Filed
Pursuant to Rule 424(b)(5)
Registration
Nos. 333-230740 and 333-252757
PROSPECTUS SUPPLEMENT
(To
Prospectus dated May 8, 2019)
Document
Security Systems, Inc.
12,319,346
Shares of
Common Stock
We
are offering 12,319,346 shares of our common stock pursuant to this
prospectus supplement and the accompanying prospectus.
Our
common stock is listed on the NYSE American LLC under the symbol
“DSS.” The last reported sale price of our common stock on the NYSE
American LLC on February 5, 2021 was $3.41 per share.
Investing
in our common stock involves risks that are described in the “Risk
Factors” beginning on page S-11 of this prospectus for a discussion
of information that should be considered in connection with an
investment in our common stock.
| |
|
Per Share |
|
|
Total |
|
| Public offering price |
|
$ |
2.80 |
|
|
$ |
34,494,168.80
|
|
| Underwriting
discount(1) |
|
$ |
0.21
|
|
|
$ |
2,587,062.66
|
|
| Proceeds, before expenses, to us |
|
$ |
2.59
|
|
|
$ |
31,907,106.14
|
|
|
(1) |
The
underwriters will receive compensation in addition to the
underwriting discount. See the “Underwriting” section of this
prospectus for additional information regarding total underwriter
compensation. |
We
have granted a 45-day option to the underwriters to purchase up to
1,847,901 additional shares of common stock solely to cover
over-allotments, if any.
Neither
the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or
passed upon the adequacy or accuracy of this prospectus supplement
or the accompanying prospectus. Any representation to the contrary
is a criminal offense.
The
underwriters expect to deliver our shares to purchasers in the
offering on or about February 9, 2021.
Sole Book-Running Manager
Aegis
Capital Corp.
The
date of this prospectus supplement is February 4, 2021.
TABLE
OF CONTENTS
Prospectus
Supplement
Prospectus
ABOUT THIS PROSPECTUS
SUPPLEMENT
This
document is in two parts. The first part is this prospectus
supplement, which describes the specific terms of this offering and
also adds to and updates information contained in the accompanying
prospectus and the documents incorporated by reference into this
prospectus supplement and the accompanying prospectus. The second
part, the accompanying prospectus, gives more general information
about securities we may offer from time to time, some of which does
not apply to this offering. Generally, when we refer to this
prospectus, we are referring to both parts of this document
combined together with all documents incorporated by reference. If
the description of the offering varies between this prospectus
supplement and the accompanying prospectus, you should rely on the
information contained in this prospectus supplement. However, if
any statement in one of these documents is inconsistent with a
statement in another document having a later date — for example, a
document incorporated by reference into this prospectus supplement
or the accompanying prospectus — the statement in the document
having the later date modifies or supersedes the earlier statement.
You should rely only on the information contained in or
incorporated by reference into this prospectus supplement or
contained in or incorporated by reference into the accompanying
prospectus to which we have referred you. We have not authorized
anyone to provide you with information that is different. If anyone
provides you with different or inconsistent information, you should
not rely on it. The information contained in, or incorporated by
reference into, this prospectus supplement and contained in, or
incorporated by reference into, the accompanying prospectus is
accurate only as of the respective dates thereof, regardless of the
time of delivery of this prospectus supplement and the accompanying
prospectus or of any sale of securities. It is important for you to
read and consider all information contained in this prospectus
supplement and the accompanying prospectus, including the documents
incorporated by reference herein and therein, in making your
investment decision. You should also read and consider the
information in the documents to which we have referred you under
the captions “Where You Can Find More Information” and
“Incorporation of Information by Reference” in this prospectus
supplement and in the accompanying prospectus.
We
are offering to sell, and are seeking offers to buy, securities
only in jurisdictions where such offers and sales are permitted.
The distribution of this prospectus supplement and the accompanying
prospectus and the offering of securities in certain jurisdictions
or to certain persons within such jurisdictions may be restricted
by law. Persons outside the United States who come into possession
of this prospectus supplement and the accompanying prospectus must
inform themselves about and observe any restrictions relating to
the offering of securities and the distribution of this prospectus
supplement and the accompanying prospectus outside the United
States. This prospectus supplement and the accompanying prospectus
do not constitute, and may not be used in connection with, an offer
to sell, or a solicitation of an offer to buy, any securities
offered by this prospectus supplement and the accompanying
prospectus by any person in any jurisdiction in which it is
unlawful for such person to make such an offer or
solicitation.
All
trademarks or trade names referred to in this prospectus are the
property of their respective owners. Solely for convenience, the
trademarks and trade names in this prospectus are referred to
without the ® and ™ symbols, but such references should not be
construed as any indicator that their respective owners will not
assert, to the fullest extent under applicable law, their rights
thereto. We do not intend the use or display of other companies’
trademarks and trade names to imply a relationship with, or
endorsement or sponsorship of us by, any other
companies.
DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS
This
prospectus supplement and any accompanying prospectus, including
the documents that we incorporate by reference, contain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, or the Securities Act, and
Section 21E of the Securities Exchange Act of 1934, as amended, or
the Exchange Act. Such forward-looking statements include those
that express plans, anticipation, intent, contingency, goals,
targets or future development and/or otherwise are not statements
of historical fact. These forward-looking statements are based on
our current expectations and projections about future events and
they are subject to risks and uncertainties known and unknown that
could cause actual results and developments to differ materially
from those expressed or implied in such statements.
In
some cases, you can identify forward-looking statements by
terminology, such as “expects,” “anticipates,” “intends,”
“estimates,” “plans,” “believes,” “seeks,” “may,” “should,” “could”
or the negative of such terms or other similar expressions.
Accordingly, these statements involve estimates, assumptions and
uncertainties that could cause actual results to differ materially
from those expressed in them. Any forward-looking statements are
qualified in their entirety by reference to the factors discussed
throughout this prospectus supplement.
You
should read this prospectus supplement, the accompanying prospectus
and the documents that we reference herein and therein and have
filed as exhibits to the registration statement, of which this
prospectus supplement is part, completely and with the
understanding that our actual future results may be materially
different from what we expect. You should assume that the
information appearing in this prospectus supplement and any
accompanying prospectus is accurate as of the date on the cover
page of this prospectus supplement. Because the risk factors
referred to above, as well as the risk factors referred to on page
S-11 of this prospectus supplement and incorporated herein by
reference, could cause actual results or outcomes to differ
materially from those expressed in any forward-looking statements
made by us or on our behalf, you should not place undue reliance on
any forward-looking statements. Further, any forward-looking
statement speaks only as of the date on which it is made, and
except as may be required under applicable securities laws, we
undertake no obligation to update any forward-looking statement to
reflect events or circumstances after the date on which the
statement is made or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not
possible for us to predict which factors will arise. In addition,
we cannot assess the impact of each factor on our business or the
extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any
forward-looking statements. We qualify all of the information
presented in this prospectus supplement and the accompanying
prospectus, and particularly our forward-looking statements, by
these cautionary statements.
PROSPECTUS SUPPLEMENT
SUMMARY
This
summary highlights information contained elsewhere or incorporated
by reference into this prospectus supplement and the accompanying
prospectus. This summary does not contain all of the information
that you should consider before deciding to invest in our common
stock. You should read this entire prospectus supplement and the
accompanying prospectus carefully, including the “Risk Factors”
contained in this prospectus supplement and incorporated by
reference herein, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and our
consolidated financial statements and the related notes and the
other documents incorporated by reference into this prospectus
supplement and the accompanying prospectus.
Unless
we have indicated otherwise or the context otherwise requires,
references in this prospectus supplement, the accompanying
prospectus or the documents incorporated by reference herein and
therein to the “Company,” DSS,” “we,” “us” and “our” refer to
Document Security Systems, Inc. and its
subsidiaries.
Company
Overview
Document
Security Systems, Inc. (together with its consolidated subsidiaries
(unless the context otherwise requires), referred to herein as
“Document Security Systems,” “DSS,” “we,” “us,” “our” or the
“Company”) operates in eight business lines through eight (8) DSS
subsidiaries located around the globe.
Of
the eight subsidiaries, three of those have historically been the
core subsidiaries of the Company:
|
|
(1) |
Premier
Packaging Corporation (DSS Packaging and Printing Group) operates
in the paper board folding carton, smart packaging and document
security printing markets. It markets, manufactures and sells paper
products designed to protect valuable information from unauthorized
scanning, copying, and digital imaging. |
| |
|
|
| |
(2) |
DSS
Digital Inc. and its subsidiaries (DSS Digital Group) research,
develop, market and sell the Company’s digital products worldwide.
The primary product is AuthentiGuard®, which is a brand
authentication application that integrates the Company’s
counterfeit deterrent technologies with proprietary digital data
security-based solutions. |
| |
|
|
| |
(3) |
DSS
Technology Management Inc., manages, licenses and acquires
intellectual property (“IP”) assets for the purpose of monetizing
these assets through a variety of value-enhancing initiatives,
including, but not limited to, investments in the development and
commercialization of patented technologies, licensing, strategic
partnerships and commercial litigation. |
In
addition to the subsidiaries listed above, in 2019 and early 2020,
DSS has created five new wholly owned subsidiaries:
|
|
(4) |
DSS
Blockchain Security, Inc., intends to specialize in the development
of blockchain security technologies for tracking and tracing
solutions for supply chain logistics and cyber securities across
global markets. |
| |
|
|
| |
(5) |
Decentralize
Sharing Systems, Inc., seeks to provide services to assist
companies in the new business model of the peer-to-peer
decentralized sharing marketplaces. It also has established a
direct marketing or network marketing business line which is
designed to sell products or services directly to the public
through independent distributors, rather than selling through the
traditional retail market. |
| |
|
|
| |
(6) |
DSS
Securities, Inc., has been established to develop or to acquire
assets in the securities trading or management arena, and to pursue
two parallel streams of digital asset exchanges in multiple
jurisdictions: (i) securitized token exchanges, focusing on
digitized assets from different vertical industries and (ii)
utilities token exchanges, focusing on “blue-chip” utility tokens
from solid businesses. |
| |
|
|
| |
(7) |
DSS
BioHealth Security, Inc., is our business line which we will intend
to invest in or to acquire companies related to the biohealth and
biomedical field, including businesses focused on the research to
advance drug discovery and development for the prevention,
inhibition, and treatment of neurological, oncology and
immuno-related diseases. This new division will place special focus
on open-air defense initiatives, which curb transmission of
air-borne infectious diseases such as tuberculosis and influenza,
among others. |
| |
|
|
| |
(8) |
DSS
Secure Living, Inc., intends to develop top of the line advanced
technology, energy efficiency, quality of life living environments
and home security for everyone for new construction and renovations
of residential single and multifamily living
facilities. |
Our
four reporting segments are as follows:
DSS Packaging and Printing Group - Operating under the name
Premier Packaging Corporation, the DSS Packaging and Printing Group
produces custom packaging serving clients in the pharmaceutical,
nutraceutical, beverage, specialty foods, photo packaging and
direct marketing industries, among others. The group also provides
active and intelligent packaging and document security printing
services for end-user customers along with technical support for
our technology licensees. The division produces a wide array of
printed materials, such as folding cartons and paperboard
packaging, security paper, vital records, prescription paper, birth
certificates, secure coupons and parts tracking forms. The division
also provides resources and production equipment for our ongoing
research and development of security printing, authentication and
related technologies.
DSS Digital Group - This division researches, develops,
markets and sells worldwide the Company’s digital products,
including and primarily our AuthentiGuard® product, which is a
brand authentication application that integrates the Company’s
counterfeit deterrent technologies with proprietary digital data
security-based solutions. The AuthentiGuard® product allows our
customers to implement a security mark utilizing conventional
printing methods that is copy and counterfeit-resistant and that
can be read and recorded utilizing smartphones and other digital
image capture devices, which can be utilized by that customer’s
suppliers, field personnel and end users throughout its global
product supply and distribution chains.
DSS Technology Management - Since its acquisition in 2013,
DSS Technology Management’s primary mission has been to monetize
its various patent portfolios through commercial litigation and
licensing. Except for investment in its social networking related
patents, we have historically partnered with various third-party
funding groups in connection with patent monetization programs. It
is our intent to de-emphasize and ultimately wind down this
business line. While Management will continue to assert and defend
the existing patents and purse potential infringements as they are
identified, we do not intend to seek out new patent
portfolios.
Direct Marketing - Direct marketing or network marketing is
designed to sell products or services directly to the public
through independent distributors, rather than selling through the
traditional retail market. We believe this business has significant
growth potential in the now popular “gig economy”. Consistent with
the Company’s strategic business plan and vision, we plan to enter
the direct marketing or network marketing industry and take
advantage of the opportunities that exist. We have entered into
partnerships with existing direct marketing companies to access
U.S., Canadian, Asian and Pacific Rim markets. In addition, we have
acquired various domestic and international operating licenses from
those companies. Through the acquisitions we have secured product
licenses, formulas, existing sales networks, patents, web sites,
and other resources to initiate sales and revenue generation for
this line and launched our HWHGIG and HWH Marketplace direct
selling platforms.
Recent
Developments
American Medical REIT Inc.
On
March 3, 2020 the Company, via its subsidiary DSS Securities,
entered into a share subscription agreement and loan arrangement
with LiquidValue Asset Management Pte Ltd., AMRE Asset Management,
Inc. and American Medical REIT Inc. under which it acquired a 52.5%
controlling ownership interest in AMRE Asset Management Inc.
(“AAMI”) which currently has a 93% equity interest in American
Medical REIT Inc. (“AMRE”). AAMI is a real estate investment trust
(“REIT”) management company of which sets the strategic vision and
formulate investment strategy and manages the assets and
liabilities for AMRE. AMRE is organized for the purposes of
acquiring hospitals and other acute or post-acute care centers from
leading clinical operators with dominant market share in secondary
and tertiary markets and leasing each property to a single operator
under a triple-net lease. To date, AAMI and AMRE has not generated
revenue.
Alset International Limited (formally Singapore eDevelopment
Limited)
As of
March 31, 2020, the Company owned 83,174,129 ordinary shares of
Alset International Limited (“Alset Intl”, formally Singapore
eDevelopment Limited), a company incorporated in Singapore and
publicly listed on the Singapore Exchange Limited, and warrants to
purchase an additional 44,005,182 ordinary shares at an exercise
price of SGD$0.04 (US$0.029) per share. On June 25, 2020, the
Company exercised those warrants bringing its total ownership to
127,179,311 ordinary shares or approximately 10% of the outstanding
shares of Alset Intl at September 30, 2020. As of June 30, 2020,
the Company carried its investment in Alset Intl at cost, less
impairments under ASU No. 2016-01, “Recognition and Measurement of
Financial Assets and Financial Liabilities”. During the third
quarter of 2020, the Company determined that the investment has a
readily determinable fair value based on the volume of shares
traded on the Singapore Exchange which evidences a ready market for
shares, as well as a consistent and observable market price.
Accordingly, this investment is now classified as a marketable
equity security and is classified as a long-term asset on our
consolidated balance sheets as the Company has the intent and
ability to hold the investments for a period of at least one year.
The Company’s marketable equity securities are measured at fair
value with gains and losses recognized in other income (expense).
At the time of the change in classification, the Company recorded
an unrealized gain of approximately $2.1 million. The Chairman of
the Company, Mr. Heng Fai Ambrose Chan, is the Executive Director
and Chief Executive Officer of Alset Intl. Mr. Chan is also the
majority shareholder of Alset Intl as well as the largest
shareholder of the Company. The fair value of the marketable equity
security of Alset Intl as of September 30, 2020 was approximately
$5,583,000.
Sharing Services Global Corp.
As of
June 30, 2020, the Company had acquired and owned approximately 17%
of the issued and outstanding shares of Sharing Services Global
Corp. (“SHRG”), a publicly traded company, as a marketable equity
security investment. In the third quarter of 2020, the Company,
through a series of class A common shares acquisitions in July
2020, the Company acquired in aggregate an ownership interest in
SHRG of greater than 20%. At that time, it was determined that the
Company had the ability to exercise significant influence over
SHRG. Accordingly, on July 22, 2020, the Company began
prospectively utilizing the equity method of accounting for its
investment in SHRG in accordance with ASC Topic 323 and will
recognize our share of their earnings and losses within our
consolidated statement of operations and comprehensive income
(loss). Due to a lag in financial reporting of SHRG, the Company
has not recorded any share of earnings or losses during the period
ended September 30, 2020. On a go-forward basis, earnings or losses
from SHRG will be recorded on a two-month lag. As of July 22, 2020,
the Company owned 62,417,593 class A common shares of SHRG with an
adjusted basis of $11.3 million. As of September 30, 2020, the
Company held 62,457,378 class A common shares, equating to a 32.2%
ownership interest in SHRG, and prior to adopting the equity method
had recorded unrealized gains on marketable securities of
approximately $6.1 million for the nine months then ended. As of
July 22, 2020, the carrying value of the Company’s equity method
investment exceeded our share of the book value of SHRG’s
underlying net assets by approximately $9.5 million, which
represents primarily intangible assets and goodwill arising from
acquisitions.
Equipment Line of Credit
On
July 31, 2020, Premier Packaging Corporation entered into a Loan
Agreement and accompanying Term Note Non-Revolving Line of Credit
Agreement with Citizens Bank pursuant to which Citizens agreed to
lend up to $900,000 to permit Premier Packaging Corporation to
purchase equipment from time to time that it may need for use in
its business. The aggregate principal balance outstanding under the
Equipment Acquisition Line of Credit bears interest thereon at a
per annum rate of 2% above the LIBOR Advantage Rate until the
Conversion Date (as defined in the Term Note Non-Revolving Line of
Credit Agreement). Effective on the Conversion Date, the interest
shall be adjusted to a fixed rate equal to 2% above the bank’s Cost
of Funds, as determined by Citizens. As of September 30, 2020, the
loan had a balance of $0 and Premier Packaging Corporation still
has available $900,000 for equipment borrowings.
Acquisition of Impact BioMedical
On August 21, 2020, we closed the share exchange agreement we
entered into on April 27, 2020, with DSS BioHealth Security, Inc.,
our wholly owned subsidiary (“DBHS”), Alset Intl, and Global
BioMedical Pte Ltd, a Singapore corporation and wholly owned
subsidiary of Alset Intl (“GBM”), pursuant to which, among other
things, DBHS acquired all of the outstanding capital stock 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
DBHS. Impact BioMedical strives to leverage its scientific know-how
and intellectual property rights to provide solutions that have
been plaguing the biomedical field for decades. By tapping into the
scientific expertise of its partners, Impact BioMedical has
undertook a concerted effort in the research and development
(R&D), drug discovery and development for the prevention,
inhibition, and treatment of neurological, oncological and immune
related diseases. The consideration for the Impact BioMedical
shares was the following issued to GBM by DSS: (i) 483,333 newly
issued shares of common stock of DSS, nominally valued at
$3,132,000, or $6.48 per share; and (ii) 46,868 newly issued shares
of a new series of perpetual convertible preferred stock of DSS
(the “Series A Preferred Stock”) with a stated value of
$46,868,000, or $1,000 per share, for a total consideration valued
at $50 million. The Series A Preferred Stock is convertible into
shares of common stock of DSS at a conversion price of $6.48 of
preferred stock stated value per share of common stock, subject to
a 19.9% beneficial ownership conversion limitation (a so-called
“blocker”) based on the total issued and outstanding shares of
common stock of DSS beneficially owned by GBM. Holders of the
Series A Preferred Stock have no voting rights, except as required
by applicable law or regulation, and no dividends will accrue or be
payable on the Series A Preferred Stock. The holders of Series A
Preferred Stock are entitled to a liquidation preference of $1,000
per share, and the Company has the right to redeem all or any
portion of the then outstanding shares of Series A Preferred Stock,
pro rata among all holders, at a redemption price per share equal
to the liquidation value per share. Both the Company and Alset Intl
obtained approvals of the acquisition transaction from their
respective shareholders.
We are currently in the process of completing the purchase price
accounting and related allocations associated with the acquisition
of Impact BioMedical. Due to several factors, including a discount
for illiquidity, the value of the Series A Preferred Stock was
discounted from $46,868,000 to $35,187,000, thus reducing the final
consideration given to approximately $38,319,000. The Company is
also in the process of completing valuations and useful lives for
certain Technology and In Process Research & Development assets
acquired in the transaction as well the non -controlling interest
portion of Impact BioMedical and its subsidiaries and the purchase
price allocation will be completed with finalization of those
valuations. We expect the preliminary purchase price accounting to
be completed and reported in our Annual
Report on Form 10-K for the year ended December 31,
2020. As of September 30,
2020, Impact Biomedical has not generated
revenue.
On October 16, 2020, GBM converted 4,293 shares of our Series A
Preferred Stock having a par value of $0.02 per share in exchange
for 662,500 restricted shares of our common stock based upon a
liquidation value of $1,000 and a conversion price of $6.48 per
share pursuant to Section 8.2(a) of the Certificate of Designation
of Series A Convertible Preferred Stock.
Alset Title Company
In August 2020, the Company’s wholly owned subsidiary, DSS
Securities, Inc., entered into a corporate venture to form and
operate a real estate title agency, under the name and flagging of
Alset Title Company, Inc., a Texas corporation (“ATC”). DSS
Securities, Inc. will own 70% of this venture with the other two
shareholders being attorneys necessary to complete the state
application and permitting process. There was no activity for the
nine months ended September 30, 2020.
BMI Capital International LLC
On
September 10, 2020, the Company’s wholly owned subsidiary, DSS
Securities, Inc., entered into membership interest purchase
agreement with BMI Financial Group, Inc. a Delaware corporation
(“BMIF”) and BMI Capital International LLC, a Texas limited
liability company (“BMIC”), whereby DSS Securities, Inc. purchased
14.9% membership interests in BMIC for $100,000. DSS Securities
also has the option to purchase an additional 10% of the
outstanding membership interest. This option expires on September
10, 2022. BMIC is a broker-dealer registered with the Securities
and Exchange Commission, is a member of the Financial Industry
Regulatory Authority, Inc. (“FINRA”), and is a member of the
Securities Investor Protection Corporation (“SIPC”). The Company’s
chairman of the board and another independent board member of the
Company also have ownership interest in this joint
venture.
Presidio Property Trust
On
October 7, 2020, DSS Securities, Inc. took part in an initial
public offering of Presidio Property Trust, Inc., a Maryland
corporation (“Presidio”), that invests primarily in commercial
properties, such as office, industrial and retail properties, as
well as in residential model home properties, in regionally
dominant markets across the United States. As part of this
offering, we purchased 200,000 shares of Presidio’s Series A Common
Stock at $5.00 per share for a total purchase price of
$1,000,000.
BioMed Technologies Distribution Agreement and Share
Subscription
Effective
December 9, 2020, Impact BioMedical entered into an exclusive
distribution agreement with BioMed Technologies Asia Pacific
Holdings Limited (“BioMed”), which is focused on manufacturing
natural probiotics, pursuant to which Impact BioMedical will
directly market, advertise, promote, distribute and sell certain
BioMed products to resellers. The products to be distributed by
Impact BioMedical include BioMed’s PGut Premium
ProbioticsTM, PGut Allergy ProbioticsTM, PGut
SupremeSlim ProbioticsTM, PGut Kids
ProbioticsTM, and PGut Baby ProbioticsTM.
Under the terms of the distribution agreement, Impact BioMedical
will have exclusive rights to distribute the products within the
United States, Canada, Singapore, Malaysia, and South Korea and
non-exclusive distribution rights in all other countries. In
exchange, Impact BioMedical agreed to certain obligations,
including mutual marketing obligations to promote sales of the
products. The distribution agreement has an initial term of ten
years and may be terminated by Impact BioMedical at its option, at
any time, and for any reason, or by BioMed for an uncured material
breach by Impact BioMedical or if Impact BioMedical becomes
bankrupt or insolvent.
In
connection with the distribution agreement, Impact BioMedical also
entered into a subscription agreement with BioMed, pursuant to
which Impact BioMedical agreed to purchase 525 ordinary shares of
BioMed at a purchase price of HK$9,333.33 per share for total
consideration of HK$4,900,000 (approximately US$630,000). The
subscription agreement provides, among other things, Impact
BioMedical the right to appoint a new director to the board of
BioMed. With respect to an issuance of shares to a third party by
BioMed, Impact BioMedical will have the right of first refusal to
purchase such shares, as well as customary tag-along
rights.
Paycheck Protection Program
As
part of the Coronavirus Aid, Relief and Economic Security Act
(“CARES Act”) which was established and provides for loans to
qualifying businesses for amounts up to 2.5 times of the average
monthly payroll expenses of the qualifying business, subsidiaries
of the Company had applied for and received $1,072,000 under the
Paycheck Protection Program. As of August 4, 2020, pursuant to the
terms of the SBA PPP program, the Company submitted applications
for its subsidiaries Premier Packaging and DSS Digital for a
requested 100% loan forgiveness. In November and December 2020,
Premier Packaging and DSS Digital received notification,
respectively, from the SBA that their loans in total approximating
$969,000, inclusive of interest, had been forgiven. AAMI, also a
subsidiary of the Company, pursuant to the terms of the SBA PPP
program, submitted its application for 100% loan forgiveness in
October 2020 and still awaits SBA determination.
Employment Agreement
On
November 19, 2020, the Company, DSS Cyber Security Pte. Ltd.
(“DCS”), a subsidiary of the Company, and Mr. Heng Fai Chan, the
Chief Executive Officer of DCS and the Chairman of the Board of
Directors of the Company, entered into an amendment (the “2020
Amendment”) to Mr. Chan’s employment agreement (the “2019
Employment Agreement”) dated September 23, 2019, effective January
1, 2020, pursuant to which (i) the term of the 2019 Employment
Agreement was extended to December 31, 2022 and (ii) Mr. Chan’s
salary and bonus were adjusted and redefined for the period from
January 1, 2020 till December 31, 2022. Pursuant to the 2020
Amendment, Mr. Chan’s monthly base salary has been reduced to $1
commencing January 1, 2020 and Mr. Chan is eligible to receive
certain performance bonuses based upon the annual market
capitalization growth of the Company and the annual net asset value
change of the Company. The growth bonus will be equal to 5% of the
year over year increase in DSS’s market capitalization, with the
measurement of DSS’s market capitalization determined by (a) the
total number of outstanding shares of DSS common stock at fiscal
year-end multiplied by (b) the 10-day volume weighted average price
of DSS common stock on the principal trading market prior to such
year end. The annual net value bonus will be equal to 5% of the
year over year increase of DSS’s net asset value, with the
measurement of DSS’s fiscal year end net asset value (equal to
DSS’s total assets minus total liabilities) calculated in
accordance with generally accepted accounting
principles.
HWH World Inc.
On
January 6, 2021, the Company, Alset Intl, Health Wealth Happiness
Pte. Ltd. (“HWH”), a wholly-owned subsidiary of Alset Intl, and HWH
World Inc. (“HWH World”), a wholly-owned subsidiary of HWH, entered
into a binding term sheet, pursuant to which, subject to our due
diligence on HWH World, necessary approvals and consents, and the
terms and conditions to be set forth in a definitive agreement, we
will acquire and purchase all of the outstanding equity interest in
HWH World for a consideration of the lesser of $14.8 million or the
value of HWH World assessed by an independent third-party. We would
have the option to pay the purchase price in cash or in shares of
the our common stock at a rate of $6.32 per share, the average
closing price of our common stock for the five trading days prior
to January 6, 2021. In accordance with the term sheet, the parties
will enter into a definitive acquisition agreement within three
months from the date of the term sheet, or at a later date as
mutually agreed, and complete the transaction within six months
from the date of the term sheet, or at a later date as mutually
agreed. The term sheet is legally binding and will terminate upon
the earlier of (1) July 6, 2021, (2) mutual agreement by the
parties to terminate, or (3) the execution of the definitive
agreement for the transaction. HWH World is a direct marketing
company that sells cosmetic, and nutraceutical products to an
international market.
Financial Impact of COVID-19 Pandemic
The COVID-19 pandemic has created global economic turmoil and has
potentially permanently impacted how many businesses operate and
how individuals will socialize and shop in the future. The Company
continues to feel the effect of the COVID-19 business shutdowns and
consumer stay-at-home protections. But the effect of the economic
shutdown has impacted our business lines differently; some more
severely than others. In most cases we believe the negative
economic trends and reduced sales will recover over time. However,
management had determined that one of its business lines, DSS
Plastics, has been more severely impacted by the pandemic than our
other divisions and we do not believe this is a short-term
phenomenon. As a result, management has decided to fully impair its
goodwill related to DSS Plastics. The impact to DSS’s first quarter
earnings of this impairment was approximately $685,000.
Exit of Plastic Printing Business
On
May 22, 2020, our management announced that it had committed to a
restructuring plan to further reduce our operating expenses in
response to the economic challenges and uncertainty resulting from
the COVID-19 pandemic and its potential permanent impact on our
plastics business. As part of this restructuring, our management
had decided to exit our plastic printing business line, which we
operate under Plastic Printing Professionals, Inc. (DSS Plastics
Group), a wholly-owned subsidiary of the Company, and to fully
impair our goodwill related to DSS Plastics Group. The sale of DSS
Plastics Group was consummated and closed on August 14, 2020. The
remaining assets of DSS Plastics Group were either sold, separately
disposed, or retained by other existing DSS businesses
lines.
In
addition, we have initiated efforts to sub-lease the DSS Plastics
Group property, which has approximately 3.5 years remaining on its
lease term at an estimated annual lease cost of $240,000 per year.
Ongoing costs in connection with the closing of this business line
will be associated primarily with lease related costs. Further, the
impact to our earnings of the goodwill impairment for our first
quarter ended March 31, 2020, and the nine months ended September
30, 2020, was approximately $685,000
January 2021 Common Stock Public Offering
On
January 19, 2021, the Company entered into an underwriting
agreement, as amended by Amendment No. 1 effective as of January
19, 2021, with Aegis Capital Corp. (“Aegis”), as representative of
the underwriters, which provided for the issuance and sale by the
Company and the purchase by the underwriters, in a firm commitment
underwritten public offering (the “January 2021 Offering”), of
6,666,666 shares of the Company’s common stock, $0.02 par value per
share. Subject to the terms and conditions contained in the
underwriting agreement, the shares were offered in a public
offering at a price of $3.60 per share, less certain underwriting
discounts and commissions. The Company also granted the
underwriters a 45-day option to purchase up to 1,000,000 additional
shares of the Company’s common stock on the same terms and
conditions for the purpose of covering any over-allotments in
connection with the Offering, which was subsequently exercised in
full. The net offering proceeds to the Company from the Offering
were approximately $25.0 million, after deducting estimated
underwriting discounts and commissions and other estimated offering
expenses. The Company intends to use the net proceeds from this
offering to fund the development and growth of new business lines,
acquisition opportunities, and general corporate and working
capital needs. The initial offering was closed on January 22, 2021,
and the overallotment was exercised on January 28, 2021.
Corporate
Information
Our
principal executive offices are located at 200 Canal View
Boulevard, Suite 104, Rochester, New York 14623, USA. Our telephone
number is +1-585-325-3610. Our corporate website is
www.dsssecure.com. Information contained in or accessible
through our website is not part of this prospectus.
|
Common
stock offered by us |
|
12,319,346
shares |
| |
|
|
| Common
stock outstanding prior to this offering (as of February 3,
2021) |
|
13,502,878
shares |
| |
|
|
| Common
stock to be outstanding immediately following this
offering |
|
25,822,224
shares |
| |
|
|
| Underwriters’
option to purchase additional shares from us |
|
1,847,901
shares |
| |
|
|
| Use
of proceeds |
|
We
estimate that we will receive net proceeds from this offering of
approximately $31.4 million, or approximately $36.1 million if the
underwriter exercises its overallotment option, after deducting the
underwriting discounts and commissions and estimated offering
expenses payable by us. We currently intend to use the net proceeds
from this offering, together with our existing cash, to fund (1)
the development and growth of our new business lines, (2)
acquisition opportunities, and (3) the Company’s general corporate
and working capital needs. We estimate that at least $20.4 million
of the net proceeds from this offering will be invested into our
new business line growth and development, $9.0 million will be used
for possible acquisitions or investments in complementary
businesses, products, services, technologies or existing assets,
and approximately $2.0 million will be used for general corporate
and working capital needs. See “Use of Proceeds” below. |
| |
|
|
| Dividend
policy |
|
We
have never paid cash dividends, and we do not anticipate paying a
cash dividend in 2021. We anticipate that we will retain any
earnings and other cash resources for investment in our business.
The payment of dividends on our common stock is subject to the
discretion of our board of directors and will depend on our
operations, financial position, financial requirements, general
business conditions, restrictions imposed by financing
arrangements, if any, legal restrictions on the payment of
dividends and other factors that our board of directors deems
relevant. |
| |
|
|
| Risk
factors |
|
An
investment in our common stock involves a high degree of risk. You
should read the “Risk Factors” section of this prospectus for a
discussion of factors to consider carefully before deciding to
invest in shares of our common stock. |
| |
|
|
| NYSE
American symbol |
|
DSS |
The
number of shares of common stock to be outstanding after this
offering is based on 13,502,878 shares of common stock outstanding
at February 3, 2021, and excludes the following:
|
|
● |
19,261
shares of common stock issuable upon exercise of stock options
outstanding at a weighted-average exercise price of $150.44 per
share; |
|
|
|
|
|
|
● |
40,681
shares of common stock issuable upon exercise of warrants
outstanding at a weighted-average exercise price of $33.52 per
share; |
|
|
|
|
|
|
● |
6,570,174
shares of common stock issuable upon conversion of the outstanding
Series A Preferred Stock, subject to a beneficial ownership
conversion limitation; and |
|
|
|
|
|
|
● |
191,314
shares of common stock reserved and available for issuance under
our equity compensation plans. |
Unless
otherwise indicated, all information in this prospectus reflects or
assumes no exercise by the underwriters of their option to purchase
up to 1,847,901 additional shares of common stock in this
offering.
RISK FACTORS
Our
business is influenced by many factors that are difficult to
predict and that involve uncertainties that may materially affect
our actual operating results, cash flows and financial condition.
Before making an investment decision about our common stock, you
should carefully consider the specific factors set forth under the
caption “Risk Factors” in this prospectus supplement and in our
periodic and current reports filed with the SEC that are
incorporated by reference herein (including the “Risk Factors” set
forth in Item 8.01 of our Current Report on Form 8-K filed with the
SEC on July 1, 2020), together with all of the other information
appearing in this prospectus, in the applicable prospectus
supplement or incorporated by reference into this prospectus in
light of your particular investment objectives and financial
circumstances.
Risks
Relating to Our Business
We have secured indebtedness, and a potential risk exists that we
may be unable to satisfy our obligations to pay interest and
principal thereon when due or negotiate acceptable extensions or
settlements.
We
have outstanding indebtedness (described below), most of which is
secured by assets of various DSS subsidiaries and guaranteed by the
Company. Given our history of operating losses and our cash
position, there is a risk that we may not be able to repay
indebtedness when due. If we were to default on any of our other
indebtedness that require payments of cash to settle such default
and we do not receive an extension or a waiver from the creditor
and the creditor were to foreclose on the secured assets, it could
have a material adverse effect on our business, financial condition
and operating results.
As of
September 30, 2020, we had the following significant amounts of
outstanding indebtedness:
|
|
● |
$1,110,000
due under a promissory note with Citizens Bank used to purchase our
packaging division facility. We are required to pay monthly
installments of $7,000 with interest fixed at 4.22% until June
2029, at which time a balloon payment of the remaining principal
balance will be due. The promissory note is secured by a first
mortgage on our packaging division facility. |
| |
|
|
| |
● |
$900,000
in a term note non-revolving line of credit with Citizens Bank used
by Premier Packaging Corporation (“Premier Packaging”) to purchase
equipment. Effective on the Conversion Date, the interest shall be
adjusted to a fixed rate equal to 2% above the bank’s Cost of
Funds, as determined by Citizens. The note had no borrowings
against it as of September 30, 2020. |
| |
|
|
| |
● |
$801,000
in a term note non-revolving line of credit with Citizens Bank used
by Premier Packaging Corporation (“Premier Packaging”) to purchase
equipment. The note is amortized over a 48-month period and payable
in monthly installments of $13,000. Interest accrues at 1 Month
LIBOR plus 2.00%. |
| |
|
|
| |
● |
$100,000
in a zero-interest promissory note entered into by the Company’s
DSS Asia subsidiary to acquire Guangzhou Hotapps Technology Pte
Ltd., a Chinese company. This note was paid in full in October
2020. |
| |
|
|
| |
● |
$800,000
revolving credit line with Citizens Bank by Premier Packaging
payable in monthly installments of interest only. The revolving
credit line bears interest at 1 Month LIBOR plus 2.0% and had no
borrowings against it at as of September 30, 2020. |
| |
|
|
| |
● |
$200,000
unsecured promissory note between AMRE and LiquidValue Asset
Management Pte Ltd. The note calls for interest to be paid annually
on March 2 with interest fixed at 8.0% and matures on March 2,
2022. The holder is a related party owned by the Chairman of the
Company’s board of directors. |
| |
|
|
| |
● |
$1,072,000
under the Paycheck Protection Program, which was established as
part of CARES Act, and provides for loans to qualifying businesses
for amounts up to 2.5 times of the average monthly payroll expenses
of the qualifying business. As of August 4, 2020, pursuant to the
terms of the SBA PPP program, the Company submitted applications
for Premier Packaging and DSS Digital for a requested 100% loan
forgiveness. AAMI, pursuant to the terms of the SBA PPP program,
submitted its application for 100% loan forgiveness in October
2020. |
The
Citizens credit facilities for the Company’s subsidiary, Premier
Packaging, contain various covenants including fixed charge
coverage ratio, tangible net worth and current ratio covenants
which are tested annually at December 31. For the year ended
December 31, 2019, Premier Packaging was in compliance with the
annual covenants.
The value of our intangible assets and investments may not be equal
to their carrying values.
As of
September 30, 2020, we had approximately $39.5 million of net
intangible assets. Approximately $38.3 million is associated with
the acquisition of Impact Biomedical, Inc. The Company is in the
process of completing valuations and useful lives for certain
Technology and In Process Research & Development assets
acquired in the transaction as well the non -controlling interest
portion of Impact BioMedical, Inc. and its subsidiaries and the
purchase price allocation will be completed with finalization of
those valuations. We expect the preliminary purchase price
accounting to be completed during the three months ending December
31, 2020. Approximately $287,000 of this amount are intangible
assets which derive their value from patents or patent rights. If
licensing efforts and litigation are not successful, the values of
these assets could be reduced. We are required to evaluate the
carrying value of such intangibles and goodwill and the fair value
of investments whenever events or changes in circumstances indicate
that the carrying value of an intangible asset, including goodwill,
and investment may not be recoverable. If any of our intangible
assets, goodwill or investments are deemed to be impaired then it
will result in a significant reduction of the operating results in
such period. As noted above, management has determined that the
goodwill of DSS Plastics has been permanently and materially
impaired due to the global pandemic and other market
factors.
Risks
Relating to this Offering
Our share price may be volatile and could decline
substantially
The
market price of our common stock has been and may continue to be
volatile. Many factors may cause the market price for our common
stock to decline, including:
|
|
● |
shortfalls
in revenues, cash flows or continued losses from
operations; |
|
|
|
|
|
|
● |
delays
in development or roll-out of any of our products; |
|
|
|
|
|
|
● |
announcements
by one or more competitors of new product acquisitions or
technological innovations; and |
|
|
|
|
|
|
● |
unfavorable
outcomes from litigation. |
In
addition, the stock market experiences extreme fluctuations in
price and volume that particularly affect the market price of
shares of companies like ours. These price and volume fluctuations
are often unrelated or disproportionate to the operating
performance of the affected companies. Because of this volatility,
we may fail to meet the expectations of our stockholders or of
securities analysts, and our stock price could decline as a result.
Declines in our stock price for any reason, as well as broad-based
market fluctuations or fluctuations related to our financial
results or other developments, may adversely affect your ability to
sell your shares at a price equal to or above the price at which
you purchased them. Decreases in the price of our common stock may
also lead to de-listing of our common stock.
Management will have broad discretion as to the use of the proceeds
from this offering, and we may not use the proceeds
effectively.
We
have not allocated specific amounts of the net proceeds from this
offering for any specific purpose. Accordingly, our management will
have broad discretion in the application of the net proceeds from
this offering and could spend the proceeds in ways that you do not
agree with or that do not improve our results of operations or
enhance the value of our common stock. See “Use of Proceeds.” Our
failure to apply these funds effectively could have a material
adverse effect on our business, financial results, operating
results and/or cash flow and could cause the price of our common
stock to decline.
Our outstanding options, warrants and convertible preferred stock,
and the availability for resale of certain of the underlying
shares, may adversely affect the trading price of our common
stock.
As of
February 3, 2021, there were outstanding:
|
● |
stock
options to purchase approximately 19,261 shares of our common stock
at a weighted-average exercise price of $150.44 per
share; |
|
|
|
|
● |
40,681
shares of common stock issuable upon exercise of warrants
outstanding at a weighted-average exercise price of $33.52 per
share; and |
|
|
|
|
● |
6,570,174
shares of common stock issuable upon conversion of the outstanding
Series A Preferred Stock, subject to a beneficial ownership
conversion limitation. |
|
|
|
|
● |
Our
outstanding options, warrants and convertible preferred stock could
adversely affect our ability to obtain future financing or engage
in certain mergers or other transactions, since the holders thereof
may exercise them at a time when we may be able to obtain
additional capital through a new offering of securities on terms
more favorable to us than the terms of outstanding securities. For
the life of the options, warrants and convertible preferred stock,
the holders have the opportunity to profit from a rise in the
market price of our common stock without assuming the risk of
ownership. The issuance of shares upon the exercise of outstanding
options, warrants and preferred stock would also dilute the
ownership interests of our existing stockholders. |
Additional financing or future equity issuances may result in
future dilution to our shareholders.
We
expect that we will need to raise additional funds in the future to
finance our internal growth, our merger and acquisition plans,
investment activities, continued research and product development,
and for other reasons. Any required additional financing may not be
available on terms acceptable to us, or at all. If we raise
additional funds by issuing equity securities, you may experience
significant dilution of your ownership interest and the newly
issued securities may have rights senior to those of the holders of
our common stock. The price per share at which we sell additional
securities in future transactions may be higher or lower than the
price per share in this offering. Alternatively, if we raise
additional funds by obtaining loans from third parties, the terms
of those financing arrangements may include negative covenants or
other restrictions on our business that could impair our
operational flexibility and would also require us to fund
additional interest expense. If adequate additional financing is
not available when required or is not available on acceptable
terms, we may be unable to successfully execute our business
plan.
Because we do not currently intend to pay cash dividends on our
common stock, stockholders will primarily benefit from an
investment in our stock only if it appreciates in
value.
We
have never declared or paid any cash dividends on our shares of
stock. We currently intend to retain all future earnings, if any,
for use in the operations and expansion of the business. As a
result, we do not anticipate paying cash dividends in the
foreseeable future. Any future determination as to the declaration
and payment of cash dividends or non-cash dividends will be at the
discretion of our board of directors and will depend on factors the
board of directors deems relevant, including among others, our
results of operations, financial condition and cash requirements,
business prospects, and the terms of any of our financing
arrangements. Accordingly, realization of a gain on stockholders’
investments will primarily depend on the appreciation of the price
of our stock. There is no guarantee that our stock will appreciate
in value.
General
Risks
Because certain of our stockholders control a significant number of
shares of our common stock, they may have effective control over
actions requiring stockholder approval.
As of
February 3, 2021, our directors, executive officers and principal
stockholders (those beneficially owning in excess of 5%), and their
respective affiliates, beneficially own approximately 14.2% of our
outstanding shares of common stock. As a result, these
stockholders, acting together, could have the ability to control
the outcome of matters submitted to our stockholders for approval,
including the election of directors and any merger, consolidation
or sale of all or substantially all of our assets. As such, these
stockholders, acting together, could have the ability to exert
influence over the management and affairs of our company.
Accordingly, this concentration of ownership might harm the market
price of our common stock by:
|
|
● |
delaying,
deferring or preventing a change in corporate control; |
|
|
|
|
|
|
● |
impeding
a merger, consolidation, takeover or other business combination
involving us; or |
|
|
|
|
|
|
● |
discouraging
a potential acquirer from making a tender offer or otherwise
attempting to obtain control of us. |
If securities or industry analysts do not publish research or
reports about our business, or if they change their recommendations
regarding our stock adversely, our stock price and trading volume
could decline.
The
trading market for our common stock will be influenced by the
research and reports that industry or securities analysts publish
about us or our business. Our research coverage by industry and
financial analysts is currently limited. Even if our analyst
coverage increases, if one or more of the analysts who cover us
downgrade our stock, our stock price would likely decline. If one
or more of these analysts cease coverage of our company or fail to
regularly publish reports on us, we could lose visibility in the
financial markets, which in turn could cause our stock price or
trading volume to decline.
USE
OF PROCEEDS
We
estimate that we will receive net proceeds of approximately $31.4
million from the sale of the shares of common stock offered in this
offering, or approximately $36.1 million if the underwriters
exercise their over-allotment option in full, after deducting the
underwriting discounts and commissions and estimated offering
expenses payable by us.
We
currently intend to use the net proceeds from this offering,
together with our existing cash, to fund (1) the development and
growth of our new business lines, (2) acquisition opportunities,
and (3) the general corporate and working capital needs. We
estimate that at least $20.4 of the net proceeds from this offering
will be invested into our new business line growth and development,
$9.0 will be used for possible acquisitions or investments in
complementary businesses, products, services, technologies or
existing assets, and approximately $2.0 will be used for general
corporate and working capital needs.
We
may change the amount of net proceeds to be used specifically for
any of the foregoing purposes. The amounts and timing of our actual
expenditures will depend upon numerous factors, including our sales
and marketing and commercialization efforts, demand for our
products, our operating costs and the other factors described under
“Risk Factors” in this prospectus. Accordingly, our management will
have significant discretion and flexibility in applying the net
proceeds from this offering. Pending any use, as described above,
we intend to invest the net proceeds in high-quality, short-term,
interest-bearing securities.
Although
we may use a portion of the net proceeds of this offering for the
acquisition or licensing, as the case may be, of additional
technologies, other assets or businesses, or for other strategic
investments or opportunities, we have no current understandings,
agreements or commitments to do so.
DIVIDEND POLICY
We
have never paid cash dividends, and we do not anticipate paying a
cash dividend in 2021. We anticipate that we will retain any
earnings and other cash resources for investment in our business.
The payment of dividends, whether in cash or in non-cash form, on
our common stock is subject to the discretion of our board of
directors and will depend on our operations, financial position,
financial requirements, general business conditions, restrictions
imposed by financing arrangements, if any, legal restrictions on
the payment of dividends and other factors that our board of
directors deems relevant.
CAPITALIZATION
The
following table sets forth our capitalization as of September 30,
2020:
|
|
● |
on an
actual basis; and |
|
|
|
|
|
|
● |
on
a pro forma basis to give effect to issuances of common stock after
September 30, 2020, which includes the conversion of 4,293 shares
of Series A Preferred Stock into 662,500 shares of common stock,
and the sale by us of 7,666,666 shares of our common stock in a
public offering at the price of $3.60 per share;
|
|
|
|
|
|
|
● |
on a
pro forma as-adjusted basis to reflect the issuance and sale by us
of 12,319,346 shares of our common stock in this offering at the
public offering price of $2.80 per share, after deducting
underwriting discounts and commissions and estimated offering
expenses payable by us and the receipt by us of the proceeds of
such sale. |
You
should read this information together with the section titled
“Management’s Discussion and Analysis of Financial Condition and
Results of Operations” in our Annual Report on Form 10-K for the
year ended December 31, 2019 and our Quarterly Report on Form 10-Q
for the quarter ended September 30, 2020, which are incorporated by
reference in this prospectus, and our consolidated financial
statements and related notes incorporated by reference in this
prospectus.
| |
|
As of September 30, 2020 |
|
| |
|
Actual |
|
|
Pro Forma |
|
|
Pro Forma As Adjusted |
|
| |
|
(unaudited) |
|
|
(unaudited) |
|
|
(unaudited) |
|
| |
|
|
|
|
|
|
|
|
|
| Cash |
|
$ |
11,645,000 |
|
|
$ |
36,590,000
|
|
|
|
67,951,000
|
|
| Long-term debt, net |
|
$ |
3,041,000 |
|
|
$ |
3,041,000
|
|
|
$ |
3,041,000
|
|
| Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred stock, $.02 par value;
47,000 shares authorized, issued and outstanding; liquidation value
$1,000 per share, $47,000,000 aggregate; 43,000 shares issued and
outstanding (pro forma and pro forma as adjusted), Liquidation
value $1,000 per share, $43,000,000 aggregate. |
|
|
1,000 |
|
|
|
1,000
|
|
|
|
1,000
|
|
| Common stock,
$0.02 par value; 200,000,000 shares authorized, 5,174,000 shares
issued and outstanding (actual); 13,503,166 issued and outstanding
(pro forma); 25,822,512 issued and outstanding (pro forma as
adjusted) |
|
|
103,000 |
|
|
|
269,000
|
|
|
|
515,000
|
|
| Additional paid-in
capital |
|
|
174,423,000 |
|
|
|
199,202,000
|
|
|
|
230,317,000
|
|
| Non-controlling
interest in subsidiary |
|
|
(307,000 |
) |
|
|
(307,000
|
) |
|
|
(307,000
|
) |
|
Accumulated deficit |
|
|
(100,905,000 |
) |
|
|
(100,905,000 |
) |
|
|
(100,905,000
|
) |
| Total
shareholders’ equity |
|
|
73,315,000 |
|
|
|
98,260,000
|
|
|
|
129,621,000
|
|
| Total
capitalization |
|
$ |
76,356,000 |
|
|
$ |
101,301,000 |
|
|
$ |
132,662,000
|
|
The
number of shares of our common stock to be outstanding upon
completion of this offering is based on 5,174,000 shares of our
common stock outstanding as of September 30, 2020, and
excludes:
|
|
● |
19,261
shares of common stock issuable upon exercise of stock options
outstanding at a weighted-average exercise price of $150.44 per
share; |
|
|
|
|
|
|
● |
40,681
shares of common stock issuable upon exercise of warrants
outstanding at a weighted-average exercise price of $33.52 per
share; |
|
|
|
|
|
|
● |
7,232,670
shares of common stock issuable upon conversion of the outstanding
Series A Preferred Stock, subject to a beneficial ownership
conversion limitation; and |
|
|
|
|
|
|
● |
191,314
shares of common stock reserved and available for issuance under
our equity compensation plans. |
(See
“Prospectus Summary—The Offering” above for information on shares
of common stock, options and warrants as of February 3,
2021.)
DESCRIPTION OF THE SECURITIES WE ARE
OFFERING
In
this offering, we are offering 12,319,346 shares of our common
stock at the public offering price of $2.80 per share. The material
terms and provisions of our common stock are described under the
captions “Description of Securities” and “Description of Common
Stock,” each beginning on page 6 of the accompanying
prospectus.
UNDERWRITING
Aegis
Capital Corp. is acting as the representative of the underwriters
of the offering. We have entered into an underwriting agreement
dated February 4, 2021, with the representative. Subject to the
terms and conditions of the underwriting agreement, we have agreed
to sell to the underwriters named below and the underwriters named
below have severally agreed to purchase, at the public offering
price less the underwriting discount set forth on the cover page of
this prospectus supplement, the following respective number of
shares of our common stock:
|
Underwriter |
|
Number
of
Shares
|
|
|
Aegis
Capital Corp. |
|
|
12,319,346
|
|
The
underwriters are committed to purchase all the shares of common
stock offered by us other than those covered by the option to
purchase additional shares described below, if they purchase any
shares. The obligations of the underwriters may be terminated upon
the occurrence of certain events specified in the underwriting
agreement. Furthermore, pursuant to the underwriting agreement, the
underwriters’ obligations are subject to customary conditions and
representations and warranties contained in the underwriting
agreement, such as receipt by the underwriters of officers’
certificates and legal opinions.
We
have agreed to indemnify the underwriters against specified
liabilities, including liabilities under the Securities Act of
1933, as amended, and to contribute to payments the underwriters
may be required to make in respect thereof.
The
underwriters are offering the common stock, subject to prior sale,
when, as and if issued to and accepted by them, subject to approval
of legal matters by their counsel and other conditions specified in
the underwriting agreement. The underwriters reserve the right to
withdraw, cancel or modify offers to the public and to reject
orders in whole or in part.
The
underwriters propose to offer the common stock offered by us to the
public at the public offering price set forth on the cover page of
this prospectus supplement. In addition, the underwriters may offer
some of the common stock to other securities dealers at such price
less a concession of $0.105 per share. After the initial offering,
the public offering price and concession to dealers may be
changed.
We
have granted the underwriters an over-allotment option. This
option, which is exercisable for up to 45 days after the date of
this prospectus supplement, permits the underwriters to purchase a
maximum of 1,847,901 additional shares of common stock from us to
cover over-allotments. If the underwriters exercise all or part of
this option, they will purchase shares of common stock covered by
the option at the public offering price that appears on the cover
page of this prospectus supplement, less the underwriting discount.
If this option is exercised in full, the total price to the public
will be approximately $39.7 million and the total proceeds, before
expenses, to us will be $36.3 million.
Underwriting
Discount. The following table shows the public offering price,
underwriting discount, non-accountable underwriters’ expense
allowance and proceeds, before expenses, to us. The information
assumes either no exercise or full exercise by the underwriters of
their over-allotment option.
| |
|
|
|
|
Total |
|
| |
|
Per Share |
|
|
Without
Over-Allotment |
|
|
With
Over-Allotment |
|
| Public offering price |
|
$ |
2.800
|
|
|
$ |
34,494,168.80
|
|
|
$ |
39,668,291.60
|
|
| Underwriting discount (7.5%) |
|
$ |
0.210
|
|
|
$ |
2,587,062.66
|
|
|
$ |
2,975,121.87
|
|
| Non-accountable
expense allowance (1%) |
|
$ |
0.028
|
|
|
$ |
344,941.69
|
|
|
$ |
396,682.92
|
|
| Proceeds, before expenses, to us |
|
$ |
2.562
|
|
|
$ |
31,562,164.45
|
|
|
$ |
36,296,486.81
|
|
We
have also agreed to pay all expenses relating to the offering,
including (a) all filing fees and expenses relating to the
registration of the shares to be sold in the offering (including
shares sold upon exercise of the underwriters’ over-allotment
option) with the Securities and Exchange Commission; (b) all fees
associated with the review of the offering by FINRA and all fees
and expenses relating to the listing of such shares on the NYSE
American; (c) all fees, expenses and disbursements relating to the
registration, qualification or exemption of securities offered
under the “blue sky” securities laws designated by the
underwriters; (d) all fees, expenses and disbursements relating to
the registration, qualification or exemption of securities offered
under the securities laws of foreign jurisdictions designated by
the underwriters; (e) transfer and/or stamp taxes, if any, payable
upon the transfer of the shares from the Company to the
representative; (f) fees and expenses of our accountants; and (g)
fees and expenses of the representative, including representative’s
legal counsel, not to exceed $75,000.
We
estimate that the total expenses of the offering, excluding
underwriting discount and non-accountable expense allowance, will
be approximately $201,000.
Discretionary
Accounts. The underwriters do not intend to confirm sales of
the securities offered hereby to any accounts over which they have
discretionary authority.
Lock-Up
Agreements. Pursuant to certain “lock-up” agreements, (a) our
executive officers and directors as of the pricing date of the
offering, have agreed, subject to certain exceptions, not to offer,
issue, sell, contract to sell, encumber, grant any option for the
sale of or otherwise dispose of any securities of the Company
without the prior written consent of the representative, until
April 22, 2021, and (b) we, and any successor, have agreed, subject
to certain exceptions, until April 22, 2021, not to (1) offer, sell
or otherwise transfer or dispose of, directly or indirectly, any
shares of capital stock of the Company or (2) file or caused to be
filed any registration statement with the SEC relating to the
offering of any shares of our capital stock or any securities
convertible into or exercisable or exchangeable for shares of our
capital stock.
This
lock-up provision applies to common stock and to securities
convertible into or exchangeable or exercisable for common stock.
It also applies to common stock owned now or acquired later by the
person executing the agreement or for which the person executing
the agreement later acquires the power of disposition. The
exceptions permit, among other things and subject to restrictions,
the issuance of common stock upon the exercise of outstanding stock
options and warrants or other outstanding convertible
securities.
Right of First Refusal. The representative shall have a
right of first refusal until January 22, 2022, to act as lead
managing underwriter and book runner and/or lead placement agent
for each and every future public equity or equity convertible
offering of the Company.
Electronic
Offer, Sale and Distribution of Shares. A prospectus in
electronic format may be made available on the websites maintained
by one or more of the underwriters or selling group members, if
any, participating in this offering and one or more of the
underwriters participating in this offering may distribute
prospectuses electronically. The representative may agree to
allocate a number of shares to underwriters and selling group
members for sale to their online brokerage account holders.
Internet distributions will be allocated by the underwriters and
selling group members that will make internet distributions on the
same basis as other allocations. Other than the prospectus in
electronic format, the information on these websites is not part of
this prospectus or the registration statement of which this
prospectus forms a part, has not been approved or endorsed by us or
any underwriter in its capacity as underwriter, and should not be
relied upon by investors.
Other
Relationships. Certain of the underwriters and their affiliates
have provided, and may in the future provide, various investment
banking, commercial banking and other financial services for us and
our affiliates for which they have received, and may in the future
receive, customary fees; however, except as disclosed in this
prospectus, we have no present arrangements with any of the
underwriters for any further services.
Stabilization.
In connection with this offering, the underwriters may engage in
stabilizing transactions, overallotment transactions, syndicate
covering transactions, penalty bids and purchases to cover
positions created by short sales.
|
|
● |
Stabilizing
transactions permit bids to purchase shares so long as the
stabilizing bids do not exceed a specified maximum, and are engaged
in for the purpose of preventing or retarding a decline in the
market price of the shares while the offering is in
progress. |
|
|
|
|
|
|
● |
Overallotment
transactions involve sales by the underwriters of shares in excess
of the number of shares the underwriters are obligated to purchase.
This creates a syndicate short position which may be either a
covered short position or a naked short position. In a covered
short position, the number of shares over-allotted by the
underwriters is not greater than the number of shares that they may
purchase in the overallotment option. In a naked short position,
the number of shares involved is greater than the number of shares
in the overallotment option. The underwriters may close out any
short position by exercising their overallotment option and/or
purchasing shares in the open market. |
|
|
|
|
|
|
● |
Syndicate
covering transactions involve purchases of shares in the open
market after the distribution has been completed in order to cover
syndicate short positions. In determining the source of shares to
close out the short position, the underwriters will consider, among
other things, the price of shares available for purchase in the
open market as compared with the price at which they may purchase
shares through exercise of the overallotment option. If the
underwriters sell more shares than could be covered by exercise of
the overallotment option and, therefore, have a naked short
position, the position can be closed out only by buying shares in
the open market. A naked short position is more likely to be
created if the underwriters are concerned that after pricing there
could be downward pressure on the price of the shares in the open
market that could adversely affect investors who purchase in the
offering. |
|
|
|
|
|
|
● |
Penalty
bids permit the representative to reclaim a selling concession from
a syndicate member when the shares originally sold by that
syndicate member are purchased in stabilizing or syndicate covering
transactions to cover syndicate short positions. |
These
stabilizing transactions, syndicate covering transactions and
penalty bids may have the effect of raising or maintaining the
market price of our shares or common stock or preventing or
retarding a decline in the market price of our shares or common
stock. As a result, the price of our common stock in the open
market may be higher than it would otherwise be in the absence of
these transactions. Neither we nor the underwriters make any
representation or prediction as to the effect that the transactions
described above may have on the price of our common stock. These
transactions may be effected on NYSE American.
Passive
Market Making. In connection with this offering, underwriters
and selling group members may engage in passive market making
transactions in our common stock on the NYSE American marketplace
in accordance with Rule 103 of Regulation M under the Exchange Act,
during a period before the commencement of offers or sales of the
shares and extending through the completion of the distribution. A
passive market maker must display its bid at a price not in excess
of the highest independent bid of that security. However, if all
independent bids are lowered below the passive market maker’s bid,
that bid must then be lowered when specified purchase limits are
exceeded.
Offer
restrictions outside the United States
Other
than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the securities
offered by this prospectus in any jurisdiction where action for
that purpose is required. The securities offered by this prospectus
may not be offered or sold, directly or indirectly, nor may this
prospectus or any other offering material or advertisements in
connection with the offer and sale of any such securities be
distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable
rules and regulations of that jurisdiction. Persons into whose
possession this prospectus comes are advised to inform themselves
about and to observe any restrictions relating to the offering and
the distribution of this prospectus. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy
any securities offered by this prospectus in any jurisdiction in
which such an offer or a solicitation is unlawful.
China
The
information in this document does not constitute a public offer of
the securities, whether by way of sale or subscription, in the
People’s Republic of China (excluding, for purposes of this
paragraph, Hong Kong Special Administrative Region, Macau Special
Administrative Region and Taiwan). The securities may not be
offered or sold directly or indirectly in the People’s Republic of
China to legal or natural persons other than directly to “qualified
domestic institutional investors.”
Hong
Kong
Each
underwriter has represented and agreed that:
|
|
● |
it
has not offered or sold and will not offer or sell in Hong Kong, by
means of any document, any of our common stock other than (i) to
“professional investors” as defined in the Securities and Futures
Ordinance (Cap. 571) of Hong Kong and any rules made under that
Ordinance; or (ii) in other circumstances which do not result in
the document being a “prospectus” as defined in the Companies
Ordinance (Cap. 32) of Hong Kong or which do not constitute an
offer to the public within the meaning of that Ordinance;
and |
|
|
|
|
|
|
● |
it
has not issued or had in its possession for the purposes of issue,
and will not issue or have in its possession for the purposes of
issue, whether in Hong Kong or elsewhere, any advertisement,
invitation or document relating to our common stock, which is
directed at, or the contents of which are likely to be accessed or
read by, the public of Hong Kong (except if permitted to do so
under the securities laws of Hong Kong) other than with respect to
shares of our common stock which are or are intended to be disposed
of only to persons outside Hong Kong or only to “professional
investors” as defined in the Securities and Futures Ordinance and
any rules made under that Ordinance. |
Singapore
This
prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus and
any other document or material in connection with the offer or
sale, or invitation for subscription or purchase, of the shares may
not be circulated or distributed, nor may the shares be offered or
sold, or be made the subject of an invitation for subscription or
purchase, whether directly or indirectly, to persons in Singapore
other than (i) to an institutional investor under Section 274 of
the Securities and Futures Act, Chapter 289 of Singapore, or the
SFA, (ii) to a relevant person pursuant to Section 275(1), or any
person pursuant to Section 275(1A), and in accordance with the
conditions specified in Section 275 of the SFA or (iii) otherwise
pursuant to, and in accordance with the conditions of, any other
applicable provision of the SFA, in each case subject to compliance
with conditions set forth in the SFA.
Where
the shares are subscribed or purchased under Section 275 of the SFA
by a relevant person which is:
|
|
● |
a
corporation (which is not an accredited investor (as defined in
Section 4A of the SFA)) the sole business of which is to hold
investments and the entire share capital of which is owned by one
or more individuals, each of whom is an accredited investor;
or |
|
|
|
|
|
|
● |
a
trust (where the trustee is not an accredited investor) whose sole
purpose is to hold investments and each beneficiary of the trust is
an individual who is an accredited investor, |
|
|
|
|
|
|
● |
shares,
debentures and units of shares and debentures of that corporation
or the beneficiaries’ rights and interest (howsoever described) in
that trust shall not be transferred within six months after that
corporation or that trust has acquired the shares pursuant to an
offer made under Section 275 of the SFA except: |
|
|
|
|
|
|
● |
to an
institutional investor (for corporations, under Section 274 of the
SFA) or to a relevant person defined in Section 275(2) of the SFA,
or to any person pursuant to an offer that is made on terms that
such shares, debentures and units of shares and debentures of that
corporation or such rights and interest in that trust are acquired
at a consideration of not less than $200,000 (or its equivalent in
a foreign currency) for each transaction, whether such amount is to
be paid for in cash or by exchange of securities or other assets,
and further for corporations, in accordance with the conditions
specified in Section 275 of the SFA; |
|
|
|
|
|
|
● |
where
no consideration is or will be given for the transfer;
or |
|
|
|
|
|
|
● |
where
the transfer is by operation of law. |
LEGAL MATTERS
The
validity of the issuance of the securities offered hereby will be
passed upon for us by Sichenzia Ross Ference LLP, New York, New
York. Certain legal matters in connection with this offering will
be passed upon for the underwriters by Loeb & Loeb LLP, New
York, NY.
EXPERTS
The
consolidated financial statements of Document Security Systems,
Inc., and Subsidiaries as of and for the years ended December 31,
2019 and 2018, incorporated in this prospectus by reference to the
Company’s Annual Report on Form 10-K for the year ended December
31, 2019, have been audited by Freed Maxick CPAs, P.C., an
independent registered public accounting firm, as stated in its
report incorporated by reference herein, and have been so
incorporated in reliance upon such report and upon the authority of
such firm as experts in accounting and auditing.
The
consolidated financial statements of Impact BioMedical Inc., and
subsidiaries as of and for the years ended December 31, 2019 and
2018, incorporated in this prospectus by reference to the Company’s
Amendment No. 1 filed on June 8, 2020 to Current Report on Form 8-K
dated April 27, 2020, have been audited by Turner, Stone &
Company, L.L.P., an independent registered public accounting firm,
as stated in its report incorporated by reference herein, and have
been so incorporated in reliance upon such report and upon the
authority of such firm as experts in accounting and
auditing.
WHERE YOU CAN
FIND MORE INFORMATION
This
prospectus supplement and the accompanying prospectus are part of
the registration statement on Form S-3 we filed with the Securities
and Exchange Commission, or SEC, under the Securities Act, and do
not contain all the information set forth in the registration
statement. Whenever a reference is made in this prospectus
supplement or the accompanying prospectus to any of our contracts,
agreements or other documents, the reference may not be complete,
and you should refer to the exhibits that are a part of the
registration statement or the exhibits to the reports or other
documents incorporated by reference into this prospectus supplement
and the accompanying prospectus for a copy of such contract,
agreement or other document. You may inspect a copy of the
registration statement, including the exhibits and schedules,
without charge, at the SEC’s public reference room mentioned below,
or obtain a copy from the SEC upon payment of the fees prescribed
by the SEC.
We
file periodic reports, proxy statements and other information with
the SEC. Our filings are available to the public over the Internet
at the SEC’s web site at http://www.sec.gov. We will also provide
you with a copy of any or all of the reports or documents that have
been incorporated by reference into this prospectus or the
registration statement of which it is a part upon written or oral
request, and at no cost to you. If you would like to request any
reports or documents from the Company, please contact Frank D.
Heuszel at 585-325-3610.
Our
Internet address is www.dsssecure.com. We have not
incorporated by reference into this prospectus the information on
our website, and you should not consider it to be a part of this
document. Our web address is included in this document as an
inactive textual reference only.
INCORPORATION OF DOCUMENTS BY
REFERENCE
This
prospectus is part of the registration statement, but the
registration statement includes and incorporates by reference
additional information and exhibits. The Securities and Exchange
Commission permits us to “incorporate by reference” the information
contained in documents we file with the Securities and Exchange
Commission, which means that we can disclose important information
to you by referring you to those documents rather than by including
them in this prospectus. Information that is incorporated by
reference is considered to be part of this prospectus and you
should read it with the same care that you read this prospectus.
Information that we file later with the Securities and Exchange
Commission will automatically update and supersede the information
that is either contained, or incorporated by reference, in this
prospectus, and will be considered to be a part of this prospectus
from the date those documents are filed.
We
are incorporating by reference the following documents that we have
filed with the SEC (other than any filing or portion thereof that
is furnished, rather than filed, under applicable SEC
rules):
|
|
● |
our
Annual Report on Form 10-K for the year ended December 31, 2019,
filed with the SEC on March 31, 2020; |
|
|
|
|
|
|
● |
our
Quarterly Reports on Form 10-Q for the quarter ended March 31,
2020, filed with the SEC on May 14, 2020; for the quarter ended
June 30, 2020, filed with the SEC on August 14, 2020; and for the
quarter ended September 30, 2020, filed with the SEC on October 23,
2020; |
|
|
|
|
|
|
● |
our
Current Reports on Form 8-K filed with the SEC on January 15, 2020
(as amended February 27, 2020), February 12, 2020, February 21,
2020, February 25, 2020, March 6, 2020, March 17, 2020, April 6,
2020, April 17, 2020, May 1, 2020 (as amended June 8, 2020), May 5,
2020, May 7, 2020, May 29, 2020, June 19, 2020, July 1, 2020, July
7, 2020, July 31, 2020, August 11, 2020, August 19, 2020, August
27, 2020 (as amended November 6, 2020), September 25, 2020, October
30, 2020, November 19, 2020, November 25, 2020, December 9, 2020,
December 23, 2020, January 6, 2021, and January 22,
2021; |
|
|
|
|
|
|
● |
The
information under the captions “Election of Directors,” “Directors,
Executive Officers and Corporate Governance” and “Executive
Compensation,” in our definitive proxy statement on Form 14A for
our 2020 Annual Meeting of Stockholders, filed with the SEC on
November 2, 2020; and |
|
|
|
|
|
|
● |
the
description of our Common Stock, which is registered under Section
12 of the Exchange Act, contained in Exhibit 4.1 to our Annual
Report on Form 10-K for the year ended December 31, 2019, filed
with the SEC on March 31, 2020, including any amendments or reports
filed for the purpose of updating such description. |
We
also incorporate by reference all additional documents that we file
with the Securities and Exchange Commission under the terms of
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act that are
made after the initial filing date of the registration statement of
which this prospectus is a part until the offering of the
particular securities covered by this prospectus has been
completed. We are not, however, incorporating, in each case, any
documents or information that we are deemed to furnish and not file
in accordance with Securities and Exchange Commission
rules.
You
may request a copy of these filings at no cost, by writing or
telephoning us at the following address or telephone
number:
Frank
D. Heuszel
Document
Security Systems, Inc.
200
Canal View Boulevard, Suite 104
Rochester,
NY 14623
Tel:
+1-585-325-3610
Except
as expressly provided above, no other information, including none
of the information on our website, is incorporated by reference
into this prospectus.
Any
statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus will be deemed
modified, superseded or replaced for purposes of this prospectus to
the extent that a statement contained in this prospectus modifies,
supersedes or replaces such statement.
PROSPECTUS
DOCUMENT
SECURITY SYSTEMS, INC.
$50,000,000
Common
Stock, Warrants, Units and Rights
This
prospectus covers our offer and sale from time to time of any
combination of common stock, warrants, units or rights described in
this prospectus in one or more offerings. This prospectus provides
a general description of the securities we may offer and sell. Each
time we offer and sell securities we will provide specific terms of
the securities offered in a supplement to this prospectus. The
prospectus supplement may also add, update or change information
contained in this prospectus. The aggregate offering price of all
securities sold by us under this prospectus may not exceed
$50,000,000.
Shares
of our common stock are traded on the NYSE American LLC under the
symbol “DSS”. On May 2, 2019, the closing sales price for our
common stock was $1.26 per share.
Investing
in our securities involves risks. See “Risk Factors” beginning on
page 3 of this prospectus as well as the risk factors and other
information in any documents we incorporate by reference into this
prospectus to read about important factors you should consider
before investing.
We
have not authorized any dealer, salesman or other person to give
any information or to make any representation other than those
contained or incorporated by reference in this prospectus and an
accompanying supplement to this prospectus. You must not rely upon
any information or representation not contained or incorporated by
reference in this prospectus or the accompanying prospectus
supplement.
Neither
the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal
offense.
The
date of this prospectus is May 8, 2019
TABLE
OF CONTENTS
ABOUT THIS PROSPECTUS
This
prospectus is part of a shelf registration statement that we filed
with the Securities and Exchange Commission (the “SEC”) using a
“shelf” registration process. Under this shelf registration
process, we may sell up to $50,000,000 of our common stock,
warrants, units or rights in one or more offerings from time to
time. This prospectus provides you with a general description of
the securities we may offer. Each time we offer securities, we will
provide you with a prospectus supplement that describes the
specific amounts, prices and terms of the securities we offer. The
prospectus supplement also may add, update or change information
contained in this prospectus.
This
prospectus does not contain all the information provided in the
registration statement we filed with the SEC. You should read both
this prospectus, including the section titled “Risk Factors,” and
any prospectus supplement, together with the additional information
described under the heading “Where You Can Find More
Information.”
You
should rely only on the information contained or incorporated by
reference in this prospectus or a prospectus supplement. We have
not authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent
information, you should not rely on it. This prospectus is not an
offer to sell securities, and it is not soliciting an offer to buy
securities in any jurisdiction where the offer or sale is not
permitted. You should assume that the information appearing in this
prospectus or any prospectus supplement, as well as information we
have previously filed with the SEC and incorporated by reference,
is accurate as of the date on the front of those documents only.
Our business, financial condition, results of operations and
prospects may have changed since those dates
DISCLOSURE REGARDING FORWARD-LOOKING
STATEMENTS
This
prospectus contains forward-looking statements. Such
forward-looking statements include those that express plans,
anticipation, intent, contingency, goals, targets or future
development and/or otherwise are not statements of historical fact.
These forward-looking statements are based on our current
expectations and projections about future events and they are
subject to risks and uncertainties known and unknown that could
cause actual results and developments to differ materially from
those expressed or implied in such statements.
In
some cases, you can identify forward-looking statements by
terminology, such as “expects,” “anticipates,” “intends,”
“estimates,” “plans,” “believes,” “seeks,” “may,” “should”, “could”
or the negative of such terms or other similar expressions.
Accordingly, these statements involve estimates, assumptions and
uncertainties that could cause actual results to differ materially
from those expressed in them. Any forward-looking statements are
qualified in their entirety by reference to the factors discussed
throughout this prospectus.
You
should read this prospectus and any accompanying prospectus
supplement and the documents that we reference herein and therein
and have filed as exhibits to the registration statement, of which
this prospectus is part, completely and with the understanding that
our actual future results may be materially different from what we
expect. You should assume that the information appearing in this
prospectus and any accompanying prospectus supplement is accurate
as of the date on the front cover of this prospectus or such
prospectus supplement only. Because the risk factors referred to
above, as well as the risk factors referred to on page 3 of this
prospectus and incorporated herein by reference, could cause actual
results or outcomes to differ materially from those expressed in
any forward-looking statements made by us or on our behalf, you
should not place undue reliance on any forward-looking statements.
Further, any forward-looking statement speaks only as of the date
on which it is made, and we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after
the date on which the statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to
time, and it is not possible for us to predict which factors will
arise. In addition, we cannot assess the impact of each factor on
our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those
contained in any forward-looking statements. We qualify all of the
information presented in this prospectus and any accompanying
prospectus supplement, and particularly our forward-looking
statements, by these cautionary statements.
RISK FACTORS
Our
business is influenced by many factors that are difficult to
predict and that involve uncertainties that may materially affect
our actual operating results, cash flows and financial condition.
Before making an investment decision in our securities, you should
carefully consider the specific factors set forth under the caption
“Risk Factors” in the applicable prospectus supplement and in our
periodic reports filed with the SEC that are incorporated by
reference herein (including the “Risk Factors” section beginning on
page 3 of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2018) together with all of the other information
appearing in this prospectus, in the applicable prospectus
supplement or incorporated by reference into this prospectus in
light of your particular investment objectives and financial
circumstances.
THE COMPANY
The
Company
Document
Security Systems, Inc. (referred to herein as “Document Security
Systems”, “DSS”, “we”, “us”, “our” or “Company”) was formed in New
York in 1984 and, in 2002, chose to strategically focus on becoming
a developer and marketer of secure technologies. We specialize in
fraud and counterfeit protection for all forms of printed documents
and digital information. The Company holds numerous patents for
optical deterrent technologies that provide protection of printed
information from unauthorized scanning and copying. We operate two
production facilities, consisting of a combined security printing
and packaging facility and a plastic card facility where we produce
secure and non-secure documents for our customers. We license our
anti-counterfeiting technologies to printers and brand-owners. In
addition, we have a digital division which provides cloud computing
services for our customers, including disaster recovery, back-up
and data security services. In 2013, the Company expanded its
business focus by merging with DSS Technology Management, Inc.,
formerly known as Lexington Technology Group, Inc., which acquires
intellectual property assets and interests in companies owning
intellectual property assets for the purpose of monetizing these
assets through a variety of value-enhancing initiatives, including,
but not limited to, investments in the development and
commercialization of patented technologies, licensing, strategic
partnerships and litigation.
Prior
to 2006, our primary revenue source in our document security
division was derived from the licensing of our technology. In 2006,
we began a series of acquisitions designed to expand our ability to
produce products for end-user customers. In 2006, we acquired
Plastic Printing Professionals, Inc., a privately held plastic
cards manufacturer located in the San Francisco, California area
and which may be referred to herein as the “DSS Plastics Group”. In
2008, we acquired DPI of Rochester, LLC, a privately held
commercial printer located in Rochester, New York. In 2010, we
acquired Premier Packaging Corporation, a privately held packaging
company located in Victor, New York, which may also referred to
herein as the “DSS Packaging Group.” In May 2011, we acquired
ExtraDev, Inc. a privately held information technology and cloud
computing company located in Rochester, New York. In 2016,
ExtraDev, Inc. changed its name to DSS Digital Inc. DSS Digital
Inc. is also referred to herein as the “DSS Digital
Group”.
On
July 1, 2013, we merged with DSS Technology Management, Inc.
(formerly known as Lexington Technology Group, Inc.), a private
intellectual property monetization company. DSS Technology
Management, Inc. is also referred to herein as “DSS Technology
Management”. DSS Technology Management is focused on extracting the
economic benefits of intellectual property assets through acquiring
or internally developing patents or other intellectual property
assets (or interests therein) and then monetizing such assets
through a variety of value enhancing initiatives.
In
January 2018, we commenced international operations with our wholly
owned subsidiary, DSS Asia Limited, in our office in Hong Kong. In
December 2018, this division acquired Guangzhou Hotapps Technology
Ltd, a Chinese company that enhances our ability to do business in
China. Guangzhou Hotapps Technology Ltd, did not have revenue but
has two employees and a license to do business in China.
We do
business in five operating segments as follows:
DSS Packaging and Printing Group - Produces custom
paperboard packaging serving clients in the pharmaceutical,
beverage, photo packaging, toy, specialty foods and direct
marketing industries, among others. The group also provides secure
and commercial printing services for end-user customers along with
technical support for our technology licensees. The division
produces a wide array of printed materials such as security paper,
vital records, prescription paper, birth certificates, receipts,
manuals, identification materials, entertainment tickets, secure
coupons, parts tracking forms, brochures, direct mailing pieces,
catalogs, business cards, etc. The division also provides resources
and access to production equipment for our ongoing research and
development of security printing and related
technologies.
DSS Plastics Group - Manufactures laminated and surface
printed cards which can include magnetic stripes, bar codes,
holograms, signature panels, invisible ink, micro fine printing,
guilloche patterns, biometric, radio frequency identification
(RFID) and watermarks for printed plastic documents such as ID
cards, event badges, and driver’s licenses.
DSS Digital Group - This division researches, develops,
markets and sells our digital products, including and primarily,
our AuthentiGuard product, which is a brand authentication
application that integrates our optical deterrent technologies used
in our security printing offerings with proprietary digital data
security-based solutions. The AuthentiGuard product allows
customers to implement a security mark utilizing conventional
printing methods that is copy and counterfeit resistant that can be
read and recorded utilizing smartphones and other digital image
capture devices, which can be utilized by that customers suppliers,
field personnel and customers throughout its global product supply
and distribution chains.
DSS International - Assists the DSS Digital Group in the
development and marketing of our digital authentication products in
the Asia Pacific market.
DSS Technology Management - Acquires or internally develops
patented technology or intellectual property assets (or interests
therein), with the purpose of monetizing these assets through a
variety of value-enhancing initiatives, including, but not limited
to, investments in the development and commercialization of
patented technologies, licensing, strategic partnerships and
commercial litigation.
Our
Core Products, Technology and Services
Our
core business is counterfeit prevention, brand protection and
validation of authentic print media, including government-issued
documents, packaging, ID cards and licenses. We believe we are a
leader in the research and development of optical deterrent
technologies and have commercialized these technologies with a
suite of products that offer our customers an array of document
security solutions. We provide document security technology to
security printers, corporations, consumer product companies, and
governments for protection of vital records and documents,
certifications, travel documents, consumer products, pharmaceutical
packaging and school transcripts.
Optical
deterrent features such as ours are utilized mainly by large
security printers for the protection of important printed
documents, such as vital records, and identification documents.
Many of these features, such as micro-printing, were developed
pre-1980 as they were designed to be effective on the imaging
devices of the day which were mainly photography mechanisms. With
the advent of modern-day scanners, digital copiers, digital
cameras, smart phones and easy to use imaging software such as
Adobe Photoshop many of the pre-1980 optical deterrents such as
micro-printing are no longer used or are much less effective in the
prevention of counterfeiting.
Unlike
some of our competitors, our technologies are developed to defeat
today’s modern imaging systems. Almost all our products and
processes are built to thwart scanners and digital copiers and we
believe that our products are the most effective in doing so in the
market today. In addition, our technologies do not require
expensive hardware or software add-ons to authenticate a document,
but instead require simple, inexpensive hand-held readers which can
be calibrated to particular hidden design features. Our
technologies are literally ink on paper that is printed with a
particular method to hide selected things from a scanner’s “eye” or
distort what a scanner “sees.” These attributes make our
anti-scanning technologies very cost effective versus other current
offerings on the market since our technologies are imbedded during
the normal printing process, thereby significantly reducing the
costs to implement the technologies.
Our
primary anti-counterfeiting products and technologies are marketed
under its AuthentiGuard® registered trademark. In October 2012, we
introduced AuthentiGuard®, an iPhone application for
authentication, targeted to major Fortune 500 companies worldwide.
The application is a cloud-enabled solution that permits efficient
and cost-effective authentication for packaging, documents and
credentials. The solution embeds customizable, covert
AuthentiGuard® Prism technology that resists duplication on copiers
and scanners in a product’s packaging. Product verification using a
smartphone application creates real-time, accurate authentication
results for brand owners that can be integrated into existing
information systems.
Our
Patent Monetization Business
Since
its acquisition in 2013, DSS Technology Management’s primary
mission has been the attempted monetization of its various patent
portfolios through commercial litigation.
Except
for its investment in its social networking related patents, DSS
Technology Management and the Company have partnered with various
third-party funding groups in connection with patent monetization
programs and may continue to do so in the future. In connection
with these fundings, we have purchased patents in a variety of
fields, including social networking, mobile communications,
semi-conductors, Bluetooth and LED, and have initiated patent
infringement litigation against a wide range of domestic and global
companies. In connection with these litigation matters, we engage
with legal firms that typically work under fee caps and contingency
fee arrangements. To date, we have been or are currently in
litigation with, among others, Apple, Samsung, Taiwan Semiconductor
Manufacturing Company, Intel, NEC, Lenovo, Seoul Semiconductor,
Everlight Electronics, Cree, Nichia and Osram, GMBH. During the
course of these litigation matters, we typically incur a variety of
legal challenges from defendants, including defendants seeking to
have the patents in question adjudicated to be invalid by the
United States Patent Office through the Inter Partes Review
process. As a result of these various legal challenges issued by
defendants, we have experienced varying levels of success in our
efforts to monetize our patent investments. In addition, to date,
most of settlements or payments received from defendants have been
remitted to the Company’s third-party funders in accordance with
the terms of those respective funding agreements.
Corporate
Information
Our
principal executive offices are located at 200 Canal View
Boulevard, Suite 300, Rochester, New York 14623. Our telephone
number is (585) 325-3610. Our corporate website is
www.dsssecure.com. Information contained in or accessible through
our website is not part of this prospectus.
USE OF PROCEEDS
Unless
otherwise indicated in a prospectus supplement, we anticipate that
the net proceeds from our sale of any securities will be used for
general corporate purposes, including working capital,
acquisitions, retirement of debt and other business
opportunities.
DESCRIPTION OF
SECURITIES
This
prospectus contains a summary of the securities that we may sell.
These summaries are not meant to be a complete description of each
security. However, this prospectus and the accompanying prospectus
supplement contain the material terms of the securities being
offered.
DESCRIPTION
OF COMMON STOCK
General
The
following description of common stock, together with the additional
information we include in any applicable prospectus supplements,
summarizes the material terms and provisions of the common stock
that we may offer under this prospectus but is not complete. For
the complete terms of our common stock, please refer to our
certificate of incorporation, as amended, (the “Certificate of
Incorporation”) which may be further amended from time to time, and
our fourth amended and restated bylaws, as amended from time to
time (the “Bylaws”). New York Business Corporation Law (“NYBCL”)
may also affect the terms of these securities. While the terms we
have summarized below will apply generally to any future common
stock that we may offer, we will describe the particular terms of
any series of these securities in more detail in the applicable
prospectus supplement. If we so indicate in a prospectus
supplement, the terms of any common stock we offer under that
prospectus supplement may differ from the terms we describe
below.
As of
May 2, 2019, our authorized capital stock consisted of 200,000,000
shares of common stock, $0.02 par value per share, 18,002,721 of
which are issued and outstanding.
Common
Stock
Holders
of our common stock: (i) have equal rights to dividends from funds
legally available therefore, ratably when as and if declared by the
Company’s Board of Directors; (ii) are entitled to share ratably in
all assets of the Company available for distribution to holders of
common stock upon liquidation, dissolution, or winding up of the
affairs of the Company; (iii) do not have preemptive, subscription
or conversion rights and there are no redemption or sinking fund
provisions applicable thereto; (iv) are entitled to one
non-cumulative vote per share of common stock, on all matters which
stockholders may vote on at all meetings of stockholders; and (v)
the holders of common stock have no conversion, preemptive or other
subscription rights. There is no cumulative voting for the election
of directors. Each holder of our common stock is entitled to one
vote for each share of our common stock held on all matters
submitted to a vote of stockholders.
Anti-Takeover
Effects of Certain Provisions of our Certificate of Incorporation,
Bylaws and the BCL
New York Law
Section
912 of the NYBCL generally provides that a New York corporation may
not engage in a business combination with an interested stockholder
for a period of five years following the interested stockholder’s
becoming such. Such a business combination would be permitted where
it is approved by the board of directors before the interested
stockholder’s becoming such. Covered business combinations include
certain mergers and consolidations, dispositions of assets or
stock, plans for liquidation or dissolution, reclassifications of
securities, recapitalizations and similar transactions. An
interested stockholder is generally a stockholder owning at least
20% of a corporation’s outstanding voting stock. In addition, New
York corporations may not engage at any time with any interested
stockholder in a business combination other than: (i) a business
combination approved by the board of directors before the stock
acquisition, or where the acquisition of the stock had been
approved by the board of directors before the stock acquisition;
(ii) a business combination approved by the affirmative vote of the
holders of a majority of the outstanding voting stock not
beneficially owned by the interested stockholder at a meeting
called for that purpose no earlier than five years after the stock
acquisition; or (iii) a business combination in which the
interested stockholder pays a formula price designed to ensure that
all other stockholders receive at least the highest price per share
that is paid by the interested stockholder and that meets certain
other requirements.
A
corporation may opt out of the interested stockholder provisions
described in the preceding paragraph by expressly electing not to
be governed by such provisions in its bylaws, which must be
approved by the affirmative vote of a majority of votes of the
outstanding voting stock of such corporation and is subject to
further conditions. However, DSS’s Bylaws do not contain any
provisions electing not to be governed by Section 912 NYBCL. Under
DSS’s bylaws, any corporate action to be taken by vote of the
shareholders, shall be authorized by a majority of votes cast at a
meeting of shareholders by the holders of shares entitled to vote
thereon.
Transfer
Agent and Registrar
The
Transfer Agent and Registrar for our common stock is American Stock
Transfer and Trust Company, LLC.
DESCRIPTION
OF WARRANTS
The
following description, together with the additional information we
may include in any applicable prospectus supplements, summarizes
the material terms and provisions of the warrants that we may offer
under this prospectus and the related warrant agreements and
warrant certificates. While the terms summarized below will apply
generally to any warrants that we may offer, we will describe the
particular terms of any series of warrants in more detail in the
applicable prospectus supplement. If we indicate in the prospectus
supplement, the terms of any warrants offered under that prospectus
supplement may differ from the terms described below. If there are
differences between that prospectus supplement and this prospectus,
the prospectus supplement will control. Thus, the statements we
make in this section may not apply to a particular series of
warrants. Specific warrant agreements will contain additional
important terms and provisions and will be incorporated by
reference as an exhibit to the registration statement which
includes this prospectus.
General
We
may issue warrants for the purchase of common stock. We may issue
warrants independently or together with common stock, and the
warrants may be attached to or separate from these
securities.
We
will evidence each series of warrants by warrant certificates that
we may issue under a separate agreement. We may enter into the
warrant agreement with a warrant agent. Each warrant agent may be a
bank that we select which has its principal office in the United
States and a combined capital and surplus of at least $50,000,000.
We may also choose to act as our own warrant agent. We will
indicate the name and address of any such warrant agent in the
applicable prospectus supplement relating to a particular series of
warrants.
We
will describe in the applicable prospectus supplement the terms of
the series of warrants, including:
|
|
● |
the
offering price and aggregate number of warrants
offered; |
|
|
|
|
|
|
● |
the
currency for which the warrants may be purchased; |
|
|
|
|
|
|
● |
if
applicable, the designation and terms of the securities with which
the warrants are issued and the number of warrants issued with each
such security or each principal amount of such
security; |
|
|
|
|
|
|
● |
if
applicable, the date on and after which the warrants and the
related securities will be separately transferable; |
|
|
|
|
|
|
● |
in
the case of warrants to purchase common stock, the number of shares
of common stock, as the case may be, purchasable upon the exercise
of one warrant and the price at which these shares may be purchased
upon such exercise; |
|
|
|
|
|
|
● |
the
warrant agreement under which the warrants will be
issued; |
|
|
|
|
|
|
● |
the
effect of any merger, consolidation, sale or other disposition of
our business on the warrant agreement and the warrants; |
|
|
|
|
|
|
● |
anti-dilution
provisions of the warrants, if any; |
|
|
|
|
|
|
● |
the
terms of any rights to redeem or call the warrants; |
|
|
|
|
|
|
● |
any
provisions for changes to or adjustments in the exercise price or
number of securities issuable upon exercise of the
warrants; |
|
|
|
|
|
|
● |
the
dates on which the right to exercise the warrants will commence and
expire or, if the warrants are not continuously exercisable during
that period, the specific date or dates on which the warrants will
be exercisable; |
|
|
|
|
|
|
● |
the
manner in which the warrant agreement and warrants may be
modified; |
|
|
|
|
|
|
● |
the
identities of the warrant agent and any calculation or other agent
for the warrants; |
|
|
|
|
|
|
● |
federal
income tax consequences of holding or exercising the
warrants; |
|
|
|
|
|
|
● |
the
terms of the securities issuable upon exercise of the
warrants; |
|
|
|
|
|
|
● |
any
securities exchange or quotation system on which the warrants or
any securities deliverable upon exercise of the warrants may be
listed; and |
|
|
|
|
|
|
● |
any
other specific terms, preferences, rights or limitations of or
restrictions on the warrants. |
Before
exercising their warrants, holders of warrants will not have any of
the rights of holders of the securities purchasable upon such
exercise, including in the case of warrants to purchase common
stock, the right to receive dividends, if any, or, payments upon
our liquidation, dissolution or winding up or to exercise voting
rights, if any.
Exercise
of Warrants
Each
warrant will entitle the holder to purchase the securities that we
specify in the applicable prospectus supplement at the exercise
price that we describe in the applicable prospectus supplement.
Unless we otherwise specify in the applicable prospectus
supplement, holders of the warrants may exercise the warrants at
any time up to 5:00 p.m. Eastern Time on the expiration date that
we set forth in the applicable prospectus supplement. After the
close of business on the expiration date, unexercised warrants will
become void.
Holders
of the warrants may exercise the warrants by delivering the warrant
certificate representing the warrants to be exercised together with
specified information, and paying the required amount to the
warrant agent in immediately available funds, as provided in the
applicable prospectus supplement. We will set forth on the reverse
side of the warrant certificate, and in the applicable prospectus
supplement, the information that the holder of the warrant will be
required to deliver to the warrant agent.
Until
the warrant is properly exercised, no holder of any warrant will be
entitled to any rights of a holder of the securities purchasable
upon exercise of the warrant.
Upon
receipt of the required payment and the warrant certificate
properly completed and duly executed at the corporate trust office
of the warrant agent or any other office indicated in the
applicable prospectus supplement, we will issue and deliver the
securities purchasable upon such exercise. If fewer than all of the
warrants represented by the warrant certificate are exercised, then
we will issue a new warrant certificate for the remaining amount of
warrants. If we so indicate in the applicable prospectus
supplement, holders of the warrants may surrender securities as all
or part of the exercise price for warrants.
Enforceability
of Rights By Holders of Warrants
Any
warrant agent will act solely as our agent under the applicable
warrant agreement and will not assume any obligation or
relationship of agency or trust with any holder of any warrant. A
single bank or trust company may act as warrant agent for more than
one issue of warrants. A warrant agent will have no duty or
responsibility in case of any default by us under the applicable
warrant agreement or warrant, including any duty or responsibility
to initiate any proceedings at law or otherwise, or to make any
demand upon us. Any holder of a warrant may, without the consent of
the related warrant agent or the holder of any other warrant,
enforce by appropriate legal action its right to exercise, and
receive the securities purchasable upon exercise of, its warrants
in accordance with their terms.
Warrant
Agreement Will Not Be Qualified Under Trust Indenture
Act
No
warrant agreement will be qualified as an indenture, and no warrant
agent will be required to qualify as a trustee, under the Trust
Indenture Act. Therefore, holders of warrants issued under a
warrant agreement will not have the protection of the Trust
Indenture Act with respect to their warrants.
Governing
Law
Each
warrant agreement and any warrants issued under the warrant
agreements will be governed by New York law.
Calculation
Agent
Calculations
relating to warrants may be made by a calculation agent, an
institution that we appoint as our agent for this purpose. The
prospectus supplement for a particular warrant will name the
institution that we have appointed to act as the calculation agent
for that warrant as of the original issue date for that warrant. We
may appoint a different institution to serve as calculation agent
from time to time after the original issue date without the consent
or notification of the holders.
The
calculation agent’s determination of any amount of money payable or
securities deliverable with respect to a warrant will be final and
binding in the absence of manifest error.
DESCRIPTION
OF UNITS
As
specified in the applicable prospectus supplement, we may issue
units consisting of shares of common stock or warrants or any
combination of such securities.
The
applicable prospectus supplement will specify the following terms
of any units in respect of which this prospectus is being
delivered:
|
|
● |
the
terms of the units and of any of the common stock and warrants
comprising the units, including whether and under what
circumstances the securities comprising the units may be traded
separately; |
|
|
|
|
|
|
● |
a
description of the terms of any unit agreement governing the units;
and |
|
|
|
|
|
|
● |
a
description of the provisions for the payment, settlement, transfer
or exchange of the units. |
DESCRIPTION
OF RIGHTS
We
may offer to our shareholders rights to purchase common stock or
other securities. Rights may be issued independently or together
with any other offered security and may or may not be transferable
by the person purchasing or receiving the rights. In connection
with any rights offering to our shareholders, we may enter into a
standby underwriting or other arrangement with one or more
underwriters or other persons pursuant to which such underwriters
or other person would purchase any offered securities remaining
unsubscribed for after such rights offering. Each series of rights
will be issued under a separate rights agent agreement to be
entered into between us and a bank or trust company, as rights
agent, that we will name in the applicable prospectus supplement.
The rights agent will act solely as our agent in connection with
the certificates relating to the rights that we may issue and will
not assume any obligation or relationship of agency or trust for or
with any holders of rights certificates or beneficial owners of
rights.
The
prospectus supplement relating to any rights we offer will include
specific terms relating to the offering, including, among others,
the date of determining the shareholders entitled to the rights
distribution, the aggregated number of rights issued and the
aggregate number of shares of common stock or other securities
purchasable upon exercise of the rights, the exercise price, the
conditions to completion of the offering, the date on which the
right to exercise the rights will commence and the date on which
the right will expire and any applicable U.S. federal income tax
considerations. To the extent that any particular terms of the
rights, rights agent agreements or rights certificates described in
a prospectus supplement differ from any of the terms described
herein, then the terms described herein will be deemed to have been
superseded by that prospectus supplement.
Each
right would entitle the holder of the rights to purchase for cash
the principal amount of shares of common stock or other securities
at the exercise price set forth in the applicable prospectus
supplement. Rights may be exercised at any time up to the close of
business on the expiration date for the rights provided in the
applicable prospectus supplement. After the close of business on
the expiration date, all unexercised rights would become void and
have no further force or effect.
Holders
may exercise rights as described in the applicable prospectus
supplement. Upon receipt of payment and the rights certificate
properly completed and duly executed at the corporate trust office
of the rights agent or any other office indicated in the prospectus
supplement, we will, as soon as practicable, forward the shares of
common stock purchasable upon exercise of the rights. If less than
all of the rights issued in any rights offering are exercised, we
may offer any unsubscribed securities directly to persons other
than shareholders, to or through agents, underwriters or dealers or
through a combination of such methods, including pursuant to
standby arrangements, as described in the applicable prospectus
supplement.
The
description in the applicable prospectus supplement and other
offering material of any rights we offer will not necessarily be
complete and will be qualified in its entirety by reference to the
applicable rights agent agreement which will be filed with the SEC
if we offer rights. For more information on how you can obtain
copies of the applicable rights agent agreement if we offer rights,
see the sections above entitled “Where You can Find More
Information” and “Incorporation of Certain Information by
Reference”. We urge you to read the applicable rights agent
agreement and the applicable prospectus supplement and any other
offering material in their entirety.
FORMS
OF SECURITIES
Each
warrant, unit and right will be represented either by a certificate
issued in definitive form to a particular investor or by one or
more global securities representing the entire issuance of
securities. Certificated securities in definitive form and global
securities will be issued in registered form. Definitive securities
name you or your nominee as the owner of the security, and in order
to transfer or exchange these securities or to receive payments
other than interest or other interim payments, you or your nominee
must physically deliver the securities to the trustee, registrar,
paying agent or other agent, as applicable. Global securities name
a depositary or its nominee as the owner of warrants, units or
rights represented by these global securities. The depositary
maintains a computerized system that will reflect each investor’s
beneficial ownership of the securities through an account
maintained by the investor with its broker/dealer, bank, trust
company or other representative, as we explain more fully
below.
Registered
Global Securities
We
may issue the registered warrants, units and rights in the form of
one or more fully registered global securities that will be
deposited with a depositary or its nominee identified in the
applicable prospectus supplement and registered in the name of that
depositary or nominee. In those cases, one or more registered
global securities will be issued in a denomination or aggregate
denominations equal to the portion of the aggregate principal or
face amount of the securities to be represented by registered
global securities. Unless and until it is exchanged in whole for
securities in definitive registered form, a registered global
security may not be transferred except as a whole by and among the
depositary for the registered global security, the nominees of the
depositary or any successors of the depositary or those
nominees.
If
not described below, any specific terms of the depositary
arrangement with respect to any securities to be represented by a
registered global security will be described in the prospectus
supplement relating to those securities. We anticipate that the
following provisions will apply to all depositary
arrangements.
Ownership
of beneficial interests in a registered global security will be
limited to persons, called participants, that have accounts with
the depositary or persons that may hold interests through
participants. Upon the issuance of a registered global security,
the depositary will credit, on its book-entry registration and
transfer system, the participants’ accounts with the respective
principal or face amounts of the securities beneficially owned by
the participants. Any dealers, underwriters or agents participating
in the distribution of the securities will designate the accounts
to be credited. Ownership of beneficial interests in a registered
global security will be shown on, and the transfer of ownership
interests will be effected only through, records maintained by the
depositary, with respect to interests of participants, and on the
records of participants, with respect to interests of persons
holding through participants. The laws of some states may require
that some purchasers of securities take physical delivery of these
securities in definitive form. These laws may impair your ability
to own, transfer or pledge beneficial interests in registered
global securities.
So
long as the depositary, or its nominee, is the registered owner of
a registered global security, that depositary or its nominee, as
the case may be, will be considered the sole owner or holder of the
securities represented by the registered global security for all
purposes under the applicable indenture, warrant agreement or unit
agreement. Except as described below, owners of beneficial
interests in a registered global security will not be entitled to
have the securities represented by the registered global security
registered in their names, will not receive or be entitled to
receive physical delivery of the securities in definitive form and
will not be considered the owners or holders of the securities
under the applicable indenture, warrant agreement or unit
agreement. Accordingly, each person owning a beneficial interest in
a registered global security must rely on the procedures of the
depositary for that registered global security and, if that person
is not a participant, on the procedures of the participant through
which the person owns its interest, to exercise any rights of a
holder under the applicable indenture, warrant agreement or unit
agreement. We understand that under existing industry practices, if
we request any action of holders or if an owner of a beneficial
interest in a registered global security desires to give or take
any action that a holder is entitled to give or take under the
applicable indenture, warrant agreement or unit agreement, the
depositary for the registered global security would authorize the
participants holding the relevant beneficial interests to give or
take that action, and the participants would authorize beneficial
owners owning through them to give or take that action or would
otherwise act upon the instructions of beneficial owners holding
through them.
Any
payments to holders with respect to warrants, units or rights,
represented by a registered global security registered in the name
of a depositary or its nominee will be made to the depositary or
its nominee, as the case may be, as the registered owner of the
registered global security. None of DSS, the trustees, the warrant
agents, the unit agents or any other agent of DSS, agent of the
trustees or agent of the warrant agents or unit agents will have
any responsibility or liability for any aspect of the records
relating to payments made on account of beneficial ownership
interests in the registered global security or for maintaining,
supervising or reviewing any records relating to those beneficial
ownership interests.
We
expect that the depositary for any of the securities represented by
a registered global security, upon receipt of any payment of
principal, premium, interest or other distribution of underlying
securities or other property to holders on that registered global
security, will immediately credit participants’ accounts in amounts
proportionate to their respective beneficial interests in that
registered global security as shown on the records of the
depositary. We also expect that payments by participants to owners
of beneficial interests in a registered global security held
through participants will be governed by standing customer
instructions and customary practices, as is now the case with the
securities held for the accounts of customers in bearer form or
registered in “street name” and will be the responsibility of those
participants.
If
the depositary for any of these securities represented by a
registered global security is at any time unwilling or unable to
continue as depositary or ceases to be a clearing agency registered
under the Securities and Exchange Act of 1934, as amended (the
“Exchange Act”) and a successor depositary registered as a clearing
agency under the Exchange Act is not appointed by us within 90
days, we will issue securities in definitive form in exchange for
the registered global security that had been held by the
depositary. Any securities issued in definitive form in exchange
for a registered global security will be registered in the name or
names that the depositary gives to the relevant trustee, warrant
agent, unit agent or other relevant agent of ours or theirs. It is
expected that the depositary’s instructions will be based upon
directions received by the depositary from participants with
respect to ownership of beneficial interests in the registered
global security that had been held by the depositary.
PLAN OF DISTRIBUTION
We
may sell or dispose of the securities in one or more of the
following ways (or in any combination) from time to
time:
|
|
● |
through
underwriters or dealers; |
|
|
|
|
|
|
● |
directly
to a limited number of purchasers or to a single purchaser
(including block transactions); |
|
|
|
|
|
|
● |
through
agents; or |
|
|
|
|
|
|
● |
an
offering of shares by way of a distribution to shareholders,
partners or members. |
The
prospectus supplement will state the terms of the offering of the
securities, including:
|
|
● |
the
name or names of any underwriters, dealers or agents; |
|
|
|
|
|
|
● |
the
purchase price of such securities and the proceeds to be received
by us, if any; |
|
|
|
|
|
|
● |
any
underwriting discounts or agency fees and other items constituting
underwriters’ or agents’ compensation; |
|
|
|
|
|
|
● |
any
initial public offering price; |
|
|
|
|
|
|
● |
any
discounts or concessions allowed or reallowed or paid to dealers;
and |
|
|
|
|
|
|
● |
any
securities exchanges on which the securities may be
listed. |
Any
initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to
time.
If we
use underwriters in the sale, the securities will be acquired by
the underwriters for their own account(s) and may be resold from
time to time in one or more transactions, including:
|
|
● |
negotiated
transactions; |
|
|
|
|
|
|
● |
at a
fixed public offering price or prices, which may be
changed; |
|
|
|
|
|
|
● |
at
market prices prevailing at the time of sale; |
|
|
|
|
|
|
● |
at
prices related to prevailing market prices; or |
|
|
|
|
|
|
● |
at
negotiated prices. |
Without
limiting the generality of the foregoing, we may also enter into a
continuous offering program equity distribution agreement with a
broker-dealer, under which we may offer and sell shares of our
common stock from time to time through a broker-dealer as our sales
agent. If we enter into such a program, sales of the shares of
common stock, if any, will be made by means of ordinary brokers’
transactions on the NYSE American LLC at market prices, block
transactions and such other transactions as agreed upon by us and
the broker-dealer. Under the terms of such a program, we also may
sell shares of common stock to the broker-dealer, as principal for
its own account at a price agreed upon at the time of sale. If we
sell shares of common stock to such broker-dealer as principal, we
will enter into a separate terms agreement with such broker-dealer,
and we will describe this agreement in a separate prospectus
supplement or pricing supplement.
Broker-dealers
engaged by us may arrange for other broker-dealers to participate
in sales. Broker-dealers may receive commissions or discounts (or,
if any broker-dealer acts as agent for the purchaser of shares of
common stock, from the purchaser) in amounts to be negotiated, but,
except as set forth in a supplement to this prospectus, in the case
of an agency transaction, not in excess of a customary brokerage
commission in compliance with FINRA Rule 2440; and in the case of a
principal transaction a markup or markdown in compliance with FINRA
IM-2440.
Unless
otherwise stated in a prospectus supplement, the obligations of the
underwriters to purchase any securities will be conditioned on
customary closing conditions and the underwriters will be obligated
to purchase all of such series of securities, if any are
purchased.
We
may sell the securities through agents from time to time. The
prospectus supplement will name any agent involved in the offer or
sale of the securities and any commissions we pay to them.
Generally, any agent will be acting on a best-efforts basis for the
period of its appointment.
We
may authorize underwriters, dealers or agents to solicit offers by
certain purchasers to purchase the securities from us at the public
offering price set forth in the prospectus supplement pursuant to
delayed delivery contracts providing for payment and delivery on a
specified date in the future. The contracts will be subject only to
those conditions set forth in the prospectus supplement, and the
prospectus supplement will set forth any commissions we pay for
solicitation of these contracts.
Underwriters
and agents may be entitled under agreements entered into with us to
indemnification by us against certain civil liabilities, including
liabilities under the Securities Act, or to contribution with
respect to payments which the underwriters or agents may be
required to make. Underwriters and agents may be customers of,
engage in transactions with or perform services for us and our
affiliates in the ordinary course of business.
Each
series of securities will be a new issue of securities and will
have no established trading market other than the common stock,
which is listed on the NYSE American LLC. The securities, other
than the common stock, may or may not be listed on a national
securities exchange.
Under
applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the shares of common stock may not
simultaneously engage in market making activities with respect to
the common stock for the applicable restricted period, as defined
in Regulation M, prior to the commencement of the
distribution.
LEGAL MATTERS
The
validity of the rights and the shares of common stock offered by
this prospectus have been passed upon for us by Sichenzia Ross
Ference LLP, New York, New York.
EXPERTS
The
consolidated financial statements of Document Security Systems,
Inc. and Subsidiaries as of and for the years ended December 31,
2018 and 2017 incorporated in this prospectus by reference to the
Annual Report on Form 10-K for the year ended December 31, 2018
have been audited by FREED MAXICK CPAs, P.C., an independent
registered public accounting firm, as stated in its report
incorporated by reference herein, and have been so incorporated in
reliance upon such report and upon the authority of such firm as
experts in accounting and auditing.
INCORPORATION OF INFORMATION BY
REFERENCE
The
SEC allows us to “incorporate by reference” into this prospectus
the information we file with the SEC. This means that we can
disclose important information to you by referring you to those
documents. The information incorporated by reference is considered
to be part of this prospectus.
We
are incorporating by reference the following documents that we have
filed with the SEC (other than any filing or portion thereof that
is furnished, rather than filed, under applicable SEC
rules):
|
|
● |
our
Annual Report on Form 10-K and 10K/A for the year ended December
31, 2018, filed with the SEC on March 15, 2019 and April 26, 2019,
respectively; |
|
|
|
|
|
|
● |
our
Current Reports on Form 8-K filed with the SEC on February 15,
2019, February 22, 2019, March 27, 2019, March 28, 2019, April 10,
2019, April 11, 2019, April 11, 2019, April 16, 2019, April 17,
2019, April 30, 2019 and May 2, 2019; and |
|
|
|
|
|
|
● |
The
description of our Common Stock, which is registered under Section
12 of the Exchange Act, in our registration statement on Form 8-A,
filed with the SEC on April 19, 2004, including any amendments or
reports filed for the purpose of updating such
description. |
We
also incorporate by reference all additional documents that we file
with the Securities and Exchange Commission under the terms of
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act that are
made after the initial filing date of the registration statement of
which this prospectus is a part until the offering of the
particular securities covered by a prospectus supplement or term
sheet has been completed. We are not, however, incorporating, in
each case, any documents or information that we are deemed to
furnish and not file in accordance with Securities and Exchange
Commission rules.
You
may request a copy of these filings at no cost, by writing or
telephoning us at the following address or telephone
number:
Frank
D. Heuszel
Document
Security Systems, Inc.
200
Canal View Boulevard
Suite
300
Rochester,
NY 14623
Tel:
(585) 325-3610
Except
as expressly provided above, no other information, including none
of the information on our website, is incorporated by reference
into this prospectus.
WHERE YOU CAN FIND MORE
INFORMATION
We
file periodic reports, proxy statements and other information with
the SEC. Our filings are available to the public over the Internet
at the SEC’s web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at the SEC’s Public
Reference Room, located at 100 F Street, N.E., Washington, D.C.
20549. You can also obtain copies of the documents at prescribed
rates by writing to the Public Reference Section of the SEC at 100
F Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for further information on the operation of its
Public Reference Room. We will also provide you with a copy of any
or all of the reports or documents that have been incorporated by
reference into this prospectus or the registration statement of
which it is a part upon written or oral request, and at no cost to
you. If you would like to request any reports or documents from the
company, please contact Frank D. Heuszel at
585-325-3610.
Our
Internet address is www.dsssecure.com. We have not incorporated by
reference into this prospectus the information on our website, and
you should not consider it to be a part of this document. Our web
address is included in this document as an inactive textual
reference only.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar
as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers or persons controlling
us pursuant to the foregoing provisions, we have been informed that
in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is therefore
unenforceable. In addition, indemnification may be limited by state
securities laws.
Document
Security Systems, Inc.
12,319,346 Shares of Common
Stock
PROSPECTUS
SUPPLEMENT
Sole Book-Running Manager
Aegis
Capital Corp.
February
4, 2021
