DSS INC

On February 15, 2021, Maiden Biosciences, Inc. (“Maiden”) commenced an action against DSS, Inc. (“DSS”), Decentralized Sharing Systems, Inc. (“Decentralized”), HWH World, Inc. (“HWH”), RBC Life International, Inc. (RBC International) (together, the “DSS Defendants”), Frank D. Heuszel (“Heuszel”), RBC Life Sciences, Inc (“RBC”), Steven E. Brown, Clinton Howard, and Andrew Howard (collectively, “Defendants”). The lawsuit is currently pending in the United States District Court Northern District of Texas, Dallas Division, and is styled and numbered Maiden Biosciences, Inc. v. Document Security Stems, Inc., et al., Case No. 3:21-cv-00327.

This lawsuit relates to two promissory notes executed by RBC in the 4 th quarter of 2019 in favor of Decentralized and HWH, totaling approximately $1,000,000. Maiden, a 2020 default judgment creditor of RBC, in the principal amount of $4,329,000, now complains about those notes, the funding of those notes, the subsequent default of those notes by RBC, and HWH and Decentralized’s subsequent Article 9 foreclosure or deed-in-lieu debt conveyances. In the instant lawsuit, Maiden first asserted claims against Defendants for unjust enrichment, fraudulent transfer under the Texas Uniform Fraudulent Transfer Act (“TUFTA”), and violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Maiden also sought a judgment from the court declaring: “(1) Defendants lacked a valid security interest in RBC and RBC Subsidiaries’ assets and therefore lacked the authority to sell the assets during the public foreclosure sale; (2) Defendant Heuszel’s low bid at the public foreclosure sale was invalid and void; (3) the public foreclosure sale was conducted in a commercially unreasonable manner; and (4) Defendants do not have the legal authority to transfer RBC and RBC’s Subsidiaries assets to Heuszel and HWH.” Maiden sought to recover from Defendants: (1) treble damages or, alternatively, damages in the amount of their underlying judgment plus the other creditors’ claims or the value of the assets transferred, whichever is less, plus punitive or exemplary damages; (2) pre- and post-judgment interest; and (3) attorneys’ fees and cost.

On March 30, 2021, Defendants DSS, Decentralized, HWH, RBC International, and Heuszel filed a motion to dismiss seeking to dismiss Maiden’s unjust enrichment, exemplary damages, and RICO claims against DSS, Decentralized, HWH, RBC Life International, Inc., and Heuszel, as well as Maiden’s fraudulent transfer claims against DSS and RBC International. On August 9, 2021, the Court then entered an order granting in part the motion to dismiss filed on behalf of DSS, Decentralized, HWH, RBC International, and Heuszel. Among other things, the Court held that Maiden failed to plausibly plead certain causes of action, including (1) the civil RICO claim against DSS, Decentralized, HWH, RBC International, and Heuszel, (2) the TUFTA claim against DSS, and (3) the unjust enrichment claim against DSS and RBC International. Notably, the Court declined the request to dismiss the TUFTA claim against RBC International. On September 3, 2021, Maiden filed its first amended complaint, asserting a single cause of action against the DSS Defendants, Heuszel, and RBC for an alleged TUFTA violation.

Generally, Maiden sought the same relief requested in its original complaint. Maiden, however, abandoned its request for treble damages. On September 17, 2021, the DSS Defendants filed a motion to dismiss the amended complaint seeking to dismiss Maiden’s TUFTA claim to the extent it seeks to avoid a transfer of assets owned by any of RBC’s subsidiaries, including but not limited to RBC Life Sciences USA, Inc. (“RBC USA”). Further, the motion to dismiss sought the dismissal of Maiden’s TUFTA claim against Heuszel. On November 19, 2021, the Court granted the motion to dismiss in part, dismissing Maiden’s claim against Heuszel and determined Maiden failed to plead that it was a creditor of RBC USA or RBC’s other subsidiaries. However, the Court permitted Maiden to replead once again.

On December 17, 2021, Maiden filed its second amended complaint which asserted a single TUFTA claim against only the DSS Defendants, RBC, and RBC USA. During the discovery period, the Parties conducted written discovery, production of documents, and depositions of fact witnesses and expert witnesses. The discovery period closed on August 9, 2022. The DSS Defendants have engaged Stout Risius Ross, LLC (“Stout”) to provide expert opinions regarding the value of the assets at issue.

The trial in this matter began on December 12, 2022. The Company vigorously defended its position that Maiden should recover nothing on its TUFTA claim. The DSS Defendants’ experts at Stout provided expert opinions regarding the value of the assets at issue and the deficiencies with Maiden’s designated expert’s opinions. The jury returned a verdict in favor of Maiden, and the Court entered a judgment on December 20, 2022. The DSS Defendants filed post-judgment motions seeking reversal of the judgment for several reasons, including that: (1) the evidence does not support Maiden’s claim against the Company; (2) recovery of exemplary damages under TUFTA is unsupported; and (3) the evidence established that the DSS Defendants are entitled to judgment in their favor on their affirmative defenses. After the DSS Defendants filed their post-judgment motions, the case was settled for $8.75 million, the Court’s December 20, 2022 judgment was vacated, and the case was dismissed with prejudice.

In addition to the foregoing, we may become subject to other legal proceedings that arise in the ordinary course of business and have not been finally adjudicated. Adverse decisions in any of the foregoing may have a material adverse effect on our results of operations, cash flows or our financial condition. The Company accrues for potential litigation losses when a loss is probable and estimable.