HWH International Inc. (HWH) - Q2 2024 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended June 30, 2024. HWH International Inc. (formerly Alset Capital Acquisition Corp.) consummated a business combination on January 9, 2024, and now operates a food and beverage (F&B) business in Singapore and South Korea, including four cafés and an online healthy food store. The company is classified as an emerging growth company and a smaller reporting company. The membership business model is currently suspended pending restructuring.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 |
|---|---|---|
| Total Revenue | $334,882 | $620,992 |
| Gross Profit | $164,913 | $328,210 |
| Net Loss | $(403,641) | $(1,740,160) |
| Net Loss Attributable to Common Stockholders | $(387,923) | $(1,724,761) |
| Cash and Cash Equivalents (End of Period) | $821,353 | $821,353 |
| Total Assets | $3,068,280 | $3,068,280 |
| Total Liabilities | $6,567,743 | $6,567,743 |
| Stockholders' Deficit | $(3,499,463) | $(3,499,463) |
Debt and Liquidity: The company holds a $1,000,000 credit facility with Alset Inc. (related party), of which $300,000 was drawn as of June 30, 2024. Total notes payable (current and non-current) were $1,188,799. Related party payables totaled $4,192,369.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 71.6% year-over-year for the three months ended June 30, 2024 ($334,882 vs. $195,198), driven primarily by F&B sales in Singapore. Membership revenue was $0 in Q2 2024 compared to $0 in Q2 2023 (membership sales were suspended).
- Profitability Decline: The company reported a net loss of $403,641 for Q2 2024, compared to a net loss of $62,935 in Q2 2023. For the six-month period, the net loss widened to $1.74 million compared to a net income of $108,914 in the prior year period.
- Operating Expenses: Operating expenses increased to $654,740 in Q2 2024 from $582,466 in Q2 2023, largely due to increased G&A expenses related to F&B operations and professional fees for SEC filings.
- Asset Base Reduction: Total assets decreased significantly from $23.7 million at December 31, 2023, to $3.1 million at June 30, 2024. This is primarily due to the redemption of Class A common stock and the withdrawal of approximately $21.1 million from the Trust Account following the business combination.
- Impairments: The company recorded a $323,864 impairment loss on goodwill and a $42,328 impairment of a convertible note receivable from a related party (Ketomei) during the six months ended June 30, 2024.
Outlook, Risks, and Management Commentary
- Going Concern: Management believes available cash and financing from related parties are sufficient to fund operations for the next 12 months. Letters of financial support have been obtained from Alset International Limited and Alset Inc.
- Strategic Shifts: The company closed one café (F&BPLQ) in Q2 2024 due to unsustainable revenue. Plans include taking over leases of existing Hapi Cafés and expanding the network over the next two years. The membership model is being restructured for a future relaunch.
- Related Party Transactions: Significant reliance on related parties for funding (advances and credit facilities) and investments (convertible notes in SHRG). The company purchased $750,000 in convertible notes from SHRG during the period.
- Internal Controls: Management identified a material weakness in internal controls over financial reporting as of December 31, 2023, due to limited staff with U.S. GAAP experience. Remediation plans include hiring qualified personnel.
- Foreign Exchange: The company is exposed to foreign exchange fluctuations, particularly regarding intercompany loans between Singapore and South Korea, which totaled approximately $2.7 million.
Key Facts for Investor Verification
- Revenue Concentration: F&B sales accounted for 100% of revenue in Q2 2024. Verify the sustainability of café operations and the timeline for the membership model relaunch.
- Related Party Dependence: Verify the terms and repayment schedules of the $4.2 million in amounts due to related parties and the $1 million credit facility.
- Asset Valuation: Review the valuation methodology for the $868,593 convertible loans receivable and $137,500 in warrants held in SHRG (related party), which are measured at fair value.
- Goodwill Impairment: Investigate the $323,864 goodwill impairment recorded in the first half of 2024 and its impact on future earnings.
- Cash Burn: Monitor the net cash used in operating activities ($1.13 million for the six months) against the current cash balance of $821,353 to assess runway without additional related party support.