Alset Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; unaudited. Alset is a diversified holding company with real estate, financial services, digital technology, biohealth and consumer businesses across the U.S. and Asia. Figures are in U.S. dollars.
Key financial metrics
| Metric | Q3 2023 | Nine months 2023 | Comparable 2022 period |
|---|---|---|---|
| Revenue | $990,199 | $21.07 million | $721,905; $3.60 million |
| Operating income (loss) | $(2.08) million | $942,862 | $(2.07) million; $(5.38) million |
| Net loss | $(17.03) million | $(27.16) million | $(13.08) million; $(30.99) million |
| Net loss attributable to common stockholders | $(16.01) million | $(25.68) million | $(11.71) million; $(27.17) million |
| Basic and diluted loss per share | $(1.73) | $(2.86) | $(1.58); $(4.38) |
Nine-month gross margin was $8.06 million, versus $1.12 million in 2022. The filing reports no separate adjusted earnings measure.
At September 30, cash was $28.04 million and restricted cash was $726,802, versus cash of $17.83 million at December 31, 2022. Current assets were $87.74 million and current liabilities $6.50 million. Total liabilities were $8.15 million; notes payable totaled $159,209, with a further $1.73 million in operating lease liabilities. Trust-account cash and marketable securities were $20.98 million and are subject to redemption by Alset Capital Acquisition Corp. investors.
For the first nine months, operating cash flow was positive $8.26 million, compared with negative $28.33 million in 2022; investing cash flow was negative $748,188 and financing cash flow positive $3.41 million. Management attributed the operating cash improvement primarily to Black Oak property sales.
Material changes versus prior periods
- Nine-month revenue rose 485% year over year, mainly from Black Oak lot sales. Real estate revenue was $20.23 million, compared with $2.49 million; the filing says 335 lot sales closed in the first half of 2023 and generated about $18.1 million.
- Q3 revenue rose 37% to $990,199, but the quarter still recorded a $2.08 million operating loss. Rental revenue increased to $705,334 from $569,791.
- Nine-month net loss narrowed from $30.99 million to $27.16 million, despite a $21.66 million loss on consolidating Alset Capital Acquisition Corp. and $11.29 million of realized securities losses. The quarter’s $17.03 million net loss was greater than the $13.08 million loss in Q3 2022.
- Real estate assets declined to $39.91 million from $54.62 million, primarily reflecting property sales. Total assets increased to $157.01 million, partly due to consolidation of Alset Capital and its trust-account assets.
- Common shares outstanding rose to 9,235,119 from 7,422,846 at year-end 2022, including a February 2023 public offering that generated approximately $3.4 million in net proceeds.
Outlook, risks and unusual items
- Management said available bank cash and expected real estate cash receipts should fund operations for at least the next 12 months. The company plans to prioritize near-term lot sales; it provided no specific revenue or earnings guidance.
- A contract for 189 additional Black Oak lots contemplated aggregate proceeds of about $10.02 million. The first 94 lots closed in May 2023; the remaining lots were expected to close by December 29, 2023, subject to contract conditions and seller-funded improvements.
- Alset Capital’s proposed business combination with HWH International had been approved by its stockholders but remained subject to closing conditions. On November 2, 2023, its stockholders extended the business-combination deadline to February 3, 2024.
- Investment results are volatile: the company holds significant related-party and publicly traded securities, and reported substantial realized losses and fair-value changes. Management also identified foreign-exchange volatility on approximately $40 million of intercompany loans as a continuing earnings risk and did not expect near-term repayment.
- Property development revenue is concentrated among a small number of customers; one customer represented approximately 100% of Q3 property development revenue. Cash and restricted cash of $25.17 million exceeded applicable deposit insurance limits.
- Many investment, lending and business arrangements involve related parties, including entities associated with the CEO and directors. The filing describes these relationships and certain recusals, but investors should review the terms and approvals of individual transactions.
- Management concluded disclosure controls and procedures were not effective as of September 30, 2023. It reported no quarterly change in internal control over financial reporting that materially affected, or was reasonably likely to materially affect, those controls.
Important facts for investors to verify
- Whether the remaining Black Oak lot sale closed as expected, what proceeds were received, and whether additional required improvements or costs affected cash generation.
- How much of reported cash is freely available, including the redemption exposure and obligations associated with the SPAC trust account.
- The valuation, liquidity and realized performance of securities and warrants, particularly related-party holdings and Level 3 valuations.
- The status and closing conditions of the HWH business combination and the resulting ownership, dilution and redemption effects.
- What remediation is planned for ineffective disclosure controls, and whether related-party transactions and customer concentration create additional governance or operating risks.