Alset Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2022. The filing was signed November 14, 2022. Alset is a diversified holding company with real estate, financial services, digital technology, biohealth, and consumer-product operations across the U.S. and Asia. It controls 85.4% of Singapore-listed Alset International. The company reincorporated in Texas in October 2022 and changed its name to Alset Inc.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $0.72 million | $4.80 million | $3.60 million | $16.95 million |
| Operating loss (income) | ($2.07 million) | $0.05 million | ($5.38 million) | ($5.03 million) |
| Net loss | ($13.08 million) | ($8.07 million) | ($30.99 million) | ($92.77 million) |
| Net loss attributable to common stockholders | ($11.71 million) | ($7.11 million) | ($27.17 million) | ($80.00 million) |
- Revenue and margins: Revenue fell 85% in Q3 and 79% for the nine-month period, chiefly because Ballenger Run lot sales largely ended and South Korean biohealth sales declined. Nine-month gross margin was $1.12 million, down from $8.44 million. The statements imply a Q3 gross loss of about $91,000; MD&A reports a different gross-loss figure of $99,165.
- Investment results: Nine-month results included $21.77 million of unrealized securities losses and $6.50 million of realized losses. Foreign-exchange transaction gains of $2.62 million partly offset other expenses; foreign-currency translation reduced other comprehensive income by $3.73 million.
- Cash flow: Operating cash use was $28.33 million, investing cash use $15.03 million, and financing cash provided $6.00 million for the nine months. Cash and restricted cash declined by $37.37 million to $23.24 million. Operating cash use included payment of a $3.61 million accrued director bonus, according to management.
- Liquidity and debt: At September 30, cash was $22.61 million and restricted cash $0.63 million. Current assets were $110.34 million versus current liabilities of $4.45 million. Total liabilities were $5.10 million, including $0.19 million of notes payable and $1.28 million of operating lease liabilities. The M&T Bank revolving loan balance was zero. Management said available cash and expected real-estate cash revenue should fund operations for at least 12 months.
- Assets and equity: Total assets were $164.66 million, down from $184.21 million at year-end 2021; real estate assets rose to $51.58 million from $40.52 million. Stockholders’ equity totaled $159.56 million. Common shares outstanding increased to 148.51 million from 87.37 million at year-end.
Material changes and transactions
- Alset acquired 23 rental homes during the first nine months and owned 132 single-family homes in Texas by September 30; approximately 50 had solar panels and battery systems installed. Rental revenue was $1.21 million for the nine months, versus $0.16 million a year earlier.
- Alset’s ownership of Alset International increased from 76.8% to 85.4%. The company issued 35.32 million shares to CEO Chan Heng Fai in exchange for Alset International shares; it also issued 10 million shares upon conversion of a related-party note.
- Alset exchanged its AMRE loan and accrued interest for 21.37 million DSS shares, recording a $1.09 million transaction loss; the DSS shares subsequently declined in value, contributing a further $2.16 million unrealized loss through September 30. Alset reported a 45.2% interest in DSS.
- On September 9, Alset Capital Acquisition Corp. agreed to combine with HWH International, an indirect Alset subsidiary. The transaction remained pending and subject to approvals and closing conditions.
Outlook, risks and unusual items
- No specific earnings or revenue guidance was provided. Management expected rental revenue to grow as homes are acquired and leased, while noting that revenue and costs may rise as activity expands.
- On October 28, a subsidiary agreed to sell approximately 242 Lakes at Black Oak lots for anticipated aggregate proceeds and fees of $12.88 million. The sale is staged, subject to inspection and other conditions, and requires the seller to complete development work at its cost; closings were expected to extend through 2023. Completion is not assured.
- On October 17, a subsidiary agreed to purchase 7.28 million Value Exchange International shares from the CEO for about $1.74 million. Following the purchase, Alset reported owning 38.3% of that company.
- Management cited market-price volatility in securities, foreign-exchange exposure, customer concentration in property development, inflation, supply-chain and construction delays, and the ability to grow revenue and control expenses. Intercompany loans between Singapore and U.S. entities were approximately $43 million, and management did not expect repayment in the short term.
- Approximately $20.25 million of cash and restricted cash was uninsured at September 30. Related-party investments and transactions are significant. The filing states that disclosure controls and procedures were not effective at period-end; no material change in internal control over financial reporting was reported during the quarter.
- The filing reports no applicable legal proceedings. It does not provide a company-specific risk-factor discussion in this 10-Q, citing smaller-reporting-company status.
Key facts investors should verify
- Reconcile the Q3 gross-loss figure in MD&A with revenue and cost of sales in the financial statements.
- Review the valuation, concentration, liquidity, and related-party aspects of the securities portfolio, particularly DSS and other affiliated-company holdings.
- Assess the causes and expected trajectory of the sharp revenue decline, especially the biohealth business and the post-Ballenger real-estate pipeline.
- Confirm the timing, conditions, development costs, and proceeds of the Black Oak lot sale, and the status of the Alset Capital–HWH merger.
- Evaluate cash burn, the $43 million intercompany loan exposure and foreign-exchange effects, and management’s 12-month liquidity assessment.
- Review the substantial share-count increase, related-party share issuances and purchases, and management’s plans to remediate ineffective disclosure controls.