DSS: Document Security System Shareholders Want to Know... How is Business Now?

By Lisa Thompson

NYSE:DSS

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While Document Security Systems, Inc. DSS reported an excellent Q4, investors want most to know how is business now, during a pandemic. Fortunately DSS' manufacturing facilities in both California and New York have been deemed essential by their respective state governments and remain operational. DSS produces packaging for medical products and the USPS as well as badges for the Port Authority and municipalities. Employees are either working remotely or in sparsely staffed and widely spread plant operations. The company's two largest customers, Walgreens' and Shutterfly, who contributed 45% of 2019's sales, remain open.

Revenues from packaging remain strong as consumer products are flying off shelves and people have plenty of time on their hands to go through old photos and send them electronically off to Walgreens and Shutterfly for printing. No need even to go into a store. At Shutterfly, sales are up sharply as DSS receives early orders for inventory, possibly just pulled forward from latter quarters but that remains to be seen.

AuthentiGuard sales remain strong are expected to increase sequentially throughout the year. Both major customers continue to operate uninterrupted. The automaker customer is using AuthentiGuard on aftermarket car parts, which could even see a sales bump and people by parts to fix cars at home rather than bringing them to a shop. The worldwide focus on supply chain and counterfeits, especially in medical products, could even boost sales to new customers due to the pandemic.

The only part of the business adversely hit is plastic cards and badges as entertainment, sports, and conferences are cancelled worldwide. While we expect some sales to roar back from pent up demand for sports and entertainment, others are permanently lost.

Other Ventures

With new management, DSS continues its pursuit to grow through acquisition and new ventures. It hopes to pick up market share and perhaps competitors as the economy weeds out weaker players. There was much activity in Q4 as previously noted.

Impact Biomedical

On March 13th, DSS announced that it has entered into a binding term sheet to acquire Impact Biomedical.

It plans to issue up to 14.5M shares of stock and a perpetual convertible preferred. A proposed bonus is, for every one DSS share held, the shareholder would be entitled to a bonus of two Impact shares. After acquisition, DSS will be the majority shareholder and management plans to pursue an IPO of Impact, at which point part of the company will be spun off to DSS shareholders.

Medical REIT

On March 3, 2020, DSS entered into a binding term sheet with LiquidValue Asset Management, AMRE Asset Management, and American Medical REIT, for a share subscription and loan arrangement to fund a medical real estate investment trust (REIT) in the US in a joint venture. DSS owns 52% and while it has no revenues, it will start to consolidate expenses as soon as it closes.

Nutraceuticals

DSS is also getting involved in nutraceuticals. It has two board members have considerable experience in that area and it can use that experience, plus it can turn this business into a lab and a showcase for its packaging and AuthentiGuard anti-counterfeiting and supply chain tracking. As of April 3, 2020 DSS bought 14 million shares of nutraceutical marketing company, Sharing Services Global SHRG This stake is worth $1 million and DSS now owns 11.1% of the company. One of DSS' board members, John (JT) Thatch, has been the CEO of this company since March 2018. In the nine months ending January 31, 2020, Sharing Services generated $106 million in sales, was profitable, and had operating cash flow of $7.7 million in that nine months. The company is trading at a market value of $10.2 million and an enterprise value of $2 million. Sharing Services Global Corporation is a holding company based in Plano, Texas, with subsidiaries that market and distribute health and wellness products under the Elevate brand through an independent sales force of distributors using a marketing strategy that is a form of direct selling. The Elevate health and wellness product line was launched in December 2017 and consists of nutraceutical products that the company refers to as "D.O.S.E." (Dopamine, Oxytocin, Serotonin, and Endorphins). The products can be found at www.elevacity.com

In Q4, DSS entered into convertible notes with RBC Life Sciences, Inc. with current combined value of $286,000. RBC Life is another direct seller of nutraceuticals and in based in Irving, Texas. In February 2020, DSS foreclosed and took ownership of certain assets of RBC which equal or exceeds the amounts outstanding under the obligations, installed new management, and has been running the business as a subsidiary of DSS. We expect to start to see revenues and expenses from this business begin to show up on DSS's income statement when it reports Q1 2020.

Source: Document Security Systems

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