HWH International Inc. (HWH) - Q3 2024 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended September 30, 2024. HWH International Inc. (formerly Alset Capital Acquisition Corp.) consummated a business combination (reverse recapitalization) on January 9, 2024. The Company operates a Food and Beverage (F&B) business with cafés in Singapore and South Korea and an online healthy food store. The Company is classified as an emerging growth company and a smaller reporting company. Membership sales are currently suspended pending a restructuring of the membership model.
Key Financial Metrics
| Metric | Q3 2024 (3 Months) | Q3 2023 (3 Months) | YTD 2024 (9 Months) | YTD 2023 (9 Months) |
|---|---|---|---|---|
| Total Revenue | $345,523 | $226,907 | $966,515 | $622,667 |
| Gross Profit | $159,869 | $140,472 | $488,079 | $384,843 |
| Net Loss | $(537,143) | $(156,131) | $(2,277,303) | $(47,217) |
| Net Loss Attributable to Common Stockholders | $(548,492) | $(157,690) | $(2,273,253) | $(50,976) |
| Cash and Cash Equivalents | $832,368 | N/A | $832,368 (Sep 30, 2024) | $1,159,201 (Dec 31, 2023) |
| Total Assets | $2,920,066 | N/A | $2,920,066 (Sep 30, 2024) | $23,710,684 (Dec 31, 2023) |
| Total Liabilities | $3,171,179 | N/A | $3,171,179 (Sep 30, 2024) | $6,207,177 (Dec 31, 2023) |
Note: YTD 2023 figures are restated to reflect the reverse recapitalization accounting treatment.
Material Changes vs. Prior Period
- Revenue Growth: Revenue increased 52% in Q3 2024 compared to Q3 2023, driven primarily by F&B operations in Singapore and South Korea. Membership revenue was $0 in Q3 2024 compared to $0 in Q3 2023 (restated), as the membership business is suspended.
- Asset Reduction: Total assets decreased significantly from $23.7 million (Dec 31, 2023) to $2.9 million (Sep 30, 2024). This is primarily due to the redemption of approximately $21 million from the Trust Account in connection with the business combination closing in January 2024.
- Increased Losses: Net loss widened significantly in Q3 2024 ($537k) compared to Q3 2023 ($156k). This was driven by a $374k unrealized loss on convertible notes receivable from a related party (SHRG) and increased operating expenses.
- Impairments: The Company recorded a $323,864 impairment loss on goodwill and $69,343 in impairment losses on property and equipment during the nine months ended September 30, 2024.
- Debt Conversions: In September 2024, the Company converted approximately $3.8 million of debt owed to related parties (Alset Inc. and Alset International Limited) into common stock.
Guidance, Outlook, Risks, and Unusual Items
- Going Concern: Management believes available cash and financing from related parties are sufficient for operations for the next 12 months. The financial statements are prepared on a going concern basis.
- Nasdaq Compliance: The Company received notices of non-compliance with Nasdaq listing rules regarding Market Value of Publicly Held Shares (MVPHS) and Market Value of Listed Securities (MVLS). The Company received an extension to phase down to the Nasdaq Capital Market and demonstrate compliance.
- Unusual Items:
- Related Party Transactions: Significant activity involves convertible notes with Sharing Services Global Corporation (SHRG), resulting in unrealized losses. The Company also holds convertible notes receivable from SHRG valued at $739,590.
- Foreign Exchange: The Company recorded a foreign exchange transaction gain of $114,689 in Q3 2024 due to fluctuations in intercompany loans between Singapore and South Korea.
- Future Initiatives: The Company plans to launch "HapiMarketplace" (B2C e-commerce) and "Hapi Wealth" (investment education) in late 2024/early 2025. Expansion of Hapi Cafés is planned over the next two years.
- 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 are underway.
Investor Verification Checklist
- Liquidity Position: Verify the sufficiency of the $832k cash balance against operating burn rates and the availability of the $700k credit line from Alset Inc.
- Nasdaq Status: Monitor the Company's progress in regaining compliance with Nasdaq Capital Market requirements to avoid delisting.
- Related Party Valuations: Scrutinize the fair value assumptions used for the SHRG convertible notes and warrants, which contributed significantly to the unrealized losses.
- Membership Model: Assess the timeline and viability of the resumption of the membership business, which currently contributes $0 to revenue.
- Debt Conversion Impact: Review the dilution effects of the recent $3.8 million debt-to-equity conversions with related parties.