2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation - The accompanying condensed unaudited consolidated financial statements contain all adjustments (consisting of normal recurring adjustments, unless otherwise indicated) necessary to present fairly our consolidated financial position as of June 30, 2026 and December 31, 2025, and the results of our consolidated operations for the interim periods presented in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”), the instructions to Form 10-Q and Article 10 of Regulation S-X. We follow the same accounting policies when preparing quarterly financial data as we use for preparing annual data. These statements should be read in conjunction with the consolidated financial statements and the notes included in our latest annual report on Form 10-K, for the fiscal year ended December 31, 2025 (“Form 10-K”), and our other reports on file with the Securities and Exchange Commission (the “SEC”).

Principles of Consolidation - The consolidated financial statements include the accounts of DSS, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates - The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Company to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, the Company evaluates its estimates, including those related to the accounts receivable, convertible notes receivable, inventory, fair values of investments, intangible assets and goodwill, useful lives of intangible assets and property and equipment, fair values of options and warrants to purchase the Company’s common stock, preferred stock, deferred revenue and income taxes, among others. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Reclassifications - Costs in the amount of $10,000 associated with third-party logistics services for the three and six months ended June 30, 2025 were reclassed from Cost of revenue to Other operating expenses on the accompanying Condensed Consolidated statements of operations to conform with current period presentation.

Cash Equivalents – All highly liquid investments with maturities of three months or less at the date of purchase are classified as cash equivalents. Amounts included in cash equivalents in the accompanying consolidated balance sheets are money market funds whose adjusted costs approximate fair value.

Accounts Receivable - The Company extends credit to its customers in the normal course of business. The Company performs ongoing credit evaluations and generally does not require collateral. Payment terms are generally 30 days but up to net 120 for certain customers. The Company carries its trade accounts receivable at invoice amounts and its rent receivables at contract amounts, less an allowance for credit losses. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance for credit losses based upon management’s estimates that include a review of the history of past write-offs and collections and an analysis of current credit conditions. In estimating expected losses in the accounts receivable portfolio, customer-specific financial data and macro-economic assumptions are utilized to project losses over a reasonable and supportable forecast period. Assumptions and judgment are applied to measure amounts and timing of expected future cash flows, collateral values and other factors used to determine the customers’ abilities to pay.

Accounts receivable, net at June 30, 2026, and December 31, 2025, was $1,286,000, and $2,254,000, respectively. At June 30, 2026, December 31, 2025, the Company established a reserve for credit losses of approximately $974,000, and $1,014,000, respectively. The Company does not accrue interest on past due accounts receivable.

Concentration of Credit Risk - The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured limits. The Company believes it is not exposed to any significant credit risk because of any non-performance by the financial institutions. As of June 30, 2026, one customer accounted for approximately 26% of our consolidated revenue and three customers accounted for approximately 16%, 14%, and 13% of our trade accounts receivable balance. As of June 30, 2025, one customer accounted for approximately 25% of our consolidated revenue and three customers accounted for approximately 18%, 15%, and 11% of our trade accounts receivable balance.

As of December 31, 2025, one customers accounted for approximately 29% of our consolidated revenue. As of December 31, 2025, five customers accounted for 19%, 18%, 13%, 12% and 11% of our trade accounts receivable balance.

Notes receivable, unearned interest, and related recognition - The Company records all future payments of principal and interest on notes as notes receivable, which are then offset by the amount of any related unearned interest income. For financial statement purposes, the Company reports the net investment in the notes receivable on the consolidated balance sheet as current or long-term based on the maturity date of the underlying notes. Such net investment is comprised of the amount advanced on the loans, adjusting for net deferred loan fees or costs incurred at origination, amounts allocated to warrants received upon origination, and any payments received in advance. The unearned interest is recognized over the term of the notes and the income portion of each note payment is calculated so as to generate a constant rate of return on the net balance outstanding. Net deferred loan fees or costs, together with discounts recognized in connection with warrants acquired at origination, are accreted as an adjustment to yield over the term of the loan.

Allowance For Loans Losses - ASC Topic 326 which requires an allowance for credit losses to be deducted from the amortized cost basis of financial assets to present the net carrying value at the amount that is expected to be collected over the contractual term of the asset considering relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. In estimating expected losses in the loan portfolio, borrower-specific financial data and macro-economic assumptions are utilized to project losses over a reasonable and supportable forecast period. Assumptions and judgment are applied to measure amounts and timing of expected future cash flows, collateral values and other factors used to determine the borrowers’ abilities to repay obligations. After the forecast period, the Company utilizes longer-term historical loss experience to estimate losses over the remaining contractual life of the loans. At June 30, 2026 and December 31, 2025, the Company established a reserve for credit losses of approximately $7,478,000.

Investments – Investments in equity securities with a readily determinable fair value, not accounted for under the equity method, are recorded at fair value with unrealized gains and losses included in earnings. For equity securities without a readily determinable fair value, the investment is recorded at cost, less any impairment, plus or minus adjustments related to observable transactions for the same or similar securities, with unrealized gains and losses included in earnings. For equity method investments, the investments are initially recorded at cost and subsequently adjusted for the Company’s proportionate share of the investee’s earnings or losses and other comprehensive income and reduced by any distributions received. Where an investee’s financial information is not available in time for the Company’s reporting deadline, the Company records its share of the investee’s results on a lag using the most recent financial information available, and records adjustment as needed when more current investee financial information becomes available. The Company also regularly reviews its equity method investments to determine whether there is a decline in fair value below book value. If there is a decline that is other-than-temporary, the investment is written down to fair value. See Note 10 for further discussion on investments.

Fair Value of Financial Instruments - Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Fair Value Measurement Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

● Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets.

● Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

● Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

The carrying amounts reported in the consolidated balance sheet for cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable and accrued expenses approximate their fair values due primarily to the short-term nature of these instruments. The carrying amounts of notes receivable, notes payable and long-term debt generally approximate their fair values based on the stated or discounted interest rates, contractual terms and expected timing of cash flows. Investments are accounted for in accordance with the applicable U.S. GAAP guidance based on the nature and classification of the investment. Investments for which fair value is not readily determined are measured in accordance with the applicable measurement alternative, when eligible. Financial instruments measured at fair value are classified within the fair value hierarchy based on the observability of the inputs used in the valuation.

Inventory – Inventories consist primarily of paper, pre-printed security paper, paperboard, fully prepared packaging, air filtration systems, and health and beauty products which and are stated at the lower of cost or net realizable value on the first-in, first-out (“FIFO”) method. Packaging work-in-process and finished goods included the cost of materials, direct labor and overhead. At the closing of each reporting period, the Company evaluates its inventory in order to adjust the inventory balance for obsolete and slow-moving items. An allowance for obsolescence of approximately $55,000 and $53,000 associated with the inventory at our Premier subsidiary for June 30, 2026, and December 31, 2025, respectively. Write-downs and write-offs are charged to cost of revenue.

Investments in real estate, net – Acquisition of assets are recorded at their relative fair value based on total accumulated costs of the acquisition. Direct acquisition-related costs are capitalized as a component of the acquired assets. This includes all costs related to finding, analyzing and negotiating a transaction. The allocation of the purchase price is an area that requires judgment and significant estimates. Tangible and intangible assets include land, building and improvements, furniture, fixtures and equipment, acquired above market and below market leases, in-place lease value (if applicable). Acquisition date fair values of assets and assumed liabilities are determined based on replacement costs, appraised values, and estimated fair values using methods similar to those used by independent appraisers and that use appropriate discount and/or capitalization rates and available market information. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets. Depreciation, amortization, cost to maintain and secure the buildings as well as interest incurred on the loans to procure the real estate are included in Cost of revenue on the accompanying Condensed consolidated statement of operations. The Company’s policy is to obtain an independent third-party valuation for each major project in the United States as part of our assessment of identifying potential triggering events for impairment. Management may use the market comparison method to value the investments. In addition to the annual assessment of potential triggering events in accordance with ASC 360 – Property Plant and Equipment (“ASC 360”), the Company applies a fair value-based impairment test to the net book value assets on an annual basis and on an interim basis if certain events or circumstances indicate that an impairment loss may have occurred.

Convertible bond investment - The Company accounts for its convertible bond investment as a financial asset measured at fair value. The Company has elected the fair value option under ASC 825, Financial Instruments, and, accordingly, changes in the fair value of the investment are recognized in earnings in the period of change. Interest income is recognized when earned in accordance with the contractual terms of the bond. Fair value is determined in accordance with ASC 820, Fair Value Measurement, using valuation techniques appropriate for the instrument and available market information. The valuation considers, among other factors, the stated interest rate, maturity date, conversion price, market price of the underlying equity securities, foreign currency exchange rates, issuer credit risk, expected term, volatility, liquidity, and conversion economics. The convertible bond investment is classified as a Level 3 financial asset because there is no quoted price in an active market for the identical bond and the valuation requires significant unobservable inputs, including issuer credit risk, expected term, volatility, liquidity, conversion probability, and conversion economics.

Intangible Assets - The estimated fair values of acquired intangibles are generally determined based upon future economic benefits such as earnings and cash flows. Acquired identifiable intangible assets are recorded at fair value and are amortized over their estimated useful lives. Acquired intangible assets with an indefinite life are not amortized but are reviewed for impairment at least annually or more frequently whenever events or changes in circumstances indicate that the carrying amounts of those assets are below their estimated fair values. Impairment is tested under ASC 350. No circumstances or events have occurred since the most recent analysis that would indicate the need for an impairment is needed for the six months ended June 30, 2026.

Goodwill – Goodwill is the excess of cost of an acquired entity over the fair value of amounts assigned to assets acquired and liabilities assumed in a business combination. Goodwill is subject to impairment testing at least annually and will be tested for impairment between annual tests if an event occurs or circumstances change that would indicate the carrying amount may be impaired. FASB ASC Topic 350 provides an entity with the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after completing the assessment, it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company will proceed to a quantitative test. The Company may also elect to perform a quantitative test instead of a qualitative test for any or all of our reporting units. The test compares the fair value of an entity’s reporting units to the carrying value of those reporting units. This quantitative test requires various judgments and estimates. The Company estimates the fair value of the reporting unit using a market approach in combination with a discounted operating cash flow approach. Impairment of goodwill is measured as the excess of the carrying amount of goodwill over the fair values of recognized and unrecognized assets and liabilities of the reporting unit. The Company performed its annual goodwill impairment test as of December 31, 2025, and no impairment was deemed necessary for the goodwill associated with Premier Packaging Company of approximately $1,769,000. No circumstances or events have occurred since the most recent analysis that would indicate the need for an impairment is needed for the six months ended June 30, 2026.

Impairment of Long-Lived Assets and Goodwill - The Company monitors the carrying value of long-lived assets for potential impairment and tests the recoverability of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If a change in circumstance occurs, the Company performs a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If cash flows cannot be separately and independently identified for a single asset, the Company will determine whether impairment has occurred for the group of assets for which the Company can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, the Company measures any impairment by comparing the fair value of the asset or asset group to its carrying value. No circumstances or events have occurred since the most recent analysis that would indicate the need for an impairment is needed for the six months ended June 30, 2026.

Convertible Promissory Note - The Company accounts for convertible promissory notes in accordance with ASU 2020-06 and evaluates embedded and freestanding features under ASC 815. Convertible notes are initially recorded at principal amount, net of any original issue discount, debt issuance costs, and discounts arising from the allocation of proceeds to detachable warrants or other freestanding instruments. When a financing transaction includes multiple instruments, the Company allocates proceeds based on the relative fair values of the instruments, or, when required, first records liability-classified instruments at fair value with residual proceeds allocated to the remaining instruments.

The Company evaluates conversion options, redemption provisions, down-round or anti-dilution features, most-favored-nation provisions, default rights, warrants, and other terms to determine whether separate accounting is required. Embedded derivatives or liability-classified instruments are measured at fair value, with changes in fair value recognized in earnings. Debt discounts, original issue discount, and issuance costs are amortized to interest expense using the effective interest method over the contractual term. Convertible notes are classified as current or noncurrent based on contractual maturity and settlement provisions. For diluted earnings per share, the Company applies the if-converted method in accordance with ASC 260.

Business Combinations and Acquisitions - Business combinations and non-controlling interests are recorded in accordance with FASB ASC 805 Business Combinations. Under the guidance, the assets and liabilities of the acquired business are recorded at their fair values at the date of acquisition and all acquisition costs are expensed as incurred. The excess of the purchase price over the estimated fair values is recorded as goodwill. If the fair value of the assets acquired exceeds the purchase price and the liabilities assumed, then a gain on acquisition is recorded. The application of business combination accounting requires the use of significant estimates and assumptions.

Acquisition of assets are recorded at their relative fair value based on total accumulated costs of the acquisition. Direct acquisition-related costs are expensed as incurred. This includes all costs related to finding, analyzing and negotiating a transaction. The allocation of the purchase price is an area that requires judgment and significant estimates. Tangible and intangible assets include land, building and improvements, furniture, fixtures and equipment, acquired above market and below market leases, in-place lease value (if applicable). Acquisition-date fair values of assets and assumed liabilities are determined based on replacement costs, appraised values, and estimated fair values using methods similar to those used by independent appraisers and that use appropriate discount and/or capitalization rates and available market information.

Loss Per Common Share - The Company presents basic and diluted (loss) earnings per share. Basic (loss) earnings per share reflect the actual weighted average of shares issued and outstanding during the period. Diluted (loss) earnings per share are computed including the number of additional shares from outstanding warrants, stock options and preferred stock that would have been outstanding if dilutive potential shares had been issued and is calculated utilizing the treasury stock method. In a loss period, the calculation for basic and diluted (loss) earnings per share is the same, as the impact of potential common shares is anti-dilutive. For the six months ended June 30, 2026 and 2025, there were no potential dilutive instruments issued and outstanding.

Share-Based Payments - Compensation cost for stock awards are measured at fair value and the Company recognizes compensation expense over the service period for which awards are expected to vest. For stock options and similar awards, fair value is estimated on the grant date using an appropriate valuation model, such as the Black-Scholes option-pricing model, which requires management to make assumptions regarding expected volatility, expected term, risk-free interest rate, expected dividends, and forfeitures. For restricted stock, restricted stock units, and common stock awards, fair value is generally based on the market price of the Company’s common stock on the grant date. For equity instruments issued to consultants and vendors in exchange for goods and services the Company determines the measurement date for the fair value of the equity instruments issued at the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

Income Taxes - The Company recognizes estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income items is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized. We recognize penalties and accrued interest related to unrecognized tax benefits in income tax expense.

Going Concern – The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. This basis of accounting contemplates the recovery of our assets and the satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments to the specific amounts and classifications of assets and liabilities, which might be necessary should we be unable to continue as a going concern. While the Company has approximately $4.1 million in cash, the Company has incurred operating losses as well as negative cash flows from operating and investing activities over the past two years and as of June 30, 2026 has negative working capital of approximately $39.9 million. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date that the financial statements are issued.

Aside from its $4.1 million in cash as of June 30, 2026, to continue as a going concern, the Company can generate operating cash through the sale of its $2.8 million of Marketable Securities. To continue as a going concern, historically, the Company has been able to obtain equity and/or debt-based financing to meet its working capital needs. In addition, the Company has taken steps, and will continue to take measures, to materially reduce the expenses and cash burn at all corporate and business line levels. Management believes that the combination of cash on hand, potential proceeds from the sale of marketable securities and real estate, additional financing, and reductions in operating expenditures will provide the Company with sufficient liquidity to fund its operations and meet its obligations as they become due. However, there can be no assurance that the Company will be successful in completing asset sales, obtaining additional financing on acceptable terms, or achieving the anticipated reductions in operating expenditures. Accordingly, management’s plans may not be sufficient to alleviate the substantial doubt about the Company’s ability to continue as a going concern.

Related Party Transactions - Transactions with affiliates and other parties that meet the definition of a related party under ASC 850, Related Party Disclosures are reflected in the accompanying condensed consolidated financial statements. All related-party balances are recorded at the exchange amounts established and agreed to by the parties. All material transaction not in the normal course of business operations are approved by the Audit Committee of the Board of Directors.

Recently Issued Accounting Pronouncements — The Financial Accounting Standards Board (FASB) issues various Accounting Standards Updates relating to the treatment and recording of certain accounting transactions. There are several new accounting pronouncements issued by FASB which are not yet effective. Each of these pronouncements, as applicable, has been or will be adopted by the Company.

In November 2023, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which improves reportable segment disclosure through enhanced disclosures about significant segment expenses. The amendment is effective for fiscal years beginning after December 15, 2023 and for interim periods within fiscal years beginning after December 15, 2024 and early adoption is permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company has adopted the enhanced segment disclosures for the year ended December 31, 2024. The Company reports its segment information to reflect the manner in which the Company’s chief operating decision maker (“CODM”) reviews and assesses performance. The Company’s Interim Chief Executive Officer has responsibilities as the CODM and review and assess the performance of the Company as a whole.

The primary financial measures used by the CODM to evaluate performance and allocate resources are net income (loss) and operating income (loss). The CODM uses net income (loss) and operating income (loss) to evaluate the performance of the Company’s ongoing operations and as part of the Company’s internal planning and forecasting processes. Information on Net loss and Operating loss is disclosed in the Condensed Consolidated Statements of Operations. Segment expenses and other segment items are provided to the CODM on the same basis as disclosed in the Condensed Consolidated Statements of Operations.

The CODM does not evaluate performance or allocate resources based on segment assets, and therefore such information is not presented in the notes to the financial statements

In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures” which is intended to simplify various aspects related to accounting for income taxes. ASU 2023-09 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The amendments in ASU 2023-09 are effective for public business entities for fiscal years beginning after December 15, 2024, including interim periods therein. Early adoption of the standard is permitted, including adoption in interim or annual periods. The adoption of this ASU did not have a material impact on the Condensed Consolidated Financial Statements.

In November 2024, the FASB issued ASU No. 2024-03 (“ASU 2024-03”), Disaggregation of Income Statement Expenses (“DISE”). ASU 2024-03 requires disaggregated disclosure of income statement expenses for public business entities. ASU 2024-03 does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. As revised by ASU No. 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures, the provisions of ASU 2024-03 are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027, with early adoption permitted. With the exception of expanding disclosures to include more granular income statement expense categories, we do not expect the adoption of ASU 2024-03 to have a material effect on our consolidated financial statements taken as a whole.

In November 2024, the FASB issued ASU 2024-04 (“ASU 2024-04”), Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments, which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as induced conversions or as extinguishments. The amendments in ASU 2024-04 are effective for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. Early adoption is permitted for entities that have adopted ASU 2020-06. The Company adopted the amendments as effective January 1, 2026. The adoption of ASU 2024-04 did not have a material impact on the Company’s consolidated financial statements.

In December 2025, the Financial Accounting Standards Board issued Accounting Standards Update No. 2025-11, Interim Reporting (Topic 270). The amendments are intended to improve interim financial reporting disclosures and clarify the application of Topic 270. The Company is currently evaluating the provisions of ASU 2025-11, including the timing of adoption and the potential impact on its interim financial statement presentation and related disclosures. The Company does not currently expect the adoption of ASU 2025-11 to have a material impact on its consolidated financial position, results of operations, or cash flows.