UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________to _________
Commission File Number
(Exact name of registrant as specified in its charter)
State or other jurisdiction of incorporation or organization |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
| The |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of May 15, 2024, there were shares of the registrant’s common stock $0.001 par value per share, issued and outstanding.
Table of Contents
| 2 |
Part I. Financial Information
Item 1. Financial Statements.
Alset Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| March 31, 2024 | December 31, 2023 | |||||||
| Assets: | ||||||||
| Current Assets: | ||||||||
| Cash and Cash Equivalents | $ | $ | ||||||
| Restricted Cash | ||||||||
| Account Receivables, Net | ||||||||
| Other Receivables, Net | ||||||||
| Note Receivables - Related Parties, Net | ||||||||
| Convertible Loan Receivables at Fair Value - Related Party | ||||||||
| Prepaid Expense | ||||||||
| Advance to Related Party | ||||||||
| Inventory | ||||||||
| Investment in Securities at Fair Value | ||||||||
| Investment in Securities at Fair Value - Related Party | ||||||||
| Investment in Securities at Cost | ||||||||
| Investment in Equity Method Securities | ||||||||
| Deposits | ||||||||
| Total Current Assets | ||||||||
| Real Estate | ||||||||
| Rental Properties | ||||||||
| Properties under Development | ||||||||
| Operating Lease Right-Of-Use Assets, Net | ||||||||
| Deposits | ||||||||
| Other Receivables - Long Term, Net | ||||||||
| Cash and Marketable Securities Held in Trust Account | ||||||||
| Goodwill | ||||||||
| Property and Equipment, Net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity: | ||||||||
| Current Liabilities: | ||||||||
| Accounts Payable and Accrued Expenses | $ | $ | ||||||
| Deferred Underwriting Compensation | ||||||||
| Deferred Revenue | ||||||||
| Operating Lease Liabilities | ||||||||
| Notes Payable | ||||||||
| Notes Payable - Related Parties | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Liabilities: | ||||||||
| Operating Lease Liabilities | ||||||||
| Notes Payable | ||||||||
| Total Liabilities | ||||||||
| Temporary Equity | ||||||||
| Class A Common Stock of Alset Capital Acquisition Corp subject to possible redemption; shares at approximately $ per share as of December 31, 2023 | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred Stock, $ par value; shares authorized, issued and outstanding | ||||||||
| Common Stock, $ par value; shares authorized; and shares issued and outstanding on March 31, 2024 and December 31, 2023, respectively | |
|||||||
| Additional Paid in Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Accumulated Other Comprehensive Income | ||||||||
| Total Alset Inc. Stockholders’ Equity | ||||||||
| Non-controlling Interests | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| F-1 |
Alset Inc. and Subsidiaries
Consolidated Statements of Operations and Other Comprehensive Loss
For the Three Months Ended March 31, 2024 and 2023
(Unaudited)
| 2024 | 2023 | |||||||
| Revenue | ||||||||
| Rental | $ | $ | ||||||
| Property | ||||||||
| Biohealth | ||||||||
| Other | ||||||||
| Total Revenue | ||||||||
| Operating Expenses | ||||||||
| Cost of Sales | ||||||||
| General and Administrative | ||||||||
| Impairment of Goodwill and Investment | ||||||||
| Total Operating Expenses | ||||||||
| Loss from Operations | ( | ) | ( | ) | ||||
| Other Income (Expense) | ||||||||
| Interest Income | ||||||||
| Interest Income - Related Party | ||||||||
| Interest Expense | ( | ) | ||||||
| Foreign Exchange Transaction Gain (Loss) | ( | ) | ||||||
| Unrealized Gain (Loss) on Securities Investment | ( | ) | ||||||
| Unrealized (Loss) Gain on Securities Investment - Related Party | ( | ) | ||||||
| Realized Loss on Securities Investment | ( | ) | ( | ) | ||||
| Loss on Equity Method Investment | ( | ) | ( | ) | ||||
| Other Expense | ( | ) | ||||||
| Other Income | ||||||||
| Total Other Income (Expense), Net | ( | ) | ( | ) | ||||
| Net Loss Before Income Taxes | ( | ) | ( | ) | ||||
| Income Tax Expense | ||||||||
| Net Loss | ( | ) | ( | ) | ||||
| Net Loss Attributable to Non-Controlling Interest | ( | ) | ( | ) | ||||
| Net Loss Attributable to Common Stockholders | $ | ( | ) | $ | ( | ) | ||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Other Comprehensive Loss | ||||||||
| Foreign Currency Translation Adjustment | ( | ) | ||||||
| Total Comprehensive Loss | ( | ) | ( | ) | ||||
| Less Comprehensive Loss Attributable to Non-controlling Interests | ( | ) | ( | ) | ||||
| Total Comprehensive Loss Attributable to Common Shareholders | ( | ) | ( | ) | ||||
| Net Loss Per Share - Basic and Diluted | $ | ) | $ | ) | ||||
| Weighted Average Common Shares Outstanding - Basic and Diluted | ||||||||
See accompanying notes to condensed consolidated financial statements.
| F-2 |
Alset Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the Three Months Ended March 31, 2024
(Unaudited)
| Series A Preferred Stock | Series B Preferred Stock | Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Par Value $0.001 | Shares | Par Value $0.001 | Shares | Par Value $0.001 | Additional Paid in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Alset Stockholders’ Equity | Non-Controlling Interests | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2024 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Issuance of HWH Common Stock to EF Hutton for Deferred Underwriting Compensation | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Gain from SHRG Convertible Note and Warrants | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Change in Non-Controlling Interest after HWH De SPAC | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Foreign Currency Translations | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| F-3 |
Alset Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the Three Months Ended March 31, 2023
(Unaudited)
| Series A Preferred Stock | Series B Preferred Stock | Common Stock | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Par Value $0.001 | Shares | Par Value $0.001 | Shares | Par Value $0.001 | Additional Paid in Capital | Accumulated Other Comprehensive Income | Accumulated Deficit | Total Alset Stockholders’ Equity | Non-Controlling Interests | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Foreign Currency Translations | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| F-4 |
Alset Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2024 and 2023
(Unaudited)
| 2024 | 2023 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Loss from Operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||||||||
| Depreciation | ||||||||
| Non-Cash Lease Expenses | ||||||||
| Impairment of Goodwill and Investment | ||||||||
| Foreign Transaction (Gain) Loss | ( | ) | ||||||
| Unrealized (Gain) Loss on Securities Investment | ( | ) | ||||||
| Unrealized Loss (Gain) on Securities Investment - Related Party | ( | ) | ||||||
| Realized Loss on Securities Investment | ||||||||
| Loss on Equity Method Investment | ||||||||
| Changes in Operating Assets and Liabilities, net of acquisitions | ||||||||
| Real Estate | ( | ) | ||||||
| Real Estate Reimbursement Receivable | ( | ) | ||||||
| Account Receivables | ||||||||
| Prepaid Expense | ( | ) | ||||||
| Advances to Related Party | ( | ) | ||||||
| Deposits | ( | ) | ||||||
| Trading Securities | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Accounts Payable and Accrued Expenses | ( | ) | ||||||
| Other Receivables - Related Parties | ( | ) | ||||||
| Deferred Revenue | ( | ) | ||||||
| Operating Lease Liabilities | ( | ) | ( | ) | ||||
| Net Cash Used in Operating Activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of Fixed Assets | ( | ) | ( | ) | ||||
| Purchase of Investment Securities | ( | ) | ( | ) | ||||
| Issuing Loan Receivable | ( | ) | ||||||
| Issuing Loan Receivable - Related Party | ( | ) | ( | ) | ||||
| Proceeds from Loan Receivable - Related Party | ||||||||
| Net Cash (Used in) Provided by Investing Activities | ( | ) | ||||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from Common Stock Issuance | ||||||||
| Borrowing from a Commercial Loan | ||||||||
| Repayment to Notes Payable | ( | ) | ||||||
| Net Cash (Used in) Provided by Financing Activities | ( | ) | ||||||
| Net (Decrease) Increase in Cash and Cash Equivalents and Restricted Cash | ( | ) | ||||||
| Effects of Foreign Exchange Rates on Cash and Cash Equivalents | ( | ) | ||||||
| Cash and Cash Equivalents and Restricted Cash - Beginning of Year | ||||||||
| Cash and Cash Equivalents and Restricted Cash- End of Period | $ | $ | ||||||
| Cash | $ | $ | ||||||
| Restricted Cash | $ | $ | ||||||
| Total Cash and Restricted Cash | $ | $ | ||||||
| Supplementary Cash Flow Information | ||||||||
| Cash Paid for Interest | $ | $ | ||||||
| Cash Paid for Taxes | $ | $ | ||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | ||||||||
| Initial Recognition of ROU / Lease Liability | $ | $ | ||||||
| Issuance of Shares to EF Hutton to Satisfy Deferred Underwriting Compensation | $ | |||||||
| Promissory Notes Received in Exchange for Sale of HWH Common Stock to Investors | $ | $ | ||||||
| Conversion of Ketomei Note Payable to Common Stock | $ | $ | ||||||
| Gain from SHRG Convertible Notes | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| F-5 |
Alset Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2024 and 2023
(Unaudited)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Alset
Inc. (the “Company” or “AEI”), formerly known as Alset EHome International Inc. and HF Enterprises Inc., was
incorporated in the State of Delaware on March 7, 2018. On October 4, 2022, through a merger transaction, the Company was reincorporated
in Texas. AEI is a diversified holding company principally engaged through its subsidiaries in the development of EHome communities and
other real estate, financial services, digital transformation technologies, biohealth activities and consumer products with operations
in the United States, Singapore, Hong Kong, Australia, South Korea and China. We manage a significant portion of our businesses through
our
The Company has four operating segments based on the products and services we offer, which include three of our principal businesses – real estate, digital transformation technology and biohealth – as well as a fourth category consisting of certain other business activities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. These interim financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or any other interim periods or for any other future years. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Form 10-K for the year ended December 31, 2023 filed on April 1, 2024.
The
condensed consolidated financial statements include all accounts of the Company and its majority owned and controlled subsidiaries. The
Company consolidates entities in which it owns more than
| F-6 |
The Company’s condensed consolidated financial statements include the financial position, results of operations and cash flows of the following entities as of March 31, 2024 and December 31, 2023, as follows:
| Name of subsidiary | State or other jurisdiction of incorporation or | Attributable interest as of, | ||||||||
| consolidated under AEI | organization | March 31, 2024 | December 31, 2023 | |||||||
| % | % | |||||||||
| * | ||||||||||
| * |
| F-7 |
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates made by management include, but are not limited to, allowance for doubtful accounts, valuation of real estate assets, allocation of development costs and capitalized interest to sold lots, fair value of the investments, the valuation allowance of deferred taxes, and contingencies. Actual results could differ from those estimates.
In our property development business, land acquisition costs are allocated to each lot based on the area method, the size of the lot compared to the total size of all lots in the project. Development costs and capitalized interest are allocated to lots sold based on the total expected development and interest costs of the completed project and allocating a percentage of those costs based on the selling price of the sold lot compared to the expected sales values of all lots in the project.
If allocation of development costs and capitalized interest based on the projection and relative expected sales value is impracticable, those costs could also be allocated based on area method, the size of the lot compared to the total size of all lots in the project.
When
the Company purchases properties but does not receive the assessment information from the county, the Company allocates the values between
land and building based on the data of similar properties. The Company makes appropriate adjustments once the assessment from the county
is received. At the same time, any necessary adjustments to depreciation expense are made in the income statement. On March 31, 2024
and December 31, 2023, the Company adjusted $
Cash and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents.
Cash and cash equivalents include cash on hand and at the bank and short-term deposits with financial institutions that are readily convertible
to a known amount of cash and are subject to an insignificant risk of changes in values. There were
Restricted Cash
As
a condition to the loan agreement with the Manufacturers and Traders Trust Company (“M&T Bank”), the Company was required
to maintain a minimum of $
The
Company puts money into brokerage accounts specifically for equity investment. As of March 31, 2024 and December 31, 2023, the cash balance
in these brokerage accounts was $
Investments held in Trust Account
At
March 31, 2024 and December 31, 2023, the Company had approximately $
| F-8 |
Account Receivables and Allowance for Credit Losses
Account
receivables is recorded at invoiced amounts net of an allowance for credit losses and do not bear interest. The allowance for credit
losses is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable.
The measurement and recognition of credit losses involves the use of judgment. Management’s assessment of expected credit losses
includes consideration of current and expected economic conditions, market and industry factors affecting the Company’s customers
(including their financial condition), the aging of account balances, historical credit loss experience, customer concentrations, customer
creditworthiness, and the existence of sources of payment The Company also establishes an allowance for credit losses for specific receivables
when it is probable that the receivable will not be collected and the loss can be reasonably estimated. Account receivables considered
uncollectible are charged against the allowance after all means of collection have been exhausted and the potential for recovery is considered
remote. As of March 31, 2024 and December 31, 2023, the allowance for credit losses was an immaterial amount. The Company does not have
any off-balance sheet credit exposure related to its customers. As of March 31, 2024 and December 31, 2023, the balance of account receivables
was $
Other Receivables
Other receivables include developer reimbursements for Lakes at Black Oak project. The Company records an allowance for credit losses based on previous collection experiences, the creditability of the organizations that are supposed to reimburse us, the forecasts from the third-party engineering company and Moody’s credit ratings. The allowance amount for these reimbursements was immaterial at March 31, 2024 and December 31, 2023.
On January 9, 2024, the Company sold shares of HWH International Inc. (“HWH”) to two investors
( shares to each). The consideration for each of the two purchases of stock is $
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method and includes all costs in bringing the inventories to their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale. As of March 31, 2024 and December 31, 2023, inventory consisted of finished goods from subsidiaries of HWH International Inc. and Hapi Metaverse Inc. The Company continuously evaluates the need for reserve for obsolescence and possible price concessions required to write-down inventories to net realizable value.
Investment Securities
Investment Securities at Fair Value
The
Company records all equity investments with readily determinable fair values at fair value calculated by the publicly traded stock price
at the close of the reporting period. Amarantus BioScience Holdings (“AMBS”) and Holista CollTech Limited (“Holista”)
are publicly traded companies. The Company does not have significant influence over AMBS and Holista, as the Company holds approximately
On
April 12, 2021 the Company acquired common shares of Value Exchange International,
Inc. (“Value Exchange International” or “VEII”), an OTC listed company, for an aggregate subscription price of
$
| F-9 |
On
March 20, 2024, HWH International Inc., a subsidiary of the Company (“HWH”), entered into a Securities Purchase Agreement
(the “Securities Purchase Agreement”) with SHRG, pursuant to which HWH purchased from SHRG a (i) Convertible Promissory Note
in the amount of $
The Company has a portfolio of trading securities. The objective is to generate profits on short-term differences in market prices. The Company does not have significant influence over any trading securities in our portfolio and fair value of these trading securities are determined by quoted stock prices.
The Company has elected the fair value option for the equity securities noted below that would otherwise be accounted for under the equity method of accounting. DSS, Inc. (“DSS”), New Electric CV Corporation (“NECV”), Value Exchange International Inc. and Sharing Services Global Corp. (“SHRG”) are publicly traded companies and fair value is determined by quoted stock prices. The Company has significant influence but does not have a controlling interest in these investments, and therefore, the Company’s investment could be accounted for under the equity method of accounting or elect fair value accounting.
| ● | The Company
has significant influence over DSS. As of March 31, 2024 and December, 2023, the Company owned approximately | |
| ● | The Company has significant
influence over NECV as the Company holds approximately | |
| ● | The Company has significant
influence over Value Exchange International as the Company holds approximately | |
| ● | The Company has significant
influence over SHRG as the Company holds approximately |
On August 8, 2023, DSS Inc. distributed shares of Impact Biomedical Inc. (“Impact”), beneficially held by DSS, in the form of a dividend to the shareholders of DSS common stock. As a result of this distribution, the Company and its majority owned subsidiaries received shares of Impact, representing % of the issued and outstanding shares of Impact Common Stock. Each share of Impact distributed as part of the distribution is not eligible for resale until 180 days from the date Impact’s initial public offering becomes effective under the Securities Act, subject to the discretion of DSS to lift the restriction sooner. As of March 31, 2024 and December 31, 2023, Impact was a startup private company. Based on the management’s analysis, the fair value of Impact shares was approximately $ at the distribution date and as of March 31, 2024 and December 31, 2023.
| F-10 |
Investment Securities at Cost
Investments in equity securities without readily determinable fair values are measured at cost minus impairment adjusted by observable price changes in orderly transactions for the identical or a similar investment of the same issuer. These investments are measured at fair value on a nonrecurring basis when there are events or changes in circumstances that may have a significant adverse effect. An impairment loss is recognized in the consolidated statements of comprehensive income equal to the amount by which the carrying value exceeds the fair value of the investment.
On
September 8, 2020, the Company acquired shares, approximately
On
September 30, 2020, the Company acquired shares, approximately
During
2021, the Company invested $
There has been no indication of impairment or changes in observable prices via transactions of similar securities and investments are still carried at cost.
Equity Method Investment
The Company accounts for equity investment in entities with significant influence under equity-method accounting. Under this method, the Group’s pro rata share of income (loss) from investment is recognized in the condensed consolidated statements of comprehensive income. Dividends received reduce the carrying amount of the investment. When the Company’s share of loss in an equity-method investee equals or exceeds its carrying value of the investment in that entity, the equity method investment can be reduced below zero based on losses, if the Company either is liable for the obligations of the investee or provides for losses in excess of the investment when imminent return to profitable operations by the investee appears to be assured. Otherwise, the Company does not recognize its share of equity method losses exceeding its carrying amount of the investment, but discloses the losses in the footnotes. Equity-method investment is reviewed for impairment by assessing if the decline in market value of the investment below the carrying value is other-than-temporary. In making this determination, factors are evaluated in determining whether a loss in value should be recognized. These include consideration of the intent and ability of the Group to hold investment and the ability of the investee to sustain an earnings capacity, justifying the carrying amount of the investment. Impairment losses are recognized in other expense when a decline in value is deemed to be other-than-temporary.
American Medical REIT Inc.
LiquidValue
Asset Management Pte. Ltd. (“LiquidValue”), a subsidiary of the Company, owns
American Pacific Financial, Inc.
Pursuant
to Securities Purchase Agreement from March 12, 2021 the Company purchased shares of the common stock of American Pacific Financial,
Inc., formerly known as American Pacific Bancorp, Inc. (“APF”) and gained majority ownership in that entity. APF was consolidated
into the Company under common control accounting. On September 8, 2021 APF sold shares Series A Common Stock to DSS, Inc. for
$
| F-11 |
Ketomei Pte Ltd
On
June 10, 2021 the Company’s indirect subsidiary Hapi Café Inc. (“HCI-T” or “Hapi Café”)
lent $
Sentinel Brokers Company Inc.
On
May 22, 2023 the Company’s indirect subsidiary, SeD Capital Pte Ltd (“SeD Capital”), entered into a Stock Purchase
Agreement, pursuant to which SeD Capital purchased shares (
Investment in Debt Securities
Debt securities are reported at fair value, with unrealized gains and losses (other than impairment losses) recognized in accumulated other comprehensive income or loss. Realized gains and losses on debt securities are recognized in the net income in the consolidated statements of comprehensive income. The Company monitors its investments for other-than-temporary impairment by considering factors including, but not limited to, current economic and market conditions, the operating performance of the companies including current earnings trends and other company-specific information.
On
February 26, 2021, the Company invested approximately $
Variable Interest Entity
Under Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 810, Consolidation, when a reporting entity is the primary beneficiary of an entity that is a variable interest entity (“VIE”), as defined in ASC 810, the VIE must be consolidated into the financial statements of the reporting entity. The determination of which owner is the primary beneficiary of a VIE requires management to make significant estimates and judgments about the rights, obligations, and economic interests of each interest holder in the VIE.
The Company evaluates its interests in VIEs on an ongoing basis and consolidates any VIE in which it has a controlling financial interest and is deemed to be the primary beneficiary. A controlling financial interest has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact its economic performance; and (ii) the obligation to absorb losses of the VIE that could potentially be significant to it or the right to receive benefits from the VIE that could be significant to the VIE.
Real Estate Assets
Real estate assets are recorded at cost, except when real estate assets are acquired that meet the definition of a business combination in accordance with FASB ASC 805 - “Business Combinations”, which acquired assets are recorded at fair value. Interest, property taxes, insurance and other incremental costs (including salaries) directly related to a project are capitalized during the construction period of major facilities and land improvements. The capitalization period begins when activities to develop the parcel commence and ends when the asset constructed is completed. The capitalized costs are recorded as part of the asset to which they relate and are reduced when lots are sold.
| F-12 |
The
Company capitalized construction costs of approximately $
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 other relatively small projects. 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.
The Company did not record impairment on any of its projects during the three months ended on March 31, 2024 and 2023.
Properties under development
Properties under development are properties being constructed for sale in the ordinary course of business, rather than to be held for the Company’s own use, rental or capital appreciation.
Rental Properties
Rental
properties are acquired with the intent to be rented to tenants. As of March 31, 2024 and December 31, 2023, the Company owned 132 homes.
The aggregate purchase cost of all the homes is $
Investments in Single-Family Residential Properties
The Company accounts for its investments in single-family residential properties as asset acquisitions and records these acquisitions at their purchase price. The purchase price is allocated between land, building and improvements based upon their relative fair values at the date of acquisition. The purchase price for purposes of this allocation is inclusive of acquisition costs which typically include legal fees, title fees, property inspection and valuation fees, as well as other closing costs.
Building
improvements and buildings are depreciated over estimated useful lives of approximately
The Company assesses its investments in single-family residential properties for impairment whenever events or changes in business circumstances indicate that carrying amounts of the assets may not be fully recoverable. When such events occur, management determines whether there has been impairment by comparing the asset’s carrying value with its fair value. Should impairment exist, the asset is written down to its estimated fair value. The Company did not recognize any impairment losses during three months ended March 31, 2024 and 2023.
Rental of Model Houses
In May 2023, the Company entered into lease agreement for one of its model houses located in Montgomery County, Texas.
On
July 14, 2023, 150 CCM Black Oak Ltd entered into a model home lease agreement with Davidson Homes, LLC (“Davidson”). On
August 3, 2023, 150 CCM Black Oak Ltd entered into a development and construction agreement with Davidson Homes, LLC to build a model
house located in Montgomery County, Texas. On January 4, 2024, 150 CCM Black Oak Ltd sent $
Revenue Recognition and Cost of Revenue
ASC 606 - Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers.
| F-13 |
In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services. The provisions of ASC 606 include a five-step process by which the determination of revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment to which the Company expects to be entitled in exchange for those goods or services. ASC 606 requires the Company to apply the following steps:
(1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, performance obligations are satisfied.
The following represents the Company’s revenue recognition policies by Segments:
Real Estate
Property Sales
Part
of the Company’s real estate business is land development. The Company purchases land and develops it for building into residential
communities. The developed lots are sold to builders (customers) for the construction of new homes. The builders enter a sales contract
with the Company before they take the lots. The prices and timeline are determined and agreed upon in the contract. The builders do the
inspections to make sure all conditions and requirements in contracts are met before purchasing the lots. A detailed breakdown of the
five-step process for the revenue recognition of the Lakes at Black Oak project, which represented approximately
| ● | Identify the contract with a customer. |
The Company has signed agreements with the builders for developing the raw land to ready to build lots. The contract has agreed upon prices, timelines, and specifications for what is to be provided.
| ● | Identify the performance obligations in the contract. |
Performance obligations of the Company include delivering developed lots to the customer, which are required to meet certain specifications that are outlined in the contract. The customer inspects all lots prior to accepting title to ensure all specifications are met.
| ● | Determine the transaction price. |
The transaction price per lot is fixed and specified in the contract. Any subsequent change orders or price changes are required to be approved by both parties.
| ● | Allocate the transaction price to performance obligations in the contract. |
Each lot or a group of lots is considered to be a separate performance obligation, for which the specified price in the contract is allocated to.
| ● | Recognize revenue when (or as) the entity satisfies a performance obligation. |
The builders do the inspections to make sure all conditions/requirements are met before taking title of lots. The Company recognizes revenue at a point in time when title is transferred. The Company does not have further performance obligations or continuing involvement once title is transferred. Revenue is recognized at a point in time.
| F-14 |
Rental Revenue
The Company leases real estate properties to its tenants under leases that are predominately classified as operating leases, in accordance with ASC 842, Leases (“ASC 842”). Real estate rental revenue is comprised of minimum base rent and revenue from the collection of lease termination fees.
Rent from tenants is recorded in accordance with the terms of each lease agreement on a straight-line basis over the initial term of the lease. Rental revenue recognition begins when the tenant controls the space and continues through the term of the related lease. Generally, at the end of the lease term, the Company provides the tenant with a one-year renewal option, including mostly the same terms and conditions provided under the initial lease term, subject to rent increases.
The Company defers rental revenue related to lease payments received from tenants in advance of their due dates. These amounts are presented within deferred revenues and other payables on the Company’s consolidated balance sheets.
Rental revenue is subject to an evaluation for collectability on several factors, including payment history, the financial strength of the tenant and any guarantors, historical operations and operating trends of the property, and current economic conditions. If our evaluation of these factors indicates that it is not probable that we will recover substantially all of the receivable, rental revenue is limited to the lesser of the rental revenue that would be recognized on a straight-line basis (as applicable) or the lease payments that have been collected from the lessee. Differences between rental revenue recognized and amounts contractually due under the lease agreements are credited or charged to straight-line rent receivable or straight-line rent liability, as applicable. In the three months ended March 31, 2024 and the year ended December 31, 2023, the Company did not recognize any deferred revenue and collected all rents due.
Cost of Revenues
Real Estate
| ● | Cost of Real Estate Sale |
All of the costs of real estate sales are from our land development business. Land acquisition costs are allocated to each lot based on the area method, the size of the lot comparing to the total size of all lots in the project. Development costs and capitalized interest are allocated to lots sold based on the total expected development and interest costs of the completed project and allocating a percentage of those costs based on the selling price of the sold lot compared to the expected sales values of all lots in the project.
If allocation of development costs and capitalized interest based on the projection and relative expected sales value is impracticable, those costs could also be allocated based on area method, the size of the lot comparing to the total size of all lots in the project.
| ● | Cost of Rental Revenue |
Cost of rental revenue consists primarily of the costs associated with management and leasing fees to our management company, repairs and maintenance, depreciation and other related administrative costs. Utility expenses are paid directly by tenants.
| F-15 |
Biohealth
| ● | Product Direct Sales |
The Company’s net sales consist of product sales. The Company’s performance obligation is to transfer ownership of its products to its members. The Company generally recognizes revenue when product is delivered to its members. Revenue is recorded net of applicable taxes, allowances, refund or returns. The Company receives the net sales price in cash or through credit card payments at the point of sale.
If
any member returns a product to the Company on a timely basis, they may obtain a replacement product from the Company for such returned
products. We do not have buyback program. However, when the customer requests a return and management decides that the refund is necessary,
we initiate the refund after deducting all the benefits that a member has earned. The returns are deducted from our sales revenue on
our financial statements. Allowances for product and membership returns are provided at the time the sale is recorded. This accrual is
based upon historical return rates for each country and the relevant return pattern, which reflects anticipated returns to be received
over a period of up to 12 months following the original sale. Product and membership returns for the three months ended March 31, 2024
and 2023 were approximately $
| ● | Annual Membership |
The
Company collects an annual membership fee from its members. The fee is fixed, paid in full at the time upon joining the membership; the
fee is not refundable. The Company’s performance obligation is to provide its members the right to (a) purchase products from the
Company, (b) access to certain back-office services, (c) receive commissions and (d) attend corporate events. The associated performance
obligation is satisfied over time, generally over the term of the membership agreement which is for a one-year period. Before the membership
fee is recognized as revenue, it is recorded as deferred revenue. Deferred revenue relating to membership was $
Other Businesses
| ● | Food and Beverage |
The Company, through Alset F&B One and Alset F&B PLQ each acquired a restaurant franchise licenses at the end of 2021 and 2022 respectively, both of which have since commenced operations. These licenses will allow Alset F&B One and Alset F&B PLQ each to operate a Killiney Kopitiam restaurant in Singapore. Killiney Kopitiam, founded in 1919, is a Singapore-based chain of mass-market, traditional kopitiam style service cafes selling traditional coffee and tea, along with a range of local delicacies such as Curry Chicken, Laksa, Mee Siam, and Mee Rebus.
The Company, through HCI-T, commenced operation of two cafés during 2022 and 2021, which are located in Singapore and South Korea.
The cafes are operated by subsidiaries of HCI-T, namely HCSG in Singapore and HCKI in Seoul, South Korea. Hapi Cafes are distinctive lifestyle café outlets that strive to revolutionize the way individuals dine, work, and live, by providing a conducive environment for everyone to relish the four facets – health and wellness, fitness, productivity, and recreation all under one roof.
In 2023 the Company incorporated three new subsidiaries Shenzhen Leyouyou Catering Management Co., Ltd., Dongguan Leyouyou Catering Management Co., Ltd. and GuangZhou Leyouyou Catering Management Co., Ltd in the People’s Republic of China. The three companies are principally engaged in the food and beverage business in Mainland China.
Additionally, through its subsidiary MOC HK Limited, the Company is focusing on operating café business in Hong Kong.
| ● | Remaining performance obligations |
As of March 31, 2024 and December 31, 2023, there were no remaining performance obligations or continuing involvement, as all service obligations within the other business activities segment have been completed.
| F-16 |
Stock-Based Compensation
The Company accounts for stock-based compensation to employees in accordance with ASC 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period. Stock option forfeitures are recognized at the date of employee termination. During the three months ended on March 31, 2024 and 2023, the Company recorded $ as stock-based compensation expense.
Foreign currency
Functional and reporting currency
Items included in the financial statements of each entity in the Company are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). The financial statements of the Company are presented in U.S. dollars (the “reporting currency”).
The functional and reporting currency of the Company is the United States dollar (“U.S. dollar”). The financial records of the Company’s subsidiaries located in Singapore, Hong Kong, Australia, South Korea and the People’s Republic of China are maintained in their local currencies, the Singapore Dollar (S$), Hong Kong Dollar (HK$), Australian Dollar (“AUD”), South Korean Won (“KRW”) and Chinese Yuan (CN¥), which are also the functional currencies of these entities.
Transactions in foreign currencies
Transactions in currencies other than the functional currency during the periods are converted into functional currency at the applicable rates of exchange prevailing when the transactions occurred. Transaction gains and losses are recognized in the statement of operations.
The
majority of the Company’s foreign currency transaction gains or losses come from the effects of foreign exchange rate changes on
the intercompany loans between Singapore entities and U.S. entities. The Company recorded foreign exchange gain of $
Translation of consolidated entities’ financial statements
Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at the rates of exchange ruling at the balance sheet date. The Company’s entities with functional currency of S$, HK$, AUD, KRW and CN¥, translate their operating results and financial positions into the U.S. dollar, the Company’s reporting currency. Assets and liabilities are translated using the exchange rates in effect on the balance sheet date. Revenue, expense, gains and losses are translated using the average rate for the year. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of comprehensive income (loss).
The
Company recorded other comprehensive loss of $
Earnings (loss) per Share
The Company presents basic and diluted earnings (loss) per share data for its common shares. Basic earnings (loss) per share is calculated by dividing the profit or loss attributable to common stock shareholders of the Company by the weighted-average number of common shares outstanding during the year, adjusted for treasury shares held by the Company.
Diluted earnings (loss) per share is determined by adjusting the profit or loss attributable to common stock shareholders and the weighted-average number of common shares outstanding, adjusted for treasury shares held, for the effects of all dilutive potential ordinary shares, which comprise convertible securities, such as stock options, convertible bonds and warrants. At March 31, 2024 there were potentially dilutive warrants outstanding. At December 31, 2023 there were potentially dilutive warrants outstanding.
| F-17 |
Fair Value Measurements
ASC 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy which requires classification based on observable and unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices (unadjusted) in an active market for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
Level 3: Unobservable inputs that are supported by little or no market activity; therefore, the inputs are developed by the Company using estimates and assumptions that the Company expects a market participant would use, including pricing models, discounted cash flow methodologies, or similar techniques.
The carrying value of the Company’s financial instruments, including cash and restricted cash, accounts receivable and accounts payable and accrued expenses approximate fair value because of the short-term maturity of these financial instruments. The liabilities in connection with the conversion and make-whole features included within certain of the Company’s notes payable and warrants are each classified as a level 3 liability.
Non-controlling interests
Non-controlling interests represent the equity in subsidiary not attributable, directly or indirectly, to owners of the Company, and are presented separately in the condensed consolidated statements of operation and comprehensive income, and within equity in the Condensed Consolidated Balance Sheets, separately from equity attributable to owners of the Company.
On
March 31, 2024 and December 31, 2023, the aggregate non-controlling interests in the Company were $
Capitalized Financing Costs
Financing costs, such as loan origination fee, administration fee, interests, and other related financing costs should be capitalized and recorded on the balance sheet, if these financing activities are directly associated with the development of real estate.
Capitalized financing costs are allocated to lots sold based on the total expected development and interest costs of the completed project and allocating a percentage of those costs based on the selling price of the sold lot compared to the expected sales values of all lots in the project. If the allocation of capitalized financing costs based on the projection and relative expected sales value is impracticable, those costs could also be allocated based on an area method, which uses the size of the lots compared to the total project area and allocates costs based on their size.
As
of March 31, 2024 and December 31, 2023, the capitalized financing costs were $
3. CONCENTRATIONS
The
Company maintains cash balances at various financial institutions in different countries. These balances are usually secured by the central
banks’ insurance companies. At times, these balances may exceed the insurance limits. As of March 31, 2024 and December 31, 2023,
uninsured cash and restricted cash balances were $
For
the three months ended March 31, 2024, one customer accounted for approximately
4. SEGMENTS
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision–making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision-maker is the CEO. The Company operates in and reports four business segments: real estate, digital transformation technology, biohealth, and other business activities. The Company’s reportable segments are determined based on the services they perform and the products they sell, not on the geographic area in which they operate. The Company’s chief operating decision maker evaluates segment performance based on segment revenue. Costs excluded from segment income (loss) before taxes and reported as “Other” consist of corporate general and administrative activities which are not allocable to the four reportable segments.
| F-18 |
The following table summarizes the Company’s segment information for the following balance sheet dates presented, and for the three months ended March 31, 2024 and 2023:
| Real Estate | Digital Transformation Technology | Biohealth Business | Other | Total | ||||||||||||||||
| Three Months Ended on March 31, 2024 | ||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Cost of Sales | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Gross Margin | ( | ) | ||||||||||||||||||
| Operating Expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Operating Income (Loss) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Other Income (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Net Income (Loss) Before Income Tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Real Estate | Digital Transformation Technology | Biohealth Business | Other | Total | ||||||||||||||||
| Three Months Ended on March 31, 2023 | ||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Cost of Sales | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Gross Margin | ( | ) | ||||||||||||||||||
| Operating Expenses | ( | ) | ( | ) | ( | ) | ( | ) | $ | ( | ) | |||||||||
| Operating Loss | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Other Income (Expense) | ( | ) | ( | ) | $ | ( | ) | |||||||||||||
| Net Loss Before Income Tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| March 31, 2024 | ||||||||||||||||||||
| Cash and Restricted Cash | $ | $ | $ | $ | $ | |||||||||||||||
| Total Assets | ||||||||||||||||||||
| December 31, 2023 | ||||||||||||||||||||
| Cash and Restricted Cash | $ | $ | $ | $ | $ | |||||||||||||||
| Total Assets | ||||||||||||||||||||
5. REAL ESTATE ASSETS
As of March 31, 2024 and December 31, 2023, real estate assets consisted of the following:
| March 31, 2024 | December 31, 2023 | |||||||
| Construction in Progress | $ | $ | ||||||
| Land Held for Development | ||||||||
| Rental Properties, net | ||||||||
| Total Real Estate Assets | $ | $ | ||||||
| F-19 |
Single family residential properties
As
of March 31, 2024 and December 31, 2023, the Company owned
The following table presents the summary of our SFRs as of March 31, 2024:
Number of Homes | Aggregate investment | Average Investment per Home | ||||||||||
| SFRs | $ | $ | ||||||||||
6. NOTES PAYABLE
As of March 31, 2024 and December 31, 2023, notes payable consisted of the following:
March 31, 2024 | December 31, 2023 | |||||||
| Motor Vehicle Loans | $ | $ | ||||||
| Loans for Operations | ||||||||
| Promissory Note to EF Hutton | ||||||||
| Total notes payable | $ | $ | ||||||
M&T Bank Loan
On
April 17, 2019, SeD Maryland Development LLC entered into a Development Loan Agreement with Manufacturers and Traders Trust Company (“M&T
Bank”) in the principal amount not to exceed at any one time outstanding the sum of $
Motor Vehicle Loans
On
May 17, 2021, Alset International entered into an agreement with Hong Leong Finance Limited to purchase a car for business. The total
purchase price of the car, including associated charges, was approximately $
On
September 22, 2022 Alset International entered into an agreement with United Overseas Bank Limited to purchase additional car for business.
The total purchase price of the car, including associated charges, was approximately $
| F-20 |
Future minimum principal payments under existing motor vehicle loans at March 31, 2024 in each calendar year through the end of their terms are as follows:
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total Future Receipts | $ |
Loans for Operations
Company’s
subsidiary, Ketomei Pte Ltd (“Ketomei”) has a loan from DBS Bank Limited, which was used to fund Ketomei’s current
operations. Ketomei owns the bank $
Ketomei
borrowed also funds from an individual to whom Ketomei owns $
Promissory Note to EF Hutton
On
December 18, 2023, the Company’s subsidiary, HWH International Inc. (“HWH”) entered into a Satisfaction and
Discharge of Indebtedness Agreement in connection with an underwriting agreement previously entered into by HWH and EF Hutton, a
division of Benchmark Investments, LLC, under which in lieu of HWH tendering the full amount due of $
7. RELATED PARTY TRANSACTIONS
Purchase of Shares and Warrants from NECV
On
July 17, 2020, the Company purchased shares, approximately
Reorganization of Home Rental Business
On
December 9, 2022, the Company entered into an agreement with Alset EHome Inc. and Alset International, two majority-owned subsidiaries
of the Company, pursuant to which the Company agreed to reorganize the ownership of its home rental business. Previously, the Company
and certain majority-owned subsidiaries collectively owned 132 single-family rental homes in Texas. 112 of these rental homes are owned
by subsidiaries of American Home REIT Inc. (“AHR”). The Company owns
The closing of the transaction contemplated by this agreement was completed on January 13, 2023. Pursuant to this agreement, the Company became the direct owner of AHR and its subsidiaries that collectively own these 112 homes, instead of such homes being owned indirectly through Alset International’s subsidiaries.
Alset
EHome Inc. sold AHR to the Company for a total consideration of $
| F-21 |
The closing of the transaction was approved by the shareholders of Alset International. Certain members of the Company’s Board of Directors and management are also members of the Board of Directors and management of each of Alset International and Alset EHome Inc.
SHRG Shares Dividend Received from DSS
On
May 4, 2023, DSS distributed approximately million shares of Sharing Services Global Corporation (“SHRG”) beneficially
held by DSS and its subsidiaries in the form of a dividend to the shareholders of DSS common stock. As a result of this distribution,
the Company directly received shares of SHRG, and through its majority-owned subsidiary Alset International, and certain subsidiaries
of Alset International, indirectly received additional shares of SHRG. The Company and its majority-owned subsidiaries now
collectively own shares of SHRG, representing
Consolidation of HWH International Inc. (f.k.a. Alset Capital Acquisition Corp.)
On
May 1, 2023, HWH International Inc. (then known as Alset Capital Acquisition Corp., or “Alset Capital”) held a Special Meeting
of Stockholders. In connection with the Special Meeting and certain amendments to Alset Capital’s Amended and Restated Certificate
of Incorporation, shares of Alset Capital’s Class A Common Stock were rendered for redemption. Following the redemption,
shares of Class A Common Stock of Alset Capital remained issued and outstanding, including shares held by the Company.
The Company also owns shares of Alset Capital’s Class B Common Stock. Following the redemptions, Company’s ownership
in Alset Capital has increased from % of the total shares of common stock to % of the total number of outstanding shares of the
two classes. The Company recognized $
Business Combination of Alset Capital Acquisition Corp. and HWH International Inc.
On
January 9, 2024, two entities affiliated with Alset Inc. completed a previously announced transaction. On September 9, 2022, Alset Capital
entered into an agreement and plan of merger (the “Merger Agreement”) with our indirect subsidiary HWH International Inc.,
a Nevada corporation (“HWH”) and HWH Merger Sub Inc., a Nevada corporation and a wholly owned subsidiary of Alset Capital
(“Merger Sub”). The Company and its
Pursuant to the Merger Agreement, on January 9, 2024, a business combination between Alset Capital and HWH was effected through the merger of Merger Sub with and into HWH, with HWH surviving the merger as a wholly owned subsidiary of Alset Capital (the “Merger”), and Alset Capital changing its name to HWH International Inc. (“New HWH”).
The total consideration paid at the closing of the Merger by New HWH to the HWH shareholders was shares of New HWH common stock. Alset International owned the majority of the outstanding shares of HWH at the time of the business combination, and received shares of New HWH as consideration for its shares of HWH.
New
HWH currently has shares of common stock issued and outstanding. Of these shares, a total of shares of New HWH
common stock are now owned by the Sponsor and Alset International together. In addition, the Sponsor owns warrants convertible into up
to
The transaction described above was a transaction between entities under common control. In the transactions under common control, financial statements and financial information were presented as of the beginning of the period as though the assets and liabilities had been transferred at that date. The company controlled both entities and accordingly, the equity was eliminated in consolidation.
| F-22 |
Purchase of Hapi Travel Ltd. Stock
On
June 14, 2023, the Company’s subsidiary completed acquisition of Hapi Travel Limited (“HTL”), an online travel business
started in Hong Kong and under common control of the Company. The accompanying consolidated financial statements include the operations
of the acquired entity from its acquisition date. The acquisition has been accounted for as a business combination. Accordingly, consideration
paid by the Company to complete the acquisition is initially allocated to the acquired assets and liabilities assumed based upon their
estimated fair values on the acquisition date. The recorded amounts for assets acquired and liabilities assumed are provisional and subject
to change during the measurement period, which is up to 12 months from the acquisition date. As a result of the acquisition of HTL, a
deemed dividend of $
The common control transaction described above resulted in the following basis of accounting for the financial reporting periods:
| ● | The acquisition of HTL was accounted for prospectively as of June 14, 2023 as this did not represent a change in reporting entity. | |
| ● | The acquisition of HTL was under common control and was consolidated in accordance with ASC 850-50. The Consolidated financial statements were not retrospectively adjusted for the acquisition of HTL as of January 1, 2022 for comparative purposes because the historical operations of HTL were deemed to be immaterial to the Company’s consolidated financial statements. |
Convertible Notes to Value Exchange
On
January 27, 2023, the Company and New Electric CV Corporation (together with the Company, the “Lenders”) entered into a Convertible
Credit Agreement (the “Credit Agreement”) with VEII. The Credit Agreement provides VEII with a maximum credit line of $
On
September 6, 2023, the Company converted $
On
December 14, 2023, Hapi Metaverse entered into a Convertible Credit Agreement (“Credit Agreement”) with VEII. On
December 15, 2023, the company loaned VEII $
| F-23 |
Convertible Notes to Sharing Services
On
January 17, 2024, the Company received a Convertible Promissory Note (the “Convertible Note”) from Sharing Services
Global Corp. (“SHRG”), an affiliate of the Company, in exchange for a $
On
March 20, 2024, HWH International Inc., a subsidiary of the Company (“HWH”), entered into a Securities Purchase
Agreement (the “Securities Purchase Agreement”) with SHRG, pursuant to which HWH purchased from SHRG a (i) Convertible
Promissory Note in the amount of $
Advance to Related Party
On February 20, 2024, the Company sent $
Notes Payable
Chan
Heng Fai provided an interest-free, due on demand advance to SeD Perth Pty. Ltd. for its general operations. As of March 31, 2024 and
December 31, 2023, the outstanding balance was $
Chan
Heng Fai provided an interest-free, due on demand advance to Hapi Metaverse Inc. for its general operations. As of March 31, 2024 and
December 31, 2023, the outstanding balance was $
Management Fees
MacKenzie
Equity Partners, LLC, an entity owned by Charles MacKenzie, a Director of the Company, has a consulting agreement with a majority-owned
subsidiary of the Company. Pursuant to an agreement entered into in June of 2022, as supplemented in August, 2023, the Company’s
subsidiary has paid $
The
Company incurred expenses of $
Notes Receivable from Related Party
On
December 31, 2023, the total convertible note receivable from Ketomei, prior to impairment charges, was $
On
June 10, 2021, HCI-T signed a convertible loan agreement with Ketomei, pursuant to which HCI-T has agreed to grant Ketomei a loan of
an aggregate principal amount of $
| F-24 |
On
July 28, 2022 HCI-T entered into binding term sheet with Ketomei and Tong Leok Siong Constant, pursuant to which HCI-T lent Ketomei $
On
August 4, 2022, the same parties entered into another binding term sheet (the “Second Term Sheet”) pursuant to which HCI-T
agreed to lend Ketomei up to $
On
August 31, 2023, the same parties entered into another binding term sheet pursuant to which HCI-T agreed to lend Ketomei up to $
On
October 26, 2023, the same parties entered into another binding term sheet pursuant to which HCI-T agreed to lend Ketomei up to $
The
amount due from Ketomei at December 31, 2023 was $
On
February 20, 2024, HCI-T invested $
On
October 13, 2021 BMI Capital Partners International Limited (“BMI”) entered into loan agreement with Liquid Value Asset Management
Limited (“LVAML”), a subsidiary of DSS, pursuant to which BMI agreed to lend $
On
September 28, 2023 Alset International Limited (“Alset International”) entered into loan agreement with Value Exchange International
Inc., pursuant to which Alset International agreed to lend $
8. GOODWILL
The Company continually evaluates potential acquisitions that align with the Company’s plans, namely, starting the F&B business in Asia. Starting an F&B business in Hong Kong, China, and Taiwan can be an excellent opportunity due to the large consumer market, diverse food culture, high demand for international cuisine, favorable business environment, skilled labor force, and opportunities for growth. On October 4, 2022, The Company has completed its first F&B business acquisition of MOC HK Limited (“MOC”), a F&B business started in Hong Kong. The accompanying consolidated financial statements include the operations of the acquired entity from its acquisition date. The acquisition has been accounted for as a business combination. Accordingly, consideration paid by the Company to complete the acquisition is initially allocated to the acquired assets and liabilities assumed based upon their estimated acquisition date fair values.
As
a result of the acquisition of MOC, goodwill of $
| F-25 |
The Company evaluates goodwill on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a quantitative goodwill impairment test. The impairment test involves comparing the fair value of the applicable reporting unit with its carrying value. The Company estimates the fair values of its reporting units using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The Company’s evaluation of goodwill completed during the year resulted in no impairment losses.
The following table summarizes changes in the carrying amount of goodwill for the three months ended March 31, 2024 and the years ended December 31, 2023.
| March 31, 2024 | December 31, 2023 | |||||||
| Balance at beginning of the year | $ | $ | ||||||
| Foreign currency exchange adjustment | ( | ) | ( | ) | ||||
| Balance as of end of the year | $ | $ | ||||||
9. EQUITY
On June 14, 2021, the Company filed an amendment (the “Amendment”) to its Third Amended and Restated Certificate of Incorporation, as amended, to increase the Company’s authorized share capital. The Amendment increased the Company’s authorized share capital to common shares and preferred shares, from common shares and preferred shares, respectively.
The Company has designated preferred shares as Series A Preferred Stock and as Series B Preferred Stock.
On
December 6, 2022 the
Holders of the Series A Preferred Stock shall be entitled to receive dividends equal, on an as-if-converted basis, to and in the same form as dividends actually paid on shares of the Company’s common stock, par value $ per share (“Common Stock”) when, as and if paid on shares of Common Stock. Each holder of outstanding Series A Preferred Stock is entitled to vote equal to the number of whole shares of Common Stock into which each share of the Series A Preferred Stock is convertible. Holders of Series A Preferred Stock are entitled, upon liquidation of the Company, to receive the same amount that a holder of Series A Preferred Stock would receive if the Series A Preferred Stock were fully converted into Common Stock.
Holders of the Series B Preferred Stock shall be entitled to receive dividends equal, on an as-if-converted basis, to and in the same form as dividends actually paid on shares of the Company’s common stock par value $ per share (“Common Stock”) when, as and if paid on shares of Common Stock. Each holder of outstanding Series B Preferred Stock is entitled to vote equal to the number of whole shares of Common Stock into which each share of the Series B Preferred Stock is convertible. Holders of Series B Preferred Stock are entitled, upon liquidation of the Company, to receive the same amount that a holder of Series B Preferred Stock would receive if the Series B Preferred Stock were fully converted into Common Stock.
| F-26 |
The Company analyzed the Preferred stock and the embedded conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the conversion option should be classified as equity.
On February 6, 2023, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) in connection with an offering (the “Offering”) of its common stock, par value $ per share (the “Common Stock”), with Aegis Capital Corp. (the “Underwriter”) as the underwriter, relating to an underwritten public offering of shares of Common Stock at a public offering price of $ per share. The Underwriting Agreement provides the Underwriter a 45-day option to purchase up to an additional shares of Common Stock to cover over-allotments, if any.
The
net proceeds to the Company from the Offering were approximately $
The Offering closed on February 8, 2023. The Common Stock was being offered pursuant to an effective registration statement on Form S-3 (File No. 333-264234), as well as a prospectus supplement in connection with the Offering filed with the Securities and Exchange Commission.
On March 31, 2024, there were common shares issued and outstanding.
The following table summarizes the warrant activity for the three months ended March 31, 2024.
Warrant for Common Shares | Weighted Average Exercise Price | Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Warrants Outstanding as of December 31, 2023 | $ | $ | ||||||||||||||
| Warrants Vested and exercisable at December 31, 2023 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited, cancelled, expired | ||||||||||||||||
| Warrants Outstanding as of March 31, 2024 | $ | $ | ||||||||||||||
| Warrants Vested and exercisable at March 31, 2024 | $ | $ | ||||||||||||||
Class A Common Stock of HWH International Inc. Subject to Possible Redemption
The
Company accounts for its, and its subsidiaries’ common stock subject to possible redemption in accordance with the guidance enumerated
in ASC 480 “Distinguishing Liabilities from Equity”. Common stock subject to possible redemption are classified as
a liability instrument and are measured at fair value. Conditionally redeemable common stock (including shares of common stock that feature
redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not
solely within the Company’s control) are classified as temporary equity. At all other times, shares of common stock are classified
as stockholders’ equity. The Company’s Class A common stock features certain redemption rights that are considered by the
Company to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, at December
31, 2023, the Class A common stock of HWH International Inc. subject to possible redemption in the amount of $
On May 1, 2023, after the redemptions (for further details on this transaction refer to Note 7. – Related Party Transactions, Consolidation of HWH International Inc.), the Company consolidated HWH International Inc.
Issuance of HWH Shares to EF Hutton
On December 18, 2023, the
Company’s subsidiary, HWH International Inc. (“HWH”) entered into a Satisfaction and Discharge of Indebtedness
Agreement in connection with an underwriting agreement previously entered into by HWH and EF Hutton, a division of Benchmark
Investments, LLC, under which in lieu of HWH tendering the full amount due of $
| F-27 |
10. LEASE INCOME
The Company generally rents its SFRs under lease agreements with a term of one or two years. Future minimum rental revenue under existing leases on our properties at March 31, 2024 in each calendar year through the end of their terms are as follows:
| 2024 | ||||
| 2025 | ||||
| Total Future Receipts | $ |
Property Management Agreements
The
Company has entered into property management agreement with the property managers under which the property managers generally oversee
and direct the leasing, management and advertising of the properties in our portfolio, including collecting rents and acting as liaison
with the tenants. The Company pays its property managers a monthly property management fee for each property unit and a leasing fee.
For the three months ended March 31, 2024 and 2023, property management fees incurred by the property managers were $
11. ACCUMULATED OTHER COMPREHENSIVE INCOME
Following is a summary of the changes in the balances of accumulated other comprehensive income, net of tax, for the three months ended March 31, 2024 and 2023:
| Unrealized Gains and Losses on Security Investment | Foreign Currency Translations | Change in Minority Interest | Total | |||||||||||||
| Balance at January 1, 2024 | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Other Comprehensive Loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Balance at March 31, 2024 | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Unrealized Gains and Losses on Security Investment | Foreign Currency Translations | Change in Minority Interest | Total | |||||||||||||
| Balance at January 1, 2023 | $ | ( | ) | $ | $ | $ | ||||||||||
| Other Comprehensive Income | ||||||||||||||||
| Balance at March 31, 2023 | $ | ( | ) | $ | $ | $ | ||||||||||
| F-28 |
12. INVESTMENTS MEASURED AT FAIR VALUE
Financial assets measured at fair value on a recurring basis are summarized below and disclosed on the condensed consolidated balance sheet as of March 31, 2024 and December 31, 2023:
| Fair Value Measurement Using | Amount at | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| March 31, 2024 | ||||||||||||||||
| Assets | ||||||||||||||||
| Investment Securities- Fair Value Option | $ | $ | $ | $ | ||||||||||||
| Investment Securities- Trading | ||||||||||||||||
| Warrants - NECV | ||||||||||||||||
| Warrants - VEII | ||||||||||||||||
| Warrants - SHRG | ||||||||||||||||
| Convertible Loan Receivable - VEII | ||||||||||||||||
| Convertible Loan Receivable - SHRG | ||||||||||||||||
| Total Investment in Securities at Fair Value | $ | $ | $ | $ | ||||||||||||
| Fair Value Measurement Using | Amount at | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| December 31, 2023 | ||||||||||||||||
| Assets | ||||||||||||||||
| Investment Securities- Fair Value Option | $ | $ | $ | $ | ||||||||||||
| Investment Securities- Trading | ||||||||||||||||
| Convertible Note Receivable | ||||||||||||||||
| Warrants - NECV | ||||||||||||||||
| Warrants - VEII | ||||||||||||||||
| Convertible Loan Receivable - VEII | ||||||||||||||||
| Total Investment in securities at Fair Value | $ | $ | $ | $ | ||||||||||||
Realized
loss on investment securities for the three months ended March 31, 2024 and 2023 was $
For U.S. trading stocks, we use Bloomberg Market stock prices as the share prices to calculate fair value. For overseas stock, we use the stock price from the local stock exchange to calculate fair value. The following chart shows details of the fair value of equity security investment at March 31, 2024 and December 31, 2023, respectively.
| Share price | Market Value | |||||||||||||
| 3/31/2024 | Shares | 3/31/2024 | Valuation | |||||||||||
| DSS (Related Party) | $ | $ | ||||||||||||
| Trading Stocks | $ | |||||||||||||
| Total Level 1 Equity Securities | $ | |||||||||||||
| AMBS | $ | $ | ||||||||||||
| Holista | $ | $ | ||||||||||||
| New Electric CV (Related Party) | $ | $ | ||||||||||||
| Value Exchange (Related Party) | $ | $ | ||||||||||||
| Sharing Services (Related Party) | $ | $ | ||||||||||||
| Trading Stocks | $ | |||||||||||||
| Total Level 2 Equity Securities | $ | |||||||||||||
| Nervotec | N/A | $ | ||||||||||||
| UBeauty | N/A | $ | ||||||||||||
| Total Equity Securities | $ | |||||||||||||
| F-29 |
| Share price | Market Value | |||||||||||||
| 12/31/2023 | Shares | 12/31/2023 | Valuation | |||||||||||
| DSS (Related Party) | $ | $ | ||||||||||||
| Trading Stocks | $ | |||||||||||||
| Total Level 1 Equity Securities | $ | |||||||||||||
| AMBS | $ | $ | ||||||||||||
| Holista | $ | $ | ||||||||||||
| New Electric CV (Related Party) | $ | $ | ||||||||||||
| Value Exchange (Related Party) | $ | $ | ||||||||||||
| Sharing Services (Related Party) | $ | $ | ||||||||||||
| Trading Stocks | $ | |||||||||||||
| Total Level 2 Equity Securities | $ | |||||||||||||
| Nervotec | N/A | $ | ||||||||||||
| UBeauty | N/A | $ | ||||||||||||
| Total Equity Securities | $ | |||||||||||||
Changes in the observable input values would likely cause material changes in the fair value of the Company’s Level 3 financial instruments. A significant increase (decrease) in this likelihood would result in a higher (lower) fair value measurement.
The table below provides a summary of the changes in fair value which are recorded as other comprehensive income (loss), including net transfers in and/or out of all financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2024 and 2023:
| Total | ||||
| Balance at January 1, 2024 | $ | |||
| Impairment | ( | ) | ||
| Total Gains | ||||
| Balance at March 31, 2024 | $ | |||
| Total | ||||
| Balance at January 1, 2023 | $ | |||
| Total gains | ||||
| Balance at March 31, 2023 | $ | |||
Vector Com Convertible Bond
On
February 26, 2021, the Company invested approximately $
| F-30 |
Warrants
NECV
On
July 17, 2020, the Company purchased
The fair value of the NECV warrants under level 3 category as of March 31, 2024 and December 31, 2023 was calculated using a Black-Scholes valuation model valued with the following weighted average assumptions:
March 31, 2024 | December 31, 2023 | |||||||
| Stock Price | $ | $ | ||||||
| Exercise price | ||||||||
| Risk free interest rate | % | % | ||||||
| Annualized volatility | % | % | ||||||
| Dividend Yield | ||||||||
| Year to maturity | ||||||||
VEII
On
September 6, 2023, the Company received warrants to purchase shares of VEII, a related party listed company. For further details on this
transaction, refer to Note 7 - Related Party Transactions, Note Receivable from a Related Party Company. As of March 31, 2024
and December 31, 2023, the fair value of the warrants was $
The fair value of the VEII warrants under level 2 category as of March 31, 2024, and December 31, 2023 was calculated using a Black-Scholes valuation model valued with the following weighted average assumptions:
March 31, 2024 | December 31, 2023 | |||||||
| Stock price | $ | $ | ||||||
| Exercise price | ||||||||
| Risk free interest rate | % | % | ||||||
| Annualized volatility | % | % | ||||||
| Dividend Yield | $ | $ | ||||||
| Year to maturity | ||||||||
SHRG
On
March 20, 2024, HWH International Inc., a subsidiary of the Company (“HWH”), entered into a Securities Purchase Agreement
(the “Securities Purchase Agreement”) with SHRG, pursuant to which HWH purchased from SHRG a (i) Convertible Promissory Note
in the amount of $
The fair value of the SHRG warrants under level 2 category as of March 31, 2024, was calculated using a Black-Scholes valuation model valued with the following weighted average assumptions:
March 31, 2024 | ||||
| Stock price | $ | |||
| Exercise price | ||||
| Risk free interest rate | % | |||
| Annualized volatility | % | |||
| Dividend Yield | $ | |||
| Year to maturity | ||||
Convertible Loan Receivables
The Company has elected to recognize the convertible loan receivables at fair value and therefore there was no further evaluation of embedded features for bifurcation. The Company engaged third party valuation firm to perform the valuation of convertible loans. The fair value of the convertible loans is calculated using the binomial tree model based on probability of remaining as straight debt using discounted cash flow.
| F-31 |
13. COMMITMENTS AND CONTINGENCIES
Lots Sales Agreement
| ● | Ballenger Project |
Certain
arrangements for the sale of buildable lots to NVR require the Company to credit NVR with an amount equal to one year of the FFB assessment.
Under ASC 606, the credits to NVR are not in exchange for a distinct good or service and accordingly, the amount of the credit was recognized
as the reduction of revenue. As of March 31, 2024 and December 31, 2023, the accrued balance due to NVR was $
| ● | Lakes at Black Oak Project |
| - | Agreement to Sell 142 Lots and 63 Lots |
On
November 13, 2023, 150 CCM Black Oak Ltd. (the “Seller”), a Texas Limited Partnership, entered into two Contracts for Purchase
and Sale and Escrow Instructions (each an “Agreement,” collectively, the “Agreements”) with Century Land Holdings
of Texas, LLC, a Colorado limited liability company (the “Buyer”). Pursuant to the terms of one of the aforementioned Agreements,
the Seller has agreed to sell approximately 142 single-family detached residential lots comprising a section of a residential community
in the city of Magnolia, Texas known as the “Lakes at Black Oak.” The selling price of these lots is anticipated to equal
approximately $
Leases
The
Company leases offices in Maryland, Singapore, Texas, Hong Kong, South Korea and China through leased spaces aggregating approximately
| Office Location | Lease Term as of December 31, 2023 | |
| Singapore - AI | ||
| Singapore – F&B | ||
| Singapore – Four Seasons Park | ||
| Singapore – Hapi Cafe | ||
| Singapore - PLQ | ||
| Hong Kong - Office | ||
| Hong Kong - Warehouse | ||
| Hong Kong - Shop | ||
| Hong Kong – Hapi Travel | ||
| South Korea – Hapi Cafe | ||
| South Korea – HWH World | ||
| Bethesda, Maryland | ||
| China - Cafe | ||
| China - Office |
| F-32 |
The
Company adopted ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) to recognize a right-of-use asset and a lease liability
for all the leases with terms greater than twelve months. We elected the practical expedient to not recognize operating lease right-of-use
assets and operating lease liabilities for lease agreements with terms less than 12 months. Operating lease right-of-use assets and operating
lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement
date.
The table below summarizes future payments due under these leases as of March 31, 2024.
For the Years Ended March 31:
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total Minimum Lease Payments | $ | |||
| Less: Effect of Discounting | ( | ) | ||
| Present Value of Future Minimum Lease Payments | ||||
| Less: Current Obligations under Leases | ( | ) | ||
| Long-term Lease Obligations | $ |
Security Deposits
Our
rental-home lease agreements require tenants to provide a one-month security deposits. The property management company collects all security
deposits and maintains them in a trust account. The Company also has obligation to refund these deposits to the renters at the time of
lease termination. As of March 31, 2024 and December 31, 2023, the security deposits held in the trust account were $
AEI Stock Option plans
Under our 2018 Incentive Compensation Plan (the “Plan”), adopted by our board of directors and holders of a majority of our outstanding shares of common stock in September 2018, shares of common stock (subject to certain adjustments) were reserved for issuance upon exercise of stock options and grants of other equity awards. No options or other equity awards have been granted under the Plan. The reservation of shares under the Incentive Compensation Plan was cancelled in May 2021.
Alset International Stock Option plans
On November 20, 2013, Alset International approved a Stock Option Plan (the “2013 Plan”). Employees, executive directors, and non-executive directors (including the independent directors) are eligible to participate in the 2013 Plan.
| Options for Common Shares | Exercise Price | Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding as of January 1, 2023 | $ | $ | ||||||||||||||
| Vested and exercisable at January 1, 2023 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited, cancelled, expired | ( | ) | $ | |||||||||||||
| Outstanding as of December 31, 2023 | $ | $ | ||||||||||||||
| Vested and exercisable at December 31, 2023 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited, cancelled, expired | ||||||||||||||||
| Outstanding as of March 31, 2024 | $ | $ | ||||||||||||||
| Vested and exercisable at March 31, 2024 | $ | $ | ||||||||||||||
15. SUBSEQUENT EVENTS
Joint Venture
On
April 25, 2024, the Company’s subsidiary, HWH International Inc. (“HWH”) entered into a binding term sheet through
its subsidiary Health Wealth Happiness Pte Ltd. (“HWHPL”) outlining a joint venture with Chen Ziping, an experienced entrepreneur
in the travel industry, and Chan Heng Fai Ambrose, the Company’s Chairman and Chief Executive Officer and HWH’s Executive
Chairman, as a part of HWH’s strategy of building its travel business in Asia. The planned joint venture company (referred to here
as the “JVC”) will be known as HapiTravel Holding Pte. Ltd. The JVC will be initially owned as follows:
| F-33 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may”, “will”, “expect”, “believe”, “anticipate”, “estimate” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include by are not limited to economic conditions generally and in the industries in which we may participate, competition within our chosen industry, including competition from much larger competitors, technological advances and failure to successfully develop business relationships.
Business Overview
We are a diversified holding company principally engaged through our subsidiaries in the development of EHome communities and other real estate, financial services, digital transformation technologies, biohealth activities and consumer products with operations in the United States, Singapore, Hong Kong, Australia and South Korea. We manage our three principal businesses primarily through our 85.5% owned subsidiary, Alset International, a public company traded on the Singapore Stock Exchange. Through this subsidiary (and indirectly, through other public and private U.S. and Asian subsidiaries), we are actively developing real estate projects near Houston, Texas in our real estate segment. In our digital transformation technology segment, we focus on serving business-to-business (B2B) needs in e-commerce, collaboration and social networking functions. Our biohealth segment includes the sale of consumer products.
We also have ownership interests outside of Alset International, including a 36.9% equity interest in American Pacific Financial, Inc., formerly known as American Pacific Bancorp Inc. (“APF”), an indirect 13% equity interest in Holista CollTech Limited (“Holista”), a 44.4% equity interest in DSS Inc. (“DSS”), an indirect 48.7% equity interest in Value Exchange International Inc. (“VEII”), a 0.5% equity interest in New Electric CV Corporation (“NECV”, formerly known as “American Wealth Mining Inc.”) and a 33.4% equity interest in Sharing Services Global Corporation (“SHRG”). APF is a financial network holding company. Holista is a public Australian company that produces natural food ingredients (ASX: HCT). DSS is a multinational company operating businesses within nine divisions: product packaging, biotechnology, direct marketing, commercial lending, securities and investment management, alternative trading, digital transformation, secure living, and alternative energy. DSS is listed on the NYSE American (NYSE: DSS). VEII is a provider of information technology services for businesses, and is traded on the OTCQB (OTCQB: VEII). NECV is a publicly traded consumer products company (OTCPK: HIPH). SHRG markets and distributes health and wellness products, as well as member-based travel services, using a direct selling business model. SHRG is traded on the OTCQB (OTCQB: SHRG).
We generally acquire majority and/or control stakes in innovative and promising businesses that are expected to appreciate in value over time. Our emphasis is on building businesses in industries where our management team has in-depth knowledge and experience, or where our management can provide value by advising on new markets and expansion. We have at times provided a range of global capital and management services to these companies in order to gain access to Asian markets. We have historically favored businesses that improve an individual’s quality of life or that improve the efficiency of businesses through technology in various industries. We believe our capital and management services provide us with a competitive advantage in the selection of strategic acquisitions, which creates and adds value for our company and our stockholders.
Recent Developments
Consummation of the Merger of Alset Capital Acquisition Corp. and HWH International Inc.
On January 9, 2024, two entities affiliated with Alset Inc. completed a previously announced transaction. On September 9, 2022, Alset Capital Acquisition Corp., a Delaware corporation (“Alset Capital”) entered into an agreement and plan of merger (the “Merger Agreement”) with our indirect subsidiary HWH International Inc., a Nevada corporation (“HWH”) and HWH Merger Sub Inc., a Nevada corporation and a wholly owned subsidiary of Alset Capital (“Merger Sub”). The Company and its 85.5% owned subsidiary Alset International own Alset Acquisition Sponsor, LLC, the sponsor (the “Sponsor”) of Alset Capital.
Pursuant to the Merger Agreement, on January 9, 2024, a business combination between Alset Capital and HWH was effected through the merger of Merger Sub with and into HWH, with HWH surviving the merger as a wholly owned subsidiary of Alset Capital (the “Merger”), and Alset Capital changing its name to HWH International Inc. (“New HWH”).
| 3 |
The total consideration paid at the closing of the Merger by New HWH to the HWH shareholders was 12,500,000 shares of New HWH common stock. Alset International owned the majority of the outstanding shares of HWH at the time of the business combination, and received 10,900,000 shares of New HWH as consideration for its shares of HWH.
New HWH currently has 16,223,301 shares of common stock issued and outstanding. Of these shares, a total of 13,577,375 shares of New HWH common stock are now owned by the Sponsor and Alset International together. In addition, the Sponsor owns warrants convertible into up to 236,875 shares of New HWH common stock upon exercise.
New HWH is in the midst of implementing the new membership model described below (the “New Model”), that operates on a yearly subscription basis. New HWH intends to resume membership sales, albeit under the New Model, in approximately 2nd quarter of 2024.
HWH Members get exclusive discounts on HWH Marketplace products, priority invites to product launch events and other parties, and can earn passive income when a member’s referral signs up for membership or makes an initial purchase through the HWH Marketplace products through them.
Purchase of Rental Business from Majority-Owned Subsidiary
On December 9, 2022, Alset Inc. entered into an agreement with Alset EHome Inc. and Alset International pursuant to which Alset Inc. agreed to reorganize the ownership of its home rental business. Previously, Alset Inc. and certain majority-owned subsidiaries collectively owned 132 single-family rental homes in Texas. 112 of these rental homes are owned by subsidiaries of American Home REIT Inc. (“AHR”). Alset Inc. owns 85.5% of Alset International, and Alset International indirectly owns approximately 99.9% of Alset EHome Inc.
The closing of the transaction contemplated by this agreement was completed on January 13, 2023. Pursuant to this agreement, Alset Inc. has become the direct owner of AHR and its subsidiaries that collectively own these 112 homes, instead of such homes being owned indirectly through Alset International’s subsidiaries.
Alset EHome Inc. sold AHR to Alset Inc. for a total consideration of $26,250,933, including the forgiveness of debt in the amount of $13,900,000, a promissory note in the amount of $11,350,933 and a cash payment of $1,000,000. This purchase price represents the book value of AHR as of November 30, 2022.
The closing of this transaction was approved by the shareholders of Alset International and the transaction was closed on January 13, 2023. Certain members of Alset Inc.’s Board of Directors and management are also members of the Board of Directors and management of each of Alset International and Alset EHome Inc.
Public Offering
On February 6, 2023, we entered into an Underwriting Agreement (the “Underwriting Agreement”) in connection with an offering (the “Offering”) of our common stock, par value $0.001 per share (the “Common Stock”), with Aegis Capital Corp. (the “Underwriter”) as the underwriter, relating to an underwritten public offering of 1,727,273 shares of Common Stock at a public offering price of $2.20 per share. The Underwriting Agreement provides the Underwriter a 45-day option to purchase up to an additional 212,863 shares of Common Stock to cover over-allotments, if any.
The net proceeds to the Company from the Offering were approximately $3.3 million, after deducting underwriting discounts and the payment of other offering expenses associated with the Offering that are payable by the Company.
| 4 |
The Offering closed on February 8, 2023. The Common Stock was being offered pursuant to an effective registration statement on Form S-3 (File No. 333-264234), as well as a prospectus supplement in connection with the Offering filed with the Securities and Exchange Commission.
Purchase of Travel Business
On June 14, 2023, the Company’s subsidiary completed acquisition of Hapi Travel Limited (“HTL”), an online travel business started in Hong Kong and under common control of the Company. The accompanying consolidated financial statements include the operations of the acquired entity from its acquisition date. The acquisition has been accounted for as a business combination. Accordingly, consideration paid by the Company to complete the acquisition is initially allocated to the acquired assets and liabilities assumed based upon their estimated fair values on the acquisition date. The recorded amounts for assets acquired and liabilities assumed are provisional and subject to change during the measurement period, which is up to 12 months from the acquisition date. As a result of the acquisition of HTL, a deemed dividend of $214,174 was generated as a result of the business combination, which represents the purchase price of $214,993 in excess of identifiable equity.
The common control transaction described above resulted in the following basis of accounting for the financial reporting periods:
| ● | The acquisition of HTL was accounted for prospectively as of June 14, 2023 as this did not represent a change in reporting entity. | |
| ● | The acquisition of HTL was under common control and was consolidated in accordance with ASC 850-50. The Consolidated financial statements were not retrospectively adjusted for the acquisition of HTL as of January 1, 2022 for comparative purposes because the historical operations of HTL were deemed to be immaterial to the Company’s consolidated financial statements. |
Purchase of Sentinel Brokers Company Inc. Shares
On May 22, 2023 the Company’s indirect subsidiary, SeD Capital Pte Ltd (“SeD Capital”), entered into a Stock Purchase Agreement, pursuant to which SeD Capital purchased 39.8 shares (11.6%) of the Common Stock of Sentinel Brokers Company Inc. (“Sentinel”) for the aggregate purchase price of $279,719. Sentinel is a broker-dealer operating primarily as a fiduciary intermediary, facilitating institutional trading of municipal and corporate bonds as well as preferred stock, and is 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 has significant influence over Sentinel and its CEO holds a director position on Sentinel’s Board of Directors.
Sale of Certain Lots
Sale of 131 Lots
On October 28, 2022, 150 CCM Black Oak Ltd. (the “Seller”), a Texas Limited Partnership and subsidiary of the Company, entered into a Contract for Purchase and Sale and Escrow Instructions (the “Agreement”) with Century Land Holdings of Texas, LLC, a Colorado limited liability company (the “Buyer”). Pursuant to the terms of the Agreement, the Seller agreed to sell approximately 242 single-family detached residential lots comprising a residential community in the city of Magnolia, Texas known as the “Lakes at Black Oak.” On November 28, 2022, the parties to the Agreement entered into an amendment to the Agreement (the “Amendment”). Pursuant to the Amendment, the parties agreed that the Buyer would purchase approximately 131 single-family detached residential lots, instead of 242 lots. This transaction closed on April 13, 2023.
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Agreement to Sell 110 Lots
On March 16, 2023, 150 CCM Black Oak Ltd. (the “Seller”) entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) with Rausch Coleman Homes Houston, LLC, a Texas limited liability company (“Rausch Coleman”). Pursuant to the terms of the Purchase and Sale Agreement, the Seller has agreed to sell approximately 110 single-family detached residential lots which comprise a section of the Lakes at Black Oak. The transaction closed on May 15, 2023.
Agreement to Sell 189 Lots
On March 17, 2023, 150 CCM Black Oak Ltd. (the “Seller”) entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) with Davidson Homes, LLC, an Alabama limited liability company (“Davidson”). Pursuant to the terms of the Purchase and Sale Agreement, the Seller had agreed to sell approximately 189 single-family detached residential lots developed within section 2 of Lakes at Black Oak project. The sale of the first 94 lots closed on May 30, 2023. The sale of remaining lots closed on January 4, 2024.
Issuance of Convertible Loans to Value Exchange International, Inc.
On January 27, 2023, the Company and New Electric CV Corporation (together with the Company, the “Lenders”) entered into a Convertible Credit Agreement (the “Credit Agreement”) with VEII. The Credit Agreement provides VEII with a maximum credit line of $1,500,000 with simple interest accrued on any advances of the money under the Credit Agreement at 8%. The Credit Agreement grants conversion rights to each Lender. Each Advance shall be convertible, in whole or in part, into shares of VEII’s Common Stock at the option of the Lender who made that Advance (being referred to as a “Conversion”), at any time and from time to time, at a price per share equal the “Conversion Price”. In the event that a Lender elects to convert any portion of an Advance into shares of VEII Common Stock in lieu of cash payment in satisfaction of that Advance, then VEII would issue to the Lender five (5) detachable warrants for each share of VEII’s Common Stock issued in a Conversion (“Warrants”). Each Warrant will entitle the Lender to purchase one (1) share of Common Stock at a per-share exercise price equal to the Conversion Price. The exercise period of each Warrant will be five (5) years from date of issuance of the Warrant. On February 23, 2023, Hapi Metaverse loaned VEII $1,400,000 (the “Loan Amount”). The Loan Amount can be converted into shares of VEII pursuant to the terms of the Credit Agreement for a period of three years. There is no fixed price for the derivative security until Hapi Metaverse converts the Loan Amount into shares of VEII Common Stock.
On September 6, 2023, the Company converted $1,300,000 of the principal amount loaned to VEII into 7,344,632 shares of VEII’s Common Stock. Under the terms of the Credit Agreement, Hapi Metaverse received Warrants to purchase a maximum of 36,723,160 shares of VEII’s Common Stock at an exercise price of $0.1770 per share. Such warrants expire five (5) years from date of their issuance.
On December 14, 2023, Hapi Metaverse entered into a Convertible Credit Agreement (“Credit Agreement”) with VEII. On December 15, 2023, the company loaned VEII $1,000,000. The Credit Agreement was amended pursuant to an agreement dated December 19, 2023. Under the Credit Agreement, as amended, this amount can be converted into VEII’s Common Shares pursuant to the terms of the Credit Agreement for a period of three years. In the event that Hapi Metaverse converts this loan into shares of VEII’s Common Stock, the conversion price shall be $0.045 per share. In the event that Hapi Metaverse elects to convert any portion of the loan into shares of VEII’s Common Stock in lieu of cash payment in satisfaction of that loan, then VEII will issue to Hapi Metaverse five (5) detachable warrants for each share of VEII’s Common Stock issued in a conversion (“Warrants”). Each Warrant will entitle the company to purchase one (1) share of VEII’s Common Stock at a per-share exercise price equal to the Conversion Price. The exercise period of each Warrant will be five (5) years from date of issuance of the Warrant. At the time of this filing, the company has not converted the Loan Amount.
The Company currently owns a total of 21,179,275 shares (representing approximately 48.7%) of VEII.
Mr. Chan and another member of the Board of Directors of Hapi Metaverse, Lum Kan Fai Vincent, are both members of the Board of Directors of VEII. In addition to Mr. Chan, two other members of the Board of Directors of Alset Inc. are also members of the Board of Directors of VEII (Mr. Wong Shui Yeung and Mr. Wong Tat Keung).
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SHRG Shares Dividend Received from DSS
On May 4, 2023, DSS distributed approximately 280 million shares of Sharing Services Global Corporation (“SHRG”) beneficially held by DSS and its subsidiaries in the form of a dividend to the shareholders of DSS common stock. As a result of this distribution, the Company directly received 70,426,832 shares of SHRG, and through its majority-owned subsidiary Alset International, and certain subsidiaries of Alset International, indirectly received additional 55,197,696 shares of SHRG. The Company and its majority-owned subsidiaries now collectively own 125,624,528 shares of SHRG, representing 33.4% of the issued and outstanding shares of SHRG Common Stock (such number of SHRG shares held and ownership percentage do not include any shares held by affiliates of the Company which we do not hold a majority interest in). Additionally, our founder, Chairman and Chief Executive Officer, Chan Heng Fai, directly and indirectly is the owner of an additional 37,947,756 shares of SHRG and is a beneficial owner of approximately 43.5% of SHRG shares (including those shares owned by Alset Inc. and its majority-owned subsidiaries).
Issuance of Convertible Loans to Sharing Services Global Corp.
On January 17, 2024, the Company received a Convertible Promissory Note (the “Convertible Note”) from Sharing Services Global Corp. (“SHRG”), an affiliate of the Company, in exchange for a $250,000 loan made by the Company to SHRG. The Company may convert a portion or all of the outstanding balance due under the Convertible Note into shares of SHRG’s common stock at the average closing market price of SHRG stock within the last three (3) days from the date of conversion notice. The Convertible Note bears a 10% interest rate and has a scheduled maturity six (6) months from the date of the Convertible Note, or July 17, 2024.
On March 20, 2024, HWH International Inc., a subsidiary of the Company (“HWH”), entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with SHRG, pursuant to which HWH purchased from SHRG a (i) Convertible Promissory Note in the amount of $250,000, convertible into 208,333,333 shares of SHRG’s common stock at the option of HWH, and (ii) certain warrants exercisable into 208,333,333 shares of SHRG’s common stock at an exercise price of $0.0012 per share, the exercise period of the warrant being five (5) years from the date of the Securities Purchase Agreement, for an aggregate purchase price of $250,000. At the time of filing, HWH has not converted any of the debt contemplated by the Convertible Note nor exercised any of the warrants.
Resignation of Chief Operating Officer
On March 10, 2024, Anthony S. Chan resigned as Chief Operating Officer of Alset Inc. (the “Company”), effective immediately, due to personal reasons. Mr. Chan’s resignation is not the result of any disagreement with the Company. Mr. Chan remains as a consultant to the Company.
Matters that May or Are Currently Affecting Our Business
In addition to the matters described above, the primary challenges and trends that could affect or are affecting our financial results include:
● Our ability to improve our revenue through cross-selling and revenue-sharing arrangements among our diverse group of companies;
● Our ability to identify complementary businesses for acquisition, obtain additional financing for these acquisitions, if and when needed, and profitably integrate them into our existing operation;
● Our ability to attract competent, skilled technical and sales personnel for each of our businesses at acceptable compensation levels to manage our overhead;
● Our ability to control our operating expenses as we expand each of our businesses and product and service offerings; and
● The effects of public health issues such as a major epidemic or pandemic, including the impact of COVID-19 on the economy and our business.
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Results of Operations
Summary of Statements of Operations for the Three Months Ended March 31, 2024 and 2023
| Three- Months Ended | ||||||||
| March 31, 2024 | March 31, 2023 | |||||||
| Revenue | $ | 6,086,207 | $ | 926,936 | ||||
| Operating Expenses | $ | (8,352,720 | ) | $ | (3,016,666 | ) | ||
| Other Expenses | $ | (5,047,279 | ) | $ | (2,233,452 | ) | ||
| Income Tax Expense | - | - | ||||||
| Net Loss | $ | (7,313,792 | ) | $ | (4,323,182 | ) | ||
Revenue
The following tables set forth period-over-period changes in revenue for each of our reporting segments:
| Three-months Ended | Change | |||||||||||||||
| March 31, 2024 | March 31, 2023 | Dollars | Percentage | |||||||||||||
| Real Estate | $ | 5,752,994 | $ | 633,811 | $ | 5,119,183 | 808 | % | ||||||||
| Biohealth | 535 | 12,786 | (12,251 | ) | -96 | % | ||||||||||
| Digital Transformation Technology | - | 14,040 | (14,040 | ) | -100 | % | ||||||||||
| Other | 332,678 | 266,299 | 66,379 | 25 | % | |||||||||||
| Total Revenue | $ | 6,086,207 | $ | 926,936 | $ | 5,159,271 | 557 | % | ||||||||
Revenue was $6,086,207 and $926,936 for the three months ended March 31, 2024 and 2023, respectively. The increase in property sales from the Lakes at Black Oak Project in the first three months of 2024 contributed to higher revenue in this period.
The Company plans to continue its near-term focus on lot sales to regional and national builders. Funds from such lot sales will substantially improve the Company’s liquidity, strengthen its financial position and meet is working capital requirements.
Revenue from rental business was $707,592 and $633,811 in the three months ended March 31, 2024 and 2023, respectively. The Company expects that the revenue from this business will continue to increase as we acquire more rental houses and successfully rent them.
In May 2023, the Company entered into lease agreement for one of its model houses located in Montgomery County, Texas. The revenue from the lease was $6,300 in the three months ended March 31, 2024.
In January 2024, the Company entered into lease agreement for another model house located in Montgomery County, Texas. The revenue from the lease was $6,602 in the three months ended March 31, 2024.
In recent years, the Company expanded its biohealth segment to the South Korean market through one of the subsidiaries of HWH International Inc., HWH World Inc (“HWH World”). HWH World operates based on a direct sale model of health supplements. HWH World recognized $535 and $ 12,786 in revenue in the three months ended March 31, 2024 and 2023, respectively.
The category described as “Other” includes corporate and financial services, food and beverage business and new venture businesses. “Other” includes certain costs that are not allocated to the reportable segments, primarily consisting of unallocated corporate overhead costs, including administrative functions not allocated to the reportable segments from global functional expenses.
The financial services, food and beverage businesses and new venture businesses are small and diversified, and accordingly they are not separately addressed as one independent category. In the three months ended March 31, 2024 and 2023, the revenue from other businesses was $332,678 and $1,083,971, respectively, generated by Korean, Singaporean and Chinese café shops and restaurants.
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Cost of Revenues and Operating Expenses
The following tables sets forth period-over-period changes in cost of revenues for each of our reporting segments:
| Three-months Ended | Change | |||||||||||||||
| March 31, 2024 | March 31, 2023 | Dollars | Percentage | |||||||||||||
| Real Estate | $ | 4,533,660 | $ | 602,340 | $ | 3,931,320 | 653 | % | ||||||||
| Biohealth | 2,041 | 14,367 | (12,326 | ) | -86 | % | ||||||||||
| Digital Transformation Technology | - | 4,568 | (4,568 | ) | -100 | % | ||||||||||
| Other | 122,666 | 68,006 | 54,660 | 80 | % | |||||||||||
| Total Cost of Revenues | $ | 4,658,367 | $ | 689,281 | $ | 3,969,086 | 576 | % | ||||||||
Cost of revenues increased from $689,281 in the three months ended March 31, 2023 to $4,658,367 in the three months ended March 31, 2024. The increase is a result of the increase in sales in the Lakes at Black Oak Project. Capitalized construction expenses, finance costs and land costs are allocated to sales. We anticipate the total cost of revenues to increase as revenue increases.
The gross margin increased from $237,655 to $1,427,840 in the three months ended March 31, 2023 and 2024, respectively. The increase of gross margin was caused by the increase in sales in the Lakes at Black Oak Project.
The following tables sets forth period-over-period changes in operating expenses for each of our reporting segments.
| Three-months Ended | Change | |||||||||||||||
| March 31, 2024 | March 31, 2023 | Dollars | Percentage | |||||||||||||
| Real Estate | $ | 361,696 | $ | 440,017 | $ | (78,321 | ) | -18 | % | |||||||
| Biohealth | 826,961 | 141,290 | 685,671 | 485 | % | |||||||||||
| Digital Transformation Technology | 163,707 | 139,903 | 23,804 | 17 | % | |||||||||||
| Other | 2,341,990 | 1,606,175 | 735,815 | 46 | % | |||||||||||
| Total Operating Expenses | $ | 3,694,354 | $ | 2,327,385 | $ | 1,366,969 | 59 | % | ||||||||
The increase of operating expenses in the first three months of 2024 compared to the same period of 2023 was mostly caused by recording of goodwill and investment.
Other Income (Expense)
In the three months ended March 31, 2024, the Company had other expenses of $5,047,279 compared to other expenses of $2,233,452 in the three months ended March 31, 2023. The gain on sale of stock of subsidiary and foreign exchange transaction gain are the primary reason for the volatility in these two periods. Gain on the sale of stock of subsidiary was $15,695,977 in the three months ended March 31, 2024, compared to $0 gain in the three months ended March 31, 2023. Foreign exchange transaction gain was $1,193,636 the three months ended March 31, 2024, compared to a loss of $788,302 in the three months ended March 31, 2023.
Net Loss
In the three months ended March 31, 2024 the Company had net loss of $7,313,792 compared to net loss of $4,323,182 in the three months ended March 31, 2023.
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Liquidity and Capital Resources
Our real estate assets have decreased to $39,883,629 as of March 31, 2024 from $42,137,152 as of December 31, 2023. This decrease reflects the sale of multiple lots in Lakes at Black Oak project during first three months of 2024.
Our cash has decreased from $26,921,727 as of December 31, 2023 to $23,727,542 as of March 31, 2024. Our liabilities decreased from $9,066,700 at December 31, 2023 to $6,670,132 at March 31, 2024. Our total assets have decreased to $96,710,288 as of March 31, 2024 from $126,314,028 as of December 31, 2023 mainly due to decrease in cash held in Trust Account after shareholders of HWH International Inc. redeemed their shares.
On April 17, 2019, SeD Maryland Development LLC entered into a Development Loan Agreement with Manufacturers and Traders Trust Company (“M&T Bank”) in the principal amount not to exceed at any one time outstanding the sum of $8,000,000, with a cumulative loan advance amount of $18,500,000. The line of credit bore interest rate on LIBOR plus 375 basis points. SeD Maryland Development LLC was also provided with a Letter of Credit (“L/C”) Facility in an aggregate amount of up to $900,000. The L/C commission will be 1.5% per annum on the face amount of the L/C. Other standard lender fees will apply in the event the L/C is drawn down. The loan is a revolving line of credit. The L/C Facility is not a revolving loan, and amounts advanced and repaid may not be re-borrowed. Repayment of the Loan Agreement is secured by a $2,600,000 collateral fund and a Deed of Trust issued to the Lender on the property owned by SeD Maryland. On March 15, 2022, approximately $2,300,000 was released from collateral, leaving approximately $300,000 as collateral for outstanding letters of credit. On December 14, 2023 approximately $201,751 was released from collateral, leaving approximately $100,000 as collateral for outstanding letters of credit.
The future development timeline of Lakes at Black Oak will be based on multiple conditions, including the amount of funds which may be raised from capital markets, the loans we may secure from third party financial institutions, and government reimbursements which may be received. The development will be step by step and expenses will be contingent on the amount of funding we will receive.
On November 13, 2023, 150 CCM Black Oak Ltd. (the “Seller”), a Texas Limited Partnership, entered into two Contracts for Purchase and Sale and Escrow Instructions (each an “Agreement,” collectively, the “Agreements”) with Century Land Holdings of Texas, LLC, a Colorado limited liability company (the “Buyer”). Pursuant to the terms of one of the aforementioned Agreements, the Seller has agreed to sell approximately 142 single-family detached residential lots (the “Section 4 Agreement”) comprising a section of a residential community in the city of Magnolia, Texas known as the “Lakes at Black Oak.” The selling price of these lots is anticipated to equal approximately $7.4 million. Pursuant to the other Agreement, the Seller has agreed to sell 63 single-family detached residential lots (the “Alset Villas Agreement”) in the city of Magnolia, Texas. In 2021, our subsidiary Alset EHome Inc. acquired approximately 19.5 acres of partially developed land near Houston, Texas which was used to develop a community named Alset Villas (“Alset Villas”). Alset EHome was in the process of developing the 63 lots at Alset Villas in 2023. The selling price of these lots is anticipated to equal approximately $3.3 million. The closing of the transactions described above depends on the satisfaction of certain conditions, and is expected to take place during the second quarter of 2024. In addition, the Company will be entitled to receive certain reimbursements in the year ended December 31, 2024 and 2025.
The management believes that the available cash in bank accounts and favorable cash revenue from real estate projects are sufficient to fund our operations for at least the next 12 months.
Summary of Cash Flows for the Three Months Ended March 31, 2024 and 2023
| Three-months Ended | ||||||||
| 2024 | 2023 | |||||||
| Net cash used in operating activities | $ | (1,509,247 | ) | $ | (3,289,083 | ) | ||
| Net cash (used in) provided by investing activities | $ | (1,758,503 | ) | $ | 671,484 | |||
| Net cash (used in) provided by financing activities | $ | (240,182 | ) | $ | 3,433,921 | |||
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Cash Flows from Operating Activities
Net cash used in operating activities was $1,509,247 in the first three months of 2024, as compared to net cash used operating activities of $3,289,083 in the same period of 2023. Capitalization of real estate expenses was the main reason for the cash used in operating activities in 2023. Prepayment of expenses and investment in trading securities were the main reason for the cash used in 2024
Cash Flows from Investing Activities
Net cash used in investing activities was $1,758,503 in the first three months of 2024, as compared to net cash provided by investing activities of $671,484 in the same period of 2023. In the three months ended March 31, 2024 we invested $646,785 in marketable securities, issued $1,144,317 in loans to related parties and received $34,671 from repayment of related party notes receivable. In the three months ended March 31, 2023 we invested $412,500 in marketable securities, issued $1,521,368 in loans to related parties and received $2,613,629 from repayment of related party notes receivable.
Cash Flows from Financing Activities
Net cash used in financing activities was $240,182 in the three months ended March 31, 2024, compared to net cash provided of $3,433,921 in the three months ended March 31, 2023. In the first three months of 2024 the Company borrowed $119,621 from a third part loan and repaid $359,803 of note payable. The cash provided by financing activities in the first three months of 2023 is caused by the proceeds from stock issuance of $3,433,921.
Impact of Inflation
We believe that inflation has not had a material impact on our results of operations for the three months ended March 31, 2024 or the year ended December 31, 2023. We cannot assure you that future inflation will not have an adverse impact on our operating results and financial condition.
Impact of Foreign Exchange Rates
The effect of foreign exchange rate changes on the intercompany loans (under ASC 830), which mostly consist of loans from Singapore to the United States and which were approximately $23 million and $23 million on March 31, 2024 and December 31, 2023, respectively, are the reason for the significant fluctuation of foreign currency transaction Gain or Loss on the Condensed Consolidated Statements of Operations and Other Comprehensive Loss. Because the intercompany loan balances between Singapore and United States will remain at approximately $23 million over the next year, we expect this fluctuation of foreign exchange rates to still significantly impact the results of operations in 2024, especially given that the foreign exchange rate may and is expected to be volatile. If the amount of intercompany loan is lowered in the future, the effect will also be reduced. However, at this moment, we do not expect to repay the intercompany loans in the short term.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of these exemptions until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of this exemption.
Seasonality
The real estate business is subject to seasonal shifts in costs as certain work is more likely to be performed at certain times of the year. This may impact the expenses of our subsidiary Alset EHome Inc. from time to time. In addition, should we commence building homes, we are likely to experience periodic spikes in sales as we commence the sales process at a particular location.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company” as defined by Item 10(f)(1) of Regulation S-K, the Company is not required to provide the information required by this Item.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officers and Chief Financial Officers, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our management, including our Chief Executive Officers and Chief Financial Officers, concluded that our disclosure controls and procedures are not effective as of March 31, 2024 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officers and Chief Financial Officers, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in the Company’s Internal Controls Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the quarterly period ended March 31, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceeding
Not applicable.
Item 1A. Risk Factors
Not applicable to smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Not applicable.
| 12 |
Item 6. Exhibits
The following documents are filed as a part of this report:
| * | Filed herewith. |
| ** | Furnished herewith. |
| 13 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ALSET INC. | ||
| May 15, 2024 | By: | /s/ Chan Heng Fai |
Chan Heng Fai Chairman of the Board and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| May 15, 2024 | By: | /s/ Chan Tung Moe |
| Chan Tung Moe | ||
| Co-Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| May 15, 2024 | By: | /s/ Rongguo Wei |
Rongguo Wei Co-Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| May 15, 2024 | By: | /s/ Lui Wai Leung Alan |
Lui Wai Leung Alan Co-Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| 14 |