Alset EHome International Inc. (now identified in the request as Alset Inc.) — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The filing was signed November 15, 2021. Comparative 2020 figures are presented as combined following common-control transactions.
Business context
The company is a diversified holding company operating through subsidiaries in real estate, digital transformation technology, biohealth and other activities, including financial services. Its real estate activity includes land development and lot sales, and it began renting homes in 2021. Biohealth revenue primarily came from direct sales by HWH World. Alset International, publicly traded in Singapore, was 75.1% owned at September 30, 2021.
Key financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $4.80 million | $2.15 million | $16.95 million | $7.18 million |
| Gross profit | $2.59 million | $0.53 million | $8.44 million | $1.57 million |
| Operating income (loss) | $0.05 million | $(0.41) million | $(5.03) million | $(2.96) million |
| Net loss | $(8.07) million | $(13.17) million | $(92.77) million | $(13.35) million |
| Net loss attributable to common stockholders | $(7.11) million | $(9.62) million | $(80.00) million | $(9.17) million |
| Basic and diluted loss per share | $(0.19) | $(1.01) | $(4.14) | $(1.05) |
For the nine-month period, real estate revenue was $12.03 million and biohealth revenue was $4.92 million; digital transformation and other segments reported no revenue. Gross margin was approximately 49.8% for the nine months and 54.0% for Q3, based on reported revenue and gross profit.
- Cash flow: Nine-month operating cash outflow was $6.49 million and investing cash outflow was $28.74 million; financing provided $77.24 million. Cash and restricted cash increased to $72.94 million from $31.74 million at year-end 2020.
- Liquidity and assets: September 30 cash was $67.94 million, restricted cash $5.00 million, current assets $147.57 million and current liabilities $8.93 million. Total assets were $175.14 million; total liabilities were $9.23 million; total equity was $165.91 million.
- Debt and leases: Notes payable were $0.32 million and related-party notes payable were $5.28 million. Operating lease liabilities totaled $0.61 million. The M&T Bank revolving loan balance was zero at quarter-end; an $8 million credit line remained available, subject to its terms.
Material changes and unusual items
- Nine-month revenue rose 136% year over year, reflecting higher Ballenger Run lot sales and growth in HWH World direct sales. The company sold 76 Ballenger lots in the period versus 72 in 2020; two customers represented approximately 96% of property and development revenue.
- Operating expenses increased to $21.98 million from $10.14 million, including higher biohealth commissions, professional fees, salaries and bonuses. Operating losses widened for the nine-month period despite higher gross profit.
- Investment-related losses and financing costs drove the much larger nine-month net loss: unrealized securities losses were $35.97 million, realized securities losses $2.22 million, and finance costs $50.87 million. Finance costs principally reflected amortization of the beneficial conversion feature on related-party convertible notes, which were converted into preferred and common shares in May and June.
- The company raised substantial equity capital: financing cash flows included $73.16 million from common-stock issuance. Shares issued and outstanding increased from 8.57 million at December 31, 2020 to 45.72 million at September 30, 2021, a material increase in share count.
- After APB issued shares to DSS in September, Alset’s ownership fell below 50%; APB was deconsolidated and the retained interest was accounted for under the equity method. The company recognized an approximately $28.2 million gain on deconsolidation, recorded in additional paid-in capital because the transaction was related-party.
- The company acquired 46 Texas rental homes for approximately $10.66 million. Rental revenue was $155,249 for the first nine months; management expected rental revenue to increase as it acquired and leased additional homes.
Outlook, risks and controls
Management provided no quantified earnings or revenue guidance. It said it expected to have substantial cash and operating cash inflows for at least the next 12 months and considered going-concern concerns alleviated based on cash, operating activity and credit availability. The filing nevertheless notes that losses and accumulated deficit could raise substantial doubt, and that liquidity plans may not succeed. Related-party loans are repayable on demand, and management said operating needs would take priority over repayment.
- Management cited uncertainty from COVID-19, including possible effects on real estate demand, construction, staffing, travel and local approvals. It reported earlier clubhouse construction delays but continued Ballenger Run lot sales.
- Foreign-exchange movements may materially affect results: intercompany loans between Singapore and U.S. entities were approximately $31.8 million at September 30, and management expected currency volatility to continue affecting results.
- Approximately $70.22 million of cash and restricted cash was uninsured. Securities valuations and related-party holdings are also exposed to market-price and valuation risk.
- Management concluded disclosure controls and procedures were not effective as of September 30, 2021. No material change in internal control over financial reporting was reported during the quarter.
- No legal proceedings were reported for the period; the filing states risk-factor disclosure was not applicable to the company as a smaller reporting company.
Subsequent events: In October, a subsidiary authorized $7.0 million of SeD Maryland distributions, including $1.15 million to a minority member. The company also disclosed an October 2021 $8.35 million convertible note investment in AMRE and a separate $0.20 million AMRE note investment.
Important facts for investors to verify
- Reconcile the $92.77 million consolidated nine-month net loss, $80.00 million loss attributable to common stockholders, and the large noncash finance and securities losses.
- Review the composition, liquidity and valuation of the securities portfolio, including related-party positions, and the accounting for APB’s deconsolidation.
- Assess cash availability against operating cash outflows, restricted balances, demand-repayable related-party debt and management’s going-concern assumptions.
- Examine share issuance, warrant activity and potential dilution; confirm the post-quarter share count and securities outstanding.
- Evaluate customer concentration in property revenue, uninsured cash exposure, foreign-exchange sensitivity and management’s remediation of ineffective disclosure controls.