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 The Company, which was incorporated in the state of New York in May 1984, previously conducted its business under the name of Document Security Systems, Inc On September 16, 2021, our board of directors approved an agreement and plan of merger with a wholly owned subsidiary, DSS, Inc. This subsidiary, incorporated in August 2020, was created for the sole purpose of facilitating a transformational name change from Document Security Systems, Inc. to DSS, Inc. This significant shift in our identity became official on September 30, 2021. With the name change, DSS, Inc. retained its trading symbol, “DSS,” and is currently trading under its CUSIP number to 26253C 201. This change reflects not only our evolution as a company but also our commitment to adapting and growing in an ever-changing business landscape. DSS, Inc. (referred to herein as “DSS,” “we,” “us,” or “our”) now operates across four distinct business lines, each with its own unique scope and presence on a global scale. These business lines encompass a wide range of industries and sectors, including: Product Packaging: Our involvement in product packaging represents our dedication to delivering innovative and sustainable packaging solutions that meet the evolving needs of various markets. Biotechnology: In the field of biotechnology, we are focused on pioneering scientific advancements and technologies that have the potential to transform human healthcare and wellness. Commercial Lending: We are actively engaged in commercial lending, offering a suite of financial services that cater to the unique needs of businesses, ranging from commercial lines of credit to land development financing. Securities and Investment Management: In the world of securities and investment management, we aim to provide expertise and guidance to help our clients navigate the complexities of the financial markets and achieve their investment goals. Each of these business lines is at a different stage of development, growth, and income generation, reflecting the diversity of our operations. This multi-faceted approach allows us to adapt to changing market conditions and explore new opportunities for expansion and success. We are committed to our continued evolution and to delivering value to our stakeholders across these diverse business lines. Diverse Business Lines and Global Presence: Under the banner of DSS, Inc., we have diversified our operations into four distinct business lines, each with its own unique scope and geographical footprint. These business lines include: Product Packaging: Led by Premier Packaging Corporation, Inc. (“Premier”), a New York corporation, this segment specializes in paperboard and fiber-based folding carton manufacturing, consumer product packaging, and document security printing. Premier is headquartered in its newly established facility in Rochester, NY, primarily serving the US market. Biotechnology: This business line is dedicated to investing in or acquiring companies in the BioHealth and BioMedical fields, focusing on drug discovery, prevention, treatment of various diseases, and open-air defense initiatives against infectious diseases. Commercial Lending: American Pacific Financial, Inc. (“APF”) represents our financing business line. Looking ahead, to better meet the needs of the current financial market, the company is looking to transition away form certain industries like direct marketing and focus more on growing its inventory / equipment loan portfolio as well as engaging in more specialized areas of lending like broker/dealer loans. We will continue to monitor our managed loan portfolio, and explore future opportunities. Importantly, the equity portfolio as a bank holding company is anticipated to remain relatively stable, regardless of stock market fluctuations. Securities and Investment Management: This division focuses on acquiring assets in the securities trading and management arena, including broker-dealers. It also oversees a real estate investment trust (REIT) that acquires hospitals and care centers. 29 Results of operations for the three and six months ended June 30, 2026, as compared to the three and six months ended June 30, 2025. 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, 2025. Revenue Three months ended June 30, 2026 Three months ended June 30, 2025 % Change Six months ended June 30, 2026 Six months ended June 30, 2025 % Change Product Packaging $ 3,258,000 $ 4,281,000 -24 % $ 7,438,000 $ 8,286,000 -10 % Securities 337,000 981,000 -66 % 475,000 1,900,000 -75 % Commercial Lending 6,000 16,000 -63 % 11,000 30,000 -63 % Biotechnology 3,000 7,000 -57 % 10,000 21,000 -52 % $ 3,604,000 $ 5,285,000 -32 % $ 7,934,000 $ 10,237,000 -22 % For the three and six months ended June 30 2026, total revenue decreased 32% and 22%, as compared to the three and six months ended June 30, 2025, respectively. The decrease in Printed Product revenue of approximately 24% and 10% for the three and six months ended June 30, 2026 is driven by customer orders from existing customers falling short of their forecasts as well as the anticipated second quarter onboarding of several new customers being pushed out to the third and fourth quarters of 2026. The decreases in Securities revenue of approximately 66% and 75% for the three and six months ended June 30, 2026 is driven by an decrease in rental income at our AMRE LifeCare Pittsburgh facility. Additionally, the Company sold its AMRE Winterhaven and Ft Worth facilities during 2025, significantly reducing rental revenues in 2026. Also, the Company received approximately 67% and 77% less in commission revenues associated with its Sentinel Brokers subsidiary for the three and six months ended June 30, 2026. The Company decreases in Commercial lending revenue of approximating 63% for the three and six months ended June 30, 2026 is due to a number of loans made going on non-accrual as borrowers have struggled to make expect payments. Biotechnology revenue is driven by sales of the Company’s air purification Celios brand. 30 Costs and Expenses Three months ended June 30, 2026 Three months ended June 30, 2025 % Change Six months ended June 30, 2026 Six months ended June 30,2025 % Change Cost of revenue Printed products $ 3,357,000 $ 4,094,000 -18 % $ 7,796,000 $ 7,895,000 -1 % Securities 1,161,000 1,165,000 0 % 2,255,000 2,561,000 -12 % Biotechnology 1,000 3,000 -67 % 1,000 4,000 -75 % Commercial lending - 234,000 -100 % - 212,000 -100 % Other - (7,000 ) -100 % - 3,000 -100 % Sales, general and administrative compensation 1,043,000 1,122,000 -7 % 2,042,000 3,167,000 -36 % Professional fees 625,000 492,000 27 % 1,222,000 1,131,000 8 % Stock-based compensation - 2,000 -100 % 1,440,000 3,000 47900 % Sales and marketing 357,000 423,000 -16 % 733,000 824,000 -11 % Rent and utilities 129,000 133,000 -3 % 261,000 259,000 1 % Research and development 76,000 75,000 1 % 123,000 178,000 -31 % Other operating expenses 641,000 974,000 -34 % 1,335,000 1,151,000 16 % Total costs and expenses $ 7,390,000 $ 8,710,000 -15 % $ 17,208,000 $ 17,388,000 -1 % Costs of revenue 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 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 for the three and six months ended June 30, 2026 as compared to June 30, 2025 by approximately 18% and 6%, respectively, due primarily to the decrease in revenues for each business line during these periods. Additionally, decreased in cost of revenue within our REIT business driven by the sale of the Fort Worth, Tx and Winter Haven, Fl facilities in December 2025. Sales, general and administrative compensation costs, excluding stock-based compensation, decreased for the three and six months ended June 30, 2026 as compared to June 30, 2025 by approximately 7% and 36%, respectively due to headcount reductions within our Securities segment. Additionally, the decrease for the six months ended June 30, 2026 in comparison to the six months ended June 30, 2025 can be attributed to bonus awarded to Heng Fai Holdings Limited (“HFHL”), a Hong Kong Company, which is beneficially owned by Mr. Heng Fai Ambrose Chan, Director of DSS, Inc., for services rendered. The issuance was approved by the board of directors on January 31, 2025. Professional fees increased for the three and six months ended June 30, 2026 as compared to June 30, 2025 by approximately 27% and 8%, respectively. These increases are driven by costs associated with recruitment of technical personnel at Premier Packaging and professional staff at DSS. Stock-based compensation includes expense charges for all stock-based awards to employees, directors, and consultants of Impact Bio. Such awards can include option grants, warrant grants, and restricted and unrestricted stock awards. In January 2026, Impact BioMedical granted and issued 3,200,000 shares of common stock to various individuals including executives, board members, audit committee members, etc. Agreement included the individuals rescinding and cancelling any and all unexercised stock options previously granted. Impact Biomedical recorded stock-based compensation expense of approximately $1,440,000. Sales 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 for the three and six months ended June 30, 2026 as compared to June 30, 2025 by approximately 16% and 11%, respectively, due to decreases in marketing, and travel costs within our Printed Products division. Rent and utilities decreased for the three months ended June 30, 2026 as compared to June 30, 2025 by approximately 3% and remained relatively flat for the six months ended June 30, 2026 as compared to June 30, 2025 as both rent and utilities at the Company’s places of business remained flat. Research and development costs represent costs consisting primarily of independent, third-party testing of the various properties of each technology the Company owns possesses as well as research on new technologies. Theses costs remained relatively flat for the three months ended June 30, 2026 as compared to June 30, 2025 and decreased for the six months ended June 30, 2026 as compared to June 30, 2025. The six month decrease is driven due primarily to a decrease in spending on identifying new technologies as well as pausing the spend on several in-development technologies. Other operating expenses consist primarily of equipment maintenance and repairs, office supplies, IT support, and insurance costs. These costs decreased for the three months ended June 30, 2026 as compared to June 30, 2025 by approximately 34% and increased by approximately 16% for the six months ended June 30, 2026 as compared to June 30, 2025. The decrease or the three months ended June 30, 2026 as compared to June 30, 2025 is due to efforts by management to control such costs. The increase for the six months ended June 30, 2026 as compared to June 30, 2025, primarily due to collections of previously written-off accounts receivable associated with our AMRE LifeCare facilities of approximately $600,000 during the first quarter of 2025. 31 Other Income (Expense) Three months ended June 30, 2026 Three months ended June 30, 2025 % Change Six months ended June 30, 2026 Six months ended June 30, 2025 % Change Interest Income $ 2,000 $ 13,000 -85 % $ 3,000 $ 17,000 -82 % Interest income on note receivable, related party 6,000 $ 12,000 -50 % 12,000 16,000 -25 % Dividend Income 5,000 $ - N/A 16,000 - N/A Other Income 21,000 4,000 425 % 7,000 10,000 -30 % Interest Expense (89,000 ) (123,000 ) -28 % (128,000 ) (156,000 ) -18 % Loss on equity method investment (364,000 ) (2,000 ) 18100 % (367,000 ) (5,000 ) 7240 % Gain (loss) on investments (830,000 ) 1,557,000 -153 % (1,531,000 ) 627,000 -344 % Impairment of intangible assets - (600,000 ) -100 % - (600,000 ) -100 % Loss on sale of real estate - (43,000 ) -100 % - (727,000 ) -100 % Total other income (expense) $ (1,249,000 ) $ 818,000 $ (1,988,000 ) $ (818,000 ) Interest income is recognized on the Company’s money markets, and a portion of notes receivable, identified in Note 4. The decrease in interest income is driven by several notes being put on non-accrual as the related borrowers have shown an inability to pay timely. Interest income on notes receivable, related party is recognized on the Company’s notes receivable with related parties identified in Note 4 and remained flat year over year as outstanding principal balances remained flat year over year. Dividend income for the three and six months ended June 30, 2026 represent dividends received on certain investments owned by the Company. No such dividends were received the three and six months ended June 30, 2025. Other income increased for the three ended June 30, 2026 as compared to June 30, 2025 by approximately 425% and decrease for the six months ended June 30, 2026 as compared to June 30, 2025 by approximately 30% driven by fluctuations in foreign exchange rates. Interest expenses decreased for the three and six months ended June 30, 2026 as compared to June 30, 2025 by approximately 28% and 18%, respectively, due primarily to decrease in overall debt balances. Loss on equity method investment is the Company’s prorated portion of earnings on its investments treated under the equity method of account for the six months ended June 30, 2026 as compared to 2025. Gain (loss)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, and net unrealized losses on marketable securities which are recognized on the change in fair market value on our common stock investment. The fluctuation decreased for the three and six months ended June 30, 2026 as compared to June 30, 2025 by driven by the performance of our stock portfolio. Impairment of intangible assets is a result of the Company resigning its position as the registered investment advisor (“RIA”) of the American First Mutual Funds. The related asset was acquired at the time the Company became the RIA in September 2021. Loss on sale of real estate is driven by the sale of the Company’s Plano, Texas facility. Net Loss Three months ended June 30, 2026 Three months ended June 30, 2025 % Change Six months ended June 30, 2026 Six months ended June 30, 2025 % Change Net loss $ (5,035,000 ) $ (2,607,000 ) 93 % $ (11,262,000 ) $ (7,902,000 ) 43 % For the six months ended June 30, 2026 the Company recorded net losses of $11,262,000 as compared to net losses of $7,902,000 for the same period in 2025. The increase in net loss is driven by a decrease in total revenue of approximately 22% as well as stock-based compensation of approximately $1,440,000 paid at our Impact BioMedical subsidiary during the first quarter of 2026. 32 LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2026, the Company had approximately $4.1 million in cash, $2.8 million in marketable securities, and negative working capital of approximately $39.9 million. The Company has funded its liquidity needs through equity and debt financing and expects to pursue additional liquidity through potential asset sales, financing activities, and continued reductions in operating expenses and cash burn. However, there can be no assurance that the Company will successfully complete asset sales, obtain additional financing on acceptable terms, or achieve the anticipated cost reductions. Accordingly, substantial doubt remains regarding the Company’s ability to continue as a going concern. Cash Flow from Continuing Operating Activities Net cash used by operating activities was $1,985,000 for the six months ended June 30, 2026 as compared to cash provided by operating activities of $454,000 for six months ended June 30, 2025. This fluctuation is driven by increases in net loss, after reconciling items, approximating $2,932,000. Cash Flow from Investing Activities Net cash used by investing activities was $2,707,000 for the six months ended June 30, 2026 as compared to net cash provided by investing activities of $11,019,000 for the six months ended June 30, 2025. This fluctuation is driven by the sale of real estate approximating $9,500,000, and the sale of related party investments of approximately $1,500,000 during the six months ended June 30, 2025, offset by the purchase of a convertible bond of $2,450,000 during 2026. Cash Flow from Financing Activities Net cash provided by financing activities was $2,446,000 for the six months ended June 30, 2026 as compared to cash used by financing activities of $12,512,000 for the six months ended June 30, 2025. This variance is driven by payments toward long term debt of $628,000 in 2026 versus $9,443,000 in 2025. Also, payments on margin loans of $1,152,000 were made in 2026 as compared to payments on margin loans of $3,178,000 in 2025. Additionally, the Company had borrowings of $3,450,000 from related parties in 2026 and had no such borrowings in 2025. 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, 2025, 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, 2026. 33