fees associated with the direct marketing division, due diligence fees, as well as costs associated with

acquisitions.

of revenue include 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 because of technology licenses or settlements, if any.

Cost of revenue

for our REIT line of business includes all direct cost associated with the maintenance and upkeep of the related facilities, depreciation,

amortization, and the costs to acquire the facilities.

Our Commercial Lending operating segment has costs of revenue associated with

the impairment of notes receivable for those amounts at risk of collection.

Total costs of revenue decreased 37 %

for three-months ended June 2023 as compared to 2022

and decreased 18% for six-months ended June 2023 as compared to June 2022 primarily related to the Deconsolidation of SHRG as described

general and administrative compensation costs, excluding stock-based compensation, decreased 86% and 51% for the three and six

months ended June 30, 2023 as compared to the same periods in 2022 due primarily to the Deconsolidation of SHRG as described in Note 1.

fees decreased 32% and 40%, during the three and six months ended June 30, 2023, as compared to the same periods in 2022 respectively,

primarily due to a decrease in legal fees associated with the direct marketing segment, accounting fees, and due diligence fees related

to potential acquisitions.

based compensation includes expense charges for all stock-based awards to employees, directors, and consultants.

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option grants, warrant grants, and restricted stock awards.

Stock based compensation decreased 100% during the three months ended March

31, 2023, as compared to the same periods in 2022, due to the expiration of several warrants and options during 2023.

and marketing which include internet and trade publication advertising, travel and entertainment costs, sales-broker commissions,

and trade show participation expenses.

The decreased 53% during the three months ended March 31, 2023 as compared to the same periods

and utilities increased 58% during the three months ended March 31, 2023, as compared to the same period in 2022.

and development costs increased 7% during the three months ended March 31, 2023, as compared to the same period in 2022 are due to

an increase in such activities at our Impact Biomedical, Inc.

There was no stock based compensation during the six months ended June 30, 2023.

and marketing which include internet and trade publication advertising, travel and entertainment costs, sales-broker

commissions, and trade show participation expenses.

Sales and marketing decreased 58% and 55% during the three and six months

ended June 30, 2023 as compared to the same periods in 2022 respectively, due primarily to the Deconsolidation of SHRG as described in Note 1.

and utilities increased 40% and 48% during the three and six months ended June 30, 2023, as compared to the same period in 2022

respectively, primarily due to an additional space rented at our facility leased in Houston, Texas started during the 2022 as well as Premier Packaging’s

leased facility beginning in March 2022.

and development costs increased 29% and 19% during the three and six months ended June 30, 2023, as compared to the same period

in 2022 respectively, due to a decrease in such activities at our Impact Biomedical, Inc.

operating expenses consist primarily of equipment maintenance and repairs, office supplies, IT support, and insurance costs.

the three months ended March 31, 2023, other operating expenses increased 4% as compared to the same period in 2022.

During the three and six months ended June 30, 2023, other operating expenses increased 470% and 290% as compared to the same period

in 2021 respectively, due primarily to the reserves put against rent receivables during the three months ended June 30, 2023 at our

AMRE subsidiary approximating $3.4 million.

Income (Expense)

Three months ended

March 31, 2023

Three months ended

March 31,2022

Other Income (Expense)

Six months ended

Interest Income

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Interest Expense

Other expense

Loss on investments

(27,922,000 )

(30,790,000 )

Loss on equity method investment

Gain/(Loss) on extinguishment of debt

Provision for loan losses

Gain on disposal of operations, net of taxes

Total other expense

Total other income

$ (31,273,000 )

$ (35,232,000 )

expense is recognized on the Company’s money markets, and notes receivable, identified in Note 4.

Interest expense decreased 82% in March 31, 2023 compared to March 31, 2022.

expense represents cost associated with the March 31, 2022, impairment of investments and notes receivables for SHRG approximating

No similar activity for March 31, 2023 .

expense decreased 82% during the three months ended March 31, 2023, as compared to the same period in 2022, due to decreasing debt

income is recognized on the Company’s money markets, and a portion of notes receivable, identified in Note 4.

expense for the six months ended June 30, 2022 is driven by the impairment of investments and notes receivables for SHRG

approximating $1,745,000.

No similar activity occurred in 2023.

expenses increased 14% and decreased 7% during the three and six months ended June 30, 2023, as compared to the same

period in 2022, due to increasing debt balances and rise in interest rates within our REIT business line.

on investments consists of net realized losses on marketable securities which are recognized as the difference between the purchase

price and sale price of the common stock investment.

Also included are net unrealized losses on marketable securities which are recognized

price and sale price of the common stock investment, and net unrealized losses on marketable securities which are recognized

on the change in fair market value on our common stock investment.

Loss on investments decreased 777% in March 31, 2023, compared with March 31, 2022.

Also included is a loss approximating $29.2 million associated with the Deconsolidation of SHRG (see Note 1).

on equity method investment is the Company’s prorated portion of earnings on its investments treated under the equity method

of account for the three months ended March 31, 2023.

Loss on equity investment decreased 96% in March 31, 2023, compared to March 2022.

of account for the three and six months ended June 30, 2023.

on extinguishment of debt During the three months ended June 30, 2022, SHRG’s $110,000 SBA Paycheck

Protection Program was forgiven in full.

on sale of assets is driven by the Company’s gain on the sale of Premier’s manufacturing facility in Victor, NY, as well

as other capital assets.

Three months ended

March 31, 2023

Three months ended

March 31,2022

Loss from operations before income taxes

Six months ended June

Six months ended

Loss from continuing operations

$ (37,723,000 )

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$ (14,361,000 )

For the three months ended March

31, 2023, and March 31, 2022, the Company recorded net loss from operations of $8,633,000 and $8,951,000 respectively.

The decrease in

net loss during the three months ended March 31, 2023, as compared to the same periods in 2022 primarily reflect cost cutting efforts

by the Company, in particular, the reduction of professional fees as well as commissions paid to distributors within our Direct marketing

business line.

$ (37,723,000 )

$ (5,410,000 )

$ (46,357,000 )

$ (14,361,000 )

the three and six months ended June 30, 2023, the Company recorded net losses of $37,723,000 and $46,357,000, respectively as compared

to net losses of $5,410,000 and $14,361,000, respectively for June 30, 2022.

The increase in net loss during the three and six months

ended June 30, 2023, is driven by the Deconsolidation of SHRG as described in Note 1.

AND CAPITAL RESOURCES

Company has historically met its liquidity and capital requirements primarily through the sale of its equity securities and debt financings.

As of March 31, 2023 the Company had cash of approximately $13.7 million.

As of March 31, 2023, the Company believes that it has sufficient

Company has historically met its liquidity and capital requirements primarily through the sale of its equity securities and debt financing.

As of June 30, 2023 the Company had cash of approximately $10.0 million.

As of June 30, 2023, 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.

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believes that it will have access to sources of capital from the sale of its equity securities and debt financing.

Cash Flow from Operating Activities

Net cash used from operating activities

was $14,199,000 for the three months ended March 31, 2023 as compared to $6,070,000 for the three months ended March 31, 2022.

This increase

is driven by the payments of accrued liabilities of $9,551,000 during the first quarter 2023.

Cash Flow from Investing Activities

Net cash provided by investing

activities was $11,537,000 for the three months ended March 31 ,2023 as compared net cash used of $5,359,000 for the three months ended

March 31, 2022.

This is fluctuation is driven by the sale of marketable securities approximating $11,330,000 during the first quarter 2023

versus the purchase of marketable securities approximating $4,693,000 during the first quarter 2022.

Cash Flow from Financing Activities

Net cash used from financing activities was $2,896,000

for the three months ended March 31, 2023 and represents payment of debt of $4,002,000 offset by borrowings of debt of $1,106,000.

the three months ended March 31, 2022, net cash provided by financing activities was driven by borrowings of long-term debt of $6,193,000

and issuance of common stock of $1,858,000.

The deconsolidation of SHRG and sale of HWH World, two companies with historical losses will also is expected to

improve future cash flows.

Flow from Continuing Operating Activities

cash used from continuing operating activities was $18,083,000 for the six months ended June 30, 2023 as compared to $13,947,000 for

the six months ended June 30, 2022.

This increase is driven by the payments of accrued liabilities of $16,295,000 during 2023.

Flow from Investing Activities

cash provided by investing activities was $13,319,000 for the six months ended June 30, 2023 as compared net cash used of $6,412,000

for the six months ended June 30, 2022.

This fluctuation is driven by the sale of marketable securities approximating

$11,575,000 during 2023 versus the purchase of marketable securities approximating $4,805,000 during 2022.

Flow from Financing Activities

cash used from financing activities was $2,861,000 for the six months ended June 30, 2023 and represents payment of debt of $5,519,000

offset by borrowings of debt of $2,658,000.

During the six months ended June 30, 2022, net cash provided by financing activities was

driven by borrowings of long-term debt of $6,360,000 and issuance of common stock of $1,518,000.

Sheet Arrangements

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There have been

no material changes to such critical accounting policies as of the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023.

no material changes to such critical accounting policies as of the Quarterly Report on Form 10-Q for the quarter ended June 30, 2023.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis