Alset Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filed August 14, 2023. Financial statements are unaudited. Alset is a diversified holding company with real estate, digital technology, biohealth and other businesses across the U.S. and Asia; it owns 85.4% of Alset International Limited.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $19.15 million | $0.93 million | $20.08 million | $2.88 million |
| Gross profit | $7.42 million | $0.38 million | $7.65 million | $1.21 million |
| Gross margin | 38.7% | 40.6% | 38.1% | 42.2% |
| Operating income (loss) | $5.11 million | $(1.65) million | $3.02 million | $(3.31) million |
| Net loss | $(5.81) million | $(9.98) million | $(10.14) million | $(17.91) million |
| Net loss per share | $(0.63) | $(1.46) | $(1.09) | $(2.77) |
- Real estate drove the revenue increase, primarily through Black Oak lot sales. The company reported that 335 lots sold in the first half generated approximately $18.1 million of revenue. Rental revenue also grew to $1.32 million for the half, from $0.64 million.
- Cash and restricted cash totaled $29.49 million at June 30, including $28.83 million of cash. Six-month operating cash flow was $7.41 million, compared with a $16.13 million outflow in 2022; management attributed the improvement mainly to Black Oak sales.
- Total assets were $168.44 million and total liabilities $8.15 million, versus $153.49 million and $4.83 million, respectively, at year-end 2022. Current assets were $104.44 million and current liabilities $6.50 million.
- Notes payable were $167,898, plus $16,481 of related-party notes payable. The M&T Bank revolving loan had no outstanding balance. Operating lease liabilities totaled $1.83 million.
- Stockholders’ equity was $140.87 million. The company raised approximately $3.4 million net from a February public offering of 1,727,273 shares.
Changes, outlook and risks
- Revenue growth and the return to operating income reflect substantial Black Oak lot sales; they should not be assumed to represent a recurring revenue run rate. Cost of sales rose with those sales.
- Net losses narrowed year over year, but results remained volatile from investment gains and losses and a $21.66 million loss recognized on consolidating Alset Capital Acquisition Corp. The six-month results also included $17.65 million of unrealized securities gains and $10.69 million of realized securities losses.
- Management said cash and expected real estate proceeds should fund operations for at least 12 months. It plans to focus near term on lot sales to regional and national builders. No quantified earnings or revenue guidance was provided.
- Management cited foreign-exchange volatility as a continuing risk: intercompany loans between Singapore and the U.S. were approximately $37 million at June 30, and the company does not expect to repay them in the short term. Other risks include acquisition integration and financing, expense control, competition, and reliance on key personnel.
- Three customers represented approximately 37%, 36% and 27% of property-development revenue in the first half. Uninsured cash and restricted cash were $26.12 million.
- Related-party activity includes investments and transactions involving entities connected to the CEO and other directors. The company also held $20.83 million in an Alset Capital trust account, subject to possible redemption; $19.42 million was presented as temporary equity.
- On August 1, 2023, Alset Capital stockholders approved its proposed business combination with HWH International; closing was planned for Q3 2023, subject to closing conditions.
- Management concluded disclosure controls and procedures were not effective at June 30, 2023. It reported no quarterly change in internal control over financial reporting that materially affected, or was reasonably likely to materially affect, those controls.
Important facts for investors to verify
- Whether remaining Black Oak lot closings occur as expected, including the remaining Davidson Homes lots, and the net cash proceeds after required improvements and other costs.
- The quality, liquidity and valuation sensitivity of the company’s securities and related-party investments, receivables and trust-account assets.
- The status and final terms of the HWH International business combination, including any redemptions and resulting ownership or dilution.
- How management plans to address ineffective disclosure controls and the concentration of property-development revenue among three customers.