DSS, INC. (DSS) Business

Overview

DSS, Inc. together with its consolidated subsidiaries (unless the context otherwise requires), referred to herein as “DSS,” “we,” “us,” “our” or the “Company”, currently operates four distinct business lines operate around the globe with primary operations in North America and Asia. The four divisions are:

1. Product Packaging, 2. Biotechnology, 3. Commercial Lending, 4. Securities and Investment Management

Each of these business lines are in various stages of development, growth, and income generation. Due to these variations in the business cycle, including differences in revenue and assets acquired, the Company is currently reporting financial information for four of these operating segments:

1. Product Packaging, 2. Biotechnology, 3. Commercial Lending, 4. Securities and Investment Management

As the other divisions grow and start generating material operations and revenue, those operating segments may be added to our financial segmental reporting.

Our divisions, their business lines, subsidiaries, and operating territories:

1. Product Packaging: The Company’s consumer packaging and security printing business is led by its wholly owned subsidiary, Premier Packaging Corporation, Inc. (“Premier”), a New York corporation. Premier operates in the paper board and fiber based folding carton, consumer product packaging, and document security printing markets. It markets, manufactures, and sells sophisticated custom folding cartons, mailers, photo sleeves and complex 3-dimensional direct mail solutions. Premier is currently located in its new facility in Rochester, NY, and primarily serves the US market. 2. Biotechnology: (“Biotech”) Biotechnology, a science-driven industry sector that uses living organisms and molecular biology to produce healthcare-related products. This division is committed to both funding research and developing intellectual property portfolio. It is currently focused on research in three main areas: (i) development of a universal therapeutic drug platform; (ii) a new sugar substitute; and (iii) a multi-use fragrance. Biotech discovers, confirms, and patents unique science and technologies which can be developed into new offerings in human healthcare and wellness in collaboration with external partners through licensing, co-development, joint ventures, and other relationships. By leveraging technology and new science with strategic partnerships, we provide advances in biopharmaceuticals and over the counter direct to consumer wellness offerings, and drug discovery for the prevention, inhibition, and treatment of neurological, oncology and immuno-related diseases. Assets of this group are organized under the holding company, DSS BioHealth Security, Inc. Its subsidiaries are currently operating in Houston, TX and Rochester, NY. 3. Commercial Lending: American Pacific Financial, Inc. (“APF”) represents our Company’s commercial lending business line. APF provides financing solutions including commercial business lines of credit, land development financing, inventory financing, equipment financing, and third-party loan servicing. 4. Securities and Investment Management: The Securities and Investment Management segment was established to develop and/or acquire assets in the securities trading and management arena and includes broker-dealer activities, investment advisory operations, and real estate-related investment entities. This segment includes DSS Securities, Inc., as well as affiliated broker-dealers and investment management platforms. It also includes real estate investment entities formed to acquire and lease healthcare-related properties. In April 2025, thew Company’s majority owned subsidiary Sentinel Brokers Company, Inc., a FINRA-registered broker-dealer subsidiary of the Company, received FINRA approval to act as an underwriter and selling group member for corporate securities offerings.

2025 RECAP

The following is a summary of the DSS reported transactions and investments since January 2025 that reflect the active advancements and investments in these business lines:

February 3, 2025 – DSS, Inc. issued a Letter to Shareholders outlining management’s strategic priorities for 2025, including operational efficiency, portfolio optimization, capital discipline, and long-term value creation initiatives.

February 26, 2025 – DSS, Inc. announced the sale of its Celios® air purification asset to Impact BioMedical Inc. in an all-equity transaction valued at approximately $1.15 million. The transaction was completed as part of the Company’s portfolio streamlining efforts.

April 24, 2025 – Sentinel Brokers Company, Inc., a FINRA-registered broker-dealer subsidiary of DSS, Inc., announced that it received FINRA approval to act as an underwriter and selling group member for corporate securities offerings, including IPOs and follow-on offerings.

May 22, 2025 – DSS, Inc. reported financial results for the first quarter ended March 31, 2025. The Company reported year-over-year revenue growth, increased printed product sales within the Product Packaging segment, increased rental income within its real estate portfolio, and the completion of the sale of its Plano, Texas facility for $9.5 million. The Company disclosed that a portion of the proceeds was used to reduce outstanding debt.

June 24, 2025 – DSS, Inc.’s subsidiary, Impact BioMedical Inc., announced that it entered into a definitive merger agreement with Dr. Ashleys Limited. The transaction was structured as a reverse merger and, if consummated, is expected to result in a combined public entity listed on the NYSE American.

August 18, 2025 – Impact BioMedical Inc. announced the issuance of a United States patent related to its 3F™ intellectual property portfolio, further expanding the Company’s patent protection in insect repellent and antimicrobial applications.

STRATEGIC BUSINESS PLAN AND PROGRESSION

Here we highlight three specific developments:

As DSS, Inc. enters a new chapter, our strategic focus is to optimize operational efficiencies, realign resources, and position the Company for sustainable long-term growth. This approach has already yielded meaningful results, as demonstrated in our most recent earnings report. Below, we outline our key initiatives moving forward:

Strategic Focus for Revenue Growth and Operational Excellence

● Expansion of High-Impact Business Lines: We are strategically expanding key business units, such as Premier Packaging, to drive growth and contribute to long-term revenue generation. ● Exploration of Untapped Markets: DSS, Inc. is committed to identifying and investing in high-growth markets, with a focus on creating scalable and recurring revenue streams across multiple sectors. ● Enhancing Accountability Across Business Units: To ensure consistent execution of high-priority opportunities, we are implementing metrics-driven accountability systems across all business units.

Cost Structure Optimization and Operational Efficiency

● Comprehensive Business Unit Review: We are conducting an extensive evaluation of all business units to identify underperforming segments. Our goal is to restructure, streamline, or divest from non-core areas to bolster our core strengths. ● Process and Technology Optimization: To improve productivity and reduce inefficiencies, DSS will introduce new operational tools and processes aimed at reducing waste in procurement, production, and logistics. ● Targeted Cost Reduction: We have set a target to reduce costs by 15-20% in the upcoming fiscal year, which will significantly improve profitability and strengthen our financial position.

Driving Innovation for Competitive Advantage

● Advancing Research and Development (R&D): DSS is leveraging its R&D capabilities to develop cutting-edge solutions in emerging sectors, such as biomedical technologies and sustainable packaging, ensuring our leadership in innovation. ● Cultivating Strategic Partnerships: We are actively building partnerships with key industry players to accelerate the market introduction of innovative products and solutions, enhancing our competitive advantage. ● Pilot Program Launches: Targeted pilot programs will be deployed in select regions or sectors to validate new initiatives, which, once proven, will be scaled company-wide.

Maximizing Shareholder Value Through Disciplined Growth

● Disciplined Financial Stewardship: DSS remains steadfast in our commitment to delivering consistent growth, profitability, and returns for shareholders, ensuring long-term value creation.

● Commitment to Transparency: We will provide regular updates on our progress, milestones, and strategic objectives, ensuring stakeholders remain well-informed of our activities.

● Exploring Shareholder Rewards: We are exploring initiatives to directly reward our shareholders for their continued trust and support, reinforcing our commitment to shareholder value.

Three-Stage Development for Exponential Growth

For every completed acquisition, and taking into consideration market conditions and other constraints, we adhere to a well-structured three-stage development process with the goal of maximizing value creation and propelling our growth by expanding our capabilities, strength, and scale.

Stage 1: Asset Acquisition and Organizational Development. In this initial phase, our focus lies in identifying and acquiring assets, vehicles, asset structures, and assembling the necessary talent and organizations. This strategic step serves as the strong foundation upon which we build future growth.

Stage 2: Revenue Generation and Operational Excellence. Our second stage revolves around driving revenue through diverse channels, including revenue streams, licensing, and other scalable sources. Our primary objective during this phase is the creation of efficient and well-operating businesses that excel in operational performance.

Stage 3: Profitability and Positive EBITDA The third and final stage focuses on achieving positive EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and profitability. This is realized through the optimization of business operations, capitalizing on scale and efficiency to generate sustained profits.

Growth Strategies

IPOs as a Growth Strategy: Our company has plans to pursue Initial Public Offerings (IPOs) as a means to share its success with shareholders. We aim to take our businesses public once they reach an optimal point for effective leverage and meet internal goals and expectations.

Decentralized Sharing Model: We firmly believe in our unique decentralized sharing model, combined with the three-stage development process, to create substantial shareholder value. This model involves distributing dividends from potential IPOs directly to benefit shareholders.

In summary, our strategy delineates a methodical approach encompassing asset acquisition, revenue generation, operational efficiency, profitability, and ultimately, taking businesses public through IPOs to reward our shareholders. We place a strong emphasis on our decentralized sharing model, ensuring that the benefits of our success are shared directly with our valued shareholders.

Premier Packaging Strategic Update and Progression

Premier Packaging Corp. is focusing on its core competencies and growth areas for 2025 and 2026, with a strong emphasis on expanding into targeted markets while enhancing internal capabilities. Here’s an update on the Company’s focus areas and plans:

Focus Areas & Growth Markets

1. Key Growth Markets

○ Medical Device: Targeting the growing need for safe, compliant, and sustainable packaging solutions for medical products. This sector presents high-margin opportunities, especially for custom paperboard packaging that aligns with regulatory standards (cGMP certifications).

○ Food & Beverage: With increasing demand for sustainable packaging, Premier Packaging is targeting secondary food packaging. The company is exploring the potential for obtaining SQF (Safe Quality Food) certification, addressing the growing concern for food safety and sustainability in packaging.

○ Health & Beauty: The company is also focusing on providing cost-effective, sustainable packaging solutions for health and beauty products, particularly where companies are overpaying for high-end packaging.

○ Mailers: Although not currently investing heavily in this category, the company continues to monitor the opportunity for growth in this space.

2. Sustainability Initiatives Premier is working towards aggressive sustainability certification and exploring green solutions across its offerings, ensuring that their products meet the growing demand for environmentally friendly packaging.

Key Strategic Initiatives for 2026

1. Sales Team Development and Specialization: We will prioritize investment in comprehensive, specialized training programs tailored to the unique needs of our key sectors—Food & Beverage, Medical Devices, and Health & Beauty. By equipping our sales force with sector-specific knowledge and customer insights, we aim to drive deeper client relationships, accelerate revenue growth, and position our team as experts in delivering high-value, tailored packaging solutions.

2. Capital Infrastructure and Technological Advancements: A critical component of our growth strategy for 2026 will be the strategic acquisition and installation of key capital assets. These investments will focus on advanced production technologies and equipment upgrades, including the procurement of glue systems, hot melt units, and enhanced press systems. These actions are expected to significantly expand production capacity, streamline operations, and improve product quality, contributing to both operational efficiency and customer satisfaction.

3. Optimization of the Quotation Process: To improve our operational efficiency and market competitiveness, we will undertake a comprehensive review and optimization of our quoting process. By leveraging automation tools and advanced analytics, we aim to reduce lead times, enhance the accuracy of cost estimates, and improve our responsiveness to customer inquiries, thereby increasing overall sales conversion rates and strengthening our market position.

4. Targeted Marketing and Brand Positioning: We will execute a focused marketing strategy designed to enhance brand visibility and reinforce our commitment to sustainability. This will include the development of impactful campaigns that highlight our leadership in eco-friendly packaging, showcase relevant case studies, and promote our ability to solve specific customer pain points. Additionally, we will strengthen our customer engagement initiatives, utilizing digital marketing channels, lead generation tactics, and thought leadership content to increase market penetration and foster long-term customer loyalty.

These strategic initiatives will be instrumental in positioning the company for sustained growth, profitability, and shareholder value in 2026 and beyond.

Impact BioMedical, Inc. IPO: A Key Milestone for DSS, Inc.

In 2024, Impact BioMedical, Inc., a subsidiary of DSS, Inc., achieved a significant milestone with the successful completion of its initial public offering (IPO). This event marks a pivotal moment in the strategic evolution of DSS, Inc., reflecting our commitment to creating long-term shareholder value and providing a solid foundation for continued growth within the biotechnology and biomedical sectors.

IPO Overview

Impact BioMedical’s IPO, which was finalized in the latter half of 2024, resulted in the company being listed on a recognized public exchange. This public offering raised substantial capital, enabling Impact BioMedical to further accelerate its expansion into cutting-edge biomedical technologies, which align with the growing demand for advanced healthcare solutions. The funds raised from the IPO will be allocated to advancing R&D initiatives, scaling production capabilities, and enhancing market penetration.

Strategic Importance for DSS, Inc.

The successful IPO of Impact BioMedical is not only a significant achievement for the subsidiary but also serves as a key strategic move for DSS, Inc. By spinning off Impact BioMedical and enabling it to operate as an independent public company, DSS has effectively unlocked the value inherent in this high-potential subsidiary, providing both entities with the flexibility to pursue their respective growth trajectories. The IPO also enhances DSS’s ability to focus on its core operations while benefiting from any future financial or strategic synergies with Impact BioMedical.

Financial and Market Impact

The completion of Impact BioMedical’s IPO reflects a robust market appetite for innovative biotech companies with strong growth prospects. For DSS, Inc., the IPO has led to increased market visibility and raised investor confidence in our broader portfolio. The capital infusion into Impact BioMedical, combined with the increased operational independence of the subsidiary, positions both DSS, Inc. and Impact BioMedical for sustainable growth in the rapidly evolving biomedical sector.

Sentinel Brokers Company

Sentinel Brokers Company (“Sentinel Brokers” or “Sentinel”), a majority owned subsidiary of the Company, operates as a registered broker-dealer and is subject to regulation by the Financial Industry Regulatory Authority (“FINRA”) and the U.S. Securities and Exchange Commission (“SEC”). During the year ended December 31, 2025, Sentinel Brokers continued to maintain its regulatory standing and focused on compliance infrastructure, supervisory controls, and operational readiness. The Company evaluated strategic opportunities to expand broker-dealer activities, including capital markets transactions, including IPOs and follow on offerings, and related advisory services, consistent with applicable regulatory requirements.

2026 Strategic Focus

For 2026, Sentinel Brokers intends to:

● Maintain regulatory compliance and supervisory controls ● Evaluate expansion of transactional capabilities, subject to regulatory approval ● Assess potential capital markets engagements and advisory opportunities ● Explore strategic partnerships where commercially appropriate

Reporting Operating Segments:

The Company reports its segment information to reflect the manner in which the Company’s chief operating decision maker (“CODM”) reviews and assesses performance. The Company’s Interim Chief Executive Officer has responsibilities as the CODM and reviews and assess the performance of the Company as a whole. The primary financial measures used by the CODM to evaluate performance and allocate resources are net income (loss) and operating income (loss). The CODM uses net income (loss) and operating income (loss) to evaluate the performance of the Company’s ongoing operations and as part of the Company’s internal planning and forecasting processes. Information on Net income (loss) and Operating income (loss) is disclosed in the Consolidated Statements of Operations. Segment expenses and other segment items are provided to the CODM on the same basis as disclosed in the Consolidated Statements of Operations. The CODM does not evaluate performance or allocate resources based on segment assets, and therefore such information is not presented in the notes to the financial statements. During the fourth quarter of 2025, we realigned our internal reporting to better reflect how management reviews operating results and allocates resources. As a result of this CODM realignment, Direct Marketing is no longer a reportable segment and is now reported within Corporate and Other. This change did not impact consolidated revenue, consolidated net income (loss), total assets, or cash flows for any period presented; it only impacted the presentation of segment information. Segment information for prior periods presented has been recast to conform to the current-period segment presentation.

As we have reported above, we financially report business operating results on four operating segments, which we believe will certainly increase and transition as the newer lines of business develop and mature. DSS’s operating segments in 2025 highlight the Company’s ongoing commitment to innovation and diversification. Each segment is strategically positioned for growth, with Premier Packaging and Commercial Lending continuing to evolve and adapt to market demands. The Securities and Investment Management segment remains a key pillar of our growth strategy, with expanding initiatives that include real estate investment, digital securities, and wealth management solutions. As DSS continues to evolve and execute its strategic objectives, it is well-positioned to deliver sustained value to its shareholders and customers across these key business lines. The four business segments that we are reporting on in 2025 are as follows:

Product Packaging: Our wholly-owned subsidiary Premier Packaging Corporation (“Premier”), provides custom packaging services and serves clients in the pharmaceutical, nutraceutical, consumer goods, beverage, specialty foods, confections, photo packaging and direct marketing industries, among others. The group also provides active and intelligent packaging and document security printing services for end-user customers. In addition, the division produces a wide array of printed materials, such as folding cartons and paperboard packaging, security paper, vital records, prescription paper, birth certificates, receipts, identification materials, entertainment tickets, secure coupons and parts tracking forms. The division also provides resources and production equipment for our ongoing research and development of security printing, brand protection, consumer engagement and related technologies.

Commercial Lending: (“Commercial Lending”) through its operating company, American Pacific Financial, Inc. (“APF”) represents our financing business line. is organized for the purposes of being a financial network holding company, focused providing commercial loans and on acquiring equity positions in (i) undervalued commercial bank(s), bank holding companies and nonbanking licensed financial companies operating in the United States, South East Asia, Taiwan, Japan and South Korea, and (ii) companies engaged in—nonbanking activities closely related to banking, including loan syndication services, mortgage banking, trust and escrow services, banking technology, loan servicing, equipment leasing, problem asset management, SPAC (special purpose acquisition company) consulting, and advisory capital raising services. From this financial platform, the Company shall provide an integrated suite of financial services for businesses that shall include commercial business lines of credit, land development financing, inventory financing, third party loan servicing, and services that address the financial needs of the world Gig Economy.

Biotechnology: (“Biotech”) targets unmet, urgent medical needs and expands the borders of medical and pharmaceutical science. Biotech drives mission-oriented research, development, and commercialization of solutions for medical advances in human wellness and healthcare. By leveraging technology and new science with strategic partnerships, Biotech provides advances in drug discovery for the prevention, inhibition, and treatment of neurological, oncology and immuno-related diseases. Other exciting technologies include a breakthrough alternative sugar aimed to combat diabetes and functional fragrance formulations aimed at the industrial and medical industry.

Biotech has several important and valuable products, technology or compounds that are in continuing development and/or licensing stages:

● LineBacker: Multi-faceted therapeutic platform for metabolic, neurologic, cancer, and infectious diseases. ● Equivir: A polyphenol compound that is believed to be successful in antiviral infection treatments. Equivir/Nemovir technology is a novel blend of FDA Generally Recognized as Safe (“GRAS”) eligible polyphenols (e.g., Myricetin, Hesperetin, Piperine) which have demonstrated antiviral effects with additional potential application as health supplements or medication. Polyphenols are sourced from fruits, vegetables, and other natural substances. Myricetin is a member of the flavonoid class of polyphenolic compounds with antioxidant properties. Hesperitin is a flavanone and Piperine is an alkaloid, commonly found in black pepper. ● Procombin: Applications as food additive, and natural preservative for beauty and person care products as well as natural food preservative. ● VanXin: Food preservative booster made up of polyphenols that extend the shelf life. ● Bioplastics: Advanced bio-compatible plastics that mitigate accumulation of plastics in oceans and landfills and provide UVA and UVB protection for many types of material for including containers, hard surfaces, and fibers for clothing. The technology is presently in development and testing antimicrobial plastics for consumer products that control the spread of active pathogens such as SARS-CoV-2, Influenza, E. coli, Staph, and Rhinovirus, by exploiting key strategies found in the biological realm. These new plastics are specifically focused on solutions for common products such as cups, plates, utensils, plastic bags, and countertops. The first prototypes are currently undergoing antimicrobial resistance testing. ● Laetose: Laetose technology is derived from a unique combination of sugar and inositol, which demonstrates the ability to inhibit the inflammatory and metabolic response of sugar alone. A sugar alternative which is believed to lower human glycemic indexes and is believed to be a breakthrough alternative sugar aimed to combat diabetes. The use of Laetose in a daily diet, compared to sugar, could result in 30% lower sugar consumption and lower glycemic index/load. ● 3F: A botanical compound believed to serve as an insect repellent and anti-microbial agent. 3F is a unique formulation of specialized ingredients (e.g. terpenes) from botanical sources with demonstrated effect as an insect repellent and an antimicrobial. ● 3F Mosquito Repellent: 3F repellent contains botanical ingredients that mosquitos avoid. These ingredients are scientifically proven1 to affect the mosquito’s receptors, essentially making the insect blind to a human’s presence. This can be utilized as a stand-alone repellent or as an additive in detergents, lotions, shampoo, and other substances to provide mosquito protection. ● 3F Antimicrobial: 3F antimicrobial contains botanical ingredients known to kill viruses. These ingredients are scientifically proven to inhibit viral replication. This can be utilized as a stand-alone antimicrobial or as an additive in detergents, lotions, shampoo, fabrics, and other substances. ● Quantum: The solution to the Patent Cliff accomplished by creating a new class of medicinal chemistry that uses advanced methods to increase effectiveness and persistence of natural compounds and existing drugs. The safety attributes of the original molecules are maintained. Typically, drug discovery processes modify functional groups. Quantum’s new techniques alter behavior of molecules at the sub-molecular level. It is estimated that 65% of the World Health Organization Essential Medicines List can be improved and re-patented using Quantum and these methods can be used to enhance and patent natural compounds including many substances used in traditional medicines around the world. ● Bio Med (license): A probiotic gut health product that helps to regulate many physiological functions, ranging from energy regulation and cognitive processes to toxin neutralization and immunity against pathogens.

Securities and Investment Management: (“Securities”) Securities was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, real estate investment funds, broker dealers, and mutual funds management. This business sector has already established the following business lines/investments and associated products and services:

● REIT Management Fund: In March 2020, DSS Securities formed AMRE (“American Medical REIT”) and its management company AAMI (“AMRE Asset Management, Inc.) Through AAMI/AMRE, a medical real estate investment trust, fulfills community needs for quality healthcare facilities while enabling care providers to allocate their capital to growth and investment in their contemporary clinical and critical care businesses. Urban and suburban communities are in need of modern healthcare facilities that provide a range of medical outpatient services. The funds ultimate product is an investor opportunity in a managed medical real estate investment trust. ● Sentinel: Sentinel is a broker-dealer operating primarily as a fiduciary intermediary, facilitating intuitional trading of municipal and corporate bonds as well as preferred stock, and is registered with the Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”), and is a member of the Securities Investor Protection Corporation (“SIPC”). ● BMI Capital International, LLC. (“BMIC”): 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, BMIC services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia.

Intellectual Property

We strive to protect the intellectual property that we believe is important to our business, including seeking and maintaining patent protection intended to cover the composition of matter of our product candidates, their methods of use, their methods of production, related technologies and other inventions. In addition to patent protection, we also rely on trade secrets to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent protection, including certain aspects of technical know-how.

Patents

Impact Biomedical Inc. has nine (9) patents issued, and over forty (40) patents pending worldwide with expiration of US patents between 2029 and 2040. Pending patents could extend this exclusivity period in all regions.

The issued and allowed patents include composition and method of application for Linebacker, Equivir, 3F (Functional Fragrance), and Laetose.

Trademarks

We have several trademarks related to our DSS, Inc. businesses, which support the protection of our brand and products in various markets. These trademarks are critical to maintaining the distinctiveness and recognition of our offerings.

Websites:

The primary corporate website we maintain is www.dssworld.com. Our other sites are:

Premier Packaging: https://www.premiercustompkg.com

Impact Biomedical: https://www.impactbiomedinc.com

DSS PureAir, Inc.: https://dsspureair.com/

In addition to the active websites, the Company is building multiple new sites and owns several other domain names reserved for future use or for strategic competitive reasons. Information on our websites or any other website does not constitute a part of this annual report.

Markets and Competition

Product Packaging: In our packaging division, we face competition from a wide range of national and regional companies, many of which operate independently and are privately held. The competition is primarily concentrated in the consumer-packaged goods and health and beauty sectors, with major players including prominent integrated paper companies such as WestRock Company and Graphic Packaging Holding Company. Competition is based on pricing, quality, service, regulatory compliance, sustainability, and turnaround time.

Commercial Lending: American Pacific Financial, our commercial lending company, offers a comprehensive range of financial services tailored to businesses. Our services encompass commercial business lines of credit, land development financing, inventory financing, third-party loan servicing, and solutions designed to meet the diverse financial requirements of various business sectors. In this competitive landscape, APF competes with a wide array of traditional commercial banks and investment banking firms.

Biotechnology: This segment is dedicated to the discovery, confirmation, and patenting of unique scientific advancements and technologies, which lead to innovative solutions in the realm of human healthcare and wellness. It collaborates closely with licensing partners, engages in co-development initiatives, forms joint ventures, and nurtures other valuable relationships to effectively introduce these groundbreaking solutions to the market. Within this competitive landscape, we face competition from other biotechnology firms and research institutions that are also pursuing cutting-edge advancements in healthcare, wellness, and related technologies.

Securities and Investment Management: Was established to develop and/or acquire assets in the securities trading or management arena. This business unit faces competition from individual money managers, established financial institutions, and organizations that engage in securities trading and management, including Broker-Dealers. Additionally, the division competes with Real Estate Investment Trusts (REITs), private equity firms, and other personal investment companies that offer similar investment opportunities and financial products to individual and institutional clients.

Customers

As of December 31, 2025, one customer accounted for approximately 29% of our consolidated revenue. As of December 31, 2024, one customer accounted for approximately 22% of our consolidated revenue and second customer accounted for approximately 13% of our consolidated revenue.

Securities and Investment Management: Our Securities and Investment Management division has a mixture of retail and institutional investors.

Raw Materials

Product Packaging: The primary raw materials used in our packaging business are paper, paperboard, and ink. We work closely with leading suppliers to maximize purchasing efficiencies, utilizing a diverse range of paper grades, formats, ink formulations, and colors to meet the needs of our products. Sustainability in procurement is a critical focus for the Company. We not only ensure that our suppliers meet rigorous sustainability standards, but we are also committed to continuous internal improvements in sustainability practices. We are proactively setting high standards for sustainability and working with our supply chain partners to ensure these standards are met, contributing to the overall progress and compliance within the industry.

Environmental Compliance

The Company is committed to conducting its operations in full compliance with all applicable environmental laws, regulations, and other requirements. While the potential impact of future environmental matters, including remediation efforts and compliance initiatives, cannot be predicted with certainty, management believes that adherence to current environmental protection laws, excluding any potential recoveries from third parties, will not have a material adverse effect on the Company’s consolidated results of operations, financial position, or cash flows. The Company remains focused on maintaining environmental responsibility while managing any future environmental liabilities in a prudent and cost-effective manner.

Government Regulation

Our biotechnology business is faced with potential government regulations. If new legislation, regulations, or rules are implemented either by Congress, the U.S. Patent and Trademark Office (the “USPTO”), or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our patent monetization efforts and, in turn, our assets, expenses and revenue. United States patent laws have been amended by the Leahy-Smith America Invents Act. The America Invents Act includes several significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities. In addition, the U.S. Department of Justice (“DOJ”) has conducted reviews of the patent system to evaluate the impact of patent assertion entities, such as our Company, on industries in which those patents relate. It is possible that the findings and recommendations of the DOJ could adversely impact our ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.

Moreover, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions.

Corporate History

The Company, incorporated in the state of New York in May 1984 has formally conducted business in the name of Document Security Systems, Inc. On September 16, 2021, the board of directors approved an agreement and plan of merger with a wholly owned subsidiary, DSS, Inc. (a New York corporation, incorporated in August 2020), for the sole purpose of effecting a rebranding from Document Security Systems, Inc. to DSS, Inc. This change became effective on September 30, 2021. DSS, Inc. maintained the same trading symbol “DSS” and updated its CUSIP number to 26253C-102. In January 2024, in conjunction with a reverse split, DSS now operates under the CUSIP 26253C 201. See the “Overview” section above for further details about our acquisitions.

Human Capital Resources

As of December 31, 2025, DSS, Inc. had 102 employees. We continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are in good standing.

Available information

Our website address is www.dssworld.com. Information on our website is not incorporated herein by reference. We make available free of charge through our website our press releases, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after electronically filed with or furnished to the Securities and Exchange Commission.

Overview

DSS, Inc. together with its consolidated subsidiaries (unless the context otherwise requires), referred to herein as “DSS,” “we,” “us,” “our” or the “Company”, currently operates five distinct business lines operate around the globe with primary operations in North America and Asia. The five divisions are:

1. Product Packaging, 2. Biotechnology, 3. Commercial Lending, 4. Securities and Investment Management, and 5. Direct Marketing,

Each of these business lines are in various stages of development, growth, and income generation. Due to these variations in the business cycle, including differences in revenue and assets acquired, the Company is currently reporting financial information for five of these operating segments:

1. Product Packaging, 2. Biotechnology, 3. Commercial Lending, 4. Securities and Investment Management, and 5. Direct Marketing

As the other divisions grow and start generating material operations and revenue, those operating segments will be added to our financial segmental reporting.

Our divisions, their business lines, subsidiaries, and operating territories:

1. Product Packaging: The Company’s consumer packaging and security printing business is led by its wholly owned subsidiary, Premier Packaging Corporation, Inc. (“Premier”), a New York corporation. Premier operates in the paper board and fiber based folding carton, consumer product packaging, and document security printing markets. It markets, manufactures, and sells sophisticated custom folding cartons, mailers, photo sleeves and complex 3-dimensional direct mail solutions. Premier is currently located in its new facility in Rochester, NY, and primarily serves the US market. 2. Biotechnology: (“Biotech”) Biotechnology, a science-driven industry sector that uses living organisms and molecular biology to produce healthcare-related products. This division is committed to both funding research and developing intellectual property portfolio. It is currently focus on research in three main areas: (i) development of a universal therapeutic drug platform; (ii) a new sugar substitute; and (iii) a multi-use fragrance. Biotech discovers, confirms, and patents unique science and technologies which can be developed into new offerings in human healthcare and wellness in collaboration with external partners through licensing, co-development, joint ventures, and other relationships. By leveraging technology and new science with strategic partnerships, we provide advances in biopharmaceuticals and over the counter direct to consumer wellness offerings, and drug discovery for the prevention, inhibition, and treatment of neurological, oncology and immuno-related diseases. Assets of this group are organized under the holding company, DSS BioHealth Security, Inc. Its subsidiaries are currently operating in Houston, TX and Rochester, NY. 3. Commercial Lending: American Pacific Financial, Inc. (“APF”) represents our banking and financing business line. Looking ahead, to better meet the needs of the current financial market, the company is looking to transition away from 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. 4. Securities and Investment Management: In 2024, DSS continued our strategic investments in three broker dealers; WestPark Capital, BMI Capital Investments, and Sentinel Brokers Company, Inc. Additionally, we have become the Registered Investment Advisor (“RIA”) for DSS AmericaFirst Quantitative Funds (DSS AmericaFirst) family. This group of businesses is led by its holding company, DSS Securities, Inc., (“DSS Securities”) and the group is currently headquartered in Houston, Texas, with operations in Chicago, Illinois, Sacramento, California, Los Angeles, California, and New York, NY. Also in this segment is the Company’s real estate investment trusts (“REITs”), 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 Houston, Texas.

5. Direct Marketing: (“Direct”) Led by the holding corporation, Decentralized Sharing Systems, Inc. (“Decentralized”) provides services to assist companies in the emerging growth “Gig” business model of peer-to-peer decentralized sharing marketplaces. Direct specializes in licensing its products and services through its subsidiary HWH World, Inc. (“HWH World”) using the popular gig economic marketing strategy as a form of direct marketing. Direct’s products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific, Middle East, and Eastern Europe.

2024 RECAP

The following is a summary of the DSS reported transactions and investments since January 2024 that reflect the active advancements and investments in these business lines:

September 16, 2024, DSS, Inc. and its subsidiary Impact BioMedical Inc. (NYSE American: IBO), announced the successful pricing of Impact BioMedical’s initial public offering (IPO). Impact BioMedical, a trailblazer in advancing human healthcare and wellness solutions, has set its IPO price at $3.00 per share, with an initial offering of 1,500,000 shares. Trading under the ticker symbol “IBO,” these shares will begin trading on the NYSE American Market on September 16, 2024. This significant achievement underscores Impact BioMedical’s innovative contributions to the healthcare sector and represents a major milestone for DSS. We are particularly proud of the role this IPO plays in enhancing shareholder value, reflecting our ongoing commitment to providing substantial returns to our investors.

On September 10, 2024, DSS Wealth Management, Inc., the registered investment advisor for the DSS AmericaFirst Funds, announced that effective August 9, 2024, David Friedensohn, Monica Himes and Allan Siegel have resigned from their positions as independent directors. The Trust is pleased to announce the election of three new independent directors by shareholder proxy vote: Dr. Prabir Datta, Darryl Robinson and Mark Gronet. These individuals are seasoned senior investment executives who bring a wealth of experience and expertise in asset management, risk management, investment operations and sales.

On August 26, 2024, DSS announced the appointment of Jason Grady as its Interim CEO, effective August 23, 2024. Grady, who previously served as Chief Operating Officer of DSS, Inc., brings over 25 years of extensive experience in executive leadership, business development, restructuring, and operations management across a variety of industries. He will succeed Frank D. Heuszel, who is exiting the company to transition to a leadership role within one of its former subsidiaries. Throughout his career, Mr. Grady has held pivotal positions within DSS, including CEO and Director of DSS Biohealth Holdings, President of Premier Packaging Corporation, President and COO of DSS Financial Management, and Chief Business Officer of Impact Biomedical, among others.

On January 30, 2024, Impact Biomedical, Inc (“IBO”). IBO announced a milestone in its innovative Laetose™ technology platform. The U.S. Patent and Trademark Office (USPTO) has issued U.S. patent # 11,898,184, entitled “Low Glycemic Sugar Composition” developed within this platform. The Laetose™ technology demonstrates compelling potential in reducing caloric intake and glycemic index in foods, while also inhibiting tumor necrosis factor alpha (TNF-α), a cytokine associated with inflammatory chronic diseases. The patented formulation is a novel combination of one or more sugars and myo-inositol, with potential to inhibit the inflammatory and metabolic response of sugar alone. This marks the first Laetose™ patent issued in the U.S., emphasizing IBO’s commitment to discovering, developing, and patenting unique technologies to address unmet needs in human healthcare. The term of this US patent will expire in 2037.

On January 04, 2024, DSS. announced a significant investment by its Chairman of the Board, Heng Fai Ambrose Chan. In a strategic move to bolster shareholder confidence and underscore his commitment to the company’s growth. Chairman Chan acquired an additional 672,173 shares of DSS, Inc. in an open market transaction on December 28, 2023.

STRATEGIC BUSINESS PLAN AND PROGRESSION

Here we highlight three specific developments:

As DSS, Inc. enters a new chapter, our strategic focus is to optimize operational efficiencies, realign resources, and position the company for sustainable long-term growth. This approach has already yielded meaningful results, as demonstrated in our most recent earnings report. Below, we outline our key initiatives moving forward:

Strategic Focus for Revenue Growth and Operational Excellence

● Expansion of High-Impact Business Lines: We are strategically expanding key business units, such as Premier Packaging, to drive growth and contribute to long-term revenue generation. ● Exploration of Untapped Markets: DSS, Inc. is committed to identifying and investing in high-growth markets, with a focus on creating scalable and recurring revenue streams across multiple sectors. ● Enhancing Accountability Across Business Units: To ensure consistent execution of high-priority opportunities, we are implementing metrics-driven accountability systems across all business units.

Cost Structure Optimization and Operational Efficiency

● Comprehensive Business Unit Review: We are conducting an extensive evaluation of all business units to identify underperforming segments. Our goal is to restructure, streamline, or divest from non-core areas to bolster our core strengths. ● Process and Technology Optimization: To improve productivity and reduce inefficiencies, DSS will introduce new operational tools and processes aimed at reducing waste in procurement, production, and logistics. ● Targeted Cost Reduction: We have set a target to reduce costs by 15-20% in the upcoming fiscal year, which will significantly improve profitability and strengthen our financial position.

Driving Innovation for Competitive Advantage

● Advancing Research and Development (R&D): DSS is leveraging its R&D capabilities to develop cutting-edge solutions in emerging sectors, such as biomedical technologies and sustainable packaging, ensuring our leadership in innovation. ● Cultivating Strategic Partnerships: We are actively building partnerships with key industry players to accelerate the market introduction of innovative products and solutions, enhancing our competitive advantage. ● Pilot Program Launches: Targeted pilot programs will be deployed in select regions or sectors to validate new initiatives, which, once proven, will be scaled company-wide.

Maximizing Shareholder Value Through Disciplined Growth

● Disciplined Financial Stewardship: DSS remains steadfast in our commitment to delivering consistent growth, profitability, and returns for shareholders, ensuring long-term value creation.

● Commitment to Transparency: We will provide regular updates on our progress, milestones, and strategic objectives, ensuring stakeholders remain well-informed of our activities.

● Exploring Shareholder Rewards: We are exploring initiatives to directly reward our shareholders for their continued trust and support, reinforcing our commitment to shareholder value.

Leadership Transition and Future Outlook

This pivotal moment in DSS, Inc.’s journey marks a clear path toward growth, innovation, and sustained value creation. With a focused strategy and commitment to execution, we are poised to unlock new opportunities and drive long-term shareholder returns. We extend our thanks to all stakeholders for their continued support and confidence in DSS, Inc. We look forward to updating you on our progress and invite any questions you may have through our Investor Relations team.

Three-Stage Development for Exponential Growth

For every completed acquisition, and taking into consideration market conditions and other constraints, we adhere to a well-structured three-stage development process with the goal of maximizing value creation and propelling our growth by expanding our capabilities, strength, and scale.

Stage 1: Asset Acquisition and Organizational Development. In this initial phase, our focus lies in identifying and acquiring assets, vehicles, asset structures, and assembling the necessary talent and organizations. This strategic step serves as the strong foundation upon which we build future growth.

Stage 2: Revenue Generation and Operational Excellence. Our second stage revolves around driving revenue through diverse channels, including revenue streams, licensing, and other scalable sources. Our primary objective during this phase is the creation of efficient and well-operating businesses that excel in operational performance.

Stage 3: Profitability and Positive EBITDA The third and final stage focuses on achieving positive EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and profitability. This is realized through the optimization of business operations, capitalizing on scale and efficiency to generate sustained profits.

Growth Strategies

IPOs as a Growth Strategy: Our company has plans to pursue Initial Public Offerings (IPOs) as a means to share its success with shareholders. We aim to take our businesses public once they reach an optimal point for effective leverage and meet internal goals and expectations.

Decentralized Sharing Model: We firmly believe in our unique decentralized sharing model, combined with the three-stage development process, to create substantial shareholder value. This model involves distributing dividends from potential IPOs directly to benefit shareholders.

In summary, our strategy delineates a methodical approach encompassing asset acquisition, revenue generation, operational efficiency, profitability, and ultimately, taking businesses public through IPOs to reward our shareholders. We place a strong emphasis on our decentralized sharing model, ensuring that the benefits of our success are shared directly with our valued shareholders.

Premier Packaging Strategic Update and Progression

Premier Packaging Corp. is focusing on its core competencies and growth areas for 2024 and 2025, with a strong emphasis on expanding into targeted markets while enhancing internal capabilities. Here’s an update on the Company’s focus areas and plans:

Focus Areas & Growth Markets

1. Key Growth Markets

○ Medical Device: Targeting the growing need for safe, compliant, and sustainable packaging solutions for medical products. This sector presents high-margin opportunities, especially for custom paperboard packaging that aligns with regulatory standards (cGMP certifications).

○ Food & Beverage: With increasing demand for sustainable packaging, Premier Packaging is targeting secondary food packaging. The company is exploring the potential for obtaining SQF (Safe Quality Food) certification, addressing the growing concern for food safety and sustainability in packaging.

○ Health & Beauty: The company is also focusing on providing cost-effective, sustainable packaging solutions for health and beauty products, particularly where companies are overpaying for high-end packaging.

○ Mailers: Although not currently investing heavily in this category, the company continues to monitor the opportunity for growth in this space.

2. Sustainability Initiatives Premier is working towards aggressive sustainability certification and exploring green solutions across its offerings, ensuring that their products meet the growing demand for environmentally friendly packaging.

Key Strategic Initiatives for 2025

1. Sales Team Development and Specialization: We will prioritize investment in comprehensive, specialized training programs tailored to the unique needs of our key sectors—Food & Beverage, Medical Devices, and Health & Beauty. By equipping our sales force with sector-specific knowledge and customer insights, we aim to drive deeper client relationships, accelerate revenue growth, and position our team as experts in delivering high-value, tailored packaging solutions.

2. Capital Infrastructure and Technological Advancements: A critical component of our growth strategy for 2025 will be the strategic acquisition and installation of key capital assets. These investments will focus on advanced production technologies and equipment upgrades, including the procurement of glue systems, hot melt units, and enhanced press systems. These actions are expected to significantly expand production capacity, streamline operations, and improve product quality, contributing to both operational efficiency and customer satisfaction.

3. Optimization of the Quotation Process: To improve our operational efficiency and market competitiveness, we will undertake a comprehensive review and optimization of our quoting process. By leveraging automation tools and advanced analytics, we aim to reduce lead times, enhance the accuracy of cost estimates, and improve our responsiveness to customer inquiries, thereby increasing overall sales conversion rates and strengthening our market position.

4. Targeted Marketing and Brand Positioning: We will execute a focused marketing strategy designed to enhance brand visibility and reinforce our commitment to sustainability. This will include the development of impactful campaigns that highlight our leadership in eco-friendly packaging, showcase relevant case studies, and promote our ability to solve specific customer pain points. Additionally, we will strengthen our customer engagement initiatives, utilizing digital marketing channels, lead generation tactics, and thought leadership content to increase market penetration and foster long-term customer loyalty.

These strategic initiatives will be instrumental in positioning the company for sustained growth, profitability, and shareholder value in 2025 and beyond.

Impact BioMedical, Inc. IPO: A Key Milestone for DSS, Inc.

In 2024, Impact BioMedical, Inc., a subsidiary of DSS, Inc., achieved a significant milestone with the successful completion of its initial public offering (IPO). This event marks a pivotal moment in the strategic evolution of DSS, Inc., reflecting our commitment to creating long-term shareholder value and providing a solid foundation for continued growth within the biotechnology and biomedical sectors.

IPO Overview

Impact BioMedical’s IPO, which was finalized in the latter half of 2024, resulted in the company being listed on a recognized public exchange. This public offering raised substantial capital, enabling Impact BioMedical to further accelerate its expansion into cutting-edge biomedical technologies, which align with the growing demand for advanced healthcare solutions. The funds raised from the IPO will be allocated to advancing R&D initiatives, scaling production capabilities, and enhancing market penetration.

Strategic Importance for DSS, Inc.

The successful IPO of Impact BioMedical is not only a significant achievement for the subsidiary but also serves as a key strategic move for DSS, Inc. By spinning off Impact BioMedical and enabling it to operate as an independent public company, DSS has effectively unlocked the value inherent in this high-potential subsidiary, providing both entities with the flexibility to pursue their respective growth trajectories. The IPO also enhances DSS’s ability to focus on its core operations while benefiting from any future financial or strategic synergies with Impact BioMedical.

Financial and Market Impact

The completion of Impact BioMedical’s IPO reflects a robust market appetite for innovative biotech companies with strong growth prospects. For DSS, Inc., the IPO has led to increased market visibility and raised investor confidence in our broader portfolio. The capital infusion into Impact BioMedical, combined with the increased operational independence of the subsidiary, positions both DSS, Inc. and Impact BioMedical for sustainable growth in the rapidly evolving biomedical sector.

Future Prospects

Looking ahead, Impact BioMedical’s IPO sets the stage for further innovation and value creation. As Impact BioMedical continues to advance in its mission to develop novel biomedical solutions, DSS, Inc. will remain an influential stakeholder, benefiting from the long-term growth potential of its investment. The IPO underscores DSS’s commitment to fostering successful subsidiaries and advancing shareholder value through strategic investments in high-growth industries.

Impact BioMedical’s successful IPO represents a transformative moment for both the subsidiary and DSS, Inc. It not only enhances financial stability and market position but also highlights our strategic ability to identify, nurture, and capitalize on high-value opportunities. This achievement positions DSS, Inc. to continue creating substantial value for its shareholders in the years ahead.

DSS AmericaFirst Funds Performance and Strategic Plans

DSS AmericaFirst Funds, a part of our Securities and Investment Management segment, has demonstrated strong performance relative to benchmarks for three of the four mutual funds under management in calendar year 2024, as well as cumulatively since the new investment advisory team took over in May 2023. This success is driven by the team’s focus on top-down, fundamental research, quantitative and technical analysis for stock selection and portfolio management.

Moving forward, the team will continue to prioritize enhancing relative performance while placing greater emphasis on improving operational efficiencies. In addition, they plan to execute targeted strategies to effectively market their services and attract new assets under management.

DSS AmericaFirst Funds, currently includes four mutual funds, each designed to outperform their respective benchmark indices. With a strategic focus on continued performance improvement, increased marketing and sales efforts, and the introduction of new investment products, DSS AmericaFirst Funds is poised for ongoing growth in assets under management.

Reporting Operating Segments:

As we have reported above, we financially report business operating results on five operating segments, which we believe will certainly increase and transition as the newer lines of business develop and mature. DSS’s operating segments in 2024 highlight the company’s ongoing commitment to innovation and diversification. Each segment is strategically positioned for growth, with Premier Packaging and Commercial Lending continuing to evolve and adapt to market demands. The Securities and Investment Management segment remains a key pillar of our growth strategy, with expanding initiatives that include real estate investment, digital securities, and wealth management solutions. As DSS continues to evolve and execute its strategic objectives, it is well-positioned to deliver sustained value to its shareholders and customers across these key business lines. The five business segments that we are reporting on in 2024 are as follows:

Premier Packaging: (“Premier”) Premier Packaging Corporation provides custom packaging services and serves clients in the pharmaceutical, nutraceutical, consumer goods, beverage, specialty foods, confections, photo packaging and direct marketing industries, among others. The group also provides active and intelligent packaging and document security printing services for end-user customers. In addition, the division produces a wide array of printed materials, such as folding cartons and paperboard packaging, security paper, vital records, prescription paper, birth certificates, receipts, identification materials, entertainment tickets, secure coupons and parts tracking forms. The division also provides resources and production equipment for our ongoing research and development of security printing, brand protection, consumer engagement and related technologies.

Commercial Lending: (“Commercial Lending”) through its operating company, American Pacific Financial, Inc. (“APF”) represents our banking and financing business line. is organized for the purposes of being a financial network holding company, focused providing commercial loans and on acquiring equity positions in (i) undervalued commercial bank(s), bank holding companies and nonbanking licensed financial companies operating in the United States, South East Asia, Taiwan, Japan and South Korea, and (ii) companies engaged in—nonbanking activities closely related to banking, including loan syndication services, mortgage banking, trust and escrow services, banking technology, loan servicing, equipment leasing, problem asset management, SPAC (special purpose acquisition company) consulting, and advisory capital raising services. From this financial platform, the Company shall provide an integrated suite of financial services for businesses that shall include commercial business lines of credit, land development financing, inventory financing, third party loan servicing, and services that address the financial needs of the world Gig Economy.

Biotechnology: (“Biotech”) targets unmet, urgent medical needs and expands the borders of medical and pharmaceutical science. Biotech drives mission-oriented research, development, and commercialization of solutions for medical advances in human wellness and healthcare. By leveraging technology and new science with strategic partnerships, Biotech provides advances in drug discovery for the prevention, inhibition, and treatment of neurological, oncology and immuno-related diseases. Other exciting technologies include a breakthrough alternative sugar aimed to combat diabetes and functional fragrance formulations aimed at the industrial and medical industry.

Biotech has several important and valuable products, technology or compounds that are in continuing development and/or licensing stages:

● LineBacker: Multi-faceted therapeutic platform for metabolic, neurologic, cancer, and infectious diseases. ● Equivir: A polyphenol compound that is believed to be successful in antiviral infection treatments. Equivir/Nemovir technology is a novel blend of FDA Generally Recognized as Safe (“GRAS”) eligible polyphenols (e.g., Myricetin, Hesperetin, Piperine) which have demonstrated antiviral effects with additional potential application as health supplements or medication. Polyphenols are sourced from fruits, vegetables, and other natural substances. Myricetin is a member of the flavonoid class of polyphenolic compounds with antioxidant properties. Hesperitin is a flavanone and Piperine is an alkaloid, commonly found in black pepper. ● Procombin: Applications as food additive, and natural preservative for beauty and person care products as well as natural food preservative. ● VanXin: Food preservative booster made up of polyphenols that extend the shelf life. ● Bioplastics: Advanced bio-compatible plastics that mitigate accumulation of plastics in oceans and landfills and provide UVA and UVB protection for many types of material for including containers, hard surfaces, and fibers for clothing. The technology is presently in development and testing antimicrobial plastics for consumer products that control the spread of active pathogens such as SARS-CoV-2, Influenza, E. coli, Staph, and Rhinovirus, by exploiting key strategies found in the biological realm. These new plastics are specifically focused on solutions for common products such as cups, plates, utensils, plastic bags, and countertops. The first prototypes are currently undergoing antimicrobial resistance testing. ● Laetose: Laetose technology is derived from a unique combination of sugar and inositol, which demonstrates the ability to inhibit the inflammatory and metabolic response of sugar alone. A sugar alternative which is believed to lower human glycemic indexes and is believed to be a breakthrough alternative sugar aimed to combat diabetes. The use of Laetose in a daily diet, compared to sugar, could result in 30% lower sugar consumption and lower glycemic index/load. ● 3F: A botanical compound believed to serve as an insect repellent and anti-microbial agent. 3F is a unique formulation of specialized ingredients (e.g. terpenes) from botanical sources with demonstrated effect as an insect repellent and an antimicrobial. ● 3F Mosquito Repellent: 3F repellent contains botanical ingredients that mosquitos avoid. These ingredients are scientifically proven1 to affect the mosquito’s receptors, essentially making the insect blind to a human’s presence. This can be utilized as a stand-alone repellent or as an additive in detergents, lotions, shampoo, and other substances to provide mosquito protection. ● 3F Antimicrobial: 3F antimicrobial contains botanical ingredients known to kill viruses. These ingredients are scientifically proven to inhibit viral replication. This can be utilized as a stand-alone antimicrobial or as an additive in detergents, lotions, shampoo, fabrics, and other substances. ● Quantum: The solution to the Patent Cliff accomplished by creating a new class of medicinal chemistry that uses advanced methods to increase effectiveness and persistence of natural compounds and existing drugs. The safety attributes of the original molecules are maintained. Typically, drug discovery processes modify functional groups. Quantum’s new techniques alter behavior of molecules at the sub-molecular level. It is estimated that 65% of the World Health Organization Essential Medicines List can be improved and re-patented using Quantum and these methods can be used to enhance and patent natural compounds including many substances used in traditional medicines around the world. ● Bio Med (license): A probiotic gut health product that helps to regulate many physiological functions, ranging from energy regulation and cognitive processes to toxin neutralization and immunity against pathogens.

Securities and Investment Management: (“Securities”) Securities was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, real estate investment funds, broker dealers, and mutual funds management. This business sector has already established the following business lines/investments and associated products and services:

● REIT Management Fund: In March 2020, DSS Securities formed AMRE (“American Medical REIT”) and its management company AAMI (“AMRE Asset Management, Inc.) Through AAMI/AMRE, a medical real estate investment trust, fulfills community needs for quality healthcare facilities while enabling care providers to allocate their capital to growth and investment in their contemporary clinical and critical care businesses. Urban and suburban communities are in need of modern healthcare facilities that provide a range of medical outpatient services. The funds ultimate product is an investor opportunity in a managed medical real estate investment trust. ● Sentinel: Sentinel primarily operates as a financial intermediary, facilitating institutional trading of municipal and corporate bonds as well as preferred stock, and accelerates the trajectory of the DSS digital securities business. ● BMIC: BMIC 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, BMIC services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia. ● DSS Wealth Management: AmericaFirst is a suite of mutual funds managed by DSS Wealth Management. AmericaFirst expects to expand into numerous investment platforms including additional mutual funds and exchange-traded funds. AmericaFirst currently consists of four mutual funds that seek to outperform their respective benchmark indices by applying top-down, fundamental research, quantitative and technical analysis to stock selection and portfolio management.

Direct Marketing Segment: provides services to assist companies in the emerging growth gig business model of peer-to-peer decentralized sharing marketplaces. It 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. Direct marketing products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific and Eastern Europe.

Intellectual Property

Patents

Impact Biomedical Inc. has nine (9) patents issued, and over forty (40) patents pending worldwide with expiration of US patents between 2029 and 2040. Pending patents could extend this exclusivity period in all regions.

The issued and allowed patents include composition and method of application for Linebacker, Equivir, 3F (Functional Fragrance), and Laetose.

Trademarks

We have several trademarks related to our DSS, Inc. businesses, which support the protection of our brand and products in various markets. These trademarks are critical to maintaining the distinctiveness and recognition of our offerings.

Websites:

The primary corporate website we maintain is www.dssworld.com. Our other sites are:

American Medical REIT, Inc: http://www.americanmedreit.com

DSS AmericaFirst: https://www.afcm-quant.com

American Pacific Financial (“APF”): https://www.ampacbancorp.com

DSS PureAir, Inc.: https://dsspureair.com/

Premier Packaging: https://www.premiercustompkg.com

Impact Biomedical: https://www.impactbiomedinc.com

In addition to the active websites, the Company is building multiple new sites and owns several other domain names reserved for future use or for strategic competitive reasons. Information on our websites or any other website does not constitute a part of this annual report.

Markets and Competition

Product Packaging: In our packaging division, we face competition from a wide range of national and regional companies, many of which operate independently and are privately held. The competition is primarily concentrated in the consumer-packaged goods and health and beauty sectors, with major players including prominent integrated paper companies such as WestRock Company and Graphic Packaging Holding Company. These competitors have established significant market presence and brand recognition, which drives competitive dynamics in the industry.

Commercial Lending: American Pacific Financial, our commercial lending company, offers a comprehensive range of financial services tailored to businesses. Our services encompass commercial business lines of credit, land development financing, inventory financing, third-party loan servicing, and solutions designed to meet the diverse financial requirements of various business sectors. In this competitive landscape, APF competes with a wide array of traditional commercial banks and investment banking firms.

Biotechnology: Impact Biomedical Inc. is dedicated to the discovery, confirmation, and patenting of unique scientific advancements and technologies, which lead to innovative solutions in the realm of human healthcare and wellness. IBO collaborates closely with licensing partners, engages in co-development initiatives, forms joint ventures, and nurtures other valuable relationships to effectively introduce these groundbreaking solutions to the market. Within this competitive landscape, IBO faces competition from other biotechnology firms and research institutions that are also pursuing cutting-edge advancements in healthcare, wellness, and related technologies.

Securities and Investment Management: Was established to develop and/or acquire assets in the securities trading or management arena. This business unit faces competition from individual money managers, established financial institutions, and organizations that engage in securities trading and management, including both traditional Registered Investment Advisors (RIAs) and Broker-Dealers. Additionally, the division competes with Real Estate Investment Trusts (REITs), private equity firms, and other personal investment companies that offer similar investment opportunities and financial products to individual and institutional clients.

Customers

Product Packaging: During 2024, one customer accounted for approximately 22% of our consolidated revenue and second customer accounted for approximately 13% of our consolidated revenue. Customer diversification improvements have produced several new customers to our overall customer base and will continue to do so in 2025.

Commercial Lending: Since 2021, American Pacific Financial, Inc. has issued nearly $26 million in new loans to customers across a diverse portfolio of businesses.

Securities and Investment Management: Our Securities and Investment Management division has a mixture of retail and institutional investors.

Raw Materials

Product Packaging: The primary raw materials used in our packaging business are paper, paperboard, and ink. We work closely with leading suppliers to maximize purchasing efficiencies, utilizing a diverse range of paper grades, formats, ink formulations, and colors to meet the needs of our products. While certain materials continue to present challenges, we have seen improvements in both the cost and availability of raw materials, particularly in the latter half of 2024. Sustainability in procurement is a critical focus for the Company. We not only ensure that our suppliers meet rigorous sustainability standards, but we are also committed to continuous internal improvements in sustainability practices. We are proactively setting high standards for sustainability and working with our supply chain partners to ensure these standards are met, contributing to the overall progress and compliance within the industry.

Direct Marketing: Sources its products from 3rd party suppliers for nutritional, performance, and health and beauty product ingredients. We rely on our extensive supplier network for the availability of an extensive range of vitamins, minerals, botanicals, plant, and herb extracts, as well as nutritional supplements.

Environmental Compliance

The Company is committed to conducting its operations in full compliance with all applicable environmental laws, regulations, and other requirements. While the potential impact of future environmental matters, including remediation efforts and compliance initiatives, cannot be predicted with certainty, management believes that adherence to current environmental protection laws, excluding any potential recoveries from third parties, will not have a material adverse effect on the Company’s consolidated results of operations, financial position, or cash flows. The Company remains focused on maintaining environmental responsibility while managing any future environmental liabilities in a prudent and cost-effective manner.

Government Regulation

Our biotechnology business is faced with potential government regulations. If new legislation, regulations, or rules are implemented either by Congress, the U.S. Patent and Trademark Office (the “USPTO”), or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our patent monetization efforts and, in turn, our assets, expenses and revenue. United States patent laws have been amended by the Leahy-Smith America Invents Act. The America Invents Act includes several significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities. In addition, the U.S. Department of Justice (“DOJ”) has conducted reviews of the patent system to evaluate the impact of patent assertion entities, such as our Company, on industries in which those patents relate. It is possible that the findings and recommendations of the DOJ could adversely impact our ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.

Moreover, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions.

Corporate History

The Company, incorporated in the state of New York in May 1984 has formally conducted business in the name of Document Security Systems, Inc. On September 16, 2021, the board of directors approved an agreement and plan of merger with a wholly owned subsidiary, DSS, Inc. (a New York corporation, incorporated in August 2020), for the sole purpose of effecting a rebranding from Document Security Systems, Inc. to DSS, Inc. This change became effective on September 30, 2021. DSS, Inc. maintained the same trading symbol “DSS” and updated its CUSIP number to 26253C-102. In January 2024, in conjunction with a reverse split, DSS now operates under the CUSIP 26253C 201. See the “Overview” section above for further details about our acquisitions.

Human Capital Resources

As of December 31, 2024, DSS, Inc. had 100 employees. We continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are in good standing.

Available information

Our website address is www.dssworld.com. Information on our website is not incorporated herein by reference. We make available free of charge through our website our press releases, Annual Report on Form 10-K/A, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after electronically filed with or furnished to the Securities and Exchange Commission.

Overview

DSS, Inc. (together with its consolidated subsidiaries (unless the context otherwise requires), referred to herein as “DSS,” “we,” “us,” “our” or the “Company”, currently operates five distinct business lines operate around the globe with primary operations in North America and Asia. The six divisions are:

1. Product Packaging, 2. Biotechnology, 3. Commercial Lending, 4. Securities and Investment Management, and 5. Alternative Trading, 6. Direct Marketing,

Each of these business lines are in various stages of development, growth, and income generation. Due to these variations in the business cycle, including differences in revenue and assets acquired, the company is currently reporting financial information for five of these operating segments:

1. Product Packaging, 2. Commercial Lending, 3. Biotechnology, 4. Direct Marketing, and 5. Securities and Investment Management

As the other divisions grow and start generating material operations and revenue, those operating segments will be added to our financial segmental reporting.

Our divisions, their business lines, subsidiaries, and operating territories:

1. Product Packaging: The Company’s consumer packaging and security printing business is led by its wholly owned subsidiary, Premier Packaging Corporation, Inc. (“Premier”), a New York corporation. Premier operates in the paper board and fiber based folding carton, consumer product packaging, and document security printing markets. It markets, manufactures, and sells sophisticated custom folding cartons, mailers, photo sleeves and complex 3-dimensional direct mail solutions. Premier is currently located in its new facility in Rochester, NY, and primarily serves the US market. 2. Biotechnology: (“Biotech”) Biotechnology, a science-driven industry sector that uses living organisms and molecular biology to produce healthcare-related products, progressed on multiple fronts in 2021. This business line was 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 targeting unmet, urgent medical needs, and is developing open-air defense initiatives, which curb transmission of air-borne infectious diseases, such as tuberculosis and influenza. We had a productive year including key patent awards, the advancement of key programs, the release of positive study results, and several projects now in global licensing discussions. Assets of this group are organized under the holding company, DSS BioHealth Security, Inc. Its subsidiaries are currently operating in Houston, TX and Rochester, NY. The group also has a research facility in Winter Haven, Florida. 3. Commercial Lending: American Pacific Bancorp, Inc. (“APB”) represents our banking and financing business line. During 2023, APB issued more than $14 million in new loans, and over $4 million in renewal loan to customers with strong credit quality across a diverse portfolio of businesses. Looking ahead, to better meet the needs of the current financial market, the company is looking to transition away from 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 of more than $22 million, which earns 1.25% annually in service charges, and explore future opportunities. Importantly, the equity portfolio as a bank holding company is anticipated to remain relatively stable, regardless of stock market fluctuations. 4. Securities and Investment Management: In 2023, DSS continued our strategic investments in three broker dealers; WestPark Capital, BMI Capital Investments, and Sentinel Brokers Company, Inc. Additionally, we have become the Registered Investment Advisor (“RIA”) for DSS AmericaFirst Quantitative Funds (DSS AmericaFirst) family. This group of businesses is led by its holding company, DSS Securities, Inc., (“DSS Securities”) and the group is currently headquartered in Houston, Texas, with operations in Chicago, Illinois, Sacramento, California, Los Angeles, California, and New York, NY. Also in this segment is the Company’s real estate investment trusts (“REITs”), 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 Houston, Texas. 5. Alternative Trading: (“Alt. Trading”) This Division was established to develop and/or acquire assets and investments in the securities trading and/or funds management arena. Alt. Trading, in partnership with recognized global leaders in alternative trading systems, intends to obtain a broker-dealer license and launch an Alternative Trading System (“ATS”). The ATS, focusing on financial market inefficiencies, will utilize a blockchain based financial market infrastructure (‘FMI’) that will trade digital asset securities exempt from registration, or ‘private securities’. The digital FMI will allow for T+0 settlement, which USX believes can be used to attract liquidity. The platform will generate trading liquidity for the ‘middle’ market – companies that are seeking to raise under $150M USD, can pursue private placements, which have lower compliance costs that public offerings. USX Holdings Company, Inc. (“USX”), a subsidiary of the DSS Blockchain, Inc., is a collaboration between the GSX Group, Coinstreet Partners and DSS, Inc. This collaboration is currently in the planning stages. The Alt. Trading division is currently headquartered in Houston, TX. 6. Digital Transformation (Legacy): This division was established to serve as a Preferred Technology Partner and Application Development Solution for mid-cap brands across various industries, including the direct selling and affiliate marketing sector. Digital Transformation enhanced marketing, communications, and operational processes through tailored software development and implementation. It successfully launched several mobile applications for direct sales businesses, seamlessly integrating back-office and social networking functions. Please note that Digital Transformation was headquartered in Hong Kong until its discontinuation in 2023.

7. Secure Living (Legacy): This division had embarked on a mission to create fully sustainable, secure, connected, and health-focused living communities, featuring homes equipped with advanced technology, energy-efficient solutions, and high-quality living environments, catering to both new construction and renovation projects for single and multi-family residential housing. Secure Living had been actively collaborating with various land development partners across the United States to develop complete, fully sustainable single-family subdivisions promoting healthy living. Secure Living was headquartered in Houston, Texas, until it was wound down in 2023. 8. Alternative Energy (Legacy): This group was established with the vision to lead the company into the clean energy sector, focusing on environmentally responsible and sustainable initiatives. Alset Energy, Inc., the holding company for this group, and its wholly owned subsidiary, Alset Solar, Inc., were dedicated to the development of utility-scale solar farms to support regional power grids in the United States and provide small microgrids for independent energy on underutilized properties. In addition to solar farms, solar battery banks, and residential energy creation and storage, Alset Energy also explored alternative energy investment and development opportunities. Our overarching goal was to make a significant impact in mitigating the negative effects of climate change by reducing air pollution and expanding access to clean energy, thus contributing to global economic well-being. Alset Energy was headquarters in Houston, Texas until its discontinuation in 2023. 9. Direct Marketing: (“Direct”) Led by the holding corporation, Decentralized Sharing Systems, Inc. (“Decentralized”) provides services to assist companies in the emerging growth “Gig” business model of peer-to-peer decentralized sharing marketplaces. Direct specializes in licensing its products and services through its subsidiary HWH World, Inc. (“HWH World”) using the popular gig economic marketing strategy as a form of direct marketing. Direct’s products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific, Middle East, and Eastern Europe.

2023 RECAP

The following is a summary of the DSS reported transactions and investments since January 2023 that reflect the active advancements and investments in these business lines:

On April 17, 2023, DSS, Inc.. announced today that Jason Grady, Chief Operating Officer of DSS, will be presenting at the Emerging Growth Virtual Conference on Wednesday, April 19 from 1:45-2:15 PM.

On April 19, 2023, DSS, Inc. announced that the Company plans to distribute to its stockholders common stock of Sharing Services Global Corporation (“Sharing Services” or “SHRG”) that is beneficially held by DSS, directly and through its subsidiary, Decentralized Sharing Systems, Inc. (“DSSI”). Sharing Services is a diversified direct marketing company that is currently listed on the OTC (OTC: SHRG) and is in the process of up-listing to Nasdaq.

On May 1, 2023, DSS, Inc. announced today the distribution date for the common stock of Sharing Services Global Corporation (“Sharing Services” or “SHRG”) that is beneficially held by DSS, directly and through its subsidiary, Decentralized Sharing Systems, Inc. (“DSSI”). As previously announced, DSS Inc., together with its subsidiary DSSI, distributed (the “Distribution”) approximately 280 million shares of Sharing Services’ common stock beneficially held by DSS and DSSI in a distribution to holders of DSS common stock, par value $0.02 per share (“DSS Common Stock”) as of April 28, 2023. Each share of DSS Common Stock outstanding as of 5:00 p.m., New York City time, held on April 28, 2023, will entitle the holder thereof to receive two (2) SHRG common stock shares to be distributed on May 4, 2023.

On May 16, 2023, DSS, Inc reported earnings results for the First Quarter Ended March 31, 2023. Premier Packaging division had a stellar quarter in booking a 72% increase in revenues in the first quarter compared to the First Quarter of 2022 as a result of our capital investments completed over the past year.”

On June 26, 2023, DSS, Inc Announces Record and Distribution Date for Impact BioMedical Spin-Off Special Dividend. DSS, Inc. has filed for the distribution of a special stock dividend to DSS Inc. shareholders of record on June 30th for distribution on July 14, 2023. DSS shareholders of record as of 4:00 p.m. ET on June 30, 2023 (the “record date”) will receive four (4) shares of Impact Biomedical, Inc. for every one (1) share of DSS.

On June 30, 2023, DSS, Inc announced updated shareholder of record date for Spin-Off of Impact BioMedical, Inc. DSS, Inc. filed for the distribution of a special stock dividend of Impact Biomedical Inc. to DSS Inc. shareholders of record on July 10, 2023, pending SEC clearance. DSS shareholders of record as of 5:00 p.m. ET on July 10, 2023 (the “record date”) were entitled to four (4) shares of Impact Biomedical Inc. for every one (1) share of DSS on the distribution date.

On July 31, 2023, DSS, Inc. announced today the distribution date for the previously announced stock dividend of Impact BioMedical Inc. DSS Inc. shareholders of record on July 10, 2023 will be entitled to four (4) shares of Impact Biomedical Inc. for every one (1) share of DSS to be distributed on August 8, 2023.

On October 23, 2023, DSS, Inc. announced that a registration statement on Form S-1 was filed with the U.S. Securities and Exchange Commission (“SEC”) relating to the proposed initial public offering of DSS’s wholly-owned subsidiary, Impact Biomedical.

On October 26, 2023, DSS, Inc. announced that the Company received a letter (the “Letter”) from the staff of NYSE American LLC (the “Exchange”) stating that the Company’s securities have been selling for a low price per share for a substantial period of time and, pursuant to Section 1003(f)(v) of the NYSE American Company Guide. The Company’s continued listing is predicated on it effecting a reverse stock split of its common stock or otherwise demonstrating sustained price improvement within a reasonable period of time, which the Exchange has determined to be no later than April 20, 2024.

On November 8, 2023, Impact BioMedical Inc. (“Impact”) filed a Current Report on Form 8-K with the Securities and Exchange Commission on November 6, 2023, disclosing that Impact effected a reverse stock split of its issued and outstanding common stock by a ratio of 1 for 55. Impact did not effectuate a reverse split of its authorized capital stock and no amendment to the articles of incorporation or bylaws was made. Impact received approval from its majority stockholder and the Company’s Board of Directors to effectuate the reverse split.

On November 14, 2023, DSS, Inc. announced that, in a unanimous decision, the Court of Appeals for the Federal Circuit (CAFC) rejected Nichia Corp.’s challenge to U.S. Patent No. 6,879,040 (the ‘040 Patent). U.S. Chief Circuit Judge Kimberly Moore, who authored the opinion, and U.S. Circuit Judges Kara Stoll and Tiffany Cunningham sat on the panel for the Federal Circuit.

On November 28, 2023, Premier Packaging, a Wholly-Owned Subsidiary of DSS, Inc., Secures Contract Extension with Major Retailer Worth Up to $15 Million over Four Years. DSS, Inc. announced today that its wholly-owned subsidiary, Premier Packaging signed a contract extension with an existing client for the next three years totaling a minimum of $12 Million with a fourth year extension option bringing the potential total revenue to over $15 Million.

On December 22, 2023, DSS, Inc. announced that it will proceed with a 1-for-20 reverse stock split (the “Reverse Split”) of its issued and outstanding shares of common stock, par value $0.02, following authorization by its Board of Directors and majority shareholders to effect a reverse split by a ratio of not less than 1-for-20 and not more than 1-for-40 (the “Reverse Split Range”), at any time on or before April 20, 2024, with the Board having the discretion as to whether or not the Reverse Split is to be effected, and with the exact ratio to be set at a whole number within the Reverse Split Range as determined by the Chief Executive Officer in his discretion. The reverse split was effective January 8, 2024.

STRATEGIC BUSINESS PLAN AND 2023 PROGRESSION

Here we highlight three specific developments:

We are preparing for an Initial Public Offering (“IPO”) of our majority owned subsidiary, Impact Biomedical, Inc. (“IBIO”), after distributing four shares of IBIO for every share of DSS held as of the record date of July 10, 2023.

Once the IPO has been completed, these stock dividend shares will not be eligible for resale until 180 days from the effective date of the IPO, a restriction that can be lifted at the discretion of IBIO. The structure of this spinoff is designed for DSS to maintain the consolidation of IBIO’s financials, ensuring our shareholders receive the benefits of IBIO’s success on a go forward basis. Our license agreement with ProPhase Labs (Nasdaq: PRPH) is resulting in promising clinical advancement in the development of our Linebacker and Equivir assets. Impact Biomedical is actively considering various ways to maximize the value of its investments and assets. The company is excited about the opportunities that the IPO will create and is looking forward to introducing its shareholders to subsequent spinoffs or similar liquidity events.

Turning to our product packaging division, Premier Packaging Corporation, Inc., net income increased 126% year over year. Premier Packaging Corporation is experiencing a positive trend in its financial performance, thanks to strategic investments and operational improvements.

Our commitment to reinforcing our leadership dynamics is evident in the recent enhancement of the management team at DSS Wealth Management, Inc. This deliberate move is aimed at fostering a legacy of investment excellence and scaling our assets under management. We are planning to launch a Total Return Bond Fund, to capitalize on the prevailing higher interest rates.

Three-Stage Development for Exponential Growth

For every completed acquisition, and taking into consideration market conditions and other constraints, we adhere to a well-structured three-stage development process with the goal of maximizing value creation and propelling our growth by expanding our capabilities, strength, and scale.

Stage 1: Asset Acquisition and Organizational Development In this initial phase, our focus lies in identifying and acquiring assets, vehicles, asset structures, and assembling the necessary talent and organizations. This strategic step serves as the strong foundation upon which we build future growth.

Stage 2: Revenue Generation and Operational Excellence Our second stage revolves around driving revenue through diverse channels, including revenue streams, licensing, and other scalable sources. Our primary objective during this phase is the creation of efficient and well-operating businesses that excel in operational performance. The success achieved in this stage in 2022, evidenced by substantial revenue growth, is a testament to our efforts.

Stage 3: Profitability and Positive EBITDA The third and final stage focuses on achieving positive EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and profitability. This is realized through the optimization of business operations, capitalizing on scale and efficiency to generate sustained profits.

Growth Strategies

IPOs as a Growth Strategy: Our company has plans to pursue Initial Public Offerings (IPOs) as a means to share its success with shareholders. We aim to take our businesses public once they reach an optimal point for effective leverage and meet internal goals and expectations.

Decentralized Sharing Model: We firmly believe in our unique decentralized sharing model, combined with the three-stage development process, to create substantial shareholder value. This model involves distributing dividends from potential IPOs directly to benefit shareholders.

In summary, our strategy delineates a methodical approach encompassing asset acquisition, revenue generation, operational efficiency, profitability, and ultimately, taking businesses public through IPOs to reward our shareholders. We place a strong emphasis on our decentralized sharing model, ensuring that the benefits of our success are shared directly with our valued shareholders.

Premier Packaging Secures Contract Extension with Major Retailer

Our Premier Packaging Corporation, Inc. (“Premier”) subsidiary provides a clear example of the second stage of our development process as it began operations at its new 105,000 sq. ft. facility in Western New York in the first half of 2022. The increased production capacity at the new facility, which has enabled us to meet growing customer demand, was a key driver behind our nearly 3% year-over-year revenue growth for this segment in the most recently reported quarter as well as net income increase of 126% year over year.

Since 2019, we have accelerated the transformation of Premier’s operations, investing in state-of-the-art manufacturing equipment, people, and processes to increase its capacity, improve quality and delivery, and to ensure it has the resources to support its growing customer base and their evolving supply chain demands. Utilizing these investments, we design and manufacture folding cartons that attract the consumer’s attention when and where it matters most at the point of sale.

In 2023, Premier Packaging signed a contract extension with an existing client for the next three years with expected revenue to approximate $12 Million with a fourth-year extension.

We are very pleased to see that our capital investment to increase production capacity and economies of scale at Premier Packaging continues to result in satisfied clients and increasing revenues. Since inaugurating Premier’s state-of-the-art 105,000 sq. ft. facility in 2022, our packaging division has expanded its customer base and built a competitive advantage in the packaging industry. We will continue to add capabilities in key areas that increase operational efficiencies to strengthen Premier’s foundation and offerings while continuing to provide world-class service to our customers.

Premier specializes in creating innovative fiber-based, folding cartons and packaging solutions which provide a sustainable alternative to traditional plastic packaging.

Impact BioMedical Share Distribution and IPO

In the field of Biotechnology and Biomedical, Impact Biomedical Inc. is dedicated to the discovery, validation, and patenting of innovative scientific advancements and technologies that lead to new developments in human healthcare and well-being. Once these breakthroughs are ready for implementation, IBIO collaborates closely with various partners through licensing agreements, co-development initiatives, joint ventures, and other strategic relationships to facilitate the introduction of these novel healthcare solutions to the market. Their mission is to advance and bring to fruition cutting-edge innovations that have the potential to significantly impact and improve the field of human health and wellness.

In 2023, Impact BioMedical, a vital component of our BioHealth group, made significant strides in various areas. These achievements included promising initial test results related to new bioplastics, the reinforcement of intellectual property safeguards, and the establishment of licensing agreements with ProPhase Biopharma, a wholly-owned subsidiary of ProPhase Labs, Inc. (Nasdaq: PRPH). ProPhase Labs, an extensively diversified diagnostic company with a track record spanning over three decades, dedicated to enhancing wellness and improving health through both over-the-counter (OTC) and prescription products. They have shown strong belief in Impact BioMedical’s Linebacker compounds, recognizing their potential value in the multi-billion-dollar range as co-therapies for cancer. Furthermore, ProPhase Labs anticipates the launch of Equivir as an OTC supplement in late 2023. Additionally, ProPhase BioPharma is preparing to submit an Investigational New Drug (“IND”) application to the US FDA for Equivir G as a prescription antiviral.

Impact BioMedical effectively utilizes its scientific expertise and intellectual property rights to provide innovative solutions to long-standing challenges within the biomedical field. The company’s primary focus lies in dedicated research and discovery efforts aimed at developing promising products for the prevention, inhibition, and treatment of neurological, oncological, and immuno-related diseases. For further details about Impact BioMedical, you can visit their website at http://impactbiomedinc.com/.

With a strengthened foundation now in place, we expect Impact BioMedical to provide us with the first opportunity to clearly demonstrate a core tenant of our vision – sharing our success with our shareholders. In August of 2023, DSS, Inc. distributed a stock dividend of four (4) shares of Impact BioMedical Inc. to all DSS Inc. shareholders of record on July 10, 2023. Each share of Impact BioMedical distributed as part of the distribution will not be eligible for resale until 180 days from the date Impact BioMedical’s initial public offering becomes effective under the Securities Act, subject to the discretion of the Company to lift the restriction sooner.

Importantly, Impact BioMedical is just one of multiple assets we believe can have liquidity events in 2024 as we continue to diligently move our growing portfolio of businesses through our unique and strategic value creation process.

Key Upcoming Milestone for AmericaFirst Quantitative Funds

AmericaFirst Quantitative Funds, part of our Securities and Investment Management segment, showed improved performance versus benchmarks for three of the four mutual funds under management since the new investment advisory team took over in May 2023. In addition to focusing on improved relative performance, the team expects to enhance marketing and sales efforts to grow assets under management, continue to improve operational efficiencies, and plans to launch a Total Return Bond Fund in the first half of the year.

Reporting Operating Segments:

As we have reported above, we financially report business operating results on five operating segments, which we believe will certainly increase and transition as the newer lines of business develop and mature. However, the five business segments that we are reporting on in 2023 are as follows:

Premier Packaging: (“Premier”) Premier Packaging Corporation provides custom packaging services and serves clients in the pharmaceutical, nutraceutical, consumer goods, beverage, specialty foods, confections, photo packaging and direct marketing industries, among others. The group also provides active and intelligent packaging and document security printing services for end-user customers. In addition, the division produces a wide array of printed materials, such as folding cartons and paperboard packaging, security paper, vital records, prescription paper, birth certificates, receipts, identification materials, entertainment tickets, secure coupons and parts tracking forms. The division also provides resources and production equipment for our ongoing research and development of security printing, brand protection, consumer engagement and related technologies.

For over 25 years, Premier has been a market leader in providing solutions for paperboard packaging from consumer retail packaging and heavy mailing envelopes, to sophisticated custom folding cartons and complex three-dimensional direct mail solutions. Premier’s innovative products and design team delivers packaging that provides functionality, marketability, and sustainability, with its fiber-based packing solutions providing an alternative to traditional plastic packaging.

Since 2019, we have accelerated the transformation of Premier’s operations, investing in state-of-the-art manufacturing equipment, people, and processes to increase its capacity, improve quality and delivery, and to ensure it has the resources to support its growing customer base and their evolving supply chain demands.

We will continue to add capabilities in key areas that increasing operational efficiencies to strengthen our foundation and offerings to our customers while continuing to provide world-class customer service to the customers we serve.

Commercial Lending: (“Commercial Lending”) through its operating company, American Pacific Bancorp, Inc. (“APB”) represents our banking and financing business line. Looking ahead, to better meet the needs of the current financial market, the company is looking to transition away from 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 of more than $6 million, which earns 1.25% annually in service charges, and explore future opportunities. Importantly, the equity portfolio as a bank holding company is anticipated to remain relatively stable, regardless of stock market fluctuations.

Biotechnology: (“Biotech”) Impact BioMedical, Inc. targets unmet, urgent medical needs and expands the borders of medical and pharmaceutical science. Impact drives mission-oriented research, development, and commercialization of solutions for medical advances in human wellness and healthcare. By leveraging technology and new science with strategic partnerships, Impact BioMedical provides advances in drug discovery for the prevention, inhibition, and treatment of neurological, oncology and immuno-related diseases. Other exciting technologies include a breakthrough alternative sugar aimed to combat diabetes and functional fragrance formulations aimed at the industrial and medical industry.

Impact BioMedical has several important and valuable products, technology or compounds that are in continuing development and/or licensing stages:

● LineBacker: Multi-faceted therapeutic platform for metabolic, neurologic, cancer, and infectious diseases. ● Equivir: A polyphenol compound that is believed to be successful in antiviral infection treatments. Equivir/Nemovir technology is a novel blend of FDA Generally Recognized as Safe (“GRAS”) eligible polyphenols (e.g., Myricetin, Hesperetin, Piperine) which have demonstrated antiviral effects with additional potential application as health supplements or medication. Polyphenols are sourced from fruits, vegetables, and other natural substances. Myricetin is a member of the flavonoid class of polyphenolic compounds with antioxidant properties. Hesperitin is a flavanone and Piperine is an alkaloid, commonly found in black pepper. ● Procombin: Applications as food additive, and natural preservative for beauty and person care products as well as natural food preservative. ● VanXin: Food preservative booster made up of polyphenols that extend the shelf life. ● Bioplastics: Advanced bio-compatible plastics that mitigate accumulation of plastics in oceans and landfills and provide UVA and UVB protection for many types of material for including containers, hard surfaces, and fibers for clothing. The technology is presently in development and testing antimicrobial plastics for consumer products that control the spread of active pathogens such as SARS-CoV-2, Influenza, E. coli, Staph, and Rhinovirus, by exploiting key strategies found in the biological realm. These new plastics are specifically focused on solutions for common products such as cups, plates, utensils, plastic bags, and countertops. The first prototypes are currently undergoing antimicrobial resistance testing. ● Laetose: Laetose technology is derived from a unique combination of sugar and inositol, which demonstrates the ability to inhibit the inflammatory and metabolic response of sugar alone. A sugar alternative which is believed to lower human glycemic indexes and is believed to be a breakthrough alternative sugar aimed to combat diabetes. The use of Laetose in a daily diet, compared to sugar, could result in 30% lower sugar consumption and lower glycemic index/load. ● 3F: A botanical compound believed to serve as an insect repellent and anti-microbial agent. 3F is a unique formulation of specialized ingredients (e.g. terpenes) from botanical sources with demonstrated effect as an insect repellent and an antimicrobial. ● 3F Mosquito Repellent: 3F repellent contains botanical ingredients that mosquitos avoid. These ingredients are scientifically proven1 to affect the mosquito’s receptors, essentially making the insect blind to a human’s presence. This can be utilized as a stand-alone repellent or as an additive in detergents, lotions, shampoo, and other substances to provide mosquito protection. ● 3F Antimicrobial: 3F antimicrobial contains botanical ingredients known to kill viruses. These ingredients are scientifically proven to inhibit viral replication. This can be utilized as a stand-alone antimicrobial or as an additive in detergents, lotions, shampoo, fabrics, and other substances. ● Quantum: The solution to the Patent Cliff accomplished by creating a new class of medicinal chemistry that uses advanced methods to increase effectiveness and persistence of natural compounds and existing drugs. The safety attributes of the original molecules are maintained. Typically, drug discovery processes modify functional groups. Quantum’s new techniques alter behavior of molecules at the sub-molecular level. It is estimated that 65% of the World Health Organization Essential Medicines List can be improved and re-patented using Quantum and these methods can be used to enhance and patent natural compounds including many substances used in traditional medicines around the world. ● Bio Med (license): A probiotic gut health product that helps to regulate many physiological functions, ranging from energy regulation and cognitive processes to toxin neutralization and immunity against pathogens.

The business model of Impact BioMedical revolves around two methodologies – Licensing and Sales Distribution.

1) Impact develops valuable and unique patented technologies which will be licensed to pharmaceutical, large consumer package goods companies and venture capitalists in exchange for usage licensing and royalties.

2) Impact utilizes the DSS ecosystem to leverage its sister companies that have in place distribution networks on a global scale. Impact will engage in branded and private labelling of certain products for sales generation through these channels. This global distribution model will give direct access to end users of Impact’s nutraceutical and health related products.

Securities and Investment Management: (“Securities”) Securities was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, real estate investment funds, broker dealers, and mutual funds management. This business sector has already established the following business lines/investments and associated products and services:

● REIT Management Fund: In March 2020, DSS Securities formed AMRE (“American Medical REIT”) and its management company AAMI (“AMRE Asset Management, Inc.) Through AAMI/AMRE, a medical real estate investment trust, fulfills community needs for quality healthcare facilities while enabling care providers to allocate their capital to growth and investment in their contemporary clinical and critical care businesses. Urban and suburban communities are in need of modern healthcare facilities that provide a range of medical outpatient services. The funds ultimate product is an investor opportunity in a managed medical real estate investment trust. ● Sentinel: Sentinel primarily operates as a financial intermediary, facilitating institutional trading of municipal and corporate bonds as well as preferred stock, and accelerates the trajectory of the DSS digital securities business. ● WestPark: 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. ● BMIC: BMIC 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, BMIC services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia. ● DSS Wealth Management: AmericaFirst is a suite of mutual funds managed by DSS Wealth Management. AmericaFirst expects to expand into numerous investment platforms including additional mutual funds and exchange-traded funds. AmericaFirst currently consists of four mutual funds that seek to outperform their respective benchmark indices by applying top-down, fundamental research, quantitative and technical analysis to stock selection and portfolio management.

Direct Marketing Segment: Prior to June 2023, the Direct Marketing business segment, operated through its holding company, Decentralized Sharing Systems, Inc., along with its subsidiaries and partners, including Sharing Services Global Corporation, offered a diverse range of products and services through an extensive independent contractor network until its transition to SHRG in late 2023 to effect DSS’s refocus on core business lines.

For instance, one of Decentralized’s wholly-owned subsidiaries, HWH World, Inc., was dedicated to promoting products and services that aligned with its core values of health, wealth, and happiness. Within the HWH Marketplace and its associated brands, the primary goal was to assist customers in achieving their healthiest and happiest selves. In terms of health-related offerings, the company provided herbal alternatives, nutraceuticals, consumables, topicals, dietary supplements, beauty and skincare products, personal care items, gut health products, aloe vera-based supplements, and various wellness products. In the wealth sector, the company developed educational tools to help users manage their finances effectively and offered savings programs to assist consumers in reaching their financial goals. In pursuit of happiness, the company collaborated with partners to acquire or establish products and services that enabled consumers to enjoy a healthy lifestyle, including access to a global travel membership network.

Sharing Services Global Corporation (“SHRG”), founded in Nevada on April 24, 2015, is focused on enhancing shareholder value by developing or acquiring businesses and technologies that expand its product and services portfolio, enhance its business capabilities, and broaden its geographic presence. Sharing Services’ integrated platform harnesses the expertise of various companies engaged in direct-to-consumer product marketing through independent contractors. Their shared services platform caters to the direct selling “gig economy” sector by providing essential services such as equity and inventory financing, advisory services, mobile application tools, merchant processing services, commercial insurance, and event planning to smaller direct sales companies. Sharing Services, through its subsidiaries, currently markets and distributes health and wellness products, including subscription-based travel services, in the United States, Canada, and Mexico, utilizing a direct selling business model. Their growth strategy involves both organic expansion and strategic acquisitions that complement their product range, enhance their business capabilities, and align with their overall growth objectives.

Beginning in July 2023, Direct now specializes in licensing its products and services through its subsidiary HWH World, Inc. (“HWH World”) using the popular gig economic marketing strategy as a form of direct marketing. Direct’s products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific, Middle East, and Eastern Europe.

Intellectual Property

Patents

Impact Biomedical Inc. has nine (9) patents issued, one(1) allowed, and over forty (40) patents pending worldwide with expiration of US patents between 2029 and 2040. Pending patents could extend this exclusivity period in all regions.

The issued and allowed patents include composition and method of application for Linebacker, Equivir, 3F (Functional Fragrance), and Laetose.

Trademarks

We have several trademarks related to our DSS, Inc. businesses.

Websites:

The primary corporate website we maintain is www.dssworld.com. Our other sites are:

American Medical REIT, Inc: http://www.americanmedreit.com

DSS AmericaFirst: https://www.afcm-quant.com

American Pacific Bancorp (“APB”): https://www.ampacbancorp.com

DSS PureAir, Inc.: https://dsspureair.com/

Premier Packaging: https://www.premiercustompkg.com

Impact Biomedical: https://www.impactbiomedinc.com

In addition to the active websites, the Company is building multiple new sites and owns several other domain names reserved for future use or for strategic competitive reasons. Information on our websites or any other website does not constitute a part of this annual report.

Markets and Competition

Product Packaging: Within our packaging division, we face competition from numerous national and regional companies, many of which operate independently and are privately held. The major players in this market are primarily concentrated in long-term consumer packaged goods and health and beauty sectors. These include prominent integrated paper companies like West Rock Company and Graphic Packaging Holding Company.

Commercial Lending: American Pacific Bancorp, our commercial lending company, offers a comprehensive range of financial services tailored to businesses. Our services encompass commercial business lines of credit, land development financing, inventory financing, third-party loan servicing, and solutions designed to meet the diverse financial requirements of various business sectors. In this competitive landscape, APB competes with a wide array of traditional commercial banks and investment banking firms.

Biotechnology: Impact Biomedical Inc. is dedicated to the discovery, confirmation, and patenting of unique scientific advancements and technologies, which lead to innovative solutions in the realm of human healthcare and wellness. IBIO collaborates closely with licensing partners, engages in co-development initiatives, forms joint ventures, and nurtures other valuable relationships to effectively introduce these groundbreaking solutions to the market.

Securities and Investment Management: Was established to develop and/or acquire assets in the securities trading or management arena. These efforts and established business lines compete with individual money managers, companies or organizations that engage in the business of trading securities and derivatives for the benefit of their customers. Traditional RIA’s, Brokers Dealers, REIT’s and other personal investment companies would also be considered competition.

Customers

Product Packaging: During 2023, one customer accounted for approximately 20% of our consolidated revenue and second customer accounted for approximately 11% of our consolidated revenue. Customer diversification improvements have produced several new customers to our overall customer base and will continue to do so in 2024.

Commercial Lending: Since 2021, American Pacific Bancorp, Inc. has issued nearly $26 million in new loans since September 2021 to customers across a diverse portfolio of businesses.

Securities and Investment Management: Our Securities and Investment Management division has a mixture of retail and institutional investors.

Raw Materials

Product Packaging: The primary raw materials the Company uses in its business are paper, paperboard, corrugated board and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies and uses a wide variety of paper grades, formats, ink formulations and colors. The good news is that while there are materials that remain challenging, raw materials have begun to improve in terms of cost and availability. The good news is that while there are materials that remain challenging, raw materials have begun to improve in terms of cost and availability in late 2023. Procurement sustainability as a crucial element and it involves not only ensuring that suppliers meet sustainability standards, but also a commitment to ongoing internal improvement in sustainability practices. Premier is proactively engaged in setting high standards and ensuring that these standards are followed by its supply chain partners, contributing to the improvement and compliance of the broader industry. During 2023, one vendor accounted for approximately 25% and second vendor accounted for approximately 13% of our paper and paperboard purchases.

Direct Marketing: Sources its products from 3rd party suppliers for nutritional, performance, and health and beauty product ingredients. We rely on our extensive supplier network for the availability of an extensive range of vitamins, minerals, botanicals, plant, and herb extracts, as well as nutritional supplements.

Environmental Compliance

It is the Company’s policy to conduct its operations in accordance with all applicable laws, regulations, and other requirements. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.

Government Regulation

Our biotechnology business is faced with potential government regulations. If new legislation, regulations, or rules are implemented either by Congress, the U.S. Patent and Trademark Office (the “USPTO”), or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our patent monetization efforts and, in turn, our assets, expenses and revenue. United States patent laws have been amended by the Leahy-Smith America Invents Act. The America Invents Act includes several significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities. In addition, the U.S. Department of Justice (“DOJ”) has conducted reviews of the patent system to evaluate the impact of patent assertion entities, such as our Company, on industries in which those patents relate. It is possible that the findings and recommendations of the DOJ could adversely impact our ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.

Moreover, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions.

Corporate History

The Company, incorporated in the state of New York in May 1984 has formally conducted business in the name of Document Security Systems, Inc. On September 16, 2021, the board of directors approved an agreement and plan of merger with a wholly owned subsidiary, DSS, Inc. (a New York corporation, incorporated in August 2020), for the sole purpose of effecting a rebranding from Document Security Systems, Inc. to DSS, Inc. This change became effective on September 30, 2021. DSS, Inc. maintained the same trading symbol “DSS” and updated its CUSIP number to 26253C-102. In January 2024, in conjunction with a reverse split, DSS now operates under the CUSIP 26253C 201. See the “Overview” section above for further details about our acquisitions.

Human Capital Resources

As of December 31, 2023, DSS, Inc. had 95 employees worldwide. We continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are in good standing.

Available information

Our website address is www.dssworld.com. Information on our website is not incorporated herein by reference. We make available free of charge through our website our press releases, Annual Report on Form 10-K/A, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after electronically filed with or furnished to the Securities and Exchange Commission.

Overview

DSS, Inc. (together with its consolidated subsidiaries (unless the context otherwise requires), referred to herein as “DSS,” “we,” “us,” “our” or the “Company”, currently operates five distinct business lines operate around the globe with primary operations in North America and Asia. The six divisions are:

1. Product Packaging, 2. Biotechnology, 3. Commercial Lending, 4. Securities and Investment Management, and 5. Alternative Trading, 6. Direct Marketing,

Each of these business lines are in various stages of development, growth, and income generation. Due to these variations in the business cycle, including differences in revenue and assets acquired, the company is currently reporting financial information for five of these operating segments:

1. Product Packaging, 2. Commercial Lending, 3. Biotechnology, 4. Direct Marketing, and 5. Securities and Investment Management

As the other divisions grow and start generating material operations and revenue, those operating segments will be added to our financial segmental reporting.

Our divisions, their business lines, subsidiaries, and operating territories:

1. Product Packaging: The Company’s consumer packaging and security printing business is led by its wholly owned subsidiary, Premier Packaging Corporation, Inc. (“Premier”), a New York corporation. Premier operates in the paper board and fiber based folding carton, consumer product packaging, and document security printing markets. It markets, manufactures, and sells sophisticated custom folding cartons, mailers, photo sleeves and complex 3-dimensional direct mail solutions. Premier is currently located in its new facility in Rochester, NY, and primarily serves the US market. 2. Biotechnology: (“Biotech”) Biotechnology, a science-driven industry sector that uses living organisms and molecular biology to produce healthcare-related products, progressed on multiple fronts in 2021. This business line was 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 targeting unmet, urgent medical needs, and is developing open-air defense initiatives, which curb transmission of air-borne infectious diseases, such as tuberculosis and influenza. We had a productive year including key patent awards, the advancement of key programs, the release of positive study results, and several projects now in global licensing discussions. Assets of this group are organized under the holding company, DSS BioHealth Security, Inc. Its subsidiaries are currently operating in Houston, TX and Rochester, NY. The group also has a research facility in Winter Haven, Florida. 3. Commercial Lending: American Pacific Bancorp, Inc. (“APB”) represents our banking and financing business line. During 2023, APB issued more than $14 million in new loans, and over $4 million in renewal loan to customers with strong credit quality across a diverse portfolio of businesses. Looking ahead, to better meet the needs of the current financial market, the company is looking to transition away from 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 of more than $22 million, which earns 1.25% annually in service charges, and explore future opportunities. Importantly, the equity portfolio as a bank holding company is anticipated to remain relatively stable, regardless of stock market fluctuations. 4. Securities and Investment Management: In 2023, DSS continued our strategic investments in three broker dealers; WestPark Capital, BMI Capital Investments, and Sentinel Brokers Company, Inc. Additionally, we have become the Registered Investment Advisor (“RIA”) for DSS AmericaFirst Quantitative Funds (DSS AmericaFirst) family. This group of businesses is led by its holding company, DSS Securities, Inc., (“DSS Securities”) and the group is currently headquartered in Houston, Texas, with operations in Chicago, Illinois, Sacramento, California, Los Angeles, California, and New York, NY. Also in this segment is the Company’s real estate investment trusts (“REITs”), 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 Houston, Texas. 5. Alternative Trading: (“Alt. Trading”) This Division was established to develop and/or acquire assets and investments in the securities trading and/or funds management arena. Alt. Trading, in partnership with recognized global leaders in alternative trading systems, intends to obtain a broker-dealer license and launch an Alternative Trading System (“ATS”). The ATS, focusing on financial market inefficiencies, will utilize a blockchain based financial market infrastructure (‘FMI’) that will trade digital asset securities exempt from registration, or ‘private securities’. The digital FMI will allow for T+0 settlement, which USX believes can be used to attract liquidity. The platform will generate trading liquidity for the ‘middle’ market – companies that are seeking to raise under $150M USD, can pursue private placements, which have lower compliance costs that public offerings. USX Holdings Company, Inc. (“USX”), a subsidiary of the DSS Blockchain, Inc., is a collaboration between the GSX Group, Coinstreet Partners and DSS, Inc. This collaboration is currently in the planning stages. The Alt. Trading division is currently headquartered in Houston, TX. 6. Digital Transformation (Legacy): This division was established to serve as a Preferred Technology Partner and Application Development Solution for mid-cap brands across various industries, including the direct selling and affiliate marketing sector. Digital Transformation enhanced marketing, communications, and operational processes through tailored software development and implementation. It successfully launched several mobile applications for direct sales businesses, seamlessly integrating back-office and social networking functions. Please note that Digital Transformation was headquartered in Hong Kong until its discontinuation in 2023.

7. Secure Living (Legacy): This division had embarked on a mission to create fully sustainable, secure, connected, and health-focused living communities, featuring homes equipped with advanced technology, energy-efficient solutions, and high-quality living environments, catering to both new construction and renovation projects for single and multi-family residential housing. Secure Living had been actively collaborating with various land development partners across the United States to develop complete, fully sustainable single-family subdivisions promoting healthy living. Secure Living was headquartered in Houston, Texas, until it was wound down in 2023. 8. Alternative Energy (Legacy): This group was established with the vision to lead the company into the clean energy sector, focusing on environmentally responsible and sustainable initiatives. Alset Energy, Inc., the holding company for this group, and its wholly owned subsidiary, Alset Solar, Inc., were dedicated to the development of utility-scale solar farms to support regional power grids in the United States and provide small microgrids for independent energy on underutilized properties. In addition to solar farms, solar battery banks, and residential energy creation and storage, Alset Energy also explored alternative energy investment and development opportunities. Our overarching goal was to make a significant impact in mitigating the negative effects of climate change by reducing air pollution and expanding access to clean energy, thus contributing to global economic well-being. Alset Energy was headquarters in Houston, Texas until its discontinuation in 2023. 9. Direct Marketing: (“Direct”) Led by the holding corporation, Decentralized Sharing Systems, Inc. (“Decentralized”) provides services to assist companies in the emerging growth “Gig” business model of peer-to-peer decentralized sharing marketplaces. Direct specializes in licensing its products and services through its subsidiary HWH World, Inc. (“HWH World”) using the popular gig economic marketing strategy as a form of direct marketing. Direct’s products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific, Middle East, and Eastern Europe.

2023 RECAP

The following is a summary of the DSS reported transactions and investments since January 2023 that reflect the active advancements and investments in these business lines:

On April 17, 2023, DSS, Inc.. announced today that Jason Grady, Chief Operating Officer of DSS, will be presenting at the Emerging Growth Virtual Conference on Wednesday, April 19 from 1:45-2:15 PM.

On April 19, 2023, DSS, Inc. announced that the Company plans to distribute to its stockholders common stock of Sharing Services Global Corporation (“Sharing Services” or “SHRG”) that is beneficially held by DSS, directly and through its subsidiary, Decentralized Sharing Systems, Inc. (“DSSI”). Sharing Services is a diversified direct marketing company that is currently listed on the OTC (OTC: SHRG) and is in the process of up-listing to Nasdaq.

On May 1, 2023, DSS, Inc. announced today the distribution date for the common stock of Sharing Services Global Corporation (“Sharing Services” or “SHRG”) that is beneficially held by DSS, directly and through its subsidiary, Decentralized Sharing Systems, Inc. (“DSSI”). As previously announced, DSS Inc., together with its subsidiary DSSI, distributed (the “Distribution”) approximately 280 million shares of Sharing Services’ common stock beneficially held by DSS and DSSI in a distribution to holders of DSS common stock, par value $0.02 per share (“DSS Common Stock”) as of April 28, 2023. Each share of DSS Common Stock outstanding as of 5:00 p.m., New York City time, held on April 28, 2023, will entitle the holder thereof to receive two (2) SHRG common stock shares to be distributed on May 4, 2023.

On May 16, 2023, DSS, Inc reported earnings results for the First Quarter Ended March 31, 2023. Premier Packaging division had a stellar quarter in booking a 72% increase in revenues in the first quarter compared to the First Quarter of 2022 as a result of our capital investments completed over the past year.”

On June 26, 2023, DSS, Inc Announces Record and Distribution Date for Impact BioMedical Spin-Off Special Dividend. DSS, Inc. has filed for the distribution of a special stock dividend to DSS Inc. shareholders of record on June 30th for distribution on July 14, 2023. DSS shareholders of record as of 4:00 p.m. ET on June 30, 2023 (the “record date”) will receive four (4) shares of Impact Biomedical, Inc. for every one (1) share of DSS.

On June 30, 2023, DSS, Inc announced updated shareholder of record date for Spin-Off of Impact BioMedical, Inc. DSS, Inc. filed for the distribution of a special stock dividend of Impact Biomedical Inc. to DSS Inc. shareholders of record on July 10, 2023, pending SEC clearance. DSS shareholders of record as of 5:00 p.m. ET on July 10, 2023 (the “record date”) were entitled to four (4) shares of Impact Biomedical Inc. for every one (1) share of DSS on the distribution date.

On July 31, 2023, DSS, Inc. announced today the distribution date for the previously announced stock dividend of Impact BioMedical Inc. DSS Inc. shareholders of record on July 10, 2023 will be entitled to four (4) shares of Impact Biomedical Inc. for every one (1) share of DSS to be distributed on August 8, 2023.

On October 23, 2023, DSS, Inc. announced that a registration statement on Form S-1 was filed with the U.S. Securities and Exchange Commission (“SEC”) relating to the proposed initial public offering of DSS’s wholly-owned subsidiary, Impact Biomedical.

On October 26, 2023, DSS, Inc. announced that the Company received a letter (the “Letter”) from the staff of NYSE American LLC (the “Exchange”) stating that the Company’s securities have been selling for a low price per share for a substantial period of time and, pursuant to Section 1003(f)(v) of the NYSE American Company Guide. The Company’s continued listing is predicated on it effecting a reverse stock split of its common stock or otherwise demonstrating sustained price improvement within a reasonable period of time, which the Exchange has determined to be no later than April 20, 2024.

On November 8, 2023, Impact BioMedical Inc. (“Impact”) filed a Current Report on Form 8-K with the Securities and Exchange Commission on November 6, 2023, disclosing that Impact effected a reverse stock split of its issued and outstanding common stock by a ratio of 1 for 55. Impact did not effectuate a reverse split of its authorized capital stock and no amendment to the articles of incorporation or bylaws was made. Impact received approval from its majority stockholder and the Company’s Board of Directors to effectuate the reverse split.

On November 14, 2023, DSS, Inc. announced that, in a unanimous decision, the Court of Appeals for the Federal Circuit (CAFC) rejected Nichia Corp.’s challenge to U.S. Patent No. 6,879,040 (the ‘040 Patent). U.S. Chief Circuit Judge Kimberly Moore, who authored the opinion, and U.S. Circuit Judges Kara Stoll and Tiffany Cunningham sat on the panel for the Federal Circuit.

On November 28, 2023, Premier Packaging, a Wholly-Owned Subsidiary of DSS, Inc., Secures Contract Extension with Major Retailer Worth Up to $15 Million over Four Years. DSS, Inc. announced today that its wholly-owned subsidiary, Premier Packaging signed a contract extension with an existing client for the next three years totaling a minimum of $12 Million with a fourth year extension option bringing the potential total revenue to over $15 Million.

On December 22, 2023, DSS, Inc. announced that it will proceed with a 1-for-20 reverse stock split (the “Reverse Split”) of its issued and outstanding shares of common stock, par value $0.02, following authorization by its Board of Directors and majority shareholders to effect a reverse split by a ratio of not less than 1-for-20 and not more than 1-for-40 (the “Reverse Split Range”), at any time on or before April 20, 2024, with the Board having the discretion as to whether or not the Reverse Split is to be effected, and with the exact ratio to be set at a whole number within the Reverse Split Range as determined by the Chief Executive Officer in his discretion. The reverse split was effective January 8, 2024.

STRATEGIC BUSINESS PLAN AND 2023 PROGRESSION

Here we highlight three specific developments:

We are preparing for an Initial Public Offering (“IPO”) of our majority owned subsidiary, Impact Biomedical, Inc. (“IBIO”), after distributing four shares of IBIO for every share of DSS held as of the record date of July 10, 2023.

Once the IPO has been completed, these stock dividend shares will not be eligible for resale until 180 days from the effective date of the IPO, a restriction that can be lifted at the discretion of IBIO. The structure of this spinoff is designed for DSS to maintain the consolidation of IBIO’s financials, ensuring our shareholders receive the benefits of IBIO’s success on a go forward basis. Our license agreement with ProPhase Labs (Nasdaq: PRPH) is resulting in promising clinical advancement in the development of our Linebacker and Equivir assets. Impact Biomedical is actively considering various ways to maximize the value of its investments and assets. The company is excited about the opportunities that the IPO will create and is looking forward to introducing its shareholders to subsequent spinoffs or similar liquidity events.

Turning to our product packaging division, Premier Packaging Corporation, Inc., net income increased 126% year over year. Premier Packaging Corporation is experiencing a positive trend in its financial performance, thanks to strategic investments and operational improvements.

Our commitment to reinforcing our leadership dynamics is evident in the recent enhancement of the management team at DSS Wealth Management, Inc. This deliberate move is aimed at fostering a legacy of investment excellence and scaling our assets under management. We are planning to launch a Total Return Bond Fund, to capitalize on the prevailing higher interest rates.

Three-Stage Development for Exponential Growth

For every completed acquisition, and taking into consideration market conditions and other constraints, we adhere to a well-structured three-stage development process with the goal of maximizing value creation and propelling our growth by expanding our capabilities, strength, and scale.

Stage 1: Asset Acquisition and Organizational Development In this initial phase, our focus lies in identifying and acquiring assets, vehicles, asset structures, and assembling the necessary talent and organizations. This strategic step serves as the strong foundation upon which we build future growth.

Stage 2: Revenue Generation and Operational Excellence Our second stage revolves around driving revenue through diverse channels, including revenue streams, licensing, and other scalable sources. Our primary objective during this phase is the creation of efficient and well-operating businesses that excel in operational performance. The success achieved in this stage in 2022, evidenced by substantial revenue growth, is a testament to our efforts.

Stage 3: Profitability and Positive EBITDA The third and final stage focuses on achieving positive EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and profitability. This is realized through the optimization of business operations, capitalizing on scale and efficiency to generate sustained profits.

Growth Strategies

IPOs as a Growth Strategy: Our company has plans to pursue Initial Public Offerings (IPOs) as a means to share its success with shareholders. We aim to take our businesses public once they reach an optimal point for effective leverage and meet internal goals and expectations.

Decentralized Sharing Model: We firmly believe in our unique decentralized sharing model, combined with the three-stage development process, to create substantial shareholder value. This model involves distributing dividends from potential IPOs directly to benefit shareholders.

In summary, our strategy delineates a methodical approach encompassing asset acquisition, revenue generation, operational efficiency, profitability, and ultimately, taking businesses public through IPOs to reward our shareholders. We place a strong emphasis on our decentralized sharing model, ensuring that the benefits of our success are shared directly with our valued shareholders.

Premier Packaging Secures Contract Extension with Major Retailer

Our Premier Packaging Corporation, Inc. (“Premier”) subsidiary provides a clear example of the second stage of our development process as it began operations at its new 105,000 sq. ft. facility in Western New York in the first half of 2022. The increased production capacity at the new facility, which has enabled us to meet growing customer demand, was a key driver behind our nearly 3% year-over-year revenue growth for this segment in the most recently reported quarter as well as net income increase of 126% year over year.

Since 2019, we have accelerated the transformation of Premier’s operations, investing in state-of-the-art manufacturing equipment, people, and processes to increase its capacity, improve quality and delivery, and to ensure it has the resources to support its growing customer base and their evolving supply chain demands. Utilizing these investments, we design and manufacture folding cartons that attract the consumer’s attention when and where it matters most at the point of sale.

In 2023, Premier Packaging signed a contract extension with an existing client for the next three years with expected revenue to approximate $12 Million with a fourth-year extension.

We are very pleased to see that our capital investment to increase production capacity and economies of scale at Premier Packaging continues to result in satisfied clients and increasing revenues. Since inaugurating Premier’s state-of-the-art 105,000 sq. ft. facility in 2022, our packaging division has expanded its customer base and built a competitive advantage in the packaging industry. We will continue to add capabilities in key areas that increase operational efficiencies to strengthen Premier’s foundation and offerings while continuing to provide world-class service to our customers.

Premier specializes in creating innovative fiber-based, folding cartons and packaging solutions which provide a sustainable alternative to traditional plastic packaging.

Impact BioMedical Share Distribution and IPO

In the field of Biotechnology and Biomedical, Impact Biomedical Inc. is dedicated to the discovery, validation, and patenting of innovative scientific advancements and technologies that lead to new developments in human healthcare and well-being. Once these breakthroughs are ready for implementation, IBIO collaborates closely with various partners through licensing agreements, co-development initiatives, joint ventures, and other strategic relationships to facilitate the introduction of these novel healthcare solutions to the market. Their mission is to advance and bring to fruition cutting-edge innovations that have the potential to significantly impact and improve the field of human health and wellness.

In 2023, Impact BioMedical, a vital component of our BioHealth group, made significant strides in various areas. These achievements included promising initial test results related to new bioplastics, the reinforcement of intellectual property safeguards, and the establishment of licensing agreements with ProPhase Biopharma, a wholly-owned subsidiary of ProPhase Labs, Inc. (Nasdaq: PRPH). ProPhase Labs, an extensively diversified diagnostic company with a track record spanning over three decades, dedicated to enhancing wellness and improving health through both over-the-counter (OTC) and prescription products. They have shown strong belief in Impact BioMedical’s Linebacker compounds, recognizing their potential value in the multi-billion-dollar range as co-therapies for cancer. Furthermore, ProPhase Labs anticipates the launch of Equivir as an OTC supplement in late 2023. Additionally, ProPhase BioPharma is preparing to submit an Investigational New Drug (“IND”) application to the US FDA for Equivir G as a prescription antiviral.

Impact BioMedical effectively utilizes its scientific expertise and intellectual property rights to provide innovative solutions to long-standing challenges within the biomedical field. The company’s primary focus lies in dedicated research and discovery efforts aimed at developing promising products for the prevention, inhibition, and treatment of neurological, oncological, and immuno-related diseases. For further details about Impact BioMedical, you can visit their website at http://impactbiomedinc.com/.

With a strengthened foundation now in place, we expect Impact BioMedical to provide us with the first opportunity to clearly demonstrate a core tenant of our vision – sharing our success with our shareholders. In August of 2023, DSS, Inc. distributed a stock dividend of four (4) shares of Impact BioMedical Inc. to all DSS Inc. shareholders of record on July 10, 2023. Each share of Impact BioMedical distributed as part of the distribution will not be eligible for resale until 180 days from the date Impact BioMedical’s initial public offering becomes effective under the Securities Act, subject to the discretion of the Company to lift the restriction sooner.

Importantly, Impact BioMedical is just one of multiple assets we believe can have liquidity events in 2024 as we continue to diligently move our growing portfolio of businesses through our unique and strategic value creation process.

Key Upcoming Milestone for AmericaFirst Quantitative Funds

AmericaFirst Quantitative Funds, part of our Securities and Investment Management segment, showed improved performance versus benchmarks for three of the four mutual funds under management since the new investment advisory team took over in May 2023. In addition to focusing on improved relative performance, the team expects to enhance marketing and sales efforts to grow assets under management, continue to improve operational efficiencies, and plans to launch a Total Return Bond Fund in the first half of the year.

Reporting Operating Segments:

As we have reported above, we financially report business operating results on five operating segments, which we believe will certainly increase and transition as the newer lines of business develop and mature. However, the five business segments that we are reporting on in 2023 are as follows:

Premier Packaging: (“Premier”) Premier Packaging Corporation provides custom packaging services and serves clients in the pharmaceutical, nutraceutical, consumer goods, beverage, specialty foods, confections, photo packaging and direct marketing industries, among others. The group also provides active and intelligent packaging and document security printing services for end-user customers. In addition, the division produces a wide array of printed materials, such as folding cartons and paperboard packaging, security paper, vital records, prescription paper, birth certificates, receipts, identification materials, entertainment tickets, secure coupons and parts tracking forms. The division also provides resources and production equipment for our ongoing research and development of security printing, brand protection, consumer engagement and related technologies.

For over 25 years, Premier has been a market leader in providing solutions for paperboard packaging from consumer retail packaging and heavy mailing envelopes, to sophisticated custom folding cartons and complex three-dimensional direct mail solutions. Premier’s innovative products and design team delivers packaging that provides functionality, marketability, and sustainability, with its fiber-based packing solutions providing an alternative to traditional plastic packaging.

Since 2019, we have accelerated the transformation of Premier’s operations, investing in state-of-the-art manufacturing equipment, people, and processes to increase its capacity, improve quality and delivery, and to ensure it has the resources to support its growing customer base and their evolving supply chain demands.

We will continue to add capabilities in key areas that increasing operational efficiencies to strengthen our foundation and offerings to our customers while continuing to provide world-class customer service to the customers we serve.

Commercial Lending: (“Commercial Lending”) through its operating company, American Pacific Bancorp, Inc. (“APB”) represents our banking and financing business line. Looking ahead, to better meet the needs of the current financial market, the company is looking to transition away from 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 of more than $6 million, which earns 1.25% annually in service charges, and explore future opportunities. Importantly, the equity portfolio as a bank holding company is anticipated to remain relatively stable, regardless of stock market fluctuations.

Biotechnology: (“Biotech”) Impact BioMedical, Inc. targets unmet, urgent medical needs and expands the borders of medical and pharmaceutical science. Impact drives mission-oriented research, development, and commercialization of solutions for medical advances in human wellness and healthcare. By leveraging technology and new science with strategic partnerships, Impact BioMedical provides advances in drug discovery for the prevention, inhibition, and treatment of neurological, oncology and immuno-related diseases. Other exciting technologies include a breakthrough alternative sugar aimed to combat diabetes and functional fragrance formulations aimed at the industrial and medical industry.

Impact BioMedical has several important and valuable products, technology or compounds that are in continuing development and/or licensing stages:

● LineBacker: Multi-faceted therapeutic platform for metabolic, neurologic, cancer, and infectious diseases. ● Equivir: A polyphenol compound that is believed to be successful in antiviral infection treatments. Equivir/Nemovir technology is a novel blend of FDA Generally Recognized as Safe (“GRAS”) eligible polyphenols (e.g., Myricetin, Hesperetin, Piperine) which have demonstrated antiviral effects with additional potential application as health supplements or medication. Polyphenols are sourced from fruits, vegetables, and other natural substances. Myricetin is a member of the flavonoid class of polyphenolic compounds with antioxidant properties. Hesperitin is a flavanone and Piperine is an alkaloid, commonly found in black pepper. ● Procombin: Applications as food additive, and natural preservative for beauty and person care products as well as natural food preservative. ● VanXin: Food preservative booster made up of polyphenols that extend the shelf life. ● Bioplastics: Advanced bio-compatible plastics that mitigate accumulation of plastics in oceans and landfills and provide UVA and UVB protection for many types of material for including containers, hard surfaces, and fibers for clothing. The technology is presently in development and testing antimicrobial plastics for consumer products that control the spread of active pathogens such as SARS-CoV-2, Influenza, E. coli, Staph, and Rhinovirus, by exploiting key strategies found in the biological realm. These new plastics are specifically focused on solutions for common products such as cups, plates, utensils, plastic bags, and countertops. The first prototypes are currently undergoing antimicrobial resistance testing. ● Laetose: Laetose technology is derived from a unique combination of sugar and inositol, which demonstrates the ability to inhibit the inflammatory and metabolic response of sugar alone. A sugar alternative which is believed to lower human glycemic indexes and is believed to be a breakthrough alternative sugar aimed to combat diabetes. The use of Laetose in a daily diet, compared to sugar, could result in 30% lower sugar consumption and lower glycemic index/load. ● 3F: A botanical compound believed to serve as an insect repellent and anti-microbial agent. 3F is a unique formulation of specialized ingredients (e.g. terpenes) from botanical sources with demonstrated effect as an insect repellent and an antimicrobial. ● 3F Mosquito Repellent: 3F repellent contains botanical ingredients that mosquitos avoid. These ingredients are scientifically proven1 to affect the mosquito’s receptors, essentially making the insect blind to a human’s presence. This can be utilized as a stand-alone repellent or as an additive in detergents, lotions, shampoo, and other substances to provide mosquito protection. ● 3F Antimicrobial: 3F antimicrobial contains botanical ingredients known to kill viruses. These ingredients are scientifically proven to inhibit viral replication. This can be utilized as a stand-alone antimicrobial or as an additive in detergents, lotions, shampoo, fabrics, and other substances. ● Quantum: The solution to the Patent Cliff accomplished by creating a new class of medicinal chemistry that uses advanced methods to increase effectiveness and persistence of natural compounds and existing drugs. The safety attributes of the original molecules are maintained. Typically, drug discovery processes modify functional groups. Quantum’s new techniques alter behavior of molecules at the sub-molecular level. It is estimated that 65% of the World Health Organization Essential Medicines List can be improved and re-patented using Quantum and these methods can be used to enhance and patent natural compounds including many substances used in traditional medicines around the world. ● Bio Med (license): A probiotic gut health product that helps to regulate many physiological functions, ranging from energy regulation and cognitive processes to toxin neutralization and immunity against pathogens.

The business model of Impact BioMedical revolves around two methodologies – Licensing and Sales Distribution.

1) Impact develops valuable and unique patented technologies which will be licensed to pharmaceutical, large consumer package goods companies and venture capitalists in exchange for usage licensing and royalties.

2) Impact utilizes the DSS ecosystem to leverage its sister companies that have in place distribution networks on a global scale. Impact will engage in branded and private labelling of certain products for sales generation through these channels. This global distribution model will give direct access to end users of Impact’s nutraceutical and health related products.

Securities and Investment Management: (“Securities”) Securities was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, real estate investment funds, broker dealers, and mutual funds management. This business sector has already established the following business lines/investments and associated products and services:

● REIT Management Fund: In March 2020, DSS Securities formed AMRE (“American Medical REIT”) and its management company AAMI (“AMRE Asset Management, Inc.) Through AAMI/AMRE, a medical real estate investment trust, fulfills community needs for quality healthcare facilities while enabling care providers to allocate their capital to growth and investment in their contemporary clinical and critical care businesses. Urban and suburban communities are in need of modern healthcare facilities that provide a range of medical outpatient services. The funds ultimate product is an investor opportunity in a managed medical real estate investment trust. ● Sentinel: Sentinel primarily operates as a financial intermediary, facilitating institutional trading of municipal and corporate bonds as well as preferred stock, and accelerates the trajectory of the DSS digital securities business. ● WestPark: 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. ● BMIC: BMIC 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, BMIC services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia. ● DSS Wealth Management: AmericaFirst is a suite of mutual funds managed by DSS Wealth Management. AmericaFirst expects to expand into numerous investment platforms including additional mutual funds and exchange-traded funds. AmericaFirst currently consists of four mutual funds that seek to outperform their respective benchmark indices by applying top-down, fundamental research, quantitative and technical analysis to stock selection and portfolio management.

Direct Marketing Segment: Prior to June 2023, the Direct Marketing business segment, operated through its holding company, Decentralized Sharing Systems, Inc., along with its subsidiaries and partners, including Sharing Services Global Corporation, offered a diverse range of products and services through an extensive independent contractor network until its transition to SHRG in late 2023 to effect DSS’s refocus on core business lines.

For instance, one of Decentralized’s wholly-owned subsidiaries, HWH World, Inc., was dedicated to promoting products and services that aligned with its core values of health, wealth, and happiness. Within the HWH Marketplace and its associated brands, the primary goal was to assist customers in achieving their healthiest and happiest selves. In terms of health-related offerings, the company provided herbal alternatives, nutraceuticals, consumables, topicals, dietary supplements, beauty and skincare products, personal care items, gut health products, aloe vera-based supplements, and various wellness products. In the wealth sector, the company developed educational tools to help users manage their finances effectively and offered savings programs to assist consumers in reaching their financial goals. In pursuit of happiness, the company collaborated with partners to acquire or establish products and services that enabled consumers to enjoy a healthy lifestyle, including access to a global travel membership network.

Sharing Services Global Corporation (“SHRG”), founded in Nevada on April 24, 2015, is focused on enhancing shareholder value by developing or acquiring businesses and technologies that expand its product and services portfolio, enhance its business capabilities, and broaden its geographic presence. Sharing Services’ integrated platform harnesses the expertise of various companies engaged in direct-to-consumer product marketing through independent contractors. Their shared services platform caters to the direct selling “gig economy” sector by providing essential services such as equity and inventory financing, advisory services, mobile application tools, merchant processing services, commercial insurance, and event planning to smaller direct sales companies. Sharing Services, through its subsidiaries, currently markets and distributes health and wellness products, including subscription-based travel services, in the United States, Canada, and Mexico, utilizing a direct selling business model. Their growth strategy involves both organic expansion and strategic acquisitions that complement their product range, enhance their business capabilities, and align with their overall growth objectives.

Beginning in July 2023, Direct now specializes in licensing its products and services through its subsidiary HWH World, Inc. (“HWH World”) using the popular gig economic marketing strategy as a form of direct marketing. Direct’s products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific, Middle East, and Eastern Europe.

Intellectual Property

Patents

Impact Biomedical Inc. has nine (9) patents issued, one(1) allowed, and over forty (40) patents pending worldwide with expiration of US patents between 2029 and 2040. Pending patents could extend this exclusivity period in all regions.

The issued and allowed patents include composition and method of application for Linebacker, Equivir, 3F (Functional Fragrance), and Laetose.

Trademarks

We have several trademarks related to our DSS, Inc. businesses.

Websites:

The primary corporate website we maintain is www.dssworld.com. Our other sites are:

American Medical REIT, Inc: http://www.americanmedreit.com

DSS AmericaFirst: https://www.afcm-quant.com

American Pacific Bancorp (“APB”): https://www.ampacbancorp.com

DSS PureAir, Inc.: https://dsspureair.com/

Premier Packaging: https://www.premiercustompkg.com

Impact Biomedical: https://www.impactbiomedinc.com

In addition to the active websites, the Company is building multiple new sites and owns several other domain names reserved for future use or for strategic competitive reasons. Information on our websites or any other website does not constitute a part of this annual report.

Markets and Competition

Product Packaging: Within our packaging division, we face competition from numerous national and regional companies, many of which operate independently and are privately held. The major players in this market are primarily concentrated in long-term consumer packaged goods and health and beauty sectors. These include prominent integrated paper companies like West Rock Company and Graphic Packaging Holding Company.

Commercial Lending: American Pacific Bancorp, our commercial lending company, offers a comprehensive range of financial services tailored to businesses. Our services encompass commercial business lines of credit, land development financing, inventory financing, third-party loan servicing, and solutions designed to meet the diverse financial requirements of various business sectors. In this competitive landscape, APB competes with a wide array of traditional commercial banks and investment banking firms.

Biotechnology: Impact Biomedical Inc. is dedicated to the discovery, confirmation, and patenting of unique scientific advancements and technologies, which lead to innovative solutions in the realm of human healthcare and wellness. IBIO collaborates closely with licensing partners, engages in co-development initiatives, forms joint ventures, and nurtures other valuable relationships to effectively introduce these groundbreaking solutions to the market.

Securities and Investment Management: Was established to develop and/or acquire assets in the securities trading or management arena. These efforts and established business lines compete with individual money managers, companies or organizations that engage in the business of trading securities and derivatives for the benefit of their customers. Traditional RIA’s, Brokers Dealers, REIT’s and other personal investment companies would also be considered competition.

Customers

Product Packaging: During 2023, one customer accounted for approximately 20% of our consolidated revenue and second customer accounted for approximately 11% of our consolidated revenue. Customer diversification improvements have produced several new customers to our overall customer base and will continue to do so in 2024.

Commercial Lending: Since 2021, American Pacific Bancorp, Inc. has issued nearly $26 million in new loans since September 2021 to customers across a diverse portfolio of businesses.

Securities and Investment Management: Our Securities and Investment Management division has a mixture of retail and institutional investors.

Raw Materials

Product Packaging: The primary raw materials the Company uses in its business are paper, paperboard, corrugated board and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies and uses a wide variety of paper grades, formats, ink formulations and colors. The good news is that while there are materials that remain challenging, raw materials have begun to improve in terms of cost and availability. The good news is that while there are materials that remain challenging, raw materials have begun to improve in terms of cost and availability in late 2023. Procurement sustainability as a crucial element and it involves not only ensuring that suppliers meet sustainability standards, but also a commitment to ongoing internal improvement in sustainability practices. Premier is proactively engaged in setting high standards and ensuring that these standards are followed by its supply chain partners, contributing to the improvement and compliance of the broader industry. During 2023, one vendor accounted for approximately 25% and second vendor accounted for approximately 13% of our paper and paperboard purchases.

Direct Marketing: Sources its products from 3rd party suppliers for nutritional, performance, and health and beauty product ingredients. We rely on our extensive supplier network for the availability of an extensive range of vitamins, minerals, botanicals, plant, and herb extracts, as well as nutritional supplements.

Environmental Compliance

It is the Company’s policy to conduct its operations in accordance with all applicable laws, regulations, and other requirements. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.

Government Regulation

Our biotechnology business is faced with potential government regulations. If new legislation, regulations, or rules are implemented either by Congress, the U.S. Patent and Trademark Office (the “USPTO”), or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our patent monetization efforts and, in turn, our assets, expenses and revenue. United States patent laws have been amended by the Leahy-Smith America Invents Act. The America Invents Act includes several significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities. In addition, the U.S. Department of Justice (“DOJ”) has conducted reviews of the patent system to evaluate the impact of patent assertion entities, such as our Company, on industries in which those patents relate. It is possible that the findings and recommendations of the DOJ could adversely impact our ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.

Moreover, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions.

Corporate History

The Company, incorporated in the state of New York in May 1984 has formally conducted business in the name of Document Security Systems, Inc. On September 16, 2021, the board of directors approved an agreement and plan of merger with a wholly owned subsidiary, DSS, Inc. (a New York corporation, incorporated in August 2020), for the sole purpose of effecting a rebranding from Document Security Systems, Inc. to DSS, Inc. This change became effective on September 30, 2021. DSS, Inc. maintained the same trading symbol “DSS” and updated its CUSIP number to 26253C-102. In January 2024, in conjunction with a reverse split, DSS now operates under the CUSIP 26253C 201. See the “Overview” section above for further details about our acquisitions.

Human Capital Resources

As of December 31, 2023, DSS, Inc. had 95 employees worldwide. We continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are in good standing.

Available information

Our website address is www.dssworld.com. Information on our website is not incorporated herein by reference. We make available free of charge through our website our press releases, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after electronically filed with or furnished to the Securities and Exchange Commission.

Overview

DSS, 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”) currently operates nine distinct business lines operate around the globe with primary operations in North America and Asia. The nine divisions are:

1. Product Packaging, 2. Biotechnology, 3. Direct Marketing, 4. Commercial Lending, 5. Securities and Investment Management, 6. Alternative Trading, 7. Digital Transformation, 8. Secure Living, and 9. Alternative Energy

Each of these business lines are in various stages of development, growth, and income generation. Because of these varying degrees of business cycle growth, including the size of the revenues and assets acquired, the Company currently financially reports only on five of these operating segments.

1. Product Packaging, 2. Commercial Lending, 3. Biotechnology, 4. Direct Marketing, and 5. Securities and Investment Management

As the other divisions grow and start generating material operations and revenue, those operating segments will be added to our financial segmental reporting.

Our divisions, their business lines, subsidiaries, and operating territories:

1. Product Packaging: The Company’s consumer packaging and security printing business is led by its wholly owned subsidiary, Premier Packaging Corporation, Inc. (“Premier”), a New York corporation. Premier operates in the paper board and fiber based folding carton, consumer product packaging, and document security printing markets. It markets, manufactures, and sells sophisticated custom folding cartons, mailers, photo sleeves and complex 3-dimensional direct mail solutions. Premier is currently located in its new facility in Rochester, NY, and primarily serves the US market. 2. Biotechnology: (“Biotech”) Biotechnology, a science-driven industry sector that uses living organisms and molecular biology to produce healthcare-related products, progressed on multiple fronts in 2021. This business line was 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 targeting unmet, urgent medical needs, and is developing open-air defense initiatives, which curb transmission of air-borne infectious diseases, such as tuberculosis and influenza. We had a productive year including key patent awards, the advancement of key programs, the release of positive study results, and several projects now in global licensing discussions. Assets of this group are organized under the holding company, DSS BioHealth Security, Inc. Its subsidiaries are currently operating in Houston, TX and Rochester, NY. The group also has a research facility in Winter Haven, Florida.

3. Direct Marketing: (“Direct”) Led by the holding corporation, Decentralized Sharing Systems, Inc. (“Decentralized” 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. Direct’s products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific, Middle East, and Eastern Europe. Our December 2021 investment in Sharing Services Global Corporation (“SHRG”) (OTCQB: SHRG) gave us controlling interest with nearly 65 percent ownership of the established direct selling business. The SHRG platform leverages the capabilities and expertise of various companies that market and sell products direct to the consumer and generated $22.1 million in revenue in the twelve months ended December 31, 2022. Currently, Direct and SHRG operate offices in USA, Canada, Hong Kong, Singapore, S. Korea, Australia, New Zealand, Malaysia, and Singapore. Additionally, through its subsidiaries, HWH World, Inc. (“HWH World”) and HWH Holdings, Inc., Decentralized Sharing Systems, Inc. provides an array of products and services via various direct to consumer models. We are continuously adding products and services to this business to enhance its portfolio of offerings and position its distribution team for continued growth and success. Our products and services allow the HWH World ecosystem to fulfill its corporate position of health, wealth, and happiness and helps its customers become the healthiest, happiest versions of themselves. Decentralized sharing systems’ mission is to become the leading direct sales platform for training, development, and empowerment of leaders on a global scale to achieve maximum human and economic potential. 4. Commercial Lending: American Pacific Bancorp (“APB”), is organized for the purposes of being a financial network holding company, focused on acquiring equity positions in (i) undervalued commercial bank(s), bank holding companies and nonbanking licensed financial companies operating in the United States, South East Asia, Taiwan, Japan and South Korea, and (ii) companies engaged in—nonbanking activities closely related to banking, including loan syndication services, mortgage banking, trust and escrow services, banking technology, loan servicing, equipment leasing, problem asset management, SPAC (special purpose acquisition company) consulting services, and advisory capital raising services. From this financial platform, the Company shall provide an integrated suite of financial services for businesses that shall include commercial business lines of credit, land development financing, inventory financing, third party loan servicing, and services that address the financial needs of the world Gig Economy. 5. Securities and Investment Management: In 2022, DSS continued to invest in Liquid Value Asset Management Limited (“LVAM”), a DSS Financial Management Inc. subsidiary and fund management company domiciled in Hong Kong. LVAM’s algorithmic trading includes short- and long-term trades while offering the unique attribute of being able to liquidate the portfolio into cash within minutes under normal market conditions. LVAM is positioned as a prime vehicle for private and institutional investors seeking a highly liquid investment fund with extremely attractive risk adjusted returns relative to the volatility and unpredictability of the markets. We have also continued our strategic investments in three broker dealers; WestPark Capital, BMI Capital Investments, and Sentinel Brokers Company, Inc. Additionally, we have become the RIA for DSS AmericaFirst Quantitative Funds (DSS AmericaFirst) family. This group of businesses is led by its holding company, DSS Securities, Inc., (“DSS Securities”) and the group is currently headquartered in Houston, Texas, with operations in Chicago, Illinois, Sacramento, California, Los Angeles, California, and New York, NY. Also in this segment is the Company’s real estate investment trusts (“REITs”), 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 Houston, Texas. 6. Alternative Trading: (“Alt. Trading”) This Division was established to develop and/or acquire assets and investments in the securities trading and/or funds management arena. Alt. Trading, in partnership with recognized global leaders in alternative trading systems, intends to obtain a broker-dealer license and launch an Alternative Trading System (“ATS”). The ATS, focusing on financial market inefficiencies, will utilize a blockchain based financial market infrastructure (‘FMI’) that will trade digital asset securities exempt from registration, or ‘private securities’. The digital FMI will allow for T+0 settlement, which USX believes can be used to attract liquidity. Th platform will generate trading liquidity for the ‘middle’ market – companies that are seeking to raise under $150M USD, can pursue private placements, which have lower compliance costs that public offerings. USX Holdings Company, Inc. (“USX”), a subsidiary of the DSS Blockchain, Inc., is a collaboration between the GSX Group, Coinstreet Partners and DSS, Inc. This collaboration is currently in the planning stages. The Alt. Trading division is currently headquartered in Houston, TX. 7. Digital Transformation: (“Digital”) This Division was established to be a Preferred Technology Partner and Application Development Solution for mid cap brands in various industries including the direct selling and affiliate marketing sector. Digital improves marketing, communications and operations processes with custom software development and implementation. Digital launched a few mobile applications for direct sales business integrating back office and social networking functions. Digital Transformation is currently headquartered in Hong Kong.

8. Secure Living: (“Secure Living”) This Division has developed a plan for fully sustainable, secure, connected, and healthy living communities with homes incorporating advanced technology, energy efficiency, and quality of life living environments both for new construction and renovations for single and multi-family residential housing. Secure Living is currently working with several land development partners throughout the U.S. to develop entire fully sustainable, healthy living single-family subdivisions. Secure Living is currently headquartered in Houston, Texas. 9. Alternative Energy: (“Energy”) This group was established to help lead the Company’s future in the clean energy business that focuses on environmentally responsible and sustainable measures. Alset Energy, Inc, the holding company for this group, and its wholly owned subsidiary, Alset Solar, Inc., pursue utility-scale solar farms to serve US regional power grids and to provide underutilized properties with small microgrids for independent energy. In addition to solar farms, solar battery banks, and residential energy creation and storage, Alset Energy also identifies alternative energy opportunities for investment and development. Our goal is to be a powerful force in the mitigation of the negative effects of climate change by reducing air pollution and expanding access to clean energy for all, while contributing to global economic well-being. Alset Energy is currently headquartered in Houston, Texas and seeking market opportunities in the US sunbelt areas, but specifically in Texas, Arizona, New Mexico, and Florida.

2022 RECAP

The following is a summary of the DSS reported transactions and investments since January 2022 that reflect the active advancements and investments in these business lines:

On January 10, 2022, DSS announced its USX Holdings Company, Inc. (“USX Holdings”) subsidiary has engaged a leading blockchain, digital assets, and custody law practice in connection with its broker-dealer and alternative trading system (“ATS”) as it prepares to launch an innovative marketplace for trading digital assets based on actively traded U.S. equity securities. In addition to the ATS and broker-dealer registration, USX Holdings, in conjunction with its legal team, will file regulatory submissions and registration statements for digital assets to be traded on the proprietary trading platform. USX Holdings is also applying for money transmitter and virtual currency activity licenses in several states to offer trading in cryptocurrencies.

On January 11, 2022, Impact Biomedical, Inc., a wholly owned subsidiary of DSS, Inc, along with its scientific research partner Global Research and Discovery Group Sciences, (GRDG) announced today a project that is designed to take plastics in a whole new direction with the development of what we call Bio-plastics. Bio-plastics under development are designed to make everyday objects resistant to viruses, and also gentler to the planet.

On January 19, 2022, DSS announced that it entered into a stock purchase agreement (the “AIL Subscription Agreement”) on January 18, 2022, with its shareholder Alset EHome International Inc. (“AEI”), which at that time owned 15.24% of the Company’s outstanding shares of common stock, pursuant to which AEI sold to the Company 877,248,065 ordinary shares, no par value per share, of Alset International Limited for a purchase price of 59,979,582 newly issued shares of the Company’s common stock. On January 18, 2022, the Company entered into a stock purchase agreement (the “True Partners Subscription Agreement”) with AEI, pursuant to which AEI sold to the Company 100% of the shares of common stock of its wholly owned subsidiary True Partner International Limited (HK) (“TP”), and all of TP’s 62,122,908 ordinary shares of True Partner Capital Holding Limited (“True Partner”), for a purchase price of 11,397,080 newly issued shares of the Company’s common stock. The closings of these transactions were approved of the NYSE and the Company’s stockholders. Transaction details will be filed in an 8-K with the U.S. Securities and Exchange Commission.

On January 25, 2022, DSS announced that it entered into a stock purchase agreement with Alset EHome International, Inc. (“AEI”) pursuant to which the Company agreed to issue to up to 44,619,423 shares of the Company’s common stock (the “Shares”) for a purchase price of $0.3810 per share. If required by the rules and regulations of the NYSE American, LLC, the issuance of the shares will be subject to the approval of the Company’s shareholders.

On March 03, 2022, Impact Biomedical, Inc., a wholly owned subsidiary of DSS, Inc, along with its scientific research partner Global Research and Discovery Group Sciences, (“GRDG”) announced it had received a positive report regarding the potential international patentability of its proprietary compound Equivir to treat viral infections which has shown potential to limit the occurrence of, and reduce, the risk or severity of viral outbreaks.

On June 07, 2022, DSS announced that Global BioLife, Inc, a division of the Company’s wholly owned subsidiary Impact BioMedical, was granted a patent from the China National Intellectual Property Administration (“CNIPA”) for 3F™, a Functional Fragrance Formulation technology that is effective as a mosquito repellant through a fragrant compound derived from botanical oils. This complements the corresponding U.S. patent granted (U.S. 11,246,310). 3F™ is an extremely effective mosquito repellant. The repellant is believed to incapacitate two of the three receptors that mosquitoes use to find sources of nutrition. During the past year, Impact BioMedical has laid the groundwork for a future that is focused on scientifically tested, high-impact solutions to global problems that humans are facing from food preservation to antibiotics to creating new ways to develop medicines. Impact Biomedical and GRDG announced a U.S. patent (US 10,966,424) allowance for 3F™DB in June 2021.

On June 28, 2022, Impact Biomedical, Inc, along with its scientific research partner GRDG, announced that it signed a license agreement with ProPhase Labs, Inc. (NASDAQ: PRPH) for Equivir, which has shown potential as a treatment to limit the occurrence of or reduce the risk or severity of viral outbreaks. Since 2019 Equivir as a treatment against viral infections has received two U.S. patents and a positive patentability report opening the door for international patent possibilities. The composition is believed to work by potentially blocking the entry of a virus into host cells, which prevents infection and replication in those host cells. Equivir is a blend of FDA Generally Recognized as Safe (GRAS) eligible polyphenols. The composition is projected to come in capsule form and be taken much like a multivitamin.

On July 13, 2022, DSS announced the expansion of its Board of Directors with the appointment of two independent directors, Shui Yeung Frankie Wong, a 20-year veteran of public-company financial reporting, and Hiu Pan Joanne Wong, an investment manager with BMI Funds Management Ltd., the leading financial advisor in Hong Kong.

On July 21, 2022, DSS Inc, announced that Global BioLife, Inc, a subsidiary of the Company’s wholly owned subsidiary Impact BioMedical, Inc, executed a license agreement with ProPhase BioPharma, Inc, a subsidiary of ProPhase Labs, Inc, a rapidly growing and diversified diagnostics, genomics and biotech company, for Global BioLife’s Linebacker portfolio (LB-1 and LB-2), two patented small molecule PIM kinase inhibitors with significant potential across multiple therapeutic indications. LineBacker is anticipated to be effective in crossing the blood-brain barrier and would be delivered orally. Significant pre-clinical testing has been completed in neurology, anti-inflammatory, oncology, anti-infective, and viral disease states to demonstrate response to LineBacker.

On July 26, 2022, DSS Inc, announced that less than a year after successfully synthesizing its first Quantum-based compound, Impact Biomedical, Inc. and its research partner GRDG developed a Quantum antihistamine that could shift how medicine is administered while moving the pharmaceutical industry away from an impending patent cliff.

On October 19, 2022, GRDG, a scientific research partner of Impact BioMedical, Inc., a wholly owned subsidiary of DSS, Inc, announced that it will be the subject of a documentary film highlighting the passion, the search, and the cutting-edge discoveries that push the company behind a single-minded goal: creating a healthier world quickly and naturally. The documentary project comes on the heels of GRDG’s completion of Sombrero, a five-year multi-pronged project that yielded multiple patents and potentially billions of dollars in licensing opportunities.

STRATEGIC BUSINESS PLAN AND 2022 PROGRESSION

2022 was forecasted to be a breakout year for DSS. The DSS team delivered on this objective as the Company excelled under the first year of the rebranded DSS, Inc., driving strong top-line growth across our diverse business lines and fortifying our foundation for accelerated growth and value creation moving forward. The Company and team of employees around the world have achieved great progress, collectively and individually. This forward movement is a function of continual investments in our people, systems, and companies, in good and bad times, to build the Company’s capabilities.

Revenues, as of December 31, 2022, have more than doubled from the end of 2021, and the total assets, now at nearly $249 million, have grown more than 1,000%, up from under $20 million, since the start of transforming DSS just over three years ago in late 2019.

Importantly, the acquisition of new assets, whether entire businesses, new technologies, or other innovations, is an integral part of the unique development process the Company employs to create value and drive long-term growth.

Three-Stage Development for Exponential Growth

For each acquisition completed, subject to market and other restrictions, there is a three-stage development process applied to maximize value creation and provide the engine for growth through increased bandwidth, horsepower, and scale. The first stage of this process begins with the asset acquisition itself, where we identify and acquire the right vehicles and asset structures, as well as the organizations and people capable of building revenue and scaling operations. The second stage of our development process focuses on revenue generation, creating revenue streams, license streams, and other reoccurring, scalable revenue. We seek to build highly functional businesses during this stage of development, businesses that we transform into well-oiled machines built for efficiency and operational excellence. As evidenced by the revenue growth mentioned earlier, the Company has delivered well on this stage in 2022. And as we continue to grow revenue, we enter the third and final stage of development where the focus turns toward positive EBITDA and profitability driven by scale and efficiencies. While each of our business lines are in various stages of this development process, ultimately as we reach our internal goals and expectations and these businesses reach an optimal point for the most effective leverage, we intend to pursue IPOs that enable us to share our success with our shareholders. As a holder of DSS Common Stock, you will receive a dividend of four Impact BioMedical Shares for every share of DSS Common Stock you hold. Giving back to our shareholders in this way has been part of our vision since the beginning days of our transformation, and we could potentially see two or even three such IPOs over the next 12 months. We believe our decentralized sharing model, the culmination of our three-stage development process, is unique and will drive shareholder value as we distribute dividends from these potential IPOs, directly benefiting each of our shareholders.

New Capacity Added to Consumer Packaging Business

Our Premier Packaging Corporation, Inc. (“Premier”) subsidiary provides a clear example of the second stage of our development process as it began operations at its new 105,000 sq. ft. facility in Western New York in the first half of 2022. The increased production capacity at the new facility, which has enabled us to meet growing customer demand, was a key driver behind our nearly 15% year-over-year revenue growth for this segment in the most recently reported quarter.

For over 25 years, Premier has been a market leader in providing solutions for paperboard packaging from consumer retail packaging and heavy mailing envelopes, to sophisticated custom and sustainable folding cartons and complex three-dimensional direct to customer packaging solutions. Premier’s innovative products and design team delivers packaging that provides functionality, marketability, and sustainability, with its fiber-based packing solutions, providing an alternative to traditional plastic packaging.

Since 2019, we have accelerated the transformation of Premier’s operations, investing in state-of-the-art manufacturing equipment, people, and processes to increase its capacity, improve quality and delivery, and to ensure it has the resources to support its growing customer base and their evolving supply chain demands. Utilizing these investments, we design and manufacture folding cartons that attract the consumer’s attention when and where it matters most at the point of sale.

We will continue to add capabilities in key areas that increase operational efficiencies to strengthen Premier’s foundation and offerings while continuing to provide world-class service to our customers.

Licensing Agreements Add Value to Impact BioMedical Ahead of Planned IPO

Impact BioMedical, the cornerstone of our BioHealth group, continued to progress on multiple fronts in 2022, including promising early testing results on new bioplastics, strengthened intellectual property protections, and licensing agreements with ProPhase Biopharma, a wholly owned subsidiary of ProPhase Labs, Inc. (Nasdaq: PRPH), for its proprietary Linebacker and Equivir compounds. ProPhase Labs, a diversified diagnostic company with over three decades of enhancing wellness and improving health with OTC and prescription products, believes Impact BioMedical’s Linebacker compounds have multi-billion-dollar potential as cancer co-therapies and expects to commercialize Equivir as an OTC supplement in late 2023. Additionally, ProPhase BioPharma expects to file an IND with the US FDA for Equivir G as a prescription antiviral.

With a strengthened foundation now in place, we expect Impact BioMedical to provide us with the first opportunity to clearly demonstrate a core tenant of our vision – sharing our success with our shareholders. Although the uniqueness of our planned dividend strategy has required overcoming numerous regulatory challenges that have delayed the planned spinoff of Impact BioMedical, we anticipate we could receive the long-awaited approval to move forward with the first tranche of the dividend in early 2023.

Importantly, Impact BioMedical is just one of multiple assets we believe can have liquidity events in 2023 as we continue to diligently move our growing portfolio of businesses through our unique and strategic value creation process.

Double-Digit Portfolio Growth for American Medical REIT’s High-Quality Healthcare Assets

We’ve expanded our medical real estate operations to more than 380,000 sq. ft. of high-quality healthcare assets across the US, providing a formidable foundation for our operations as we seek to further accelerate growth and build long-term value for our shareholders.

This attractive business line operates as American Medical REIT (AMRE), a subsidiary of our DSS Securities division, and acquired its first properties in 2021. It’s now generating average yields of approximately eight percent, and we have a massive pipeline of opportunities to further grow AMRE in the quarters ahead.

While other areas within commercial real estate have been impacted by the ongoing effects from the pandemic and changing interest rate environments, medical real estate has demonstrated considerable resiliency and demand. We are in a great position to further pursue opportunities to expand our medical REIT business line as we continue to execute our strategic growth plans.

High-Quality Loan Portfolio Generating 10.6% Average Return

The expansion of our medical real estate holdings is in part supported by our banking and financing business line, primarily through our majority-owned American Pacific Bancorp, Inc. (“APB”) subsidiary. APB issued more than $40 million in new loans since our third quarter 2021 acquisition, assembling a diversified portfolio of strong credit quality that is generating an average 10.6% return. Looking ahead, as the Company prepares to file an S-1 for APB’s IPO, we expect to expand our managed loan portfolio, which earns 1.25% annually in service charges, to more than $63 million. Importantly, the equity portfolio as a bank holding company is anticipated to remain relatively stable, regardless of stock market fluctuations.

USX Holdings to Launch Innovative Marketplace for Trading Digital Assets

In the near-term, the Company anticipates new developments from the 70% ownership of USX Holdings Company Inc. (“USX Holdings”), a collaboration with GSX Group Limited, a global digital exchange ecosystem for the issuance, trading, and settlement of tokenized securities, and Coinstreet Partners, a global decentralized digital investment banking group and digital asset financial service firm.

The Company is taking the necessary steps to prepare USX Holdings to launch an innovative marketplace for trading digital ADRs based on US equity securities. The transformative potential of digital securities is extremely exciting, and the Company believes USX Holdings can be a major player in the space as it pursues the massive opportunity in the US for a secondary market in securities tokens.

USX Holdings is part of our larger securities business line. In addition to the investment made in USX Holdings in 2021, the Company also completed strategic investments in broker dealers WestPark Capital and Sentinel Brokers and formed Liquid Value Asset Management Limited, a proprietary algorithmic trading firm majority owned by our wholly owned subsidiary, DSS Financial Management, Inc. As the Company moves into 2023, the Company plans to add market making to our securities business line and to pursue additional initiatives to drive further strong growth.

DSS PureAir Positioned for Global Rollout

DSS expects the foundation laid for our DSS PureAir, Inc. (“DSS PureAir”) business, first launched in mid-2021, to gain significant new traction across the Asia Pacific region in the quarters ahead. The primary assets of DSS PureAir include the investment in the Celios air purification system, Puradigm air purification product distribution license, and an array of other healthcare-related product licenses. With a growing portfolio of solutions, this division will continue to generate sales for the innovative proactive air and surface purifications solutions through the Company’s expanding direct selling business.

Rapidly Expanding Direct Selling Business Line

The December 2021 investment in Sharing Services Global gave DSS controlling interest with nearly 59 percent ownership of the established direct selling business. The SHRG platform leverages the capabilities and expertise of various companies that market and sell products direct to the consumer and generated nearly $18.9 million in revenue for the twelve months ended December 31, 2022.

Key Upcoming Milestone for AmericaFirst Quantitative Funds

AmericaFirst Quantitative Funds, part of our Securities and Investment Management segment, continued to generate net asset inflows in 2022 despite the negative market environment, thanks to a combination of peer-group outperformance and great marketing by our team.

Looking Ahead

With operations around the world, DSS has a unique visibility of global economic conditions, and based on the view of the increasing likelihood of recession, the Company has shifted our near-term focus toward cost cutting initiatives and preserving cash while maintaining preparations for potential significant liquidity events in 2023. DSS will take advantage of the strong performing assets, and, alongside these efforts, will continue to apply the three-stage value creation process across the diversified portfolio of holdings.

Overall, the Company has tremendous confidence in the future of DSS, and believes the best days are ahead. The Company remains steadfastly committed to new value creation and has laid the necessary foundation for years of future success.

The successes the Company has experienced over the past year and the growth opportunities anticipated for 2023 and beyond have been made possible by the diligent efforts of the team and the support of the shareholders.

Reporting Operating Segments:

As we have reported above, we financially report business operating results on only five operating segments, which we believe will certainly increase and transition as the newer lines of business develop and mature. However, the five business segments that we are reporting on in 2022 are as follows:

Premier Packaging: (“Premier”) Premier Packaging Corporation provides custom packaging services and serves clients in the pharmaceutical, nutraceutical, consumer goods, beverage, specialty foods, confections, photo packaging and direct marketing industries, among others. The group also provides active and intelligent packaging and document security printing services for end-user customers. In addition, the division produces a wide array of printed materials, such as folding cartons and paperboard packaging, security paper, vital records, prescription paper, birth certificates, receipts, identification materials, entertainment tickets, secure coupons and parts tracking forms. The division also provides resources and production equipment for our ongoing research and development of security printing, brand protection, consumer engagement and related technologies. Premier is nearing completion of its facility expansion with operations expected to begin at the new 105,000 sq. ft. facility in early March 2022.

For over 25 years, Premier has been a market leader in providing solutions for paperboard packaging from consumer retail packaging and heavy mailing envelopes, to sophisticated custom folding cartons and complex three-dimensional direct mail solutions. Premier’s innovative products and design team delivers packaging that provides functionality, marketability, and sustainability, with its fiber-based packing solutions providing an alternative to traditional plastic packaging.

Since 2019, we have accelerated the transformation of Premier’s operations, investing in state-of-the-art manufacturing equipment, people, and processes to increase its capacity, improve quality and delivery, and to ensure it has the resources to support its growing customer base and their evolving supply chain demands.

We will continue to add capabilities in key areas that increasing operational efficiencies to strengthen our foundation and offerings to our customers while continuing to provide world-class customer service to the customers we serve.

Commercial Lending: (“Commercial Lending”) through its operating company, American Pacific Bancorp, Inc. (“APB”) provides an integrated suite of financial services for businesses that include commercial business lines of credit, land development financing, inventory financing, third party loan, servicing, and services that address the financial needs of the world Gig Economy. APB intends to continue to develop and expand its lending platform to serve the small to mid-size commercial borrower and to continue to acquire equity positions of commercial banks in the US to develop its lending network and to provide global banking services to clients worldwide, including servicing markets with limited access to traditional US banking services. APB’s target customers are businesses with annual revenues of $5 million to $50+ million, including manufacturers, wholesalers, retailers, distributors, importers, and service companies. APB has expertise in, and services tailored for, specific industries, including beverage, food and agribusiness, technology, healthcare, government, higher education, clean technology, and environmental services.

Biotechnology: (“Biotech”) This sector, through its subsidiary Impact BioMedical, Inc. targets unmet, urgent medical needs and expands the borders of medical and pharmaceutical science. Impact drives mission-oriented research, development, and commercialization of solutions for medical advances in human wellness and healthcare. By leveraging technology and new science with strategic partnerships, Impact Bio provides advances in drug discovery for the prevention, inhibition, and treatment of neurological, oncology and immuno-related diseases. Other exciting technologies include a breakthrough alternative sugar aimed to combat diabetes and functional fragrance formulations aimed at the industrial and medical industry.

Biotech and Impact BioMedical have several important and valuable products, technology or compounds that are in continuing development and/or licensing stages:

● LineBacker: Multi-faceted therapeutic platform for metabolic, neurologic, cancer, and infectious diseases. ● Equivir: A polyphenol compound that is believed to be successful in antiviral infection treatments. Equivir/Nemovir technology is a novel blend of FDA Generally Recognized as Safe (“GRAS”) eligible polyphenols (e.g., Myricetin, Hesperetin, Piperine) which have demonstrated antiviral effects with additional potential application as health supplements or medication. Polyphenols are sourced from fruits, vegetables, and other natural substances. Myricetin is a member of the flavonoid class of polyphenolic compounds with antioxidant properties. Hesperitin is a flavanone and Piperine is an alkaloid, commonly found in black pepper. ● Procombin: Applications as food additive, and natural preservative for beauty and person care products as well as natural food preservative. ● VanXin: Food preservative booster made up of polyphenols that extend the shelf life. ● Bioplastics: Advanced bio-compatible plastics that mitigate accumulation of plastics in oceans and landfills and provide UVA and UVB protection for many types of material for including containers, hard surfaces, and fibers for clothing. The technology is presently in development and testing antimicrobial plastics for consumer products that control the spread of active pathogens such as SARS-CoV-2, Influenza, E. coli, Staph, and Rhinovirus, by exploiting key strategies found in the biological realm. These new plastics are specifically focused on solutions for common products such as cups, plates, utensils, plastic bags, and countertops. The first prototypes are currently undergoing antimicrobial resistance testing.

● Laetose: Laetose technology is derived from a unique combination of sugar and inositol, which demonstrates the ability to inhibit the inflammatory and metabolic response of sugar alone. A sugar alternative which is believed to lower human glycemic indexes and is believed to be a breakthrough alternative sugar aimed to combat diabetes. The use of Laetose in a daily diet, compared to sugar, could result in 30% lower sugar consumption and lower glycemic index/load. ● 3F: A botanical compound believed to serve as an insect repellent and anti-microbial agent. 3F is a unique formulation of specialized ingredients (e.g. terpenes) from botanical sources with demonstrated effect as an insect repellent and an antimicrobial. ● 3F Mosquito Repellent: 3F repellent contains botanical ingredients that mosquitos avoid. These ingredients are scientifically proven1 to affect the mosquito’s receptors, essentially making the insect blind to a human’s presence. This can be utilized as a stand-alone repellent or as an additive in detergents, lotions, shampoo, and other substances to provide mosquito protection. ● 3F Antimicrobial: 3F antimicrobial contains botanical ingredients known to kill viruses. These ingredients are scientifically proven to inhibit viral replication. This can be utilized as a stand-alone antimicrobial or as an additive in detergents, lotions, shampoo, fabrics, and other substances. ● Quantum: The solution to the Patent Cliff accomplished by creating a new class of medicinal chemistry that uses advanced methods to increase effectiveness and persistence of natural compounds and existing drugs. The safety attributes of the original molecules are maintained. Typically, drug discovery processes modify functional groups. Quantum’s new techniques alter behavior of molecules at the sub-molecular level. It is estimated that 65% of the World Health Organization Essential Medicines List can be improved and re-patented using Quantum and these methods can be used to enhance and patent natural compounds including many substances used in traditional medicines around the world. ● CRST 1: Advanced adjuvant for next generation vaccine applications. ● Keto Sweet: Sugar that prevents muscular atrophy. ● Solarin: Oral capsule able to prevent sun damage to human skin. ● Therapix (license): BioHealth has a license for cannabinoid technology for neurological pain, sleep apnea disorders with RX/OTC potential. ● Bio Med (license): A probiotic gut health product that helps to regulate many physiological functions, ranging from energy regulation and cognitive processes to toxin neutralization and immunity against pathogens.

The business model of BioHealth and Impact BioMedical revolves around two methodologies – Licensing and Sales Distribution.

1) Impact develops valuable and unique patented technologies which will be licensed to pharmaceutical, large consumer package goods companies and venture capitalists in exchange for usage licensing and royalties.

2) Impact utilizes the DSS ecosystem to leverage its sister companies that have in place distribution networks on a global scale. Impact will engage in branded and private labelling of certain products for sales generation through these channels. This global distribution model will give direct access to end users of Impact’s nutraceutical and health related products.

Securities and Investment Management: (“Securities”) Securities was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, real estate investment funds, broker dealers, and mutual funds management. This business sector has already established the following business lines and associated products and services:

● REIT Management Fund: In March 2020, DSS Securities formed AMRE (“American Medical REIT”) and its management company AAMI (“AMRE Asset Management, Inc.) Through AAMI/AMRE, a medical real estate investment trust, fulfills community needs for quality healthcare facilities while enabling care providers to allocate their capital to growth and investment in their contemporary clinical and critical care businesses. Urban and suburban communities are in need of modern healthcare facilities that provide a range of medical outpatient services. The funds ultimate product is an investor opportunity in a managed medical real estate investment trust. ● Real Estate Title Services: Alset Title Company, Inc. provides buyers, sellers, and brokers alike confidence during big real estate transactions, not just in a transaction, but in the property itself. Through bundled services, Alset Title Company, Inc. provides it all from title searches and insurance to escrow agent assistance. ● Sentinel: Sentinel primarily operates as a financial intermediary, facilitating institutional trading of municipal and corporate bonds as well as preferred stock, and accelerates the trajectory of the DSS digital securities business. ● WestPark: 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. ● BMIC: BMIC 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, BMIC services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia. ● DSS AmericaFirst: DSS AmericaFirst is a suite of mutual funds managed by DSS Wealth Management. DSS AmericaFirst expects to expand into numerous investment platforms including additional mutual funds, exchange-traded funds, unit investment trusts, and closed-end funds. DSS AmericaFirst currently consists of four mutual funds that seek to outperform their respective benchmark indices by applying a quantitative rules-based approach to security selection.

Direct Marketing: (“Direct”) Through its holding company, Decentralized Sharing Systems, Inc. and its subsidiaries and partners, including Sharing Services Global Corporation, this business line provides an array of products and services, through an independent contractor network.

For 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 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 and healthy living, including a global travel membership network.

Sharing Services Global Corporation (“Sharing Services”), a company incorporated in the State of Nevada on April 24, 2015, aims to build shareholder value by developing or acquiring businesses and technologies that increase its product and services portfolio, business competencies, and geographic reach. Sharing Services’ combined platform currently leverages the capabilities and expertise of various companies that market and sell products direct to the consumer through independent contractors. Its new shared service platform is designed to serve the direct selling “gig economy” sector by providing needed services (such as equity and inventory financing, advisory services, mobile application tools, merchant processing services, commercial insurance, and event planning) to smaller direct sales companies. Sharing Services, through its subsidiaries, currently markets and distributes its health and wellness and other products (such as its subscription-based travel services) in the U.S., Canada and Mexico using a direct selling business model. It intends to continue to grow its business both organically and by making strategic acquisitions from time to time of businesses and technologies that augment its product portfolio, complement its business competencies, and fit its growth strategy.

Intellectual Property

Patents

Related to our Impact BioMedical Division that maintains important key patents and patent applications that we will use as the foundation for foster product development and licensing. We currently have 5 patents with claims directed to compositions, the manufacture of, and/or the use of use and for some of our key products including compositions referred to as Linebacker, Equivir/Nemovir, Laetose, and 3F. Our intellectual property will enable us to be protected as we further these technologies and pave the road to commercialization.

We own patents with claims directed to covering semiconductors, light emitting diodes, and wireless peripheral technologies, respectively. We also have several patent applications in process, including provisional and Patent Cooperation Treaty (“PCT”) patent applications in various jurisdictions including the United States, Canada, and Europe. Our issued patents have remaining durations ranging from 1 to 16 years.

Trademarks

We have several trademarks related to our HWH, SHRG, Impact BioMedical, and DSS, Inc. businesses.

Websites:

The primary corporate website we maintain is www.dssworld.com.

American Medical REIT, Inc: http://www.americanmedreit.com

DSS AmericaFirst: https://www.afcm-quant.com

American Pacific Bancorp (“APB”): https://www.ampacbancorp.com

DSS PureAir, Inc.: https://dsspureair.com/

Premier Packaging: https://www.premiercustompkg.com

HWH (Health, Wealth & Happiness) Marketplace: https://www.hwhmarketplace.com

RBC Life International, Inc.: https://rbclife.com

SHRG: https://www.shrginc.com

Impact Biomedical: https://www.impactbiomedinc.com

In addition to the active websites, the Company is building multiple new sites and owns several other domain names reserved for future use or for strategic competitive reasons. Information on our websites or any other website does not constitute a part of this annual report.

Markets and Competition

Product Packaging: Our packaging division competes with a significant number of national, regional companies, many of which are independent and privately held. The largest competitors in this market are primarily focused on the long-run consumer package goods and health and beauty markets. They include large integrated paper companies such as West Rock Company, and Graphic Packaging Holding Company.

Commercial Lending: Our commercial lending company, American Pacific Bancorp (“APB”) provides an integrated suite of financial services for businesses that include commercial business lines of credit, land development financing, inventory financing, third party loan, servicing, and services that address the financial needs of a variety of diversified businesses lines. These efforts compete with a wide variety of traditional commercial banks and investment banking companies including.

Biotechnology: Our biotechnology companies including Impact Biomedical Inc., are focused on the discovery, development, and commercialization of products and technologies to address unmet needs in human healthcare and wellness. Specific areas of focus include specialty biopharmaceuticals, antivirals, antimicrobials, and consumer healthcare and wellness products, often derived from naturally sourced elements. These efforts compete with established and start-up companies, university research and development efforts, and individual inventors and scientists. Examples of competitors include Ipsen Pharmaceuticals, Conagen Inc., Mylan Consumer Healthcare, Klaire Labs, Vertex Pharmaceuticals, and the National Center of Natural Product Development at the University of Mississippi.

Direct Marketing: The network marketing or direct marketing industry is a very competitive marketplace. While not directly competing with HWH and SHRG, the following companies are significant players in the global network marketing business and as a result an indirect competitor of HWH and SHRG: Amway, Avon, Herbalife, Natura, Vorwerk, Mary Kay, Perfect, Forever Living, Nu Skin, Young Living, and New Era, among others.

Securities and Investment Management: Was established to develop and/or acquire assets in the securities trading or management arena. These efforts and established business lines compete with individual money managers, companies or organizations that engage in the business of trading securities and derivatives for the benefit of their customers. Traditional RIA’s, Brokers Dealers, REIT’s and other personal investment companies would also be considered competition.

Customers

Product Packaging: During 2022, one customer accounted for approximately 14% of our consolidated revenue. Customer diversification improvements have produced several new customers to our overall customer base and will continue to do so in 2023.

Commercial Lending: During 2022, American Pacific Bancorp, Inc. has issued a little over $3 million in new loans to customers with strong credit quality across a diverse portfolio of businesses. We anticipate another $10M+ of new commercial loans in the near term.

Direct Marketing: During 2022 our direct marketing companies HWH World, HWH World Holdings, SHRG, and its subsidiary, The Happy Co. continued to build their customer bases and brand recognition on a global basis. These businesses utilize person-to-person sales by independent representatives through direct communication and distribution to individual consumers and their networks. Mail, email, social media, influencers or affiliates, and texting campaigns are among the delivery systems used to communicate and sell to our thousands of customers.

Securities and Investment Management: Our Securities and Investment Management division has a mixture of retail and institutional investors.

Raw Materials

Product Packaging: The primary raw materials the Company uses in its businesses are paper, paperboard, corrugated board and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies and uses a wide variety of paper grades, formats, ink formulations and colors. Paper and paperboard prices continued to increase in 2022, and we believe increases in future years are expected. Except for certain packaging customers where the Company enters into annual contracts, for which changes in paperboard pricing is absorbed by the Company, the Company has historically passed substantially all increases and decreases to its customers, although there can be no assurances that the Company will continue to do so in the future.

Direct Marketing: Sources its products from 3rd party suppliers for nutritional, performance, and health and beauty product ingredients. We rely on our extensive supplier network for availability of an extensive range of vitamins, minerals, botanicals, plant and herb extracts, as well as nutritional supplements. We are expecting continue price pressure and supply chain issues into 2023 and have put significant risk mitigation strategies in place to avoid dramatic P&L effects based on this anticipated and continued volatility. The company passes any substantial increase of its raw materials or finished goods on to its customers to limit any significant margin impact.

Environmental Compliance

It is the Company’s policy to conduct its operations in accordance with all applicable laws, regulations, and other requirements. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.

Government Regulation

Our biotechnology business is faced with potential government regulations. If new legislation, regulations, or rules are implemented either by Congress, the U.S. Patent and Trademark Office (the “USPTO”), or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our patent monetization efforts and, in turn, our assets, expenses and revenue. United States patent laws have been amended by the Leahy-Smith America Invents Act. The America Invents Act includes several significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities. In addition, the U.S. Department of Justice (“DOJ”) has conducted reviews of the patent system to evaluate the impact of patent assertion entities, such as our Company, on industries in which those patents relate. It is possible that the findings and recommendations of the DOJ could adversely impact our ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.

Moreover, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions.

Corporate History

The Company, incorporated in the state of New York in May 1984 has formally conducted business in the name of Document Security Systems, Inc. On September 16, 2021, the board of directors approved an agreement and plan of merger with a wholly owned subsidiary, DSS, Inc. (a New York corporation, incorporated in August 2020), for the sole purpose of effecting a rebranding from Document Security Systems, Inc. to DSS, Inc. This change became effective on September 30, 2021. DSS, Inc. maintained the same trading symbol “DSS” and updated its CUSIP number to 26253C-102. See the “Overview” section above for further details about our acquisitions.

Employees

As of December 31, 2022, all DSS, Inc. had 119 employees worldwide. We continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are in good standing.

Available information

Our website address is www.dssworld.com. Information on our website is not incorporated herein by reference. We make available free of charge through our website our press releases, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after electronically filed with or furnished to the Securities and Exchange Commission.

LOOKING AHEAD IN 2023

We believe 2023 will be a successful year for DSS. Spurred by innovation, industry needs, and timely acquisitions, in 2023 we will focus on improving top line revenue and top line revenue diversification and profitability. Through our expertly cultivated processes and industry research, we can ensure the success of our projects across diverse sectors and business environments. The opportunities within our business lines and high-growth markets have unlimited potential, and our entities within these sectors are contemporary, scalable, and offer recurring revenue opportunities.

When we began executing on our current strategy of restructuring and recapitalization, the Company had approximately $16.2 million in assets and only a handful of struggling or undercapitalized businesses. In just three years, we divested underperforming assets, added eight distinct business lines, and grew assets to more than $249 million, which includes $19 million in cash as of our December 31, 2022 filing with the SEC. Today, we have approximately 40 subsidiaries operating across nine attractive market business lines, with five of those business lines now with significant operations and generating revenue.

We have been fortunate to have attracted tremendous talent to lead each of our business units. When building out our businesses, we look for established, industry leaders with long track records and the expertise to add meaningful value to our DSS ecosystem and create a foundation for success.

Our diverse book of clients and investments has given us strong competitive advantages globally in many industries; we intend to aggressively capitalize on these advantages moving forward. We believe the momentum of our success and ongoing evolution will continue to be unabated in 2023 we will create the catalyst for new value creation in the coming year and beyond.

Overview

DSS, 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”) currently operates nine distinct business lines operate around the globe with primary operations in North America and Asia. The nine divisions are:

1. Product Packaging, 2. Biotechnology, 3. Direct Marketing, 4. Commercial Lending, 5. Securities and Investment Management, 6. Alternative Trading, 7. Digital Transformation, 8. Secure Living, and 9. Alternative Energy

Each of these business lines are in various stages of development, growth, and income generation. Because of these varying degrees of business cycle growth, including the size of the revenues and assets acquired, the Company currently financially reports only on five of these operating segments.

1. Product Packaging, 2. Commercial Lending, 3. Biotechnology, 4. Direct Marketing, and 5. Securities and Investment Management

As the other divisions grow and start generating material operations and revenue, those operating segments will be added to our financial segmental reporting.

Our divisions, their business lines, subsidiaries, and operating territories:

1. Product Packaging: The Company’s consumer packaging and security printing business is led by its wholly owned subsidiary, Premier Packaging Corporation, Inc. (“Premier”), a New York corporation. Premier operates in the paper board and fiber based folding carton, consumer product packaging, and document security printing markets. It markets, manufactures, and sells sophisticated custom folding cartons, mailers, photo sleeves and complex 3-dimensional direct mail solutions. Premier is currently located in its new facility in Rochester, NY, and primarily serves the US market.

2. Biotechnology: (“Biotech”) Biotechnology, a science-driven industry sector that uses living organisms and molecular biology to produce healthcare-related products, progressed on multiple fronts in 2021. This business line was 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 targeting unmet, urgent medical needs, and is developing open-air defense initiatives, which curb transmission of air-borne infectious diseases, such as tuberculosis and influenza. We had a productive year including key patent awards, the advancement of key programs, the release of positive study results, and several projects now in global licensing discussions. Assets of this group are organized under the holding company, DSS BioHealth Security, Inc. Its subsidiaries are currently operating in Houston, TX and Rochester, NY. The group also has a research facility in Winter Haven, Florida.

3. Direct Marketing: (“Direct”) Led by the holding corporation, Decentralized Sharing Systems, Inc. (“Decentralized” 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. Direct’s products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific, Middle East, and Eastern Europe. Over the past 12 months, Direct has made substantial investments in acquiring marketing software, product opportunities, and operational capabilities in this marketplace. Additionally, it has developed an independent contractor sales force and affiliate marketing program. It has also made substantial investments into other direct marketing companies, including a December 2021 increased investment and controlling interest in Sharing Services Global (OTCQB: SHRG) with nearly 60 percent ownership. The SHRG platform leverages the capabilities and expertise of various companies that market and sell products direct to the consumer and generated over $41 million in total revenue in 2021. Currently, Direct and SHRG operate offices in USA, Canada, Hong Kong, Singapore, S. Korea, Australia, New Zealand, Malaysia, and Singapore. Decentralized sharing systems’ mission is to become the leading direct sales platform for training, development, and empowerment of leaders on a global scale to achieve maximum human and economic potential.

4. Commercial Lending: American Pacific Bancorp (“APB”), is organized for the purposes of being a financial network holding company, focused on acquiring equity positions in (i) undervalued commercial bank(s), bank holding companies and nonbanking licensed financial companies operating in the United States, South East Asia, Taiwan, Japan and South Korea, and (ii) companies engaged in—nonbanking activities closely related to banking, including loan syndication services, mortgage banking, trust and escrow services, banking technology, loan servicing, equipment leasing, problem asset management, SPAC (special purpose acquisition company) consulting services, and advisory capital raising services. From this financial platform, the Company shall provide an integrated suite of financial services for businesses that shall include commercial business lines of credit, land development financing, inventory financing, third party loan servicing, and services that address the financial needs of the world Gig Economy.

5. Securities and Investment Management: In 2021, DSS expanded its DSS Securities, Inc. business through its wholly owned subsidiary DSS Financial Management Inc.’s launch of Liquid Value Asset Management Limited (“LVAM”), a fund management company domiciled in Hong Kong. LVAM’s algorithmic trading includes short- and long-term trades while offering the unique attribute of being able to liquidate the portfolio into cash within minutes under normal market conditions. LVAM is positioned as a prime vehicle for private and institutional investors seeking a highly liquid investment fund with extremely attractive risk adjusted returns relative to the volatility and unpredictability of the markets. We have also expanded with strategic investments in three broker dealers; WestPark Capital, BMICI, and Sentinel Brokers. Additionally, we have become the RIA for DSS AmericaFirst Quantitative Funds (DSS AmericaFirst) family. This group of businesses is led by its holding company, DSS Securities, Inc., (“DSS Securities”) and the group is currently headquartered in Houston, Texas, with operations in Chicago, Illinois, Sacramento, California, Los Angeles, California, and New York, NY. 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 Houston, Texas.

6. Alternative Trading: (“Alt. Trading”) This Division was established to develop and/or acquire assets and investments in the securities trading and/or funds management arena. Alt. Trading, 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, and cryptocurrency via an alternative 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, 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). USX Holdings Company, Inc. (“USX”), a subsidiary of the DSS Blockchain, Inc., is a joint venture between the GSX Group, Coinstreet Partners and DSS, Inc. and is comprised of 3 key subsidiary segments that include USX Securities, Inc. (an Alternative Trading System or ATS), USX Digital, Inc. (a Money Service Business or MSB) and dedicated digital assets Broker Dealer. This joint venture is currently in the planning stages. The Alt. Trading division is currently headquartered in Houston, TX.

7. Digital Transformation: (“Digital”) This Division was established to be a Preferred Technology Partner and Application Development Solution for mid cap brands in various industries including the direct selling and affiliate marketing sector. Digital improves marketing, communications and operations processes with custom software development and implementation. Digital utilizes data to determine the most effective technological tools such as cognitive systems, predictive analytics, cloud-based applications, and online collaborative platforms to build custom applications that automate and improve the everyday needs of the industries in services. Digital Transformation is currently headquartered in Hong Kong.

8. Secure Living: (“Secure Living”) This Division has developed a plan for fully sustainable, secure, connected, and healthy living communities with homes incorporating advanced technology, energy efficiency, and quality of life living environments both for new construction and renovations for single and multi-family residential housing. Secure Living is currently working with several land development partners throughout the U.S. to develop entire fully sustainable, healthy living single-family subdivisions. Secure Living is currently headquartered in Houston, Texas.

9. Alternative Energy: (“Energy”) This group was established to help lead the Company’s future in the clean energy business that focuses on environmentally responsible and sustainable measures. Alset Energy, Inc, the holding company for this group, and its wholly owned subsidiary, Alset Solar, Inc., pursue utility-scale solar farms to serve US regional power grids and to provide underutilized properties with small microgrids for independent energy. In addition to solar farms, solar battery banks, and residential energy creation and storage, Alset Energy also identifies alternative energy opportunities for investment and development. Our goal is to be a powerful force in the mitigation of the negative effects of climate change by reducing air pollution and expanding access to clean energy for all, while contributing to global economic well-being. Alset Energy is currently headquartered in Houston, Texas and seeking market opportunities in the US sunbelt areas, but specifically in Texas, Arizona, New Mexico, and Florida.

2021 RECAP

The following is a summary of the DSS reported transactions and investments since January 2021 that reflect the active advancements and investments in these business lines:

On January 14, 2021, DSS announced its wholly owned subsidiary Impact BioMedical, Inc. (“Impact BioMedical”) received notice of allowance from the U.S. Patent and Trademark Office (“USPTO”) for a [method/composition] patent for its proprietary 3F Biofragrance. 3F Biofragrance is a unique formulation of specialized ingredients (e.g. terpenes) from botanical sources with demonstrated effect as an insect repellent and an antimicrobial. The latest patent allowance (U.S. Patent Application No.: 16/593,693) provides intellectual property protection for the method of use of 3F Biofragrance as an insect repellent. 3F Biofragrance repellent contains botanical ingredients that mosquitoes avoid. This can be utilized as a stand-alone repellent or as an additive in detergents, lotions, shampoo, and other substances to provide mosquito protection.

On January 19, 2021, Impact BioMedical entered into an investment and distribution agreement with Nano9 Labs, LLC (“Nano9”), an R&D and contract manufacturing company specializing in the development of nano-sized nutraceutical products and ingredients. Nano9’s proprietary three-stage process enables the creation of nano particles out of ingredients that traditionally have low to no bioavailability. Founded in 2018, and after two years of improving its technology, Nano9 launched its first product to market in the spring of 2020. Currently Nano9 produces products for 16 companies in four countries.

On January 19, 2021, DSS announced the pricing of an upsized underwritten public offering with gross proceeds to the Company expected to be approximately $24.0 million, before deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company. The public offering equates to 6,666,666 shares of the Company’s common stock at a price of $3.60 per share. The Company intends to use the net proceeds from this offering, together with their existing cash, to fund the development and growth of new business lines, acquisition opportunities, and general corporate and working capital needs.

On January 28, 2021, DSS announced the underwriter of its previously announced public offering of 6,666,666 common shares, has exercised its full over-allotment option to purchase an additional 1,000,000 common shares of the Company. The price to the public in the offering was $3.60 per share and the gross proceeds to the Company from the exercise of the over-allotment option were $3,600,000 before deducting underwriting discounts and commissions and other estimated offering expenses. The total gross proceeds, including the full exercise of the over-allotment option, will be approximately $27.6 million from the public offering.

On February 04, 2021, DSS announced the pricing of an upsized underwritten public offering with gross proceeds to the Company expected to be approximately $34.5 million, before deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company. The public offering equates to 12,319,346 shares of the Company’s common stock at a price of $2.80 per share. The Company intends to use the net proceeds from this offering, together with their existing cash, to fund the development and growth of new business lines, acquisition opportunities, and general corporate and working capital needs. The Company has also granted the underwriters a 45-day option to purchase up to an additional 15% of shares of common stock offered in the public offering to cover over-allotments, if any, which would increase the total gross proceeds of the offering to approximately $39.7 million, if exercised in full.

On February 08, 2021, DSS announced it entered 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. This JV collaboration forms a unique partnership 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 newly formed JV will 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. This JV is currently in the planning stages.

On February 09, 2021, DSS announced the closing of an upsized underwritten public offering with gross proceeds to the Company of approximately $34.5 million as well as the simultaneous exercise of the underwriter’s over-allotment option for additional gross proceeds of approximately $5.2 million. The Company expects to receive total gross proceeds of approximately $39.7 million, before deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company. The Company issued 14,167,247 shares of common stock at a price of $2.80 per share. The Company intends to use the net proceeds from this offering, together with existing cash, to fund the development and growth of new business lines, acquisition opportunities, and general corporate and working capital needs.

On February 25, 2021, DSS announced the expansion of its DSS Securities, Inc. business through an equity interest in WestPark Capital, Inc.(“WestPark”) and an investment in BMI Capital International LLC (“BMI”). DSS executed two separate transactions designed to grow its DSS Securities division, 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 BMI 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, BMI services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia.

On March 01, 2021, DSS announced an increased investment in Sharing Services Global Corporation (OTCQB: SHRG) (“Sharing Services”), 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. Prior to this convertible promissory note investment, DSS owned 37% of the outstanding shares of Sharing Services. Sharing Services generated $98.4 million in revenue and $5.6 million net income in the trailing 12-month period ended September 30, 2020.

On March 15, 2021, the Company, through one of its subsidiaries, entered into a Stock Purchase Agreement (the “Vivacitas Agreement #1”) 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.

On March 16, 2021, American Medical REIT, Inc. received loan proceeds in the amount of approximately $110,000 under the Paycheck Protection Program (“PPP”) with a fixed rate of 1% and a 60-month maturity term. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. These funds were used for payroll, benefits, rent, mortgage interest, and utilities.

On April 1, 2021, the Company entered into an additional stock purchase agreement with Vivacitas (“Vivacitas Agreement #2”), whereas Vivacities wished to employee the service of the Chief Business Officer of Impact BioMedical, and in return for the services of this individual, Vivacitas shall issue to the Company, the aggregate purchase price for the Class A Common Shares of Vivacitas at the value of $1.00 per share shall be $120,000 to be paid in twelve (12) equal monthly installments for the period between April 1, 2021 and March 31, 2022. As of December 31, 2021, the Company has received 90,000 Common A Shares of Vivacitas.

On April 5, 2021, Decentralized Sharing Systems, Inc., a subsidiary of the Company entered into a convertible promissory note (“SHRG Note”) with Sharing Services Global Corporation (“SHRG”), a company registered in the state of Nevada. The Company loaned the principal sum of $30,000,000, with interest at a rate of 8%, and shall be due and payable in full on demand by the Company, or if the demand is not sooner made, April 5, 2024. The interest shall be prepaid annually in cash or Class A Common Shares.

On April 07, 2021, DSS announced the launch of Alset Solar, Inc. (“Alset Solar”). Alset Solar was formed to pursue development of utility-scale solar farms, providing a clean energy future to polluted or underutilized properties to supplement the power grid or provide small microgrids for independent energy. Alset Solar is a wholly owned subsidiary of Alset Energy, Inc. (“Alset Energy”), the Company’s holding company for its energy group projects. Alset Energy is headquartered in Houston, Texas and is initially seeking market opportunities in the US sunbelt areas, including Texas, Arizona, New Mexico, and Florida.

On April 08, 2021, DSS announced DSS BioMedical International, Inc. (“DSS BioMedical”), a subsidiary of Impact BioMedical, Inc., a wholly owned subsidiary of the Company, completed an equity investment in Vivacitas Oncology, Inc. (“Vivacitas”), a clinical-stage company focused on difficult to treat cancers. Vivacitas was co-founded in 2015 by Dr. Joseph Rubinfeld and Infusion51a with an eye toward redesigning well-known chemotherapies that have already been demonstrated to have beneficial effects, but which may also possess potency, toxicity, stability, and/or pharmacokinetic issues that limit their use. Contributing to the impressive asset acquisition track record is Vivacitas’ partnership with International Infusion Advisors, LLC via its investment arm, Infusion 51A, a relationship that is anchored in a common mission - to develop disruptive technologies aimed at improving the quality of life of cancer patients. As part of its equity investment in Vivacitas, DSS Biomedical received the right to appoint two members to the board of directors of Vivacitas. Separately, DSS BioMedical acquired Impact Oncology Pte Ltd (“Impact Oncology”) from Alset EHome International Limited, Inc. The principal assets of Impact Oncology consist of equity in Vivacitas.

On April 21, 2021, DSS announced its wholly owned subsidiary, Premier Packaging Corporation (“Premier”), would move its operations into a new 105,000 square-foot facility to meet growing customer demand. Premier expects to be operational in the new space, located in the Town of Henrietta, NY, approximately 15 miles from its current operations in Victor, NY, by the end of 2021 (Premier relocated to this location in March 2022). Empire State Development is assisting Premier by providing up to $700,000 in Excelsior Tax Credits in exchange for job creation commitments, with additional assistance commitments to support continued growth from Monroe County and Greater Rochester Enterprise.

On May 7, 2021, the Company completed the sale of 100% of the capital stock of DSS Digital Inc. (“DSS Digital”), the Company’s wholly owned subsidiary, which researched, developed, marketed, and sold the Company’s digital products worldwide. Based on the magnitude of DSS Digital’s historical revenue to the Company and because the Company has exited the brand authentication services, functional anti-counterfeiting technology and technologies to satisfy commercial and consumer product needs for branding, intelligent packaging, and marketing, this sale represented a significant strategic shift that has a material effect on the Company’s operations and financial results.

On May 11, 2021, DSS announced Proof Authentication Corporation (“Proof”) signed a purchase agreement pursuant to which Proof acquired 100% of the outstanding shares of DSS Digital, Inc., a wholly owned subsidiary of the Company and a leader in innovative anti-counterfeit, authentication, and brand protection solutions. Under the terms of the agreement, DSS will retain and sell to certain key customers through a non-exclusive license granted by Proof to DSS, while continuing to use the innovative anti-counterfeiting technology on consumer packaging for authentication and consumer engagement purposes under the Company’s Premier Packaging Corp. division. The terms of the deal with Proof include upfront cash and an earn-out provision that provides for potential payments to DSS based on the achievement of certain revenue targets.

On May 14, 2021, DSS Pure Air, Inc. a subsidiary of the Company entered into a convertible promissory note (“Puradigm Note”) with Puradigm, LLC (“Puradigm”), a company registered in the state of Texas. The Puradigm Note has an aggregate principal balance up to $5,000,000, to be funded at request of Puradigm.

On May 19, 2021, DSS announced the launch of DSS PureAir, Inc. (“DSS PureAir”), the Company’s new wholly owned subsidiary targeting commercial and residential air purification markets, following a significant investment into Puradigm LLC, a manufacturer of proactive air and surface purification solutions that have proven to be safe, scalable and provide 24/7 protection to all indoor environments. Puradigm’s patented, scalable purification products actively and safely purify both air and surfaces in any room. They can be customized for indoor spaces of all sizes, including homes, offices, schools, restaurants, gyms, hospitals, assisted living facilities, food processing facilities and more, and include free standing, wall mounted, HVAC and personal protection devices. Puradigm’s proactive technology has been shown to be effective against a wide variety of pathogens, including SARS-CoV-2, H1N1, E. coli, MRSA, Listeria, C. difficile, staph, and many more. It is the most validated purifier on the market.

On May 20, 2021, Premier Packaging entered into master loan and security agreement (“BOA Note”) with Bank of America, N.A. (“BOA”) to secure financing in an amount not to exceed $3,700,000 to purchase a new Heidelberg XL 106-7+L printing press. The aggregate principal balance outstanding under the BOA Note shall bear interest at a variable rate on or before the loan closing. At closing, the interest rate shall be fixed for the duration of the Loan. As of December 31, 2021, the outstanding principal on the BOA Note was $3,339,000 and had an interest rate of 3.35%.

On May 24, 2021, DSS announced the further expansion of its DSS Securities, Inc. business through an acquisition of 24.9% of Sentinel Brokers Company, Inc. (“Sentinel”), a FINRA-registered broker-dealer. Terms of the agreement include the option to acquire an additional 50.1% of Sentinel. Sentinel primarily operates as a financial intermediary, facilitating institutional trading of municipal and corporate bonds as well as preferred stock. DSS Securities completed its acquisition of 24.9% of Sentinel through its wholly owned subsidiary, Sentinel Brokers, LLC.

On June 14, 2021, DSS announced the pricing of an underwritten public offering with gross proceeds to the Company expected to be approximately $43.5 million, before deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company. The public offering equates to 29,000,000 shares of the Company’s common stock at a price of $1.50 per share. The Company intends to use the net proceeds from this offering, together with their existing cash, to fund the development and growth of new business lines, acquisition opportunities, and general corporate and working capital needs. The Company has also granted the underwriters a 45-day option to purchase up to an additional 15% of shares of common stock offered in the public offering to cover over-allotments, if any, which would increase the total gross proceeds of the offering to approximately $50.0 million, if exercised in full.

On June 16, 2021, DSS announced its wholly owned subsidiary Impact BioMedical, Inc. (“Impact BioMedical”) received notice of issuance (US 10,966,424) from the U.S. Patent and Trademark Office (“USPTO”) for 3FDB, a Functional Fragrance Formulation (3F) technology that increases the effectiveness of current mosquito repellants through a delightfully fragrant compound derived from botanical oils. 3FDB is an efficacy booster for existing mosquito repellants such as DEET, Picaridin, and IR3535, among others. The booster incapacitates two of the three receptors that mosquitos use to find sources of nutrition, in this case, that source is humans.

On June 17, 2021, DSS announced the closing of an underwritten public offering as well as the simultaneous exercise of the underwriter’s over-allotment option for total gross proceeds to the Company of $50.025 million, before deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company. The Company issued 29,000,000 shares of the Company’s common stock and 4,350,000 additional shares from the exercise of the underwriter’s option at the public offering price of $1.50 per share. The Company intends to use the net proceeds from this offering, together with their existing cash, to fund the development and growth of new business lines, acquisition opportunities, and general corporate and working capital needs.

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 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 for the purchase price of $7,150,000.

On June 30, 2021, DSS announced the further expansion of its DSS Securities, Inc. business through its wholly owned subsidiary DSS Financial Management Inc.’s launch of Liquid Value Asset Management Limited (“LVAM”), a fund management company domiciled in Hong Kong. LVAM’s algorithmic trading includes short- and long-term trades while offering the unique attribute of being able to liquidate the portfolio into cash within 5 to 10 minutes under normal market conditions. Together with the strong performance track record of the team, these attributes position LVAM as a prime vehicle for private and institutional investors seeking a highly liquid investment fund with extremely attractive risk adjusted returns relative to the volatility and unpredictability of the markets.

On July 06, 2021, Impact BioMedical Inc., a wholly owned subsidiary of DSS, Inc., announced updates to several of its key research projects, including key collaborations, breakthroughs in treatment protocols and potential global licensing opportunities as a way to begin planning the next phase of its research agenda and position itself as a global leader in the future of biotech.

On July 12, 2021, Impact BioMedical Inc., a wholly owned subsidiary of DSS, Inc., announced it was issued a patent (Patent # 11,033,528) on June 15, 2021, from the U.S. Patent and Trademark Office for its proprietary compound Equivir. This is a follow-up to the release on April 6, 2021, for the allowance of this patent. The compound has displayed positive pre-clinical results that reduce the risk and/or severity attributable to viral infections, specifically Ebola and Rhinovirus. This patent is the second issued to Impact BioMedical for Equivir; the first (Patent # 10,383,842) was issued August 20, 2019, with claims directed to a method of limiting the occurrence of, reducing the risk or severity of, or treating influenza infection. Equivir is believed to function by impeding a virus’s ability to infect and replicate in host cells. Taken much like a multivitamin, Equivir was specifically designed for ease of rapid accessibility and deployment. Pre-clinical in-vitro success showed Equivir is potentially useful for pandemics and viral outbreaks against SARS-COV2, Influenza, Ebola, Cholera, and Rhinovirus.

On July 22, 2021, the Company exercised 1,000,000 of the available options under the Vivacitas Agreement #1 for $1,000,000. This, along with the shares received as part Vivacitas Agreement #2 increased the Company’s equity position in Vivacitas, which as of December 31, 2021 approximates 16%.

On July 27, 2021, Impact BioMedical, Inc., a wholly owned subsidiary of DSS, Inc. announced with its scientific research partner Global Research and Discovery Group Sciences, GRDG, a collaboration with Thomas Swan Co., to research its plant-based preservation booster, Procombin was developed as a plant-derived preservation booster in an ongoing attempt to use plant-based solutions to increase the effectiveness of antibiotics and antimicrobial agents. The new collaborative research will study Procombin for use in multiple different applications, including household, institutional and personal care products. The research will focus on use in a wide range of consumer products, ranging from household cleaning products to shampoos and conditioners.

On August 02, 2021, DSS announced that its subsidiary, DSS BioMedical International, Inc. (“DSS BioMedical”), completed a $1 million equity investment in Vivacitas Oncology, Inc. (“Vivacitas”), a clinical-stage company focused on difficult-to-treat cancers. Vivacitas Oncology Inc. focuses on developing new treatment options to treat cancers resistant to currently available therapies.

On August 17, 2021, DSS promotes Todd D. Macko to Chief Financial Officer effective August 16, 2021.

On August 23, 2021, Impact BioMedical, Inc., a wholly owned subsidiary of DSS, Inc., along with its scientific research partner Global Research and Discovery Group Sciences, GRDG, announced encouraging results from clinical tests of its 3FDB (“DEET Booster”) technology. These results suggest that 3FDB can boost the effectiveness of mosquito repellants, specifically DEET.

On September 07, 2021, Impact BioMedical, Inc., a wholly owned subsidiary of DSS, Inc. and GRDG Sciences initiated the research project called Quantum in Summer 2020. The purpose of the project was two-fold: to forge a new frontier by exploring new methods for developing medicinal protocols that work more efficiently, thereby encouraging further research and development across the pharmaceutical industry, while at the same time mitigating a projected patent cliff crisis. The Quantum technology is designed to enhance existing therapeutics by looking beyond current molecular enhancement techniques such as molecular substitution, halogenation, prenylation and other biological enhancement methods typical of present therapeutic development schema. This marriage of quantum and molecular mechanics essentially created a classic example of bionics that theoretically increases the efficacy against a variety of diseases.

On September 08, 2021, DSS announced a $15 million investment in the Company by Alset EHome International, Inc. (“Alset EHome”) (Nasdaq: AEI). DSS will issue 12,155,591 shares of its common stock for a purchase price of $1.234 per share for an aggregate amount of approximately $15 million.

On September 09, 2021, DSS announced it signed a subscription agreement for a $40 million investment in American Pacific Bancorp (“APB”). Pursuant to the subscription agreement, APB will issue 6,666,700 shares of its common stock to DSS at $6.00 per share. As a result of this investment, DSS has acquired over 50% of APB’s outstanding shares of common stock, making DSS the majority-owner of APB. As APB acquires equity positions of commercial banks in the US, it targets to inject digital banking capabilities into the banks to provide global banking services to global clients and increase efficiency.

On September 20, 2021, DSS announced it is changing its name from Document Security Systems to DSS, Inc., reflecting sweeping organizational changes and ongoing business expansion The name change will become effective on September 30, 2021.

On October 20, 2021, DSS announced an update on the launch and funding of Liquid Value Asset Management Limited (“LVAM”), a Hong Kong-based investment management company engaging in proprietary algorithmic trading and majority owned by the Company’s wholly owned DSS Financial Management, Inc. (“DFMI”) subsidiary. Under the terms of a shareholders’ agreement between DFMI and HR1 Holdings Limited (“HR1”), DFMI owns 60% of the shares of LVAM and has appointed three of the five directors of LVAM. The remaining two directors have been appointed by HR1, which owns the other 40% of LVAM.

On November 04, 2021, DSS announced its majority-owned subsidiary, American Medical REIT Inc. (“AMRE”), has acquired three hospitals (the “Hospitals”) located in Fort Worth, Texas, Plano, Texas and Pittsburgh, Pennsylvania. The aggregate purchase price for the Hospitals was $62 million. The Hospitals are currently tenanted and operated by LifeCare Hospitals (together with its affiliates, “LifeCare Hospitals”), a specialty hospital operator with a focus on long-term acute and critical care.

On November 30, 2021, DSS announced the launch of DSS AmericaFirst Quantitative Funds. DSS AmericaFirst Quantitative Funds is a suite of mutual funds managed by DSS Wealth Management, Inc. that expects to expand into numerous investment platforms including additional mutual funds, exchange-traded funds, unit investment trusts, and closed-end funds. DSS AmericaFirst Quantitative Funds currently consists of four mutual funds: The DSS AmericaFirst Income Trends Fund (Nasdaq: AFPAX; AFPUX; AFPIX), DSS AmericaFirst Defensive Growth Fund (Nasdaq: DGQAX; DGQUX; DGQIX), DSS AmericaFirst Risk-On Risk-Off Fund (Nasdaq: ABRFX; ABRUX; ABRWX), and DSS AmericaFirst Large Cap Buyback Fund (Nasdaq: SBQAX; SBQUX; SBQIX). The funds seek to outperform their respective benchmark indices by applying a quantitative rules-based approach to security selection. DSS American Quantitative Funds was established through the shareholder approval of DSS Wealth Management as the registered investment advisor (“RIA”) to all the funds within the AmericaFirst Quantitative Funds Trust (“Trust”). In September of 2021, with the approval of the Trust’s Board of Trustees and its shareholders DSS Securities. Inc. (“DSSS”) became the new RIA to the Trust. Upon the completion of the transfer, the Trust was renamed the DSS AmericaFirst Quantitative Trust. DSSS, in its role as RIA, earns fees for each fund calculated as a percentage of the average daily net assets.

On December 15, 2021, DSS announced the opening of a new office in Sacramento, California to serve as the home office for DSS Wealth Management Inc. (“DSS Wealth Management”) and DSS AmericaFirst Quantitative Funds (“DSS AmericaFirst”).

On December 20, 2021, DSS announced its American Pacific Bancorp, Inc. (“APB”) subsidiary has issued nearly $20 million in new loans since September 2021. DSS is the majority-owner of APB, holding more than 50% of its outstanding shares of common stock. APB intends to continue to develop and expand its lending platform to serve the small to mid-size commercial borrower and to continue to acquire equity positions of commercial banks in the US to develop its lending network and to provide global banking services to clients worldwide, including servicing markets with limited access to traditional US banking services. APB’s target customers are businesses with annual revenues of $5 million to $50+ million, including manufacturers, wholesalers, retailers, distributors, importers, and service companies. APB has expertise in, and services tailored for, specific industries, including beverage, food and agribusiness, technology, healthcare, government, higher education, clean technology, and environmental services.

STRATEGIC BUSINESS PLAN AND 2021 PROGRESSION

When we began executing on our current strategy of restructuring and recapitalization, the Company had approximately $16.2 million in assets and only a handful of struggling or undercapitalized businesses. In just over two years, we divested underperforming assets, added eight distinct business lines, and grew assets to more than $285 million, which includes a significant amount of cash to leverage our ongoing business plan. We believe 2022 will be a breakout year for DSS. The tireless work of our dedicated team since embarking on our strategy to transform the Company in late 2019 has led to significant value creation and placed us on a solid trajectory for accelerated growth.

We continue to revitalize the company by focusing on strengthening the organization by (i) 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 new long-term scalable, recurring revenue streams.

In 2020, we made the decision to divest the DSS Plastics Group and sold the primary assets of DSS Plastics Group to a subsidiary of Bristol Graphics for $683,000 at closing, and a contingency payment (earnout) of $517,000 that may be earned over the following 12-month period, $390,000 of which was recognized in 2020. The remaining asset and liability of this division is its lease space located in Brisbane, California. In April 2021, the Company terminated this lease with the landlord effective March 31, 2021. Early in 2021, the company was formally dissolved.

In May 2021, DSS, Inc. and Proof Authentication Corporation (“Proof”) signed a purchase agreement pursuant to which Proof acquired 100% of the outstanding shares of DSS Digital, Inc., a wholly owned subsidiary of DSS and the Company’s anti-counterfeit, authentication, and brand protection technology. DSS retained certain key customers through a non-exclusive licensing agreement while continuing to use the innovative anti-counterfeiting technology on consumer packaging for authentication and consumer engagement purposes under the Company’s Premier Packaging Corp. division.

REVIVING ONE OF OUR CORE BUSINESSES

In 2020, management made substantial adjustments to revive and improve the productivity and operating revenue of our Premier Packaging Corporation, Inc. (Premier) subsidiary. We have invested in operations, state-of-the-art manufacturing equipment, people, and processes to increase its capacity, improve quality and delivery, and to ensure it has the resources to support its growing customer base and their evolving supply chain demands. We have completed its facility expansion with operations beginning at the new 105,000 sq. ft. facility in early March 2022, where DSS, Inc.’s Headquarters will also be located.

We will continue to add capabilities in key areas that increase operational efficiencies to strengthen our foundation and offerings to our customers, while continuing to provide world-class customer service to the customers we serve.

IMPLEMENTING BUSINESS DIVERSIFICATION INITIATIVES

One of the most important objectives of our strategic business plan is the commitment to diversify the Company’s operating revenue. Management believes it imperative to transition the Company’s revenue into new business lines which generate scalable and reoccurring revenue, preferably in contemporary and emerging growth business opportunities. To achieve this goal, we continue to acquire, invest in, or start-up new business lines that meet this criterion. Adding additional products and assets to existing business lines is essential so that current operations can continue on their growth trajectory and further transition toward scalable, recurring revenue streams.

Within the past year, we have had three successful public offerings and have put this capital to work in several ways. Our diverse book of clients and investments has given us strong competitive advantages globally in many industries; we intend to aggressively capitalize on these advantages moving forward.

In 2021, the Company made substantial investments in the following new and existing business lines:

REAL ESTATE INVESTMENT TRUST (REIT) - A portion of this capital has been deployed into American Medical REIT (AMRE), a subsidiary of DSS Securities, Inc., which acquired its first four medical facilities in 2021, totaling approximately 360,000 sq. ft. of quality healthcare assets across the US and more than $74 million in assets. This division is now generating average yields of approximately eight percent, and we have a massive pipeline of opportunities to further grow AMRE in the quarters ahead – including an LOI for a property that could more than double its total assets.

While other areas within commercial real estate have been impacted by the ongoing pandemic, medical real estate has demonstrated considerable resiliency and demand. With a now formidable foundation in place, we are in a great position to further pursue opportunities to expand AMRE as we continue to execute on our strategic growth plans. Ultimately, this is a business we intend to spinoff in an IPO at an optimal time, enabling us to further share our success with our shareholders.

COMMERCIAL LENDING - The expansion of our medical real estate holdings is in part supported by our lending and financing business line, primarily through our majority-owned American Pacific Bancorp, Inc. (APB) subsidiary. APB issued nearly $20 million in new loans since September 2021 and has assembled a diversified portfolio of strong credit quality. In addition to commercially licensed medical real estate financing, APB’s portfolio includes governmental bond anticipation note financing, C&I inventory and equipment financing, and land development loans.

Our $40 million 2021 third quarter investment in APB has been extremely successful, driving the expansion of our reoccurring scalable business income model in multiple ways. We now have nearly half of the fresh funds we injected generating interest and fee income, and we expect to have another $15 million loaned out in the near-term as we build our portfolio of high-quality commercial loans.

DSS BIOHEALTH SECURITY, INC. -

Impact BioMedical progressed on multiple fronts in 2021, including key patent awards, the advancement of key programs, the release of positive study results, and furthering of global manufacturing and pharmaceutical licensing discussions. We anticipate announcing our first licensing deal in the near future.

In July 2021, Impact BioMedical entered a collaboration to research its plant-based preservation booster, Procombin. Personal care as well as household and institutional cleaning formulators are dealing with a dwindling set of options for safe and effective preservatives and preservation boosters. Procombin was developed to address this challenge by using plant-based solutions to increase the effectiveness of antibiotics and antimicrobial agents. Major contract negotiations are underway for the potential use of Procombin in a wide range of consumer products, ranging from household cleaning products to shampoos and conditioners.

During the past year, Impact BioMedical has laid the groundwork for a future that is focused on scientifically tested, high-impact solutions to global problems that humans are facing from food preservation to antibiotics to creating new ways to develop medicines.

In addition to Impact BioMedical, we expanded our BioHealth business in 2021 through investments in Vivacitas Oncology, Inc. (Vivacitas) and Puradigm, LLC. (Puradigm). These investments give us positions in both the oncology space as well as the air purification and pathogen prevention market.

Our March 2021 investment in Vivacitas, a clinical-stage company focused on difficult-to-treat cancers, further demonstrated our commitment to addressing unmet needs in healthcare. With a rich pipeline of promising assets, Vivacitas provides significant upside potential.

In May 2021, we launched DSS PureAir, Inc. concurrently with our investment in Puradigm, the developer of innovative proactive air and surface purifications solutions. Even before COVID-19, the market for air purifiers was strong, and now growth is accelerating even more. Our partnership with Puradigm enables us to rapidly enter this growing global market with best-in-class products and distribution rights in North America, as well as exclusive distribution rights in Singapore, Hong Kong, Taiwan, Korea, Malaysia, and other Asian markets.

DECENTRALIZED SHARING SYSTEMS - The Direct Marketing / Online Sales industry is a market that will help us diversify and meet our scalable reoccurring revenue target in an exponential growth industry with high profit margins. The direct marketing, network marketing, or online sales is designed to sell products or services directly to the public through independent distributors, rather than selling through the traditional retail market. We believed that with the transition of a significant sector of retail sales now converting to the now popular “gig economy”, an investment in this business model would meet our strategic business plan objective and vision.

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. Through this investment in Sharing Services Global, we gained controlling interest with nearly 60 percent ownership. The SHRG platform leverages the capabilities and expertise of various companies that market and sell products direct to the consumer and generated nearly $28 million in revenue in the nine months ended December 31, 2021.

With SHRG now officially part of the DSS family, we believe we are in a great position to accelerate its customer acquisition, new product development, and portfolio of offerings as we capitalize on a wealth of growth opportunities and potential synergies in this exciting, multi-billion-dollar industry. Building upon the success already achieved by the SHRG team, we plan to explore opportunities to enter new markets while continuing to expand SHRG’s independent representative network, both domestically and globally, which currently stands at more than 14,000 active distributors. In addition to capitalizing on organic growth opportunities, we are actively exploring some very exciting potential acquisitions to further accelerate our growth in this attractive and sizeable global market.

With our increased position and majority ownership of SHRG, its financials will be consolidated moving forward. Based on historical performance, this alone places DSS on a solid trajectory to generate potential revenue in excess of $50 million in 2022, representing potentially more than a 150 percent increase in revenue growth year-over-year.

SECURITIES AND INVESTMENT MANAGEMENT GROUP - The Securities business line was organized in 2019 as part of the strategic business plan to establish or acquire assets positioned for long-term and scalable, recurring fee income. These targeted investments include REITs, broker/dealers, mutual funds management, ETFs, and other fund management platforms.

Our rapidly growing securities business line achieved strong footholds achieved in 2021 – including strategic investments in broker dealers WestPark Capital and Sentinel Brokers; the formation of Liquid Value Asset Management Limited (LVAM), and the launch of our DSS AmericaFirst Quantitative Funds (DSS AmericaFirst) family.

LVAM is a proprietary algorithmic trading firm majority owned by our wholly owned subsidiary, DSS Financial Management, Inc. Led by Wilson Lee, former co-head of Societe Generale’s equity derivatives in Asia, and Jackson Kwan, a former portfolio manager at Citadel in Chicago, LVAM aims to include short- and long-term trades while offering the unique attribute of being able to liquidate the portfolio into cash within five to ten minutes under normal market conditions. Together with the strong performance track record of the team, these attributes position LVAM as a prime vehicle for private and institutional investors seeking a highly liquid investment fund with extremely attractive risk adjusted returns relative to the volatility and unpredictability of the markets.

DSS AmericaFirst, launched in the fourth quarter of 2021, is a suite of mutual funds managed by DSS Wealth Management, Inc. DSS AmericaFirst currently consists of four mutual funds and expects to expand into numerous investment platforms including additional mutual funds, exchange-traded funds, unit investment trusts, and closed-end funds.

Reporting Operating Segments:

As we have reported above, we financially report business operating results on only five operating segments, which we believe will certainly increase and transition as the newer lines of business develop and mature. However, the five business segments that we are reporting on in 2021 are as follows:

Premier Packaging: (“Premier”) Premier Packaging Corporation provides custom packaging services and serves clients in the pharmaceutical, nutraceutical, consumer goods, beverage, specialty foods, confections, photo packaging and direct marketing industries, among others. The group also provides active and intelligent packaging and document security printing services for end-user customers. In addition, the division produces a wide array of printed materials, such as folding cartons and paperboard packaging, security paper, vital records, prescription paper, birth certificates, receipts, identification materials, entertainment tickets, secure coupons and parts tracking forms. The division also provides resources and production equipment for our ongoing research and development of security printing, brand protection, consumer engagement and related technologies. Premier is nearing completion of its facility expansion with operations expected to begin at the new 105,000 sq. ft. facility in early March 2022.

For over 25 years, Premier has been a market leader in providing solutions for paperboard packaging from consumer retail packaging and heavy mailing envelopes, to sophisticated custom folding cartons and complex three-dimensional direct mail solutions. Premier’s innovative products and design team delivers packaging that provides functionality, marketability, and sustainability, with its fiber-based packing solutions providing an alternative to traditional plastic packaging.

Since 2019, we have accelerated the transformation of Premier’s operations, investing in state-of-the-art manufacturing equipment, people, and processes to increase its capacity, improve quality and delivery, and to ensure it has the resources to support its growing customer base and their evolving supply chain demands.

We will continue to add capabilities in key areas that increasing operational efficiencies to strengthen our foundation and offerings to our customers while continuing to provide world-class customer service to the customers we serve.

Commercial Lending: (“Commercial Lending”) through its operating company, American Pacific Bancorp (“APB”) provides an integrated suite of financial services for businesses that include commercial business lines of credit, land development financing, inventory financing, third party loan, servicing, and services that address the financial needs of the world Gig Economy. APB intends to continue to develop and expand its lending platform to serve the small to mid-size commercial borrower and to continue to acquire equity positions of commercial banks in the US to develop its lending network and to provide global banking services to clients worldwide, including servicing markets with limited access to traditional US banking services. APB’s target customers are businesses with annual revenues of $5 million to $50+ million, including manufacturers, wholesalers, retailers, distributors, importers, and service companies. APB has expertise in, and services tailored for, specific industries, including beverage, food and agribusiness, technology, healthcare, government, higher education, clean technology, and environmental services

Biotechnology: (“Biotech”) This sector, through its subsidiary Impact BioMedical, Inc. targets unmet, urgent medical needs and expands the borders of medical and pharmaceutical science. Impact drives mission-oriented research, development, and commercialization of solutions for medical advances in human wellness and healthcare. By leveraging technology and new science with strategic partnerships, Impact Bio provides advances in drug discovery for the prevention, inhibition, and treatment of neurological, oncology and immuno-related diseases. Other exciting technologies include a breakthrough alternative sugar aimed to combat diabetes and functional fragrance formulations aimed at the industrial and medical industry.

Biotech and Impact BioMedical have several important and valuable products, technology or compounds that are in continuing development and/or licensing stages:

● LineBacker: Multi-faceted therapeutic platform for metabolic, neurologic, cancer, and infectious diseases. ● Equivir: A polyphenol compound that is believed to be successful in antiviral infection treatments. Equivir/Nemovir technology is a novel blend of FDA Generally Recognized as Safe (“GRAS”) eligible polyphenols (e.g., Myricetin, Hesperetin, Piperine) which have demonstrated antiviral effects with additional potential application as health supplements or medication. Polyphenols are sourced from fruits, vegetables, and other natural substances. Myricetin is a member of the flavonoid class of polyphenolic compounds with antioxidant properties. Hesperitin is a flavanone and Piperine is an alkaloid, commonly found in black pepper. ● Procombin: Applications as food additive, and natural preservative for beauty and person care products as well as natural food preservative. ● VanXin: Food preservative booster made up of polyphenols that extend the shelf life. ● Bioplastics: Advanced bio-compatible plastics that mitigate accumulation of plastics in oceans and landfills and provide UVA and UVB protection for many types of material for including containers, hard surfaces, and fibers for clothing. The technology is presently in development and testing antimicrobial plastics for consumer products that control the spread of active pathogens such as SARS-CoV-2, Influenza, E. coli, Staph, and Rhinovirus, by exploiting key strategies found in the biological realm. These new plastics are specifically focused on solutions for common products such as cups, plates, utensils, plastic bags, and countertops. The first prototypes are currently undergoing antimicrobial resistance testing. ● Laetose: Laetose technology is derived from a unique combination of sugar and inositol, which demonstrates the ability to inhibit the inflammatory and metabolic response of sugar alone. A sugar alternative which is believed to lower human glycemic indexes and is believed to be a breakthrough alternative sugar aimed to combat diabetes. The use of Laetose in a daily diet, compared to sugar, could result in 30% lower sugar consumption and lower glycemic index/load. ● 3F: A botanical compound believed to serve as an insect repellent and anti-microbial agent. 3F is a unique formulation of specialized ingredients (e.g. terpenes) from botanical sources with demonstrated effect as an insect repellent and an antimicrobial.

● 3F Mosquito Repellent: 3F repellent contains botanical ingredients that mosquitos avoid. These ingredients are scientifically proven1 to affect the mosquito’s receptors, essentially making the insect blind to a human’s presence. This can be utilized as a stand-alone repellent or as an additive in detergents, lotions, shampoo, and other substances to provide mosquito protection. ● 3F Antimicrobial: 3F antimicrobial contains botanical ingredients known to kill viruses. These ingredients are scientifically proven to inhibit viral replication. This can be utilized as a stand-alone antimicrobial or as an additive in detergents, lotions, shampoo, fabrics, and other substances.

● Quantum: The solution to the Patent Cliff accomplished by creating a new class of medicinal chemistry that uses advanced methods to increase effectiveness and persistence of natural compounds and existing drugs. The safety attributes of the original molecules are maintained. Typically, drug discovery processes modify functional groups. Quantum’s new techniques alter behavior of molecules at the sub-molecular level. It is estimated that 65% of the World Health Organization Essential Medicines List can be improved and re-patented using Quantum and these methods can be used to enhance and patent natural compounds including many substances used in traditional medicines around the world. ● CRST 1: Advanced adjuvant for next generation vaccine applications. ● Keto Sweet: Sugar that prevents muscular atrophy. ● Solarin: Oral capsule able to prevent sun damage to human skin. ● Therapix (license): BioHealth has a license for cannabinoid technology for neurological pain, sleep apnea disorders with RX/OTC potential. ● Bio Med (license): A probiotic gut health product that helps to regulate many physiological functions, ranging from energy regulation and cognitive processes to toxin neutralization and immunity against pathogens.

The business model of BioHealth and Impact BioMedical revolves around two methodologies – Licensing and Sales Distribution.

1) Impact develops valuable and unique patented technologies which will be licensed to pharmaceutical, large consumer package goods companies and venture capitalists in exchange for usage licensing and royalties.

2) Impact utilizes the DSS ecosystem to leverage its sister companies that have in place distribution networks on a global scale. Impact will engage in branded and private labelling of certain products for sales generation through these channels. This global distribution model will give direct access to end users of Impact’s nutraceutical and health related products.

Securities and Investment Management: (“Securities”) Securities was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, real estate investment funds, broker dealers, and mutual funds management. This business sector has already established the following business lines and associated products and services:

● REIT Management Fund: In March 2020, DSS Securities formed AMRE (“American Medical REIT”) and its management company AAMI (“AMRE Asset Management, Inc.) Through AAMI/AMRE, a medical real estate investment trust, fulfills community needs for quality healthcare facilities while enabling care providers to allocate their capital to growth and investment in their contemporary clinical and critical care businesses. Urban and suburban communities are in need of modern healthcare facilities that provide a range of medical outpatient services. The funds ultimate product is an investor opportunity in a managed medical real estate investment trust. ● Real Estate Title Services: Alset Title Company, Inc. provides buyers, sellers, and brokers alike confidence during big real estate transactions, not just in a transaction, but in the property itself. Through bundled services, Alset Title Company, Inc. provides it all from title searches and insurance to escrow agent assistance. ● Sentinel: Sentinel primarily operates as a financial intermediary, facilitating institutional trading of municipal and corporate bonds as well as preferred stock, and accelerates the trajectory of the DSS digital securities business. ● WestPark: 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: 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, BMI services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia. ● DSS AmericaFirst: DSS AmericaFirst is a suite of mutual funds managed by DSS Wealth Management. DSS AmericaFirst expects to expand into numerous investment platforms including additional mutual funds, exchange-traded funds, unit investment trusts, and closed-end funds. DSS AmericaFirst currently consists of four mutual funds that seek to outperform their respective benchmark indices by applying a quantitative rules-based approach to security selection.

Direct Marketing: (“Direct”) Through its holding company, Decentralized Sharing Systems, Inc. and its subsidiaries and partners, including Sharing Services Global Corporation provide an array of products and services, through an independent contractor network.

For 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 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 and healthy living, including a global travel membership network.

Further, Sharing Services, through its subsidiary Elevacity, markets and distributes health and wellness products under the “Elevate” brand, primarily in the United States and Canada. Sharing Services markets its products and services through its independent contractor distribution system and using its proprietary website: www.elevacity.com. In February 2021, the Company launched its new business brand, “The Happy Co.,” at its Elevacity division. Elevacity as several well-known and signature products, including its top product lines of “Happy Coffees” and “Nootropic Beverages”. Elevacity also sells a “healthy shake”, a “Keto Coffee Booster”, “Energy Caps”, “XanthoMax© Happy Caps”, “Wellness Vitamin Patches”, various beauty and skin care products, and other wellness products.

Intellectual Property

Patents

Related to our Impact BioMedical Division we have key patents that we will use as the foundation for foster product development and licensing. We have 5 patents for some of our key products including Linebacker, Equivir/Nemovir, Laetose and 3F. Our intellectual property will enable us to be protected as we further these technologies and pave the road to commercialization.

We own patents covering semiconductor, light emitting diode, and wireless peripheral technologies, respectively. We also have several patent applications in process, including provisional and Patent Cooperation Treaty (“PCT”) patent applications in various jurisdictions including the United States, Canada, and Europe. Our issued patents have remaining durations ranging from 1 to 16 years.

Trademarks

We several trademarks related to our related to our HWH, SHRG, Impact BioMedical, and DSS, Inc. businesses.

Websites

The primary corporate website we maintain is www.dssworld.com, which describes our Company, our

DSS, Inc.: https://www.dssworld.com, Our parent company.

American Pacific Bancorp (“APB”): https://www.ampacbancorp.com – Our commercial lending company.

American Medical REIT, Inc: http://www.americanmedreit.com – our medical real estate investment trust company.

Impact Biomedical: https://www.impactbiomedinc.com - our human wellness and healthcare company.

SHRG: https://www.shrginc.com - Our majority owned technology, eCommerce, and gig economy opportunities company.

HWH (Health, Wealth & Happiness) Marketplace: https://www.hwhmarketplace.com - an online retail site that is centered around our health and wellness nutraceutical products.

DSS AmericaFirst: https://www.afcm-quant.com - a suite of mutual funds managed by DSS Wealth Management, Inc.

Premier Packaging: https://www.premiercustompkg.com - our printing and packaging company.

In addition to the active websites, the Company is building multiple new sites and owns several other domain names reserved for future use or for strategic competitive reasons. Information on our websites or any other website does not constitute a part of this annual report.

Markets and Competition

Product Packaging: Our packaging division competes with a significant number of national, regional companies, many of which are independent and privately held. The largest competitors in this market are primarily focused on the long-run consumer package goods and health and beauty markets. They include large integrated paper companies such as West Rock Company, and Graphic Packaging Holding Company.

Commercial Lending: Our commercial lending company, American Pacific Bancorp (“APB”) provides an integrated suite of financial services for businesses that include commercial business lines of credit, land development financing, inventory financing, third party loan, servicing, and services that address the financial needs of a variety of diversified businesses lines. These efforts compete with a wide variety of traditional commercial banks and investment banking companies including.

Biotechnology: Our biotechnology companies including Impact Biomedical Inc., are focused on the discovery, development, and commercialization of products and technologies to address unmet needs in human healthcare and wellness. Specific areas of focus include specialty biopharmaceuticals, antivirals, antimicrobials, and consumer healthcare and wellness products, often derived from naturally sourced elements. These efforts compete with established and start-up companies, university research and development efforts, and individual inventors and scientists. Examples of competitors include Ipsen Pharmaceuticals, Conagen Inc., Mylan Consumer Healthcare, Klaire Labs, Vertex Pharmaceuticals, and the National Center of Natural Product Development at the University of Mississippi.

Direct Marketing: The network marketing or direct marketing industry is a very competitive marketplace. While not directly competing with HWH and SHRG, the following companies are significant players in the global network marketing business and as a result an indirect competitor of HWH and SHRG: Amway, Avon, Herbalife, Natura, Vorwerk, Mary Kay, Perfect, Forever Living, Nu Skin, Young Living, and New Era, among others.

Securities and Investment Management: Was established to develop and/or acquire assets in the securities trading or management arena. These efforts and established business lines compete with individual money managers, companies or organizations that engage in the business of trading securities and derivatives for the benefit of their customers. Traditional RIA’s, Brokers Dealers, REIT’s and other personal investment companies would also be considered competition.

Customers

Product Packaging: During 2021, two customers accounted for approximately 41% of our consolidated revenue. As of December 31, 2021, these two customers accounted for approximately 48% of our consolidated trade accounts receivable balance. As of December 31, 2020, these two customers accounted for 38% of our consolidated revenue and 60% of the Company’s consolidated trade accounts receivable balance. This customer diversification improvement was driven by addition of several new customers to our overall customer base.

Commercial Lending: During 2021, American Pacific Bancorp, Inc. has issued nearly $26 million in new loans since September 2021 to customers with strong credit quality across a diverse portfolio of businesses. We anticipate another 15M + of new commercial loans in the near term. Top customers include Harris-Montgomery Counties Management District, American Medical REIT, Inc., and ASILI, LLC.

Direct Marketing: During 2021 our direct marketing companies HWH World, SHRG and its subsidiary, The Happy Co. continued to build their customer bases and brand recognition on a global basis. These businesses utilize person-to-person sales by independent representatives through direct communication and distribution to individual consumers and their networks. Mail, email, social media, influencers or affiliates, and texting campaigns are among the delivery systems used to communicate and sell to our thousands of customers.

Securities and Investment Management: Since October of 2021, our Securities and Investment Management division has a mixture of retail and institutional investors.

Raw Materials

Product Packaging: The primary raw materials the Company uses in its businesses are paper, paperboard, corrugated board and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies and uses a wide variety of paper grades, formats, ink formulations and colors. Paper and paperboard prices continued to increase in 2022, and we believe increases in future years are expected. Except for certain packaging customers where the Company enters into annual contracts, for which changes in paperboard pricing is absorbed by the Company, the Company has historically passed substantially all increases and decreases to its customers, although there can be no assurances that the Company will continue to do so in the future.

Direct Marketing: Sources its products from 3rd party suppliers for nutritional, performance, and health and beauty product ingredients. We rely on our extensive supplier network for availability of an extensive range of vitamins, minerals, botanicals, plant and herb extracts, as well as nutritional supplements. We are expecting continue price pressure and supply chain issues into 2022 and have put significant risk mitigation strategies in place to avoid dramatic P&L effects based on this anticipated and continued volatility. The company passes any substantial increase of its raw materials or finished goods on to its customers to limit any significant margin impact.

Environmental Compliance

It is the Company’s policy to conduct its operations in accordance with all applicable laws, regulations, and other requirements. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.

Government Regulation

Our biotechnology business is faced with potential government regulations. If new legislation, regulations, or rules are implemented either by Congress, the U.S. Patent and Trademark Office (the “USPTO”), or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our patent monetization efforts and, in turn, our assets, expenses and revenue. United States patent laws have been amended by the Leahy-Smith America Invents Act. The America Invents Act includes several significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities. In addition, the U.S. Department of Justice (“DOJ”) has conducted reviews of the patent system to evaluate the impact of patent assertion entities, such as our Company, on industries in which those patents relate. It is possible that the findings and recommendations of the DOJ could adversely impact our ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.

Moreover, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions.

Corporate History

The Company, incorporated in the state of New York in May 1984 has formally conducted business in the name of Document Security Systems, Inc. On September 16, 2021, the board of directors approved an agreement and plan of merger with a wholly owned subsidiary, DSS, Inc. (a New York corporation, incorporated in August 2020), for the sole purpose of effecting a rebranding from Document Security Systems, Inc. to DSS, Inc. This change became effective on September 30, 2021. DSS, Inc. maintained the same trading symbol “DSS” and updated its CUSIP number to 26253C-102. See the “Overview” section above for further details about our acquisitions.

Employees

As of December 31, 2021, all DSS, Inc. had 113 employees worldwide. We continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are in good standing.

Available information

Our website address is www.dssworld.com. Information on our website is not incorporated herein by reference. We make available free of charge through our website our press releases, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after electronically filed with or furnished to the Securities and Exchange Commission.

LOOKING AHEAD IN 2022

We believe 2022 will be a breakout year for DSS. Spurred by innovation, industry needs, and timely acquisitions, in 2022 we will focus on improving top line revenue and top line revenue diversification and profitability. Through our expertly cultivated processes and industry research, we can ensure the success of our projects across diverse sectors and business environments. The opportunities within our business lines and high-growth markets have unlimited potential, and our entities within these sectors are contemporary, scalable, and offer recurring revenue opportunities.

When we began executing on our current strategy of restructuring and recapitalization, the Company had approximately $16.2 million in assets and only a handful of struggling or undercapitalized businesses. In just two years, we divested underperforming assets, added eight distinct business lines, and grew assets to more than $285 million, which includes $57 million in cash as of our December 31, 2021 filing with the SEC. Today, we have approximately 40 subsidiaries operating across nine attractive market business lines, with five of those business lines now with significant operations and generating revenue.

We have been fortunate to have attracted tremendous talent to lead each of our business units. When building out our businesses, we look for established, industry leaders with long track records and the expertise to add meaningful value to our DSS ecosystem and create a foundation for success.

Our diverse book of clients and investments has given us strong competitive advantages globally in many industries; we intend to aggressively capitalize on these advantages moving forward. We believe the momentum of our success and ongoing evolution will continue to be unabated in 2022 based on the multitude of major successes in 2021 that are key drivers and the catalyst of new value creation in the coming year and beyond.

Overview

DSS, 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”) currently operates nine distinct business lines operate around the globe with primary operations in North America and Asia. The nine divisions are:

1. Product Packaging, 2. Biotechnology, 3. Direct Marketing, 4. Commercial Lending, 5. Securities and Investment Management, 6. Alternative Trading, 7. Digital Transformation, 8. Secure Living, and 9. Alternative Energy

Each of these business lines are in various stages of development, growth, and income generation. Because of these varying degrees of business cycle growth, including the size of the revenues and assets acquired, the Company currently financially reports only on five of these operating segments.

1. Product Packaging, 2. Commercial Lending, 3. Biotechnology, 4. Direct Marketing, and 5. Securities and Investment Management

As the other divisions grow and start generating material operations and revenue, those operating segments will be added to our financial segmental reporting.

Our divisions, their business lines, subsidiaries, and operating territories:

1. Product Packaging: The Company’s consumer packaging and security printing business is led by its wholly owned subsidiary, Premier Packaging Corporation, Inc. (“Premier”), a New York corporation. Premier operates in the paper board and fiber based folding carton, consumer product packaging, and document security printing markets. It markets, manufactures, and sells sophisticated custom folding cartons, mailers, photo sleeves and complex 3-dimensional direct mail solutions. Premier is currently located in its new facility in Rochester, NY, and primarily serves the US market.

2. Biotechnology: (“Biotech”) Biotechnology, a science-driven industry sector that uses living organisms and molecular biology to produce healthcare-related products, progressed on multiple fronts in 2021. This business line was 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 targeting unmet, urgent medical needs, and is developing open-air defense initiatives, which curb transmission of air-borne infectious diseases, such as tuberculosis and influenza. We had a productive year including key patent awards, the advancement of key programs, the release of positive study results, and several projects now in global licensing discussions. Assets of this group are organized under the holding company, DSS BioHealth Security, Inc. Its subsidiaries are currently operating in Houston, TX and Rochester, NY. The group also has a research facility in Winter Haven, Florida.

3. Direct Marketing: (“Direct”) Led by the holding corporation, Decentralized Sharing Systems, Inc. (“Decentralized” 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. Direct’s products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific, Middle East, and Eastern Europe. Over the past 12 months, Direct has made substantial investments in acquiring marketing software, product opportunities, and operational capabilities in this marketplace. Additionally, it has developed an independent contractor sales force and affiliate marketing program. It has also made substantial investments into other direct marketing companies, including a December 2021 increased investment and controlling interest in Sharing Services Global (OTCQB: SHRG) with nearly 60 percent ownership. The SHRG platform leverages the capabilities and expertise of various companies that market and sell products direct to the consumer and generated over $41 million in total revenue in 2021. Currently, Direct and SHRG operate offices in USA, Canada, Hong Kong, Singapore, S. Korea, Australia, New Zealand, Malaysia, and Singapore. Decentralized sharing systems’ mission is to become the leading direct sales platform for training, development, and empowerment of leaders on a global scale to achieve maximum human and economic potential.

4. Commercial Lending: American Pacific Bancorp (“APB”), is organized for the purposes of being a financial network holding company, focused on acquiring equity positions in (i) undervalued commercial bank(s), bank holding companies and nonbanking licensed financial companies operating in the United States, South East Asia, Taiwan, Japan and South Korea, and (ii) companies engaged in—nonbanking activities closely related to banking, including loan syndication services, mortgage banking, trust and escrow services, banking technology, loan servicing, equipment leasing, problem asset management, SPAC (special purpose acquisition company) consulting services, and advisory capital raising services. From this financial platform, the Company shall provide an integrated suite of financial services for businesses that shall include commercial business lines of credit, land development financing, inventory financing, third party loan servicing, and services that address the financial needs of the world Gig Economy.

5. Securities and Investment Management: In 2021, DSS expanded its DSS Securities, Inc. business through its wholly owned subsidiary DSS Financial Management Inc.’s launch of Liquid Value Asset Management Limited (“LVAM”), a fund management company domiciled in Hong Kong. LVAM’s algorithmic trading includes short- and long-term trades while offering the unique attribute of being able to liquidate the portfolio into cash within minutes under normal market conditions. LVAM is positioned as a prime vehicle for private and institutional investors seeking a highly liquid investment fund with extremely attractive risk adjusted returns relative to the volatility and unpredictability of the markets. We have also expanded with strategic investments in three broker dealers; WestPark Capital, BMICI, and Sentinel Brokers. Additionally, we have become the RIA for DSS AmericaFirst Quantitative Funds (DSS AmericaFirst) family. This group of businesses is led by its holding company, DSS Securities, Inc., (“DSS Securities”) and the group is currently headquartered in Houston, Texas, with operations in Chicago, Illinois, Sacramento, California, Los Angeles, California, and New York, NY. 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 Houston, Texas.

6. Alternative Trading: (“Alt. Trading”) This Division was established to develop and/or acquire assets and investments in the securities trading and/or funds management arena. Alt. Trading, 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, and cryptocurrency via an alternative 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, 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). USX Holdings Company, Inc. (“USX”), a subsidiary of the DSS Blockchain, Inc., is a joint venture between the GSX Group, Coinstreet Partners and DSS, Inc. and is comprised of 3 key subsidiary segments that include USX Securities, Inc. (an Alternative Trading System or ATS), USX Digital, Inc. (a Money Service Business or MSB) and dedicated digital assets Broker Dealer. This joint venture is currently in the planning stages. The Alt. Trading division is currently headquartered in Houston, TX.

7. Digital Transformation: (“Digital”) This Division was established to be a Preferred Technology Partner and Application Development Solution for mid cap brands in various industries including the direct selling and affiliate marketing sector. Digital improves marketing, communications and operations processes with custom software development and implementation. Digital utilizes data to determine the most effective technological tools such as cognitive systems, predictive analytics, cloud-based applications, and online collaborative platforms to build custom applications that automate and improve the everyday needs of the industries in services. Digital Transformation is currently headquartered in Hong Kong.

8. Secure Living: (“Secure Living”) This Division has developed a plan for fully sustainable, secure, connected, and healthy living communities with homes incorporating advanced technology, energy efficiency, and quality of life living environments both for new construction and renovations for single and multi-family residential housing. Secure Living is currently working with several land development partners throughout the U.S. to develop entire fully sustainable, healthy living single-family subdivisions. Secure Living is currently headquartered in Houston, Texas.

9. Alternative Energy: (“Energy”) This group was established to help lead the Company’s future in the clean energy business that focuses on environmentally responsible and sustainable measures. Alset Energy, Inc, the holding company for this group, and its wholly owned subsidiary, Alset Solar, Inc., pursue utility-scale solar farms to serve US regional power grids and to provide underutilized properties with small microgrids for independent energy. In addition to solar farms, solar battery banks, and residential energy creation and storage, Alset Energy also identifies alternative energy opportunities for investment and development. Our goal is to be a powerful force in the mitigation of the negative effects of climate change by reducing air pollution and expanding access to clean energy for all, while contributing to global economic well-being. Alset Energy is currently headquartered in Houston, Texas and seeking market opportunities in the US sunbelt areas, but specifically in Texas, Arizona, New Mexico, and Florida.

2021 RECAP

The following is a summary of the DSS reported transactions and investments since January 2021 that reflect the active advancements and investments in these business lines:

On January 14, 2021, DSS announced its wholly owned subsidiary Impact BioMedical, Inc. (“Impact BioMedical”) received notice of allowance from the U.S. Patent and Trademark Office (“USPTO”) for a [method/composition] patent for its proprietary 3F Biofragrance. 3F Biofragrance is a unique formulation of specialized ingredients (e.g. terpenes) from botanical sources with demonstrated effect as an insect repellent and an antimicrobial. The latest patent allowance (U.S. Patent Application No.: 16/593,693) provides intellectual property protection for the method of use of 3F Biofragrance as an insect repellent. 3F Biofragrance repellent contains botanical ingredients that mosquitoes avoid. This can be utilized as a stand-alone repellent or as an additive in detergents, lotions, shampoo, and other substances to provide mosquito protection.

On January 19, 2021, Impact BioMedical entered into an investment and distribution agreement with Nano9 Labs, LLC (“Nano9”), an R&D and contract manufacturing company specializing in the development of nano-sized nutraceutical products and ingredients. Nano9’s proprietary three-stage process enables the creation of nano particles out of ingredients that traditionally have low to no bioavailability. Founded in 2018, and after two years of improving its technology, Nano9 launched its first product to market in the spring of 2020. Currently Nano9 produces products for 16 companies in four countries.

On January 19, 2021, DSS announced the pricing of an upsized underwritten public offering with gross proceeds to the Company expected to be approximately $24.0 million, before deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company. The public offering equates to 6,666,666 shares of the Company’s common stock at a price of $3.60 per share. The Company intends to use the net proceeds from this offering, together with their existing cash, to fund the development and growth of new business lines, acquisition opportunities, and general corporate and working capital needs.

On January 28, 2021, DSS announced the underwriter of its previously announced public offering of 6,666,666 common shares, has exercised its full over-allotment option to purchase an additional 1,000,000 common shares of the Company. The price to the public in the offering was $3.60 per share and the gross proceeds to the Company from the exercise of the over-allotment option were $3,600,000 before deducting underwriting discounts and commissions and other estimated offering expenses. The total gross proceeds, including the full exercise of the over-allotment option, will be approximately $27.6 million from the public offering.

On February 04, 2021, DSS announced the pricing of an upsized underwritten public offering with gross proceeds to the Company expected to be approximately $34.5 million, before deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company. The public offering equates to 12,319,346 shares of the Company’s common stock at a price of $2.80 per share. The Company intends to use the net proceeds from this offering, together with their existing cash, to fund the development and growth of new business lines, acquisition opportunities, and general corporate and working capital needs. The Company has also granted the underwriters a 45-day option to purchase up to an additional 15% of shares of common stock offered in the public offering to cover over-allotments, if any, which would increase the total gross proceeds of the offering to approximately $39.7 million, if exercised in full.

On February 08, 2021, DSS announced it entered 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. This JV collaboration forms a unique partnership 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 newly formed JV will 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. This JV is currently in the planning stages.

On February 09, 2021, DSS announced the closing of an upsized underwritten public offering with gross proceeds to the Company of approximately $34.5 million as well as the simultaneous exercise of the underwriter’s over-allotment option for additional gross proceeds of approximately $5.2 million. The Company expects to receive total gross proceeds of approximately $39.7 million, before deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company. The Company issued 14,167,247 shares of common stock at a price of $2.80 per share. The Company intends to use the net proceeds from this offering, together with existing cash, to fund the development and growth of new business lines, acquisition opportunities, and general corporate and working capital needs.

On February 25, 2021, DSS announced the expansion of its DSS Securities, Inc. business through an equity interest in WestPark Capital, Inc.(“WestPark”) and an investment in BMI Capital International LLC (“BMI”). DSS executed two separate transactions designed to grow its DSS Securities division, 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 BMI 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, BMI services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia.

On March 01, 2021, DSS announced an increased investment in Sharing Services Global Corporation (OTCQB: SHRG) (“Sharing Services”), 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. Prior to this convertible promissory note investment, DSS owned 37% of the outstanding shares of Sharing Services. Sharing Services generated $98.4 million in revenue and $5.6 million net income in the trailing 12-month period ended September 30, 2020.

On March 15, 2021, the Company, through one of its subsidiaries, entered into a Stock Purchase Agreement (the “Vivacitas Agreement #1”) 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.

On March 16, 2021, American Medical REIT, Inc. received loan proceeds in the amount of approximately $110,000 under the Paycheck Protection Program (“PPP”) with a fixed rate of 1% and a 60-month maturity term. The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. These funds were used for payroll, benefits, rent, mortgage interest, and utilities.

On April 1, 2021, the Company entered into an additional stock purchase agreement with Vivacitas (“Vivacitas Agreement #2”), whereas Vivacities wished to employee the service of the Chief Business Officer of Impact BioMedical, and in return for the services of this individual, Vivacitas shall issue to the Company, the aggregate purchase price for the Class A Common Shares of Vivacitas at the value of $1.00 per share shall be $120,000 to be paid in twelve (12) equal monthly installments for the period between April 1, 2021 and March 31, 2022. As of December 31, 2021, the Company has received 90,000 Common A Shares of Vivacitas.

On April 5, 2021, Decentralized Sharing Systems, Inc., a subsidiary of the Company entered into a convertible promissory note (“SHRG Note”) with Sharing Services Global Corporation (“SHRG”), a company registered in the state of Nevada. The Company loaned the principal sum of $30,000,000, with interest at a rate of 8%, and shall be due and payable in full on demand by the Company, or if the demand is not sooner made, April 5, 2024. The interest shall be prepaid annually in cash or Class A Common Shares.

On April 07, 2021, DSS announced the launch of Alset Solar, Inc. (“Alset Solar”). Alset Solar was formed to pursue development of utility-scale solar farms, providing a clean energy future to polluted or underutilized properties to supplement the power grid or provide small microgrids for independent energy. Alset Solar is a wholly owned subsidiary of Alset Energy, Inc. (“Alset Energy”), the Company’s holding company for its energy group projects. Alset Energy is headquartered in Houston, Texas and is initially seeking market opportunities in the US sunbelt areas, including Texas, Arizona, New Mexico, and Florida.

On April 08, 2021, DSS announced DSS BioMedical International, Inc. (“DSS BioMedical”), a subsidiary of Impact BioMedical, Inc., a wholly owned subsidiary of the Company, completed an equity investment in Vivacitas Oncology, Inc. (“Vivacitas”), a clinical-stage company focused on difficult to treat cancers. Vivacitas was co-founded in 2015 by Dr. Joseph Rubinfeld and Infusion51a with an eye toward redesigning well-known chemotherapies that have already been demonstrated to have beneficial effects, but which may also possess potency, toxicity, stability, and/or pharmacokinetic issues that limit their use. Contributing to the impressive asset acquisition track record is Vivacitas’ partnership with International Infusion Advisors, LLC via its investment arm, Infusion 51A, a relationship that is anchored in a common mission - to develop disruptive technologies aimed at improving the quality of life of cancer patients. As part of its equity investment in Vivacitas, DSS Biomedical received the right to appoint two members to the board of directors of Vivacitas. Separately, DSS BioMedical acquired Impact Oncology Pte Ltd (“Impact Oncology”) from Alset EHome International Limited, Inc. The principal assets of Impact Oncology consist of equity in Vivacitas.

On April 21, 2021, DSS announced its wholly owned subsidiary, Premier Packaging Corporation (“Premier”), would move its operations into a new 105,000 square-foot facility to meet growing customer demand. Premier expects to be operational in the new space, located in the Town of Henrietta, NY, approximately 15 miles from its current operations in Victor, NY, by the end of 2021 (Premier relocated to this location in March 2022). Empire State Development is assisting Premier by providing up to $700,000 in Excelsior Tax Credits in exchange for job creation commitments, with additional assistance commitments to support continued growth from Monroe County and Greater Rochester Enterprise.

On May 7, 2021, the Company completed the sale of 100% of the capital stock of DSS Digital Inc. (“DSS Digital”), the Company’s wholly owned subsidiary, which researched, developed, marketed, and sold the Company’s digital products worldwide. Based on the magnitude of DSS Digital’s historical revenue to the Company and because the Company has exited the brand authentication services, functional anti-counterfeiting technology and technologies to satisfy commercial and consumer product needs for branding, intelligent packaging, and marketing, this sale represented a significant strategic shift that has a material effect on the Company’s operations and financial results.

On May 11, 2021, DSS announced Proof Authentication Corporation (“Proof”) signed a purchase agreement pursuant to which Proof acquired 100% of the outstanding shares of DSS Digital, Inc., a wholly owned subsidiary of the Company and a leader in innovative anti-counterfeit, authentication, and brand protection solutions. Under the terms of the agreement, DSS will retain and sell to certain key customers through a non-exclusive license granted by Proof to DSS, while continuing to use the innovative anti-counterfeiting technology on consumer packaging for authentication and consumer engagement purposes under the Company’s Premier Packaging Corp. division. The terms of the deal with Proof include upfront cash and an earn-out provision that provides for potential payments to DSS based on the achievement of certain revenue targets.

On May 14, 2021, DSS Pure Air, Inc. a subsidiary of the Company entered into a convertible promissory note (“Puradigm Note”) with Puradigm, LLC (“Puradigm”), a company registered in the state of Texas. The Puradigm Note has an aggregate principal balance up to $5,000,000, to be funded at request of Puradigm.

On May 19, 2021, DSS announced the launch of DSS PureAir, Inc. (“DSS PureAir”), the Company’s new wholly owned subsidiary targeting commercial and residential air purification markets, following a significant investment into Puradigm LLC, a manufacturer of proactive air and surface purification solutions that have proven to be safe, scalable and provide 24/7 protection to all indoor environments. Puradigm’s patented, scalable purification products actively and safely purify both air and surfaces in any room. They can be customized for indoor spaces of all sizes, including homes, offices, schools, restaurants, gyms, hospitals, assisted living facilities, food processing facilities and more, and include free standing, wall mounted, HVAC and personal protection devices. Puradigm’s proactive technology has been shown to be effective against a wide variety of pathogens, including SARS-CoV-2, H1N1, E. coli, MRSA, Listeria, C. difficile, staph, and many more. It is the most validated purifier on the market.

On May 20, 2021, Premier Packaging entered into master loan and security agreement (“BOA Note”) with Bank of America, N.A. (“BOA”) to secure financing in an amount not to exceed $3,700,000 to purchase a new Heidelberg XL 106-7+L printing press. The aggregate principal balance outstanding under the BOA Note shall bear interest at a variable rate on or before the loan closing. At closing, the interest rate shall be fixed for the duration of the Loan. As of December 31, 2021, the outstanding principal on the BOA Note was $3,339,000 and had an interest rate of 3.35%.

On May 24, 2021, DSS announced the further expansion of its DSS Securities, Inc. business through an acquisition of 24.9% of Sentinel Brokers Company, Inc. (“Sentinel”), a FINRA-registered broker-dealer. Terms of the agreement include the option to acquire an additional 50.1% of Sentinel. Sentinel primarily operates as a financial intermediary, facilitating institutional trading of municipal and corporate bonds as well as preferred stock. DSS Securities completed its acquisition of 24.9% of Sentinel through its wholly owned subsidiary, Sentinel Brokers, LLC.

On June 14, 2021, DSS announced the pricing of an underwritten public offering with gross proceeds to the Company expected to be approximately $43.5 million, before deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company. The public offering equates to 29,000,000 shares of the Company’s common stock at a price of $1.50 per share. The Company intends to use the net proceeds from this offering, together with their existing cash, to fund the development and growth of new business lines, acquisition opportunities, and general corporate and working capital needs. The Company has also granted the underwriters a 45-day option to purchase up to an additional 15% of shares of common stock offered in the public offering to cover over-allotments, if any, which would increase the total gross proceeds of the offering to approximately $50.0 million, if exercised in full.

On June 16, 2021, DSS announced its wholly owned subsidiary Impact BioMedical, Inc. (“Impact BioMedical”) received notice of issuance (US 10,966,424) from the U.S. Patent and Trademark Office (“USPTO”) for 3FDB, a Functional Fragrance Formulation (3F) technology that increases the effectiveness of current mosquito repellants through a delightfully fragrant compound derived from botanical oils. 3FDB is an efficacy booster for existing mosquito repellants such as DEET, Picaridin, and IR3535, among others. The booster incapacitates two of the three receptors that mosquitos use to find sources of nutrition, in this case, that source is humans.

On June 17, 2021, DSS announced the closing of an underwritten public offering as well as the simultaneous exercise of the underwriter’s over-allotment option for total gross proceeds to the Company of $50.025 million, before deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company. The Company issued 29,000,000 shares of the Company’s common stock and 4,350,000 additional shares from the exercise of the underwriter’s option at the public offering price of $1.50 per share. The Company intends to use the net proceeds from this offering, together with their existing cash, to fund the development and growth of new business lines, acquisition opportunities, and general corporate and working capital needs.

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 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 for the purchase price of $7,150,000.

On June 30, 2021, DSS announced the further expansion of its DSS Securities, Inc. business through its wholly owned subsidiary DSS Financial Management Inc.’s launch of Liquid Value Asset Management Limited (“LVAM”), a fund management company domiciled in Hong Kong. LVAM’s algorithmic trading includes short- and long-term trades while offering the unique attribute of being able to liquidate the portfolio into cash within 5 to 10 minutes under normal market conditions. Together with the strong performance track record of the team, these attributes position LVAM as a prime vehicle for private and institutional investors seeking a highly liquid investment fund with extremely attractive risk adjusted returns relative to the volatility and unpredictability of the markets.

On July 06, 2021, Impact BioMedical Inc., a wholly owned subsidiary of DSS, Inc., announced updates to several of its key research projects, including key collaborations, breakthroughs in treatment protocols and potential global licensing opportunities as a way to begin planning the next phase of its research agenda and position itself as a global leader in the future of biotech.

On July 12, 2021, Impact BioMedical Inc., a wholly owned subsidiary of DSS, Inc., announced it was issued a patent (Patent # 11,033,528) on June 15, 2021, from the U.S. Patent and Trademark Office for its proprietary compound Equivir. This is a follow-up to the release on April 6, 2021, for the allowance of this patent. The compound has displayed positive pre-clinical results that reduce the risk and/or severity attributable to viral infections, specifically Ebola and Rhinovirus. This patent is the second issued to Impact BioMedical for Equivir; the first (Patent # 10,383,842) was issued August 20, 2019, with claims directed to a method of limiting the occurrence of, reducing the risk or severity of, or treating influenza infection. Equivir is believed to function by impeding a virus’s ability to infect and replicate in host cells. Taken much like a multivitamin, Equivir was specifically designed for ease of rapid accessibility and deployment. Pre-clinical in-vitro success showed Equivir is potentially useful for pandemics and viral outbreaks against SARS-COV2, Influenza, Ebola, Cholera, and Rhinovirus.

On July 22, 2021, the Company exercised 1,000,000 of the available options under the Vivacitas Agreement #1 for $1,000,000. This, along with the shares received as part Vivacitas Agreement #2 increased the Company’s equity position in Vivacitas, which as of December 31, 2021 approximates 16%.

On July 27, 2021, Impact BioMedical, Inc., a wholly owned subsidiary of DSS, Inc. announced with its scientific research partner Global Research and Discovery Group Sciences, GRDG, a collaboration with Thomas Swan Co., to research its plant-based preservation booster, Procombin was developed as a plant-derived preservation booster in an ongoing attempt to use plant-based solutions to increase the effectiveness of antibiotics and antimicrobial agents. The new collaborative research will study Procombin for use in multiple different applications, including household, institutional and personal care products. The research will focus on use in a wide range of consumer products, ranging from household cleaning products to shampoos and conditioners.

On August 02, 2021, DSS announced that its subsidiary, DSS BioMedical International, Inc. (“DSS BioMedical”), completed a $1 million equity investment in Vivacitas Oncology, Inc. (“Vivacitas”), a clinical-stage company focused on difficult-to-treat cancers. Vivacitas Oncology Inc. focuses on developing new treatment options to treat cancers resistant to currently available therapies.

On August 17, 2021, DSS promotes Todd D. Macko to Chief Financial Officer effective August 16, 2021.

On August 23, 2021, Impact BioMedical, Inc., a wholly owned subsidiary of DSS, Inc., along with its scientific research partner Global Research and Discovery Group Sciences, GRDG, announced encouraging results from clinical tests of its 3FDB (“DEET Booster”) technology. These results suggest that 3FDB can boost the effectiveness of mosquito repellants, specifically DEET.

On September 07, 2021, Impact BioMedical, Inc., a wholly owned subsidiary of DSS, Inc. and GRDG Sciences initiated the research project called Quantum in Summer 2020. The purpose of the project was two-fold: to forge a new frontier by exploring new methods for developing medicinal protocols that work more efficiently, thereby encouraging further research and development across the pharmaceutical industry, while at the same time mitigating a projected patent cliff crisis. The Quantum technology is designed to enhance existing therapeutics by looking beyond current molecular enhancement techniques such as molecular substitution, halogenation, prenylation and other biological enhancement methods typical of present therapeutic development schema. This marriage of quantum and molecular mechanics essentially created a classic example of bionics that theoretically increases the efficacy against a variety of diseases.

On September 08, 2021, DSS announced a $15 million investment in the Company by Alset EHome International, Inc. (“Alset EHome”) (Nasdaq: AEI). DSS will issue 12,155,591 shares of its common stock for a purchase price of $1.234 per share for an aggregate amount of approximately $15 million.

On September 09, 2021, DSS announced it signed a subscription agreement for a $40 million investment in American Pacific Bancorp (“APB”). Pursuant to the subscription agreement, APB will issue 6,666,700 shares of its common stock to DSS at $6.00 per share. As a result of this investment, DSS has acquired over 50% of APB’s outstanding shares of common stock, making DSS the majority-owner of APB. As APB acquires equity positions of commercial banks in the US, it targets to inject digital banking capabilities into the banks to provide global banking services to global clients and increase efficiency.

On September 20, 2021, DSS announced it is changing its name from Document Security Systems to DSS, Inc., reflecting sweeping organizational changes and ongoing business expansion The name change will become effective on September 30, 2021.

On October 20, 2021, DSS announced an update on the launch and funding of Liquid Value Asset Management Limited (“LVAM”), a Hong Kong-based investment management company engaging in proprietary algorithmic trading and majority owned by the Company’s wholly owned DSS Financial Management, Inc. (“DFMI”) subsidiary. Under the terms of a shareholders’ agreement between DFMI and HR1 Holdings Limited (“HR1”), DFMI owns 60% of the shares of LVAM and has appointed three of the five directors of LVAM. The remaining two directors have been appointed by HR1, which owns the other 40% of LVAM.

On November 04, 2021, DSS announced its majority-owned subsidiary, American Medical REIT Inc. (“AMRE”), has acquired three hospitals (the “Hospitals”) located in Fort Worth, Texas, Plano, Texas and Pittsburgh, Pennsylvania. The aggregate purchase price for the Hospitals was $62 million. The Hospitals are currently tenanted and operated by LifeCare Hospitals (together with its affiliates, “LifeCare Hospitals”), a specialty hospital operator with a focus on long-term acute and critical care.

On November 30, 2021, DSS announced the launch of DSS AmericaFirst Quantitative Funds. DSS AmericaFirst Quantitative Funds is a suite of mutual funds managed by DSS Wealth Management, Inc. that expects to expand into numerous investment platforms including additional mutual funds, exchange-traded funds, unit investment trusts, and closed-end funds. DSS AmericaFirst Quantitative Funds currently consists of four mutual funds: The DSS AmericaFirst Income Trends Fund (Nasdaq: AFPAX; AFPUX; AFPIX), DSS AmericaFirst Defensive Growth Fund (Nasdaq: DGQAX; DGQUX; DGQIX), DSS AmericaFirst Risk-On Risk-Off Fund (Nasdaq: ABRFX; ABRUX; ABRWX), and DSS AmericaFirst Large Cap Buyback Fund (Nasdaq: SBQAX; SBQUX; SBQIX). The funds seek to outperform their respective benchmark indices by applying a quantitative rules-based approach to security selection. DSS American Quantitative Funds was established through the shareholder approval of DSS Wealth Management as the registered investment advisor (“RIA”) to all the funds within the AmericaFirst Quantitative Funds Trust (“Trust”). In September of 2021, with the approval of the Trust’s Board of Trustees and its shareholders DSS Securities. Inc. (“DSSS”) became the new RIA to the Trust. Upon the completion of the transfer, the Trust was renamed the DSS AmericaFirst Quantitative Trust. DSSS, in its role as RIA, earns fees for each fund calculated as a percentage of the average daily net assets.

On December 15, 2021, DSS announced the opening of a new office in Sacramento, California to serve as the home office for DSS Wealth Management Inc. (“DSS Wealth Management”) and DSS AmericaFirst Quantitative Funds (“DSS AmericaFirst”).

On December 20, 2021, DSS announced its American Pacific Bancorp, Inc. (“APB”) subsidiary has issued nearly $20 million in new loans since September 2021. DSS is the majority-owner of APB, holding more than 50% of its outstanding shares of common stock. APB intends to continue to develop and expand its lending platform to serve the small to mid-size commercial borrower and to continue to acquire equity positions of commercial banks in the US to develop its lending network and to provide global banking services to clients worldwide, including servicing markets with limited access to traditional US banking services. APB’s target customers are businesses with annual revenues of $5 million to $50+ million, including manufacturers, wholesalers, retailers, distributors, importers, and service companies. APB has expertise in, and services tailored for, specific industries, including beverage, food and agribusiness, technology, healthcare, government, higher education, clean technology, and environmental services.

STRATEGIC BUSINESS PLAN AND 2021 PROGRESSION

When we began executing on our current strategy of restructuring and recapitalization, the Company had approximately $16.2 million in assets and only a handful of struggling or undercapitalized businesses. In just over two years, we divested underperforming assets, added eight distinct business lines, and grew assets to more than $285 million, which includes a significant amount of cash to leverage our ongoing business plan. We believe 2022 will be a breakout year for DSS. The tireless work of our dedicated team since embarking on our strategy to transform the Company in late 2019 has led to significant value creation and placed us on a solid trajectory for accelerated growth.

We continue to revitalize the company by focusing on strengthening the organization by (i) 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 new long-term scalable, recurring revenue streams.

In 2020, we made the decision to divest the DSS Plastics Group and sold the primary assets of DSS Plastics Group to a subsidiary of Bristol Graphics for $683,000 at closing, and a contingency payment (earnout) of $517,000 that may be earned over the following 12-month period, $390,000 of which was recognized in 2020. The remaining asset and liability of this division is its lease space located in Brisbane, California. In April 2021, the Company terminated this lease with the landlord effective March 31, 2021. Early in 2021, the company was formally dissolved.

In May 2021, DSS, Inc. and Proof Authentication Corporation (“Proof”) signed a purchase agreement pursuant to which Proof acquired 100% of the outstanding shares of DSS Digital, Inc., a wholly owned subsidiary of DSS and the Company’s anti-counterfeit, authentication, and brand protection technology. DSS retained certain key customers through a non-exclusive licensing agreement while continuing to use the innovative anti-counterfeiting technology on consumer packaging for authentication and consumer engagement purposes under the Company’s Premier Packaging Corp. division.

REVIVING ONE OF OUR CORE BUSINESSES

In 2020, management made substantial adjustments to revive and improve the productivity and operating revenue of our Premier Packaging Corporation, Inc. (Premier) subsidiary. We have invested in operations, state-of-the-art manufacturing equipment, people, and processes to increase its capacity, improve quality and delivery, and to ensure it has the resources to support its growing customer base and their evolving supply chain demands. We have completed its facility expansion with operations beginning at the new 105,000 sq. ft. facility in early March 2022, where DSS, Inc.’s Headquarters will also be located.

We will continue to add capabilities in key areas that increase operational efficiencies to strengthen our foundation and offerings to our customers, while continuing to provide world-class customer service to the customers we serve.

IMPLEMENTING BUSINESS DIVERSIFICATION INITIATIVES

One of the most important objectives of our strategic business plan is the commitment to diversify the Company’s operating revenue. Management believes it imperative to transition the Company’s revenue into new business lines which generate scalable and reoccurring revenue, preferably in contemporary and emerging growth business opportunities. To achieve this goal, we continue to acquire, invest in, or start-up new business lines that meet this criterion. Adding additional products and assets to existing business lines is essential so that current operations can continue on their growth trajectory and further transition toward scalable, recurring revenue streams.

Within the past year, we have had three successful public offerings and have put this capital to work in several ways. Our diverse book of clients and investments has given us strong competitive advantages globally in many industries; we intend to aggressively capitalize on these advantages moving forward.

In 2021, the Company made substantial investments in the following new and existing business lines:

REAL ESTATE INVESTMENT TRUST (REIT) - A portion of this capital has been deployed into American Medical REIT (AMRE), a subsidiary of DSS Securities, Inc., which acquired its first four medical facilities in 2021, totaling approximately 360,000 sq. ft. of quality healthcare assets across the US and more than $74 million in assets. This division is now generating average yields of approximately eight percent, and we have a massive pipeline of opportunities to further grow AMRE in the quarters ahead – including an LOI for a property that could more than double its total assets.

While other areas within commercial real estate have been impacted by the ongoing pandemic, medical real estate has demonstrated considerable resiliency and demand. With a now formidable foundation in place, we are in a great position to further pursue opportunities to expand AMRE as we continue to execute on our strategic growth plans. Ultimately, this is a business we intend to spinoff in an IPO at an optimal time, enabling us to further share our success with our shareholders.

COMMERCIAL LENDING - The expansion of our medical real estate holdings is in part supported by our lending and financing business line, primarily through our majority-owned American Pacific Bancorp, Inc. (APB) subsidiary. APB issued nearly $20 million in new loans since September 2021 and has assembled a diversified portfolio of strong credit quality. In addition to commercially licensed medical real estate financing, APB’s portfolio includes governmental bond anticipation note financing, C&I inventory and equipment financing, and land development loans.

Our $40 million 2021 third quarter investment in APB has been extremely successful, driving the expansion of our reoccurring scalable business income model in multiple ways. We now have nearly half of the fresh funds we injected generating interest and fee income, and we expect to have another $15 million loaned out in the near-term as we build our portfolio of high-quality commercial loans.

DSS BIOHEALTH SECURITY, INC. -

Impact BioMedical progressed on multiple fronts in 2021, including key patent awards, the advancement of key programs, the release of positive study results, and furthering of global manufacturing and pharmaceutical licensing discussions. We anticipate announcing our first licensing deal in the near future.

In July 2021, Impact BioMedical entered a collaboration to research its plant-based preservation booster, Procombin. Personal care as well as household and institutional cleaning formulators are dealing with a dwindling set of options for safe and effective preservatives and preservation boosters. Procombin was developed to address this challenge by using plant-based solutions to increase the effectiveness of antibiotics and antimicrobial agents. Major contract negotiations are underway for the potential use of Procombin in a wide range of consumer products, ranging from household cleaning products to shampoos and conditioners.

During the past year, Impact BioMedical has laid the groundwork for a future that is focused on scientifically tested, high-impact solutions to global problems that humans are facing from food preservation to antibiotics to creating new ways to develop medicines.

In addition to Impact BioMedical, we expanded our BioHealth business in 2021 through investments in Vivacitas Oncology, Inc. (Vivacitas) and Puradigm, LLC. (Puradigm). These investments give us positions in both the oncology space as well as the air purification and pathogen prevention market.

Our March 2021 investment in Vivacitas, a clinical-stage company focused on difficult-to-treat cancers, further demonstrated our commitment to addressing unmet needs in healthcare. With a rich pipeline of promising assets, Vivacitas provides significant upside potential.

In May 2021, we launched DSS PureAir, Inc. concurrently with our investment in Puradigm, the developer of innovative proactive air and surface purifications solutions. Even before COVID-19, the market for air purifiers was strong, and now growth is accelerating even more. Our partnership with Puradigm enables us to rapidly enter this growing global market with best-in-class products and distribution rights in North America, as well as exclusive distribution rights in Singapore, Hong Kong, Taiwan, Korea, Malaysia, and other Asian markets.

DECENTRALIZED SHARING SYSTEMS - The Direct Marketing / Online Sales industry is a market that will help us diversify and meet our scalable reoccurring revenue target in an exponential growth industry with high profit margins. The direct marketing, network marketing, or online sales is designed to sell products or services directly to the public through independent distributors, rather than selling through the traditional retail market. We believed that with the transition of a significant sector of retail sales now converting to the now popular “gig economy”, an investment in this business model would meet our strategic business plan objective and vision.

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. Through this investment in Sharing Services Global, we gained controlling interest with nearly 60 percent ownership. The SHRG platform leverages the capabilities and expertise of various companies that market and sell products direct to the consumer and generated nearly $28 million in revenue in the nine months ended December 31, 2021.

With SHRG now officially part of the DSS family, we believe we are in a great position to accelerate its customer acquisition, new product development, and portfolio of offerings as we capitalize on a wealth of growth opportunities and potential synergies in this exciting, multi-billion-dollar industry. Building upon the success already achieved by the SHRG team, we plan to explore opportunities to enter new markets while continuing to expand SHRG’s independent representative network, both domestically and globally, which currently stands at more than 14,000 active distributors. In addition to capitalizing on organic growth opportunities, we are actively exploring some very exciting potential acquisitions to further accelerate our growth in this attractive and sizeable global market.

With our increased position and majority ownership of SHRG, its financials will be consolidated moving forward. Based on historical performance, this alone places DSS on a solid trajectory to generate potential revenue in excess of $50 million in 2022, representing potentially more than a 150 percent increase in revenue growth year-over-year.

SECURITIES AND INVESTMENT MANAGEMENT GROUP - The Securities business line was organized in 2019 as part of the strategic business plan to establish or acquire assets positioned for long-term and scalable, recurring fee income. These targeted investments include REITs, broker/dealers, mutual funds management, ETFs, and other fund management platforms.

Our rapidly growing securities business line achieved strong footholds achieved in 2021 – including strategic investments in broker dealers WestPark Capital and Sentinel Brokers; the formation of Liquid Value Asset Management Limited (LVAM), and the launch of our DSS AmericaFirst Quantitative Funds (DSS AmericaFirst) family.

LVAM is a proprietary algorithmic trading firm majority owned by our wholly owned subsidiary, DSS Financial Management, Inc. Led by Wilson Lee, former co-head of Societe Generale’s equity derivatives in Asia, and Jackson Kwan, a former portfolio manager at Citadel in Chicago, LVAM aims to include short- and long-term trades while offering the unique attribute of being able to liquidate the portfolio into cash within five to ten minutes under normal market conditions. Together with the strong performance track record of the team, these attributes position LVAM as a prime vehicle for private and institutional investors seeking a highly liquid investment fund with extremely attractive risk adjusted returns relative to the volatility and unpredictability of the markets.

DSS AmericaFirst, launched in the fourth quarter of 2021, is a suite of mutual funds managed by DSS Wealth Management, Inc. DSS AmericaFirst currently consists of four mutual funds and expects to expand into numerous investment platforms including additional mutual funds, exchange-traded funds, unit investment trusts, and closed-end funds.

Reporting Operating Segments:

As we have reported above, we financially report business operating results on only five operating segments, which we believe will certainly increase and transition as the newer lines of business develop and mature. However, the five business segments that we are reporting on in 2021 are as follows:

Premier Packaging: (“Premier”) Premier Packaging Corporation provides custom packaging services and serves clients in the pharmaceutical, nutraceutical, consumer goods, beverage, specialty foods, confections, photo packaging and direct marketing industries, among others. The group also provides active and intelligent packaging and document security printing services for end-user customers. In addition, the division produces a wide array of printed materials, such as folding cartons and paperboard packaging, security paper, vital records, prescription paper, birth certificates, receipts, identification materials, entertainment tickets, secure coupons and parts tracking forms. The division also provides resources and production equipment for our ongoing research and development of security printing, brand protection, consumer engagement and related technologies. Premier is nearing completion of its facility expansion with operations expected to begin at the new 105,000 sq. ft. facility in early March 2022.

For over 25 years, Premier has been a market leader in providing solutions for paperboard packaging from consumer retail packaging and heavy mailing envelopes, to sophisticated custom folding cartons and complex three-dimensional direct mail solutions. Premier’s innovative products and design team delivers packaging that provides functionality, marketability, and sustainability, with its fiber-based packing solutions providing an alternative to traditional plastic packaging.

Since 2019, we have accelerated the transformation of Premier’s operations, investing in state-of-the-art manufacturing equipment, people, and processes to increase its capacity, improve quality and delivery, and to ensure it has the resources to support its growing customer base and their evolving supply chain demands.

We will continue to add capabilities in key areas that increasing operational efficiencies to strengthen our foundation and offerings to our customers while continuing to provide world-class customer service to the customers we serve.

Commercial Lending: (“Commercial Lending”) through its operating company, American Pacific Bancorp (“APB”) provides an integrated suite of financial services for businesses that include commercial business lines of credit, land development financing, inventory financing, third party loan, servicing, and services that address the financial needs of the world Gig Economy. APB intends to continue to develop and expand its lending platform to serve the small to mid-size commercial borrower and to continue to acquire equity positions of commercial banks in the US to develop its lending network and to provide global banking services to clients worldwide, including servicing markets with limited access to traditional US banking services. APB’s target customers are businesses with annual revenues of $5 million to $50+ million, including manufacturers, wholesalers, retailers, distributors, importers, and service companies. APB has expertise in, and services tailored for, specific industries, including beverage, food and agribusiness, technology, healthcare, government, higher education, clean technology, and environmental services

Biotechnology: (“Biotech”) This sector, through its subsidiary Impact BioMedical, Inc. targets unmet, urgent medical needs and expands the borders of medical and pharmaceutical science. Impact drives mission-oriented research, development, and commercialization of solutions for medical advances in human wellness and healthcare. By leveraging technology and new science with strategic partnerships, Impact Bio provides advances in drug discovery for the prevention, inhibition, and treatment of neurological, oncology and immuno-related diseases. Other exciting technologies include a breakthrough alternative sugar aimed to combat diabetes and functional fragrance formulations aimed at the industrial and medical industry.

Biotech and Impact BioMedical have several important and valuable products, technology or compounds that are in continuing development and/or licensing stages:

● LineBacker: Multi-faceted therapeutic platform for metabolic, neurologic, cancer, and infectious diseases. ● Equivir: A polyphenol compound that is believed to be successful in antiviral infection treatments. Equivir/Nemovir technology is a novel blend of FDA Generally Recognized as Safe (“GRAS”) eligible polyphenols (e.g., Myricetin, Hesperetin, Piperine) which have demonstrated antiviral effects with additional potential application as health supplements or medication. Polyphenols are sourced from fruits, vegetables, and other natural substances. Myricetin is a member of the flavonoid class of polyphenolic compounds with antioxidant properties. Hesperitin is a flavanone and Piperine is an alkaloid, commonly found in black pepper. ● Procombin: Applications as food additive, and natural preservative for beauty and person care products as well as natural food preservative. ● VanXin: Food preservative booster made up of polyphenols that extend the shelf life. ● Bioplastics: Advanced bio-compatible plastics that mitigate accumulation of plastics in oceans and landfills and provide UVA and UVB protection for many types of material for including containers, hard surfaces, and fibers for clothing. The technology is presently in development and testing antimicrobial plastics for consumer products that control the spread of active pathogens such as SARS-CoV-2, Influenza, E. coli, Staph, and Rhinovirus, by exploiting key strategies found in the biological realm. These new plastics are specifically focused on solutions for common products such as cups, plates, utensils, plastic bags, and countertops. The first prototypes are currently undergoing antimicrobial resistance testing. ● Laetose: Laetose technology is derived from a unique combination of sugar and inositol, which demonstrates the ability to inhibit the inflammatory and metabolic response of sugar alone. A sugar alternative which is believed to lower human glycemic indexes and is believed to be a breakthrough alternative sugar aimed to combat diabetes. The use of Laetose in a daily diet, compared to sugar, could result in 30% lower sugar consumption and lower glycemic index/load. ● 3F: A botanical compound believed to serve as an insect repellent and anti-microbial agent. 3F is a unique formulation of specialized ingredients (e.g. terpenes) from botanical sources with demonstrated effect as an insect repellent and an antimicrobial.

● 3F Mosquito Repellent: 3F repellent contains botanical ingredients that mosquitos avoid. These ingredients are scientifically proven1 to affect the mosquito’s receptors, essentially making the insect blind to a human’s presence. This can be utilized as a stand-alone repellent or as an additive in detergents, lotions, shampoo, and other substances to provide mosquito protection. ● 3F Antimicrobial: 3F antimicrobial contains botanical ingredients known to kill viruses. These ingredients are scientifically proven to inhibit viral replication. This can be utilized as a stand-alone antimicrobial or as an additive in detergents, lotions, shampoo, fabrics, and other substances.

● Quantum: The solution to the Patent Cliff accomplished by creating a new class of medicinal chemistry that uses advanced methods to increase effectiveness and persistence of natural compounds and existing drugs. The safety attributes of the original molecules are maintained. Typically, drug discovery processes modify functional groups. Quantum’s new techniques alter behavior of molecules at the sub-molecular level. It is estimated that 65% of the World Health Organization Essential Medicines List can be improved and re-patented using Quantum and these methods can be used to enhance and patent natural compounds including many substances used in traditional medicines around the world. ● CRST 1: Advanced adjuvant for next generation vaccine applications. ● Keto Sweet: Sugar that prevents muscular atrophy. ● Solarin: Oral capsule able to prevent sun damage to human skin. ● Therapix (license): BioHealth has a license for cannabinoid technology for neurological pain, sleep apnea disorders with RX/OTC potential. ● Bio Med (license): A probiotic gut health product that helps to regulate many physiological functions, ranging from energy regulation and cognitive processes to toxin neutralization and immunity against pathogens.

The business model of BioHealth and Impact BioMedical revolves around two methodologies – Licensing and Sales Distribution.

1) Impact develops valuable and unique patented technologies which will be licensed to pharmaceutical, large consumer package goods companies and venture capitalists in exchange for usage licensing and royalties.

2) Impact utilizes the DSS ecosystem to leverage its sister companies that have in place distribution networks on a global scale. Impact will engage in branded and private labelling of certain products for sales generation through these channels. This global distribution model will give direct access to end users of Impact’s nutraceutical and health related products.

Securities and Investment Management: (“Securities”) Securities was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, real estate investment funds, broker dealers, and mutual funds management. This business sector has already established the following business lines and associated products and services:

● REIT Management Fund: In March 2020, DSS Securities formed AMRE (“American Medical REIT”) and its management company AAMI (“AMRE Asset Management, Inc.) Through AAMI/AMRE, a medical real estate investment trust, fulfills community needs for quality healthcare facilities while enabling care providers to allocate their capital to growth and investment in their contemporary clinical and critical care businesses. Urban and suburban communities are in need of modern healthcare facilities that provide a range of medical outpatient services. The funds ultimate product is an investor opportunity in a managed medical real estate investment trust. ● Real Estate Title Services: Alset Title Company, Inc. provides buyers, sellers, and brokers alike confidence during big real estate transactions, not just in a transaction, but in the property itself. Through bundled services, Alset Title Company, Inc. provides it all from title searches and insurance to escrow agent assistance. ● Sentinel: Sentinel primarily operates as a financial intermediary, facilitating institutional trading of municipal and corporate bonds as well as preferred stock, and accelerates the trajectory of the DSS digital securities business. ● WestPark: 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: 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, BMI services companies in the US, Hong Kong, Singapore, Taiwan, Japan, Canada, and Australia. ● DSS AmericaFirst: DSS AmericaFirst is a suite of mutual funds managed by DSS Wealth Management. DSS AmericaFirst expects to expand into numerous investment platforms including additional mutual funds, exchange-traded funds, unit investment trusts, and closed-end funds. DSS AmericaFirst currently consists of four mutual funds that seek to outperform their respective benchmark indices by applying a quantitative rules-based approach to security selection.

Direct Marketing: (“Direct”) Through its holding company, Decentralized Sharing Systems, Inc. and its subsidiaries and partners, including Sharing Services Global Corporation provide an array of products and services, through an independent contractor network.

For 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 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 and healthy living, including a global travel membership network.

Further, Sharing Services, through its subsidiary Elevacity, markets and distributes health and wellness products under the “Elevate” brand, primarily in the United States and Canada. Sharing Services markets its products and services through its independent contractor distribution system and using its proprietary website: www.elevacity.com. In February 2021, the Company launched its new business brand, “The Happy Co.,” at its Elevacity division. Elevacity as several well-known and signature products, including its top product lines of “Happy Coffees” and “Nootropic Beverages”. Elevacity also sells a “healthy shake”, a “Keto Coffee Booster”, “Energy Caps”, “XanthoMax© Happy Caps”, “Wellness Vitamin Patches”, various beauty and skin care products, and other wellness products.

Intellectual Property

Patents

Related to our Impact BioMedical Division we have key patents that we will use as the foundation for foster product development and licensing. We have 5 patents for some of our key products including Linebacker, Equivir/Nemovir, Laetose and 3F. Our intellectual property will enable us to be protected as we further these technologies and pave the road to commercialization.

We own patents covering semiconductor, light emitting diode, and wireless peripheral technologies, respectively. We also have several patent applications in process, including provisional and Patent Cooperation Treaty (“PCT”) patent applications in various jurisdictions including the United States, Canada, and Europe. Our issued patents have remaining durations ranging from 1 to 16 years.

Trademarks

We several trademarks related to our related to our HWH, SHRG, Impact BioMedical, and DSS, Inc. businesses.

Websites

The primary corporate website we maintain is www.dssworld.com, which describes our Company, our

DSS, Inc.: https://www.dssworld.com, Our parent company.

American Pacific Bancorp (“APB”): https://www.ampacbancorp.com – Our commercial lending company.

American Medical REIT, Inc: http://www.americanmedreit.com – our medical real estate investment trust company.

Impact Biomedical: https://www.impactbiomedinc.com - our human wellness and healthcare company.

SHRG: https://www.shrginc.com - Our majority owned technology, eCommerce, and gig economy opportunities company.

HWH (Health, Wealth & Happiness) Marketplace: https://www.hwhmarketplace.com - an online retail site that is centered around our health and wellness nutraceutical products.

DSS AmericaFirst: https://www.afcm-quant.com - a suite of mutual funds managed by DSS Wealth Management, Inc.

Premier Packaging: https://www.premiercustompkg.com - our printing and packaging company.

In addition to the active websites, the Company is building multiple new sites and owns several other domain names reserved for future use or for strategic competitive reasons. Information on our websites or any other website does not constitute a part of this annual report.

Markets and Competition

Product Packaging: Our packaging division competes with a significant number of national, regional companies, many of which are independent and privately held. The largest competitors in this market are primarily focused on the long-run consumer package goods and health and beauty markets. They include large integrated paper companies such as West Rock Company, and Graphic Packaging Holding Company.

Commercial Lending: Our commercial lending company, American Pacific Bancorp (“APB”) provides an integrated suite of financial services for businesses that include commercial business lines of credit, land development financing, inventory financing, third party loan, servicing, and services that address the financial needs of a variety of diversified businesses lines. These efforts compete with a wide variety of traditional commercial banks and investment banking companies including.

Biotechnology: Our biotechnology companies including Impact Biomedical Inc., are focused on the discovery, development, and commercialization of products and technologies to address unmet needs in human healthcare and wellness. Specific areas of focus include specialty biopharmaceuticals, antivirals, antimicrobials, and consumer healthcare and wellness products, often derived from naturally sourced elements. These efforts compete with established and start-up companies, university research and development efforts, and individual inventors and scientists. Examples of competitors include Ipsen Pharmaceuticals, Conagen Inc., Mylan Consumer Healthcare, Klaire Labs, Vertex Pharmaceuticals, and the National Center of Natural Product Development at the University of Mississippi.

Direct Marketing: The network marketing or direct marketing industry is a very competitive marketplace. While not directly competing with HWH and SHRG, the following companies are significant players in the global network marketing business and as a result an indirect competitor of HWH and SHRG: Amway, Avon, Herbalife, Natura, Vorwerk, Mary Kay, Perfect, Forever Living, Nu Skin, Young Living, and New Era, among others.

Securities and Investment Management: Was established to develop and/or acquire assets in the securities trading or management arena. These efforts and established business lines compete with individual money managers, companies or organizations that engage in the business of trading securities and derivatives for the benefit of their customers. Traditional RIA’s, Brokers Dealers, REIT’s and other personal investment companies would also be considered competition.

Customers

Product Packaging: During 2021, two customers accounted for approximately 41% of our consolidated revenue. As of December 31, 2021, these two customers accounted for approximately 48% of our consolidated trade accounts receivable balance. As of December 31, 2020, these two customers accounted for 38% of our consolidated revenue and 60% of the Company’s consolidated trade accounts receivable balance. This customer diversification improvement was driven by addition of several new customers to our overall customer base.

Commercial Lending: During 2021, American Pacific Bancorp, Inc. has issued nearly $26 million in new loans since September 2021 to customers with strong credit quality across a diverse portfolio of businesses. We anticipate another 15M + of new commercial loans in the near term. Top customers include Harris-Montgomery Counties Management District, American Medical REIT, Inc., and ASILI, LLC.

Direct Marketing: During 2021 our direct marketing companies HWH World, SHRG and its subsidiary, The Happy Co. continued to build their customer bases and brand recognition on a global basis. These businesses utilize person-to-person sales by independent representatives through direct communication and distribution to individual consumers and their networks. Mail, email, social media, influencers or affiliates, and texting campaigns are among the delivery systems used to communicate and sell to our thousands of customers.

Securities and Investment Management: Since October of 2021, our Securities and Investment Management division has a mixture of retail and institutional investors.

Raw Materials

Product Packaging: The primary raw materials the Company uses in its businesses are paper, paperboard, corrugated board and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies and uses a wide variety of paper grades, formats, ink formulations and colors. Paper and paperboard prices continued to increase in 2022, and we believe increases in future years are expected. Except for certain packaging customers where the Company enters into annual contracts, for which changes in paperboard pricing is absorbed by the Company, the Company has historically passed substantially all increases and decreases to its customers, although there can be no assurances that the Company will continue to do so in the future.

Direct Marketing: Sources its products from 3rd party suppliers for nutritional, performance, and health and beauty product ingredients. We rely on our extensive supplier network for availability of an extensive range of vitamins, minerals, botanicals, plant and herb extracts, as well as nutritional supplements. We are expecting continue price pressure and supply chain issues into 2022 and have put significant risk mitigation strategies in place to avoid dramatic P&L effects based on this anticipated and continued volatility. The company passes any substantial increase of its raw materials or finished goods on to its customers to limit any significant margin impact.

Environmental Compliance

It is the Company’s policy to conduct its operations in accordance with all applicable laws, regulations, and other requirements. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.

Government Regulation

Our biotechnology business is faced with potential government regulations. If new legislation, regulations, or rules are implemented either by Congress, the U.S. Patent and Trademark Office (the “USPTO”), or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our patent monetization efforts and, in turn, our assets, expenses and revenue. United States patent laws have been amended by the Leahy-Smith America Invents Act. The America Invents Act includes several significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities. In addition, the U.S. Department of Justice (“DOJ”) has conducted reviews of the patent system to evaluate the impact of patent assertion entities, such as our Company, on industries in which those patents relate. It is possible that the findings and recommendations of the DOJ could adversely impact our ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.

Moreover, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions.

Corporate History

The Company, incorporated in the state of New York in May 1984 has formally conducted business in the name of Document Security Systems, Inc. On September 16, 2021, the board of directors approved an agreement and plan of merger with a wholly owned subsidiary, DSS, Inc. (a New York corporation, incorporated in August 2020), for the sole purpose of effecting a rebranding from Document Security Systems, Inc. to DSS, Inc. This change became effective on September 30, 2021. DSS, Inc. maintained the same trading symbol “DSS” and updated its CUSIP number to 26253C-102. See the “Overview” section above for further details about our acquisitions.

Employees

As of December 31, 2021, all DSS, Inc. had 113 employees worldwide. We continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are in good standing.

Available information

Our website address is www.dssworld.com. Information on our website is not incorporated herein by reference. We make available free of charge through our website our press releases, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after electronically filed with or furnished to the Securities and Exchange Commission.

LOOKING AHEAD IN 2022

We believe 2022 will be a breakout year for DSS. Spurred by innovation, industry needs, and timely acquisitions, in 2022 we will focus on improving top line revenue and top line revenue diversification and profitability. Through our expertly cultivated processes and industry research, we can ensure the success of our projects across diverse sectors and business environments. The opportunities within our business lines and high-growth markets have unlimited potential, and our entities within these sectors are contemporary, scalable, and offer recurring revenue opportunities.

When we began executing on our current strategy of restructuring and recapitalization, the Company had approximately $16.2 million in assets and only a handful of struggling or undercapitalized businesses. In just two years, we divested underperforming assets, added eight distinct business lines, and grew assets to more than $285 million, which includes $57 million in cash as of our December 31, 2021 filing with the SEC. Today, we have approximately 40 subsidiaries operating across nine attractive market business lines, with five of those business lines now with significant operations and generating revenue.

We have been fortunate to have attracted tremendous talent to lead each of our business units. When building out our businesses, we look for established, industry leaders with long track records and the expertise to add meaningful value to our DSS ecosystem and create a foundation for success.

Our diverse book of clients and investments has given us strong competitive advantages globally in many industries; we intend to aggressively capitalize on these advantages moving forward. We believe the momentum of our success and ongoing evolution will continue to be unabated in 2022 based on the multitude of major successes in 2021 that are key drivers and the catalyst of new value creation in the coming year and beyond.

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”) currently operates nine distinct business lines which primarily operate and are located in North America and Asia. The nine divisions are:

1. Direct Marketing/Online Sales Group, 2. Premier Packaging, 3. Digital Group, 4. IP Technology, 5. BioHealth Group, 6. Securities and Fintech Group, 7. Energy Group, 8. Secure Living, and 9. Blockchain Technology

Each of these business lines are in different stages of development, growth, and income generation. Because of these varying degrees of business cycle growth, including the size of the revenues and assets acquired, the Company currently financially reports only on four of these operating segments.

1. Direct Marketing/Online Sales Group, 2. Premier Packaging, 3. Digital Group, and 4. IP Technology

As the other divisions grow and start generating significant income, those operating segments will be added to our financial segmental reporting.

Our divisions, their business lines, subsidiaries and operating territories:

1. 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 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. Direct marketing products include, among other things, nutritional and personal care products sold throughout North America, Asia Pacific and Eastern Europe. Over the past 12 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 at the end of 2020, Decentralized owned approximately 32% 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. 2. Premier Packaging: (“Premier”) The Company’s 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. 3. Digital Group: (“Digital”) Digital researches, develops, markets, and sells the Company’s digital products worldwide. As an industry leader in brand authentication services, our solutions leverage functional anti-counterfeiting features and cutting-edge technologies to satisfy commercial and consumer product needs for branding, intelligent packaging, and marketing. Digital’s primary product is AuthentiGuard®, which is a brand authentication application that integrates the Company’s counterfeit deterrent technologies with proprietary digital data security-based solutions. Digital Group is headquartered in Rochester, NY, but it also has offices and staff in Hong Kong. 4. IP Technology Management: (“IP” or “DSS TM”) DSS TM 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. DSS TM is currently headquartered in Houston, Texas. 5. 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.

6. 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, stablecoins 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). This group is led by its holding company, DSS Securities, Inc., (“DSS Securities”) and the group is currently headquartered in Houston, Texas. 7. Energy Group: (“Alset Energy”) This group has been established to help lead the Company’s clean energy future with a focus on environmental responsibility and sustainability measures. Alset Energy, Inc, the holding company for this group, recently organized, Alset Solar, Inc., a wholly owned subsidiary, to pursue utility-scale solar farms to serve US regional power grids and to provide underutilized properties with small microgrids for independent energy. But in addition to solar farms and large-scale solar battery banks, Alset Energy will also look at other alternative energy opportunities for investment and development. Our goal is to be a powerful force in the mitigation of the negative effects of climate change by reducing air pollution and expanding access to clean energy for all, while contributing to global economic well-being. Alset Energy is currently headquartered in Houston, Texas and seeking market opportunities in the US sunbelt areas, but specifically in Texas, Arizona, New Mexico and Florida. 8. Secure Living: (“Secure Living”), Secure Living has developed a plan for fully sustainable, secure, and healthy living communities with homes incorporating advanced technology, energy efficiency, and quality of life living environments both for new construction and renovations for single and multi-family residential housing. Secure Living is currently working with several land development partners to develop entire fully sustainable, healthy living single-family subdivisions. Secure Living is currently headquartered in Houston, Texas. 9. Blockchain Technology: (“Blockchain”) Blockchain specializes in the development of blockchain security technologies for tracking and tracing solutions for supply chain logistics and cyber securities across global markets. DSS Blockchain leverages DSS’s early-to-market anticounterfeiting history in AuthentiChain©, which secures assets across industries to benefit product developers, manufacturers, investors, and consumers. AuthentiChain©, can be applied to decentralize ledgers, help stabilize the token economy, and protect cryptocurrency from counterfeiting, and secure negotiable legal documents and security exchanges.

Following is a summary of several DSS reported transactions and investments since January 2020 that confirm the active advancements and investments in these business lines:

On March 3, 2020, the Company, via its subsidiary DSS Securities Inc., 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”) (see Note 4).

AAMI is a real estate investment trust (“REIT”) management company that sets the strategic vision and formulates 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. American Medical REIT, Inc. 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. As of December 31, 2020, no revenue has been generated.

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., 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, (see Note 4).

Impact BioMedical strives to leverage its scientific know-how and intellectual property rights to provide solutions to issues that have been plaguing the biomedical field for decades. By tapping into the scientific expertise of its partners, Impact BioMedical has undertaken 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, DSS Securities 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 owns 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., 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, h 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. announced that it increased its investment in Sharing Services Global Corporation, 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. 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. The announcement also noted that prior to this convertible promissory note investment, DSS owned 37% of the outstanding shares of Sharing Services, and that Sharing Services generated $98.4 million in revenue and $5.6 million net income in the trailing 12-month period ended September 30, 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 a 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 to with Alset EHome International, Inc. (“Seller”) indirectly the Seller’s wholly owned subsidiary Impact Oncology PTE Ltd. to effectively purchase ownership of 2,480,000 shares of common stock of Vivacitas for a purchase price $2,480,000. 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 approximate 10.2% equity position in Vivacitas.

Reporting Operationing Segments:

As we have reported above, we financially report business operating results on only four operating segments, which we believe will certainly increase and transition as the newer lines of business develop. However, the four business lines that we are reporting on in 2020 are as follows:

Premier Packaging - Operating under the name Premier Packaging Corporation (a New York corporation), produces custom consumer packaging serving clients in the pharmaceutical, nutraceutical, beverage, specialty foods, photo packaging, and direct marketing industries, among others. The group also provides active and intelligent packaging and document security printing services for end-user customers along with technical support for our technology licensees. The division produces a wide array of printed materials, such as folding cartons and paperboard packaging, security paper, vital records, prescription paper, birth certificates, receipts, identification materials, entertainment tickets, secure coupons, and parts tracking forms. The division also provides resources and production equipment for our ongoing research and development of security printing and related technologies.

Digital Group - This division researches, develops, markets, and sells worldwide the Company’s digital products, including and primarily our AuthentiGuard® product, which is a brand authentication application and consumer engagement product that integrates the Company’s counterfeit deterrent technologies with proprietary digital data security-based solutions. The AuthentiGuard® product allows our customers to implement a security mark utilizing conventional printing methods that is copy- and counterfeit-resistant and that can be read and recorded utilizing smartphones and other digital image capture devices, which can be utilized by that customer’s suppliers, field personnel and customers throughout its global product supply and distribution chains.

IP Technology - Since its acquisition in 2013, DSS Technology Management Inc.’s primary mission has been to monetize its various patent portfolios through commercial litigation and licensing. Except for investment in its social networking related patents, we have historically partnered with various third-party funding groups in connection with patent monetization programs. As management announced in its 2019 shareholder meeting, management intended to de-emphasize and ultimately wind down this business line. Management reported that while it would continue to assert and defend the existing patents and purse potential infringements as they are identified, it did not intend to seek out new patent portfolios. As the 2020 financial reporting confirms, management implemented that business plan IP is currently focused on managing two remaining patent portfolios.

Direct Marketing/Online Sales Group - Direct marketing or network marketing is designed to sell products or services directly to the public through independent distributors, rather than selling through the traditional retail channels. We believe this business has significant growth potential in the now popular “gig economy”. Consistent with the Company’s strategic business plan and vision, we have entered into the direct marketing or network marketing industry and plan to take advantage of the opportunities that exist in the industry. We are engaging in partnerships with existing direct marketing companies to access U.S., Canadian, Asian, and Pacific Rim markets. In addition, we have, and/or are acquiring various domestic and international operating licenses to further the growth of this division. But in addition, we have developed or procured product licenses, formulas, sales networks, patents, web sites, and other resources to help us accelerate our sales and revenue generation initiatives for this line, and we have launched our HWHGIG and HWH Marketplace direct selling platforms.

2019-2020 Strategic Business Plan, and its 2021 Progression:

In November 2019, management announced that the Company’s 2019-2020 strategic business plan was to revitalize the company by focusing on strengthening the organization by (i) 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 new long-term scalable, recurring revenue streams. To realize those goals, management announced that it would execute the strategic plan by:

Exiting Unprofitable Business Lines:

In 2019, the Company had 4 business lines: Premier Packaging, Digital Group, the IP Technology, and DSS Plastics Printing. At that time, only the Premier Packaging division was generating reoccurring revenue and positive cash flow with annual revenues of $13.5 million and a net EBIDA of approximately $742,000. Conversely, the other 3 business units lost approximately $1,348,000, with the IP Technology group accounting for $475,000, and DSS Plastic Printing accounting for an additional $294,000. To preserve capital and stop further cash drain, the decision was made to exit both business lines, whether by sale, wind down, closure, or by no longer pursuing business opportunities in this area.

Wind Down IP Monetization Program:

Since entering the intellectual property monetization business in July 2013, we have invested substantial capital and resources into purchasing, maintaining, and enforcing our patents. We have also invested substantial resources in the research and development of internally generated intellectual property for our own use, and/or for potential profitable licensing opportunities.

However, the costs of funding a patent pool, including patent maintenance fees, litigation (costs for legal counsel, discovery, consultants, expert witnesses, and travel), and overhead costs associated with the IP business line, had placed a significant financial strain upon the Company. During 2019, our corporate cash burn exceeded approximately $200,000 per month, primarily due to recurring costs related to the IP monetization line of business, which reduced resources for our other lines of business, as well as our own patent research and development projects. Further, because the related IP legal costs are expensed in the year incurred with no corresponding revenue generation, the financial impact to the Company caused us to routinely report negative operating income year over year. Moreover, as a result of the IP monetization line’s high capital demand, the Company did not have the capital to initiate and sustain IP litigation against potential major infringers of DSS patents.

Further, as a result of several court decisions and statutory changes, the patent laws in the United States have changed significantly since our entry into this business. Consequently, the enforcement of patents has become more costly and more difficult for DSS and other patent holders, and the likelihood of successful litigation has significantly decreased. In addition, depending upon the type of IP involved and the parties who are the alleged patent infringers, the legal enforcement and recovery process can take five or more years before the matter goes to trial. For instance, the Apple litigation, which we have previously disclosed, and which is described in more detail herein, was initiated in September 2013 and was scheduled to go to trial in late February 2020; a period of approximately 6 ½ years.

As a result of the considerable financial, working capital, and resource allocation to the IP monetization program, we executed a critical review of the program. We examined all elements and factors related to the operations of this business line, including what we hold in inventory of patents, the potential of that patent portfolio, the timetables involved to monetize those patents, the cost of capital to maintain the patents to monetization, and the probability of successful monetization. As a result of that extensive review, we determined that it was in the best interest of DSS and its stockholders to de-emphasize and ultimately exit the IP monetization line of business.

In 2020, management discontinued making any further patent acquisitions in this business line, and, more importantly, was able to renegotiate all of its previous contracts with its lenders, attorneys, and other professionals to eliminate most, if not all, of the historical losses and cash burn from this division. We will continue to manage the existing patent portfolio and work to maximize those assets. After the conclusion of these pending matters, we intend to close this business line.

Divesting DSS PLASTICS:

In 2020, we also made the decision to divest the DSS Plastics Group. The DSS Plastics Group manufactured laminated and surface printed cards which included magnetic stripes, bar codes, holograms, signature panels, invisible ink, micro fine printing, biometric, radio frequency identification (RFID), and watermarks for printed plastic documents such as ID cards, event badges, and driver’s licenses. As a result of continued historical downward trends of the plastic printing business, mostly due to deteriorating margins due to international competition primarily from China, and increasing operating costs of this San Francisco based company, long term major restructure changes and retooling had been planned to return the company to profitability. But the impact of COVID-19 pandemic and resulting economic shut-down had a major impact on revenues. The impact of Covid, coupled with the negative long-term trend of the plastic card industry being replaced by facial recognition, digital licenses, and identification by individual cell phones, forced us to expedite and ultimately divest the business in 2020

In August 2020, the Company sold the primary assets of DSS Plastics Group to a subsidiary of Bristol Graphics for $683,000 at closing, and a contingency payment (earnout) of $517,000 that may be earned over the following 12-month period, $390,000 of which was recognized in 2020. The remaining asset and liability of this division is its lease space located in Brisbane, California. We are in the process of subleasing that facility and expect to consummate a transaction in the 2nd quarter which we expect will release the Company from that trailing lease liability, and thereafter expected final closure.

Reviving the Company’s Core Businesses:

In 2018, the Premier Packaging and the Digital Group collectively accounted for 78% of the Company’s operating revenues. But while, the two business lines accounted for the lion’s share of the Company’s operating revenue, they were doing so on minimal marketing and operating budgets, and in the case of Premier Packaging, with aged and obsolete equipment with limited remaining life. Management reviewed the business lines of both Premier Packaging and the Digital Group and believed that the core business of each was sound, that DSS held a market niche and/or growth opportunity in each, and that long-term profitability could be achieved with additional investments and changes. In 2020, management made substantial adjustments to revive and improve the productivity and operating revenue of these two divisions.

In 2018, Premier Packaging and Digital collectively reported $14,500,000 in operating revenue, $12,957,000 and $1,543,000 respectively, or approximately 78% of the company’s operating revenue that year. In 2019, after initial revitalization efforts, operating revenues grew a combined 5%, and in 2020, after a reduction in sales to each of their two largest customers by 26%, the two divisions reported $15.3 million in revenues, during a harsh pandemic impacted economic period.

Substantially Reducing Corporate Overhead and Cash Burn:

Since the spring of 2019, we have reduced the Company’s monthly cash burn by eliminating non-essential layers of management and redundant operating expenses, as well as by renegotiating vendor contracts. The goal was, and is, to continue to reduce overhead operating costs, redundancy, improve operating efficiencies, and reduce cash burn through a continuing series of new management initiatives.

Implementing Business Diversification Initiatives:

One of the most important initiatives of the 2019 strategic business plan was the goal, and commitment, to diversify the Company’s operating revenue. Management believed it imperative to transition the Company’s revenue into new business lines which generated scalable and reoccurring revenue, preferably in exponential and emerging growth business opportunities. To achieve this goal, management sought to acquire, to invest in, or to start-up new business lines that met this criterion. We also planned to add additional products to existing business lines so that existing operations could further transition more toward scalable reoccurring revenue streams.

Toward that initiative, in 2019 and continuing through 2020 the Company either acquired, invested in, or started-up new businesses in the biohealth, direct marketing, blockchain, and securities trading fields. In 2020, the Company made substantial investments in the following new business lines:

● DSS BIOHEALTH SECURITY, INC. This business line was intended to be principally involved in the bio-medical sector, including investing in companies that hold bio-medical intellectual property and/or have, or are securing, strategic alliances, partnerships, and distribution rights for bio-medical and security products, technologies, or enterprises. This new division was also organized to seek out investment and growth opportunities in on open-air defense initiatives that seek to curb transmission of airborne infectious diseases such as tuberculosis and influenza, among others, in open areas, and to seek investments in the oncological cures for various forms of cancer.

In 2019, the Company made a substantial commitment to this division by acquiring Impact BioMedical, Inc. in an approximate $50 million all stock acquisition. The Impact Bio acquisition, which was rich with assets, has a foundation of products with international market opportunities and demand, and which can be structured into long- term scalable, reoccurring license revenue. By leveraging technology and new science with strategic partnerships, Impact BioMedical drives mission-oriented research, development, and commercialization of solutions for medical advances in human wellness and healthcare.

● Direct Marketing/Online Sales Group, The Direct Marketing / Online Sales industry was a market that we believed would help us diversify and meet our scalable reoccurring revenue target in an exponential growth industry with high profit margins. The direct marketing, network marketing, or online sales is designed to sell products or services directly to the public through independent distributors, rather than selling through the traditional retail market. We believed that with the transition of a significant sector of retail sales now converting to the now popular “gig economy”, an investment in this business model would meet our strategic business plan objective and vision. We believed that we could profitably serve this market through lending opportunities, acquisition opportunities, and global partnership ventures.

Toward this objective, we made substantial investments in loans and investments into several direct marketing companies in 2019 and 2020. Notable in this area was our $8+ million investment into Sharing Services Global Corporation, located in Dallas, Texas, and the Company’s start-up of HWH World, Inc. and its national and international sales network. Further, on March 1, 2021, Decentralized announced that a binding letter of intent had been executed in which it increased its investment in Sharing Services through a $30 million convertible promissory note. The $30 million is planned to exponentially increase Sharing Services sales channels, substantially expand its product portfolio, and to position Sharing Services to capitalize on consolidation and roll up opportunities.

● BLOCKCHAIN TECHNOLOGY, This corporate business line was organized in 2019 to specialize in the development of blockchain security technologies for tracking and tracing solutions for supply chain logistics and cyber security across global markets. While no significant acquisitions were made over the past 18 months, this business line is still deemed to be an important business line for our long-term diversification goals.

● SECURITIES AND FINTECH GROUP The Securities business line was be organized as part of the 2019 strategic business plan to establish or acquire investments in long-term growth and sustainable scalable reoccurring management fee income. The businesses that were to be targeted in this business plan included investments in alternative trading systems and related platforms, REITs, brokerage and other trading fund management platforms that would create recurring fee income.

FOR 2021:

Our business goal for 2021 is continue many of the 2019-2020 Strategic Goals, including to continue to grow the company with sound acquisitions, to develop and to grow Premier Packaging with major capital investments, and to place a heavy emphasis improving top line revenue and top line revenue diversification and profitability. But special attention, effort, and resources will be made to further the following 2021 business initiatives:

● Continue to revitalize and grow Premier Packaging.

● Make further investments in the Direct Securities and BioHealth groups in the form of growth and investments.

● Focused effort to double top line revenue and bottom- line profitability.

Our Core Products:

Packaging & Printing

Premier Packaging Corporation provides custom packaging services and serves clients in the pharmaceutical, nutraceutical, consumer goods, beverage, specialty foods, confections, photo packaging and direct marketing industries, among others. The group also provides active and intelligent packaging and document security printing services for end-user customers. In addition, the division produces a wide array of printed materials, such as folding cartons and paperboard packaging, security paper, vital records, prescription paper, birth certificates, receipts, identification materials, entertainment tickets, secure coupons and parts tracking forms. The division also provides resources and production equipment for our ongoing research and development of security printing, brand protection, consumer engagement and related technologies.

Technology, Counterfeit Prevention and Brand Services

The Digital Group specializes in counterfeit prevention, brand protection, consumer engagement technology development. Is products offer platforms for authentication and validation of authentic print media, consumer goods and negotiable instruments, including government-issued documents, retail and consumer packaging, labelling, and identification systems. We are a leader in the research and development of optical deterrent technologies and have commercialized these technologies with a suite of products that offer our customers an array of brand security solutions. In addition, we provide document security technology to security printers, corporations, consumer product companies and governments for protection of vital records, certifications, travel documents, consumer products, pharmaceutical packaging and school transcripts.

Our primary anti-counterfeiting products and technologies have evolved from a traditional analog product to a highly advanced digital system and are marketed under our AuthentiGuard® registered trademark. In October 2012, we introduced AuthentiGuard®, a smartphone application for authentication, targeted to major Fortune 500 companies worldwide. The application is a cloud-enabled solution that permits efficient and cost-effective counterfeit deterrence, authentication and consumer engagement. Our solutions leverage functional anti-counterfeiting features and cutting-edge technology to satisfy commercial and consumer product needs for branding, intelligent packaging, and marketing.

Since 2012, the AuthentiGuard® product has grown to annual sales of approximately $1.5 million, and we project that over the next three years annual sales of AuthentiGuard® will increase by an annualized growth rate of approximately 17%. Today, our mission is to make world-class authentication, counterfeit prevention and consumer engagement technology that is assessable and scalable to an expanding customer base. We intend to bring our technology-laden packaging, labelling, and document solutions to a broader range of clients including small businesses, develop long-term relationships with those who use them and grow our business organically.

Direct Selling

Decentralized Sharing Systems, Inc. and its subsidiaries and partners, including Sharing Services Global Corporation provide an array of products and services, through an independent contractor network.

For 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 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 and healthy living, including a global travel membership network.

Further, Sharing Services, through its subsidiary Elevacity, markets and distributes health and wellness products under the “Elevate” brand, primarily in the United States and Canada. Sharing Services markets its products and services through its independent contractor distribution system and using its proprietary website: www.elevacity.com. In February 2021, the Company launched its new business brand, “The Happy Co.,” at its Elevacity division. Elevacity has several well-known and signature products, including its top product lines of “Happy Coffees” and “Nootropic Beverages”. Elevacity also sells a “healthy shake”, a “Keto Coffee Booster”, “Energy Caps”, “XanthoMax© Happy Caps”,“Wellness Vitamin Patches”, various beauty and skin care products, and other wellness products.

Bio Health

BioHealth, through its subsidiary Impact Bio Medical, Inc. targets unmet, urgent medical needs and expands the borders of medical and pharmaceutical science. Impact drives mission-oriented research, development, and commercialization of solutions for medical advances in human wellness and healthcare. By leveraging technology and new science with strategic partnerships, Impact Bio provides advances in drug discovery for the prevention, inhibition, and treatment of neurological, oncology and immuno-related diseases. Other exciting technologies include a breakthrough alternative sugar aimed to combat diabetes and functional fragrance formulations aimed at the industrial and medical industry.

BioHealth and Impact Medical have several important and valuable products, technology or compounds that are in continuing development and/or licensing stages:

● LineBacker: A polyphenol compound that is believed to be successful in neurological and inflammatory disorders. LineBacker is a platform of small molecule X-bonded polyphenols. X-bonding is a molecular tuning technique that modifies a natural compound to induce potency, efficacy, bioavailability, and trans-membrane permeability while maintaining safety, toxicity, and tolerability. Natural polyphenols have demonstrated strong potential in treating and preventing a range of diseases by inhibiting TNF-α and indication specific causes (e.g. neurology, anti-inflammatory, oncology). Two novel discrete LineBacker molecules have been synthesized and characterized including in vitro efficacy testing, pharmacokinetics, and maximum tolerated dose in vivo. ● Equivir: A polyphenol compound that is believed to be successful in antiviral infection treatments. Equivir/Nemovir technology is a novel blend of FDA Generally Recognized as Safe (GRAS) eligible polyphenols (e.g., Myricetin, Hesperetin, Piperine) which have demonstrated antiviral effects with additional potential application as health supplements or medication. Polyphenols are sourced from fruits, vegetables, and other natural substances. Myricetin is a member of the flavonoid class of polyphenolic compounds with antioxidant properties. Hesperitin is a flavanone and Piperine is an alkaloid, commonly found in black pepper. ● Laetose: Laetose technology is derived from a unique combination of sugar and inositol, which demonstrates the ability to inhibit the inflammatory and metabolic response of sugar alone. A sugar alternative which is believed to lower human glycemic indexes and is believed to be a breakthrough alternative sugar aimed to combat diabetes. The use of Laetose in a daily diet, compared to sugar, could result in 30% lower sugar consumption and lower glycemic index/load. ● 3F: A botanical compound believed to serve as an insect repellent and anti-microbial agent. 3F is a unique formulation of specialized ingredients (e.g. terpenes) from botanical sources with demonstrated effect as an insect repellent and an antimicrobial. ● 3F Mosquito Repellent: 3F repellent contains botanical ingredients that mosquitos avoid. These ingredients are scientifically proven1 to affect the mosquito’s receptors, essentially making the insect blind to a human’s presence. This can be utilized as a stand-alone repellent or as an additive in detergents, lotions, shampoo, and other substances to provide mosquito protection. ● 3F Antimicrobial: 3F antimicrobial contains botanical ingredients known to kill viruses. These ingredients are scientifically proven to inhibit viral replication. This can be utilized as a stand-alone antimicrobial or as an additive in detergents, lotions, shampoo, fabrics, and other substances. ● Therapix (license): BioHealth has a license for cannaniboid technology for neurological pain, sleep apnoea disorders with RX/OTC potential. ● Bio Med (license): A probiotic gut health product that helps to regulate many physiological functions, ranging from energy regulation and cognitive processes to toxin neutralization and immunity against pathogens.

The business model of BioHelath and Impact BioMedical revolves around two methodologies – Licensing and Sales Distribution.

1) Impact develops valuable and unique patented technologies which will be licensed to pharmaceutical, large consumer package goods companies and venture capitalists in exchange for usage licensing and royalties.

2) Impact utilizes the DSS ecosystem to leverage its sister companies that have in place distribution networks on a global scale. Impact will engage in branded and private labelling of its products for sales generation through these channels. This global distribution model will give direct access to end users of Impact’s nutraceutical and health related products.

Securities

Securities was established to develop and/or acquire assets in the securities trading or management arena, and to pursue, among other product and service lines, real estate investment funds, digital asset exchanges, security and utility tokens and other forms of crypto currency. This business sector has already started or made the following business lines and associated products and services:

● REIT Management Fund: In March 2020, DSS Securities formed AMRE (“American Medical REIT”) and its management company AAMI (“AMRE Asset Management, Inc.) Through AAMI/AMRE, a medical real estate investment trust, fulfills community needs for quality healthcare facilities while enabling care providers to allocate their capital to growth and investment in their contemporary clinical and critical care businesses. Urban and suburban communities are in need of modern healthcare facilities that provide a range of medical outpatient services. The funds ultimate product is an investor opportunity in a managed medical real estate investment trust. ● Real Estate Title Services: Alset Title Company, Inc. provides buyers, sellers, and brokers alike confidence during big real estate transactions, not just in a transaction, but in the property itself. Through bundled services, Alset Title Company, Inc. provides it all from title searches and insurance to escrow agent assistance. ● Alternative Trading Systems: Currently in development to operate in the US vertical digital asset exchanges for securities, tokenized assets, utility tokens, stablecoins and cryptocurrency via a digital asset trading platform using blockchain technology.

Intellectual Property

Patents

Our ability to compete effectively depends largely upon our ability to maintain the proprietary nature of our technology, products and manufacturing processes. Across the DSS ecosystem of companies, we principally rely upon patent, trademark, trade secrets and contract law to establish and protect our proprietary rights.

As it applies to our digital division’s product line development, we have expended significant resources on research and development in an effort to become a market leader with the ability to provide our customers effective solutions against an ever-changing array of counterfeit risks. Our position in the security print market is based on our technologies and products. The Company recognized a credit in 2019 of approximately $12,000 primarily due to receipt of a refund on development costs for the development of proprietary blockchain solutions for the Company’s AuthentiGuard product line. In comparison, the Company spent approximately $146,000 on research and development during 2018, primarily toward the development of the Company’s AuthentiGuard product line.

Related to out Impact BioMedical Division we have key patents that we will use as the foundation for foster product development and licensing. We have 5 patents for some of our key products including Linebacker, Equivir/Nemovir, Laetose and 3F. Our intellectual property will enable us to be protected as we further these technologies and pave the road to commercialization.

We own patents covering semiconductor, light emitting diode, anti-counterfeiting and document authentication, and wireless peripheral technologies, respectively. We also have several patent applications in process, including provisional and Patent Cooperation Treaty (“PCT”) patent applications in various jurisdictions including the United States, Canada, and Europe. These applications cover our anti-counterfeiting technologies, including AuthentiGuard®, AuthentiGuard® Prism™, and AuthentiGuard® VeriGlow™, and several other anti-counterfeiting and authentication technologies in development. Our issued patents have remaining durations ranging from 1 to 16 years.

Trademarks

We several trademarks related to our Digital Group business. We have registered our “AuthentiGuard®” mark, as well as our “Survivor 21®” electronic check icon and “VeriGlow®” with the U.S. Patent and Trademark Office. A trademark application is pending in Canada for “AuthentiGuard.” AuthentiGuard® is registered in several European countries including the United Kingdom. We have also applied to register AuthentiSite TM, AuthentiShare TM, AuthentiSuiteTM, AuthentiBlockTM, and AuthentiChainTM in the U.S.

Websites

The primary corporate website we maintain is www.dsssecure.com, which describes our Company, our history, our patented document security solutions, our major product offerings, and our targeted vertical markets across all of our business segments. In addition, we operate www.hwhmarketplace.com which is an online retail site that is centreed around our health and wellness nutraceutical products, www.impbio.com which is the primary site for our product information on that company. In addition to the active websites, the Company owns several other domain names reserved for future use or for strategic competitive reasons. Information on our websites or any other website does not constitute a part of this annual report.

Markets and Competition

As to the security printing business, the security print market is comprised of a few very large companies and an increasing number of small companies with specific technology niches. The expansion of this market is primarily due to the significant expansion of counterfeiting as advancing technologies in digital duplication and scanning combined with increasingly sophisticated design software has enabled easier reproduction of original documents, vital records and IDs, packaging, and labels. Our competitors include Standard Register Company, which specializes in printing security technologies for the check and forms and medical industries; and De La Rue Plc, that specializes in printing secure currency, tickets, labels, lottery tickets and vital records for governments and Fortune 500 companies. Large office equipment manufacturers, called OEMs, such as Sharp, Xerox Canon, Ricoh, Hewlett Packard and Eastman Kodak are developing “smart copier” technology that recognizes particular graphical images and produces warning words or distorted copies. Some of the OEMs are also developing user assigned and variable pantograph “hidden word” technologies in which users can assign a particular hidden word in copy, such as “void” that is displayed when a copy of such document is made. In addition, other competing hidden word technologies are being marketed by competitors such as NoCopi Technologies which sells and markets secure paper products, and Graphic Security Systems Corporation, which markets Scrambled Indicia.

Our packaging division competes with a significant number of national, regional and local companies, many of which are independent and privately-held. The largest competitors in this market are primarily focused on the long-run print order market. They include large integrated paper companies such as West Rock Company, Caraustar Industries, Inc., Graphic Packaging Holding Company and Mead Westvaco. Our printing division competes primarily with locally-based printing companies in the Rochester and Western New York markets. Most of our competitors in these markets are privately-held, single location operations.

As to our Digital Group, our technology division also faces competition in the area of patent acquisitions and enforcement. Entities such as Acacia, RPX, AST, Intellectual Ventures, Wi-LAN, MOSAID, Round Rock Research LLC, IPvalue Management Inc., Vringo Inc. and Pendrell Corporation compete in acquiring rights to patents and product authentication from companies like Authentix, Opsec, and Alpvision that have similar technology to help protect against fraud and authenticate consumer packaged goods. .

As to the Direct Marketing Group, the network marketing or direct marketing industry is a very competitive marketplace. While not directly competing with HWH and SHRG, the following companies are significant players in the global network marketing business and as a result an indirect competitor of HWH and SHRG: Amay, Avon, Herbalife, Natura, Vorwerk, Mary Kay, Infinitus, Perfect, Forever Living, Nu Skin, Young Living, and New Era, among others.

Customers

During 2020, two customers accounted for 38% of our consolidated revenue. As of December 31, 2020, these two customers accounted for 60% of our consolidated trade accounts receivable balance. As of December 31, 2019, these two customers accounted for 45% of our consolidated revenue and 48% of the Company’s consolidated trade accounts receivable balance. This customer diversification improvement was driven by addition of several new customers to our overall customer base.

Raw Materials

As to the packaging business, the primary raw materials the Company uses in its businesses are paper, paperboard, corrugated board and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies and uses a wide variety of paper grades, formats, ink formulations and colors. Paper and paperboard prices continued to increase in 2020, and we believe increases in future years are expected. Except for certain packaging customers where the Company enters into annual contracts, for which changes in paperboard pricing is absorbed by the Company, the Company has historically passed substantially all increases and decreases to its customers, although there can be no assurances that the Company will continue to do so in the future.

Environmental Compliance

It is the Company’s policy to conduct its operations in accordance with all applicable laws, regulations and other requirements. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.

Government Regulation

We play an active role with the Document Security Alliance group, as one of our research and development management members sits on various committees of that group and has been involved in design recommendations for important U.S. documents. This group of security industry specialists was formed by the U.S. Secret Service to evaluate and recommend security solutions to the federal government for the protection of credentials and vital records.

Our patent monetization business is also faced with potential government regulations. If new legislation, regulations or rules are implemented either by Congress, the U.S. Patent and Trademark Office (the “USPTO”), or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our patent monetization efforts and, in turn, our assets, expenses and revenue. United States patent laws have been amended by the Leahy-Smith America Invents Act. The America Invents Act includes several significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities. In addition, the U.S. Department of Justice (“DOJ”) has conducted reviews of the patent system to evaluate the impact of patent assertion entities, such as our Company, on industries in which those patents relate. It is possible that the findings and recommendations of the DOJ could adversely impact our ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.

Moreover, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions.

Corporate History

The Company was incorporated in 1984 and changed its name to Document Security Systems, Inc. in 2002. See, the “Overview” section above for further details about our acquisitions.

Employees

As of March 26, 2021, all of the Company’s 93 employees were full time. It is important that we continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are generally good.

Available information

Our website address is www.dsssecure.com. Information on our website is not incorporated herein by reference. We make available free of charge through our website our press releases, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after electronically filed with or furnished to the Securities and Exchange Commission.

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. We specialize in creating dynamic solutions that protect against fraud and ensure the well-being of consumers worldwide. Our mission is to make and deliver world-class authentication, counterfeit prevention and consumer engagement technology attainable and integrated into every product we offer. The Company holds numerous patents for optical deterrent and authentication technologies that provide protection of printed information from unauthorized alterations, scanning and copying. We operate two production facilities, consisting of a combined security printing and packaging facility and a plastic card facility, where we produce secure and non-secure products for our customers. 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.

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”). 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 DSS Digital Group with our wholly owned subsidiary, DSS Asia Limited, in our office in Hong Kong. In December 2018, this division acquired Guangzhou Hotapps Technology Ltd, a Chinese company with a valuable license enabling us to do business in China.

We do business in four operating segments as follows:

DSS Packaging and Printing Group -Operating under the name Premier Packaging Corporation (a New York corporation), the DSS Packaging and Printing Group produces custom packaging serving clients in the pharmaceutical, nutraceutical, beverage, specialty foods, photo packaging and direct marketing industries, among others. The group also provides active and intelligent packaging and document security printing services for end-user customers along with technical support for our technology licensees. The division produces a wide array of printed materials, such as folding cartons and paperboard packaging, security paper, vital records, prescription paper, birth certificates, receipts, identification materials, entertainment tickets, secure coupons and parts tracking forms. The division also provides resources and production equipment for our ongoing research and development of security printing and related technologies.

DSS Plastics Group - Manufactures laminated and surface printed cards, which can include magnetic stripes, bar codes, holograms, signature panels, invisible ink, micro fine printing, guilloche patterns, biometrics, radio frequency identification (RFID) and watermarks for printed plastic documents such as ID cards, event badges and driver’s licenses. DSS Plastics Group is headquartered in Brisbane, California and operates under the name of Plastic Printing Professionals, Inc., a New York corporation.

DSS Digital Group - This division researches, develops, markets and sells worldwide the Company’s digital products, including and primarily our AuthentiGuard® product, which is a brand authentication application that integrates the Company’s counterfeit deterrent technologies with proprietary digital data security-based solutions. The AuthentiGuard® product allows our customers to implement a security mark utilizing conventional printing methods that is copy- and counterfeit-resistant and that can be read and recorded utilizing smartphones and other digital image capture devices, which can be utilized by that customer’s suppliers, field personnel and customers throughout its global product supply and distribution chains.

DSS Technology Management - Since its acquisition in 2013, DSS Technology Management’s primary mission has been to monetize its various patent portfolios through commercial litigation and licensing. Except for investment in its social networking related patents, we have historically partnered with various third-party funding groups in connection with patent monetization programs. It is our intent to de-emphasize and ultimately wind down this business line. While Management will continue to assert and defend the existing patents and purse potential infringements as they are identified, we do not intend to seek out new patent portfolios.

Strategic Business Plan

In November 2019, we announced the Company’s new strategic business plan, which focuses on strengthening our organization, investing in our core lines of business, improving top line revenues and net margins, controlling costs and creating new long-term recurring revenue streams. This strategic business plan has the following core elements, which are discussed in further detail below:

● Revive the Company’s core businesses; ● Optimize cost structure and reduce cash burn; ● Exit unprofitable business lines; and ● Business diversification.

Reviving the Company’s Core Businesses – We are upgrading equipment and products to enhance cross-selling opportunities with existing customers and intend to rejuvenate research and development on digital anti-counterfeit technology products.

Substantially Reducing Corporate Overhead and Cash Burn – Since the spring of 2019, we have reduced the Company’s monthly cash burn by more than $160,000, by eliminating non-essential layers of management and redundant operating expenses, as well as by renegotiating vendor contracts. We plan to continue to reduce overhead operating costs, redundancy and cash burn through a series of new management initiatives.

Exiting Unprofitable Business Lines – To preserve capital and stop further cash drain, we intend, as we have noted above, to de-emphasize and ultimately wind down our intellectual property monetization business line.

Since entering the intellectual property (“IP”) monetization business in July 2013, we have invested substantial capital and resources into purchasing, maintaining and enforcing our patents. We have also invested substantial resources in the research and development of internally generated IP for our own use and/or for potential profitable licensing opportunities.

However, the costs of funding a patent pool, including patent maintenance fees, litigation (costs for legal counsel, discovery, consultants, expert witnesses and travel), and overhead costs associated with the IP business line, has placed a significant financial strain upon the Company. In 2019, our corporate cash burn reached approximately $255,000 per month primarily related to recurring costs related to the IP monetization line of business, which reduced resources for our other lines of business, as well as our own patent research and development. Further, because the related IP legal costs are expensed in the year incurred with no corresponding revenue generation, the financial impact to the Company caused us to routinely report negative operating income year over year. Moreover, as a result of the IP monetization line’s high capital demand, the Company did not have the capital to initiate and sustain IP litigation against potential major infringers of DSS patents.

In addition, as a result of several court decisions and statutory changes, the patent laws in the United States have changed significantly since our entry into this business. Consequently, the enforcement of patents has become more costly and more difficult for DSS and other patent holders, and the likelihood of successful litigation has decreased. Further, depending upon the type of IP involved and the parties who are the alleged patent infringers, the legal enforcement and recovery process can take five or more years before the matter goes to trial. For instance, the Apple litigation, which we have previously disclosed and which is described in more detail herein, was initiated in September 2013 and was scheduled to go to trial in late February 2020; a period of approximately 6 ½ years.

As a result of the significant financial, working capital and resource allocation to the IP monetization program, we made a critical review of the program. We reviewed all elements and factors related to the operations of this business line, including what we hold in inventory of patents, the potential of that patent portfolio, the timetables involved to monetize those patents, the cost of capital to maintain the patents to monetization, and the probability of successful monetization. As a result of that extensive review, we determined that it was in the best interest of DSS and its stockholders to de-emphasize and ultimately exit the IP monetization line of business.

The process of exiting this line of business will not be immediate. DSS has outstanding contracts with third parties, including attorneys, lenders and former patent holders, which must be addressed. We have determined that the cost to stop all litigation and recovery actions at this time would be too high. As a result, we have elected to not immediately terminate and exit this line of business, but to wind it down in an organized fashion. We will honor our existing contracts and complete the existing IP monetization programs without adding any new costs. We do not intend to make any further investments in acquiring patents that do not directly support our existing and targeted product lines. We estimate that the timetable necessary to exit this business line will be approximately 18 to 24 months.

Implementing Business Diversification Initiatives – We plan to both internally develop and to acquire profitable new businesses, which will in some cases be complimentary to our core businesses and addressable markets. In other instances, we intend to explore opportunities for expansion into new business lines in which we believe we can successfully compete, which are scalable, and which generate sustainable reoccurring revenue. Management has already taken steps toward this diversification by performing initial research and cost analysis into specific new business lines, and in 2019 we formed the following four new subsidiaries, in an effort to grow and expand our technologies and market reach. These four potential new business lines are in various stages of development and have not yet generated any significant revenues.

● DSS BioHealth Security, Inc. (a Nevada corporation). This business will be principally involved in the bio-medical sector, including investing in companies that hold bio-medical intellectual property and/or have, or are securing, strategic alliances, partnerships and distribution rights for bio-medical and security products, technologies or enterprises. This new division will focus on open-air defense initiatives that seek to curb transmission of airborne infectious diseases such as tuberculosis and influenza, among others, in open areas. Consistent with that growth initiative, on March 12, 2020, the Company announced that it had entered into a binding term sheet to acquire Impact Biomedical, Inc. (“Impact”), a company engaged in the development and marketing of biohealth security technologies, in a proposed share exchange transaction with a purchase price capped at $50 million, subject to completion of due diligence and an independent valuation. According to the terms of the term sheet between the parties, DSS will issue up to 14.5 M shares of common stock and a perpetual convertible preferred stock to which DSS will have certain customary rights and requirements, including appointing members of the Board of Directors of Impact. The preferred stock will be convertible at $0.216 per share and have a 19.9% blocker. Subject to a favorable due diligence and recommendation, the acquisition is subject to final DSS Board, DSS shareholder, and NYSE approval, of which there can be no guarantee. See Note 16 for further disclosure on this transaction. ● Decentralize Sharing Systems, Inc. (a Nevada corporation) (“Decentralized”). Decentralized intends to develop and operate its own marketing network. We intend to offer product financing to small and mid-sized network marketing companies in the U.S. to assist them with growth opportunities. Direct marketing or network marketing is designed to sell products or services directly to the public through independent distributors, rather than selling through the traditional retail market. We believe this business has significant growth potential in the now popular “gig economy”. Consistent with the Company’s strategic business plan and vision, we plan to enter the direct marketing or network marketing industry and take advantage of the opportunities that exist. We have entered into partnerships with existing direct marketing companies to access U.S., Canadian, Asian and Pacific Rim markets. In addition, we have acquired various domestic and international operating licenses from those companies. Through the acquisitions we have secured product licenses, formulas, existing sales networks, patents, web sites, and other resources to initiate sales and revenue generation for this line. We are currently planning different options on how to take advantage of this opportunities in the direct selling market and help DSS in its global branding.

● DSS Blockchain Security, Inc., (a Nevada corporation). This corporate business line will specialize in the development of blockchain security technologies for tracking and tracing solutions for supply chain logistics and cyber security across global markets. ● DSS Securities, Inc., (a Nevada corporation) (“DSS Securities”). This line of business will seek to establish or acquire investments in long-term growth and sustainable reoccurring revenue generating activities; not in the trading of securities under an investment format. This Securities group, while not limited to the following investment opportunities, will primarily seek out investment opportunities in the biomedical, health services, and blockchain-based technologies industries. The blockchain-based technologies are anticipated to include digital asset exchanges in multiple jurisdictions, including: (i) security token exchanges, focused on digitized assets from different vertical industries, and (ii) utility token exchanges, focusing on “blue-chip” utility tokens from solid businesses. Consistent with that development plan, on March 3, 2020, DSS Securities entered into a binding term sheet with LiquidValue Asset Management Pte Ltd (“LVAM”), AMRE Asset Management Inc. (“AAMI”) and American Medical REIT Inc. (“AMRE”), regarding a share subscription and loan arrangement. The terms of the proposed joint venture, which has now been consummated, intends to create a medical real estate investment trust in the United States. AMRE has been formed to originate, acquire, and lease a credit-centric portfolio of licensed medical real estate. AMRE shall provide investors the opportunity for direct ownership of Class A licensed medical real estate. AMRE intends to acquire purpose-built healthcare facilities and lease them to leading clinical operators with strong market share under secure triple net leases. AMRE targets hospitals (both Critical Access and Specialty Surgical), Physician Group Practices, Ambulatory Surgical Centers, and other licensed medical treatment facilities. AAMI is a real estate investment trust (“REIT”) management company that sets the strategic vision and formulates the investment strategy for AMRE. It shall manage the REIT’s assets and liabilities and provide recommendations to AMRE on acquisition and divestments in accordance with the investment strategies. Pursuant to the term sheet, the DSS Securities will hold 52.5% of the outstanding shares of AAMI, with LVAM and AMRE Tennessee, LLC, holding 35% and 12.5% of the remaining outstanding shares of AAMI, respectively. Further, pursuant to and in connection with the term sheet, on March 3, 2020, the Company entered into a Promissory Note with AMRE, pursuant to which AMRE will issue the Company a promissory note for the principal amount of $800,000 (the “Note”). The Note matures on March 3, 2022 and accrues interest at the rate of 8.0% per annum, and shall be payable in accordance with the terms set forth in the Note. Under the Note, AMRE may prepay or repay all or any portion of the Note at any time, without a premium or penalty. If not sooner prepaid, the entire unpaid principal balance of the Note including accrued interest will be due and payable in full on March 3, 2022. AMRE’s failure to pay any amount due on the Note within five days of when payment is due constitutes an event of default under the Note, pursuant to which the Company can declare the Note due and payable. The Note also provides the Company an option to provide AMRE an additional $800,000 on the same terms and conditions as the Note, including the issuance of warrants, See Note 16 for further disclosure on this transaction.

Our Core Products:

Technology and Counterfeit Prevention and Brand Services

DSS Digital Group’s core business is counterfeit prevention, brand protection, consumer engagement and validation of authentic print media, including government-issued documents, packaging, ID cards and licenses. We believe we are a leader in the research and development of optical deterrent technologies and have commercialized these technologies with a suite of products that offer our customers an array of brand security solutions. In addition, we provide document security technology to security printers, corporations, consumer product companies and governments for protection of vital records, certifications, travel documents, consumer products, pharmaceutical packaging and school transcripts.

Optical deterrent features such as ours have traditionally been utilized mainly by large security printers for the protection of important printed documents, such as vital records and identification documents. Many of these competitive features were developed pre-1980 and were designed to be effective on the imaging devices of the day, which were mainly photography mechanisms. With the advent of modern-day scanners, digital copiers, digital cameras, smartphones and easy-to-use imaging software such as Adobe Photoshop, many of the pre-1980 optical deterrents such as micro-printing are much less effective in the prevention of counterfeiting.

Unlike some of our competitors, our technologies are built to defeat modern scanners and digital copiers, and we believe that our products are the most effective in doing so in the market today.

Our primary anti-counterfeiting products and technologies have evolved from a traditional analog product to a highly advanced digital system and are marketed under our AuthentiGuard® registered trademark. In October 2012, we introduced AuthentiGuard®, a smartphone application for authentication, targeted to major Fortune 500 companies worldwide. The application is a cloud-enabled solution that permits efficient and cost-effective counterfeit deterrence, authentication and consumer engagement. The solution embeds customizable, covert AuthentiGuard® Prism technology that resists counterfeiting or alteration on product packaging, labeling, documents and credentials. Product verification using the smartphone application creates real-time, accurate authentication results for brand owners, government officials and supply chain personnel that can be integrated into existing information systems.

Since 2012, the AuthentiGuard® product has grown to annual sales of approximately $1.5 million, and we project that over the next three years annual sales of AuthentiGuard® will increase by an annualized growth rate of approximately 17%. Today, our mission is to make world-class authentication, counterfeit prevention and consumer engagement technology that is assessable and scalable to an expanding customer base. We intend to bring our technology-laden plastic and packaging solutions to a broader range of clients including small businesses, develop long-term relationships with those who use them and grow our business organically.

Printing & Packaging Business

Premier Packaging Corporation provides custom packaging services and serves clients in the pharmaceutical, nutraceutical, beverage, specialty foods, photo packaging and direct marketing industries, among others. The group also provides active and intelligent packaging and document security printing services for end-user customers. In addition, the division produces a wide array of printed materials, such as folding cartons and paperboard packaging, security paper, vital records, prescription paper, birth certificates, receipts, identification materials, entertainment tickets, secure coupons and parts tracking forms. The division also provides resources and production equipment for our ongoing research and development of security printing and related technologies.

IP Patent Monetization Business

Since its acquisition in 2013, DSS Technology Management’s primary mission has been the attempted monetization of its various patent portfolios through commercial litigation.

Except for its investment in its social networking related patents, DSS Technology Management and the Company have partnered with various third-party funding groups in connection with patent monetization programs. In connection with this business line, the Company has purchased patents in a variety of fields, including social networking, mobile communications, semi-conductors, Bluetooth and LED, and has initiated patent infringement litigation against a wide range of domestic and global Companies. In connection with these litigation matters, the Company engages with legal firms that typically work under fee caps and contingency fee arrangements. To date, the Company has been or is currently in litigation with, among others, Apple, Samsung, Taiwan Semiconductor Manufacturing Company, Intel, NEC, Lenovo, Seoul Semiconductor, Everlight Electronics, Cree, Nichia and Osram, GMBH. During the course of these litigation matters, the Company typically incurs a variety of legal challenges from defendants, including defendants seeking to have the patents in question adjudicated to be invalid by the United States Patent Office through the Inter Partes Review process (“IPR”). As a result of these various legal challenges issued by defendants, the Company has experienced varying levels of success in its efforts to monetize its patent investments. In addition, to date, most of settlements or payments received from defendants have been remitted to the Company’s third-party funders in accordance with the terms of those respective funding agreements.

The status of pending patent infringement lawsuits which have been filed by DSS Technology Management and the Company are more particularly described in Part 1, Item 3 of this Report.

Intellectual Property

Patents

Our ability to compete effectively depends largely upon our ability to maintain the proprietary nature of our technology, products and manufacturing processes. We principally rely upon patent, trademark, trade secrets and contract law to establish and protect our proprietary rights. During our development, we have expended significant resources on research and development in an effort to become a market leader with the ability to provide our customers effective solutions against an ever-changing array of counterfeit risks. Our position in the security print market is based on our technologies and products. We dedicate two staff members to research and development of print technologies, digital graphic files, and printing techniques to allow us to expand our ability to combat a wide variety of counterfeiting and brand protection issues. The Company recognized a credit in 2019 of approximately $12,000 primarily due to receipt of a refund on development costs for the development of proprietary blockchain solutions for the Company’s AuthentiGuard product line. In comparison, the Company spent approximately $146,000 on research and development during 2018, primarily toward the development of the Company’s AuthentiGuard product line.

We own patents covering semiconductor, light emitting diode, anti-counterfeiting and document authentication, and wireless peripheral technologies, respectively. We also have several patent applications in process, including provisional and Patent Cooperation Treaty (“PCT”) patent applications in various jurisdictions including the United States, Canada, and Europe. These applications cover our anti-counterfeiting technologies, including AuthentiGuard®, AuthentiGuard® Prism™, and AuthentiGuard® VeriGlow™, and several other anti-counterfeiting and authentication technologies in development. Our issued patents have remaining durations ranging from 1 to 16 years.

Trademarks

We have registered our “AuthentiGuard®” mark, as well as our “Survivor 21®” electronic check icon and “VeriGlow®” with the U.S. Patent and Trademark Office. A trademark application is pending in Canada for “AuthentiGuard.” AuthentiGuard® is registered in several European countries including the United Kingdom. We have also applied to register AuthentiSite TM, AuthentiShare TM, AuthentiSuiteTM, AuthentiBlockTM, and AuthentiChainTM in the U.S.

Websites

The primary website we maintain is www.dsssecure.com, which describes our Company, our history, our patented document security solutions, our major product offerings, and our targeted vertical markets. In addition to the active websites, the Company owns several other domain names reserved for future use or for strategic competitive reasons. Information on our websites or any other website does not constitute a part of this annual report.

Markets and Competition

The security print market is comprised of a few very large companies and an increasing number of small companies with specific technology niches. The expansion of this market is primarily due to the significant expansion of counterfeiting as advancing technologies in digital duplication and scanning combined with increasingly sophisticated design software has enabled easier reproduction of original documents, vital records and IDs, packaging, and labels. Our competitors include Standard Register Company, which specializes in printing security technologies for the check and forms and medical industries; and De La Rue Plc, that specializes in printing secure currency, tickets, labels, lottery tickets and vital records for governments and Fortune 500 companies. Large office equipment manufacturers, called OEMs, such as Sharp, Xerox Canon, Ricoh, Hewlett Packard and Eastman Kodak are developing “smart copier” technology that recognizes particular graphical images and produces warning words or distorted copies. Some of the OEMs are also developing user assigned and variable pantograph “hidden word” technologies in which users can assign a particular hidden word in copy, such as “void” that is displayed when a copy of such document is made. In addition, other competing hidden word technologies are being marketed by competitors such as NoCopi Technologies which sells and markets secure paper products, and Graphic Security Systems Corporation, which markets Scrambled Indicia.

Our packaging division competes with a significant number of national, regional and local companies, many of which are independent and privately-held. The largest competitors in this market are primarily focused on the long-run print order market. They include large integrated paper companies such as Rock-Tenn Company, Caraustar Industries, Inc., Graphic Packaging Holding Company and Mead Westvaco. Our printing division competes primarily with locally-based printing companies in the Rochester and Western New York markets. Most of our competitors in these markets are privately-held, single location operations.

Our plastics division competes with several companies including Bristol ID, AbNote (formerly Arthur Blanks), LaserCard Corporation and L-1 Identity Solutions. The plastics division primarily delivers its products through a dealer network, but also provides products to end-user customers. Competition in the plastic card industry is primarily based on production capabilities based on specialized equipment, geographic location, quality and service. In addition, competition is increasingly influenced by proprietary or niche offerings provided by competitors, such as RFID, biometric, read-write, and security features built-into the plastic card.

Our technology division also faces competition in the area of patent acquisitions and enforcement. Entities such as Acacia, RPX, AST, Intellectual Ventures, Wi-LAN, MOSAID, Round Rock Research LLC, IPvalue Management Inc., Vringo Inc. and Pendrell Corporation compete in acquiring rights to patents.

Customers

During 2019, two customers accounted for 45% of our consolidated revenue. As of December 31, 2019, these two customers accounted for 49% of our consolidated trade accounts receivable balance. As of December 31, 2018, these two customers accounted for 44% of our consolidated revenue and 38% of the Company’s consolidated trade accounts receivable balance.

Raw Materials

The primary raw materials the Company uses in its businesses are paper, corrugated paperboard, plastic sheets, and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies and uses a wide variety of paper grades, formats, ink formulations and colors. Paper and paperboard prices continued to increase in 2019, and we believe increases in future years are expected. Except for certain packaging customers where the Company enters into annual contracts, for which changes in paperboard pricing is absorbed by the Company, the Company has historically passed substantially all increases and decreases to its customers, although there can be no assurances that the Company will continue to do so in the future.

Environmental Compliance

It is the Company’s policy to conduct its operations in accordance with all applicable laws, regulations and other requirements. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.

Government Regulation

We play an active role with the Document Security Alliance group, as one of our research and development management members sits on various committees of that group and has been involved in design recommendations for important U.S. documents. This group of security industry specialists was formed by the U.S. Secret Service to evaluate and recommend security solutions to the federal government for the protection of credentials and vital records.

Our patent monetization business is also faced with potential government regulations. If new legislation, regulations or rules are implemented either by Congress, the U.S. Patent and Trademark Office (the “USPTO”), or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our patent monetization efforts and, in turn, our assets, expenses and revenue. United States patent laws have been amended by the Leahy-Smith America Invents Act. The America Invents Act includes several significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities. In addition, the U.S. Department of Justice (“DOJ”) has conducted reviews of the patent system to evaluate the impact of patent assertion entities, such as our Company, on industries in which those patents relate. It is possible that the findings and recommendations of the DOJ could adversely impact our ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.

Moreover, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions.

Corporate History

The Company was incorporated in 1984 and changed its name to Document Security Systems, Inc. in 2002. Since then, the Company has acquired a plastics card manufacturer, a printing company, a packaging company, an IT services company, and an intellectual property monetization company. See, the “Overview” section above for further details about our acquisitions.

Employees

As of March 20, 2020, all of the Company’s 100 employees were full time. It is important that we continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are generally good.

Available information

Our website address is www.dsssecure.com. Information on our website is not incorporated herein by reference. We make available free of charge through our website our press releases, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after electronically filed with or furnished to the Securities and Exchange Commission.

Overview

Document Security Systems, Inc. (referred to in this report as “Document Security Systems”, “DSS”, “we”, “us”, “our” or “Company”) was formed in New York in 1984 and, in 2002, chose to strategically focus on becoming a developer and marketer of secure technologies. We specialize in fraud and counterfeit protection for all forms of printed documents and digital information. The Company holds numerous patents for optical deterrent technologies that provide protection of printed information from unauthorized scanning and copying. We operate two production facilities, consisting of a combined security printing and packaging facility and a plastic card facility where we produce secure and non-secure documents for our customers. We license our anti-counterfeiting technologies to printers and brand-owners. In addition, we have a digital division which provides cloud computing services for our customers, including disaster recovery, back-up and data security services. In 2013, the Company expanded its business focus by merging with DSS Technology Management, Inc., formerly known as Lexington Technology Group, Inc. (as described in greater detail below), which acquires intellectual property assets and interests in companies owning 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 litigation.

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. (“P3”), a privately held plastic cards manufacturer located in the San Francisco, California area. P3 is also referred to herein as the “DSS Plastics Group”. In 2008, we acquired DPI of Rochester, LLC, a privately held commercial printer located in Rochester, New York, referred to herein as “Secuprint” or “DSS Printing Group”. In 2010, we acquired Premier Packaging Corporation, a privately held packaging company located in Victor, New York. Premier Packaging Corporation is also referred to herein as “Premier Packaging” or the “DSS Packaging 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”.

On July 1, 2013, we merged with DSS Technology Management, Inc. (formerly known as Lexington Technology Group, Inc.), a private intellectual property monetization company. DSS Technology Management, Inc. is also referred to herein as “DSS Technology Management” or “DSSTM”. DSS Technology Management is focused 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.

In January 2018, the Company commenced international operations with its wholly owned subsidiary, DSS Asia Limited, in its office in Hong Kong. In December 2018, this division acquired Guangzhou Hotapps Technology Ltd, a Chinese company that enhances the Company’s ability to do business in China. Guangzhou Hotapps Technology Ltd, did not have revenue but has two employees and a license to do business in China.

We do business in five operating segments as follows:

DSS Packaging and Printing Group - Produces custom paperboard packaging serving clients in the pharmaceutical, beverage, photo packaging, toy, specialty foods and direct marketing industries, among others. The group also provides secure and commercial printing services for end-user customers along with technical support for our technology licensees. The division produces a wide array of printed materials such as security paper, vital records, prescription paper, birth certificates, receipts, manuals, identification materials, entertainment tickets, secure coupons, parts tracking forms, brochures, direct mailing pieces, catalogs, business cards, etc. The division also provides resources and access to production equipment for our ongoing research and development of security printing and related technologies.

DSS Plastics Group - Manufactures laminated and surface printed cards which can include magnetic stripes, bar codes, holograms, signature panels, invisible ink, micro fine printing, guilloche patterns, biometric, radio frequency identification (RFID) and watermarks for printed plastic documents such as ID cards, event badges, and driver’s licenses.

DSS Digital Group - This division researches, develops, markets and sell the Company’s digital products, including and primarily, our AuthentiGuard product, which is a brand authentication application that integrates the Company’s optical deterrent technologies used in its security printing offerings with proprietary digital data security based solutions. The AuthentiGuard product allows customers to implement a security mark utilizing conventional printing methods that is copy and counterfeit resistant that can be read and recorded utilizing smartphones and other digital image capture devices, which can be utilized by that customers suppliers, field personnel and customers throughout its global product supply and distribution chains.

DSS International - Assists the DSS Digital Group in the development and marketing of the Company’s digital authentication products in the Asia Pacific market.

DSS Technology Management - Acquires or internally develops patented technology or intellectual property assets (or interests therein), with 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.

Our Core Products, Technology and Services

Our core business is counterfeit prevention, brand protection and validation of authentic print media, including government-issued documents, packaging, ID cards and licenses. We believe we are a leader in the research and development of optical deterrent technologies and have commercialized these technologies with a suite of products that offer our customers an array of document security solutions. We provide document security technology to security printers, corporations, consumer product companies, and governments for protection of vital records and documents, certifications, travel documents, consumer products, pharmaceutical packaging and school transcripts.

Optical deterrent features such as ours are utilized mainly by large security printers for the protection of important printed documents, such as vital records, and identification documents. Many of these features, such as micro-printing, were developed pre-1980 as they were designed to be effective on the imaging devices of the day which were mainly photography mechanisms. With the advent of modern-day scanners, digital copiers, digital cameras, smart phones and easy to use imaging software such as Adobe Photoshop many of the pre-1980 optical deterrents such as micro-printing are no longer used or are much less effective in the prevention of counterfeiting.

Unlike some of our competitors, our technologies are developed to defeat today’s modern imaging systems. Almost all our products and processes are built to thwart scanners and digital copiers and we believe that our products are the most effective in doing so in the market today. In addition, our technologies do not require expensive hardware or software add-ons to authenticate a document, but instead require simple, inexpensive hand-held readers which can be calibrated to particular hidden design features. Our technologies are literally ink on paper that is printed with a particular method to hide selected things from a scanner’s “eye” or distort what a scanner “sees.” These attributes make our anti-scanning technologies very cost effective versus other current offerings on the market since our technologies are imbedded during the normal printing process, thereby significantly reducing the costs to implement the technologies.

The Company’s primary anti-counterfeiting products and technologies are marketed under its AuthentiGuard® registered trademark. In October 2012, the Company introduced AuthentiGuard®, an iPhone application for authentication, targeted to major Fortune 500 companies worldwide. The application is a cloud-enabled solution that permits efficient and cost-effective authentication for packaging, documents and credentials. The solution embeds customizable, covert AuthentiGuard® Prism technology that resists duplication on copiers and scanners in a product’s packaging. Product verification using a smartphone application creates real-time, accurate authentication results for brand owners that can be integrated into existing information systems.

Our Patent Monetization Business

Since its acquisition in 2013, DSS Technology Management’s primary mission has been the attempted monetization of its various patent portfolios through commercial litigation.

Except for its investment in its social networking related patents, DSS Technology Management and the Company have partnered with various third-party funding groups in connection with patent monetization programs and may continue to do so in the future. In connection with these fundings, the Company has purchased patents in a variety of fields, including social networking, mobile communications, semi-conductors, Bluetooth and LED, and has initiated patent infringement litigation against a wide range of domestic and global Companies. In connection with these litigation matters, the Company engages with legal firms that typically work under fee caps and contingency fee arrangements. To date, the Company has been or is currently in litigation with, among others, Apple, Samsung, Taiwan Semiconductor Manufacturing Company, Intel, NEC, Lenovo, Seoul Semiconductor, Everlight Electronics, Cree, Nichia and Osram, GMBH. During the course of these litigation matters, the Company typically incurs a variety of legal challenges from defendants, including defendants seeking to have the patents in question adjudicated to be invalid by the United States Patent Office through the Inter Partes Review process (“IPR”). As a result of these various legal challenges issued by defendants, the Company has experienced varying levels of success in its efforts to monetize its patent investments. In addition, to date, most of settlements or payments received from defendants have been remitted to the Company’s third-party funders in accordance with the terms of those respective funding agreements.

The status of pending patent infringement lawsuits which have been filed by DSS Technology Management and the Company are more particularly described in Part 1, Item 3 of this Report.

Intellectual Property

Patents

Our ability to compete effectively depends largely upon our ability to maintain the proprietary nature of our technology, products and manufacturing processes. We principally rely upon patent, trademark, trade secrets and contract law to establish and protect our proprietary rights. During our development, we have expended significant resources on research and development in an effort to become a market leader with the ability to provide our customers effective solutions against an ever-changing array of counterfeit risks. Our position in the security print market is based on our technologies and products. We dedicate two staff members to research and development of print technologies, digital graphic files, and printing techniques to allow us to expand our ability to combat a wide variety of counterfeiting and brand protection issues. In 2018 and 2017, we spent approximately $146,000 and $106,000 respectively, on research and development which is comprised mainly of compensation costs, materials and consultants, including stock-based payments to consultants. Research and development costs increased during 2018 as compared to 2017 as the Company moved some personnel from research and development to program support to meet the requirements of current and prospective customers of the Company’s AuthentiGuard product line.

We own patents covering semiconductor, light emitting diode, anti-counterfeiting and document authentication, and wireless peripheral technologies, respectively. We also have several patent applications in process, including provisional and Patent Cooperation Treaty (“PCT”) patent applications in various jurisdictions including the United States, Canada, and Europe. These applications cover our anti-counterfeiting technologies, including AuthentiGuard®, AuthentiGuard® Prism™, and AuthentiGuard® VeriGlow™, and several other anti-counterfeiting and authentication technologies in development. Our issued patents have remaining durations ranging from 1 to 17 years.

Trademarks

We have registered our “AuthentiGuard®” mark, as well as our “Survivor 21®” electronic check icon and “VeriGlow®” with the U.S. Patent and Trademark Office. A trademark application is pending in Canada for “AuthentiGuard.” AuthentiGuard® is registered in several European countries including the United Kingdom. We have also applied to register AuthentiSite TM, AuthentiShare TM, AuthentiSuiteTM, AuthentiBlockTM, and AuthentiChainTM in the U.S.

Websites

The primary website we maintain is www.dsssecure.com, which describes our Company, our history, our patented document security solutions, our major product offerings, and our targeted vertical markets. The website provides detailed product offerings of each of our divisions – Printing/ Packaging, Plastics and Digital. In addition, we maintain the website www.protectedpaper.com, an e-commerce site that markets and sells our patented security paper, hand-held security verifiers and custom security documents to end users worldwide. In addition to the active websites, the Company owns several other domain names reserved for future use or for strategic competitive reasons.

Markets and Competition

The security print market is comprised of a few very large companies and an increasing number of small companies with specific technology niches. The expansion of this market is primarily due to the significant expansion of counterfeiting as advancing technologies in digital duplication and scanning combined with increasingly sophisticated design software has enabled easier reproduction of original documents, vital records and IDs, packaging, and labels. Our competitors include Standard Register Company, which specializes in printing security technologies for the check and forms and medical industries; and De La Rue Plc, that specializes in printing secure currency, tickets, labels, lottery tickets and vital records for governments and Fortune 500 companies. Large office equipment manufacturers, called OEMs, such as Sharp, Xerox Canon, Ricoh, Hewlett Packard and Eastman Kodak are developing “smart copier” technology that recognizes particular graphical images and produces warning words or distorted copies. Some of the OEMs are also developing user assigned and variable pantograph “hidden word” technologies in which users can assign a particular hidden word in copy, such as “void” that is displayed when a copy of such document is made. In addition, other competing hidden word technologies are being marketed by competitors such as NoCopi Technologies which sells and markets secure paper products, and Graphic Security Systems Corporation, which markets Scrambled Indicia.

Our packaging division competes with a significant number of national, regional and local companies, many of which are independent and privately-held. The largest competitors in this market are primarily focused on the long-run print order market. They include large integrated paper companies such as Rock-Tenn Company, Caraustar Industries, Inc., Graphic Packaging Holding Company and Mead Westvaco. Our printing division competes primarily with locally-based printing companies in the Rochester and Western New York markets. Most of our competitors in these markets are privately-held, single location operations.

Our plastics division competes with several companies including Bristol ID, AbNote (formerly Arthur Blanks), LaserCard Corporation and L-1 Identity Solutions. The plastics division primarily delivers its products through a dealer network, but also provides products to end-user customers. Competition in the plastic card industry is primarily based on production capabilities based on specialized equipment, geographic location, quality and service. In addition, competition is increasingly influenced by proprietary or niche offerings provided by competitors, such as RFID, biometric, read-write, and security features built-into the plastic card.

Our technology division also faces competition in the area of patent acquisitions and enforcement. Entities such as Acacia, RPX, AST, Intellectual Ventures, Wi-LAN, MOSAID, Round Rock Research LLC, IPvalue Management Inc., Vringo Inc. and Pendrell Corporation compete in acquiring rights to patents.

Customers

During 2018, two customers accounted for 44% of the Company’s consolidated revenue. As of December 31, 2018, these two customers accounted for 38% of the Company’s trade accounts receivable balance. During 2017, these same two customers accounted for 46% of the Company’s consolidated revenue. As of December 31, 2017, these two customers accounted for 38% of the Company’s trade accounts receivable balance.

Raw Materials

The primary raw materials the Company uses in its businesses are paper, corrugated paperboard, plastic sheets, and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies and uses a wide variety of paper grades, formats, ink formulations and colors. Paper and paperboard prices continued to increase in 2018, and we believe increases in future years are expected. Except for certain packaging customers where the Company enters into annual contracts, for which changes in paperboard pricing is absorbed by the Company, the Company has historically passed substantially all increases and decreases to its customers, although there can be no assurances that the Company will continue to do so in the future.

Environmental Compliance

It is the Company’s policy to conduct its operations in accordance with all applicable laws, regulations and other requirements. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.

Government Regulation

We play an active role with the Document Security Alliance group, as one of our research and development management members sits on various committees of that group and has been involved in design recommendations for important U.S. documents. This group of security industry specialists was formed by the U.S. Secret Service to evaluate and recommend security solutions to the federal government for the protection of credentials and vital records.

Our patent monetization business is also faced with potential government regulations. If new legislation, regulations or rules are implemented either by Congress, the U.S. Patent and Trademark Office (the “USPTO”), or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our patent monetization efforts and, in turn, our assets, expenses and revenue. United States patent laws have been amended by the Leahy-Smith America Invents Act. The America Invents Act includes several significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities. In addition, the U.S. Department of Justice (“DOJ”) has conducted reviews of the patent system to evaluate the impact of patent assertion entities, such as our Company, on industries in which those patents relate. It is possible that the findings and recommendations of the DOJ could adversely impact our ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.

Moreover, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions.

Corporate History

The Company was incorporated in 1984 and changed its name to Document Security Systems, Inc. in 2002. Since then, the Company has acquired a plastics card manufacturer, a printing company, a packaging company, an IT services company, and an intellectual property monetization company.

Employees

As of March 1, 2019, all of the Company’s 106 employees were full time. It is important that we continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are generally good.

Available information

Our website address is www.dsssecure.com. Information on our website is not incorporated herein by reference. We make available free of charge through our website our press releases, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after electronically filed with or furnished to the Securities and Exchange Commission.

Overview

Document Security Systems, Inc. (referred to in this report as “Document Security Systems”, “DSS”, “we”, “us”, “our” or “Company”) was formed in New York in 1984 and, in 2002, chose to strategically focus on becoming a developer and marketer of secure technologies. We specialize in fraud and counterfeit protection for all forms of printed documents and digital information. The Company holds numerous patents for optical deterrent technologies that provide protection of printed information from unauthorized scanning and copying. We operate two production facilities, consisting of a combined security printing and packaging facility and a plastic card facility where we produce secure and non-secure documents for our customers. We license our anti-counterfeiting technologies to printers and brand-owners. In addition, we have a digital division which provides cloud computing services for its customers, including disaster recovery, back-up and data security services. In 2013, the Company expanded its business focus by merging with DSS Technology Management, Inc., formerly known as Lexington Technology Group, Inc. (as described in greater detail below), which acquires intellectual property assets and interests in companies owning 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 litigation.

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. (“P3”), a privately held plastic cards manufacturer located in the San Francisco, California area. P3 is also referred to herein as the “DSS Plastics Group”. In 2008, we acquired DPI of Rochester, LLC, a privately held commercial printer located in Rochester, New York, referred to herein as “Secuprint” or “DSS Printing Group”. In 2010, we acquired Premier Packaging Corporation, a privately held packaging company located in Victor, New York. Premier Packaging Corporation is also referred to herein as “Premier Packaging” or the “DSS Packaging 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”.

On July 1, 2013, we merged with DSS Technology Management, Inc. (formerly known as Lexington Technology Group, Inc.), a private intellectual property monetization company. DSS Technology Management, Inc. is also referred to herein as “DSS Technology Management” or “DSSTM”. DSS Technology Management is focused 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.

We do business in four operating segments as follows:

DSS Packaging and Printing Group - Produces custom paperboard packaging serving clients in the pharmaceutical, beverage, photo packaging, toy, specialty foods and direct marketing industries, among others. The group also provides secure and commercial printing services for end-user customers along with technical support for our technology licensees. The division produces a wide array of printed materials such as security paper, vital records, prescription paper, birth certificates, receipts, manuals, identification materials, entertainment tickets, secure coupons, parts tracking forms, brochures, direct mailing pieces, catalogs, business cards, etc. The division also provides resources and production equipment resources for our ongoing research and development of security printing and related technologies.

DSS Plastics Group - Manufactures laminated and surface printed cards which can include magnetic stripes, bar codes, holograms, signature panels, invisible ink, micro fine printing, guilloche patterns, biometric, radio frequency identification (RFID) and watermarks for printed plastic documents such as ID cards, event badges, and driver’s licenses.

DSS Digital Group - Provides data center centric solutions to businesses and governments delivered via the “cloud”. This division developed an iPhone based application that integrates some of our traditional optical deterrent technologies into proprietary digital data security based solutions for brand protection and product diversion prevention.

DSS Technology Management - Acquires or internally develops patented technology or intellectual property assets (or interests therein), with 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.

Our Technology Management Business

Since its acquisition by the Company in 2013, DSS Technology Management’s primary mission has been the attempted monetization of its various patent portfolios through commercial litigation. The status of pending patent infringement lawsuits which have been filed by DSS Technology Management and the Company are more particularly described in Part 1, Item 3 of this Report.

DSS Technology Management and the Company have partnered with various third-party funding groups in connection with patent monetization programs and may continue to do so in the future.

In February 2014, DSS Technology Management entered into an agreement with certain investors to receive a series of advances up to $4,500,000 in exchange for promissory notes, fixed return interests and contingent interests collateralized by certain of DSS Technology Management’s intellectual property. On February 13, 2014, we received $2,000,000 under the agreement and on March 27, 2014, we received an additional $1,000,000 under the agreement. On September 5, 2014, we received the remaining $1,500,000 under the agreement. As of February 13, 2016, DSS Technology Management had failed to repay a portion of the $4,500,000 of advances as called for in the agreement, and therefore was in default for non-payment under the agreement. On December 2, 2016, the parties amended the February 2014 agreement for the purposes of vacating DSS Technology Management’s ongoing default and amending certain provisions of the original agreement (the “Amendment”). Under the Amendment, DSS Technology Management had until February 13, 2018 to satisfy the required payment terms under the February 2014 agreement, as amended. As additional consideration for this extension, DSS Technology Management agreed to (i) pay the investors an amount equal to 25% of any amounts it receives for monetization activities related to certain patents covering systems and methods of using low power peripheral devices (collectively, the “BlueTooth Patents”) until the investors have received payments totaling $4,500,000 plus additional capitalized expenses of $150,000, (ii) provide the investors with additional security interests in certain of its semiconductor patents, and (iii) deposit the sum of $600,000 over a two-year period into a separate cash collateral account to be utilized for pursuing related patent monetization activities and for payment of certain qualifying business expenses of DSS Technology Management. On February 13, 2018, the Maturity Date, DSS Technology Management failed to pay the Investors an amount equal to (x) two times the aggregate amount of all Advances made by the Investors as of such date plus (y) the Capitalized Expenses, which was an Event of Default under the February 2014 agreement, as amended. The sole recourse available to the Investors under the February 2014 agreement, as amended, is the establishment of a special purpose entity controlled by the Investors which would take ownership of the Collateral consisting of the patents covered under the February 2014 agreement, as amended. Each of the Investors and the Collateral Agent have contractually agreed that they will not, individually or collectively, seek to enforce any monetary judgment with respect to or against any assets of the Company other than the Patents and the Monetization Payments and the remaining Deposit. The Investors and the Collateral Agent have not taken any action as of the date of this Report to take ownership of the Collateral.

On November 14, 2016, the Company entered into a Proceeds Investment Agreement (the “Agreement”) with Brickell Key Investments LP (“BKI”). Pursuant to the Agreement, BKI financed an aggregate of $13,500,000 in a patent purchase and monetization program to be implemented and managed by the Company (the “Financing”). Pursuant to the Agreement, $3,000,000 of the Financing was used to cover the Company’s purchase of a portfolio of U.S. and foreign LED patents and a license from Intellectual Discovery Co., Ltd., a Korean company (collectively, the “LED Patent Portfolio”), and $6,000,000 of the Financing was directed by BKI to attorneys to cover those attorneys’ fees and out-of-pocket expenses for legal proceedings that may transpire relating to enforcement of the LED Patent Portfolio. In addition, the Company received $4,500,000 of the Financing which is required to be used by the Company to pay for the defense of Inter Partes Review or other similar proceedings that may be filed from time to time by defendants with the U.S. Patent & Trademark Office relating to the LED Patent Portfolio, with excess amounts available for general working capital needs.

In consideration of its portion of the Financing, the Company assigned to BKI its rights to the Patent Asset Proceeds, defined as any and all monetary recoveries (whether through damages, recoveries, royalties, monies, lump-sum payments, up-front payments, settlement amounts, distribution of property, cash value of equities, license fees or other revenues or other assets or amounts) paid by a defendant or defendants or a third-party to the Company as a result of or in connection with the LED Patent Portfolio, in an amount equal to the Minimum Return and the Additional Return as hereinafter defined (the “Assigned Rights”). Under the Assigned Rights, in addition to repayment in full of the Financing, the Company will pay BKI, solely from realized Patent Asset Proceeds, a return equal to the sum of (A) a certain multiple of the Financing or a designated annualized IRR Return on the Financing, whichever is greater (the “Minimum Return”), plus (B) and additional designated percentage of the Patent Asset Proceeds net of the Minimum Return (the “Additional Return”). Once the Minimum Return and Additional return to BKI are satisfied, Intellectual Discovery Co., Ltd. will be entitled to a payment of a certain percentage of the Patent Asset Proceeds with the remaining balance of Patent Asset Proceeds to be retained by the Company. In addition to the above consideration, the Company also issued to BKI a five-year warrant to purchase up to 750,000 shares of the Company’s common stock at an exercise price of $1.00 per share.

Our Core Products, Technology and Services

Our core business is counterfeit prevention, brand protection and validation of authentic print media, including government-issued documents, packaging, ID cards and licenses. We believe we are a leader in the research and development of optical deterrent technologies and have commercialized these technologies with a suite of products that offer our customers an array of document security solutions. We provide document security technology to security printers, corporations, consumer product companies, and governments for protection of vital records and documents, certifications, travel documents, consumer products, pharmaceutical packaging and school transcripts.

Optical deterrent features such as ours are utilized mainly by large security printers for the protection of important printed documents, such as vital records, and identification documents. Many of these features, such as micro-printing, were developed pre-1980 as they were designed to be effective on the imaging devices of the day which were mainly photography mechanisms. With the advent of modern day scanners, digital copiers, digital cameras and easy to use imaging software such as Adobe Photoshop many of the pre-1980 optical deterrents such as micro-printing are no longer used or are much less effective in the prevention of counterfeiting.

Unlike some of our competitors, our technologies are developed to defeat today’s modern imaging systems. Almost all of our products and processes are built to thwart scanners and digital copiers and we believe that our products are the most effective in doing so in the market today. In addition, our technologies do not require expensive hardware or software add-ons to authenticate a document, but instead require simple, inexpensive hand-held readers which can be calibrated to particular hidden design features. Our technologies are literally ink on paper that is printed with a particular method to hide selected things from a scanner’s “eye” or distort what a scanner “sees.” These attributes make our anti-scanning technologies very cost effective versus other current offerings on the market since our technologies are imbedded during the normal printing process, thereby significantly reducing the costs to implement the technologies.

The Company’s primary anti-counterfeiting products and technologies are marketed under its AuthentiGuard® registered trademark.

In October 2012, the Company introduced AuthentiGuard®, an iPhone application for authentication, targeted to major Fortune 500 companies worldwide. The application is a cloud-enabled solution that permits efficient and cost-effective authentication for packaging, documents and credentials. The solution embeds customizable, covert AuthentiGuard® Prism technology that resists duplication on copiers and scanners in a product’s packaging. Product verification using a smartphone application creates real-time, accurate authentication results for brand owners that can be integrated into existing information systems.

Intellectual Property

Patents

Our ability to compete effectively depends largely upon our ability to maintain the proprietary nature of our technology, products and manufacturing processes. We principally rely upon patent, trademark, trade secrets and contract law to establish and protect our proprietary rights. During our development, we have expended significant resources on research and development in an effort to become a market leader with the ability to provide our customers effective solutions against an ever- changing array of counterfeit risks. Our position in the security print market is based on our technologies and products. We dedicate two staff members to research and development of print technologies, digital graphic files, and printing techniques to allow us to expand our ability to combat a wide variety of counterfeiting and brand protection issues. In 2017 and 2016, we spent approximately $106,000 and $435,000 respectively, on research and development which is comprised mainly of compensation costs, materials and consultants, including stock-based payments to consultants. Research and development costs decreased during 2017 as compared to 2016 as the Company moved some personnel from research and development to program support to meet the requirements of current and prospective customers of the Company’s AuthentiGuard® product line.

We own patents covering semiconductor, light emitting diode, anti-counterfeiting and document authentication, and wireless peripheral technologies, respectively. We also have several patent applications in process, including provisional and Patent Cooperation Treaty (“PCT”) patent applications in various jurisdictions including the United States, Canada, and Europe. These applications cover our anti-counterfeiting technologies, including our AuthentiGuard® On-Demand and ADX, AuthentiGuard® Prism™, AuthentiGuard® Phantom™, AuthentiGuard® Survivor 21™, AuthentiGuard® VeriGlow™ products, and several other anti-counterfeiting and authentication technologies in development. Our issued patents have remaining durations ranging from 1 to 17 years.

Trademarks

We have registered our “AuthentiGuard®” mark, as well as our “Survivor 21®” electronic check icon and “VeriGlow®” with the U.S. Patent and Trademark Office. A trademark application is pending in Canada for “AuthentiGuard.” AuthentiGuard® is registered in several European countries including the United Kingdom. We have also applied to register AuthentiSite TM, AuthentiShare TM, AuthentiSuiteTM, AuthentiBlockTM, and AuthentiChainTM in the U.S.

Websites

The primary website we maintain is www.dsssecure.com, which describes our company, our company history, our patented document security solutions, our major product offerings, and our targeted vertical markets. The website provides detailed product offerings of each of our divisions – Printing/ Packaging, Plastics and Digital. In addition, we maintain the website www.protectedpaper.com, an e-commerce site that markets and sells our patented security paper, hand-held security verifiers and custom security documents to end users worldwide. In addition to the active websites, the Company owns several other domain names reserved for future use or for strategic competitive reasons.

Markets and Competition

The security print market is comprised of a few very large companies and an increasing number of small companies with specific technology niches. The expansion of this market is primarily due to the fact that counterfeiting has expanded significantly as advancing technologies in digital duplication and scanning combined with increasingly sophisticated design software has enabled easier reproduction of original documents, vital records and IDs, packaging, and labels. Our competitors include Standard Register Company, which specializes in printing security technologies for the check and forms and medical industries; and De La Rue Plc, that specializes in printing secure currency, tickets, labels, lottery tickets and vital records for governments and Fortune 500 companies. Large office equipment manufacturers, called OEMs, such as Sharp, Xerox, Canon, Ricoh, Hewlett Packard and Eastman Kodak are developing “smart copier” technology that recognizes particular graphical images and produces warning words or distorted copies. Some of the OEMs are also developing user assigned and variable pantograph “hidden word” technologies in which users can assign a particular hidden word in copy, such as “void” that is displayed when a copy of such document is made. In addition, other competing hidden word technologies are being marketed by competitors such as NoCopi Technologies which sells and markets secure paper products, and Graphic Security Systems Corporation, which markets Scrambled Indicia.

Our packaging division competes with a significant number of national, regional and local companies, many of which are independent and privately-held. The largest competitors in this market are primarily focused on the long-run print order market. They include large integrated paper companies such as Rock-Tenn Company, Caraustar Industries, Inc., Graphic Packaging Holding Company and Mead Westvaco. Our printing division competes primarily with locally-based printing companies in the Rochester and Western New York markets. Most of our competitors in these markets are privately-held, single location operations.

Our plastics division competes with several companies including Bristol ID, AbNote (formerly Arthur Blanks), LaserCard Corporation and L-1 Identity Solutions. The plastics division primarily delivers its products through a dealer network, but also provides products to end-user customers. Competition in the plastic card industry is primarily based on production capabilities based on specialized equipment, geographic location, quality and service. In addition, competition is increasingly influenced by proprietary or niche offerings provided by competitors, such as RFID, biometric, read-write, and security features built-into the plastic card.

Our technology division also faces competition in the area of patent acquisitions and enforcement. Entities such as Acacia, RPX, AST, Intellectual Ventures, Wi-LAN, MOSAID, Round Rock Research LLC, IPvalue Management Inc., Vringo Inc. and Pendrell Corporation compete in acquiring rights to patents.

Customers

During 2017, two customers accounted for 46% of the Company’s consolidated revenue. As of December 31, 2017 these two customers accounted for 38% of the Company’s trade accounts receivable balance. During 2016, these same two customers accounted for 38% of the Company’s consolidated revenue. As of December 31, 2016, these two customers accounted for 31% of the Company’s trade accounts receivable balance.

Raw Materials

The primary raw materials the Company uses in its businesses are paper, corrugated paperboard, plastic sheets, and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies and uses a wide variety of paper grades, formats, ink formulations and colors. Paper and paperboard prices continued to increase in 2017, and we believe increases in future years are expected. Except for certain packaging customers where the Company enters into annual contracts, for which changes in paperboard pricing is absorbed by the Company, the Company has historically passed substantially all increases and decreases to its customers, although there can be no assurances that the Company will continue to do so in the future.

Environmental Compliance

It is the Company’s policy to conduct its operations in accordance with all applicable laws, regulations and other requirements. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, it not expected to have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.

Government Regulation

In light of the events of September 11, 2001 and the subsequent ongoing war on terrorism, governments, private entities and individuals have become more aware of, and concerned with, the problems related to counterfeit documents. Homeland security remains a high priority in the United States. For example, in 2007, federal legislation was enacted that required hospitals, physicians and pharmacies to use tamperproof paper to fill all Medicaid prescriptions. The requirement, which was part 7002(b) of the “U.S. Troop Readiness, Veterans’ Care, Katrina Recovery and Iraq Accountability Appropriations Act of 2007”, was effective April 1, 2008.

We play an active role with the Document Security Alliance group, as one of our research and development management members sits on various committees of that group and has been involved in design recommendations for important U.S. documents. This group of security industry specialists was formed by the U.S. Secret Service to evaluate and recommend security solutions to the federal government for the protection of credentials and vital records.

Future legislation regarding anti-terrorism, counterfeiting or related areas could impact, possibly adversely, our counterfeit prevention, brand protection and validation business.

Our patent monetization business is also faced with potential government regulations. If new legislation, regulations or rules are implemented either by Congress, the U.S. Patent and Trademark Office (the “USPTO”), or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our patent monetization efforts and, in turn, our assets, expenses and revenue. United States patent laws have been amended by the Leahy-Smith America Invents Act (“The America Invents Act”). The America Invents Act includes a number of significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities. In addition, the U.S. Department of Justice (“DOJ”) has conducted reviews of the patent system to evaluate the impact of patent assertion entities, such as our Company, on industries in which those patents relate. It is possible that the findings and recommendations of the DOJ could adversely impact our ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.

Moreover, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions.

Corporate History

The Company was incorporated in 1984 and changed its name to Document Security Systems, Inc. in 2002. Since then, the Company has acquired a plastics card manufacturer, a printing company, a packaging company, an IT services company, and an intellectual property monetization company.

Employees

As of March 1, 2018, we had a total of 98 full-time employees. It is important that we continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are generally good.

Available information

Our website address is www.dsssecure.com. Information on our website is not incorporated herein by reference. We make available free of charge through our website our press releases, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after electronically filed with or furnished to the Securities and Exchange Commission.

Overview

Document Security Systems, Inc. (referred to in this report as “Document Security Systems”, “DSS”, “we”, “us”, “our” or “Company”) was formed in New York in 1984 and, in 2002, chose to strategically focus on becoming a developer and marketer of secure technologies. We specialize in fraud and counterfeit protection for all forms of printed documents and digital information. The Company holds numerous patents for optical deterrent technologies that provide protection of printed information from unauthorized scanning and copying. We operate two production facilities, consisting of a combined security printing and packaging facility and a plastic card facility where we produce secure and non-secure documents for our customers. We license our anti-counterfeiting technologies to printers and brand-owners. In addition, we have a digital division which provides cloud computing services for its customers, including disaster recovery, back-up and data security services. In 2013, the Company expanded its business focus by merging with DSS Technology Management, Inc., formerly known as Lexington Technology Group, Inc. (as described in greater detail below), which acquires intellectual property assets and interests in companies owning 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 litigation.

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. (“P3”), a privately held plastic cards manufacturer located in the San Francisco, California area. P3 is also referred to herein as the “DSS Plastics Group”. In 2008, we acquired DPI of Rochester, LLC, a privately held commercial printer located in Rochester, New York, referred to herein as “Secuprint” or “DSS Printing Group”. In 2010, we acquired Premier Packaging Corporation, a privately held packaging company located in Victor, New York. Premier Packaging Corporation is also referred to herein as “Premier Packaging” or the “DSS Packaging 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”.

On July 1, 2013, we merged with DSS Technology Management, Inc. (formerly known as Lexington Technology Group, Inc.), a private intellectual property monetization company. DSS Technology Management, Inc. is also referred to herein as “DSS Technology Management” or “DSSTM”. DSS Technology Management is focused 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.

We do business in four operating segments as follows:

DSS Packaging and Printing Group - Produces custom paperboard packaging serving clients in the pharmaceutical, beverage, photo packaging, toy, specialty foods and direct marketing industries, among others. The group also provides secure and commercial printing services for end-user customers along with technical support for our technology licensees. The division produces a wide array of printed materials such as security paper, vital records, prescription paper, birth certificates, receipts, manuals, identification materials, entertainment tickets, secure coupons, parts tracking forms, brochures, direct mailing pieces, catalogs, business cards, etc. The division also provides resources and production equipment resources for our ongoing research and development of security printing and related technologies.

DSS Plastics Group - Manufactures laminated and surface printed cards which can include magnetic stripes, bar codes, holograms, signature panels, invisible ink, micro fine printing, guilloche patterns, biometric, radio frequency identification (RFID) and watermarks for printed plastic documents such as ID cards, event badges, and driver’s licenses.

DSS Digital Group - Provides data center centric solutions to businesses and governments delivered via the “cloud”. This division developed an iPhone based application that integrates some of the our traditional optical deterrent technologies into proprietary digital data security based solutions for brand protection and product diversion prevention.

DSS Technology Management - Acquires or internally develops patented technology or intellectual property assets (or interests therein), with 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.

Our Technology Management Business

Since its acquisition in 2013, DSS Technology Management’s primary mission has been the attempted monetization of its various patent portfolios through commercial litigation. The status of pending patent infringement lawsuits which have been filed by DSS Technology Management are more particularly described in Part 1, Item 3 of this Report.

DSS Technology Management has partnered with various third party funding groups in connection with its patent monetization programs and may continue to do so in the future.

In February 2014, DSS Technology Management entered into an agreement with certain investors to receive a series of advances up to $4,500,000 in exchange for promissory notes, fixed return interests and contingent interests collateralized by certain of DSS Technology Management’s intellectual property. On February 13, 2014, we received $2,000,000 under the agreement and on March 27, 2014, we received an additional $1,000,000 under the agreement. On September 5, 2014, we received the remaining $1,500,000 under the agreement. As of February 13, 2016, DSS Technology Management had failed to repay a portion of the $4,500,000 of advances as called for in the agreement, and therefore was in default for non-payment under the agreement. On December 2, 2016, the parties amended the February 2014 agreement for the purposes of vacating DSS Technology Management’s ongoing default and amending certain provisions of the original agreement (the “Amendment”). Under the Amendment, DSS Technology Management has until February 13, 2018 to satisfy the required payment terms under the February 2014 agreement. As additional consideration for this extension, DSS Technology Management agreed to (i) pay the investors an amount equal to 25% of any amounts it receives for monetization activities related to certain patents covering systems and methods of using low power peripheral devices (collectively, the “BlueTooth Patents”) until the investors have received payments totaling $4,500,000 plus additional capitalized expenses of $150,000, (ii) provide the investors with additional security interests in certain of its semiconductor patents, and (iii) deposit the sum of $600,000 over a two-year period into a separate cash collateral account to be utilized for pursuing related patent monetization activities and for payment of certain qualifying business expenses of DSS Technology Management.

On November 14, 2016, the Company entered into a Proceeds Investment Agreement (the “Agreement”) with Brickell Key Investments LP (“BKI”). Pursuant to the Agreement, BKI financed an aggregate of $13,500,000 in a patent purchase and monetization program to be implemented and managed by the Company (the “Financing”). Pursuant to the Agreement, $3,000,000 of the Financing was used to cover the Company’s purchase of a portfolio of U.S. and foreign LED patents and a license from Intellectual Discovery Co., Ltd., a Korean company (collectively, the “LED Patent Portfolio”), and $6,000,000 of the Financing was directed by BKI to attorneys to cover those attorneys’ fees and out-of-pocket expenses for legal proceedings that may transpire relating to enforcement of the LED Patent Portfolio. In addition, the Company received $4,500,000 of the Financing which are required to be used by the Company to pay for the defense of Inter Partes Review or other similar proceedings that may be filed from time to time by defendants with the U.S. Patent & Trademark Office relating to the LED Patent Portfolio, with excess amounts available for general working capital needs.

In consideration of the its portion of the Financing, the Company assigned to BKI its rights to the Patent Asset Proceeds, defined as any and all monetary recoveries (whether through damages, recoveries, royalties, monies, lump-sum payments, up-front payments, settlement amounts, distribution of property, cash value of equities, license fees or other revenues or other assets or amounts) paid by a defendant or defendants or a third-party to the Company as a result of or in connection with the LED Patent Portfolio, in an amount equal to the Minimum Return and the Additional Return as hereinafter defined (the “Assigned Rights”). Under the Assigned Rights, in addition to repayment in full of the Financing, the Company will pay BKI, solely from realized Patent Asset Proceeds, a return equal to the sum of (A) a certain multiple of the Financing or a designated annualized IRR Return on the Financing, whichever is greater (the “Minimum Return”), plus (B) and additional designated percentage of the Patent Asset Proceeds net of the Minimum Return (the “Additional Return”). Once the Minimum Return and Additional return to BKI are satisfied, Intellectual Discovery Co., Ltd. will be entitled to a payment of a certain percentage of the Patent Asset Proceeds with the remaining balance of Patent Asset Proceeds to be retained by the Company. In addition to the above consideration, the Company also issued to BKI a five-year warrant to purchase up to 750,000 shares of the Company’s common stock at an exercise price of $1.00 per share.

Our Core Products, Technology and Services

Our core business is counterfeit prevention, brand protection and validation of authentic print media, including government-issued documents, packaging, ID cards and licenses. We believe we are a leader in the research and development of optical deterrent technologies and have commercialized these technologies with a suite of products that offer our customers an array of document security solutions. We provide document security technology to security printers, corporations, consumer product companies, and governments for protection of vital records and documents, certifications, travel documents, consumer products, pharmaceutical packaging and school transcripts.

Optical deterrent features such as ours are utilized mainly by large security printers for the protection of important printed documents, such as vital records, and identification documents. Many of these features such as micro-printing were developed pre-1980 as they were designed to be effective on the imaging devices of the day which were mainly photography mechanisms. With the advent of modern day scanners, digital copiers, digital cameras and easy to use imaging software such as Adobe Photoshop many of the pre-1980 optical deterrents such as micro-printing are no longer used or are much less effective in the prevention of counterfeiting.

Unlike some of our competitors, our technologies are developed to defeat today’s modern imaging systems. Almost all of our products and processes are built to thwart scanners and digital copiers and we believe that our products are the most effective in doing so in the market today. In addition, our technologies do not require expensive hardware or software add-ons to authenticate a document, but instead require simple, inexpensive hand-held readers which can be calibrated to particular hidden design features. Our technologies are literally ink on paper that is printed with a particular method to hide selected things from a scanner’s “eye” or distort what a scanner “sees.” These attributes make our anti-scanning technologies very cost effective versus other current offerings on the market since our technologies are imbedded during the normal printing process, thereby significantly reducing the costs to implement the technologies.

The Company’s primary anti-counterfeiting products and technologies are marketed under its AuthentiGuard® registered trademark.

In October 2012, the Company introduced AuthentiGuard®, an iPhone application for authentication, targeted to major Fortune 500 companies worldwide. The application is a cloud-enabled solution that permits efficient and cost effective authentication for packaging, documents and credentials. The solution embeds customizable, covert AuthentiGuard® Prism technology that resists duplication on copiers and scanners in a product’s packaging. Product verification using a smartphone application creates real-time, accurate authentication results for brand owners that can be integrated into existing information systems.

Intellectual Property

Patents

Our ability to compete effectively depends largely upon our ability to maintain the proprietary nature of our technology, products and manufacturing processes. We principally rely upon patent, trademark, trade secrets and contract law to establish and protect our proprietary rights. During our development, we have expended a significant percentage of our resources on research and development in an effort to become a market leader with the ability to provide our customers effective solutions against an ever changing array of counterfeit risks. Our position in the security print market is based on our technologies and products. We dedicate two staff members to research and development of print technologies, digital graphic files, and printing techniques to allow us to expand our ability to combat a wide variety of counterfeiting and brand protection issues. In 2016 and 2015, we spent approximately $435,000 and $470,000 respectively, on research and development which is comprised mainly of compensation costs, materials and consultants, including stock-based payments to consultants.

We own patents covering semiconductor, light emitting diode, anti-counterfeiting and document authentication, and wireless peripheral technologies, respectively. We also have several patent applications in process, including provisional and Patent Cooperation Treaty (“PCT”) patent applications in various jurisdictions including the United States, Canada, and Europe. These applications cover our anti-counterfeiting technologies, including our AuthentiGuard® On-Demand and ADX, AuthentiGuard® Prism™, AuthentiGuard® Phantom™, AuthentiGuard® Survivor 21™, AuthentiGuard® VeriGlow™ products, and several other anti-counterfeiting and authentication technologies in development. Our issued patents have remaining durations ranging from 1 to 17 years.

Trademarks

We have registered our “AuthentiGuard®” mark, as well as our “Survivor 21®” electronic check icon and “VeriGlow®” with the U.S. Patent and Trademark Office. A trademark application is pending in Canada for “AuthentiGuard.” AuthentiGuard® is registered in several European countries including the United Kingdom. We have also applied to register AuthentiSite TM, AuthentiShare TM, and AuthentiSuite TM in the U.S.

Websites

The primary website we maintain is www.dsssecure.com, which describes our company, our company history, our patented document security solutions, our major product offerings, and our targeted vertical markets. The website provides detailed product offerings of each of our divisions – Printing/ Packaging, Plastics and Digital. In addition, we maintain the website www.protectedpaper.com, an e-commerce site that markets and sells our patented security paper, hand-held security verifiers and custom security documents to end users worldwide. In addition to the active websites, the Company owns several other domain names reserved for future use or for strategic competitive reasons.

Markets and Competition

The security print market is comprised of a few very large companies and an increasing number of small companies with specific technology niches. The expansion of this market is primarily due to the fact that counterfeiting has expanded significantly as advancing technologies in digital duplication and scanning combined with increasingly sophisticated design software has enabled easier reproduction of original documents, vital records and IDs, packaging, and labels. Our competitors include Standard Register Company, which specializes in printing security technologies for the check and forms and medical industries; and De La Rue Plc, that specializes in printing secure currency, tickets, labels, lottery tickets and vital records for governments and Fortune 500 companies. Large office equipment manufacturers, called OEMs, such as Sharp, Xerox Canon, Ricoh, Hewlett Packard and Eastman Kodak are developing “smart copier” technology that recognizes particular graphical images and produces warning words or distorted copies. Some of the OEMs are also developing user assigned and variable pantograph “hidden word” technologies in which users can assign a particular hidden word in copy, such as “void” that is displayed when a copy of such document is made. In addition, other competing hidden word technologies are being marketed by competitors such as NoCopi Technologies which sells and markets secure paper products, and Graphic Security Systems Corporation, which markets Scrambled Indicia.

Our packaging division competes with a significant number of national, regional and local companies, many of which are independent and privately-held. The largest competitors in this market are primarily focused on the long-run print order market. They include large integrated paper companies such as Rock-Tenn Company, Caraustar Industries, Inc., Graphic Packaging Holding Company and Mead Westvaco. Our printing division competes primarily with locally-based printing companies in the Rochester and Western New York markets. Most of our competitors in these markets are privately-held, single location operations.

Our plastics division competes with several companies including Bristol ID, AbNote (formerly Arthur Blanks), LaserCard Corporation and L-1 Identity Solutions. The plastics division primarily delivers its products through a dealer network, but also provides products to end-user customers. Competition in the plastic card industry is primarily based on production capabilities based on specialized equipment, geographic location, quality and service. In addition, competition is increasingly influenced by proprietary or niche offerings provided by competitors, such as RFID, biometric, read-write, and security features built-into the plastic card.

Our technology division also faces competition in the area of patent acquisitions and enforcement. Entities such as Acacia, RPX, AST, Intellectual Ventures, Wi-LAN, MOSAID, Round Rock Research LLC, IPvalue Management Inc., Vringo Inc. and Pendrell Corporation compete in acquiring rights to patents.

Customers

During 2016, two customers accounted for 38% of the Company’s consolidated revenue. As of December 31, 2016, these two customers accounted for 31% of the Company’s trade accounts receivable balance. During 2015, these same two customers accounted for 35% of the Company’s consolidated revenue. As of December 31, 2015, these two customers accounted for 27% of the Company’s trade accounts receivable balance.

Raw Materials

The primary raw materials the Company uses in its businesses are paper, corrugated paperboard, plastic sheets, and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies and uses a wide variety of paper grades, formats, ink formulations and colors. Paper and paperboard prices continued to increase in 2016, and we believe increases in future years are expected. Except for certain packaging customers where the Company enters into annual contracts, for which changes in paperboard pricing is absorbed by the Company, the Company has historically passed substantially all increases and decreases to its customers, although there can be no assurances that the Company will continue to do so in the future.

Environmental Compliance

It is the Company’s policy to conduct its operations in accordance with all applicable laws, regulations and other requirements. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.

Government Regulation

In light of the events of September 11, 2001 and the subsequent war on terrorism, governments, private entities and individuals have become more aware of, and concerned with, the problems related to counterfeit documents. Homeland security remains a high priority in the United States. For example, in 2007, federal legislation was enacted that required hospitals, physicians and pharmacies to use tamperproof paper to fill all Medicaid prescriptions. The requirement, which was part 7002(b) of the “U.S. Troop Readiness, Veterans’ Care, Katrina Recovery and Iraq Accountability Appropriations Act of 2007”, was effective April 1, 2008.

We play an active role with the Document Security Alliance group, as one of our research and development management members sits on various committees of that group and has been involved in design recommendations for important U.S. documents. This group of security industry specialists was formed by the U.S. Secret Service to evaluate and recommend security solutions to the federal government for the protection of credentials and vital records.

Our patent monetization business is also faced with potential government regulations. If new legislation, regulations or rules are implemented either by Congress, the U.S. Patent and Trademark Office (the “USPTO”), or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our patent monetization efforts and, in turn, our assets, expenses and revenue. United States patent laws have been amended by the Leahy-Smith America Invents Act. The America Invents Act includes a number of significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities. In addition, the U.S. Department of Justice (“DOJ”) has conducted reviews of the patent system to evaluate the impact of patent assertion entities, such as our Company, on industries in which those patents relate. It is possible that the findings and recommendations of the DOJ could adversely impact our ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.

Moreover, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions.

Corporate History

The Company was incorporated in 1984 and changed its name to Document Security Systems, Inc. in 2002. Since then, the Company has acquired a plastics card manufacturer, a printing company, a packaging company, an IT services company, and an intellectual property monetization company.

On July 1, 2013, DSSIP, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of DSS merged with and into Lexington Technology Group, Inc. (the “Merger”). As a result of the Merger, Lexington Technology Group, Inc., which later changed its name to DSS Technology Management, Inc., became a wholly-owned subsidiary of the Company.

Employees

As of March 25, 2017, we had a total of 104 full-time employees. It is important that we continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are generally good.

Available information

Our website address is www.dsssecure.com. Information on our website is not incorporated herein by reference. We make available free of charge through our website our press releases, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after electronically filed with or furnished to the Securities and Exchange Commission.

Overview

Document Security Systems, Inc. (referred to in this report as “Document Security Systems”, “DSS”, “we”, “us”, “our” or “Company”) was formed in New York in 1984 and, in 2002, chose to strategically focus on becoming a developer and marketer of secure technologies. We specialize in fraud and counterfeit protection for all forms of printed documents and digital information. The Company holds numerous patents for optical deterrent technologies that provide protection of printed information from unauthorized scanning and copying. We operate two production facilities, consisting of a combined security printing and packaging facility and a plastic card facility where we produce secure and non-secure documents for our customers. We license our anti-counterfeiting technologies to printers and brand-owners. In addition, we have a digital division which provides cloud computing services for its customers, including disaster recovery, back-up and data security services. In 2013, the Company expanded its business focus by merging with DSS Technology Management, Inc., formerly known as Lexington Technology Group, Inc. (as described in greater detail below), which acquires intellectual property assets and interests in companies owning 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 litigation.

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. (“P3”), a privately held plastic cards manufacturer located in the San Francisco, California area. P3 is also referred to herein as the “DSS Plastics Group”. In 2008, we acquired substantially all of the assets of DPI of Rochester, LLC, a privately held commercial printer located in Rochester, New York, referred to herein as “Secuprint” or “DSS Printing Group”. In 2010, we acquired Premier Packaging Corporation, a privately held packaging company located in the Rochester, New York area. Premier Packaging Corporation is also referred to herein as “Premier Packaging” or the “DSS Packaging Group.” In May 2011, we acquired all of the capital stock of ExtraDev, Inc. (“ExtraDev”), a privately held information technology and cloud computing company located in the Rochester, New York area. ExtraDev is also referred to herein as the “DSS Digital Group”.

On July 1, 2013, we merged with DSS Technology Management, Inc. (formerly known as Lexington Technology Group, Inc.), a private intellectual property monetization company. DSS Technology Management, Inc. is also referred to herein as “DSS Technology Management” or “DSSTM”. DSS Technology Management is focused 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.

In January 2014, we moved our printing operation to the same location as our packaging operation in Victor, New York in an effort to make our printing and packaging operations more efficient.

We do business in four operating segments as follows:

DSS Packaging and Printing Group - Produces custom paperboard packaging serving clients in the pharmaceutical, beverage, photo packaging, toy, specialty foods and direct marketing industries, among others. The group also provides secure and commercial printing services for end-user customers along with technical support for our technology licensees. The division produces a wide array of printed materials such as security paper, vital records, prescription paper, birth certificates, receipts, manuals, identification materials, entertainment tickets, secure coupons, parts tracking forms, brochures, direct mailing pieces, catalogs, business cards, etc. The division also provides resources and production equipment resources for our ongoing research and development of security printing and related technologies.

DSS Plastics Group - Manufactures laminated and surface printed cards which can include magnetic stripes, bar codes, holograms, signature panels, invisible ink, micro fine printing, guilloche patterns, biometric, radio frequency identification (RFID) and watermarks for printed plastic documents such as ID cards, event badges, and driver’s licenses.

DSS Digital Group - Provides data center centric solutions to businesses and governments delivered via the “cloud”. This division developed an iPhone based application that integrates some of the our traditional optical deterrent technologies into proprietary digital data security based solutions for brand protection and product diversion prevention.

DSS Technology Management - Acquires or internally develops patented technology or intellectual property assets (or interests therein), with 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.

Our Technology Management Business

In October 2012, Bascom Research, LLC, a subsidiary of Lexington Technology Group, Inc. (“LTG”), now DSS Technology Management, initiated litigation against Facebook, Inc. (“Facebook”), LinkedIn Corporation (“LinkedIn”), and three other defendants in the U.S. District Court for the Eastern District of Virginia, alleging infringement of four social media software patents. The case was later transferred to the U.S. District Court for the Northern District of California. On January 5, 2015, the United States District Court for the Northern District of California issued a decision granting summary judgment to defendants Facebook and LinkedIn, effectively ending the case at the trial court level.

On November 26, 2013, DSS Technology Management filed suit against Apple, Inc. (“Apple”) in the United States District Court for the Eastern District of Texas for patent infringement. The complaint alleges infringement by Apple of DSS Technology Management’s patents that relate to systems and methods of using low power wireless peripheral devices. DSS Technology Management is seeking a judgment for infringement and money damages from Apple in connection with the case. On October 28, 2014, the case was stayed by the District Court pending a determination of Apple’s motion to transfer the case to the Northern District of California, which was filed on March 3, 2014. On November 7, 2014, Apple’s motion to transfer the case was granted. On December 30, 2014, Apple filed two Inter Partes Review (“IPR”) petitions with United States Patent Trial and Appeal Board (“PTAB”) relating to the patents at issue in the case. The California District Court then stayed the case pending the outcome of those IPR proceedings which were instituted by PTAB on June 25, 2015. Oral arguments of the IPRs took place on March 15, 2016, with a decision expected from PTAB by the end of June 2016.

On May 30, 2014, DSS Technology Management filed suit against Lenovo (United States), Inc. (“Lenovo”) in the United States District Court for the Eastern District of Texas, for patent infringement. The complaint alleged infringement by Lenovo of one of DSSTM’s patents that relates to systems and methods of using low power wireless peripheral devices. On June 17, 2015, the parties entered in to a confidential non-suit agreement which ended the litigation with Lenovo.

On March 10, 2014, DSS Technology Management filed suit in the United States District Court for the Eastern District of Texas against Taiwan Semiconductor Manufacturing Company, TSMC North America, TSMC Development, Inc. (referred to collectively as “TSMC”), Samsung Electronics Co., Ltd., Samsung Electronics America, Inc., Samsung Telecommunications America L.L.C., Samsung Semiconductor, Inc., Samsung Austin Semiconductor LLC (referred to collectively as “Samsung”), and NEC Corporation of America (referred to as “NEC”), for patent infringement involving one of its semiconductor patents. In this case, DSS Technology Management sought a judgment for infringement, injunctive relief, and money damages from each of the named defendants.

On June 24, 2014, TSMC filed an IPR petition with PTAB. Samsung then filed an IPR petition relating to the same patents on September 12, 2014, and filed a corrected IPR petition on October 3, 2014. On December 31, 2014, PTAB instituted review of several of the patent claims at issue in the case. Samsung filed a motion with PTAB to join TSMC’s IPR proceeding. The request was granted by PTAB. On November 30, 2015, the PTAB issued a decision invalidating the patent claims at issue in the case. DSS Technology Management then filed a notice of appeal of the IPR decision with the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”) on February 1, 2016, which is pending as of the date of this Report. On March 3, 2015, a Markman hearing was held in the Eastern District of Texas. Based on the District Court’s claim construction order issued on April 9, 2015, DSS Technology Management and TSMC entered in to Joint Stipulation and Proposed Final Judgment of Non-Infringement dated May 4, 2015, subject to DSS Technology Management’s right to appeal the court’s claim construction order to the Federal Circuit, thus preserving the status quo in the event an appeal results in a remand for further proceedings in the District Court. On March 22, 2016, the Federal Circuit ruled in favor of TSMC in the appeal. On April 28, 2015, DSS Technology Management reached a confidential settlement with NEC, ending the litigation with NEC.

On February 13, 2014, DSS Technology Management entered into an agreement with certain investors to receive a series of advances up to $4,500,000 from the investors in exchange for promissory notes, fixed return interests and contingent interests collateralized by certain of DSS Technology Management’s intellectual property. On February 13, 2014, we received $2,000,000 under the agreement and on March 27, 2014, we received an additional $1,000,000 under the agreement. On September 5, 2014, we received the remaining $1,500,000 under the agreement. As of February 13, 2016, DSS Technology Management had failed to repay a portion of the $4,500,000 of advances as called for in the agreement, and is currently in default for non-payment under the agreement.

On February 16, 2015, DSS Technology Management filed suit in the United States District Court, Eastern District of Texas, against defendants Intel Corporation, Dell, Inc., GameStop Corp., Conn’s Inc., Conn Appliances, Inc., NEC Corporation of America, Wal-Mart Stores, Inc., Wal-Mart Stores Texas, LLC, and AT&T, Inc. The complaint alleges patent infringement and seeks a judgment for infringement of two of DSSTM’s patents, injunctive relief and money damages. On December 9, 2015, Intel filed IPR petitions with PTAB for review of the patents at issue in the case. As of the date of this Report, PTAB has not yet made a determination whether the IPRs will be instituted. On March 18, 2016, the District Court issued an Order granting Intel’s motion to stay the case until completion of the IPR proceedings.

On July 16, 2015, DSS Technology Management filed three separate lawsuits in the United States District Court for the Eastern District of Texas alleging infringement of certain of its semiconductor patents. The defendants are SK Hynix et al., Samsung Electronics et al., and Qualcomm Incorporated. Each respective complaint alleges patent infringement and seeks judgment for infringement, injunctive relief and money damages. On November 12, 2015, SK Hynix filed an IPR petition with PTAB for review of the patent at issue in their case. On March 18, 2016, Samsung filed an IPR petition as well. As of the date of this Report, PTAB has not yet made a determination whether the IPR will be instituted.

Our Core Products, Technology and Services

Our core business is counterfeit prevention, brand protection and validation of authentic print media, including government-issued documents, packaging, ID cards and licenses. We believe we are a leader in the research and development of optical deterrent technologies and have commercialized these technologies with a suite of products that offer our customers an array of document security solutions. We provide document security technology to security printers, corporations, consumer product companies, and governments for protection of vital records and documents, certifications, travel documents, consumer products, pharmaceutical packaging and school transcripts.

Optical deterrent features such as ours are utilized mainly by large security printers for the protection of important printed documents, such as vital records, and identification documents. Many of these features such as micro-printing were developed pre-1980 as they were designed to be effective on the imaging devices of the day which were mainly photography mechanisms. With the advent of modern day scanners, digital copiers, digital cameras and easy to use imaging software such as Adobe Photoshop many of the pre-1980 optical deterrents such as micro-printing are no longer used or are much less effective in the prevention of counterfeiting.

Unlike some of our competitors, our technologies are developed to defeat today’s modern imaging systems. Almost all of our products and processes are built to thwart scanners and digital copiers and we believe that our products are the most effective in doing so in the market today. In addition, our technologies do not require expensive hardware or software add-ons to authenticate a document, but instead require simple, inexpensive hand-held readers which can be calibrated to particular hidden design features. Our technologies are literally ink on paper that is printed with a particular method to hide selected things from a scanner’s “eye” or distort what a scanner “sees.” These attributes make our anti-scanning technologies very cost effective versus other current offerings on the market since our technologies are imbedded during the normal printing process, thereby significantly reducing the costs to implement the technologies.

The Company’s primary anti-counterfeiting products and technologies are marketed under its AuthentiGuard® registered trademark.

In October 2012, the Company introduced AuthentiGuard®, an iPhone application for authentication, targeted to major pharmaceutical and other companies worldwide. The application is a cloud-enabled solution that permits efficient and cost effective authentication for packaging, documents and credentials. The solution embeds customizable, covert AuthentiGuard® Prism technology that resists duplication on copiers and scanners in a product’s packaging. Product verification using a smartphone application creates real-time, accurate authentication results for brand owners that can be integrated into existing information systems.

Intellectual Property

Patents

Our ability to compete effectively depends largely upon our ability to maintain the proprietary nature of our technology, products and manufacturing processes. We principally rely upon patent, trademark, trade secrets and contract law to establish and protect our proprietary rights. During our development, we have expended a significant percentage of our resources on research and development in an effort to become a market leader with the ability to provide our customers effective solutions against an ever changing array of counterfeit risks. Our position in the security print market is based on our technologies and products. We dedicate two staff members to research and development of print technologies, digital graphic files, and printing techniques that allow us to expand our ability to combat a wide variety of counterfeiting and brand protection issues. In 2015 and 2014, we spent approximately $470,000 and $462,000 respectively, on research and development which is comprised mainly of compensation costs, materials and consultants, including stock-based payments to consultants.

We currently own several patents that cover technologies ranging from semiconductor to wireless peripherals. We also have a portfolio of issued anti-counterfeiting and authentication patents, and several patent applications in process, including provisional and Patent Cooperation Treaty (“PCT”) patent applications in various countries including the United States, Canada, and Europe. These applications cover our anti-counterfeiting technologies, including our AuthentiGuard® On-Demand and ADX, AuthentiGuard® Prism™, AuthentiGuard® Phantom™, AuthentiGuard® Survivor 21™, AuthentiGuard® VeriGlow™ products, and several other anti-counterfeiting and authentication technologies in development. Our issued patents have remaining durations ranging from 1 to 17 years.

Trademarks

We have registered our “AuthentiGuard®” mark, as well as our “Survivor 21®” electronic check icon and “VeriGlow®” with the U.S. Patent and Trademark Office. A trademark application is pending in Canada for “AuthentiGuard.” AuthentiGuard® is registered in several European countries including the United Kingdom. We have also applied to register AuthentiSite TM, AuthentiShare TM, and AuthentiSuite TM in the U.S.

Websites

The primary website we maintain is www.dsssecure.com, which describes our company, our company history, our patented document security solutions, our major product offerings, and our targeted vertical markets. The website provides detailed product offerings of each of our divisions - Printing, Packaging, Plastics and Digital. In addition, we maintain the website www.protectedpaper.com, an e-commerce site that markets and sells our patented security paper, hand-held security verifiers and custom security documents to end users worldwide. In addition to the active websites, the Company owns over 40 domain names for future use or for strategic competitive reasons.

Markets and Competition

The security print market is comprised of a few very large companies and an increasing number of small companies with specific technology niches. The expansion of this market is primarily due to the fact that counterfeiting has expanded significantly as advancing technologies in digital duplication and scanning combined with increasingly sophisticated design software has enabled easier reproduction of original documents, vital records and IDs, packaging, and labels. Our competitors include Standard Register Company, which specializes in printing security technologies for the check and forms and medical industries; and De La Rue Plc, that specializes in printing secure currency, tickets, labels, lottery tickets and vital records for governments and Fortune 500 companies. Large office equipment manufacturers, called OEMs, such as Sharp, Xerox Canon, Ricoh, Hewlett Packard and Eastman Kodak are developing “smart copier” technology that recognizes particular graphical images and produces warning words or distorted copies. Some of the OEMs are also developing user assigned and variable pantograph “hidden word” technologies in which users can assign a particular hidden word in copy, such as “void” that is displayed when a copy of such document is made. In addition, other competing hidden word technologies are being marketed by competitors such as NoCopi Technologies which sells and markets secure paper products, and Graphic Security Systems Corporation, which markets Scrambled Indicia.

Our packaging division competes with a significant number of national, regional and local companies, many of which are independent and privately-held. The largest competitors in this market are primarily focused on the long-run print order market. They include large integrated paper companies such as Rock-Tenn Company, Caraustar Industries, Inc., Graphic Packaging Holding Company and Mead Westvaco. Our printing division competes primarily with locally-based printing companies in the Rochester and Western New York markets. Most of our competitors in these markets are privately-held, single location operations.

Our plastics division competes with several companies including Bristol ID, AbNote (formerly Arthur Blanks), LaserCard Corporation and L-1 Identity Solutions. The plastics division primarily delivers its products through a dealer network, but also provides products to end-user customers. Competition in the plastic card industry is primarily based on production capabilities based on specialized equipment, geographic location, quality and service. In addition, competition is increasingly influenced by proprietary or niche offerings provided by competitors, such as RFID, biometric, read-write, and security features built-into the plastic card.

Our technology division also faces competition in the area of patent acquisitions and enforcement. Entities such as Acacia, RPX, AST, Intellectual Ventures, Wi-LAN, MOSAID, Round Rock Research LLC, IPvalue Management Inc., Vringo Inc. and Pendrell Corporation compete in acquiring rights to patents.

In general, changes in prevailing U.S. economic conditions significantly impact the general commercial printing industry. To the extent weakness in the U.S. economy causes local and national corporations to reduce their spending on advertising and marketing materials, the demand for commercial printing services may be adversely affected.

Customers

During 2015, two customers accounted for 35% of the Company’s consolidated revenue. As of December 31, 2015, these two customers accounted for 27% of the Company’s trade accounts receivable balance. During 2014, these same two customers accounted for 40% of the Company’s consolidated revenue. As of December 31, 2014, these two customers accounted for 25% of the Company’s trade accounts receivable balance.

Raw Materials

The primary raw materials the Company uses in its businesses are paper, corrugated paperboard, plastic sheets, and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies and uses a wide variety of paper grades, formats, ink formulations and colors. Paper and paperboard prices continued to increase in 2015, and we believe increases in future years are expected. Except for certain packaging customers where the Company enters into annual contracts, for which changes in paperboard pricing is absorbed by the Company, the Company has historically passed substantially all increases and decreases to its customers, although there can be no assurances that the Company will continue to do so in the future.

Environmental Compliance

It is the Company’s policy to conduct its operations in accordance with all applicable laws, regulations and other requirements. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.

Government Regulation

In light of the events of September 11, 2001 and the subsequent war on terrorism, governments, private entities and individuals have become more aware of, and concerned with, the problems related to counterfeit documents. Homeland security remains a high priority in the United States. For example, in 2007, federal legislation was enacted that required hospitals, physicians and pharmacies to use tamperproof paper to fill all Medicaid prescriptions. The requirement, which was part 7002(b) of the “U.S. Troop Readiness, Veterans’ Care, Katrina Recovery and Iraq Accountability Appropriations Act of 2007”, was effective April 1, 2008.

We play an active role with the Document Security Alliance group, as one of our research and development management members sits on various committees of that group and has been involved in design recommendations for important U.S. documents. This group of security industry specialists was formed by the U.S. Secret Service to evaluate and recommend security solutions to the federal government for the protection of credentials and vital records.

Our patent monetization business is also faced with potential government regulations. If new legislation, regulations or rules are implemented either by Congress, the U.S. Patent and Trademark Office (the “USPTO”), or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our patent monetization efforts and, in turn, our assets, expenses and revenue. United States patent laws have been amended by the Leahy-Smith America Invents Act. The America Invents Act includes a number of significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities. In addition, the U.S. Congress is currently considering a bill that would require non-practicing entities that bring patent infringement lawsuits to pay legal costs of the defendants if the lawsuits are unsuccessful. It is not known when, or if, this legislation will be passed. In addition, the U.S. Department of Justice (“DOJ”) has conducted reviews of the patent system to evaluate the impact of patent assertion entities, such as our Company, on industries in which those patents relate. It is possible that the findings and recommendations of the DOJ could adversely impact our ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.

On June 19, 2014, the Supreme Court of the United States decided the case of Alice Corp. v. CSL Bank International, or Alice. The Alice case was a legal case about patentable subject matter, and pertains to software patents generally. The primary issue in the Alice case was the question of whether claims to computer-implemented inventions, including claims to systems and machines, processes, and items of manufacture, are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101. The Alice opinion provides that an abstract idea coupled with a computer doing what a computer normally does is not something that the U.S. patent system was designed to protect. The Alice court then provided some interpretive guidance to be considered by the federal trial courts when making determinations as to whether certain patent claims constitute merely an abstract idea and, as such, are not patent-eligible subject matter within the meaning of 35 U.S.C. § 101. As a result of the Alice decision, the defendants in our Bascom case argued that the software patents involved in our infringement case against Facebook and LinkedIn should be invalidated based on the court’s reasoning in Alice. In January 2015, the court agreed, and as a result, the value of our patents was impaired, which resulted in a significant impairment charge in the period of such invalidation.

Moreover, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions.

Corporate History

The Company was incorporated in 1984 and changed its name to Document Security Systems, Inc. in 2002. Since then, the Company has acquired a plastics card manufacturer, a printing company, a packaging company, an IT services company, and an intellectual property monetization company.

On July 1, 2013, DSSIP, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of DSS merged with and into Lexington Technology Group, Inc. (the “Merger”). As a result of the Merger, Lexington Technology Group, Inc., which later changed its name to DSS Technology Management, Inc., became a wholly-owned subsidiary of the Company.

Employees

As of March 25, 2016, we had a total of 104 full-time employees. It is important that we continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are generally good.

Available information

Our website address is www.dsssecure.com. Information on our website is not incorporated herein by reference. We make available free of charge through our website our press releases, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after electronically filed with or furnished to the Securities and Exchange Commission.

Document Security Systems, Inc. (referred to in this report as “Document Security Systems”, “DSS”, “we”, “us”, “our” or “Company”) was formed in New York in 1984 and, in 2002, chose to strategically focus on becoming a developer and marketer of secure technologies. We specialize in fraud and counterfeit protection for all forms of printed documents and digital information. The Company holds numerous patents for optical deterrent technologies that provide protection of printed information from unauthorized scanning and copying. We operate two production facilities, consisting of a combined security printing and packaging facility and a plastic card facility- where we produce secure and non-secure documents for our customers. We license our anti-counterfeiting technologies to printers and brand-owners. In addition, we have a digital division which provides cloud computing services for its customers, including disaster recovery, back-up and data security services. In 2013, the Company expanded its business focus by merging with DSS Technology Management, Inc., formerly known as Lexington Technology Group, Inc. (as described in greater detail below), which acquires intellectual property assets and interests in companies owning 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 litigation.

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. (“P3”), a privately held plastic cards manufacturer located in the San Francisco, California area. P3 is also referred to herein as the “DSS Plastics Group”. In 2008, we acquired substantially all of the assets of DPI of Rochester, LLC, a privately held commercial printer located in Rochester, New York, referred to herein as “Secuprint” or “DSS Printing Group”. In 2010, we acquired Premier Packaging Corporation, a privately held packaging company located in the Rochester, New York area. Premier Packaging Corporation is also referred to herein as “Premier Packaging” or the “DSS Packaging Group.” In May 2011, we acquired all of the capital stock of ExtraDev, Inc. (“ExtraDev”), a privately held information technology and cloud computing company located in the Rochester, New York area. ExtraDev is also referred to herein as the “DSS Digital Group”.

On July 1, 2013, we merged with DSS Technology Management, Inc. (formerly known as Lexington Technology Group, Inc.), a private intellectual property monetization company. DSS Technology Management, Inc. is also referred to herein as “DSS Technology Management” or “DSSTM”. DSS Technology Management is focused 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.

In January 2014, we moved our printing operation to the same location as our packaging operation in Victor, New York in an effort to make our printing and packaging operations more efficient.

We do business in four operating segments as follows:

DSS Packaging and Printing Group - Produces custom paperboard packaging serving clients in the pharmaceutical, beverage, photo packaging, toy, specialty foods and direct marketing industries, among others. The group also provides secure and commercial printing services for end-user customers along with technical support for our technology licensees. The division produces a wide array of printed materials such as security paper, vital records, prescription paper, birth certificates, receipts, manuals, identification materials, entertainment tickets, secure coupons, parts tracking forms, brochures, direct mailing pieces, catalogs, business cards, etc. The division also provides resources and production equipment resources for our ongoing research and development of security printing and related technologies.

DSS Plastics Group - Manufactures laminated and surface printed cards which can include magnetic stripes, bar codes, holograms, signature panels, invisible ink, micro fine printing, guilloche patterns, biometric, radio frequency identification (RFID) and watermarks for printed plastic documents such as ID cards, event badges, and driver’s licenses.

DSS Digital Group - Provides data center centric solutions to businesses and governments delivered via the “cloud”. This division developed an iPhone based application that integrates some of the our traditional optical deterrent technologies into proprietary digital data security based solutions for brand protection and product diversion prevention.

DSS Technology Management - Acquires or internally develops patented technology or intellectual property assets (or interests therein), with 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 October 2012, Bascom Research, a subsidiary of Lexington Technology Group, Inc. (“LTG”), now known as DSS Technology Management, Inc., which was acquired by us in July 2013, initiated litigation against Facebook, Inc., (“Facebook”), LinkedIn Corporation (“LinkedIn”), and three other defendants in the U.S. District Court for the Eastern District of Virginia. The complaint alleged infringement by the defendants of four patents that are instrumental to social and business networking technology and related to the manner in which users and application developers on the Facebook and LinkedIn platforms make connections between “objects” such as photos, people, events and pages. In December 2012, the case was transferred to the U.S. District Court for the Northern District of California. In April and May of 2013, LTG announced that Bascom Research had reached settlements with two of the named defendants. A third defendant was released from the case as well in 2013.

On May 22, 2014, Facebook filed a Petition for Covered Business Method (“CBM”) Patent Review with the USPTO’s Patent Trial and Appeal Board (“PTAB”). On September 3, 2014, Bascom Research filed a preliminary response to the CBM petition. On November 24, 2014, the PTAB ruled that the CBM will proceed forward.

On January 5, 2015, the United States District Court for the Northern District of California issued a decision granting summary judgment to defendants Facebook and LinkedIn, effectively ending the case at the trial court level. On January 22, 2015, Bascom Research and Facebook entered into a Stipulation filed with the District Court whereby Bascom Research agreed not to appeal the District Court’s judgment, and Facebook agreed to request the dismissal of its pending CBM with PTAB. On February 19, 2015, Facebook and Bascom Research filed a joint motion with PTAB to terminate the CBM proceeding. The CBM proceeding was terminated on February 24, 2015.

On November 26, 2013, DSS Technology Management filed suit against Apple, Inc. (“Apple”) in the United States District Court for the Eastern District of Texas, for patent infringement. The complaint has alleged infringement by Apple of two of DSSTM’s patents that relate to systems and methods of using low power wireless peripheral devices. DSS Technology Management is seeking a judgment for infringement and money damages from Apple in connection with the case.

On October 28, 2014, the case was stayed by the District Court pending a determination of Apple’s motion to transfer the case to the Northern District of California, which was filed on March 3, 2014. On November 7, 2014, Apple’s motion to transfer the case was granted.

On December 30, 2014, Apple filed two petitions for Inter Partes Review (“IPR”) of the patents at issue with the PTAB. DSSTM intends to file its responses to the petitions by March 30, 2015.

On May 30, 2014, DSS Technology Management filed suit against Lenovo (United States), Inc. (“Lenovo”) in the United States District Court for the Eastern District of Texas, for patent infringement. The complaint has alleged infringement by Lenovo of one of DSSTM’s patents that relates to systems and methods of using low power wireless peripheral devices. DSS Technology Management is seeking judgment for infringement and money damages from Lenovo in connection with the case. The case is currently in the discovery phase.

On September 27, 2013, DSS Technology Management purchased 10 patents covering certain methods and processes in the semiconductor industry. On March 10, 2014, DSS Technology Management filed suit in the United States District Court for the Eastern District of Texas against Taiwan Semiconductor Manufacturing Company, TSMC North America, TSMC Development, Inc. (referred to collectively as “TSMC”), Samsung Electronics Co., Ltd., Samsung Electronics America, Inc., Samsung Telecommunications America L.L.C., Samsung Semiconductor, Inc., Samsung Austin Semiconductor LLC (referred to collectively as “Samsung”), and NEC Corporation of America (referred to as “NEC”), for patent infringement involving one of its semiconductor patents. In this case, DSS Technology Management is seeking a judgment for infringement, injunctive relief, and money damages from each of the named defendants.

On June 24, 2014, TSMC filed a petition for Inter Partes Review (“IPR”), with the PTAB, and DSSTM filed its preliminary response to that petition on October 17, 2014. Samsung filed an IPR relating to the same patents on September 12, 2014, and filed a corrected IPR on October 3, 2014. DSSTM filed its preliminary response to the Samsung IPR in December, 2014. On December 31, 2014, the PTAB instituted review of several of the patent claims at issue in the case. Samsung filed a motion with PTAB to join TSMC’s IPR proceeding. The request was granted by the PTAB.

On November 3, 2014, TSMC filed a motion to transfer its case to the Northern District of California. A decision has not yet been rendered by the District Court for this motion. On March 3, 2015, a Markman hearing was held in the Eastern District of Texas, and the court’s decision is pending.

On February 13, 2014, DSS Technology Management entered into an agreement with certain investors to receive a series of advances up to $4,500,000 from the investors in exchange for promissory notes, fixed return interests and contingent interests collateralized by certain of DSS Technology Management’s intellectual property. On February 13, 2014, we received $2,000,000 under the agreement and on March 27, 2014, we received an additional $1,000,000 under the agreement. On September 5, 2014, we received the remaining $1,500,000 under the agreement.

In January and February 2014, DSS Technology Management made investments of $100,000 and $400,000, respectively, to purchase an aggregate of 594,530 shares of common stock of Express Mobile, Inc. (“Express Mobile”), which represented approximately 6% of the outstanding common stock of Express Mobile at the time of investment. Express Mobile is a developer of custom mobile applications and websites.

On May 23, 2014, DSS Technology Management purchased a portfolio of 115 patents for an aggregate cash purchase price of $1,150,000.

On February 16, 2015, DSS Technology Management filed suit in the United States District Court, Eastern District of Texas, against defendants Intel Corporation, Dell, Inc., GameStop Corp., Conn’s Inc., Conn Appliances, Inc., NEC Corporation of America, Wal-Mart Stores, Inc., Wal-Mart Stores Texas, LLC, and AT&T, Inc. The complaint alleges patent infringement and seeks a judgment for infringement of two of DSSTM’s patents, injunctive relief and money damages.

Our core business is counterfeit prevention, brand protection and validation of authentic print media, including government-issued documents, packaging, ID Cards and licenses. We believe we are a leader in the research and development of optical deterrent technologies and have commercialized these technologies with a suite of products that offer our customers an array of document security solutions. We provide document security technology to security printers, corporations, consumer product companies, and governments for protection of vital records and documents, certifications, travel documents, prescription and medical forms, consumer products, pharmaceutical packaging and school transcripts.

Optical deterrent features such as ours are utilized mainly by large security printers for the protection of important printed documents, such as vital records, and identification documents. Many of these features such as micro-printing were developed pre-1980 as they were designed to be effective on the imaging devices of the day which were mainly photography mechanisms. With the advent of modern day scanners, digital copiers, digital cameras and easy to use imaging software such as Adobe Photoshop many of the pre-1980 optical deterrents such as micro-printing are no longer used or are much less effective in the prevention of counterfeiting.

Unlike some of our competitors, our technologies are developed to defeat today’s modern imaging systems. Almost all of our products and processes are built to thwart scanners and digital copiers and we believe that our products are the most effective in doing so in the market today. In addition, our technologies do not require expensive hardware or software add-ons to authenticate a document, but instead require simple, inexpensive hand-held readers which can be calibrated to particular hidden design features. Our technologies are literally ink on paper that is printed with a particular method to hide selected things from a scanner’s “eye” or distort what a scanner “sees.” These attributes make our anti-scanning technologies very cost effective versus other current offerings on the market since our technologies are imbedded during the normal printing process, thereby significantly reducing the costs to implement the technologies.

The Company’s primary anti-counterfeiting products and technologies are marketed under its AuthentiGuard® registered trademark.

In October 2012, the Company introduced AuthentiGuard®, an iPhone application for authentication, targeted to major pharmaceutical and other companies worldwide. The application is a cloud-enabled solution that permits efficient and cost effective authentication for packaging, documents and credentials. The solution embeds customizable, covert AuthentiGuard® Prism technology that resists duplication on copiers and scanners in a product's packaging. Product verification using a smartphone application creates real-time, accurate authentication results for brand owners that can be integrated into existing information systems.

Patents

Our ability to compete effectively depends largely upon our ability to maintain the proprietary nature of our technology, products and manufacturing processes. We principally rely upon patent, trademark, trade secrets and contract law to establish and protect our proprietary rights. During our development, we have expended a significant percentage of our resources on research and development in an effort to become a market leader with the ability to provide our customers effective solutions against an ever changing array of counterfeit risks. Our position in the security print market is based on our technologies and products. We dedicate two staff members to research and development of print technologies, digital graphic files, and printing techniques that allow us to expand our ability to combat a wide variety of counterfeiting and brand protection issues. In 2014 and 2013, we spent approximately $462,000 and $254,000 respectively, on research and development which is comprised mainly of compensation costs, materials and consultants, including stock-based payments to consultants.

We currently own over a hundred patents that cover technologies ranging from semiconductor to wireless peripherals. We also have a portfolio of issued core technology patents, and several patent applications in process, including provisional and Patent Cooperation Treaty (“PCT”) patent applications in various countries including the United States, Canada, and Europe. These applications cover our anti-counterfeiting technologies, including our AuthentiGuard® On-Demand and ADX, AuthentiGuard® Prism™, AuthentiGuard® Phantom™, AuthentiGuard® Survivor 21™, AuthentiGuard® VeriGlow™ products, and several other anti-counterfeiting and authentication technologies in development. Our issued patents have remaining durations ranging from 1 to 17 years.

Trademarks

We have registered our “AuthentiGuard®” mark, as well as our “Survivor 21®” electronic check icon and "VeriGlow®" with the U.S. Patent and Trademark Office. A trademark application is pending in Canada for “AuthentiGuard.” AuthentiGuard® is registered in several European countries including the United Kingdom. We have applied to register our “DSS- Security Wise. Brand Smart.TM” mark in the U.S. and several foreign countries. We have also applied to register AuthentiSite TM, AuthentiShare TM, and AuthentiSuite TM in the U.S.

The primary website we maintain is www.dsssecure.com, which describes our company, our company history, our patented document security solutions, our major product offerings, and our targeted vertical markets. The website provides detailed product offerings of each of our divisions - Printing, Packaging, Plastics and Digital. In addition, we maintain the website www.protectedpaper.com, an e-commerce site that markets and sells our patented security paper, hand-held security verifiers and custom security documents to end users worldwide. In addition to the active websites, the Company owns over 40 domain names for future use or for strategic competitive reasons.

The security print market is comprised of a few very large companies and an increasing number of small companies with specific technology niches. The expansion of this market is primarily due to the fact that counterfeiting has expanded significantly as advancing technologies in digital duplication and scanning combined with increasingly sophisticated design software has enabled easier reproduction of original documents, vital records and IDs, packaging, and labels. Our competitors include Standard Register Company, which specializes in printing security technologies for the check and forms and medical industries; and De La Rue Plc, that specializes in printing secure currency, tickets, labels, lottery tickets and vital records for governments and Fortune 500 companies. Large Office Equipment Manufacturers, called OEMs, such as Sharp, Xerox Canon, Ricoh, Hewlett Packard and Eastman Kodak are developing “smart copier” technology that recognizes particular graphical images and produces warning words or distorted copies. Some of the OEMs are also developing user assigned and variable pantograph “hidden word” technologies in which users can assign a particular hidden word in copy, such as “void” that is displayed when a copy of such document is made. In addition, other competing hidden word technologies are being marketed by competitors such as NoCopi Technologies which sells and markets secure paper products, and Graphic Security Systems Corporation, which markets Scrambled Indicia.

Our packaging division competes with a significant number of national, regional and local companies, many of which are independent and privately-held. The largest competitors in this market are primarily focused on the long-run print order market. They include large integrated paper companies such as Rock-Tenn Company, Caraustar Industries, Inc., Graphic Packaging Holding Company and Mead Westvaco. Our printing division competes primarily with locally-based printing companies in the Rochester and Western New York markets. Most of our competitors in these markets are privately-held, single location operations.

Our plastics division competes with several companies including Bristol ID, AbNote (formerly Arthur Blanks), LaserCard Corporation and L-1 Identity Solutions. The plastics division primarily delivers its products through a dealer network, but also provides products to end-user customers. Competition in the plastic card industry is primarily based on production capabilities based on specialized equipment, geographic location, quality and service. In addition, competition is increasingly influenced by proprietary or niche offerings provided by competitors, such as RFID, biometric, read-write, and security features built-into the plastic card.

Our technology division also faces competition in the area of patent acquisitions and enforcement. Entities such as Acacia, RPX, AST, Intellectual Ventures, Wi-LAN, MOSAID, Round Rock Research LLC, IPvalue Management Inc., Vringo Inc. and Pendrell Corporation compete in acquiring rights to patents.

In general, changes in prevailing U.S. economic conditions significantly impact the general commercial printing industry. To the extent weakness in the U.S. economy causes local and national corporations to reduce their spending on advertising and marketing materials, the demand for commercial printing services may be adversely affected.

During 2014, two customers accounted for 40% of the Company’s consolidated revenue. As of December 31, 2014, these two customers accounted for 25% of the Company’s trade accounts receivable balance. During 2013, these same two customers accounted for 35% of the Company’s consolidated revenue. As of December 31, 2013, these two customers accounted for 30% of the Company’s trade accounts receivable balance.

The primary raw materials the Company uses in its businesses are paper, corrugated paperboard, plastic sheets, and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies and uses a wide variety of paper grades, formats, ink formulations and colors. Recent strengthening of economic conditions, combined with paper industry capacity reductions, have caused paper and paperboard prices to increase in 2013, and we believe increases in future years are expected. Except for certain packaging customers where the Company enters into annual contracts, for which changes in paperboard pricing is absorbed by the Company, the Company has historically passed substantially all increases and decreases to its customers, although there can be no assurances that the Company will continue to do so in the future.

It is the Company’s policy to conduct its operations in accordance with all applicable laws, regulations and other requirements. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.

In light of the events of September 11, 2001 and the subsequent war on terrorism, governments, private entities and individuals have become more aware of, and concerned with, the problems related to counterfeit documents. Homeland Security remains a high priority in the United States. For example, in 2007, federal legislation was enacted that required hospitals, physicians and pharmacies to use tamperproof paper to fill all Medicaid prescriptions. Initially, the requirement, which was part 7002(b) of the “U.S. Troop Readiness, Veterans’ Care, Katrina Recovery and Iraq Accountability Appropriations Act of 2007”, was effective April 1, 2008.

We play an active role with the Document Security Alliance group, as one of our research and development management members sits on various committees of that group and has been involved in design recommendations for important U.S. documents. This group of security industry specialists was formed by the U.S. Secret Service to evaluate and recommend security solutions to the federal government for the protection of credentials and vital records.

Our patent monetization business is also faced with potential government regulations. If new legislation, regulations or rules are implemented either by Congress, the U.S. Patent and Trademark Office (the “USPTO”), or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our patent monetization efforts and, in turn, our assets, expenses and revenue. United States patent laws have been amended by the Leahy-Smith America Invents Act, or the America Invents Act. The America Invents Act includes a number of significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities. In addition, the U.S. Congress is currently considering a bill that would require non-practicing entities that bring patent infringement lawsuits to pay legal costs of the defendants if the lawsuits are unsuccessful. It is not known when, or if, this legislation will be passed. In addition, the U.S. Department of Justice (“DOJ”) has conducted reviews of the patent system to evaluate the impact of patent assertion entities, such as our Company, on industries in which those patents relate. It is possible that the findings and recommendations of the DOJ could impact our ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.

On June 19, 2014, the Supreme Court of the United States decided the case of Alice Corp. v. CSL Bank International, or Alice. The Alice case was a legal case about patentable subject matter, and pertains to software patents generally. The primary issue in the Alice case was the question of whether claims to computer-implemented inventions, including claims to systems and machines, processes, and items of manufacture, are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101. The Alice opinion provides that an abstract idea coupled with a computer doing what a computer normally does is not something that the U.S. patent system was designed to protect. The Alice court then provided some interpretive guidance to be considered by the federal trial courts when making determinations as to whether certain patent claims constitute merely an abstract idea and, as such, are not patent-eligible subject matter within the meaning of 35 U.S.C. § 101. As a result of the Alice decision, the defendants in our Bascom case argued that the software patents involved in our infringement case against Facebook and LinkedIn should be invalidated based on the court’s reasoning in Alice. The court agreed, and as a result, the value of our patents was impaired, which resulted in a significant impairment charge in the period of such invalidation.

Moreover, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions.

The Company was incorporated in 1984 and changed its name to Document Security Systems, Inc. in 2002. Since then, the Company has acquired a plastics card manufacturer, a printing company, a packaging company, and an IT services company.

On July 1, 2013, DSSIP, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of DSS merged with and into Lexington Technology Group, Inc. (the “Merger”). As a result of the Merger, Lexington Technology Group, Inc., which later changed its name to DSS Technology Management, Inc., became a wholly-owned subsidiary of the Company.

As of March 24, 2015, we had a total of 111 employees, all of which are full-time. It is important that we continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are generally good.

Our website address is www.dsssecure.com. Information on our website is not incorporated herein by reference. We make available free of charge through our website our press releases, Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after electronically filed with or furnished to the Securities and Exchange Commission.

Document Security Systems, Inc. (referred to in this report as “Document Security Systems”, “Document Security,” “DSS,” “we,” “us,” “our” or “Company”) was formed in New York in 1984 and, in 2002, chose to strategically focus on becoming a developer and marketer of secure technologies. We specialize in fraud and counterfeit protection for all forms of printed documents and digital information. The Company holds numerous patents for optical deterrent technologies that provide protection of printed information from unauthorized scanning and copying. We operate three production facilities, a security and commercial printing facility, a packaging facility and a plastic card facility- where we produce secure and non-secure documents for our customers. We license our anti-counterfeiting technologies to printers and brand-owners. In addition, we have a digital division which provides cloud computing services for its customers, including disaster recovery, back-up and data security services. In 2013, the Company expanded its business focus by merging with DSS Technology Management, Inc., formerly known as Lexington Technology Group, Inc. (as described in greater detail below), which acquires intellectual property assets and interests in companies owning 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.

Prior to 2006, the Company’s primary revenue source in its document security division was derived from the licensing of its technology. In 2006, the Company began a series of acquisitions designed to expand its ability to produce its products for end-user customers. In 2006, we acquired Plastic Printing Professionals, Inc. (“P3”), a privately held plastic cards manufacturer located in the San Francisco, California area. P3 is also referred to herein as the DSS Plastics Group. In 2008, we acquired substantially all of the assets of DPI of Rochester, LLC, a privately held commercial printer located in Rochester, New York, referred to herein as Secuprint or DSS Printing Group. In 2010, the Company acquired Premier Packaging Corporation (“Premier Packaging”), a privately held packaging company located in the Rochester New York area. Premier Packaging is also referred to herein as the DSS Packaging Group. In May 2011, we acquired all of the capital stock of ExtraDev, Inc. (“ExtraDev”), a privately held information technology and cloud computing company located in the Rochester, New York area. ExtraDev is also referred to herein as the DSS Digital Group.

On July 1, 2013, the Company merged with DSS Technology Management, Inc. (f/k/a Lexington Technology Group, Inc.), a private intellectual property monetization company that previously acquired a patent portfolio of six patents and four pending patent applications relating to technology invented by Thomas Bascom (the “Bascom Portfolio”), and also invested in VirtualAgility, Inc., a developer of user-friendly programming platforms that facilitate the creation of sophisticated business applications without programming or coding. DSS Technology Management is focused on 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, including, but not limited to:

‡ Licensing,

‡ customized technology solutions (such as applications for medical electronic health records),

‡ strategic partnerships, and

‡ litigation.

On October 3, 2012, DSS Technology Management, Inc. (“DSS Technology Management”), through its wholly-owned subsidiary, Bascom Research, LLC, (“Bascom”) initiated patent infringement lawsuits in the United States District Court for the Eastern District of Virginia against five companies, including Facebook, Inc. and LinkedIn Corporation, for unlawfully using systems that incorporate features claimed in patents owned by Bascom. The patents included in the lawsuit relate to the data structure used by social and business networking web sites and Web 2.0 corporate intranets. On December 12, 2012, the lawsuits were transferred to the United States District Court for the Northern District of California.

On July 8, 2013, the Company’s subsidiary, DSS Technology Management, purchased two patents for $500,000 covering certain methods and processes related to Bluetooth devices. In conjunction with the patent purchases, DSS Technology Management entered into a Proceed Right Agreement with certain investors pursuant to which DSS Technology Management initially received $250,000 of a total of $750,000 which it will ultimately receive thereunder, subject to certain payment milestones, in exchange for 40% of the proceeds which it receives, if any, from the use, sale or licensing of the two patents.

Effective on August 2, 2013, Lexington Technology Group, Inc. changed its name to DSS Technology Management, Inc. (“DSS Technology Management”).

On August 16, 2013, DSS Technology Management made an additional investment in VirtualAgility, Inc., which consisted of a non-recourse note and an equity purchase for a total investment of $250,000.

On September 27, 2013, DSS Technology Management purchased 10 patents covering certain methods and processes found in the semiconductor industry for $2,000,000.

The Company does business in five operating segments as follows:

DSS Packaging Group — Produces custom paperboard packaging serving clients in the pharmaceutical, beverage, photo packaging, toy, specialty foods and direct marketing industries, among others. The division incorporates our security technologies into printed packaging to help companies prevent or deter brand and product counterfeiting.

DSS Printing Group — Provides secure and commercial printing services for end-user customers along with technical support for the Company’s technology licensees. The division produces a wide array of printed materials such as security paper, vital records, prescription paper, birth certificates, receipts, manuals, identification materials, entertainment tickets, secure coupons, parts tracking forms, brochures, direct mailing pieces, catalogs, business cards, etc. The division also provides the basis of research and development for the Company’s security printing technologies.

DSS Plastics Group — Manufactures laminated and surface printed cards which can include magnetic stripes, bar codes, holograms, signature panels, invisible ink, micro fine printing, guilloche patterns, Biometric, Radio Frequency Identification (RFID) and watermarks for printed plastic documents such as ID cards, event badges, and driver’s licenses.

DSS Digital Group — Provides data center centric solutions to businesses and governments delivered via the “cloud”. This division developed the Company’s iPhone based application that integrates some of the Company’s traditional optical deterrent technologies into proprietary digital data security based solutions for brand protection and product diversion prevention.

DSS Technology Management — acquires or internally develops patented technology or intellectual property assets (or interests therein), with 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.

On July 1, 2013 (the “Closing Date”), DSSIP, Inc., a Delaware corporation (“Merger Sub”) and a wholly-owned subsidiary of DSS merged with and into Lexington Technology Group, Inc., a Delaware corporation, n/k/a DSS Technology Management, Inc. (“DSS Technology Management”), pursuant to the terms and conditions of an Agreement and Plan of Merger, dated as of October 1, 2012 (as amended, the “Merger Agreement”), by and among the Company, DSS Technology Management, Merger Sub and Hudson Bay Master Fund Ltd. (“Hudson Bay”), as representative of DSS Technology Management’s stockholders (the “Merger”). Effective on July 1, 2013, as a result of the Merger, DSS Technology Management became a wholly-owned subsidiary of DSS. In connection with the Merger, the Company issued on the Closing Date, its securities to DSS Technology Management’s stockholders in exchange for the capital stock owned by DSS Technology Management’s stockholders, as follows (the “Merger Consideration”): (i) an aggregate of 16,558,387 shares of the Company’s common stock, par value $0.02 per share (the “Common Stock”) (which includes 2,500,000 Additional Shares and 240,559 Exchanged Shares, as such terms are defined in the Merger Agreement); (ii) 7,100,000 shares of the Company’s Common Stock to be held in escrow pursuant to an escrow agreement, dated July 1, 2013, entered into by and among the Company, Hudson Bay and American Stock Transfer & Trust Company, LLC, as escrow agent (the “Escrow Agreement”); (iii) warrants to purchase up to an aggregate of 4,859,894 shares of the Company’s Common Stock, at an exercise price of $4.80 per share and expiring on July 1, 2018; and (iv) warrants to purchase up to an aggregate of 3,432,170 shares of the Company’s Common Stock, at an exercise price of $0.02 per share and expiring on July 1, 2023 (the “$.02 Warrants”), to DSS Technology Management’s preferred stockholders that would beneficially own more than 9.99% of the shares of the Company’s Common Stock as a result of the Merger (the “Beneficial Ownership Condition”). In addition, the Company assumed options to purchase an aggregate of 2,000,000 shares of the Company’s Common Stock at an exercise price of $3.00 per share, in exchange for 3,600,000 outstanding and unexercised stock options to purchase shares of DSS Technology Management’s common stock. In addition, the Company issued an aggregate of 786,678 shares of Common Stock to Palladium Capital Advisors, LLC (“Palladium”) as compensation for their services in connection with the transactions contemplated by the Merger Agreement. Of those shares issued to Palladium, 400,000 are currently being held in escrow pursuant to the same terms and conditions as those set forth in the Escrow Agreement.

As a result of the consummation of the Merger, as of the Closing Date, the former stockholders of DSS Technology Management owned approximately 51% of the outstanding common stock of the combined company and the stockholders of the Company prior to the completion of the Merger own approximately 49% of the outstanding common stock of the combined company.

Pursuant to the Escrow Agreement, the shares of the Company’s Common Stock deposited in the escrow account will be released to the holders of the DSS Technology Management common stock (pro rata on a fully-diluted basis as of the effective time of the Merger) if and when the closing price per share of the Company’s Common Stock exceeds $5.00 per share (as adjusted for stock splits, stock dividends and similar events) for 40 trading days within a continuous 90 trading day period following the closing of the Merger. If within one year following the closing of the Merger, such threshold is not achieved, the shares of the Company’s Common Stock held in escrow shall be cancelled and returned to the treasury of the Company. DSS Technology Management stockholders will have voting rights with respect to the Company’s shares owned by such stockholders and held in escrow for one year following the closing of the Merger even though such shares may be cancelled and returned to the treasury of the Company if the condition for release of the shares held in escrow is not met.

If after one year, the shares held in escrow are cancelled because the conditions discussed above were not met, the former stockholders of DSS Technology Management are expected to own approximately 42% of the outstanding common stock of the combined company and the stockholders of the Company prior to the completion of the Merger are expected to own approximately 58% of the outstanding common stock of the combined company (without taking into account any shares of the Company’s Common Stock held by DSS Technology Management’s stockholders prior to the completion of the Merger, and excluding the exercise of any options and warrants).

The transaction was accounted for as a business combination in accordance with FASB ASC 805 Business Combinations.

Our core business is counterfeit prevention, brand protection and validation of authentic print media, including government-issued documents, packaging, ID Cards and licenses. We believe we are a leader in the research and development of optical deterrent technologies and have commercialized these technologies with a suite of products that offer our customers an array of document security solutions. We provide document security technology to security printers, corporations, consumer product companies, and governments for protection of currency, vital records and documents, certifications, travel documents, prescription and medical forms, consumer products, pharmaceutical packaging and school transcripts.

Technologies

Optical deterrent features such as ours are utilized mainly by large security printers for the protection of important printed documents, such as currency, vital records, and identification documents. Many of these features such as micro-printing were developed pre-1980 as they were designed to be effective on the imaging devices of the day which were mainly photography mechanisms. With the advent of modern day scanners, digital copiers, digital cameras and easy to use imaging software such as Adobe Photoshop many of the pre-1980 optical deterrents such as micro-printing are no longer used or are much less effective in the prevention of counterfeiting.

Unlike some of our competitors, our technologies are developed to defeat today’s modern imaging systems. Almost all of our products and processes are built to thwart scanners and digital copiers and we believe that our products are the most effective in doing so in the market today. In addition, our technologies do not require expensive hardware or software add-ons to authenticate a document, but instead require simple, inexpensive hand-held readers which can be calibrated to particular hidden design features. Our technologies are literally ink on paper that is printed with a particular method to hide selected things from a scanner’s “eye” or distort what a scanner “sees.” These attributes make our anti-scanning technologies very cost effective versus other current offerings on the market since our technologies are imbedded during the normal printing process, thereby significantly reducing the costs to implement the technologies.

The Company’s primary anti-counterfeiting products and technologies are marketed under its AuthentiGuard ® registered trademark.

In October 2012, the Company introduced AuthentiGuard®, an iPhone application for authentication, targeted to major pharmaceutical and other companies worldwide. The application is a cloud-enabled solution that permits efficient and cost effective authentication for packaging, documents and credentials. The solution embeds customizable, covert AuthentiGuard® Prism technology that resists duplication on copiers and scanners in a product's packaging. Product verification using a smartphone application creates real-time, accurate authentication results for brand owners that can be integrated into existing information systems.

Patents

Our ability to compete effectively depends in part on our ability to maintain the proprietary nature of our technology, products and manufacturing processes. We principally rely upon patent, trademark, trade secrets and contract law to establish and protect our proprietary rights. During our development, we have expended a significant percentage of our resources on research and development in an effort to become a market leader with the ability to provide our customers effective solutions against an ever changing array of counterfeit risks. Our position in the security print market is based on our technologies and products. We dedicate two staff members to research and development of print technologies, digital graphic files, and printing techniques that allow us to expand our ability to combat a wide variety of counterfeiting and brand protection issues. In 2013 and 2012, we spent approximately $254,000 and $491,000 respectively, on research and development which is comprised mainly of compensation costs, materials and consultants, including stock-based payments to consultants.

Based largely on these efforts, we currently have a portfolio of issued patents, and several patent applications in process, including provisional and Patent Cooperation Treaty (“PCT”) patent applications in various countries including the United States, Canada, and Europe. These applications cover our technologies, including our AuthentiGuard® On-Demand and ADX, AuthentiGuard® Prism™, AuthentiGuard® Phantom™, AuthentiGuard® Survivor 21™, AuthentiGuard® VeriGlow™ products, and several other anti-counterfeiting and authentication technologies in development. Our issued patents have remaining durations ranging from 1 to 17 years.

Trademarks

We have registered our “AuthentiGuard®” mark, as well as our “Survivor 21®” electronic check icon and "VeriGlow®" with the U.S. Patent and Trademark Office. A trademark application is pending in Canada for “AuthentiGuard.” AuthentiGuard® is registered in several European countries including the United Kingdom. We have applied to register our “DSS- Security Wise. Brand Smart.TM” mark in the U.S. and several foreign countries. And we have applied to register AuthentiSite TM, AuthentiShare TM, and AuthentiSuite TM in the U.S.

Websites

The primary website we maintain is www.dsssecure.com, which describes our company, our company history, our patented document security solutions, our major product offerings, and our targeted vertical markets. The website provides detailed product offerings of each of our divisions- Printing, Packaging, Plastics and Digital. In addition, we maintain the website www.protectedpaper.com, an e-commerce site that markets and sells our patented security paper, hand-held security verifiers and custom security documents to end users worldwide. In addition to the active websites, the Company owns over 40 domain names for future use or for strategic competitive reasons.

The security print market is comprised of a few very large companies and an increasing number of small companies with specific technology niches. The expansion of this market is primarily due to the fact that counterfeiting has expanded significantly as advancing technologies in digital duplication and scanning combined with increasingly sophisticated design software has enabled easier reproduction of original documents, vital records and IDs, packaging, and labels. Our competitors include Standard Register Company, which specializes in printing security technologies for the check and forms and medical industries; and De La Rue Plc, that specializes in printing secure currency, tickets, labels, lottery tickets and vital records for governments and Fortune 500 companies. Large Office Equipment Manufacturers, called OEMs, such as Sharp, Xerox Canon, Ricoh, Hewlett Packard and Eastman Kodak are developing “smart copier” technology that recognizes particular graphical images and produces warning words or distorted copies. Some of the OEMs are also developing user assigned and variable pantograph “hidden word” technologies in which users can assign a particular hidden word in copy, such as “void” that is displayed when a copy of such document is made. In addition, other competing hidden word technologies are being marketed by competitors such as NoCopi Technologies which sells and markets secure paper products, and Graphic Security Systems Corporation, which markets Scrambled Indicia.

Our printing division competes primarily with locally-based printing companies in the Rochester and Western New York markets. Most of our competitors in these markets are privately-held, single location operations.

Our plastics division competes with several companies including Bristol ID, AbNote (formerly Arthur Blanks), LaserCard Corporation and L-1 Identity Solutions. The plastics division primarily delivers its products through a dealer network, but also provides products to end-user customers. Competition in the plastic card industry is primarily based on production capabilities based on specialized equipment, geographic location, quality and service. In addition, competition is increasingly influenced by proprietary or niche offerings provided by competitors, such as RFID, biometric, read-write, and security features built-into the plastic card.

Our packaging division competes with a significant number of national, regional and local companies, many of which are independent and privately-held. The largest competitors in this market are primarily focused on the long-run print order market. They include large integrated paper companies such as Rock-Tenn Company, Caraustar Industries, Inc., Graphic Packaging Holding Company and Mead Westvaco.

Our technology division also faces competition in the area of patent acquisitions and enforcement. Entities such as Acacia, RPX, AST, Intellectual Ventures, Wi-LAN, MOSAID, Round Rock Research LLC, IPvalue Management Inc., Vringo Inc. and Pendrell Corporation compete in acquiring rights to patents, and we expect more entities to enter the market.

In general, changes in prevailing U.S. economic conditions significantly impact the general commercial printing industry. To the extent weakness in the U.S. economy causes local and national corporations to reduce their spending on advertising and marketing materials, the demand for commercial printing services may be adversely affected.

During 2013, two customers accounted for 35% of the Company’s consolidated revenue. As of December 31, 2013, these two customers accounted for 30% of the Company’s trade accounts receivable balance. During 2012, one of these customers accounted for 29% of the Company’s consolidated revenue. As of December 31, 2012, this same customer accounted for 21% of the Company’s trade accounts receivable balance.

The primary raw materials the Company uses in its businesses are paper corrugated paperboard, plastic sheets, and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies and uses a wide variety of paper grades, formats, ink formulations and colors. Recent strengthening of economic conditions, combined with paper industry capacity reductions, have caused paper and paperboard prices to increase in 2013, and we believe increases in future years are expected. Except for certain packaging customers where the Company enters into annual contracts, for which changes in paperboard pricing is absorbed by the Company, the Company has historically passed substantially all increases and decreases to its customers, although there can be no assurances that the Company will continue to do so in the future.

It is the Company’s policy to conduct its operations in accordance with all applicable laws, regulations and other requirements. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.

As of February 28, 2014, we had a total of 108 employees, all of which are full-time. It is important that we continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are generally good.

In light of the events of September 11, 2001 and the subsequent war on terrorism, governments, private entities and individuals have become more aware of, and concerned with, the problems related to counterfeit documents. Homeland Security remains a high priority in the United States. For example, in 2007, federal legislation was enacted that required hospitals, physicians and pharmacies to use tamperproof paper to fill all Medicaid prescriptions. Initially, the requirement, which was part 7002(b) of the “U.S. Troop Readiness, Veterans’ Care, Katrina Recovery and Iraq Accountability Appropriations Act of 2007”, was effective April 1, 2008.

We play an active role with the Document Security Alliance group, as one of our research and development management members sits on various committees of that group and has been involved in design recommendations for important U.S. documents. This group of security industry specialists was formed by the U.S. Secret Service to evaluate and recommend security solutions to the federal government for the protection of credentials and vital records.

Our patent monetization business is also faced with potential government regulations. If new legislation, regulations or rules are implemented either by Congress, the U.S. Patent and Trademark Office (the “USPTO”), or the courts that impact the patent application process, the patent enforcement process or the rights of patent holders, these changes could negatively affect our expenses and revenue and any reductions in the funding of the USPTO could negatively impact the value of our assets. United States patent laws have been amended by the Leahy-Smith America Invents Act, or the America Invents Act. The America Invents Act includes a number of significant changes to U.S. patent law. In general, the legislation attempts to address issues surrounding the enforceability of patents and the increase in patent litigation by, among other things, establishing new procedures for patent litigation. For example, the America Invents Act changes the way that parties may be joined in patent infringement actions, increasing the likelihood that such actions will need to be brought against individual parties allegedly infringing by their respective individual actions or activities. In addition, the U.S. Congress is currently considering a bill that would require non-practicing entities that bring patent infringement lawsuits to pay legal costs of the defendants if the lawsuits are unsuccessful. It is not known when, or if, this legislation will be passed. In addition, the U.S. Department of Justice (“DOJ”) has conducted reviews of the patent system to evaluate the impact of patent assertion entities on industries in which those patents relate. It is possible that the findings and recommendations of the DOJ could impact the ability to effectively license and enforce standards-essential patents and could increase the uncertainties and costs surrounding the enforcement of any such patented technologies.

Moreover, new rules regarding the burden of proof in patent enforcement actions could significantly increase the cost of our enforcement actions, and new standards or limitations on liability for patent infringement could negatively impact our revenue derived from such enforcement actions.

Document Security Systems, Inc. (referred to in this report as “Document Security Systems”, “Document Security,” “DSS,” “we,” “us,” “our” or “Company”) was formed in New York in 1984 and, in 2002, chose to strategically focus on becoming a developer and marketer of secure technologies. We specialize in fraud and counterfeit protection for all forms of printed documents and digital information. The Company holds numerous patents for optical deterrent technologies that provide protection of printed information from unauthorized scanning and copying. We operate three production facilities, a security and commercial printing facility, a packaging facility and a plastic card facility- where we produce secure and non-secure documents for our customers. We license our anti-counterfeiting technologies to printers and brand-owners. In addition, we have a digital division which provides cloud computing services for its customers, including disaster recovery, back-up and data security services.

Prior to 2006, the Company’s primary revenue source in its document security division was derived from the licensing of its technology. In 2006, the Company began a series of acquisitions designed to expand its ability to produce its products for end-user customers. In 2006, we acquired Plastic Printing Professionals, Inc. (“P3”), a privately held plastic cards manufacturer located in the San Francisco, California area. P3 is also referred to herein as the DSS Plastics Group. In 2008, we acquired substantially all of the assets of DPI of Rochester, LLC, a privately held commercial printer located in Rochester, New York, referred to herein as Secuprint or DSS Printing Group. In 2010, the Company acquired Premier Packaging Corporation (“Premier Packaging”), a privately held packaging company located in the Rochester NY area. Premier Packaging is also referred to herein as the DSS Packaging Group.

In October 2009, in an effort to focus more resources on our core businesses, we sold the assets and liabilities associated with the business of Legalstore.com (“Legalstore”), a part of one of our wholly-owned subsidiaries Lester Levin Inc. Legalstore was an internet company that sold legal documents and supplies. Legalstore was sold to Internet Media Services, Inc. (“Internet Media Services” or “IMS”) in exchange for 7,500,000 shares of common stock of Internet Media Services. In October 2010, we distributed our shares of Internet Media Services in the form of a dividend to our shareholders.

In May 2011, we acquired all of the capital stock of ExtraDev, Inc. (“ExtraDev”), a privately held information technology and cloud computing company located in the Rochester, New York area. ExtraDev had approximately $837,000 in revenue for the calendar year ended December 31, 2010. ExtraDev is also referred to herein as the DSS Digital Group.

Effective January 16, 2012, our board of directors amended our bylaws to increase the number of directors from seven to eight. On February 20, 2012, we appointed John Cronin to serve as a director to fill the vacancy created by such increase. Mr. Cronin became a director effective on February 21, 2012.

On February 20, 2012, as part of our long-term strategy to maximize the development and value of our intellectual property, we entered into an engagement letter with ipCapital Group, Inc. (“ipCapital”) for the provision of certain IP strategic consulting services to be performed by ipCapital during 2012. Also, on February 20, 2012, we entered into a second consulting agreement with ipCapital for the provision of strategic advice with respect to the development of our DSS Digital Group’s infrastructure and cloud computing business.

In October 2012, the Company introduced AuthentiGuard®, a iPhone application for authentication, targeted to major pharmaceutical and other companies worldwide. The application is a cloud-enabled solution that permits efficient and cost effective authentication for packaging, documents and credentials. The solution embeds customizable, covert AuthentiGuard® Prism technology that resists duplication on copiers and scanners in a product's packaging. Product verification using the iPhone application creates real-time, accurate authentication results for brand owners that can be integrated into existing information systems.

On October 1, 2012, DSS entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Lexington Technology Group Inc., (“Lexington”) pursuant to which a wholly-owned subsidiary of DSS will merge with and into Lexington, with Lexington surviving the merger as a wholly-owned subsidiary of DSS (the “Merger”). Defined terms contained in the descriptions of the Merger which follow shall have the meanings described to them in the Merger Agreement, filed with the Securities and Exchange Commission on October 4, 2012.

Assuming the Merger had been completed on December 31, 2012, the following aggregate number of DSS securities would have been issued in the Merger to the holders of Lexington Common Stock and Preferred Stock:

· 19,990,559 shares of DSS Common Stock;

· 7,100,000 shares of DSS Common Stock to be held in escrow;

· up to 500,000 shares of DSS Common Stock if Lexington’s cash balance exceeds $7.5 million to a maximum of $9.0 million at the effective time of the Merger;

· up to 4,859,894 Warrants with an exercise price of $4.80 per share that are exercisable for an aggregate of 4,859,894 shares of DSS Common Stock;

· additional shares of DSS convertible preferred stock, or warrants with an exercise price of $.02 per share if the proposal to authorize DSS Preferred Stock is not approved by DSS stockholders, to any Lexington preferred stockholder that would beneficially own more than 9.99% of DSS Common Stock as a result of this Merger; and

· for Lexington option holders only, 2,000,000 options to purchase DSS Common Stock in exchange for their options to purchase 3,600,000 shares of Lexington Common Stock.

Lexington is a private intellectual property monetization company that recently acquired a patent portfolio of six patents and four pending patent applications relating to technology invented by Thomas Bascom (the “Bascom Portfolio”). Lexington is focused on 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, including, but not limited to:

· licensing,

· customized technology solutions (such as applications for medical electronic health records),

· strategic partnerships, and

· litigation.

On October 3, 2012, Lexington, through its wholly-owned subsidiary, Bascom Research, initiated patent infringement lawsuits in the United States District Court for the Eastern District of Virginia against five companies, including Facebook, Inc. and LinkedIn Corporation, for unlawfully using systems that incorporate features claimed in patents owned by Bascom Research. The patents-in-suit relate to the data structure used by social and business networking web sites and Web 2.0 corporate intranets. In December 2012, the lawsuits were transferred to the United States District Court for the Northern District of California.

Immediately following the completion of the Merger, the former stockholders of Lexington are expected to own approximately 56% of the outstanding common and preferred stock (if approved, or $.02 Warrants) of the combined company (on a fully-diluted basis including options and warrants without taking into effect the Beneficial Ownership Condition) and the current stockholders of DSS are expected to own approximately 44% of the outstanding common stock and preferred stock of the combined company. These calculations exclude DSS Common Stock held by Lexington’s stockholders prior to the completion of the Merger. These percentages of ownership include the 7,100,000 shares held in escrow, which are eligible to be voted while in escrow. If the Escrow Shares are terminated (which will be determined one year after the Effective Date), Lexington shareholders would own a 50%, with DSS shareholders owning 50% (on a fully-diluted basis including options and warrants without taking into effect the Beneficial Ownership Condition).

We have expended significant effort and management attention on the proposed Merger transaction. There is no assurance that the transaction contemplated by the Merger Agreement will be consummated. If the Merger transaction is not consummated for any reason, our business and operations, as well as the market price of our stock and warrants may be adversely affected. For accounting purposes, based on our preliminary assessment, Lexington was identified as the “acquirer”, as it is defined in FASB Topic ASC 805. As a result, in the post-combination consolidated financial statements, Lexington’s assets and liabilities will be presented at its pre-combination amounts, and our assets and liabilities will be recognized and measured in accordance with the guidance for business combinations in ASC 805. However, the assumptions used for this assessment may change which could result in DSS being identified as the accounting “acquirer” on date of the Merger. The Company has filed a Form S-4 Registration Statement with the SEC regarding the proposed Merger. The Merger requires approval by the stockholders of both Lexington and DSS, and if approved, we currently estimate that the Merger will close sometime during the first half of 2013.

In 2011, we integrated our corporate brand and now do business in four operating segments as follows:

DSS Printing Group -Provides secure and commercial printing services for end-user customers along with technical support for the Company’s technology licensees. The division produces a wide array of printed materials such as security paper, vital records, prescription paper, birth certificates, receipts, manuals, identification materials, entertainment tickets, secure coupons, parts tracking forms, brochures, direct mailing pieces, catalogs, business cards, etc. The division also provides the basis of research and development for the Company’s security printing technologies.

DSS Plastics Group -Manufactures laminated and surface printed cards which can include magnetic stripes, bar codes, holograms, signature panels, invisible ink, micro fine printing, guilloche patterns, Biometric, Radio Frequency Identification (RFID) and watermarks for printed plastic documents such as ID cards, event badges, and driver’s licenses.

DSS Packaging Group -Produces custom paperboard packaging serving clients in the pharmaceutical, beverage, photo packaging, toy, specialty foods and direct marketing industries, among others. The division incorporates our security technologies into printed packaging to help companies prevent or deter brand and product counterfeiting.

DSS Digital Group -Provides data center centric solutions to businesses and governments delivered via the “cloud”. This division developed the Company’s iPhone based application that integrates some of the Company’s traditional optical deterrent technologies into proprietary digital data security based solutions for brand protection and product diversion prevention.

Our core business is counterfeit prevention, brand protection and validation of authentic print media, including government-issued documents, aerospace industry spare parts documents, packaging, ID Cards and licenses. We believe we are a leader in the research and development of optical deterrent technologies and have commercialized these technologies with a suite of products that offer our customers an array of document security solutions. We provide document security technology to security printers, corporations, consumer product companies and governments worldwide, and for protection of currency, vital records and documents, certifications, travel documents, prescription and medical forms, consumer products, pharmaceutical packaging and school transcripts.

Our products can be delivered on paper, plastic, packaging, or digitally via our AuthentiGuard® DX™ product suite. We believe that our continued efforts in the field of digital security and technology greatly expands the reach and potential market for our AuthentiGuard® DX™ digital products and enterprise solutions. We believe that our AuthentiGuard® DX™ solution significantly changes the economics of document security for many customers as it eliminates the requirement to utilize pre-printed forms while allowing customers to leverage existing investments in their information technology infrastructure.

Technologies

Optical deterrent features such as ours are utilized mainly by the large worldwide security printers for the protection of important printed documents, such as currency, vital records, and identification documents. Many of these features such as micro-printing were developed pre-1980 as they were designed to be effective on the imaging devices of the day which were mainly photography mechanisms. With the advent of modern day scanners, digital copiers, digital cameras and easy to use imaging software such as Adobe Photoshop many of the pre-1980 optical deterrents such as micro-printing are no longer used or are much less effective in the prevention of counterfeiting.

Unlike some of our competitors, our technologies are developed to defeat today’s modern imaging systems. Almost all of our products and processes are built to thwart scanners and digital copiers and we believe that our products are the most effective in doing so in the market today. In addition, our technologies do not require expensive hardware or software add-ons to authenticate a document, but instead require simple, inexpensive hand-held readers which can be calibrated to particular hidden design features. Our technologies are literally ink on paper that is printed with a particular method to hide selected things from a scanner’s “eye” or distort what a scanner “sees.” These attributes make our anti-scanning technologies very cost effective versus other current offerings on the market since our technologies are imbedded during the normal printing process, thereby significantly reducing the costs to implement the technologies.

The Company’s primary anti-counterfeiting products and technologies are marketed under the following trade names:

· AuthentiGuard™ DX™

· AuthentiGuard® Laser Moiré™

· AuthentiGuard® Prism™

· AuthentiGuard® Pantograph 4000™

· AuthentiGuard® Phantom™

· AuthentiGuard® VeriGlow™

· AuthentiGuard® Survivor 21™

· AuthentiGuard® Block-Out™

· AuthentiGuard® MicroPerf™

In October 2012, the Company introduced AuthentiGuard®, a iPhone application for authentication, targeted to major pharmaceutical and other companies worldwide. The application is a cloud-enabled solution that permits efficient and cost effective authentication for packaging, documents and credentials. The solution embeds customizable, covert AuthentiGuard® Prism technology that resists duplication on copiers and scanners in a product's packaging. Product verification using the iPhone application creates real-time, accurate authentication results for brand owners that can be integrated into existing information systems.

Patents

Our ability to compete effectively depends in part on our ability to maintain the proprietary nature of our technology, products and manufacturing processes. We principally rely upon patent, trademark, trade secrets and contract law to establish and protect our proprietary rights. During our development, we have expended a significant percentage of our resources on research and development in an effort to become a market leader with the ability to provide our customers effective solutions against an ever changing array of counterfeit risks. Our position in the security print market is based on our technologies and products. We dedicate two staff members to research and development of print technologies, digital graphic files, and printing techniques that allow us to expand our ability to combat a wide variety of counterfeiting and brand protection issues. In 2012 and 2011, we spent approximately $491,000 and $285,000 respectively, on research and development which is comprised mainly of compensation costs, materials and consultants, including stock-based payments to consultants.

Based largely on these efforts, we currently hold numerous patents and have numerous patent applications in process, including provisional and Patent Cooperation Treaty (“PCT”) patent applications and applications that have entered the National Phase in various countries including the United States, Canada, Europe, Japan, Brazil, Israel, Mexico, Indonesia and South Africa. These applications cover our technologies, including our AuthentiGuard® On-Demand and ADX, AuthentiGuard® Prism™, AuthentiGuard® Phantom™, AuthentiGuard® ObscuraScan™, AuthentiGuard® Survivor 21™, AuthentiGuard® VeriGlow™ products, and several other anti-counterfeiting and authentication technologies in development. Our patents have remaining durations ranging from 1 to 15 years.

Trademarks

We have registered our “AuthentiGuard” mark, as well as our “Survivor 21” electronic check icon with the U.S. Patent and Trademark Office. A trademark application is pending in Canada for “AuthentiGuard.” AuthentiGuard® is registered in several European countries including the United Kingdom. We have registered our “DSS” mark in the U.S. and several foreign countries.

Websites

The primary website we maintain is www.dsssecure.com, which describes our company, our company history, our patented document security solutions, our major product offerings, and our targeted vertical markets. The website provides detailed product offerings of each of our divisions- Printing, Packaging, Plastics and Digital. In addition, we maintain the website www.protectedpaper.com, an e-commerce site that markets and sells our patented security paper, hand-held security verifiers and custom security documents to end users worldwide. In addition to the active websites, the company owns over 40 domain names for future use or for strategic competitive reasons.

The security print market is comprised of a few very large companies and an increasing number of small companies with specific technology niches. The expansion of this market is primarily due to the fact that counterfeiting has expanded significantly as advancing technologies in digital duplication and scanning combined with increasingly sophisticated design software has enabled easier reproduction of original documents, vital records and IDs, packaging, and labels. Our competitors include Standard Register Company, which specializes in printing security technologies for the check and forms and medical industries; and De La Rue Plc, that specializes in printing secure currency, tickets, labels, lottery tickets and vital records for governments and Fortune 500 companies. Large Office Equipment Manufacturers, called OEMs, such as Sharp, Xerox Canon, Ricoh, Hewlett Packard and Eastman Kodak are developing “smart copier” technology that recognizes particular graphical images and produces warning words or distorted copies. Some of the OEMs are also developing user assigned and variable pantograph “hidden word” technologies in which users can assign a particular hidden word in copy, such as “void” that is displayed when a copy of such document is made. In addition, other competing hidden word technologies are being marketed by competitors such as NoCopi Technologies which sells and markets secure paper products, and Graphic Security Systems Corporation, which markets scrambled indicia.

Our printing division competes primarily with locally-based printing companies in the Rochester and Western New York markets. Most of our competitors in these markets are privately-held, single location operations.

Our plastics division competes with several regional companies including Bristol ID, AbNote (formerly Arthur Blanks), LaserCard Corporation and L-1 Identity Solutions. Our plastic division primarily delivers its products through a dealer network, but also provides products to end-user customers. Competition in the plastic card industry is primarily based on production capabilities based on specialized equipment, geographic location, quality and service. In addition, competition is increasingly influenced by proprietary or niche offerings provided by competitors, such as RFID, biometric, read-write, and security features built-into the plastic card.

Our packaging division competes with a significant number of national, regional and local companies, many of which are independent and privately-held. The largest competitors in this market are primarily focused on the long-run print order market. They include large integrated paper companies such as Rock-Tenn Company, Caraustar Industries, Inc., Graphic Packaging Holding Company and Mead Westvaco.

Our digital division competes in the cloud computing industry, best described as delivering computing, storage, and applications as a service over the Internet. Our digital division primarily provides "managed hosting” services which are primarily IT services that are provided on a server or servers reserved for a specific customer. This service frees the customer from the burden of managing the data center, network, hardware devices, and operating system software. Dedicated Cloud hosting is largely a recurring, subscription-based business. The cloud computing industry is fast-growing and crowded, ranging from large, diversified technology companies such Amazon, Google, HP, IBM and Microsoft, who are making substantial investments in cloud computing, to smaller, local and regional IT services providers.

In general, changes in prevailing U.S. economic conditions significantly impact the general commercial printing industry. To the extent weakness in the U.S. economy causes local and national corporations to reduce their spending on advertising and marketing materials, the demand for commercial printing services may be adversely affected.

During 2012, one customer accounted for 29% of the Company’s consolidated revenue. As of December 31, 2012, this customer accounted for 21% of the Company’s trade accounts receivable balance. During 2011, this customer accounted for 19% of the Company’s consolidated revenue. As of December 31, 2011, this customer accounted for 18% of the Company’s trade accounts receivable balance.

The primary raw materials the Company uses in its businesses are paper corrugated paperboard, plastic sheets, and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies and uses a wide variety of paper grades, formats, ink formulations and colors. Recent strengthening of economic conditions, combined with paper industry capacity reductions, have caused paper and paperboard prices to increase in 2012, and we believe increases in future years are expected. Except for certain packaging customers where the Company enters into annual contracts, for which changes in paperboard pricing is absorbed by the Company, the Company has historically passed substantially all increases and decreases to its customers, although there can be no assurances that the Company will continue to do so in the future.

It is the Company’s policy to conduct its operations in accordance with all applicable laws, regulations and other requirements. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.

As of February 28, 2013, we had a total of 107 employees, all of which are full-time. It is important that we continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are generally good.

Document Security Systems, Inc. (referred to in this report as “Document Security Systems”, “Document Security,” “DSS,” “we,” “us,” “our” or “Company”) was formed in New York in 1984 and, in 2002, chose to strategically focus on becoming a developer and marketer of secure technologies. We specialize in fraud and counterfeit protection for all forms of printed documents and digital information. The Company holds numerous patents for optical deterrent technologies that provide protection of printed information from unauthorized scanning and copying. We operate three production facilities, a security and commercial printing facility, a packaging facility and a plastic card facility- where we produce secure and non-secure documents for our customers. We license our anti-counterfeiting technologies to printers and brand-owners. In addition, we have a digital division which provides cloud computing services for its customers, including disaster recovery, back-up and data security services.

Prior to 2006, the Company’s primary revenue source in its document security division was derived from the licensing of its technology. In 2006, the Company began a series of acquisitions designed to expand its ability to produce its products for end-user customers. In 2006, we acquired Plastic Printing Professionals, Inc. (“P3”), a privately held plastic cards manufacturer located in the San Francisco, California area. P3 is also referred to herein as the DSS Plastics Group. In 2008, we acquired substantially all of the assets of DPI of Rochester, LLC, a privately held commercial printer located in Rochester, New York, referred to herein as Secuprint or DSS Printing Group. In 2010, the Company acquired Premier Packaging Corporation (“Premier Packaging”), a privately held packaging company located in the Rochester New York area. Premier Packaging is also referred to herein as the DSS Packaging Group.

In October 2009, in an effort to focus more resources on our core businesses, we sold the assets and liabilities associated with the business of Legalstore.com (“Legalstore”), a part of one of our wholly-owned subsidiaries Lester Levin Inc. Legalstore was an internet company that sold legal documents and supplies. Legalstore was sold to Internet Media Services, Inc. (“Internet Media Services” or “IMS”) in exchange for 7,500,000 shares of common stock of Internet Media Services. In October 2010, we distributed our shares of Internet Media Services in the form of a dividend to our shareholders.

In May 2011, we acquired all of the capital stock of ExtraDev, Inc. (“ExtraDev”), a privately held information technology and cloud computing company located in the Rochester, New York area. ExtraDev had approximately $837,000 in revenue for the calendar year ended December 31, 2010. ExtraDev is also referred to herein as the DSS Digital Group.

Effective January 16, 2012, our board of directors amended our bylaws to increase the number of directors from seven to eight. On February 20, 2012, we appointed John Cronin to serve as a director to fill the vacancy created by such increase. Mr. Cronin became a director effective on February 21, 2012.

On February 20, 2012, as part of our long-term strategy to maximize the development and value of our intellectual property, we entered into an engagement letter with ipCapital Group, Inc. (“ipCapital”) for the provision of certain IP strategic consulting services to be performed by ipCapital during 2012. Also, on February 20, 2012, we entered into a second consulting agreement with ipCapital for the provision of strategic advice with respect to the development of our DSS Digital Group’s infrastructure and cloud computing business.

On February 20, 2012, we entered into a one -year consulting agreement with Century Media Group for investor relations services, for the purpose of increasing our exposure to the investment community.

In 2011, we integrated our corporate brand and now do business in four operating segments as follows:

DSS Printing Group -Provides secure and commercial printing services for end-user customers along with technical support for the Company’s technology licensees. The division produces a wide array of printed materials such as security paper, vital records, prescription paper, birth certificates, receipts, manuals, identification materials, entertainment tickets, secure coupons, parts tracking forms, brochures, direct mailing pieces, catalogs, business cards, etc. The division also provides the basis of research and development for its security printing technologies.

DSS Plastics Group -Manufactures laminated and surface printed cards which can include magnetic stripes, bar codes, holograms, signature panels, invisible ink, micro fine printing, guilloche patterns, Biometric, Radio Frequency Identification (RFID) and watermarks for printed plastic documents such as ID cards, event badges, and driver’s licenses.

DSS Packaging Group -Produces custom paperboard packaging serving clients in the pharmaceutical, beverage, photo packaging, toy, specialty foods and direct marketing industries, among others. The division incorporates our security technologies into printed packaging to help companies prevent or deter brand and product counterfeiting.

DSS Digital Group -Provides data center centric solutions to businesses and governments delivered via the “cloud”. This division is also developing proprietary digital data security technologies based on the Company’s optical deterrent technologies.

Our core business is counterfeit prevention, brand protection and validation of authentic print media, including government-issued documents, aerospace industry spare parts documents, packaging, ID Cards and licenses . We believe we are a leader in the research and development of optical deterrent technologies and have commercialized these technologies with a suite of products that offer our customers an array of document security solutions. We provide document security technology to security printers, corporations, consumer product companies and governments worldwide, and for protection of currency, vital records and documents, certifications, travel documents, prescription and medical forms, consumer products, pharmaceutical packaging and school transcripts.

Our products can be delivered on paper, plastic, packaging, or digitally via our AuthentiGuard® DX™ product suite. We believe that our continued efforts in the field of digital security and technology greatly expands the reach and potential market for our AuthentiGuard® DX™ digital products and enterprise solutions. We believe that our AuthentiGuard® DX™ solution significantly changes the economics of document security for many customers as it eliminates the requirement to utilize pre-printed forms while allowing customers to leverage existing investments in their information technology infrastructure.

Technologies

Optical deterrent features such as ours are utilized mainly by the large worldwide security printers for the protection of important printed documents, such as currency, vital records, and identification documents. Many of these features such as micro-printing were developed pre-1980 as they were designed to be effective on the imaging devices of the day which were mainly photography mechanisms. With the advent of modern day scanners, digital copiers, digital cameras and easy to use imaging software such as Adobe Photoshop many of the pre-1980 optical deterrents such as micro-printing are no longer used or are much less effective in the prevention of counterfeiting.

Unlike some of our competitors, our technologies are developed to defeat today’s modern imaging systems. Almost all of our products and processes are built to thwart scanners and digital copiers and we believe that our products are the most effective in doing so in the market today. In addition, our technologies do not require expensive hardware or software add-ons to authenticate a document, but instead require simple, inexpensive hand-held readers which can be calibrated to particular hidden design features. Our technologies are literally ink on paper that is printed with a particular method to hide selected things from a scanner’s “eye” or distort what a scanner “sees.” These attributes make our anti-scanning technologies very cost effective versus other current offerings on the market since our technologies are imbedded during the normal printing process, thereby significantly reducing the costs to implement the technologies.

The Company’s primary anti-counterfeiting products and technologies are marketed under the following trade names:

· AuthentiGuard™ DX™

· AuthentiGuard® Laser Moiré™

· AuthentiGuard® Prism™

· AuthentiGuard® Pantograph 4000™

· AuthentiGuard® Phantom™

· AuthentiGuard® VeriGlow™

· AuthentiGuard® Survivor 21™

· AuthentiGuard® Block-Out™

· AuthentiGuard® MicroPerf™

Patents

Our ability to compete effectively depends in part on our ability to maintain the proprietary nature of our technology, products and manufacturing processes. We principally rely upon patent, trademark, trade secrets and contract law to establish and protect our proprietary rights. During our development, we have expended a significant percentage of our resources on research and development in an effort to become a market leader with the ability to provide our customers effective solutions against an ever changing array of counterfeit risks. Our position in the security print market is based on our technologies and products. We dedicate two staff members to research and development of print technologies, digital graphic files, and printing techniques that allow us to expand our ability to combat a wide variety of counterfeiting and brand protection issues. In 2011 and 2010, we spent approximately $285,000 and $265,000 respectively, on research and development which is comprised mainly of compensation costs, materials and third-party services.

Based largely on these efforts, we currently hold numerous patents and have numerous patent applications in process, including provisional and Patent Cooperation Treaty (“PCT”) patent applications and applications that have entered the National Phase in various countries including the United States, Canada, Europe, Japan, Brazil, Israel, Mexico, Indonesia and South Africa. These applications cover our technologies, including our AuthentiGuard® On-Demand and ADX, AuthentiGuard® Prism™, AuthentiGuard® Phantom™, AuthentiGuard® ObscuraScan™, AuthentiGuard® Survivor 21™, AuthentiGuard® VeriGlow™ products, and several other anti-counterfeiting and authentication technologies in development. Our issued patents have remaining durations ranging from 2 to 15 years.

Trademarks

We have registered our “AuthentiGuard” mark, as well as our “Survivor 21” electronic check icon with the U.S. Patent and Trademark Office. A trademark application is pending in Canada for “AuthentiGuard.” AuthentiGuard® is registered in several European countries including the United Kingdom. We have registered our “DSS” mark in the U.S. and several foreign countries.

Websites

The primary website we maintain is www.dsssecure.com, which describes our company, our company history, our patented document security solutions, our major product offerings, and our targeted vertical markets. The website provides detailed product offerings of each of our divisions- Printing, Packaging, Plastics and Digital. In addition, we maintain the website www.protectedpaper.com, an e-commerce site that markets and sells our patented security paper, hand-held security verifiers and custom security documents to end users worldwide. In addition to the active websites, the company owns over 40 domain names for future use or for strategic competitive reasons.

The security print market is comprised of a few very large companies and an increasing number of small companies with specific technology niches. The expansion of this market is primarily due to the fact that counterfeiting has expanded significantly as advancing technologies in digital duplication and scanning combined with increasingly sophisticated design software has enabled easier reproduction of original documents, vital records and IDs, packaging, and labels. Our competitors include Standard Register Company, which specializes in printing security technologies for the check and forms and medical industries; and De La Rue Plc, that specializes in printing secure currency, tickets, labels, lottery tickets and vital records for governments and Fortune 500 companies. Large Office Equipment Manufacturers, called OEMs, such as Sharp, Xerox Canon, Ricoh, Hewlett Packard and Eastman Kodak are developing “smart copier” technology that recognizes particular graphical images and produces warning words or distorted copies. Some of the OEMs are also developing user assigned and variable pantograph “hidden word” technologies in which users can assign a particular hidden word in copy, such as “void” that is displayed when a copy of such document is made. In addition, other competing hidden word technologies are being marketed by competitors such as NoCopi Technologies which sells and markets secure paper products, and Graphic Security Systems Corporation, which markets scrambled indicia.

The commercial printing industry in the US includes around 35,000 companies with approximately $90 billion of aggregate annual revenue (Source: http://www.firstresearch.com/industryanalysis/commercialprinting.html). Several competitors such as RR Donnelley and Canadian printer Quebecor World have multibillion dollar revenues, but we believe most printers considered "large" have annual revenues under $1 billion and the majority of commercial printers are small or midsized businesses that operate one production plant, employ fewer than 20 people, and have annual revenue under $5 million. Despite continuing consolidation, the industry is highly fragmented; the largest 50 companies hold only about 30 percent of the market. We compete primarily with locally-based printing companies in the Rochester and Western New York markets. Most of our competitors in these markets are privately-held, single location operations.

Our plastics division competes with several regional companies including Bristol ID, AbNote (formerly Arthur Blanks), LaserCard Corporation and L-1 Identity Solutions. Our plastics division primarily delivers its products through a dealer network, but also provides products to end-user customers. Competition in the plastic card industry is primarily based on production capabilities based on specialized equipment, geographic location, quality and service. In addition, competition is increasingly influenced by proprietary or niche offerings provided by competitors, such as RFID, biometric, read-write, and security features built-into the plastic card.

Our packaging division competes with a significant number of national, regional and local companies, many of which are independent and privately-held. The largest competitors in this market are primarily focused on the long-run print order market. They include large integrated paper companies such as Rock-Tenn Company, Caraustar Industries, Inc., Graphic Packaging Holding Company and Mead Westvaco.

In general, changes in prevailing U.S. economic conditions significantly impact the general commercial printing industry. To the extent weakness in the U.S. economy causes local and national corporations to reduce their spending on advertising and marketing materials, the demand for commercial printing services may be adversely affected.

During 2011, one customer accounted for 19% of the Company’s consolidated revenue. As of December 31, 2011, this customer accounted for 18% of the Company’s trade accounts receivable balance. During 2010 two customers accounted for 25% and 10% of the Company’s total revenue from continuing operations, respectively. As of December 31, 2010, these customers accounted for 37% and 7% of the Company’s trade accounts receivable balance, respectively.

The primary raw materials the Company uses in its businesses are paper corrugated paperboard, plastic sheets, and ink. The Company negotiates with leading suppliers to maximize its purchasing efficiencies and uses a wide variety of paper grades, formats, ink formulations and colors. Recent strengthening of economic conditions, combined with paper industry capacity reductions, have caused paper and paperboard prices to increase in 2011, and we believe increases in future years are expected. Except for certain packaging customers where the Company enters into annual contracts, for which changes in paperboard pricing is absorbed by the Company, the Company has historically passed substantially all increases and decreases to its customers, although there can be no assurances that the Company will continue to do so in the future.

It is the Company’s policy to conduct its operations in accordance with all applicable laws, regulations and other requirements. While it is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that the Company may undertake in the future, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on the Company’s consolidated annual results of operations, financial position or cash flows.

As of March 14, 2012, we had a total of 105 employees, all of which are full-time. It is important that we continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are generally good.

In light of the events of September 11, 2001 and the subsequent war on terrorism, governments, private entities and individuals have become more aware of, and concerned with, the problems related to counterfeit documents. Homeland Security remains a high priority in the United States. This new heightened awareness may result in new laws or regulations which could impact our business. We believe, however, that any such laws or regulations would be aimed at requiring or promoting anti-counterfeiting capabilities, and therefore would likely have a positive impact on our business plans. For example, in 2007, federal legislation was enacted that required hospitals, physicians and pharmacies to use tamperproof paper to fill all Medicaid prescriptions. Initially, the requirement, which was part 7002(b) of the “U.S. Troop Readiness, Veterans’ Care, Katrina Recovery and Iraq Accountability Appropriations Act of 2007”, was effective April 1, 2008.

Document Security Systems plays an active role with the Document Security Alliance group, as one of our senior management members sits on various committees of that group and has been involved in design recommendations for important U.S. documents. This group of security industry specialists was formed by the U.S. Secret Service to evaluate and recommend security solutions to the federal government for the protection of credentials and vital records.

Document Security Systems, Inc. (referred to in this report as “Document Security Systems”, “Document Security,” “DSS,” “we,” “us,” “our” or “Company”) develops, markets, manufactures and sells paper and plastic products designed to protect valuable information from unauthorized scanning, copying, and digital imaging. We have developed security technologies that are applied during the normal printing process and by all printing methods including traditional offset, gravure, flexo, digital or via the internet on paper, plastic, or packaging. Our technologies and products are used by federal, state and local governments, law enforcement agencies and are also applied to a broad variety of industries as well, including financial institutions, high technology and consumer goods, entertainment and gaming, healthcare/pharmaceutical, defense and genuine parts industries. Our customers use our technologies where there is a need for enhanced security for protection and verification of critical financial instruments and vital records, or where there are concerns of counterfeiting, fraud, identity theft, brand protection and liability.

We were organized as a New York corporation in 1984, and in 2002, chose to strategically focus on becoming a developer and marketer of secure technologies for all forms of print media. The basis of our document security business in our early stages was several patents, research and development and knowledge we acquired from privately held document security technology businesses in 2002 and 2003. Our business model focused on developing anti-copying technologies for the printing industry. We now have numerous patents, patent pendings, trademarks and trade secrets that form the basis of our security technology offerings. Our competitive position in the security printing market is based on our attention to the research and development of technologies, ideas and know-how that combat a widening range of copying, scanning and other duplication devices that exist in today’s market that can be used for counterfeiting and unauthorized duplication of sensitive information and images. In 2006, we began to expand our strategic focus to become a full service provider of documents securing products to the end-user customer.

Prior to 2006, the Company’s primary revenue source in its document security division was derived from the licensing of its technology. The Company had limited production capabilities. In 2006, the Company began to expand its ability to be a provider of anti-counterfeiting products that utilize the Company’s anti-counterfeiting technologies. In 2006, we acquired Plastic Printing Professionals, Inc. (“P3”), a privately held plastic cards manufacturer located in the San Francisco, CA area. P3’s primary focus is manufacturing long-life composite, laminated and surface printed cards which can include magnetic stripes, bar codes, holograms, signature panels, invisible ink, micro fine printing, guilloche patterns, Biometric, RFID and a patent-pending watermark technology. P3’s products are marketed through an extensive broker network that covers much of North America, Europe and South America and by manufacturing for various industry integrators.

In December 2008, we acquired substantially all of the assets of DPI of Rochester, LLC, a privately held commercial printer located in Rochester, NY. We formed DPI Secuprint (“DPI”) to incorporate this new company which significantly improved our ability to produce our security paper products as well as improving our competitiveness in the market for custom security printing, especially in the areas of vital records, secure coupons, transcripts, and prescription paper along with the ability to offer our customers a wider range of commercial printing offerings.

In February 2010, the Company acquired Premier Packaging Corporation (“Premier Packaging”), a privately held packaging company located in the Rochester NY area. Premier Packaging is an ISO 9001:2008 registered manufacturer of custom paperboard packaging serving clients in the pharmaceutical, beverage, photo packaging, toy, specialty foods and direct marketing industries, among others. The Company expects the acquisition will allow it to introduce anti-counterfeiting products to the packaging market that further expands the usage of its technologies. The Company believes that the ability to deter and prevent counterfeiting of brand packaging will provide major benefits to companies around the globe which are affected by product counterfeiting.

In 2010, we generated revenue of $13.4 million, a 35% increase compared to 2009. The increase was primarily due to the acquisition of Premier Packaging in the early part of 2010. The increase in revenue caused by the acquisition of Premier Packaging more than offset decreases in revenue experienced by the Company’s other divisions, Document Security Systems, DPI and P3, and the loss of revenue as a result of the Company’s divestiture of its legal products division in October of 2009. In October 2010, we distributed our shares of Internet Media Services in the form of a dividend to our shareholders.

Our core business is counterfeit prevention, brand protection and validation of authentic print media, including government-issued documents, aerospace industry spare parts documents, packaging, ID Cards, licenses and more. We believe we are a leader in the research and development of optical deterrent technologies and have commercialized these technologies with a suite of products that offer our customers an array of document security solutions. We provide document security technology to security printers, corporations, consumer product companies and governments worldwide and for currency, identifications, certifications, travel documents, prescription and medical forms, consumer product and pharmaceutical packaging, and school transcripts.

Our products can be delivered on paper, plastic, packaging, or digitally via our AuthentiGuard® DX™ product suite. We believe that our continued efforts in the field of digital security and technology greatly expands the reach and potential market for our AuthentiGuard® DX™ digital products and enterprise solutions. We believe that our AuthentiGuard® DX™ solution significantly changes the economics of document security for many customers as it eliminates the requirement to utilize pre-printed forms while allowing customers to leverage existing investments in their information technology infrastructure.

Technologies

We have developed or acquired over 30 technologies that provide to our customers a wide spectrum of solutions.

The Company’s primary anti-counterfeiting products and technologies are marketed under the following trade names:

· AuthentiGuard™ DX™

· AuthentiGuard® Laser Moiré™

· AuthentiGuard® Prism™

· AuthentiGuard® Pantograph 4000™

· AuthentiGuard® Phantom™

· AuthentiGuard® VeriGlow™

· AuthentiGuard® Survivor 21®

· AuthentiGuard® Block-Out™

· AuthentiGuard® MicroPerf™

Products and Services

Generic Security Paper: Our primary product for the retail end-user market is AuthentiGuard® Security Paper. AuthentiGuard® Security Paper is blank paper that contains our Pantograph 4000TM technology. The paper reveals hidden warning words, logos or images using The Authenticator- our proprietary viewing lens – when the paper is faxed, copied or scanned. The hidden words appear on the duplicate or the computer digital file and essentially prevent documents, including forms, coupons and tickets, from being counterfeited.

Security and non-security printing: We believe our technology portfolio allows us to create unique custom secure paper, plastic, packaging and Internet-based and software enterprise solutions. We market and sell to end-users that require anti-counterfeiting and authentication features in a wide range of printed materials such as documents, vital records, prescription paper, driver’s licenses, birth certificates, receipts, manuals, identification materials, entertainment tickets, secure coupons, parts tracking forms, as well as product packaging including pharmaceutical and a wide range of consumer goods. In addition, we provide a full range of digital and large offset commercial printing capabilities to our customers.

In our early stages, we had primarily outsourced the production of our custom security print orders to strategic printing vendors. In December 2008, we acquired a commercial printer with long run offset and short run digital printing capabilities that will allow us to produce the majority of our security print orders in house. We produce our plastic printed documents such as ID cards, event badges, and driver licenses at our manufacturing facility in Brisbane, California under the name P3. In late 2007, we moved our P3 manufacturing facility to a 25,000 square foot facility in order to increase our plastic manufacturing capacity, and during 2008, we upgraded their production capabilities by adding equipment that will improve its productivity, along with equipment for high speed data encoding and equipment for production of high-volume precision RFID cards.

Packaging: We produce our secure and non-secure packaging products such as boxes, mailers, and point of sale displays, utilizing a CAD/CAM design system that allows for early stage prototyping at our manufacturing facility in Victor, New York. Our packaging division offers automated die cutting, high speed folding, gluing, window and paper patching, automated in-line inserting, pick and place and tip-on systems. We can incorporate our security technologies into printed packaging to help companies prevent or deter brand and product counterfeiting. In addition, our technologies and services can be integrated into various supply chain anti-diversion programs such as track and trace that deter product diversion throughout the supply chain.

Digital Security Solutions: Using software that we have developed, we can electronically render several of our technologies digitally to extend the use of optical security to the end-user of sensitive information. With our AuthentiGuard® DX™ we market a networked appliance that allows the author of any Microsoft Office document (Outlook, Word, Excel, or PowerPoint) to secure nearly any of its alphanumeric content when it is printed or digitally stored. AuthentiGuard® DX prints selected content using our patented technology so that it cannot be read by the naked eye. Reading the hidden content, or authenticating the document is performed with a proprietary viewing device or software.

The Company has developed an internet delivered technology called AuthentiGuard® – On Demand™ where information is hidden and then verified utilizing an inexpensive viewing glass. This technology is currently being utilized by a Central American country for travel visas.

The Company has also developed digital versions of its AuthentiGuard® – Prism™ and AuthentiGuard® – Pantograph 4000™ technologies which are produced on HP Indigo Presses, Canon Color Copiers, Ricoh Color Copiers and Konica Desktop Printers. The Company sells the digital products directly through its internal sales force and it has also entered into a contract to sell its digital solutions through a third party who specializes in hardware software engineering solutions.

Technology Licensing: We license our anti-counterfeiting technology and trade secrets to security printers through licensing arrangements. We seek licensees that have a broad customer base that can benefit from our technologies or have unique and strategic capabilities that expand the capabilities that we can offer our potential customers. Licenses can be for a single technology or for a package of technologies. We offer licensees a variety of pricing models, including:

· Pay us one price per year;

· Pay us a percentage of gross sales price of the product containing the technology during the term;

· Joint venture or profit sharing arrangements; and

· Pay Per Finished Piece.

Legal Products: We also owned and operated, through our wholly-owned subsidiary, Legalstore, an Internet company which sold legal supplies and documents, including security paper and products for the users of legal documents and supplies in the legal, medical and educational fields. On October 8, 2009 we sold the assets and liabilities associated with Legalstore to Internet Media Services, Inc. (“Internet Media Services”) in exchange for 7,500,000 shares of its common stock representing approximately 37% of the outstanding shares of Internet Media Services. In October 2010, we distributed our shares of Internet Media Services in the form of a dividend to our shareholders.

Patents

Our ability to compete effectively depends in part on our ability to maintain the proprietary nature of our technology, products and manufacturing processes. We principally rely upon patent, trademark, trade secrets and contract law to establish and protect our proprietary rights. During our development, we have expended a significant percentage of our resources on research and development to ensure that we are a market leader with the ability to provide our customers effective solutions against a never changing array of counterfeit risks. Our position in the security print market is based on our technologies and products. We dedicate 2 staff members to research and development of print technologies, digital graphic files, and printing techniques that allow us to expand our ability to combat a wide variety of counterfeiting and brand protection issues. In 2010 and 2009, we spent approximately $265,000 and $291,000 respectively, on research and development which is comprised mainly of compensation costs, materials and third-party services.

Based largely on these efforts, we currently hold numerous patents and have numerous patent applications in process, including provisional and PCT patent applications and applications that have entered the National Phase in various countries including the United States, Canada, Europe, Japan, Brazil, Israel, Mexico, Indonesia and South Africa. These applications cover our technologies, including our AuthentiGuard® On-Demand and ADX, AuthentiGuard® Prism™, AuthentiGuard® Phantom™, AuthentiGuard® ObscuraScan™, AuthentiGuard® Survivor 21™, AuthentiGuard® VeriGlow™ products, and several other anti-counterfeiting and authentication technologies in development.

In addition to our current patent activities, we own several patents that we acquired in 2002 when we acquired companies owned by various members of the Wicker Family and The Estate of Ralph Wicker, including US Patents 5,018,767, European Patent 0455750, Canadian Patent 2,045,580, and a 50% ownership of US Patent No 5,735,547 (collectively, the “Wicker Patents”). However, due to previous contractual agreements associated with the Wicker Patents, we did not obtain certain economic rights to these patents, including certain economic rights to benefits derived from settlements, licenses or other subsequent business arrangements from any person or entity that had been proven to infringe these patents. Therefore, to consolidate our ownership and economic rights to the Wicker Patents, we entered into the following transactions.

· In 2004, we entered into an agreement with The Estate of Ralph Wicker and its assigns to purchase from them the right to 70% of the future economic benefit derived from settlements, licenses or subsequent business arrangements from any infringer of the Wicker Patents that we choose to pursue, with The Estate of Ralph Wicker receiving the remaining 30% of such economic benefit.

· In February 2005, we further consolidated our ownership of the Wicker Patents by purchasing the economic interests and ownership from 45 persons and entities that had purchased various rights in Wicker Family technologies, including the Wicker Patents. As a result of this transaction, we increased our ownership of US Patent 5,735,547 to 100%, and increased our right to future economic benefits relating to the Wicker Patents to approximately 86% of all settlements or license royalties derived from, among other things, infringement suits related to the foreign Wicker Patents, including European Patent 0455750. Pursuant to these transactions, we issued an aggregate of 541,460 shares of our common stock, valued at approximately $3.9 million to these 45 persons and entities.

In August 2005, the Company commenced a suit against the European Central Bank (“ECB”) alleging patent infringement by the ECB and claimed unspecified damages. We brought the suit in the European Court of First Instance in Luxembourg. We alleged that all Euro banknotes in circulation infringe the Company European Patent 0 455 750B1 (the “Patent”), which covers a method of incorporating an anti-counterfeiting feature into banknotes or similar security documents to protect against forgeries by digital scanning and copying devices. Commencing in March 2006, the ECB countersued in eight national courts alleging that the Patent was invalid. Through August 2008, the Company spent approximately $4.2 million dollars on legal, expert and consulting fees for its case. In August 2008, the Company decided to reduce its cost burden associated with the case and entered into an agreement with Trebuchet Capital Partners, LLC (“Trebuchet”) under which Trebuchet agreed to pay substantially all of the litigation costs associated with pending validity proceedings and future validity and future patent infringement suits filed against the ECB and certain other alleged infringers of the Patent in exchange for 50% of any future proceeds or settlements associated with the litigation. The Patent has been confirmed to be valid and enforceable in one jurisdiction (Spain) that used the Euro as its national currency allowing the Company or Trebuchet, on the Company’s behalf, to proceed with infringement cases in Spain if we choose to do so.

By aggressively defending our intellectual property rights, we believe that we may be able to secure a potentially significant amount of additional and ongoing revenue by securing proceeds from lawsuits, settlements, or licensing agreements with those persons, companies or governments that we believe are infringing our patents. We intend to use the appropriate legal means that are economically feasible to protect our ownership of these technologies. We cannot be assured, however, that our efforts to prevent the misappropriation of the intellectual property used in our business will be successful, or that we will be successful in obtaining monetary proceeds from entities that we believe are infringing our patents. Further, we cannot be assured that any patents will be issued for our U.S. or foreign applications or that, if issued, they will provide protection against competitive technologies or will be held valid and enforceable if challenged. We also cannot be assured that competitors would not be able to design around any such proprietary right or obtain rights that we would need to license or design around in order to practice under these patents.

Trademarks

We have registered our “AuthentiGuard” mark, as well as our “Survivor 21” electronic check icon with the U.S. Patent and Trademark Office. A trademark application is pending in Canada for “AuthentiGuard.” AuthentiGuard® is registered in several European countries including the United Kingdom.

During 2010, two customers accounted for 25% and 10% of the Company’s total revenue from continuing operations. As of December 31, 2010, these customers accounted for 37% and 7% of the Company’s trade accounts receivable balance, respectively. During 2009, two customers accounted for 19% and 12% of the Company’s total revenue from continuing operations. As of December 31, 2009, two customers’ account receivable balance accounted for 21% and 17% of the Company’s trade accounts receivable balance. We believe that the risk with respect to trade receivables is mitigated by credit evaluations we perform on our customers, the short duration of our payment terms for the significant majority of our customer contracts and by the diversification of our customer base.

We maintain the website, www.documentsecurity.com, which describes our patented document security solutions, our targeted vertical markets, company history, and offers our security consulting services. We also maintain www.plasticprintingprofessionals.com, which describes our ID card and other plastic and vinyl printing services. In addition, we maintain the website www.protectedpaper.com, an e-commerce site that markets and sells our patented security papers hand-held security verifiers and custom security documents to end users worldwide. We market digital and large offset commercial printing at our subsidiary website: www.dpirochester.com. In addition, in February 2010, we acquired Premier Packaging, which maintains the website www.premiercustompkg.com. In addition to the active websites, the company owns over 40 domain names for future use or for strategic competitive reasons.

Currently, the security print market is comprised of a few very large companies and an increasing number of small companies with specific technology niches. The expansion of this market is the result of increasing requirements for national security, as well as the proliferation of brand and identity theft. Counterfeiting has expanded significantly as advancing technologies in digital duplication and scanning combined with increasingly sophisticated design software has enabled easier reproduction of originals.

Our industry is highly fragmented and characterized by rapid technological change and product innovations and evolving standards. We feel a consolidation of the industry may transpire in the near future as larger, well financed companies acquire smaller technology companies to position themselves in the industry to access their intellectual property and access to client lists. Many of our current competitors have longer operating histories, more established products, greater name recognition, larger customer bases, and greater financial, technical and marketing resources. As a result, our competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, and devote greater resources to the promotion and sale of their products. Competition may also force us to decrease the price of our products and services. There is no assurance that we will be successful in developing and introducing new technology on a timely basis, new products with enhanced features, or that these products, if introduced, will enable us to establish selling prices and gross margins at profitable levels.

Although our technology is effective primarily on analog and digital copiers and scanners, our competition covers a wide array of document security and anti-counterfeiting solutions. We conduct research and development to improve our technology, including the development of new patents and trade secrets. We will rely primarily upon our patents and trade secrets to attempt to thwart competition, although there can be no assurance that we will be successful.

Our competitors include Standard Register Company, which specializes in printing security technologies for the check and forms and medical industries; De La Rue Plc, that specializes in printing secure currency, tickets, labels, lottery tickets and vital records for governments and Fortune 500 companies; Xerox, an industry leader in copying and scanning that has made recent entries into the anti-counterfeiting business and has a competing Safety Paper product called “X Void.” Our P3 ID card manufacturing operation competes with LaserCard Corporation which supplies advanced ID technology to the U.S. federal government and other government programs worldwide, with a range of products and solutions that includes secure ID technologies.

In addition, other competing hidden word technologies are being marketed by competitors such as NoCopi Technologies which sells and markets secure paper products, and Graphic Security Systems Corporation, which markets scrambled indicia.

Digital watermarks, RFID and biometric technologies are also being introduced into the marketplace by Digimarc Corporation, IBM and L-1 Identity Solutions. These digital protection systems require software and hardware such as scanners and computers to implement and utilize the technology and, consequently, this technology must be utilized in a controlled environment with the necessary equipment to create the verification process. Versions of our optical security technologies do not require hardware and software to operate and therefore provide a power outage fail-safe when combined or layered with RFID, digital watermarks or biometric systems.

Large Office Equipment Manufacturers, called OEMs, such as Sharp, Canon, Ricoh, Hewlett Packard and Eastman Kodak are developing “smart copier” technology that recognizes particular graphical images and produces warning words or distorted copies. Some of the OEMs are also developing user assigned and variable pantograph “hidden word” technologies in which users can assign a particular hidden word in copy, such as “void” that is displayed when copy of such document is made.

Optical deterrent features such as ours are utilized mainly by the large worldwide security printers for the protection of currency. Many of these features such as micro-printing were developed pre-1980 as they were designed to be effective on the imaging devices of the day which were mainly photography mechanisms. With the advent of modern day scanners, digital copiers, digital cameras and easy to use imaging software such as Adobe Photoshop many of the pre-1980 optical deterrents such as micro-printing are no longer used or are much less effective in the prevention of counterfeiting.

Unlike some of our competitors, our technologies are developed to defeat today’s modern imaging systems. Almost all of our products and processes are built to thwart scanners and digital copiers and we believe that our products are the most effective in doing so in the market today. In addition, our technologies do not require expensive hardware or software add-ons to authenticate a document, but instead require simple, inexpensive hand-held readers which can be calibrated to particular hidden design features. Our technologies are literally ink on paper that is printed with a particular method to hide selected things from a scanner’s “eye” or distort what a scanner “sees.” These attributes make our anti-scanning technologies very cost effective versus other current offerings on the market since our technologies are imbedded during the normal printing process, thereby significantly reducing the costs to implement the technologies.

The commercial printing industry in the US includes around 35,000 companies with $90 billion of annual revenue. (Source: http://www.firstresearch.com/industryanalysis/commercialprinting.html). Several giants like RR Donnelley and Canadian printer Quebecor World have multibillion revenues, but most printers considered "large" have annual revenues under $1 billion. The majority of commercial printers are small or midsized businesses that operate one production plant, employ fewer than 20 people, and have annual revenue under $5 million. Despite continuing consolidation, the industry is highly fragmented; the largest 50 companies hold only about 30 percent of the market. We compete primarily with locally-based printing companies in the Rochester and Western New York markets. Most of our competitors in these markets are privately-held, single location operations.

In the packaging industry, we compete with a significant number of national, regional and local companies, many of which are independent and privately-held. The largest competitors in this market are primarily focused on the long-run print order market. They include large integrated paper companies such as Rock-Tenn Company, Caraustar Industries, Inc., Graphic Packaging Holding Company and Mead Westvaco.

In general, changes in prevailing U.S. economic conditions significantly impact the general commercial printing industry. To the extent weakness in the U.S. economy causes local and national corporations to reduce their spending on advertising and marketing materials, the demand for commercial printing services may be adversely affected.

As of March 25, 2011, we had a total of 104 employees.. It is important that we continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are good.

In light of the events of September 11, 2001 and the subsequent war on terrorism, governments, private entities and individuals have become more aware of, and concerned with, the problems related with counterfeit documents. Homeland Security remains a high priority in the United States. This new heightened awareness may result in new laws or regulations which could impact our business. We believe, however, that any such laws or regulations would be aimed at requiring or promoting anti-counterfeiting, and therefore would likely have a positive impact on our business plans.

Document Security Systems plays an active role with the Document Security Alliance group, as it sits on various committees and has been involved in design recommendations for important U.S. documents. This group of security industry specialists was formed by the U.S. Secret Service to evaluate and recommend security solutions to the Federal government for the protection of credentials and vital records.

As counterfeiting continues to increase worldwide, various new laws and mandates are occurring to address the growing security problem which we believe will increase our ability to generate revenue. For example, in 2007 Federal legislation was enacted that required hospitals, physicians and pharmacies to use tamperproof paper to fill all Medicaid prescriptions. Initially, the requirement, which was part 7002(b) of the “U.S. Troop Readiness, Veterans’ Care, Katrina Recovery and Iraq Accountability Appropriations Act of 2007”, was effective April 1, 2008.

Document Security Systems, Inc. (referred to in this report as “Document Security,” “DSS,” “we,” “us,” “our” or “Company”) develops, markets, manufactures and sells paper and plastic products designed to protect valuable information from unauthorized scanning, copying, and digital imaging. We have developed security technologies that are applied during the normal printing process and by all printing methods including traditional offset, gravure, flexo, digital or via the internet on paper, plastic, or packaging. Our technologies and products are used by federal, state and local governments, law enforcement agencies and are also applied to a broad variety of industries as well, including financial institutions, high technology and consumer goods, entertainment and gaming, healthcare/pharmaceutical, defense and genuine parts industries. Our customers use our technologies where there is a need for enhanced security for protecting and verification of critical financial instruments and vital records, or where there are concerns of counterfeiting, fraud, identity theft, brand protection and liability.

We were organized as a New York corporation in 1984, and in 2002, chose to strategically focus on becoming a developer and marketer of secure technologies for all forms of print media. To accomplish this, we acquired Lester Levin, Inc, an operator of a small printing company called Patrick Printing and an Internet-based business called Legalstore.com, and Thomas M. Wicker Enterprises, Inc. and Document Security Consultants, Inc., two privately owned companies engaged in the document security technology business with rights to certain patents developed by certain members of the Wicker Family. As a result of these acquisitions, we compiled the basis of our document security business by combining basic print capabilities necessary for research and development with the knowledge and expertise of our team of printing professionals and a foundation of patented technologies and trade secrets from which to launch our product offerings. Since this early stage, we have focused our efforts on developing and in some cases patenting new technologies and products, building our corporate, operational, marketing and sales staff to accommodate our expected growth, and developing and implementing our patent and intellectual property protection strategy. In September 2007, we sold certain assets and the operations of Patrick Printing to a private company, as this operation no longer supported our core industry focus. In October 2009, we sold the assets and liabilities associated with our Legalstore.com business in exchange for common stock of Internet Media Services, Inc., in order to concentrate our efforts on the security and printing segments of our Company.

In December 2004, the Company entered into an agreement with the Wicker Family in which Document Security Systems obtained the legal ownership of technology (including patent ownership rights) previously held by the Wicker Family. At that time, the agreement with the Wicker Family provided that the Company would retain 70% of the future economic benefit derived from settlements, licenses or subsequent business arrangements from any infringer of the Wicker patents that Document Security Systems chooses to pursue. The Wicker Family was to receive the remaining 30% of such economic benefit. In February 2005, the Company further consolidated its ownership of the Wicker Family based patents and its rights to the economic benefit of infringement settlements when the Company purchased economic interests and legal ownership from approximately 45 persons and entities that had purchased various rights in Wicker Family technologies over several decades.

In August 2005, the Company commenced a suit against the European Central Bank (“ECB”) alleging patent infringement by the ECB and claimed unspecified damages. We brought the suit in the European Court of First Instance in Luxembourg. We alleged that all Euro banknotes in circulation infringe the Company European Patent 0 455 750B1 (the “Patent”), which covers a method of incorporating an anti-counterfeiting feature into banknotes or similar security documents to protect against forgeries by digital scanning and copying devices. Commencing in March 2006, the ECB countersued in eight national courts that the Patent was invalid. To date, the most significant events in the case since it was filed have been the challenges of patent validity by the ECB. To date, there have been four adverse rulings and two positive rulings in regard to the patent’s validity. Through August 2008, the Company spent approximately $4.2 million dollars on legal, expert and consulting fees for its case. In August 2008, the Company decided to reduce its cost burden from the case and entered into an agreement with Trebuchet Capital Partners, LLC (“Trebuchet”) under which Trebuchet agreed to pay substantially all of the litigation costs associated with pending validity proceedings and future validity and future patent infringement suits filed against the ECB and certain other alleged infringers of the Patent in exchange for 50% of any future proceeds or settlements associated with the litigation.

In addition to its patent defense efforts, since 2002, the Company has also worked to develop and expand its patent and product portfolio. As of March 22, 2010, we have 14 patents and have 57 patent applications in process, including provisional and PCT patent applications and applications that have entered the National Phase in various countries including the United States, Canada, Europe, Japan, Brazil, Israel, Mexico, Indonesia and South Africa. These applications cover our technologies, including our AuthentiGuard® On-Demand, AuthentiGuard® Prism™, AuthentiGuard® Phantom™, AuthentiGuard® ObscuraScan™, AuthentiGuard® Survivor 21™, AuthentiGuard® VeriGlow™ products, and several other anti-counterfeiting and authentication technologies in development. The Company believes that its commitment to research and development is critical to its position as a leading provider of anti-counterfeiting solutions to our customers.

Prior to 2006, the Company’s primary revenue source in its document security division was derived from the licensing of its technology. The Company had limited production capabilities. In 2006, the Company began to expand its ability to be a provider of anti-counterfeiting products that utilize the Company’s anti-counterfeiting technologies. In 2006, we acquired San Francisco-based Plastic Printing Professionals, Inc. (“P3”), a privately held plastic cards manufacturer located in the San Francisco, CA area. P3’s primary focus is manufacturing long-life composite, laminated and surface printed cards which can include magnetic stripes, bar codes, holograms, signature panels, invisible ink, micro fine printing, guilloche patterns, Biometric, RFID and a patent-pending watermark technology. P3’s products are marketed through an extensive broker network that covers much of North America, Europe and South America and by manufacturing for various industry integrators.

In December 2008, we acquired substantially all of the assets of DPI of Rochester, LLC, (“DPI”)a privately held commercial printer located in Rochester, NY. We formed a new subsidiary called DPI Secuprint to incorporate this new company which significantly improved our ability to produce our security paper products as well as improving our competitiveness in the market for custom security printing, especially in the areas of vital records, secure coupons, transcripts, and prescription paper along with the ability to offer our customers a wider range of commercial printing offerings.

In 2009, we generated revenue of $9.9 million in 2009, a 49% increase compared to 2008. The increase was primarily due to the acquisition of DPI in December of 2008. The increase caused by the acquisition of DPI more than offset decreases experienced by the Company’s other divisions, Document Security Systems and P3, and the loss of revenue as a result of the Company’s divestiture of its legal products division in October of 2009. All of the Company’s divisions experienced sales declines which the Company believes were the direct result of the widespread global economic recession that occurred during the first six months of 2009, and the lingering effects of the deep recession during the last half of 2009. During 2009, the Company experienced a net loss of $4.0 million, a 52% decrease from a net loss of $8.3 million in 2008. During 2009, the Company was able to offset the effects of less than forecasted revenues with significant cost reductions that will allow the Company to reach cash flow and net income breakeven at sales levels consistent with the historical demand at each of its divisions, which the Company believes will occur as general global economic levels recover from the recession.

On February 12, 2010, the Company acquired Premier Packaging Corporation, a privately held packaging company located in the Rochester NY area. Premier Packaging Corporation is an ISO 9001:2008 registered manufacturer of custom paperboard packaging serving clients in the pharmaceutical, beverage, photo packaging, toy, specialty foods and direct marketing industries, among others. The Company expects the acquisition will allow it to introduce anti-counterfeiting products to the packaging market that further expands the usage of its technologies. The Company believes that the ability to deter and prevent counterfeiting of brand packaging will provide major benefits to companies around the globe who are affected by product counterfeiting.

Our core business is counterfeit prevention, brand protection and validation of authentic print media, including government-issued documents, aerospace industry spare parts documents, packaging, ID Cards, licenses and more. We are a leader in the research and development of optical deterrent technologies and have commercialized these technologies with a suite of products that offer our customers an array of document security solutions. We provide document security technology to security printers, corporations, consumer product companies and governments worldwide and for currency, identifications, certifications, travel documents, prescription and medical forms, consumer product and pharmaceutical packaging, and school transcripts.

Our products can be delivered on paper, plastic, or digitally via our AuthentiGuard® DX™ product suite. We believe that our continued efforts in the field of digital security and technology greatly expands the reach and potential market for our AuthentiGuard® DX™ digital products and enterprise solutions. We believe that our AuthentiGuard® DX™ solution significantly changes the economics of document security for many customers as it eliminates the requirement to utilize pre-printed forms while allowing customers to leverage existing investments in their information technology infrastructure.

Technologies

We have developed or acquired over 30 technologies that provide to our customers a wide spectrum of solutions.

According to a March 2010 report by the MDB Capital Group LLC, an institutional research and investment banking firm, located in Santa Monica, California that focuses exclusively on companies that possess market changing, disruptive intellectual property, has DSS ranked among the top companies in intellectual property leadership based on several proprietary intellectual property indexes.

DSS ranks in the 90th percentile from over 4,000 companies for IP leadership as defined by a high patent citation (Companies citing the Company’s Patents in their patent applications) number of 2.12 which is two times higher than its peer group. The Company also has a 40.38 PV Ratio which indicates that the Company’s stock market value is lower than its patent value according to the MDB’s PatentVest evaluation methodology.

The company’s primary anti-counterfeiting products and technologies are marketed under the following trade names:

· AuthentiGuard™ DX™ is a networked appliance that allows the author of any Microsoft Office document (Outlook, Word, Excel, or PowerPoint) to secure nearly any of its alphanumeric content when it is printed or digitally stored. AuthentiGuard® DX prints selected content using the company’s patented technology so that it cannot be read by the naked eye. Reading the hidden content, or authenticating the document is performed with a proprietary viewing device or software.

Like AuthentiGuard® DX™, AuthentiGuard® On -Demand™ is a customized software or a web-based application that incorporates the verification feature of AuthentiGuard® Prism™ and the anti-copy anti-scan features of AuthentiGuard® Pantograph 4000™ in a manner that makes those technologies printable from desktop printers and digital presses worldwide. On-Demand™ provides the ability to produce highly secure documents virtually “any-time, anywhere”, and is highly effective in variable data applications.

· AuthentiGuard® Laser Moiré™, a counterfeit deterrent technology, prevents counterfeit reproductions by creating gross distortions and unmistakable moiré interference patterns throughout the image. Verification of original documents or images is fast and easy with The Authenticator – our proprietary lens that reveals the moiré pattern. The technology is embedded into an image that requires protection from duplication and theft, such as photographs, portraits, currency, driver’s licenses, postage stamps, tickets, labels, brand packaging, or documents.

· AuthentiGuard® Prism™, a verification technology, embeds hidden words, images, or logos using 2-color or 4-color processes that are only visible using a special, non-public proprietary Prism™ lens that reveals hidden Prism™ images. We believe that the hidden words, images or logos embedding with the Prism™ technology cannot be reproduced with even the most sophisticated digital copiers or scanners. As a result, the absence of the hidden words, images or logos alerts the end-user that the document is counterfeit. The AuthentiGuard® Prism technology protects verification forms such as spare parts, packing slips, checks, currency, licenses, travelers’ checks, postage stamps, legal documents, tickets, labels, and brand packaging.

· AuthentiGuard® Pantograph 4000™, a counterfeit deterrent technology, provides what we believe is the most powerful, patented pantograph technology ever created. Hidden words such as “VOID” or “COPY”, company logos, or designs appear when a document utilizing the technology is photocopied or scanned, preventing unauthorized duplication. Although there are other versions of this technology being sold by competitors, we believe that no version other than our Pantograph 4000™ defeats high and low resolution scanners and produces crisp clear and readable warning words. We believe that virtually any printable surface can utilize the technology, including paper, Teslin, PVC, Tyvek and cardboard packaging. This technology has been used for gift certificates, school transcripts, coupons, tickets, checks, packing slips, receipts, schematic drawings, plans, music, scripts, training manuals, business plans, internal memos, letterhead, legal forms and prescription pads.

· AuthentiGuard® Phantom™, a verification technology, uses “tilt-to-reveal” hidden images or words that can be easily viewed without special equipment. Viewed straight on, the hidden images are virtually invisible to the naked eye, but when the package or document is viewed at an angle, the hidden images are clearly revealed. For added security, we believe that our patented AuthentiGuard® Phantom™ technology cannot be reproduced with even the best copiers or scanners. We also feel that this technology is much more effective and eye catching then color shifting ink.

· AuthentiGuard® VeriGlow™, a verification technology, is a two-tiered, customized document security systems that utilizes unique photosensitive inks and incorporates embedded hidden messages or images that are only viewable with a special light source and our special non-public proprietary Veri-Glow reading device. This patent pending technology can be applied during the printing process or it can be applied to pre-printed items and is useful in the protection of vital records such as passports, documents, brand protection, packaging and currency.

· AuthentiGuard® Survivor 21®, a counterfeit deterrent technology, protects printed checks from duplication via digital copiers and scanners while providing a patent-pending security feature that survives the background dropout that results from bank’s archival scan. Survivor 21™ was created to meet new government banking regulations that require documents to be archive-scan friendly, without compromising security.

· AuthentiGuard® Block-Out™, a counterfeit deterrent technology, also called the “anti-color reproduction system”, makes it very difficult to reproduce protected documents on digital color copiers. Certain copiers recognize Block-Out’s embedded graphics on the original document, and print out solid black sheets or highly distorted images. AuthentiGuard® Block-Out™ is our own unique proprietary graphic design that is recognized and triggers a mechanism developed by Omron Corporation in some copiers. We developed it to prevent color copiers and photo processors from replicating any image or document that contains our custom Block-Out™ graphics. This technology can be integrated into highly sensitive government documents such as currency, car titles, passports and licenses as well as checks, travelers’ checks, postage stamps, photographs, original art and brand packaging.

· AuthentiGuard® MicroPerf™, a verification technology, creates a verifier mark that is invisible to the naked eye when viewed under normal circumstances and unnoticeable to the touch, but can be viewed by simply holding the document up to a normal light for fast and easy authentication. MicroPerf™ uses a laser to insert fine perforations into the document, and can be placed on vital records, documents, packaging or currency and is a micro-sized perforation in the shape of a word or image that cannot be removed or altered in any way.

Products and Services

Generic Security Paper: Our primary product for the retail end-user market is AuthentiGuard® Security Paper. AuthentiGuard® Security Paper is blank paper that contains our Pantograph 4000TM technology. The paper reveals hidden warning words, logos or images using The Authenticator- our proprietary viewing lens – or when the paper is faxed, copied or scanned. The hidden words appear on the duplicate or the computer digital file and essentially prevent documents, including forms, coupons and tickets, from being counterfeited. We market and sell our AuthentiGuard® Security Paper primarily through several major paper distributors such as Boise Cascade and Blanks USA. Since 2005, Boise has marketed our AuthentiGuard® Security Paper under its Boise Beware brand name in North America, primarily through its commercial paper sales group. Blanks USA sells and manufactures the technology under the “Kant Kopy” brand name. The company also sells its security paper on the internet utilizing a ecommerce website, www.protectedpaper.com. We retain the rights to sell the AuthentiGuard® Security Paper directly to end-users anywhere in the world. The company also had a version of its security paper tested and certified for use on Hewlett Packard (“HP”) Indigo Digital presses by the Rochester Institute of Technology’s Printing Applications Laboratory. This certification allows the Company’s security paper to be marketed to HP Indigo users worldwide.

Security and non-security printing: Our technology portfolio allows us to create unique custom secure paper, plastic, packaging and Internet-based and software enterprise solutions. We market and sell to end-users that require anti-counterfeiting and authentication features in a wide range of printed materials such as documents, vital records, prescription paper, driver’s licenses, birth certificates, receipts, manuals, identification materials, entertainment tickets, secure coupons, parts tracking forms, as well as product packaging including pharmaceutical and a wide range of consumer goods. In addition, we provide a full range of digital and large offset commercial printing capabilities to our customers.

Since our inception, we have primarily outsourced the production of the majority of our custom security print orders to strategic printing vendors. In December 2008, we acquired a commercial printer with long-run offset and short run digital printing capabilities that will allow us to produce the majority of our security print orders in-house. We produce our plastic printed documents such as ID cards, event badges, and driver licenses at our manufacturing facility in Brisbane, California under the name Plastic Printing Professionals. In late 2007, we moved our P3 manufacturing facility to a 25,000 square foot facility in order to increase our plastic manufacturing capacity, and during 2008, we upgraded their production capabilities by adding equipment that will improve its productivity, along with equipment for high speed data encoding and equipment that for productions of high-volume precision RFID cards.

Digital Security Solutions: Using software that we have developed, we can electronically render several of our technologies digitally to extend the use of optical security to the end-user of sensitive information. With our AuthentiGuard® DX™ we market a networked appliance that allows the author of any Microsoft Office document (Outlook, Word, Excel, or PowerPoint) to secure nearly any of its alphanumeric content when it is printed or digitally stored. AuthentiGuard® DX prints selected content using DMC’S patented technology so that it cannot be read by the naked eye. Reading the hidden content, or authenticating the document is performed with a proprietary viewing device or software.

The company has developed an internet delivered technology called AuthentiGuard® – On Demand™ where information is hidden and then verified utilizing a inexpensive viewing glass. This technology is currently being utilized by a Central American country for travel visas.

The company has also developed digital versions of its AuthentiGuard® – Prism™ and AuthentiGuard® – Pantograph 4000™ technologies which are produced on HP Indigo Presses, Canon Color Copiers, Ricoh Color Copiers and Konica Desktop Printers. The company sells the digital products directly through its internal sales force and it has also entered a contract to sell its digital solutions through a third party who specializes in hardware software engineering solutions.

Technology Licensing: We license our anti-counterfeiting technology and trade secrets to security printers through licensing arrangements. We seek licensees that have a broad customer base that can benefit from our technologies or have unique and strategic capabilities that expand the capabilities that we can offer our potential customers Licenses can be for a single technology or for a package of technologies. We offer licensees a variety of pricing models, including:

· Pay us one price per year;

· Pay us a percentage of gross sales price of the product containing the technology during the term; or

· Joint venture or profit sharing arrangement

· Pay Per Finished Piece

Legal Products: We also owned and operated Legalstore.com, an Internet company which sells legal supplies and documents, including security paper and products for the users of legal documents and supplies in the legal, medical and educational fields. On October 8, 2009 we sold the assets and liabilities associated with our Legalstore.com business in exchange for 7,500,000 shares of common stock of Internet Media Services, Inc., representing approximately 37% of the outstanding shares of the newly formed company.

Patents

Our ability to compete effectively depends in part on our ability to maintain the proprietary nature of our technology, products and manufacturing processes. We principally rely upon patent, trademark, trade secrets and contract law to establish and protect our proprietary rights. During our development, we have expended a significant percentage of our resources on the research and development to ensure that we are a market leader the ability to provide our customers effective solutions against a never changing array of counterfeit risks.

Based largely on these efforts, we currently fourteen patents and have 57 patent applications in process, including provisional and PCT patent applications and applications that have entered the National Phase in various countries including the United States, Canada, Europe, Japan, Brazil, Israel, Mexico, Indonesia and South Africa. These applications cover our technologies, including our AuthentiGuard® On-Demand, AuthentiGuard® Prism™, AuthentiGuard® Phantom™, AuthentiGuard® ObscuraScan™, AuthentiGuard® Survivor 21™, AuthentiGuard® VeriGlow™ products, and several other anti-counterfeiting and authentication technologies in development.

We also jointly have the rights to Patent No. 5,707,083 with R.R. Donnelly. Under the terms of our agreement with R.R. Donnelly, it has no rights in any revenue generated by us through the technology represented by the patent. R.R. Donnelly may license the technology but is required to split any revenue with us after costs associated with any licensing.

In addition to our current patent activities, we own several patents that we acquired in 2002 when we acquired companies owned by various members of the Wicker Family and The Estate of Ralph Wicker, including US Patents 5,018,767, European Patent 0455750, Canadian Patent 2,045,580, and a 50% ownership of US Patent No 5,735,547 (collectively, the “Wicker Patents”). However, due to previous contractual agreements associated with the Wicker Patents, we did not obtain certain economic rights to these patents, including certain economic rights to benefits derived from settlements, licenses or other subsequent business arrangements from any person or entity that had been proven to infringe these patents. Therefore, to consolidate our ownership and economic rights to the Wicker Patents, we entered into the following transactions.

· In 2004, we entered into an agreement with The Estate of Ralph Wicker and its assigns to purchase from them the right to 70% of the future economic benefit derived from settlements, licenses or subsequent business arrangements from any infringer of the Wicker Patents that we choose to pursue, with The Estate of Ralph Wicker receiving the remaining 30% of such economic benefit.

· In February 2005, we further consolidated our ownership of the Wicker Patents by purchasing the economic interests and ownership from 45 persons and entities that had purchased various rights in Wicker Family technologies, including the Wicker Patents. As a result of this transaction, we increased our ownership of US Patent 5,735,547 to 100%, and increased to our right to future economic benefits to the Wicker Patents to approximately 86% of all settlements or license royalties derived from, among other things, infringement suits related to the foreign Wicker Patents, including European Patent 0455750. Pursuant to these transactions, we issued an aggregate of 541,460 shares to of our Common Stock, valued at approximately $3.9 million.

On August 20, 2008, the Company entered into an agreement with Trebuchet Capital Partners, LLC (“Trebuchet”) under which Trebuchet has agreed to pay substantially all of the litigation costs associated with pending validity proceedings initiated by the European Central Bank (“ECB”) in eight European countries relating to the Company’s European Patent 0 455 750B1 that the Company has claimed the ECB infringed in printing of the Euro currency (the “Patent”). Trebuchet also agreed to pay substantially all of the litigation costs associated with future validity challenges filed by the ECB or other parties, provided that Trebuchet elects to assume the defense of any such challenges, in its sole discretion, and patent infringement suits filed against the ECB and certain other alleged infringers of the Patent, all of which suits may be brought at the sole discretion of Trebuchet and may be in the name of the Company, Trebuchet or both. The Company provided Trebuchet with the sole and exclusive right to manage infringement litigation relating to the Patent in Europe, including the right to initiate litigation in the name of the Company, Trebuchet or both and to choose whom and where to sue, subject to certain limitations set forth in the agreement. Under the terms of the Agreement, the Company and Trebuchet have agreed to equally share all proceeds generated from litigation relating to the Patent, including judgments and licenses or other arrangements entered into in settlement of any such litigation. Trebuchet is also entitled to recoup any litigation expenses specifically awarded to the Company in such actions.

By aggressively defending our intellectual property rights, we believe that we may be able to secure a potentially significant amount of additional and ongoing revenue by securing proceeds from lawsuits, settlements, or licensing agreements with those persons, companies or governments that we believe are infringing our patents. We intend to use the appropriate legal means that are economically feasible to protect our ownership of these technologies. We cannot be assured, however, that our efforts to prevent the misappropriation of the intellectual property used in our business will be successful, or that we will be successful in obtaining monetary proceeds from entities that we believe are infringing our patents. Further, we cannot be assured that any patents will be issued for our U.S. or foreign applications or that, if issued, they will provide protection against competitive technologies or will be held valid and enforceable if challenged. We also cannot be assured that competitors would not be able to design around any such proprietary right or obtain rights that we would need to license or design around in order to practice under these patents.

Trademarks

We have registered our “AuthentiGuard” mark, as well as our “Survivor 21” electronic check icon with the U.S. Patent and Trademark Office. A trademark application is pending in Canada for “AuthentiGuard.” AuthentiGuard® is registered in several European countries including the United Kingdom.

Research and Development

Our research and development costs consist primarily of compensation costs for research personnel and direct costs for the use of third-party printers’ facilities to test and develop our technologies on equipment that we do not have access to internally. We focus our research efforts on creating anti-counterfeiting solutions and products for current and anticipated customer needs. Furthermore, we often seek patent or trademark protection on our developments.

During 2009, two customers accounted for 19% and 12% of the Company’s total revenue, respectively. As of December 31, 2009, two customer account receivable balances accounted for 21% and 17% of the Company’s trade accounts receivable balance, respectively. During 2008, two customers accounted for 11% and 10% of the Company’s total revenue from continuing operations, respectively. As of December 31, 2008, one customer account receivable balance that was acquired as part of the Company’s acquisition of the assets of a commercial printer in December 2008, accounted for 42% of the Company’s trade accounts receivable balance.

We maintain the website, www.documentsecurity.com, which describes our patented document security solutions, our targeted vertical markets, company history, and offers our security consulting services. We also maintain www.plasticprintingprofessionals.com, which describes our ID card and other plastic and vinyl printing services. In addition, we maintain the website www.protectedpaper.com, an e-commerce site that markets and sells our patented security papers hand-held security verifiers and custom security documents to end users worldwide. We also utilize www.authenticate-360.com, a website which is hosted and owned by our licensee, The Ergonomic Group; this website is a source for counterfeiting information and promotion of our On-Demand™ products. In addition, we market digital and large offset commercial printing at our subsidiaries website: www.dpirochester.com. In February 2010, we acquired Premier Packaing Corp, which maintains the website www.premiercustompkg.com. In addition to the active websites, the company owns over 40 domain names for future use or for strategic competitive reasons.

Currently, the security print market is comprised of a few very large companies and an increasing number of small companies with specific technology niches. The expansion of this market is the result of increasing requirements for national security, as well as the proliferation of brand and identity theft. Counterfeiting has expanded significantly as advancing technologies in digital duplication and scanning combined with increasingly sophisticated design software has enabled easier reproduction of originals.

Our industry is highly fragmented and characterized by rapid technological change and product innovations and evolving standards. We feel a consolidation of the industry may transpire in the near future as larger, well financed companies acquire smaller technology companies to position themselves in the industry and access their intellectual property and access to client lists. Many of our current competitors have longer operating histories, more established products, greater name recognition, larger customer bases, and greater financial, technical and marketing resources. As a result, our competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements, and devote greater resources to the promotion and sale of their products. Competition may also force us to decrease the price of our products and services. There is no assurance that we will be successful in developing and introducing new technology on a timely basis, new products with enhanced features, or that these products, if introduced, will enable us to establish selling prices and gross margins at profitable levels.

Although our technology is effective primarily on analog and digital copiers and scanners, our competition covers a wide array of document security and anti-counterfeiting solutions. We conduct research and development to improve our technology, including the development of new patents and trade secrets. We will rely primarily upon our patents and trade secrets to attempt to thwart competition, although there can be no assurance that we will be successful.

Our competitors include Standard Register Company, which specializes in printing security technologies for the check and forms and medical industries; De La Rue Plc, that specializes in printing secure currency, tickets, labels, lottery tickets and vital records for governments and Fortune 500 companies; Xerox, an industry leader in copying and scanning that has made recent entries into the anti-counterfeiting business and has a competing Safety Paper product called “X Void.” Our P3 ID card manufacturing operation competes with LaserCard Corporation which supplies advanced ID technology to the U.S. federal government and other government programs worldwide, with a range of products and solutions that includes secure ID technologies.

In addition, other competing hidden word technologies are being marketed by competitors such as NoCopi Technologies which sells and markets secure paper products, and Graphic Security Systems Corporation, which markets scrambled indicia.

Digital watermarks, RFID and biometric technologies are also being introduced into the marketplace by Digimarc Corporation, IBM and L-1 Identity Solutions. These digital protection systems require software and hardware such as scanners and computers to implement and utilize the technology and, consequently, this technology must be utilized in a controlled environment with the necessary equipment to create the verification process. Therefore, versions of our optical security technologies do not require hardware and software to operate and therefore, provide a power outage fail-safe when combined or layered with RFID, digital watermarks or biometric systems.

Large Office Equipment Manufacturers, called OEMs, such as Sharp, Canon, Ricoh, Hewlett Packard and Eastman Kodak are developing “smart copier” technology that recognizes particular graphical images and produces warning words or distorted copies. Some of the OEMs are also developing user assigned and variable pantograph “hidden word” technologies in which users can assign a particular hidden work in copy, such as “void” that is displayed when copy of such document is made.

Optical Deterrent features such as ours are utilized mainly by the large worldwide security printers for the protection of currency. Many of these features such as micro-printing were developed pre-1980 as they were designed to be effective on the imaging devices of the day which were mainly photography mechanisms. With the advent of modern day scanners, digital copiers, digital cameras and easy to use imaging software such as Adobe Photoshop many of the pre-1980 optical deterrents such as micro-printing are no longer or much less effective in the prevention of counterfeiting.

Unlike some of our competitors, our technologies are developed to defeat today’s modern imaging systems. Almost all of our products and processes are built to thwart scanners and digital copiers and we believe that our products are the most effective in doing so in the market today. In addition, our technologies do not require expensive hardware or software add-ons to authenticate a document, but instead require simple, inexpensive hand-held readers which can be calibrated to particular hidden design features. Our technologies are literally ink on paper that is printed with a particular method to hide selected things from a scanner’s “eye” or distort what a scanner “sees.” These attributes make our anti-scanning technologies very cost effective versus other current offerings on the market since our technologies are imbedded during the normal printing process, thereby significantly reducing the costs to implement the technologies.

The commercial printing industry in the US includes around 35,000 companies with $90 billion of annual revenue. (Source: http://www.firstresearch.com/industryanalysis/commercialprinting.html). Several giants like RR Donnelley and Canadian printer Quebecor World have multibillion revenues, but most printers considered "large" have annual revenues under $1 billion. The majority of commercial printers are small or midsized businesses that operate one production plant, employ fewer than 20 people, and have annual revenue under $5 million. Despite continuing consolidation, the industry is highly fragmented; the largest 50 companies hold only about 30 percent of the market. We compete primarily with locally-based printing companies in the Rochester and Western New York markets. Most of our competitors in these markets are privately-held, single location operations.

In the packaging industry, we compete with a significant number of national, regional and local companies, many of which are independent and privately-held. The largest competitors in this market are primarily focused on the long-run print order market. They include large integrated paper companies such as Rock-Tenn Company, Caraustar Industries, Inc., Graphic Packaging Holding Company and Mead Westvaco.

In general, changes in prevailing U.S. economic conditions significantly impact the general commercial printing industry. To the extent weakness in the U.S. economy causes local and national corporations to reduce their spending on advertising and marketing materials, the demand for commercial printing services may be adversely affected.

We operate through two segments:

· Security and commercial printing. This segment consists of the license, manufacture and sale of document security technologies, including digital security print solutions and secure printed products at Document Security Systems and P3 divisions, along with commercial printing provided by P3 and DPI Secuprint.

· Legal Supplies. Sale of specialty legal supplies, primarily to lawyers and law firms located throughout the United States as Legalstore.com. During the fourth quarter of 2009, the Company sold its legal products business. The Company continues to report the results as continued operations because the operations and cash flows of the component have not been eliminated and given the Company’s continued involvement after the sale.

Financial information regarding these segments is provided in Note 15 to our consolidated financial statements included in this Annual Report on Form 10-K.

As of December 31, 2009, we had 80 full and part-time employees. In February 2010, we added 32 employees as the result of our acquisition of Premier Packaging Corp. It is important that we continue to retain and attract qualified management and technical personnel. Our employees are not covered by any collective bargaining agreement, and we believe that our relations with our employees are good.

In light of the events of September 11, 2001 and the subsequent war on terrorism, governments, private entities and individuals have become more aware of, and concerned with, the problems related with counterfeit documents. Homeland Security remains a high priority in the United States. This new heightened awareness may result in new laws or regulations which could impact our business. We believe, however, that any such laws or regulations would be aimed at requiring or promoting anti-counterfeiting, and therefore would likely have a positive impact on our business plans.

Document Security Systems plays an active role with the Document Security Alliance group, as it sits on various committees and has been involved in design recommendations for important U.S. documents. This group of security industry specialists was formed by the U.S. Secret Service to evaluate and recommend security solutions to the Federal government for the protection of credentials and vital records.

As counterfeiting continues to increase worldwide, various new laws and mandates are occurring to address the growing security problem which we believe will increase our ability to generate revenue. For example, in 2007 Federal legislation was enacted that required hospitals, physicians and pharmacies to use tamperproof paper to fill all Medicaid prescriptions. Initially, the requirement, which was part 7002(b) of the “U.S. Troop Readiness, Veterans’ Care, Katrina Recovery and Iraq Accountability Appropriations Act of 2007”, was effective April 1, 2008.