Alset Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative period is Q1 2022. Alset is a diversified holding company operating in real estate, digital transformation technology, biohealth, and other activities, principally through its 85.4%-owned subsidiary Alset International.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Revenue | $926,936 | $1,952,237 |
| Gross profit | $237,655; 25.6% gross margin | $837,687; 42.9% gross margin |
| Operating loss | $2,089,730 | $1,653,541 |
| Net loss | $4,323,182; $3,857,886 attributable to common stockholders | $7,930,453; $6,467,286 attributable to common stockholders |
| Basic and diluted loss per share | $0.46 | $1.30 |
| Operating cash flow | $(3,289,083) | $(5,291,185), per cash-flow statement |
| Cash and restricted cash | $19,279,096 | $18,521,903 at December 31, 2022 |
| Total assets / liabilities | $155,689,482 / $6,819,685 | $153,490,336 / $4,827,221 at December 31, 2022 |
Cash was $18.7 million, with restricted cash of $0.6 million. Current assets were $94.7 million and current liabilities $5.2 million; current assets include substantial investments and related-party receivables. Notes payable totaled $178,819, alongside operating lease liabilities of approximately $1.59 million. Stockholders’ equity was $148.9 million.
Revenue was primarily rental ($633,811) and other businesses ($280,339); property-sale revenue was nil and biohealth revenue was $12,786. Digital transformation revenue was $14,040. The filing reports $2.5 million of construction costs capitalized in Q1 2023.
Material changes versus Q1 2022
- Revenue fell 53%, mainly because Ballenger lot and home sales and biohealth direct-sales revenue declined. Rental revenue rose to $633,811 from $232,582, while biohealth revenue fell to $12,786 from $617,471.
- Gross profit declined to $237,655 from $837,687, and gross margin contracted to 25.6% from 42.9%. Operating expenses decreased 7% to $2.33 million, but operating loss increased to $2.09 million.
- Net loss narrowed to $4.32 million from $7.93 million. Lower realized and unrealized securities losses were a major contributor; Q1 2023 also included a $788,302 foreign-exchange transaction loss.
- Operating cash use improved to $3.29 million from $5.29 million. Investing activities provided $671,484, including $2.61 million of related-party note repayments and $1.52 million of related-party advances. Financing provided $3.43 million, primarily from the February stock offering.
- Common shares outstanding increased from 7,422,846 at year-end to 9,235,119 at March 31, 2023. The February offering issued 1,727,273 shares at $2.20 per share; reported net proceeds were approximately $3.4 million.
Outlook, risks, and unusual items
- Management said available cash and expected real-estate cash revenue should fund operations for at least 12 months. No quantified earnings or revenue guidance was provided.
- Management expects rental revenue to grow as homes are acquired and leased. The company owned 132 Texas single-family rental homes, with aggregate investment of about $31.6 million.
- Foreign-exchange volatility is a material earnings risk: management cited approximately $37 million of intercompany loans between Singapore and U.S. entities and expects exchange-rate effects to continue affecting 2023 results. The company does not expect to repay these loans in the short term.
- At March 31, the company had agreements to sell about 110 Black Oak lots for an anticipated $6.59 million and 189 lots for $10.02 million. Closings depend on conditions and seller-funded improvements; deposits had been placed in escrow. After quarter-end, it completed a separate sale of 131 lots for $6.62 million.
- After quarter-end, Alset Capital’s May 1 stockholder meeting resulted in substantial share redemptions, increasing Alset’s reported ownership from 23.4% to 57.1%. The company was evaluating the accounting impact. Alset Capital also extended its business-combination deadline; its proposed combination with HWH International had not closed as of the report date.
- After quarter-end, DSS distributed SHRG shares; Alset and majority-owned subsidiaries reported receiving 125.6 million shares, collectively representing 33.4% of SHRG.
- The company reported that disclosure controls and procedures were not effective as of March 31, 2023. It also disclosed significant related-party relationships and transactions, including a $1.4 million draw under a credit agreement with Value Exchange International and $75,000 of quarterly expenses capitalized for services from an entity owned by a company executive.
- Management cited risks including volatile investment valuations, foreign exchange, execution and financing of acquisitions and development projects, and the ability to grow revenue and control costs. It reported no impairment of real estate projects during the quarter.
Important facts for investors to verify
- Reconcile operating cash use: the cash-flow statement reports $5,291,185 for Q1 2022, while MD&A reports $5,293,582.
- Confirm the final proceeds and offering costs: the financial statements report approximately $3.4 million of net proceeds, while MD&A describes approximately $3.3 million.
- Track completion, timing, deposits, and required improvement spending for the Black Oak lot agreements; anticipated contract amounts are not completed sales.
- Assess the valuation, liquidity, and related-party concentration of the company’s securities and equity-method investments, including its substantial DSS exposure.
- Review the effects of Alset Capital’s redemptions and resulting control position, including whether consolidation or other accounting changes follow.
- Monitor remediation of ineffective disclosure controls and the company’s capacity to fund ongoing operating cash outflows and development spending.