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Basis of Presentation and Significant Accounting Policies (Policies)
 6 Months Ended
Jun. 30, 2013
Basis of Presentation and Significant Accounting Policies [Abstract]  
Completion of Merger with Lexington Technology Group

Completion of Merger with Lexington Technology Group

 

On July 1, 2013 (the "Closing Date"), DSSIP, Inc., a Delaware corporation ("Merger Sub") and a wholly-owned subsidiary of DSS merged with and into Lexington Technology Group, Inc., a Delaware corporation ("Lexington"), pursuant to the terms and conditions of the previously announced Agreement and Plan of Merger, dated as of October 1, 2012 (as amended, the "Merger Agreement"), by and among the Company, Lexington, Merger Sub and Hudson Bay Master Fund Ltd. ("Hudson Bay"), as representative of Lexington's stockholders (the "Merger"). Effective on July 1, 2013, as a result of the Merger, Lexington became a wholly-owned subsidiary of DSS. In connection with the Merger, the Company issued on the Closing Date, its securities to Lexington's stockholders in exchange for the capital stock owned by Lexington's stockholders, as follows (the "Merger Consideration"): (i) an aggregate of 16,558,387 shares of the Company's common stock, par value $0.02 per share (the "Common Stock") ; (ii) 7,100,000 shares of the Company's Common Stock to be held in escrow pursuant to an escrow agreement, dated July 1, 2013, entered into by and among the Company, Hudson Bay and American Stock Transfer & Trust Company, LLC, as escrow agent (the "Escrow Agreement"); (iii) warrants to purchase up to an aggregate of 4,859,894 shares of the Company's Common Stock, at an exercise price of $4.80 per share and expiring on July 1, 2018; and (iv) warrants to purchase up to an aggregate of 3,432,170 shares of the Company's Common Stock, at an exercise price of $0.02 per share and expiring on July 1, 2023 (the "$.02 Warrants"), to Lexington's preferred stockholders that would beneficially own more than 9.99% of the shares of the Company's Common Stock as a result of the Merger (the "Beneficial Ownership Condition"). In addition, the Company assumed options to purchase an aggregate of 2,000,000 shares of the Company's Common Stock at an exercise price of $3.00 per share, in exchange for 3,600,000 outstanding and unexercised stock options to purchase shares of Lexington's common stock. In addition, the Company issued an aggregate of 786,678 shares of Common Stock to Palladium Capital Advisors, LLC as compensation for their services in connection with the transactions contemplated by the Merger Agreement. Of those shares issued to Palladium Capital Advisors, LLC, 400,000 are currently being held in escrow pursuant to the same terms and conditions as those set forth in the Escrow Agreement.

 

As a result of the consummation of the Merger, as of the Closing Date, the former stockholders of Lexington own approximately 51% of the outstanding common stock of the combined company and the stockholders of the Company prior to the completion of the Merger own approximately 49% of the outstanding common stock of the combined company.

  

Pursuant to the Escrow Agreement, the shares of the Company's Common Stock deposited in the escrow account will be released to the holders of the Lexington common stock (pro rata on a fully-diluted basis as of the effective time of the Merger) if and when the closing price per share of the Company's Common Stock exceeds $5.00 per share (as adjusted for stock splits, stock dividends and similar events) for 40 trading days within a continuous 90 trading day period following the closing of the Merger. If within one year following the closing of the Merger, such threshold is not achieved, the shares of the Company's Common Stock held in escrow shall be cancelled and returned to the treasury of the Company. Lexington stockholders will have voting rights with respect to the Company's shares owned by such stockholders and held in escrow for one year following the closing of the Merger even though such shares may be cancelled and returned to the treasury of the Company if the condition for release of the shares held in escrow is not met.

 

If after one year, the shares held in escrow are cancelled because the conditions discussed above were not met, the former stockholders of Lexington are expected to own approximately 45% of the outstanding common stock of the combined company and the stockholders of the Company prior to the completion of the Merger are expected to own approximately 55% of the outstanding common stock of the combined company (without taking into account any shares of the Company's Common Stock held by Lexington's stockholders prior to the completion of the Merger, and excluding the exercise of any options and warrants).

 

The transaction will be accounted for as a business combination in accordance with the Business Combination Topic of the FASB ASC 805. Under the guidance, the assets and liabilities of the acquired business, Lexington, are recorded at their fair value at the date of acquisition. The excess of the purchase price over the estimated fair values is recorded as goodwill, if any. If the fair value of the assets acquired exceeds the purchase price and the liabilities assumed, then a gain on acquisition is recorded.
Earnings Per Common Share

Earnings Per Common Share - The Company presents basic and diluted earnings per share. Basic earnings per share reflect the actual weighted average of shares issued and outstanding during the period. Diluted earnings per share are computed including the number of additional shares that would have been outstanding if dilutive potential shares had been issued. In a loss year, the calculation for basic and diluted earnings per share is considered to be the same, as the impact of potential common shares is anti-dilutive.

 

As of June 30, 2013 and 2012, there were up to 4,286,534 and 4,225,691, respectively, of shares potentially issuable under convertible debt agreements, options, warrants, restricted stock agreements and employment agreements that could potentially dilute basic earnings per share in the future. These shares were excluded from the calculation of diluted earnings per share because their inclusion would have been anti-dilutive to the Company's losses in the respective periods. On July 1, 2013, in connection with the Merger, the Company issued the following: (i) 16,558,387 shares of the Company's common stock, (ii) 7,100,000 shares of the Company's Common Stock to be held in escrow pursuant to an escrow agreement, dated July 1, 2013, (iii) warrants to purchase up to an aggregate of 4,859,894 shares of the Company's Common Stock, at an exercise price of $4.80 per share and expiring on July 1, 2018, and (iv) warrants to purchase up to an aggregate of 3,432,170 shares of the Company's Common Stock, at an exercise price of $0.02 per share and expiring on July 1, 2023. In addition, the Company assumed options to purchase an aggregate of 2,000,000 shares of the Company's Common Stock at an exercise price of $3.00 per share, in exchange for 3,600,000 outstanding and unexercised stock options to purchase shares of Lexington's common stock. In addition, the Company issued an aggregate of 786,678 shares of Common Stock to Palladium Capital Advisors, LLC as compensation for their services in connection with the transactions contemplated by the Merger Agreement. Of those shares issued to Palladium Capital Advisors, LLC, 400,000 shall be held in escrow pursuant to the same terms and conditions as those set forth in the Escrow Agreement. These shares and potentially issuable shares are not included in the earnings per share as of June 30, 2013.
Concentration of Credit Risk
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 as a result of any non-performance by the financial institutions. During the six months ended June 30, 2013 and 2012, one customer accounted for 22% and 24%, respectively, of the Company's consolidated revenue. As of June 30, 2013 and 2012, this customer accounted for 20% and 22%, respectively, of the Company's trade accounts receivable balance. The risk with respect to trade receivables is mitigated by credit evaluations we perform on our customers, the short duration of our payment terms for the significant majority of our customer contracts and by the diversification of our customer base.

Conventional Convertible Debt

Conventional Convertible Debt -When the convertible feature of the conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature ("BCF"). Prior to the determination of the BCF, the proceeds from the debt instrument are first allocated between the convertible debt and any detachable free standing instruments that are included, such as common stock warrants. The Company records a BCF as a debt discount pursuant to FASB ASC Topic 470-20. In those circumstances, the convertible debt will be recorded net of the discount related to the BCF. The Company amortizes the discount to interest expense over the life of the debt using the effective interest method.
Derivative Instruments

Derivative Instruments - The Company maintains an overall interest rate risk management strategy that incorporates the use of interest rate swap contracts to minimize significant fluctuations in earnings that are caused by interest rate volatility. The Company has two interest rate swaps that change variable rates into fixed rates on a term loan and promissory note with RBS Citizens, N.A. These swaps qualify as Level 2 fair value financial instruments. These swap agreements are not held for trading purposes and the Company does not intend to sell the derivative swap financial instruments. The Company records the interest swap agreements on the balance sheet at fair value because the agreements qualify as cash flow hedges under accounting principles generally accepted in the United States of America. Gains and losses on these instruments are recorded in other comprehensive income (loss) until the underlying transaction is recorded in earnings. When the hedged item is realized, gains or losses are reclassified from accumulated other comprehensive income (loss) (AOCI) to the Consolidated Statement of Operations on the same line item as the underlying transaction. The valuations of the interest rate swaps have been derived from proprietary models of the bank based upon recognized financial principles and reasonable estimates about relevant future market conditions and may reflect certain other financial factors such as anticipated profit or hedging, transactional, and other costs. The notional amounts of the swaps decrease over the life of the agreements. The Company is exposed to a credit loss in the event of non-performance by the counter parties to the interest rate swap agreements. However, the Company does not anticipate non-performance by the counter parties. The fair value of interest rate swap hedging liabilities as of June 30, 2013 amounted to $51,775 ($127,883 - December 31, 2012) and the net gain attributable to this cash flow hedge recorded during the six months ended June 30, 2013 amounted to $76,108 ($22,492 loss- June 30, 2012).
Fair Value of Financial Instruments

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 FASB 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.

 

Fair Value of Financial Instruments - Financial instruments include cash, which is a short term investment and its carrying amount is a reasonable estimate of fair value, interest rate swaps as discussed above, notes payable and a convertible note payable. Notes payable are valued based on rates currently available to financial institutions for debt with similar terms and remaining maturities. The carrying value approximates the fair value of these debt instruments as of June 30, 2013 and December 31, 2012. On May 24, 2013, the Company amended its convertible note to extend the maturity of the note. This resulted in a change in the fair value of the embedded conversion option that exceeded 10% of the carrying value of the original debt, and as a result, was accounted for in accordance with FASB Topic ASC 470-50 "Debt Modifications and Extinguishments". The convertible note payable was recorded at its fair value as of May 24, 2013. As of June 30, 2013, the note has an estimated fair value of approximately $598,000 ($565,000 - December 31, 2012) based on the underlying shares the note can be converted into at the trading price on June 30, 2013. Since the underlying shares are trading in an active, observable market, the fair value measurement qualifies as a Level 1 input.
Reclassifications

Reclassifications - Certain prior year amounts have been reclassified to conform to the current year presentation.