JUNE 8th, UNITED STATES SECURITIES AND EXCH
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JUNE 8th,
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No.1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 27, 2020
DOCUMENT SECURITY SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
New York 001-32146 16-1229730
(State or other jurisdiction
of incorporation)
(Commission
File Number)
(IRS Employer
Identification No.)
200 Canal View Boulevard
Suite 300
Rochester, NY
14623
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (585) 325-3610
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Ticker symbol(s) Name of each exchange on which registered
Common Stock, $0.02 par value per share DSS The NYSE American LLC
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Item 1.01 Entry into a Material Definitive Agreement.
As previously reported on a Current Report on Form 8-K filed on May 1, 2020 by Document Security Systems, Inc. (“DSS” or the “Company”), on April 27, 2020, the Board of Directors of the Company approved and the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with DSS BioHealth Security, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“DBHS”), Singapore eDevelopment Limited, a Singapore corporation (“SeD”) that is listed on the Singapore Exchange, and Global BioMedical Pte Ltd, a Singapore corporation and wholly owned subsidiary of SeD (“GBM”), pursuant to which, among other things and subject to the terms and conditions contained therein, including both the Company and SeD having obtained approvals from their respective shareholders, DBHS will acquire all of the outstanding capital stock (the “Impact Shares”) of Impact BioMedical Inc., a Nevada corporation and wholly owned subsidiary of GBM (“Impact BioMedical”) through a share exchange, with Impact BioMedical becoming a direct wholly owned subsidiary of the DBHS.
The Company is filing this amendment to the above-referenced Form 8-K to provide the: (i) audited consolidated financial statements of Impact BioMedical, which include the consolidated balance sheets as of December 31, 2019 and December 31, 2018, the consolidated statement of operations for the years ended December 31, 2019 and December 31, 2018, the consolidated statements of stockholders’ equity for the years ended December 31, 2019 and December 31, 2018, the consolidated statements of cash flows for the years ended December 31, 2019 and December 31, 2018 and the notes related thereto (collectively, the “Audited Consolidated Financial Statements”); and (ii) unaudited condensed interim consolidated financial statements of Impact BioMedical, which include the consolidated balance sheets as of March 31, 2020 and December 31, 2019, the consolidated statement of operations for the three months ended March 31, 2020 and December 31, 2019, the consolidated statements of stockholders’ equity for the period ended March 31, 2020 and March 31, 2019, the consolidated statements of cash flows for the three months ended March 31, 2020 and March 31 ,2019, and the notes related thereto (collectively, the “Interim Unaudited Consolidated Financial Statements”), and (iii) DSS and Impact BioMedical’s unaudited pro forma condensed combined financial statements, which include the unaudited pro forma condensed combined balance sheet as of March 31, 2020 and December 31, 2019, the unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2020 and for the year ended December 31, 2019, and the notes related thereto (collectively, the “Unaudited Pro Forma Condensed Combined Financial Statements”).
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Item 9.01 Financial Statements and Exhibits
(a) Financial statements of businesses to be acquired.
The Audited Consolidated Financial Statements, and the Interim Unaudited Consolidated Financial Statements are included as Exhibits 99.1 and 99.2, respectively, to this Amended Form 8-K and incorporated herein by reference.
(b) Pro forma financial information.
The Unaudited Pro Forma Condensed Combined Financial Statements of DSS and Impact BioMedical are filed herewith as Exhibit 99.3 to this Amended Form 8-K and incorporated herein by reference.
(d) Exhibits.
Exhibit
Number Exhibit
99.1
Impact BioMedical’s Audited Consolidated Financial Statements and the notes related thereto.
99.2 Impact BioMedical’s Interim Unaudited Consolidated Financial Statement and the notes related thereto.
99.3 Unaudited Pro Forma Condensed Combined Financial Statements of DSS and Impact BioMedical and the notes related thereto
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.
DOCUMENT SECURITY SYSTEMS, INC.
Dated: June 8, 2020 By: /s/ Frank D. Heuszel
Name: Frank D. Heuszel
Title: Chief Executive Officer and Interim Chief Financial Officer
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Exhibit 99.1
REPORT OF INDEPENDENT AUDITORS
AND FINANCIAL STATEMENTS
Impact BioMedical Inc and Subsidiaries
December 31, 2019 and 2018
Table of Contents
PAGE
Report of Independent Registered Public Accounting Firm 2
Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders’ Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Director and Stockholders of Impact BioMedical Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Impact BioMedical Inc. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018 and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the results of its consolidated operations and its consolidated cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Turner, Stone & Company, L.L.P.
Dallas, Texas
May 4, 2020
We have served as the Company’s auditor since 2020.
Impact BioMedical Inc and Subsidiaries
Consolidated Balance Sheets
Impact Biomedical Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, December 31,
2019 2018
Asset
Cash $ 108,731 $ 35,375
Prepaid Expense 30,700 22,761
Investment in Security by Equity Method 5,312
Total Asset $ 139,431 $ 63,448
Liabilities
Accounts Payable $ 7,021 $ 77,018
Total Liabilities $ 7,021 $ 77,018
Stockholders’ Equity
Common Stock, $0.001 Par Value,
100,000,000 shares authorized,
1,000 Issued and Outstanding $ 1 $ 1
Additional Paid In Capital 1,732,590 1,183,135
Accumulated Deficit (1,646,208 ) (1,191,772 )
Total Stockholders’ Equity (Deficit) 86,383 (8,636 )
Non-Controlling Interests 46,027 (4,934 )
Total Stockholders’ Equity (Deficit) $ 132,410 $ (13,570 )
Total Liabilities & Stockholders’ Equity $ 139,431 $ 63,448
2
Impact BioMedical Inc and Subsidiaries
Consolidated Statement of Operations
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Operations
For the Year Ended December 31, 2019 and 2018
2019 2018
Operating Expense
Research & Development $ 340,628 $ 634,312
Professional Services 143,933 373,394
Marketing 5,000 25,950
Other General Expense 33,600 20,931
Total Operating Expense 523,161 1,054,587
Other Expense
Financial Services 544 683
Loss from Security Investment by Equity Method 40,314 49,688
Loss from Acquisition 90,001 -
Total Other Expense 130,859 50,371
Net Loss $ (654,020 ) $ (1,104,958 )
Net Loss Attributable to Non-Controlling Interests (199,584 ) (401,803 )
Net Loss Attributable to Common Stockholders $ (454,437 ) $ (703,155 )
Net Loss Per Share - Basic and Diluted $ (454.44 ) $ (703.15 )
Weighted Average Common Shares Outstanding - Basic and Diluted 1,000 1,000
3
Impact BioMedical Inc and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Deficit)
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Deficit)
For the Years Ended on December 31, 2019 and 2018
Common Stock Additional
Non-
Total
Shares Par Value
$0.001
Paid in
Capital
Accumulated
Deficit
controlling
Interests
Stockholders
Equity
Balance at January 1, 2018 1,000 $ 1 $ 539,731 $ (488,616 ) $ 29,209 $ 80,324
Proceeds from Shareholders 643,404 367,660 1,011,064
Net loss (703,155 ) (401,803 ) (1,104,958 )
Balance at December 31, 2018 1,000 $ 1 $ 1,183,135 $ (1,191,772 ) $ (4,934 ) $ (13,570 )
Proceeds from Shareholders 549,455 250,545 800,000
Net Loss (454,436 ) (199,584 ) (654,020 )
Balance at December 31, 2019 1,000 $ 1 $ 1,732,590 $ (1,646,208 ) $ 46,027 $ 132,410
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Impact BioMedical Inc and Subsidiaries
Consolidated Statements of Cash Flows
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2019 and 2018
2019 2018
Cash Flows From Operating Activities
Net Loss from Operations $ (654,020 ) $ (1,104,958 )
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Loss from Acquisition 90,001 -
Loss from Investment in Security by Equity Method 40,314 49,688
Changes in Operating Assets and Liabilities
Prepaid Expense (7,940 ) 1,566
Accounts Payable (81,157 ) (45,145 )
Net Cash Used in Operating Activities (612,802 ) (1,098,849 )
Cash Flows From Investing Activities
Acquisition of Securities (91,000 ) -
Cash from Acquistion 13,158 -
Investment in Joint Venture (36,000 ) (55,000 )
Net Cash Used in Investing Activities (113,842 ) (55,000 )
Cash Flows From Financing Activities
Proceeds from Shareholders 800,000 986,064
Net Cash Provided by Financing Activities 800,000 986,064
Net Increase (Decrease) in Cash 73,356 (167,785 )
Cash - Beginning of Year 35,375 178,160
Cash - End of Year $ 108,731 $ 10,375
Non Cash Investmnet in Joint Venture $ - $ 25,000
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IMPACT BioMedical Inc and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 – Nature of Operations and Basis of Presentation
Nature of Operations
Impact BioMedical Inc (the “Company”) was incorporated in the State of Nevada as a for-profit company on October 16, 2018 and established a fiscal year end of December 31st. The Company issued 1,000 shares to Global BioMedical Pte. Ltd., which is wholly–owned by Singapore eDevelopment Limited (“SeD Ltd”), a multinational public company, listed on the Singapore Exchange Securities Trading Limited (“SGXST”).
The Company is committed to both funding research and developing intellectual property portfolio. Global BioLife, Inc. (“Global BioLife”), one of the Company’s subsidiaries and the main operating company of the group, focuses 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. Global BioLife established a joint venture, Sweet Sense, Inc. (“Sweet Sense”), with Quality Ingredients, LLC for the development, manufacture, and global distribution of the new sugar substitute and owns 50% of Sweet Sense. On November 8, 2019, the Company purchased 50% of Sweet Sense, Inc. from Quality Ingredients, LLC for $91,000. Sweet Sense is now an 81.8% owned subsidiary of the Company.
Basis of Presentation and Principles of Consolidation
The Common Control Transactions resulted in the basis of accounting for the financial reporting period in 2018. The consolidated financial statements were retrospectively adjusted for the operating results of Global Biolife as of January 1, 2018 for comparative purposes as the entities were under common control. ASC 805-50-45 defines the transfer of a business among entities under common control at carrying amount with retrospective adjustment of prior period financial statements when reporting entity is changed. ASC 250 defines a change in the reporting entity as a change that results in financial statements that, in effect, are those of a different reporting entity. The Management believed that the acquisitions of Global BioMedical, Inc. and Global Biolife led to change in the reporting entity.
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include all accounts of the Company and its majority owned and controlled subsidiaries. The Company consolidates entities in which it owns more than 50% of the voting common stock and controls operations. All intercompany transactions and balances among consolidated subsidiaries have been eliminated.
The consolidated financial statements include all accounts of the entities as of the reporting period ending dates and for the reporting periods as follows:
State or other Attributable Attributable
Name of consolidated jurisdiction of
incorporation or Date of incorporation interest as of
December 31, interest as of
December 31,
subsidiary organization or formation 2019 2018
Global BioMedical, Inc. Nevada April, 18, 2017 90.9 % 90.9 %
Global BioLife, Inc. Nevada April 14, 2017 63.6 % 63.6 %
Biolife Sugar, Inc Nevada April 23, 2018 63.6 % 63.6 %
Happy Sugar Inc Nevada August 17, 2018 63.6 % 63.6 %
Sweet Sense Inc. Nevada April 30, 2018 81.8 % 31.8 %
SeD BioLife International, Inc. Nevada March 29, 2017 100 % 100 %
SeD BioMedical International Inc. Nevada March 13, 2017 100 % 100 %
Global Sugar Solutions Inc. Nevada November 7, 2019 80 % n/a
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IMPACT BioMedical Inc and Subsidiaries
Notes to Consolidated Financial Statements
All intercompany balances and transactions have been eliminated. Non–controlling interest represents the minority equity investment in the Company’s subsidiaries, plus the minority investors’ share of the net operating results and other components of equity relating to the non–controlling interest.
As of December 31, 2019 and 2018, the aggregate noncontrolling interest was $46,027 and a deficit of $4,934, respectively, which are separately disclosed on the Consolidated Balance Sheet.
On the date of incorporation, Global BioLife issued 800 shares to Global BioMedical. Inc., 100 shares to GRDG Sciences, LLC (“GRDG”) and 100 to Holista Colltech Limited. Based on the Global BioLife’s Stockholders Agreement signed on April 26, 2017, Global BioMedical Inc agreed to transfer 10% of it’s ownership in Global BioLife to GRDG Sciences, LLC upon successful completion of certain goals. GRDG Sciences, LLC fulfilled required goals and 100 shares was transferred on September 12, 2017.
On November 7, 2018, the Company entered into two Capital Contribution Agreements. First Capital Contribution Agreement (“GBMI Agreement”), was entered between the Company, Global BioMedical Pte. Ltd. (“Global BioMedical”), a Singapore limited company, and Global BioMedical. Inc. (“GBMI”), a Nevada corporation. Prior to this agreement Global BioMedical owned 90.91% of the issued and outstanding capital equity in GBMI and 100% of issued and outstanding shares of the Company. Based on GBMI Agreement, Global BioMedical contributed all of its ownership in GBMI to the Company. Another Capital Contribution Agreement (“SeD BioLife Agreement”) was entered between the Company, Global BioMedical and SeD BioLife International, Inc. (“SeD BioLife”), a Nevada Corporation. Prior to this agreement Global BioMedical owned 100% of the issued and outstanding capital equity in SeD BioLife. Based on the SeD BioLife Agreement, Global BioMedical contributed all its ownership in SeD BioLife to the Company.
Note 2 – Summary of Significant Accounting and Reporting Policy
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the balance sheets and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.
Earnings (Loss) per Share
Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders by weighted average number of shares of common stock outstanding during the period. Fully diluted earnings (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive financial instruments issued or outstanding for the periods ended December 31, 2019 or 2018.
Fair Value of Financial Instruments
For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents. There were no cash equivalents as of December 31, 2019 and December 31, 2018.
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IMPACT BioMedical Inc and Subsidiaries
Notes to Consolidated Financial Statements
Investment in Securities Under Equity Method Accounting
BioLife Sugar, Inc. (“BioLife”), a subsidiary consolidated under the Company, entered into a joint venture agreement on April 25, 2018 with Quality Ingredients, LLC (“QI”). The agreement created Sweet Sense which is 50% owned by BioLife and 50% owned by QI. Management believes its 50% investment represents significant influence over Sweet Sense and accounts for the investment under the equity method of accounting. As of December 31, 2018, BioLife contributed $55,000 to the joint venture and recorded its proportionate share losses totaling $49,687 recorded as loss on investment in security by equity method in the Consolidated Statements of Operations. As of November 08, 2019, the total investment in joint venture was equal to $91,000 and the proportionate losses totaled $90,001.
On November 8, 2019, Impact BioMedical Inc., a subsidiary of the Company, purchased 50% of Sweet Sense from QI for $91,000. Consequently, Sweet Sense is now an 81.8% owned subsidiary of the Company, and therefore, is now consolidated into the consolidated financial statements.
Research and Development
Research and development costs are expensed as incurred. Total research and development costs were $340,628 and $634,312 for the years ended December 31, 2019 and 2018, respectively.
Income taxes
Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carry-forwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records an estimated valuation allowance on its deferred income tax assets if it is more likely than not that these deferred income tax assets will not be realized.
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company has not recorded any unrecognized tax benefits. The Company’s policy is to recognize interest and penalties related to income taxes in income tax expense.
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before the financial statements are available to be issued.
The Company’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements are available to be issued.
Recent Accounting Standards
Financial Instruments
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) FASB ASU 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities – The changes to the current U.S. GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments.
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IMPACT BioMedical Inc and Subsidiaries
Notes to Consolidated Financial Statements
Non-Controlling Interests
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). ASU 2017-11 is intended to simplify the accounting for financial instruments with characteristics of liabilities and equity. Among the issues addressed are: (i) determining whether an instrument (or embedded feature) is indexed to an entity’s own stock; (ii) distinguishing liabilities from equity for mandatorily redeemable financial instruments of certain nonpublic entities; and (iii) identifying mandatorily redeemable noncontrolling interests. The Company adopted ASU 2017-11 on January 1, 2019 and determined that this ASU did not have a material impact on the consolidated financial statements.
Note 2. Prepaid Expenses
Prepaid expenses for the years ended December 31, 2019 and 2018 include mostly research and development fees paid to GRDG in the amounts of $30,700 and $22,761, respectively.
Note 3. Shareholders’ Equity
On October 16, 2018, 1,000 shares of common stock were issued to Global BioMedical Pte. Ltd.
On November 21, 2018 the Company increased its authorized shares from 10,000 to 100,000,000 common shares with a par value of $0.001 per share. No preferred shares have been authorized or issued.
Note 5. Related Party Transactions
Research and Development Activities
Based on Shareholders Agreement entered into on April 26, 2017, the Company should fund the scientific operations of GRDG, a company involved in research and development of biomedical products and owned by Daryl Thompson, a director of many subsidiaries of the Company, to do the development and research works on the biomedical products for the Company. Initial monthly payments were agreed to be $20,994 plus any additional amounts that would be necessary and agreed by the Board of Directors. The monthly payments were adjusted for the increase in rent of GRDG office and general inflation. Current monthly payments equal to $23,319. The Company incurred expenses of $303,071 and $ 285,573 for the years ended December 31, 2019 and 2018, respectively. On December 31, 2019 and December 31, 2018, the Company owed this related party $0 and had prepaid monthly fees of $30,700 and $22,761, respectively.
Administrative and Accounting Services
SeD Development Management, LLC, an indirect subsidiary of SeD Ltd, provides administrative and accounting services to the Company and its subsidiaries. The Company incurred expenses of $6,000 and $4,000 for the years ended December 31, 2019 and 2018, respectively. On December 31, 2019 and December 31, 2018, the Company owed this related party $0.
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IMPACT BioMedical Inc and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Commitments and Contingencies
Leases
At December 31, 2019, Impact BioMedical, Inc. had not entered into any leases, as the Company had no employees.
Royalty Agreement
On August 15, 2018, the Company entered into Royalty Agreement with Chemia Corporation (“Chemia”) pursuant to which Chemia transferred to the Company all of its right to 3F (Functional Fragrance Formulation). 3F consists of 3F Mosquito Repellant and 3F Anti-Viral formulations. Based on the Royalty Agreement, the Company should cover all the costs to prepare and finalize necessary patent application and other intellectual property related to 3F. Chemia agreed to support the Company in efforts leading to development of 3F intellectual property and it’s licensing. Based on Royalty Agreement any payments received from development, sales, licensing or transfer of 3F technology will be paid 50% to the Company and 50% to Chemia. On November 27, 2018, Company and Chemia signed an Addendum to Royalty Agreement (“Addendum”), according to which the Company granted Chemia a royalty-based limited license for purposes of making and selling fragrances embodying the 3F technology. Based on the Addendum, Chemia should pay the Company 5% of net sales in royalty. On November 8, 2019, both companies entered into Amendment no.1 to Royalty Agreement, based on which certain expenses bore by the Company towards patent application and licensing should be reimbursed to the Company before any royalty payments are made. As on December 31 2019 and 2018 there were no reimbursements or royalties paid to the Company and the Company cannot be assured that Chemia’s efforts will end up in any future sales of the technology.
Note 7 – Income Taxes
On December 22, 2017, the “Tax Cuts and Jobs Act” (TCJA) was signed into law that significantly reformed the Internal Revenue Code of 1986, as amended. The TCJA reduces the corporate tax rate to 21 percent beginning with years starting January 1, 2018. The deferred tax assets and liabilities have been adjusted to the newly enacted U.S. corporate rate and the related impact to the tax expense has been recognized in the current year.
The components of income tax expense and the effective tax rates for the years ended December 31, 2019 and 2018 are as follows:
Year Ended December 31,
2019 2018
Current:
Federal $ - $ -
State - -
Total Current - -
Deferred:
Federal (530,629 ) (393,285 )
State (151,034 ) (122,106 )
Total Deferred (681,663 ) (515,390 )
Valuation Allowance 681,663 515,390
Total Incom Tax Expense $ - $ -
Pre-tax Loss $ (645,020 ) $ (1,104,958 )
Effective Income Tax Rate 0 % 0 %
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IMPACT BioMedical Inc and Subsidiaries
Notes to Consolidated Financial Statements
A reconciliation of our income tax expense at federal statutory income tax rate of 21% to our income tax expense at the effective tax rate is as follows:
Year Ended December 31,
2019 2018
Tax at the Statutory Federal Rate $ (137,344 ) $ (232,041 )
State Income Taxes (Net of Federal Benefit) (28,929 ) (72,043 )
Changes in Valutation Allowance, Net 166,273 304,084
Total Income Tax Expense $ - $ -
Deferred tax assets consist of the following at December 31, 2019 and 2018:
Year Ended December 31,
2019 2018
Net Operating Loss 681,663 515,390
681,663 515,390
Valuation Allowance (681,663 ) (515,390 )
Net Deferred Tax Asset - -
As of December 31, 2019 and 2018, the Company has net operating loss carry-forwards of $2,526,804and $1,872,784, respectively. The Company does not have other temporary differences. As of December 31, 2019 and 2018, the total deferred tax assets carry-forward were $681,663 and $515,390, respectively. The deferred tax assets could be carried forward for 20 years. The full utilization of the deferred tax assets in the future is dependent upon the Company’s ability to generate taxable income. Considering the development stage of the Company, management believed that it was probable that the Company would not use tax assets in the near future. Accordingly, a valuation allowance of an equal amount has been established. As of the years ended December 31, 2019 and 2018, the valuation allowance were $681,663 and $515,390, respectively. During the year ended December 31, 2019, the valuation allowance increased by $166,273. No deferred tax assets were recorded on years ended December 31, 2019 and 2018.
The federal income tax returns of the Company are subject to examination by the IRS, generally for three years after they are filed. The tax returns for the years ended December 31, 2018 and 2017 are still subject to examination by the taxing authorities.
Note 8 – Subsequent Events
On March 31, 2020 the Company issued 13,896,069 shares of common stock to its sole shareholder Global BioMedical Pte. Ltd. in consideration of the $2,779,214 invested in the Company.
On March 12, 2020 Singapore eDevelopment Ltd., Global BioMedical Pte Ltd., Document Security Systems, Inc (“DSS”) and DSS BioHealth Security Inc. (“DSS BioHealth”) signed Term Sheets and subsequently on April 21, 2020, these four companies entered into Share Exchange Agreement, based on which Global BioMedical Pte Ltd. agreed to sell all of the issued and outstanding shares of the Company to DSS BioHealth in exchange for the combination of common and preferred shares of DSS. The closing of this transaction is contingent upon DSS shareholders’ approval and all parties meeting the conditions of the Share Exchange Agreement. Our Company’s Chairman, who is also the largest shareholder of Singapore eDevelopment Ltd., is the beneficial owner of approximately 36.97% of the outstanding shares of DSS and is the Chairman of the Board of Directors of DSS. The Company is currently supporting Global BioMedical Pte Ltd. in meeting the closing conditions.
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Exhibit 99.2
FINANCIAL STATEMENTS
Impact BioMedical Inc and Subsidiaries
March 31, 2020 (Unaudited)
Table of Contents
PAGE
Consolidated Financial Statements
Consolidated Balance Sheets (unaudited) 2
Consolidated Statements of Operations (unaudited) 3
Consolidated Statements of Stockholders’ Equity (unaudited) 4
Consolidated Statements of Cash Flows (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
1
Impact BioMedical Inc and Subsidiaries
Consolidated Balance Sheets
Impact Biomedical Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
March 31, 2020 December 31, 2019
Asset
Cash $ 130,115 $ 108,731
Prepaid Expense 23,319 30,700
Total Asset $ 153,434 $ 139,431
Liabilities
Accounts Payable $ 26,601 $ 7,021
Total Liabilities $ 26,601 $ 7,021
Stockholders’ Equity
Common Stock, $0.001 Par Value, 100,000,000 shares authorized, 13,897,069 and 1,000 Issued and Outstanding as of March 31, 2020 and December 31, 2019, respectively $ 13,897 $ 1
Additional Paid In Capital 1,802,330 1,732,590
Accumulated Deficit (1,729,966 ) (1,646,208 )
Total Stockholders’ Equity 86,261 86,383
Non-Controlling Interests 40,572 46,027
Total Stockholders’ Equity $ 126,833 $ 132,410
Total Liabilities & Shareholder’s Equity $ 153,434 $ 139,431
2
Impact BioMedical Inc and Subsidiaries
Consolidated Statements of Operations
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
2020 2019
Operating Expense
Research & Development $ 71,967 $ 106,123
Professional Services 51,325 4,645
Other General Expense 2,178 1,975
Total Operating Expense 125,470 112,743
Other Expense
Financial Services 107 76
Loss from Security Investment by Equity Method - 3,206
Total Other Expense 107 3,282
Net Loss $ (125,577 ) $ (116,024 )
Net Loss Attributable to Non-Controlling Interests (41,819 ) (32,484 )
Net Loss Attributable to Common Stockholders $ (83,758 ) $ (83,540 )
Net Loss Per Share - Basic and Diluted $ (0.19 ) $ (83.54 )
Weighted Average Common Shares Outstanding - Basic and Diluted 449,260 1,000
3
Impact BioMedical Inc and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Deficit)
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the Period Ended on March 31, 2020 (Unaudited)
Common Stock Additional Non- Total
Shares
Par Value
$0.001
Paid
in Capital
Accumulated
Deficit
controlling
Interests
Stockholders
Equity
Balance at January 1, 2020 1,000 $ 1 $ 1,732,590 $ (1,646,208 ) $ 46,027 $ 132,410
Issue Shares to the Shareholder at Par Value $0.001 per share 13,896,069 13,896 (13,896 ) -
Proceeds from the Shareholder 83,636 36,364 120,000
Net loss (83,758 ) (41,819 ) (125,577 )
Balance at March 31, 2020 13,897,069 $ 13,897 $ 1,802,330 $ (1,729,966 ) $ 40,572 $ 126,833
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the Period Ended on March 31, 2019 (Unaudited)
Common Stock Additional Non- Total
Par Value Paid in Accumulated controlling Stockholders
Shares $0.001 Capital Deficit Interests Equity
Balance at January 1, 2019 1,000 $ 1 $ 1,183,135 $ (1,191,772 ) $ (4,934 ) $ (13,570)
Proceeds from the Shareholder 127,273 72,727 200,000
Net loss (83,539 ) (32,484 ) (116,024 )
Balance at March 31, 2019 1,000 $ 1 $ 1,310,408 $ (1,275,311 ) $ 35,308 $ 70,406
4
Impact BioMedical Inc and Subsidiaries
Consolidated Statements of Cash Flows
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Month Ended March 31, 2020 and 2019
(Unaudited)
2020 2019
Cash Flows From Operating Activities
Net Loss from Operations $ (125,577 ) $ (116,024 )
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Loss from Investment on Security by Equity Method Changes in Operating Assets and Liabilities - 3,205
Prepaid Expense 7,381 -
Trade Payable 19,580 (50,326 )
Net Cash Used in Operating Activities (98,616 ) (163,145 )
Cash Flows From Financing Activities
Proceeds from Shareholders 120,000 200,000
Net Cash Provided by Financing Activities 120,000 200,000
Net Increase in Cash 21,384 36,855
Cash - Beginning of Year 108,731 35,375
Cash - End of Period $ 130,115 $ 72,230
5
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 – Nature of Operations and Basis of Presentation
Nature of Operations
Impact BioMedical Inc (the “Company”) was incorporated in the State of Nevada as a for-profit company on October 16, 2018 and established a fiscal year end of December 31st. The Company issued 1,000 shares to Global BioMedical Pte. Ltd., which is wholly–owned by Singapore eDevelopment Limited (“SeD Ltd”), a multinational public company, listed on the Singapore Exchange Securities Trading Limited (“SGXST”).
The Company is committed to both funding research and developing intellectual property portfolio. Global BioLife, Inc. (“Global BioLife”), one of the Company’s subsidiaries and the main operating company of the group, focuses 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. Global BioLife established a joint venture, Sweet Sense, Inc. (“Sweet Sense”), with Quality Ingredients, LLC for the development, manufacture, and global distribution of the new sugar substitute and owns 50% of Sweet Sense. On November 8, 2019, the Company purchased 50% of Sweet Sense, Inc. from Quality Ingredients, LLC for $91,000. Sweet Sense is now an 81.8% owned subsidiary of the Company.
Basis of Presentation and Principles of Consolidation
The Common Control Transactions resulted in the basis of accounting for the financial reporting period in 2018. The consolidated financial statements were retrospectively adjusted for the operating results of Global Biolife as of January 1, 2018 for comparative purposes as the entities were under common control. ASC 805-50-45 defines the transfer of a business among entities under common control at carrying amount with retrospective adjustment of prior period financial statements when reporting entity is changed. ASC 250 defines a change in the reporting entity as a change that results in financial statements that, in effect, are those of a different reporting entity. The Management believed that the acquisitions of Global BioMedical, Inc. and Global Biolife led to change in the reporting entity.
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include all accounts of the Company and its majority owned and controlled subsidiaries. The Company consolidates entities in which it owns more than 50% of the voting common stock and controls operations. All intercompany transactions and balances among consolidated subsidiaries have been eliminated.
The consolidated financial statements include all accounts of the entities as of the reporting period ending dates and for the reporting periods as follows:
Name of consolidated subsidiary
State or other jurisdiction of incorporation or
organization
Date of incorporation or formation
Attributable interest as of
March 31,
2020
Attributable interest as of December 31,
2019
Global BioMedical, Inc. Nevada April, 18, 2017 90.9 % 90.9 %
Global BioLife, Inc. Nevada April 14, 2017 63.6 % 63.6 %
Biolife Sugar, Inc Nevada April 23, 2018 63.6 % 63.6 %
Happy Sugar Inc Nevada August 17, 2018 63.6 % 63.6 %
Sweet Sense Inc. Nevada April 30, 2018 81.8 % 81.8 %
SeD BioLife International, Inc. Nevada March 29, 2017 100 % 100 %
SeD BioMedical International Inc. Nevada March 13, 2017 100 % 100 %
Global Sugar Solutions Inc. Nevada November 7, 2019 80 % 80 %
6
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
All intercompany balances and transactions have been eliminated. Non–controlling interest represents the minority equity investment in the Company’s subsidiaries, plus the minority investors’ share of the net operating results and other components of equity relating to the non–controlling interest.
As of March 31, 2020 and December 31, 2019, the aggregate noncontrolling interest was $40,527 and $46,027, respectively, which are separately disclosed on the Consolidated Balance Sheet.
On the date of incorporation, Global BioLife issued 800 shares to Global BioMedical. Inc., 100 shares to GRDG Sciences, LLC (“GRDG”) and 100 to Holista Colltech Limited. Based on the Global BioLife’s Stockholders Agreement signed on April 26, 2017, Global BioMedical Inc agreed to transfer 10% of its ownership in Global BioLife to GRDG Sciences, LLC upon successful completion of certain goals. GRDG Sciences, LLC fulfilled required goals and 100 shares was transferred on September 12, 2017.
On November 7, 2018, the Company entered into two Capital Contribution Agreements. First Capital Contribution Agreement (“GBMI Agreement”), was entered between the Company, Global BioMedical Pte. Ltd. (“Global BioMedical”), a Singapore limited company, and Global BioMedical. Inc. (“GBMI”), a Nevada corporation. Prior to this agreement Global BioMedical owned 90.91% of the issued and outstanding capital equity in GBMI and 100% of issued and outstanding shares of the Company. Based on GBMI Agreement, Global BioMedical contributed all of its ownership in GBMI to the Company. Another Capital Contribution Agreement (“SeD BioLife Agreement”) was entered between the Company, Global BioMedical and SeD BioLife International, Inc. (“SeD BioLife”), a Nevada Corporation. Prior to this agreement Global BioMedical owned 100% of the issued and outstanding capital equity in SeD BioLife. Based on the SeD BioLife Agreement, Global BioMedical contributed all its ownership in SeD BioLife to the Company.
Note 2 – Summary of Significant Accounting and Reporting Policy
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the balance sheets and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.
Earnings (Loss) per Share
Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders by weighted average number of shares of common stock outstanding during the period. Fully diluted earnings (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive financial instruments issued or outstanding for the periods ended March 31, 2020 or December 31, 2019.
Fair Value of Financial Instruments
For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents. There were no cash equivalents as of March 31, 2020 and December 31, 2019.
7
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Investment in Securities Under Equity Method Accounting
BioLife Sugar, Inc. (“BioLife”), a subsidiary consolidated under the Company, entered into a joint venture agreement on April 25, 2018 with Quality Ingredients, LLC (“QI”). The agreement created Sweet Sense which is 50% owned by BioLife and 50% owned by QI. Management believes its 50% investment represents significant influence over Sweet Sense and accounts for the investment under the equity method of accounting. As of December 31, 2018, BioLife contributed $55,000 to the joint venture and recorded its proportionate share losses totaling $49,687 recorded as loss on investment in security by equity method in the Consolidated Statements of Operations. As of November 08, 2019, the total investment in joint venture was equal to $91,000 and the proportionate losses totaled $90,001.
On November 8, 2019, the Company purchased 50% of Sweet Sense from QI for $91,000. Consequently, Sweet Sense is now an 81.8% owned subsidiary of the Company, and therefore, is now consolidated into the consolidated financial statements.
Research and Development
Research and development costs are expensed as incurred. Total research and development costs were $71,967 and $106,123 for the three months ended March 31, 2020 and 2019, respectively.
Income taxes
Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carry-forwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records an estimated valuation allowance on its deferred income tax assets if it is more likely than not that these deferred income tax assets will not be realized.
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company has not recorded any unrecognized tax benefits. The Company’s policy is to recognize interest and penalties related to income taxes in income tax expense.
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before the financial statements are available to be issued.
The Company’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements are available to be issued.
Recent Accounting Standards
Financial Instruments
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) FASB ASU 2016- 01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities – The changes to the current U.S. GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments.
8
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Non-Controlling Interests
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). ASU 2017-11 is intended to simplify the accounting for financial instruments with characteristics of liabilities and equity. Among the issues addressed are: (i) determining whether an instrument (or embedded feature) is indexed to an entity’s own stock; (ii) distinguishing liabilities from equity for mandatorily redeemable financial instruments of certain nonpublic entities; and (iii) identifying mandatorily redeemable noncontrolling interests. The Company adopted ASU 2017-11 on January 1, 2019 and determined that this ASU did not have a material impact on the consolidated financial statements.
Note 2. Prepaid Expenses
Prepaid expenses for the three months ended March 31, 2020 and year ended December 31, 2019 include mostly research and development fees paid to GRDG in the amounts of $23,319 and $30,700, respectively.
Note 3. Shareholders’ Equity
On October 16, 2018, 1,000 shares of common stock were issued to Global BioMedical Pte. Ltd.
On November 21, 2018 the Company increased its authorized shares from 10,000 to 100,000,000 common shares with a par value of $0.001 per share. No preferred shares have been authorized or issued.
On March 31, 2020 the Company issued 13,896,069 shares of common stock to its sole shareholder Global BioMedical Pte. Ltd.
Note 5. Related Party Transactions
Research and Development Activities
Based on Shareholders Agreement entered into on April 26, 2017, the Company should fund the scientific operations of GRDG, a company involved in research and development of biomedical products and owned by Daryl Thompson, a director of many subsidiaries of the Company, to do the development and research works on the biomedical products for the Company. Initial monthly payments were agreed to be $20,994 plus any additional amounts that would be necessary and agreed by the Board of Directors. The monthly payments were adjusted for the increase in rent of GRDG office and general inflation. Current monthly payments equal to $23,319. The Company incurred expenses of $79,516 and $ 70,258 for the three months ended March 31, 2020 and 2019, respectively. On March 31, 2020 and December 31, 2019 the Company owed this related party $0 and had prepaid monthly fees of $30,700 and $18,116, respectively.
Administrative and Accounting Services
SeD Development Management, LLC, an indirect subsidiary of SeD Ltd, provided administrative and accounting services to the Company and its subsidiaries. The Company incurred expenses of $0 and $1,500 for the three months ended March 31, 2020 and 2019, respectively. On March 31, 2020 and December 31, 2019, the Company owed this related party $0. As of January 1, 2020, both parties agreed to stop paying the service fee.
9
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Commitments and Contingencies
Leases
At March 31, 2020, Impact BioMedical, Inc. had not entered into any leases, as the Company had no employees.
Royalty Agreement
On August 15, 2018, the Company entered into Royalty Agreement with Chemia Corporation (“Chemia”) pursuant to which Chemia transferred to the Company all of its right to 3F (Functional Fragrance Formulation). 3F consists of 3F Mosquito Repellant and 3F Anti-Viral formulations. Based on the Royalty Agreement, the Company should cover all the costs to prepare and finalize necessary patent application and other intellectual property related to 3F. Chemia agreed to support the Company in efforts leading to development of 3F intellectual property and it’s licensing. Based on Royalty Agreement any payments received from development, sales, licensing or transfer of 3F technology will be paid 50% to the Company and 50% to Chemia. On November 27, 2018, Company and Chemia signed an Addendum to Royalty Agreement (“Addendum”), according to which the Company granted Chemia a royalty-based limited license for purposes of making and selling fragrances embodying the 3F technology. Based on the Addendum, Chemia should pay the Company 5% of net sales in royalty. On November 8, 2019, both companies entered into Amendment no.1 to Royalty Agreement, based on which certain expenses bore by the Company towards patent application and licensing should be reimbursed to the Company before any royalty payments are made. As on March 31, 2020 and December 31 2019 there were no reimbursements or royalties paid to the Company and the Company cannot be assured that Chemia’s efforts will end up in any future sales of the technology.
Note 7 – Subsequent Events
On March 12, 2020 Singapore eDevelopment Ltd., Global BioMedical Pte Ltd., Document Security Systems, Inc (“DSS”) and DSS BioHealth Security Inc. (“DSS BioHealth”) signed Term Sheets and subsequently on April 21, 2020, these four companies entered into Share Exchange Agreement, based on which Global BioMedical Pte Ltd. agreed to sell all of the issued and outstanding shares of the Company to DSS BioHealth in exchange for the combination of common and preferred shares of DSS. The closing of this transaction is contingent upon DSS shareholders’ approval and all parties meeting the conditions of the Share Exchange Agreement. Our Company’s Chairman, who is also the largest shareholder of Singapore eDevelopment Ltd., is the beneficial owner of approximately 36.97% of the outstanding shares of DSS and is the Chairman of the Board of Directors of DSS. The Company is currently supporting Global BioMedical Pte Ltd. in meeting the closing conditions.
10
Exhibit 99.3
DOCUMENT SECURITY SYSTEMS.INC
Unaudited Pro Forma Condensed Consolidated Balance Sheet
March 31, 2020
Pre-Acquisition
DSS (Purchaser) Record Purchase Post-acquisition
DSS (Purchaser) ImpactBio
(Target) Proforma Adjustment (Note 1) Proforma Adjustment (Note 2) Consolidated Financials
ASSETS
Current Assets:
Cash $ 3,802,000 $ 3,802,000 $ 130,000 $ 3,932,000
Accounts Receivable 3,582,000 3,582,000 - 3,582,000
Inventory 1,743,000 1,743,000 - 1,743,000
Prepaid Expense and other current assets 514,000 514,000 23,000 537,000
Total Current Assets 9,641,000 - 9,641,000 153,000 - - 9,794,000
Property plant and equipment, net 4,925,000 4,925,000 - 4,925,000
Investment 2,154,000 2,154,000 - 2,154,000
Marketable Securities 570,000 570,000 - 570,000
Investment in Target - 50,000,000 50,000,000 - (127,000 ) (49,873,000 ) -
Notes Receivable 1,255,000 1,255,000 - 1,255,000
Other assets 54,000 54,000 - 54,000
Right-of -use assets 1,119,000 1,119,000 - 1,119,000
Goodwill 1,769,000 1,769,000 - 78,440,000 80,209,000
Other intangible assets, net 816,000 816,000 - 816,000
Total Assets $ 22,303,000 $ 50,000,000 $ 72,303,000 $ 153,000 $ (127,000 ) $ 28,567,000 $ 100,896,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts Payable $ 1,489,000 $ 1,489,000 $ 27,000 $ 1,516,000
Accrued expenses and deferred revenue 706,000 706,000 706,000
Other current liabilities 390,000 390,000 390,000
Revolving line of credit 800,000 800,000 800,000
Current portion of lease liabilities 369,000 369,000 369,000
Current portion of long-term debt, net 403,000 403,000 403,000
Total Current Liabilities $ 4,157,000 $ - $ 4,157,000 $ 26,000 $ - $ - $ 4,183,000
Long-term debt, net 2,427,000 2,427,000 2,427,000
Long term lease liability 750,000 750,000 750,000
Other long-term liabilities 507,000 507,000 507,000
Deferred tax liability, net 44,000 44,000 44,000
Total Liabilities $ 7,885,000 $ - $ 7,885,000 $ 26,000 $ - $ - $ 7,911,000
-
STOCKHOLDERS’ EQUITY -
Common Stock $ 42,000 $ 10,000 $ 52,000 $ 14,000 $ (14,000 ) $ 52,000
Convertible Preferred Stock - 46,868,000 46,868,000 - 46,868,000
Additional Paid in Capital 119,624,000 3,122,000 122,746,000 1,802,000 (1,802,000 ) 122,746,000
Accumulated Deficit (105,181,000 ) (105,181,000 ) (1,730,000 ) 1,730,000 (105,181,000 )
Total Stockholders’ Equity (Deficit) 14,485,000 50,000,000 64,485,000 86,000 (86,000 ) - 64,485,000
Non-Controlling Interests (67,000 ) (67,000 ) 41,000 (41,000 ) 28,567,000 28,500,000
Total Stockholders’ Equity (Deficit) $ 14,418,000 $ 50,000,000 $ 64,418,000 $ 127,000 $ (127,000 ) $ 28,567,000 $ 92,985,000
-
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY $ 22,303,000 $ 50,000,000 $ 72,303,000 $ 153,000 $ (127,000 ) $ 28,567,000 $ 100,896,000
DOCUMENT SECURITY SYSTEMS.INC
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2020
DSS
(PURCHASER) IMPACT BIOMEDICAL (TARGET) PROFORMA ADJUSTMENT (NOTE 1) PROFORMA ADJUSTMENT (NOTE 2) CONSOLIDATED PROFORMA
REVENUE:
Printed products $ 3,949,000 $ - $ - $ - $ 3,949,000
Technology sales, services and licensing 479,000 - - - 479,000
Direct selling 573,000 - - - 573,000
Total revenue $ 5,001,000 $ - $ - $ - $ 5,001,000
COSTS AND EXPENSE
Costs of revenue, exclusive of deprecation and amortization $ 3,271,000 $ - $ - $ - $ 3,271,000
Selling, general and administrative (including stock based compensation) 2,641,000 125,000 - - 2,766,000
Deprecation and amortization 360,000 - - - 360,000
Impairment of Goodwill 685,000 - - - 685,000
Total Operating Expense 6,957,000 125,000 - - 7,082,000
Operating Loss (1,956,000 ) (125,000 ) - - (2,081,000 )
OTHER INCOME (EXPENSE)
Interest Income 24,000 - - - 24,000
Interest Expense (39,000 ) - - - (39,000 )
Gain on Marketable Securities 4,000 - - - 4,000
Amortization of deferred financing costs a debt discount - - - - -
Financial Services - - - -
Loss from Security Investment by Equity Method - - - - -
Loss from Acquisition - - - - -
Total Other Expense (11,000 ) - - - (11,000 )
INCOME (LOSS) BEFORE INCOME TAX (1,967,000 ) (125,000 ) - - (2,092,000 )
INCOME TAX BENEFIT - - - - -
NET LOSS $ (1,967,000 ) $ (125,000 ) $ - $ - $ (2,092,000 )
Add: loss attributed to noncontrolling interest 67,000 41,000 - - 108,000
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (1,900,000 ) $ (84,000 ) $ - $ - $ (1,984,000 )
NOTE 1: Elimination of impactbio equity Investment in subsidiary 126,000
Accumulated Deficit 1,730,000
Common Stock 14,000
Additional Paid in Capital 1,802,000
Non-Controlling Interests 40,000
NOTE 2: Record goodwill Goodwill 78,441,000
Investment in subsidiary 49,874,000
Non-Controlling Interests 28,567,000
NOTE 3: DOCUMENT SECURITY SYSTEMS, INC. HAS ENGAGED AN INDEPENDENT VALUATION FIRM TO VALUE THE ASSETS OF IMPACT BIOMEDICAL, INC. AND ITS SUBSIDIARIES. FOR PURPOSES OF THIS PROFORMA, AND UNTIL THE VALUATION IS COMPLETE, THE PURCHASE PRICE OF $50 MILLION IS INCLUDED IN GOODWILL.
NOTE 4: Document Security Systems, Inc. is analyzing the accounting treatment of the perpetual convertible preferred shares offered and for the purposes of this proforma has assumed that the transaction will be recorded as an equity transaction. Also, DSS is evaluating the valuation of those shares and the quoted price of the common shares and face value of the perpetual convertible preferred shares have been assumed to be $50 million.
DOCUMENT SECURITY SYSTEMS.INC
Unaudited Pro Forma Condensed Consolidated Balance Sheet
December 31, 2019
Ended December 31, 2019
Pre-Acquisition
DSS (Purchaser) Record Purchase Post-acquisition
DSS (Purchaser) ImpactBio Medical, Inc.
(Target) Proforma Adjustment (Note 1) Proforma Adjustment (Note 2) Consolidated Financials
ASSETS
Current Assets:
Cash $ 1,096,000 $ 1,096,000 $ 109,000 $ 1,205,000
Accounts Receivable 4,212,000 4,212,000 - 4,212,000
Inventory 1,708,000 1,708,000 - 1,708,000
Prepaid Expense and other current assets 460,000 460,000 30,000 490,000
Total Current Assets 7,476,000 - 7,476,000 139,000 - - 7,615,000
Property plant and equipment, net 5,061,000 5,061,000 - 5,061,000
Investment 2,154,000 2,154,000 - 2,154,000
Investment in Target - 50,000,000 50,000,000 - (132,000 ) (49,868,000 ) -
Notes Receivable 793,000 793,000 - 793,000
Other assets 50,000 50,000 - 50,000
Right-of -use assets 1,223,000 1,223,000 - 1,223,000
Goodwill 2,454,000 2,454,000 - 78,435,000 80,889,000
Other intangible assets, net 935,000 935,000 - 935,000
Total Assets $ 20,146,000 $ 50,000,000 $ 70,146,000 $ 139,000 $ (132,000 ) $ 28,567,000 $ 98,720,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts Payable $ 1,492,000 $ 1,492,000 $ 7,000 $ 1,499,000
Accrued expenses and deferred revenue 936,000 936,000 936,000
Other current liabilities 390,000 390,000 390,000
Revolving line of credit 500,000 500,000 500,000
Current portion of lease liabilities 397,000 397,000 397,000
Current portion of long-term debt, net 441,000 441,000 441,000
Total Current Liabilities $ 4,156,000 $ - $ 4,156,000 $ 7,000 $ - $ - $ 4,163,000
Long-term debt, net 2,310,000 2,310,000 2,310,000
Long term lease liability 826,000 826,000 826,000
Other long-term liabilities 507,000 507,000 507,000
Deferred tax liability, net 44,000 44,000 44,000
Total Liabilities $ 7,843,000 $ - $ 7,843,000 $ 7,000 $ - $ - $ 7,850,000
-
Stockholders’ Equity -
Common Stock $ 24,000 $ 10,000 $ 34,000 $ - $ - $ 34,000
Convertible Preferred Stock - 46,868,000 46,868,000 - 46,868,000
Additional Paid in Capital 115,560,000 3,122,000 118,682,000 1,732,000 (1,732,000 ) 118,682,000
Accumulated Deficit (103,281,000 ) (103,281,000 ) (1,646,000 ) 1,646,000 (103,281,000 )
Total Stockholders’ Equity (Deficit) 12,303,000 50,000,000 62,303,000 86,000 (86,000 ) - 62,303,000
Non-Controlling Interests - 46,000 (46,000 ) 28,567,000 28,567,000
Total Stockholders’ Equity (Deficit) $ 12,303,000 $ 50,000,000 $ 62,303,000 $ 132,000 $ (132,000 ) $ 28,567,000 $ 90,870,000
-
Total Liabilities & Stockholders’ Equity $ 20,146,000 $ 50,000,000 $ 70,146,000 $ 139,000 $ (132,000 ) $ 28,567,000 $ 98,720,000
DOCUMENT SECURITY SYSTEMS.INC
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 2019
DSS
(Purchaser) Impact BioMedical (Target) Proforma Adjustment (Note 1) Proforma Adjustment (Note 2) Consolidated Proforma
Revenue:
Printed products $ 17,090,000 $ - $ - $ - $ 17,090,000
Technology sales, services and licensing 2,148,000 - 2,148,000
Direct selling 172,000 - 172,000
Total revenue $ 19,410,000 $ - $ - $ - $ 19,410,000
Costs and expense
Costs of revenue, exclusive of deprecation and amortization $ 12,602,000 $ - $ 12,602,000
Selling, general and administrative (including stock based compensation) 8,284,000 523,000 8,807,000
Deprecation and amortization 1,404,000 - 1,404,000
Total Operating Expense 22,290,000 523,000 - - 22,813,000
Operating Loss (2,880,000 ) (523,000 ) - - (3,403,000 )
Other Income (expense)
Interest Income 25,000 - 25,000
Interest Expense (157,000 ) - (157,000 )
Amortization of deferred financing costs a debt discount (2,000 ) - (2,000 )
Financial Services - (1,000 ) (1,000 )
Loss from Security Investment by Equity Method - (40,000 ) (40,000 )
Loss from Acquisition - (90,000 ) (90,000 )
Total Other Expense (134,000 ) (131,000 ) - - (265,000 )
Income (loss) before income tax (3,014,000 ) (654,000 ) - - (3,668,000 )
Income tax benefit (125,000 ) - (125,000 )
Net Loss $ (2,889,000 ) $ (654,000 ) $ - $ - $ (3,543,000 )
Add: loss attributed to noncontrolling interest - 200,000 200,000
Net Loss Attributable to Common Stockholders $ (2,889,000 ) $ (454,000 ) $ - $ - $ (3,343,000 )
Other comprehensive income (loss)
Interest rate swap loss (15,000 ) - (15,000 )
Settlement of Interest rate swap 22,000 - 22,000
Comprehensive income (loss) $ (2,882,000 ) $ (654,000 ) $ - $ - $ (3,536,000 )
Note 1: Elimination of ImpactBio equity Investment in subsidiary 132,000
Accumulated Deficit 1,646,000
Common Stock -
Additional Paid in Capital 1,732,000
Non-Controlling Interests 46,000
Note 2: Record goodwill Goodwill 78,435,000
Investment in subsidiary 49,868,000
Non-Controlling Interests 28,567,000
Note 3: Document Security Systems, Inc. has engaged an independent valuation firm to value the assets of Impact BioMedical, Inc. and its subsidiaries. For purposes of this proforma, and until the valuation is complete, the purchase price of $50 million is included in goodwill.
Note 4: Document Security Systems, Inc. is analyzing the accounting treatment of the perpetual convertible preferred shares offered and for the purposes of this proforma has assumed that the transaction will be recorded as an equity transaction. Also, DSS is evaluating the valuation of those shares and the quoted price of the common shares and face value of the perpetual convertible preferred shares have been assumed to be $50 million.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Amendment No.1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 27, 2020
DOCUMENT SECURITY SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
New York 001-32146 16-1229730
(State or other jurisdiction
of incorporation)
(Commission
File Number)
(IRS Employer
Identification No.)
200 Canal View Boulevard
Suite 300
Rochester, NY
14623
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (585) 325-3610
Not Applicable
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Ticker symbol(s) Name of each exchange on which registered
Common Stock, $0.02 par value per share DSS The NYSE American LLC
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Item 1.01 Entry into a Material Definitive Agreement.
As previously reported on a Current Report on Form 8-K filed on May 1, 2020 by Document Security Systems, Inc. (“DSS” or the “Company”), on April 27, 2020, the Board of Directors of the Company approved and the Company entered into a share exchange agreement (the “Share Exchange Agreement”) with DSS BioHealth Security, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“DBHS”), Singapore eDevelopment Limited, a Singapore corporation (“SeD”) that is listed on the Singapore Exchange, and Global BioMedical Pte Ltd, a Singapore corporation and wholly owned subsidiary of SeD (“GBM”), pursuant to which, among other things and subject to the terms and conditions contained therein, including both the Company and SeD having obtained approvals from their respective shareholders, DBHS will acquire all of the outstanding capital stock (the “Impact Shares”) of Impact BioMedical Inc., a Nevada corporation and wholly owned subsidiary of GBM (“Impact BioMedical”) through a share exchange, with Impact BioMedical becoming a direct wholly owned subsidiary of the DBHS.
The Company is filing this amendment to the above-referenced Form 8-K to provide the: (i) audited consolidated financial statements of Impact BioMedical, which include the consolidated balance sheets as of December 31, 2019 and December 31, 2018, the consolidated statement of operations for the years ended December 31, 2019 and December 31, 2018, the consolidated statements of stockholders’ equity for the years ended December 31, 2019 and December 31, 2018, the consolidated statements of cash flows for the years ended December 31, 2019 and December 31, 2018 and the notes related thereto (collectively, the “Audited Consolidated Financial Statements”); and (ii) unaudited condensed interim consolidated financial statements of Impact BioMedical, which include the consolidated balance sheets as of March 31, 2020 and December 31, 2019, the consolidated statement of operations for the three months ended March 31, 2020 and December 31, 2019, the consolidated statements of stockholders’ equity for the period ended March 31, 2020 and March 31, 2019, the consolidated statements of cash flows for the three months ended March 31, 2020 and March 31 ,2019, and the notes related thereto (collectively, the “Interim Unaudited Consolidated Financial Statements”), and (iii) DSS and Impact BioMedical’s unaudited pro forma condensed combined financial statements, which include the unaudited pro forma condensed combined balance sheet as of March 31, 2020 and December 31, 2019, the unaudited pro forma condensed combined statement of operations for the three months ended March 31, 2020 and for the year ended December 31, 2019, and the notes related thereto (collectively, the “Unaudited Pro Forma Condensed Combined Financial Statements”).
2
Item 9.01 Financial Statements and Exhibits
(a) Financial statements of businesses to be acquired.
The Audited Consolidated Financial Statements, and the Interim Unaudited Consolidated Financial Statements are included as Exhibits 99.1 and 99.2, respectively, to this Amended Form 8-K and incorporated herein by reference.
(b) Pro forma financial information.
The Unaudited Pro Forma Condensed Combined Financial Statements of DSS and Impact BioMedical are filed herewith as Exhibit 99.3 to this Amended Form 8-K and incorporated herein by reference.
(d) Exhibits.
Exhibit
Number Exhibit
99.1
Impact BioMedical’s Audited Consolidated Financial Statements and the notes related thereto.
99.2 Impact BioMedical’s Interim Unaudited Consolidated Financial Statement and the notes related thereto.
99.3 Unaudited Pro Forma Condensed Combined Financial Statements of DSS and Impact BioMedical and the notes related thereto
3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 8-K to be signed on its behalf by the undersigned hereunto duly authorized.
DOCUMENT SECURITY SYSTEMS, INC.
Dated: June 8, 2020 By: /s/ Frank D. Heuszel
Name: Frank D. Heuszel
Title: Chief Executive Officer and Interim Chief Financial Officer
4
Exhibit 99.1
REPORT OF INDEPENDENT AUDITORS
AND FINANCIAL STATEMENTS
Impact BioMedical Inc and Subsidiaries
December 31, 2019 and 2018
Table of Contents
PAGE
Report of Independent Registered Public Accounting Firm 2
Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders’ Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Director and Stockholders of Impact BioMedical Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Impact BioMedical Inc. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018 and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the results of its consolidated operations and its consolidated cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Turner, Stone & Company, L.L.P.
Dallas, Texas
May 4, 2020
We have served as the Company’s auditor since 2020.
Impact BioMedical Inc and Subsidiaries
Consolidated Balance Sheets
Impact Biomedical Inc. and Subsidiaries
Consolidated Balance Sheet
December 31, December 31,
2019 2018
Asset
Cash $ 108,731 $ 35,375
Prepaid Expense 30,700 22,761
Investment in Security by Equity Method 5,312
Total Asset $ 139,431 $ 63,448
Liabilities
Accounts Payable $ 7,021 $ 77,018
Total Liabilities $ 7,021 $ 77,018
Stockholders’ Equity
Common Stock, $0.001 Par Value,
100,000,000 shares authorized,
1,000 Issued and Outstanding $ 1 $ 1
Additional Paid In Capital 1,732,590 1,183,135
Accumulated Deficit (1,646,208 ) (1,191,772 )
Total Stockholders’ Equity (Deficit) 86,383 (8,636 )
Non-Controlling Interests 46,027 (4,934 )
Total Stockholders’ Equity (Deficit) $ 132,410 $ (13,570 )
Total Liabilities & Stockholders’ Equity $ 139,431 $ 63,448
2
Impact BioMedical Inc and Subsidiaries
Consolidated Statement of Operations
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Operations
For the Year Ended December 31, 2019 and 2018
2019 2018
Operating Expense
Research & Development $ 340,628 $ 634,312
Professional Services 143,933 373,394
Marketing 5,000 25,950
Other General Expense 33,600 20,931
Total Operating Expense 523,161 1,054,587
Other Expense
Financial Services 544 683
Loss from Security Investment by Equity Method 40,314 49,688
Loss from Acquisition 90,001 -
Total Other Expense 130,859 50,371
Net Loss $ (654,020 ) $ (1,104,958 )
Net Loss Attributable to Non-Controlling Interests (199,584 ) (401,803 )
Net Loss Attributable to Common Stockholders $ (454,437 ) $ (703,155 )
Net Loss Per Share - Basic and Diluted $ (454.44 ) $ (703.15 )
Weighted Average Common Shares Outstanding - Basic and Diluted 1,000 1,000
3
Impact BioMedical Inc and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Deficit)
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Deficit)
For the Years Ended on December 31, 2019 and 2018
Common Stock Additional
Non-
Total
Shares Par Value
$0.001
Paid in
Capital
Accumulated
Deficit
controlling
Interests
Stockholders
Equity
Balance at January 1, 2018 1,000 $ 1 $ 539,731 $ (488,616 ) $ 29,209 $ 80,324
Proceeds from Shareholders 643,404 367,660 1,011,064
Net loss (703,155 ) (401,803 ) (1,104,958 )
Balance at December 31, 2018 1,000 $ 1 $ 1,183,135 $ (1,191,772 ) $ (4,934 ) $ (13,570 )
Proceeds from Shareholders 549,455 250,545 800,000
Net Loss (454,436 ) (199,584 ) (654,020 )
Balance at December 31, 2019 1,000 $ 1 $ 1,732,590 $ (1,646,208 ) $ 46,027 $ 132,410
4
Impact BioMedical Inc and Subsidiaries
Consolidated Statements of Cash Flows
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2019 and 2018
2019 2018
Cash Flows From Operating Activities
Net Loss from Operations $ (654,020 ) $ (1,104,958 )
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Loss from Acquisition 90,001 -
Loss from Investment in Security by Equity Method 40,314 49,688
Changes in Operating Assets and Liabilities
Prepaid Expense (7,940 ) 1,566
Accounts Payable (81,157 ) (45,145 )
Net Cash Used in Operating Activities (612,802 ) (1,098,849 )
Cash Flows From Investing Activities
Acquisition of Securities (91,000 ) -
Cash from Acquistion 13,158 -
Investment in Joint Venture (36,000 ) (55,000 )
Net Cash Used in Investing Activities (113,842 ) (55,000 )
Cash Flows From Financing Activities
Proceeds from Shareholders 800,000 986,064
Net Cash Provided by Financing Activities 800,000 986,064
Net Increase (Decrease) in Cash 73,356 (167,785 )
Cash - Beginning of Year 35,375 178,160
Cash - End of Year $ 108,731 $ 10,375
Non Cash Investmnet in Joint Venture $ - $ 25,000
5
IMPACT BioMedical Inc and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 – Nature of Operations and Basis of Presentation
Nature of Operations
Impact BioMedical Inc (the “Company”) was incorporated in the State of Nevada as a for-profit company on October 16, 2018 and established a fiscal year end of December 31st. The Company issued 1,000 shares to Global BioMedical Pte. Ltd., which is wholly–owned by Singapore eDevelopment Limited (“SeD Ltd”), a multinational public company, listed on the Singapore Exchange Securities Trading Limited (“SGXST”).
The Company is committed to both funding research and developing intellectual property portfolio. Global BioLife, Inc. (“Global BioLife”), one of the Company’s subsidiaries and the main operating company of the group, focuses 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. Global BioLife established a joint venture, Sweet Sense, Inc. (“Sweet Sense”), with Quality Ingredients, LLC for the development, manufacture, and global distribution of the new sugar substitute and owns 50% of Sweet Sense. On November 8, 2019, the Company purchased 50% of Sweet Sense, Inc. from Quality Ingredients, LLC for $91,000. Sweet Sense is now an 81.8% owned subsidiary of the Company.
Basis of Presentation and Principles of Consolidation
The Common Control Transactions resulted in the basis of accounting for the financial reporting period in 2018. The consolidated financial statements were retrospectively adjusted for the operating results of Global Biolife as of January 1, 2018 for comparative purposes as the entities were under common control. ASC 805-50-45 defines the transfer of a business among entities under common control at carrying amount with retrospective adjustment of prior period financial statements when reporting entity is changed. ASC 250 defines a change in the reporting entity as a change that results in financial statements that, in effect, are those of a different reporting entity. The Management believed that the acquisitions of Global BioMedical, Inc. and Global Biolife led to change in the reporting entity.
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include all accounts of the Company and its majority owned and controlled subsidiaries. The Company consolidates entities in which it owns more than 50% of the voting common stock and controls operations. All intercompany transactions and balances among consolidated subsidiaries have been eliminated.
The consolidated financial statements include all accounts of the entities as of the reporting period ending dates and for the reporting periods as follows:
State or other Attributable Attributable
Name of consolidated jurisdiction of
incorporation or Date of incorporation interest as of
December 31, interest as of
December 31,
subsidiary organization or formation 2019 2018
Global BioMedical, Inc. Nevada April, 18, 2017 90.9 % 90.9 %
Global BioLife, Inc. Nevada April 14, 2017 63.6 % 63.6 %
Biolife Sugar, Inc Nevada April 23, 2018 63.6 % 63.6 %
Happy Sugar Inc Nevada August 17, 2018 63.6 % 63.6 %
Sweet Sense Inc. Nevada April 30, 2018 81.8 % 31.8 %
SeD BioLife International, Inc. Nevada March 29, 2017 100 % 100 %
SeD BioMedical International Inc. Nevada March 13, 2017 100 % 100 %
Global Sugar Solutions Inc. Nevada November 7, 2019 80 % n/a
6
IMPACT BioMedical Inc and Subsidiaries
Notes to Consolidated Financial Statements
All intercompany balances and transactions have been eliminated. Non–controlling interest represents the minority equity investment in the Company’s subsidiaries, plus the minority investors’ share of the net operating results and other components of equity relating to the non–controlling interest.
As of December 31, 2019 and 2018, the aggregate noncontrolling interest was $46,027 and a deficit of $4,934, respectively, which are separately disclosed on the Consolidated Balance Sheet.
On the date of incorporation, Global BioLife issued 800 shares to Global BioMedical. Inc., 100 shares to GRDG Sciences, LLC (“GRDG”) and 100 to Holista Colltech Limited. Based on the Global BioLife’s Stockholders Agreement signed on April 26, 2017, Global BioMedical Inc agreed to transfer 10% of it’s ownership in Global BioLife to GRDG Sciences, LLC upon successful completion of certain goals. GRDG Sciences, LLC fulfilled required goals and 100 shares was transferred on September 12, 2017.
On November 7, 2018, the Company entered into two Capital Contribution Agreements. First Capital Contribution Agreement (“GBMI Agreement”), was entered between the Company, Global BioMedical Pte. Ltd. (“Global BioMedical”), a Singapore limited company, and Global BioMedical. Inc. (“GBMI”), a Nevada corporation. Prior to this agreement Global BioMedical owned 90.91% of the issued and outstanding capital equity in GBMI and 100% of issued and outstanding shares of the Company. Based on GBMI Agreement, Global BioMedical contributed all of its ownership in GBMI to the Company. Another Capital Contribution Agreement (“SeD BioLife Agreement”) was entered between the Company, Global BioMedical and SeD BioLife International, Inc. (“SeD BioLife”), a Nevada Corporation. Prior to this agreement Global BioMedical owned 100% of the issued and outstanding capital equity in SeD BioLife. Based on the SeD BioLife Agreement, Global BioMedical contributed all its ownership in SeD BioLife to the Company.
Note 2 – Summary of Significant Accounting and Reporting Policy
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the balance sheets and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.
Earnings (Loss) per Share
Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders by weighted average number of shares of common stock outstanding during the period. Fully diluted earnings (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive financial instruments issued or outstanding for the periods ended December 31, 2019 or 2018.
Fair Value of Financial Instruments
For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents. There were no cash equivalents as of December 31, 2019 and December 31, 2018.
7
IMPACT BioMedical Inc and Subsidiaries
Notes to Consolidated Financial Statements
Investment in Securities Under Equity Method Accounting
BioLife Sugar, Inc. (“BioLife”), a subsidiary consolidated under the Company, entered into a joint venture agreement on April 25, 2018 with Quality Ingredients, LLC (“QI”). The agreement created Sweet Sense which is 50% owned by BioLife and 50% owned by QI. Management believes its 50% investment represents significant influence over Sweet Sense and accounts for the investment under the equity method of accounting. As of December 31, 2018, BioLife contributed $55,000 to the joint venture and recorded its proportionate share losses totaling $49,687 recorded as loss on investment in security by equity method in the Consolidated Statements of Operations. As of November 08, 2019, the total investment in joint venture was equal to $91,000 and the proportionate losses totaled $90,001.
On November 8, 2019, Impact BioMedical Inc., a subsidiary of the Company, purchased 50% of Sweet Sense from QI for $91,000. Consequently, Sweet Sense is now an 81.8% owned subsidiary of the Company, and therefore, is now consolidated into the consolidated financial statements.
Research and Development
Research and development costs are expensed as incurred. Total research and development costs were $340,628 and $634,312 for the years ended December 31, 2019 and 2018, respectively.
Income taxes
Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carry-forwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records an estimated valuation allowance on its deferred income tax assets if it is more likely than not that these deferred income tax assets will not be realized.
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company has not recorded any unrecognized tax benefits. The Company’s policy is to recognize interest and penalties related to income taxes in income tax expense.
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before the financial statements are available to be issued.
The Company’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements are available to be issued.
Recent Accounting Standards
Financial Instruments
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) FASB ASU 2016-01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities – The changes to the current U.S. GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments.
8
IMPACT BioMedical Inc and Subsidiaries
Notes to Consolidated Financial Statements
Non-Controlling Interests
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). ASU 2017-11 is intended to simplify the accounting for financial instruments with characteristics of liabilities and equity. Among the issues addressed are: (i) determining whether an instrument (or embedded feature) is indexed to an entity’s own stock; (ii) distinguishing liabilities from equity for mandatorily redeemable financial instruments of certain nonpublic entities; and (iii) identifying mandatorily redeemable noncontrolling interests. The Company adopted ASU 2017-11 on January 1, 2019 and determined that this ASU did not have a material impact on the consolidated financial statements.
Note 2. Prepaid Expenses
Prepaid expenses for the years ended December 31, 2019 and 2018 include mostly research and development fees paid to GRDG in the amounts of $30,700 and $22,761, respectively.
Note 3. Shareholders’ Equity
On October 16, 2018, 1,000 shares of common stock were issued to Global BioMedical Pte. Ltd.
On November 21, 2018 the Company increased its authorized shares from 10,000 to 100,000,000 common shares with a par value of $0.001 per share. No preferred shares have been authorized or issued.
Note 5. Related Party Transactions
Research and Development Activities
Based on Shareholders Agreement entered into on April 26, 2017, the Company should fund the scientific operations of GRDG, a company involved in research and development of biomedical products and owned by Daryl Thompson, a director of many subsidiaries of the Company, to do the development and research works on the biomedical products for the Company. Initial monthly payments were agreed to be $20,994 plus any additional amounts that would be necessary and agreed by the Board of Directors. The monthly payments were adjusted for the increase in rent of GRDG office and general inflation. Current monthly payments equal to $23,319. The Company incurred expenses of $303,071 and $ 285,573 for the years ended December 31, 2019 and 2018, respectively. On December 31, 2019 and December 31, 2018, the Company owed this related party $0 and had prepaid monthly fees of $30,700 and $22,761, respectively.
Administrative and Accounting Services
SeD Development Management, LLC, an indirect subsidiary of SeD Ltd, provides administrative and accounting services to the Company and its subsidiaries. The Company incurred expenses of $6,000 and $4,000 for the years ended December 31, 2019 and 2018, respectively. On December 31, 2019 and December 31, 2018, the Company owed this related party $0.
9
IMPACT BioMedical Inc and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Commitments and Contingencies
Leases
At December 31, 2019, Impact BioMedical, Inc. had not entered into any leases, as the Company had no employees.
Royalty Agreement
On August 15, 2018, the Company entered into Royalty Agreement with Chemia Corporation (“Chemia”) pursuant to which Chemia transferred to the Company all of its right to 3F (Functional Fragrance Formulation). 3F consists of 3F Mosquito Repellant and 3F Anti-Viral formulations. Based on the Royalty Agreement, the Company should cover all the costs to prepare and finalize necessary patent application and other intellectual property related to 3F. Chemia agreed to support the Company in efforts leading to development of 3F intellectual property and it’s licensing. Based on Royalty Agreement any payments received from development, sales, licensing or transfer of 3F technology will be paid 50% to the Company and 50% to Chemia. On November 27, 2018, Company and Chemia signed an Addendum to Royalty Agreement (“Addendum”), according to which the Company granted Chemia a royalty-based limited license for purposes of making and selling fragrances embodying the 3F technology. Based on the Addendum, Chemia should pay the Company 5% of net sales in royalty. On November 8, 2019, both companies entered into Amendment no.1 to Royalty Agreement, based on which certain expenses bore by the Company towards patent application and licensing should be reimbursed to the Company before any royalty payments are made. As on December 31 2019 and 2018 there were no reimbursements or royalties paid to the Company and the Company cannot be assured that Chemia’s efforts will end up in any future sales of the technology.
Note 7 – Income Taxes
On December 22, 2017, the “Tax Cuts and Jobs Act” (TCJA) was signed into law that significantly reformed the Internal Revenue Code of 1986, as amended. The TCJA reduces the corporate tax rate to 21 percent beginning with years starting January 1, 2018. The deferred tax assets and liabilities have been adjusted to the newly enacted U.S. corporate rate and the related impact to the tax expense has been recognized in the current year.
The components of income tax expense and the effective tax rates for the years ended December 31, 2019 and 2018 are as follows:
Year Ended December 31,
2019 2018
Current:
Federal $ - $ -
State - -
Total Current - -
Deferred:
Federal (530,629 ) (393,285 )
State (151,034 ) (122,106 )
Total Deferred (681,663 ) (515,390 )
Valuation Allowance 681,663 515,390
Total Incom Tax Expense $ - $ -
Pre-tax Loss $ (645,020 ) $ (1,104,958 )
Effective Income Tax Rate 0 % 0 %
10
IMPACT BioMedical Inc and Subsidiaries
Notes to Consolidated Financial Statements
A reconciliation of our income tax expense at federal statutory income tax rate of 21% to our income tax expense at the effective tax rate is as follows:
Year Ended December 31,
2019 2018
Tax at the Statutory Federal Rate $ (137,344 ) $ (232,041 )
State Income Taxes (Net of Federal Benefit) (28,929 ) (72,043 )
Changes in Valutation Allowance, Net 166,273 304,084
Total Income Tax Expense $ - $ -
Deferred tax assets consist of the following at December 31, 2019 and 2018:
Year Ended December 31,
2019 2018
Net Operating Loss 681,663 515,390
681,663 515,390
Valuation Allowance (681,663 ) (515,390 )
Net Deferred Tax Asset - -
As of December 31, 2019 and 2018, the Company has net operating loss carry-forwards of $2,526,804and $1,872,784, respectively. The Company does not have other temporary differences. As of December 31, 2019 and 2018, the total deferred tax assets carry-forward were $681,663 and $515,390, respectively. The deferred tax assets could be carried forward for 20 years. The full utilization of the deferred tax assets in the future is dependent upon the Company’s ability to generate taxable income. Considering the development stage of the Company, management believed that it was probable that the Company would not use tax assets in the near future. Accordingly, a valuation allowance of an equal amount has been established. As of the years ended December 31, 2019 and 2018, the valuation allowance were $681,663 and $515,390, respectively. During the year ended December 31, 2019, the valuation allowance increased by $166,273. No deferred tax assets were recorded on years ended December 31, 2019 and 2018.
The federal income tax returns of the Company are subject to examination by the IRS, generally for three years after they are filed. The tax returns for the years ended December 31, 2018 and 2017 are still subject to examination by the taxing authorities.
Note 8 – Subsequent Events
On March 31, 2020 the Company issued 13,896,069 shares of common stock to its sole shareholder Global BioMedical Pte. Ltd. in consideration of the $2,779,214 invested in the Company.
On March 12, 2020 Singapore eDevelopment Ltd., Global BioMedical Pte Ltd., Document Security Systems, Inc (“DSS”) and DSS BioHealth Security Inc. (“DSS BioHealth”) signed Term Sheets and subsequently on April 21, 2020, these four companies entered into Share Exchange Agreement, based on which Global BioMedical Pte Ltd. agreed to sell all of the issued and outstanding shares of the Company to DSS BioHealth in exchange for the combination of common and preferred shares of DSS. The closing of this transaction is contingent upon DSS shareholders’ approval and all parties meeting the conditions of the Share Exchange Agreement. Our Company’s Chairman, who is also the largest shareholder of Singapore eDevelopment Ltd., is the beneficial owner of approximately 36.97% of the outstanding shares of DSS and is the Chairman of the Board of Directors of DSS. The Company is currently supporting Global BioMedical Pte Ltd. in meeting the closing conditions.
11
Exhibit 99.2
FINANCIAL STATEMENTS
Impact BioMedical Inc and Subsidiaries
March 31, 2020 (Unaudited)
Table of Contents
PAGE
Consolidated Financial Statements
Consolidated Balance Sheets (unaudited) 2
Consolidated Statements of Operations (unaudited) 3
Consolidated Statements of Stockholders’ Equity (unaudited) 4
Consolidated Statements of Cash Flows (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
1
Impact BioMedical Inc and Subsidiaries
Consolidated Balance Sheets
Impact Biomedical Inc. and Subsidiaries
Consolidated Balance Sheet
(Unaudited)
March 31, 2020 December 31, 2019
Asset
Cash $ 130,115 $ 108,731
Prepaid Expense 23,319 30,700
Total Asset $ 153,434 $ 139,431
Liabilities
Accounts Payable $ 26,601 $ 7,021
Total Liabilities $ 26,601 $ 7,021
Stockholders’ Equity
Common Stock, $0.001 Par Value, 100,000,000 shares authorized, 13,897,069 and 1,000 Issued and Outstanding as of March 31, 2020 and December 31, 2019, respectively $ 13,897 $ 1
Additional Paid In Capital 1,802,330 1,732,590
Accumulated Deficit (1,729,966 ) (1,646,208 )
Total Stockholders’ Equity 86,261 86,383
Non-Controlling Interests 40,572 46,027
Total Stockholders’ Equity $ 126,833 $ 132,410
Total Liabilities & Shareholder’s Equity $ 153,434 $ 139,431
2
Impact BioMedical Inc and Subsidiaries
Consolidated Statements of Operations
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three Months Ended March 31, 2020 and 2019
(Unaudited)
2020 2019
Operating Expense
Research & Development $ 71,967 $ 106,123
Professional Services 51,325 4,645
Other General Expense 2,178 1,975
Total Operating Expense 125,470 112,743
Other Expense
Financial Services 107 76
Loss from Security Investment by Equity Method - 3,206
Total Other Expense 107 3,282
Net Loss $ (125,577 ) $ (116,024 )
Net Loss Attributable to Non-Controlling Interests (41,819 ) (32,484 )
Net Loss Attributable to Common Stockholders $ (83,758 ) $ (83,540 )
Net Loss Per Share - Basic and Diluted $ (0.19 ) $ (83.54 )
Weighted Average Common Shares Outstanding - Basic and Diluted 449,260 1,000
3
Impact BioMedical Inc and Subsidiaries
Consolidated Statements of Stockholders’ Equity (Deficit)
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the Period Ended on March 31, 2020 (Unaudited)
Common Stock Additional Non- Total
Shares
Par Value
$0.001
Paid
in Capital
Accumulated
Deficit
controlling
Interests
Stockholders
Equity
Balance at January 1, 2020 1,000 $ 1 $ 1,732,590 $ (1,646,208 ) $ 46,027 $ 132,410
Issue Shares to the Shareholder at Par Value $0.001 per share 13,896,069 13,896 (13,896 ) -
Proceeds from the Shareholder 83,636 36,364 120,000
Net loss (83,758 ) (41,819 ) (125,577 )
Balance at March 31, 2020 13,897,069 $ 13,897 $ 1,802,330 $ (1,729,966 ) $ 40,572 $ 126,833
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the Period Ended on March 31, 2019 (Unaudited)
Common Stock Additional Non- Total
Par Value Paid in Accumulated controlling Stockholders
Shares $0.001 Capital Deficit Interests Equity
Balance at January 1, 2019 1,000 $ 1 $ 1,183,135 $ (1,191,772 ) $ (4,934 ) $ (13,570)
Proceeds from the Shareholder 127,273 72,727 200,000
Net loss (83,539 ) (32,484 ) (116,024 )
Balance at March 31, 2019 1,000 $ 1 $ 1,310,408 $ (1,275,311 ) $ 35,308 $ 70,406
4
Impact BioMedical Inc and Subsidiaries
Consolidated Statements of Cash Flows
Impact Biomedical Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Month Ended March 31, 2020 and 2019
(Unaudited)
2020 2019
Cash Flows From Operating Activities
Net Loss from Operations $ (125,577 ) $ (116,024 )
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Loss from Investment on Security by Equity Method Changes in Operating Assets and Liabilities - 3,205
Prepaid Expense 7,381 -
Trade Payable 19,580 (50,326 )
Net Cash Used in Operating Activities (98,616 ) (163,145 )
Cash Flows From Financing Activities
Proceeds from Shareholders 120,000 200,000
Net Cash Provided by Financing Activities 120,000 200,000
Net Increase in Cash 21,384 36,855
Cash - Beginning of Year 108,731 35,375
Cash - End of Period $ 130,115 $ 72,230
5
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 – Nature of Operations and Basis of Presentation
Nature of Operations
Impact BioMedical Inc (the “Company”) was incorporated in the State of Nevada as a for-profit company on October 16, 2018 and established a fiscal year end of December 31st. The Company issued 1,000 shares to Global BioMedical Pte. Ltd., which is wholly–owned by Singapore eDevelopment Limited (“SeD Ltd”), a multinational public company, listed on the Singapore Exchange Securities Trading Limited (“SGXST”).
The Company is committed to both funding research and developing intellectual property portfolio. Global BioLife, Inc. (“Global BioLife”), one of the Company’s subsidiaries and the main operating company of the group, focuses 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. Global BioLife established a joint venture, Sweet Sense, Inc. (“Sweet Sense”), with Quality Ingredients, LLC for the development, manufacture, and global distribution of the new sugar substitute and owns 50% of Sweet Sense. On November 8, 2019, the Company purchased 50% of Sweet Sense, Inc. from Quality Ingredients, LLC for $91,000. Sweet Sense is now an 81.8% owned subsidiary of the Company.
Basis of Presentation and Principles of Consolidation
The Common Control Transactions resulted in the basis of accounting for the financial reporting period in 2018. The consolidated financial statements were retrospectively adjusted for the operating results of Global Biolife as of January 1, 2018 for comparative purposes as the entities were under common control. ASC 805-50-45 defines the transfer of a business among entities under common control at carrying amount with retrospective adjustment of prior period financial statements when reporting entity is changed. ASC 250 defines a change in the reporting entity as a change that results in financial statements that, in effect, are those of a different reporting entity. The Management believed that the acquisitions of Global BioMedical, Inc. and Global Biolife led to change in the reporting entity.
The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include all accounts of the Company and its majority owned and controlled subsidiaries. The Company consolidates entities in which it owns more than 50% of the voting common stock and controls operations. All intercompany transactions and balances among consolidated subsidiaries have been eliminated.
The consolidated financial statements include all accounts of the entities as of the reporting period ending dates and for the reporting periods as follows:
Name of consolidated subsidiary
State or other jurisdiction of incorporation or
organization
Date of incorporation or formation
Attributable interest as of
March 31,
2020
Attributable interest as of December 31,
2019
Global BioMedical, Inc. Nevada April, 18, 2017 90.9 % 90.9 %
Global BioLife, Inc. Nevada April 14, 2017 63.6 % 63.6 %
Biolife Sugar, Inc Nevada April 23, 2018 63.6 % 63.6 %
Happy Sugar Inc Nevada August 17, 2018 63.6 % 63.6 %
Sweet Sense Inc. Nevada April 30, 2018 81.8 % 81.8 %
SeD BioLife International, Inc. Nevada March 29, 2017 100 % 100 %
SeD BioMedical International Inc. Nevada March 13, 2017 100 % 100 %
Global Sugar Solutions Inc. Nevada November 7, 2019 80 % 80 %
6
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
All intercompany balances and transactions have been eliminated. Non–controlling interest represents the minority equity investment in the Company’s subsidiaries, plus the minority investors’ share of the net operating results and other components of equity relating to the non–controlling interest.
As of March 31, 2020 and December 31, 2019, the aggregate noncontrolling interest was $40,527 and $46,027, respectively, which are separately disclosed on the Consolidated Balance Sheet.
On the date of incorporation, Global BioLife issued 800 shares to Global BioMedical. Inc., 100 shares to GRDG Sciences, LLC (“GRDG”) and 100 to Holista Colltech Limited. Based on the Global BioLife’s Stockholders Agreement signed on April 26, 2017, Global BioMedical Inc agreed to transfer 10% of its ownership in Global BioLife to GRDG Sciences, LLC upon successful completion of certain goals. GRDG Sciences, LLC fulfilled required goals and 100 shares was transferred on September 12, 2017.
On November 7, 2018, the Company entered into two Capital Contribution Agreements. First Capital Contribution Agreement (“GBMI Agreement”), was entered between the Company, Global BioMedical Pte. Ltd. (“Global BioMedical”), a Singapore limited company, and Global BioMedical. Inc. (“GBMI”), a Nevada corporation. Prior to this agreement Global BioMedical owned 90.91% of the issued and outstanding capital equity in GBMI and 100% of issued and outstanding shares of the Company. Based on GBMI Agreement, Global BioMedical contributed all of its ownership in GBMI to the Company. Another Capital Contribution Agreement (“SeD BioLife Agreement”) was entered between the Company, Global BioMedical and SeD BioLife International, Inc. (“SeD BioLife”), a Nevada Corporation. Prior to this agreement Global BioMedical owned 100% of the issued and outstanding capital equity in SeD BioLife. Based on the SeD BioLife Agreement, Global BioMedical contributed all its ownership in SeD BioLife to the Company.
Note 2 – Summary of Significant Accounting and Reporting Policy
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the balance sheets and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates.
Earnings (Loss) per Share
Basic earnings (loss) per share is computed by dividing the net income (loss) attributable to the common stockholders by weighted average number of shares of common stock outstanding during the period. Fully diluted earnings (loss) per share is computed similar to basic income (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. There were no dilutive financial instruments issued or outstanding for the periods ended March 31, 2020 or December 31, 2019.
Fair Value of Financial Instruments
For purpose of this disclosure, the fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents. There were no cash equivalents as of March 31, 2020 and December 31, 2019.
7
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Investment in Securities Under Equity Method Accounting
BioLife Sugar, Inc. (“BioLife”), a subsidiary consolidated under the Company, entered into a joint venture agreement on April 25, 2018 with Quality Ingredients, LLC (“QI”). The agreement created Sweet Sense which is 50% owned by BioLife and 50% owned by QI. Management believes its 50% investment represents significant influence over Sweet Sense and accounts for the investment under the equity method of accounting. As of December 31, 2018, BioLife contributed $55,000 to the joint venture and recorded its proportionate share losses totaling $49,687 recorded as loss on investment in security by equity method in the Consolidated Statements of Operations. As of November 08, 2019, the total investment in joint venture was equal to $91,000 and the proportionate losses totaled $90,001.
On November 8, 2019, the Company purchased 50% of Sweet Sense from QI for $91,000. Consequently, Sweet Sense is now an 81.8% owned subsidiary of the Company, and therefore, is now consolidated into the consolidated financial statements.
Research and Development
Research and development costs are expensed as incurred. Total research and development costs were $71,967 and $106,123 for the three months ended March 31, 2020 and 2019, respectively.
Income taxes
Deferred income tax assets and liabilities are determined based on the estimated future tax effects of net operating loss and credit carry-forwards and temporary differences between the tax basis of assets and liabilities and their respective financial reporting amounts measured at the current enacted tax rates. The Company records an estimated valuation allowance on its deferred income tax assets if it is more likely than not that these deferred income tax assets will not be realized.
The Company recognizes a tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company has not recorded any unrecognized tax benefits. The Company’s policy is to recognize interest and penalties related to income taxes in income tax expense.
Subsequent Events
Subsequent events are events or transactions that occur after the balance sheet date but before the financial statements are available to be issued.
The Company’s financial statements do not recognize subsequent events that provide evidence about conditions that did not exist at the date of the balance sheet but arose after the balance sheet date and before financial statements are available to be issued.
Recent Accounting Standards
Financial Instruments
The Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) FASB ASU 2016- 01 – Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities – The changes to the current U.S. GAAP model primarily affect the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments.
8
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Non-Controlling Interests
In July 2017, the FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (“ASU 2017-11”). ASU 2017-11 is intended to simplify the accounting for financial instruments with characteristics of liabilities and equity. Among the issues addressed are: (i) determining whether an instrument (or embedded feature) is indexed to an entity’s own stock; (ii) distinguishing liabilities from equity for mandatorily redeemable financial instruments of certain nonpublic entities; and (iii) identifying mandatorily redeemable noncontrolling interests. The Company adopted ASU 2017-11 on January 1, 2019 and determined that this ASU did not have a material impact on the consolidated financial statements.
Note 2. Prepaid Expenses
Prepaid expenses for the three months ended March 31, 2020 and year ended December 31, 2019 include mostly research and development fees paid to GRDG in the amounts of $23,319 and $30,700, respectively.
Note 3. Shareholders’ Equity
On October 16, 2018, 1,000 shares of common stock were issued to Global BioMedical Pte. Ltd.
On November 21, 2018 the Company increased its authorized shares from 10,000 to 100,000,000 common shares with a par value of $0.001 per share. No preferred shares have been authorized or issued.
On March 31, 2020 the Company issued 13,896,069 shares of common stock to its sole shareholder Global BioMedical Pte. Ltd.
Note 5. Related Party Transactions
Research and Development Activities
Based on Shareholders Agreement entered into on April 26, 2017, the Company should fund the scientific operations of GRDG, a company involved in research and development of biomedical products and owned by Daryl Thompson, a director of many subsidiaries of the Company, to do the development and research works on the biomedical products for the Company. Initial monthly payments were agreed to be $20,994 plus any additional amounts that would be necessary and agreed by the Board of Directors. The monthly payments were adjusted for the increase in rent of GRDG office and general inflation. Current monthly payments equal to $23,319. The Company incurred expenses of $79,516 and $ 70,258 for the three months ended March 31, 2020 and 2019, respectively. On March 31, 2020 and December 31, 2019 the Company owed this related party $0 and had prepaid monthly fees of $30,700 and $18,116, respectively.
Administrative and Accounting Services
SeD Development Management, LLC, an indirect subsidiary of SeD Ltd, provided administrative and accounting services to the Company and its subsidiaries. The Company incurred expenses of $0 and $1,500 for the three months ended March 31, 2020 and 2019, respectively. On March 31, 2020 and December 31, 2019, the Company owed this related party $0. As of January 1, 2020, both parties agreed to stop paying the service fee.
9
IMPACT Biomedical, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 6 - Commitments and Contingencies
Leases
At March 31, 2020, Impact BioMedical, Inc. had not entered into any leases, as the Company had no employees.
Royalty Agreement
On August 15, 2018, the Company entered into Royalty Agreement with Chemia Corporation (“Chemia”) pursuant to which Chemia transferred to the Company all of its right to 3F (Functional Fragrance Formulation). 3F consists of 3F Mosquito Repellant and 3F Anti-Viral formulations. Based on the Royalty Agreement, the Company should cover all the costs to prepare and finalize necessary patent application and other intellectual property related to 3F. Chemia agreed to support the Company in efforts leading to development of 3F intellectual property and it’s licensing. Based on Royalty Agreement any payments received from development, sales, licensing or transfer of 3F technology will be paid 50% to the Company and 50% to Chemia. On November 27, 2018, Company and Chemia signed an Addendum to Royalty Agreement (“Addendum”), according to which the Company granted Chemia a royalty-based limited license for purposes of making and selling fragrances embodying the 3F technology. Based on the Addendum, Chemia should pay the Company 5% of net sales in royalty. On November 8, 2019, both companies entered into Amendment no.1 to Royalty Agreement, based on which certain expenses bore by the Company towards patent application and licensing should be reimbursed to the Company before any royalty payments are made. As on March 31, 2020 and December 31 2019 there were no reimbursements or royalties paid to the Company and the Company cannot be assured that Chemia’s efforts will end up in any future sales of the technology.
Note 7 – Subsequent Events
On March 12, 2020 Singapore eDevelopment Ltd., Global BioMedical Pte Ltd., Document Security Systems, Inc (“DSS”) and DSS BioHealth Security Inc. (“DSS BioHealth”) signed Term Sheets and subsequently on April 21, 2020, these four companies entered into Share Exchange Agreement, based on which Global BioMedical Pte Ltd. agreed to sell all of the issued and outstanding shares of the Company to DSS BioHealth in exchange for the combination of common and preferred shares of DSS. The closing of this transaction is contingent upon DSS shareholders’ approval and all parties meeting the conditions of the Share Exchange Agreement. Our Company’s Chairman, who is also the largest shareholder of Singapore eDevelopment Ltd., is the beneficial owner of approximately 36.97% of the outstanding shares of DSS and is the Chairman of the Board of Directors of DSS. The Company is currently supporting Global BioMedical Pte Ltd. in meeting the closing conditions.
10
Exhibit 99.3
DOCUMENT SECURITY SYSTEMS.INC
Unaudited Pro Forma Condensed Consolidated Balance Sheet
March 31, 2020
Pre-Acquisition
DSS (Purchaser) Record Purchase Post-acquisition
DSS (Purchaser) ImpactBio
(Target) Proforma Adjustment (Note 1) Proforma Adjustment (Note 2) Consolidated Financials
ASSETS
Current Assets:
Cash $ 3,802,000 $ 3,802,000 $ 130,000 $ 3,932,000
Accounts Receivable 3,582,000 3,582,000 - 3,582,000
Inventory 1,743,000 1,743,000 - 1,743,000
Prepaid Expense and other current assets 514,000 514,000 23,000 537,000
Total Current Assets 9,641,000 - 9,641,000 153,000 - - 9,794,000
Property plant and equipment, net 4,925,000 4,925,000 - 4,925,000
Investment 2,154,000 2,154,000 - 2,154,000
Marketable Securities 570,000 570,000 - 570,000
Investment in Target - 50,000,000 50,000,000 - (127,000 ) (49,873,000 ) -
Notes Receivable 1,255,000 1,255,000 - 1,255,000
Other assets 54,000 54,000 - 54,000
Right-of -use assets 1,119,000 1,119,000 - 1,119,000
Goodwill 1,769,000 1,769,000 - 78,440,000 80,209,000
Other intangible assets, net 816,000 816,000 - 816,000
Total Assets $ 22,303,000 $ 50,000,000 $ 72,303,000 $ 153,000 $ (127,000 ) $ 28,567,000 $ 100,896,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts Payable $ 1,489,000 $ 1,489,000 $ 27,000 $ 1,516,000
Accrued expenses and deferred revenue 706,000 706,000 706,000
Other current liabilities 390,000 390,000 390,000
Revolving line of credit 800,000 800,000 800,000
Current portion of lease liabilities 369,000 369,000 369,000
Current portion of long-term debt, net 403,000 403,000 403,000
Total Current Liabilities $ 4,157,000 $ - $ 4,157,000 $ 26,000 $ - $ - $ 4,183,000
Long-term debt, net 2,427,000 2,427,000 2,427,000
Long term lease liability 750,000 750,000 750,000
Other long-term liabilities 507,000 507,000 507,000
Deferred tax liability, net 44,000 44,000 44,000
Total Liabilities $ 7,885,000 $ - $ 7,885,000 $ 26,000 $ - $ - $ 7,911,000
-
STOCKHOLDERS’ EQUITY -
Common Stock $ 42,000 $ 10,000 $ 52,000 $ 14,000 $ (14,000 ) $ 52,000
Convertible Preferred Stock - 46,868,000 46,868,000 - 46,868,000
Additional Paid in Capital 119,624,000 3,122,000 122,746,000 1,802,000 (1,802,000 ) 122,746,000
Accumulated Deficit (105,181,000 ) (105,181,000 ) (1,730,000 ) 1,730,000 (105,181,000 )
Total Stockholders’ Equity (Deficit) 14,485,000 50,000,000 64,485,000 86,000 (86,000 ) - 64,485,000
Non-Controlling Interests (67,000 ) (67,000 ) 41,000 (41,000 ) 28,567,000 28,500,000
Total Stockholders’ Equity (Deficit) $ 14,418,000 $ 50,000,000 $ 64,418,000 $ 127,000 $ (127,000 ) $ 28,567,000 $ 92,985,000
-
TOTAL LIABILITIES & STOCKHOLDERS’ EQUITY $ 22,303,000 $ 50,000,000 $ 72,303,000 $ 153,000 $ (127,000 ) $ 28,567,000 $ 100,896,000
DOCUMENT SECURITY SYSTEMS.INC
Unaudited Pro Forma Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2020
DSS
(PURCHASER) IMPACT BIOMEDICAL (TARGET) PROFORMA ADJUSTMENT (NOTE 1) PROFORMA ADJUSTMENT (NOTE 2) CONSOLIDATED PROFORMA
REVENUE:
Printed products $ 3,949,000 $ - $ - $ - $ 3,949,000
Technology sales, services and licensing 479,000 - - - 479,000
Direct selling 573,000 - - - 573,000
Total revenue $ 5,001,000 $ - $ - $ - $ 5,001,000
COSTS AND EXPENSE
Costs of revenue, exclusive of deprecation and amortization $ 3,271,000 $ - $ - $ - $ 3,271,000
Selling, general and administrative (including stock based compensation) 2,641,000 125,000 - - 2,766,000
Deprecation and amortization 360,000 - - - 360,000
Impairment of Goodwill 685,000 - - - 685,000
Total Operating Expense 6,957,000 125,000 - - 7,082,000
Operating Loss (1,956,000 ) (125,000 ) - - (2,081,000 )
OTHER INCOME (EXPENSE)
Interest Income 24,000 - - - 24,000
Interest Expense (39,000 ) - - - (39,000 )
Gain on Marketable Securities 4,000 - - - 4,000
Amortization of deferred financing costs a debt discount - - - - -
Financial Services - - - -
Loss from Security Investment by Equity Method - - - - -
Loss from Acquisition - - - - -
Total Other Expense (11,000 ) - - - (11,000 )
INCOME (LOSS) BEFORE INCOME TAX (1,967,000 ) (125,000 ) - - (2,092,000 )
INCOME TAX BENEFIT - - - - -
NET LOSS $ (1,967,000 ) $ (125,000 ) $ - $ - $ (2,092,000 )
Add: loss attributed to noncontrolling interest 67,000 41,000 - - 108,000
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (1,900,000 ) $ (84,000 ) $ - $ - $ (1,984,000 )
NOTE 1: Elimination of impactbio equity Investment in subsidiary 126,000
Accumulated Deficit 1,730,000
Common Stock 14,000
Additional Paid in Capital 1,802,000
Non-Controlling Interests 40,000
NOTE 2: Record goodwill Goodwill 78,441,000
Investment in subsidiary 49,874,000
Non-Controlling Interests 28,567,000
NOTE 3: DOCUMENT SECURITY SYSTEMS, INC. HAS ENGAGED AN INDEPENDENT VALUATION FIRM TO VALUE THE ASSETS OF IMPACT BIOMEDICAL, INC. AND ITS SUBSIDIARIES. FOR PURPOSES OF THIS PROFORMA, AND UNTIL THE VALUATION IS COMPLETE, THE PURCHASE PRICE OF $50 MILLION IS INCLUDED IN GOODWILL.
NOTE 4: Document Security Systems, Inc. is analyzing the accounting treatment of the perpetual convertible preferred shares offered and for the purposes of this proforma has assumed that the transaction will be recorded as an equity transaction. Also, DSS is evaluating the valuation of those shares and the quoted price of the common shares and face value of the perpetual convertible preferred shares have been assumed to be $50 million.
DOCUMENT SECURITY SYSTEMS.INC
Unaudited Pro Forma Condensed Consolidated Balance Sheet
December 31, 2019
Ended December 31, 2019
Pre-Acquisition
DSS (Purchaser) Record Purchase Post-acquisition
DSS (Purchaser) ImpactBio Medical, Inc.
(Target) Proforma Adjustment (Note 1) Proforma Adjustment (Note 2) Consolidated Financials
ASSETS
Current Assets:
Cash $ 1,096,000 $ 1,096,000 $ 109,000 $ 1,205,000
Accounts Receivable 4,212,000 4,212,000 - 4,212,000
Inventory 1,708,000 1,708,000 - 1,708,000
Prepaid Expense and other current assets 460,000 460,000 30,000 490,000
Total Current Assets 7,476,000 - 7,476,000 139,000 - - 7,615,000
Property plant and equipment, net 5,061,000 5,061,000 - 5,061,000
Investment 2,154,000 2,154,000 - 2,154,000
Investment in Target - 50,000,000 50,000,000 - (132,000 ) (49,868,000 ) -
Notes Receivable 793,000 793,000 - 793,000
Other assets 50,000 50,000 - 50,000
Right-of -use assets 1,223,000 1,223,000 - 1,223,000
Goodwill 2,454,000 2,454,000 - 78,435,000 80,889,000
Other intangible assets, net 935,000 935,000 - 935,000
Total Assets $ 20,146,000 $ 50,000,000 $ 70,146,000 $ 139,000 $ (132,000 ) $ 28,567,000 $ 98,720,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts Payable $ 1,492,000 $ 1,492,000 $ 7,000 $ 1,499,000
Accrued expenses and deferred revenue 936,000 936,000 936,000
Other current liabilities 390,000 390,000 390,000
Revolving line of credit 500,000 500,000 500,000
Current portion of lease liabilities 397,000 397,000 397,000
Current portion of long-term debt, net 441,000 441,000 441,000
Total Current Liabilities $ 4,156,000 $ - $ 4,156,000 $ 7,000 $ - $ - $ 4,163,000
Long-term debt, net 2,310,000 2,310,000 2,310,000
Long term lease liability 826,000 826,000 826,000
Other long-term liabilities 507,000 507,000 507,000
Deferred tax liability, net 44,000 44,000 44,000
Total Liabilities $ 7,843,000 $ - $ 7,843,000 $ 7,000 $ - $ - $ 7,850,000
-
Stockholders’ Equity -
Common Stock $ 24,000 $ 10,000 $ 34,000 $ - $ - $ 34,000
Convertible Preferred Stock - 46,868,000 46,868,000 - 46,868,000
Additional Paid in Capital 115,560,000 3,122,000 118,682,000 1,732,000 (1,732,000 ) 118,682,000
Accumulated Deficit (103,281,000 ) (103,281,000 ) (1,646,000 ) 1,646,000 (103,281,000 )
Total Stockholders’ Equity (Deficit) 12,303,000 50,000,000 62,303,000 86,000 (86,000 ) - 62,303,000
Non-Controlling Interests - 46,000 (46,000 ) 28,567,000 28,567,000
Total Stockholders’ Equity (Deficit) $ 12,303,000 $ 50,000,000 $ 62,303,000 $ 132,000 $ (132,000 ) $ 28,567,000 $ 90,870,000
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Total Liabilities & Stockholders’ Equity $ 20,146,000 $ 50,000,000 $ 70,146,000 $ 139,000 $ (132,000 ) $ 28,567,000 $ 98,720,000
DOCUMENT SECURITY SYSTEMS.INC
Unaudited Pro Forma Condensed Consolidated Statement of Operations
Year Ended December 31, 2019
DSS
(Purchaser) Impact BioMedical (Target) Proforma Adjustment (Note 1) Proforma Adjustment (Note 2) Consolidated Proforma
Revenue:
Printed products $ 17,090,000 $ - $ - $ - $ 17,090,000
Technology sales, services and licensing 2,148,000 - 2,148,000
Direct selling 172,000 - 172,000
Total revenue $ 19,410,000 $ - $ - $ - $ 19,410,000
Costs and expense
Costs of revenue, exclusive of deprecation and amortization $ 12,602,000 $ - $ 12,602,000
Selling, general and administrative (including stock based compensation) 8,284,000 523,000 8,807,000
Deprecation and amortization 1,404,000 - 1,404,000
Total Operating Expense 22,290,000 523,000 - - 22,813,000
Operating Loss (2,880,000 ) (523,000 ) - - (3,403,000 )
Other Income (expense)
Interest Income 25,000 - 25,000
Interest Expense (157,000 ) - (157,000 )
Amortization of deferred financing costs a debt discount (2,000 ) - (2,000 )
Financial Services - (1,000 ) (1,000 )
Loss from Security Investment by Equity Method - (40,000 ) (40,000 )
Loss from Acquisition - (90,000 ) (90,000 )
Total Other Expense (134,000 ) (131,000 ) - - (265,000 )
Income (loss) before income tax (3,014,000 ) (654,000 ) - - (3,668,000 )
Income tax benefit (125,000 ) - (125,000 )
Net Loss $ (2,889,000 ) $ (654,000 ) $ - $ - $ (3,543,000 )
Add: loss attributed to noncontrolling interest - 200,000 200,000
Net Loss Attributable to Common Stockholders $ (2,889,000 ) $ (454,000 ) $ - $ - $ (3,343,000 )
Other comprehensive income (loss)
Interest rate swap loss (15,000 ) - (15,000 )
Settlement of Interest rate swap 22,000 - 22,000
Comprehensive income (loss) $ (2,882,000 ) $ (654,000 ) $ - $ - $ (3,536,000 )
Note 1: Elimination of ImpactBio equity Investment in subsidiary 132,000
Accumulated Deficit 1,646,000
Common Stock -
Additional Paid in Capital 1,732,000
Non-Controlling Interests 46,000
Note 2: Record goodwill Goodwill 78,435,000
Investment in subsidiary 49,868,000
Non-Controlling Interests 28,567,000
Note 3: Document Security Systems, Inc. has engaged an independent valuation firm to value the assets of Impact BioMedical, Inc. and its subsidiaries. For purposes of this proforma, and until the valuation is complete, the purchase price of $50 million is included in goodwill.
Note 4: Document Security Systems, Inc. is analyzing the accounting treatment of the perpetual convertible preferred shares offered and for the purposes of this proforma has assumed that the transaction will be recorded as an equity transaction. Also, DSS is evaluating the valuation of those shares and the quoted price of the common shares and face value of the perpetual convertible preferred shares have been assumed to be $50 million.
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