Alset Inc. (AEI) — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; unaudited, compared with Q1 2023. Alset is a diversified holding company operating in real estate, digital technology, biohealth and other businesses across the U.S. and Asia. It manages much of its business through its 85.5%-owned subsidiary, Alset International.
Financial results and position
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Revenue | $6.09 million | $0.93 million |
| Gross profit and margin | $1.43 million; 23.5% | $0.24 million; 25.6% |
| Operating loss | $2.27 million | $2.09 million |
| Net loss | $7.31 million; $0.73 per share | $4.32 million; $0.46 per share |
| Operating cash flow | $(1.51) million | $(3.29) million |
| Investing cash flow | $(1.76) million | $0.67 million provided |
| Financing cash flow | $(0.24) million | $3.43 million provided |
| Cash and restricted cash | $24.69 million | $27.89 million at Dec. 31, 2023 |
| Total assets | $96.71 million | $126.31 million at Dec. 31, 2023 |
| Total liabilities | $6.67 million | $9.07 million at Dec. 31, 2023 |
Current assets were $48.13 million and current liabilities $4.64 million at quarter-end. Notes payable totaled $1.43 million; operating lease liabilities totaled $1.55 million. Real estate assets were $39.88 million, including 132 rental homes. The filing reports no income tax expense.
Changes and key drivers
- Revenue rose 557%, principally because of $5.03 million of property-sale revenue from the Lakes at Black Oak project; property revenue was zero in the prior-year quarter. Rental revenue increased to $720,494 from $633,811.
- Property sales represented about 83% of Q1 revenue, and one customer accounted for approximately 100% of property-development revenue.
- Cost of sales increased to $4.66 million as lot sales rose. Gross profit increased, but gross margin edged down year over year.
- Net loss widened by about $3.0 million. Other expense was $5.05 million, including a $5.27 million unrealized securities loss, a $1.12 million equity-method investment loss and a $1.19 million foreign-exchange gain. Operating expenses included $443,499 of goodwill and investment impairment.
- Assets fell by $29.60 million, primarily reflecting the reduction in cash and marketable securities held in the HWH trust account, from $21.25 million to zero. Liabilities declined, while cash and restricted cash fell by $3.20 million.
Outlook, risks and unusual items
- Management expects available cash and real-estate cash receipts to fund operations for at least 12 months. It plans to focus near term on lot sales to builders and expects rental revenue to grow if it acquires and leases additional homes.
- Two lot-sale agreements—approximately 142 Lakes at Black Oak lots for an anticipated $7.4 million and 63 Alset Villas lots for about $3.3 million—were expected to close in Q2 2024, subject to conditions. The filing does not establish that they subsequently closed.
- HWH intended to resume membership sales under a new annual-subscription model around Q2 2024. The filing provides no quantified revenue or earnings guidance.
- Management expects foreign-exchange volatility to continue affecting results, citing approximately $23 million of intercompany loans between Singapore and U.S. entities and no expected short-term repayment. Other stated challenges include controlling expenses, acquiring and integrating businesses, raising financing and attracting personnel.
- Related-party activity includes loans and investments involving SHRG, VEII and Sentinel. The company advanced Sentinel $550,000; the contemplated investment had not closed by quarter-end. Q1 included a $250,000 loan to SHRG and HWH’s $250,000 purchase of an SHRG convertible note and warrants.
- Management concluded disclosure controls and procedures were not effective as of March 31, 2024. It reported no material change in internal control over financial reporting during the quarter. The COO resigned effective March 10, 2024 for personal reasons and remained a consultant.
- A subsequent-event note reports an April 25, 2024 term sheet for a travel joint venture, with HWH’s subsidiary proposed to own 19%; the CEO and another entrepreneur proposed to own the remaining 81%.
Most important facts to verify
- Whether the expected Q2 lot sales closed, what proceeds were received, and whether the company’s stated liquidity runway remains valid.
- Customer concentration and the timing, margins and collectability of Lakes at Black Oak and other property-development sales.
- The valuation and potential recovery of securities and related-party loans, given the quarter’s material unrealized investment losses and significant related-party exposure.
- The MD&A says a $15.70 million gain on sale of subsidiary stock was a primary driver of other-income volatility, but that gain is not apparent in the presented Q1 2024 statement of operations, whose reported net other expense is $5.05 million. Reconcile this disclosure with the financial statements.
- Remediation plans and progress for ineffective disclosure controls, and the status, ownership terms and related-party safeguards for the proposed travel joint venture.