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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________to _________
Commission File Number
(Exact name of registrant as specified in its charter)
State or other jurisdiction of incorporation or organization |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
| The
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of November 14, 2023, there were shares of the registrant’s common stock $0.001 par value per share, issued and outstanding.
Table of Contents
| 2 |
Part I. Financial Information
Item 1. Financial Statements.
Alset Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
| September 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets: | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Restricted Cash | ||||||||
| Account Receivables, Net | ||||||||
| Other Receivables | ||||||||
| Note Receivables - Related Parties | ||||||||
| Prepaid Expense | ||||||||
| Inventory | ||||||||
| Investment in Securities at Fair Value | ||||||||
| Investment in Securities at Fair Value - Related Party | ||||||||
| Investment in Securities at Cost | ||||||||
| Investment in Securities at Equity Method | ||||||||
| Total Current Assets | ||||||||
| Real Estate | ||||||||
| Rental Properties | ||||||||
| Properties under Development | ||||||||
| Operating Lease Right-Of-Use Assets, net | ||||||||
| Deposits | ||||||||
| Other Receivables - Long Term | ||||||||
| Cash and Marketable Securities Held in Trust Account | ||||||||
| Goodwill | ||||||||
| Property and Equipment, Net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity: | ||||||||
| Current Liabilities: | ||||||||
| Accounts Payable and Accrued Expenses | $ | $ | ||||||
| Deferred Revenue | ||||||||
| Operating Lease Liabilities - current | ||||||||
| Notes Payable | ||||||||
| Notes Payable - Related Parties | ||||||||
| Total Current Liabilities | ||||||||
| Long-Term Liabilities: | ||||||||
| Operating Lease Liabilities - noncurrent | ||||||||
| Notes Payable | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 14) | ||||||||
| Temporary Equity | ||||||||
| Class A Common Stock of Alset Capital Acquisition Corp subject to possible redemption; shares at approximately $ per share as of September 30, 2023 | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred Stock, $ par value; shares authorized, issued and outstanding | ||||||||
| Common Stock, $ par value; shares authorized; and shares issued and outstanding on September 30, 2023 and December 31, 2022, respectively | ||||||||
| Additional Paid in Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Accumulated Other Comprehensive Income | ||||||||
| Total Alset Inc. Stockholders’ Equity | ||||||||
| Non-controlling Interests | ||||||||
| Total Stockholders’ Equity | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| F-1 |
Alset Inc. and Subsidiaries
Consolidated Statements of Operations and Other Comprehensive Income
For the Three and Nine Months Ended September 30, 2023 and 2022
(Unaudited)
| Three- Months Ended September 30, | Nine- Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | ||||||||||||||||
| Rental | $ | $ | $ | $ | ||||||||||||
| Property | ||||||||||||||||
| Biohealth | ||||||||||||||||
| Digital Transformation Technology - related party | ||||||||||||||||
| Other | ||||||||||||||||
| Total Revenue | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Cost of Sales | ||||||||||||||||
| General and Administrative | ||||||||||||||||
| Total Operating Expenses | ||||||||||||||||
| (Loss) Income from Operations | ( | ) | ( | ) | ( | ) | ||||||||||
| Other Income (Expense) | ||||||||||||||||
| Interest Income | ( | ) | ||||||||||||||
| Foreign Exchange Transaction Gain | ||||||||||||||||
| Unrealized (Loss) Gain on Securities Investment | ( | ) | ( | ) | ( | ) | ||||||||||
| Unrealized (Loss) Gain on Securities Investment - Related Party | ( | ) | ( | ) | ( | ) | ||||||||||
| Realized Loss on Securities Investment | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on Investment on Security by Equity Method | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on Consolidation of Alset Capital Acquisition | ( | ) | ||||||||||||||
| Finance Costs | ( | ) | ||||||||||||||
| Other Income | ||||||||||||||||
| Total Other Expense, Net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss Before Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income Tax (Expense) Benefit | ( | ) | ( | ) | ( | ) | ||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss Attributable to Non-Controlling Interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss Attributable to Common Stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Comprehensive Loss Attributable to Common Stockholders | ||||||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Unrealized Income on Securities Investment | ||||||||||||||||
| Foreign Currency Translation Adjustment | ( | ) | ( | ) | ( | ) | ||||||||||
| Total Comprehensive Loss Attributable to Common Stockholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Comprehensive Loss Attributable to Non-controlling Interests | ||||||||||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Unrealized Income on Securities Investment | ||||||||||||||||
| Foreign Currency Translation Adjustment | ( | ) | ( | ) | ( | ) | ||||||||||
| Total Comprehensive Loss Attributable to Non-controlling Interests | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net Loss Per Share - Basic and Diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted Average Common Shares Outstanding - Basic and Diluted | * | * | ||||||||||||||
| * |
See accompanying notes to condensed consolidated financial statements.
| F-2 |
Alset Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the Nine Months Ended September 30, 2023
(Unaudited)
| Series A Preferred Stock | Series B Preferred Stock | Common Stock | Additional | Accumulated Other | Total Alset | Non- | Total | |||||||||||||||||||||||||||||||||||||||||
| Shares | Par Value $0.001 | Shares | Par Value $0.001 | Shares | Par Value $0.001 | Paid in Capital | Comprehensive Income | Accumulated Deficit | Stockholders’ Equity | Controlling Interests | Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Foreign Currency Translations | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Foreign Currency Translations | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Foreign Currency Translations | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Change in Non-Controlling Interest | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Gain from Conversion of VEII Promissory Note to Stock and Warrants | 0 | - | $ | - | ||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| F-3 |
Alset Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the Nine Months Ended September 30, 2022
(Unaudited)
| Series A Preferred Stock | Series B Preferred Stock | Common Stock | Additional | Accumulated Other | Total Alset | Non- | Total | |||||||||||||||||||||||||||||||||||||||||
| Shares | Par Value $0.001 | Shares | Par Value $0.001 | Shares | Par Value $0.001 | Paid in Capital | Comprehensive Income | Accumulated Deficit | Stockholders’ Equity | Controlling Interests | Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||||
| Issuance of Stock by Excercising Warrants | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Convert Related Party Note to Common Stock | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Deconsolidate Alset Capital Acquisition | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Gain from Purchase Stock DSS | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Beneficial Conversion Feature Intrinsic Value, Net | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Change in Non-Controlling Interest | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Change in Unrealized Loss on Investment | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Foreign Currency Translations | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Change in Valuation on Investment | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Change in Non-Controlling Interest | - | - | - | ( | ) | |||||||||||||||||||||||||||||||||||||||||||
| Change in Unrealized Loss on Investment | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Foreign Currency Translations | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Change in Non-Controlling Interest | - | - | - | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||
| Change in Unrealized Gain on Investment | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Foreign Currency Translations | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | - | - | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| F-4 |
Alset Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2023 and 2022
(Unaudited)
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net Loss from Operations | $ | ( | ) | $ | ( | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Provided By (Used in) Operating Activities: | ||||||||
| Depreciation | ||||||||
| Non-Cash Lease Expenses | ||||||||
| Amortization of Debt Discount | ||||||||
| Loss on Consolidation of Alset Capital Acquisition Corp. | ||||||||
| Foreign Exchange Transaction Gain | ( | ) | ( | ) | ||||
| Unrealized (Gain) Loss on Securities Investment | ( | ) | ||||||
| Unrealized (Gain) Loss on Securities Investment - Related Party | ( | ) | ||||||
| Realized Loss on Securities Investment | ||||||||
| (Gain) Loss on Exchange of Investment Securities | ( | ) | ||||||
| PPP Loan Forgiveness | ( | ) | ||||||
| Director Compensation Adjustment | ( | ) | ||||||
| Loss on Equity Method Investment | ||||||||
| Changes in Operating Assets and Liabilities, net of acquisitions | ||||||||
| Real Estate | ( | ) | ||||||
| Real Estate Reimbursement Receivable | ( | ) | ||||||
| Account Receivables | ( | ) | ( | ) | ||||
| Other Receivables | ( | ) | ||||||
| Other Receivables - Related Parties | ( | ) | ( | ) | ||||
| Prepaid Expense | ( | ) | ||||||
| Deposits | ||||||||
| Trading Securities | ( | ) | ( | ) | ||||
| Inventory | ||||||||
| Accounts Payable and Accrued Expenses | ( | ) | ||||||
| Deferred Revenue | ( | ) | ( | ) | ||||
| Operating Lease Liabilities | ( | ) | ( | ) | ||||
| Builder Deposits | ( | ) | ||||||
| Net Cash Provided by (Used in) Operating Activities | ( | ) | ||||||
| Cash Flows from Investing Activities | ||||||||
| Loan Receivable - Related Party | ||||||||
| Purchase of Fixed Assets | ( | ) | ( | ) | ||||
| Purchase of Real Estate Properties | ( | ) | ||||||
| Real Estate Improvements | ( | ) | ( | ) | ||||
| Purchase of Investment Securities | ( | ) | ( | ) | ||||
| Proceeds from Sale of Investment Securities | ||||||||
| Acquisition of Subsidiary | ( | ) | ||||||
| Issuing Loan Receivable - Related Party | ( | ) | ||||||
| Proceeds from Loan Receivable - Related Party | ||||||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| Cash Flows from Financing Activities | ||||||||
| Proceeds from Common Stock Issuance | ||||||||
| Repayment to Notes Payable | ( | ) | ( | ) | ||||
| Net Cash Provided by Financing Activities | ||||||||
| Net Increase (Decrease) in Cash and Restricted Cash | ( | ) | ||||||
| Effects of Foreign Exchange Rates on Cash | ( | ) | ( | ) | ||||
| Cash and Restricted Cash - Beginning of Year | ||||||||
| Cash and Restricted Cash- End of Period | $ | $ | ||||||
| Cash | $ | $ | ||||||
| Restricted Cash | $ | $ | ||||||
| Total Cash and Restricted Cash | $ | $ | ||||||
| Supplementary Cash Flow Information | ||||||||
| Cash Paid for Interest | $ | $ | ||||||
| Cash Paid for Taxes | $ | $ | ||||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | ||||||||
| Unrealized Gain on Investment | $ | $ | ||||||
| Initial Recognition of ROU / Lease Liability | $ | $ | ||||||
| Deconsolidate Alset Capital Acquisition | $ | $ | ||||||
| Intrinsic Value of BCF | $ | $ | ||||||
| Issuance of Stock by Exercising Warrants | $ | $ | ||||||
| Convert Related Party Note Payable to Common Stock | $ | $ | ||||||
| Convert VEII Not Receivable to Common Stock | $ | $ | ||||||
| Warrants Received from VEII after Converting Note Receivable | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
| F-5 |
Alset Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2023 and 2022
(Unaudited)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Alset
Inc. (the “Company” or “AEI”), formerly known as Alset EHome International Inc. and HF Enterprises Inc., was
incorporated in the State of Delaware on March 7, 2018. On October 4, 2022, through a merger transaction, the Company was reincorporated
in Texas. AEI is a diversified holding company principally engaged through its subsidiaries in the development of EHome communities and
other real estate, financial services, digital transformation technologies, biohealth activities and consumer products with operations
in the United States, Singapore, Hong Kong, Australia and South Korea. We manage a significant portion of our businesses through our
The Company has four operating segments based on the products and services we offer, which include three of our principal businesses – real estate, digital transformation technology and biohealth – as well as a fourth category consisting of certain other business activities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. These interim financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the Company’s financial information. These interim results are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or any other interim periods or for any other future years. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Form 10-K for the year ended December 31, 2022 filed on March 31, 2023.
The
condensed consolidated financial statements include all accounts of the Company and its majority owned and controlled subsidiaries. The
Company consolidates entities in which it owns
| F-6 |
The Company’s condensed consolidated financial statements include the financial position, results of operations and cash flows of the following entities as of September 30, 2023 and December 31, 2022, as follows:
| Name of subsidiary | State or other jurisdiction of incorporation or | Attributable interest as of, | ||||||||
| consolidated under AEI | organization | September 30, 2023 | December 31, 2022 | |||||||
| % | % | |||||||||
| * | * | |||||||||
| F-7 |
| * | * | |||||||||
| * | * | |||||||||
| * | * | |||||||||
| * |
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates made by management include, but are not limited to, allowance for doubtful accounts, valuation of real estate assets, allocation of development costs and capitalized interest to sold lots, fair value of the investments, the valuation allowance of deferred taxes, and contingencies. Actual results could differ from those estimates.
| F-8 |
In our property development business, land acquisition costs are allocated to each lot based on the area method, the size of the lot compared to the total size of all lots in the project. Development costs and capitalized interest are allocated to lots sold based on the total expected development and interest costs of the completed project and allocating a percentage of those costs based on the selling price of the sold lot compared to the expected sales values of all lots in the project.
If allocation of development costs and capitalized interest based on the projection and relative expected sales value is impracticable, those costs could also be allocated based on area method, the size of the lot compared to the total size of all lots in the project.
When
the Company purchases properties but does not receive the assessment information from the county, the Company allocates the values between
land and building based on the data of similar properties. The Company makes appropriate adjustments once the assessment from the county
is received. At the same time, any necessary adjustments to depreciation expense are made in the income statement. On September 30, 2023
and December 31, 2022, the Company adjusted $
Cash and Cash Equivalents
The
Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents.
Cash and cash equivalents include cash on hand and at the bank and short-term deposits with financial institutions that are readily convertible
to a known amount of cash and are subject to an insignificant risk of changes in values. There were
Restricted Cash
As
a condition to the loan agreement with the Manufacturers and Traders Trust Company (“M&T Bank”), the Company was required
to maintain a minimum of $
As
a condition to the loan agreement with National Australian Bank Limited in conjunction with the Perth project, an Australian real estate
development project, the Company was required to maintain AUD$
The
Company puts money into brokerage accounts specifically for equity investment. As of September 30, 2023 and December 31, 2022, the cash
balance in these brokerage accounts was $
Investments held in Trust Account
At
September 30, 2023 the Company had approximately $
| F-9 |
Account Receivables and Allowance for Doubtful Accounts
Account
receivables is stated at amounts due from buyers, contractors, and all third parties, net of an allowance for doubtful accounts. As of
September 30, 2023 and December 31, 2022, the balance of account receivables was $
The
Company monitors its account receivables balances on a monthly basis to ensure that they are collectible. On a quarterly basis, the Company
uses its historical experience to estimate its allowance for doubtful account receivables. The Company’s allowance for doubtful
accounts represents an estimate of the losses expected to be incurred based on specifically identified accounts as well as nonspecific
amount, when determined appropriate. Generally, the amount of the allowance is primarily decided by division management’s historical
experience, the delinquency trends, the resolution rates, the aging of receivables, the credit quality indicators and financial health
of specific customers. As of September 30, 2023 and December 31, 2022, the allowance was $
Inventories
Inventory is stated at the lower of cost or
net realizable value. Cost is determined using the first-in, first-out method and includes all costs in bringing the inventories to
their present location and condition. Net realizable value is the estimated selling price in the ordinary course of business less
the estimated costs necessary to make the sale. As of September 30, 2023 and December 31, 2022, inventory consisted of finished
goods procured from suppliers. The Company continuously evaluates the need for reserve for obsolescence and possible price
concessions required to write-down inventory to its net realizable value. During the nine months ended September 30, 2023, the
Company determined that total inventory costed $
Investment Securities
Investment Securities at Fair Value
The
Company records all equity investments with readily determinable fair values at fair value calculated by the publicly traded stock price
at the close of the reporting period. Holista CollTech Limited (“Holista”), Amarantus BioScience Holdings, Inc. (“AMBS”)
True Partner Capital Holding Limited (“True Partner”) and Lucy Scientific Discovery Inc. (“Lucy”) are publicly
traded companies. The Company does not have significant influence over Holista, AMBS, True Partner and Lucy, as the Company is the beneficial
owner of approximately
Since 2021, the Company’s subsidiaries have maintained a portfolio of trading securities. The objective is to generate profits on short-term differences in market prices. The Company does not have significant influence over any trading securities in our portfolio and fair value of these trading securities are determined by reference to quoted stock prices. The Company has elected the fair value option for the equity securities noted below that would otherwise be accounted for under the equity method of accounting. DSS, Inc. (“DSS”), New Electric CV Corporation (“NECV” formerly known as “American Premium Mining Corporation” (“APM”)), Value Exchange International Inc. (“Value Exchange International” or “VEII”) and Sharing Services Global Corp. (“SHRG”) are publicly traded companies and fair value is determined by quoted stock prices. The Company has significant influence but does not have a controlling interest in these investments, and therefore, the Company’s investment could be accounted for under the equity method of accounting or elect fair value accounting.
| ● | The
Company has significant influence over DSS. As of September 30, 2023 and December 31, 2022, the Company owned approximately | |
| ● | The
Company has significant influence over NECV as the Company is the beneficial owner of approximately |
| F-10 |
| ● | The
Company has significant influence over Value Exchange International as the Company is the beneficial owner of approximately | |
| ● | The
Company has significant influence over SHRG as the Company is the beneficial owner of approximately |
On
March 2, 2020 and October 29, 2021, the Company received warrants to purchase shares of American Medical REIT Inc. (“AMRE”),
a related party private company, in conjunction with the Company lending two $
On August 8, 2023, DSS Inc. distributed shares of Impact Biomedical Inc. (“Impact”) beneficially held by DSS in the form of a dividend to the shareholders of DSS common stock. As a result of this distribution, the Company and its majority owned subsidiaries received shares of Impact, representing % of the issued and outstanding shares of Impact Common Stock. Each share of Impact distributed as part of the distribution is not eligible for resale until 180 days from the date Impact’s initial public offering becomes effective under the Securities Act, subject to the discretion of DSS to lift the restriction sooner. As of September 30, 2023, Impact was a startup private company. Based on the management’s analysis, the fair value of Impact shares was approximately $ at the distribution date and as of September 30, 2023.
The
Company accounts for certain of its investments in funds without readily determinable fair values in accordance with ASU No. 2015-07,
Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its
Equivalent) (“2015-07”). In the first six months of 2022 the Company invested $
Investment Securities at Cost
Investments in equity securities without readily determinable fair values are measured at cost minus impairment adjusted by observable price changes in orderly transactions for the identical or a similar investment of the same issuer. These investments are measured at fair value on a nonrecurring basis when there are events or changes in circumstances that may have a significant adverse effect. An impairment loss is recognized in the condensed consolidated statements of comprehensive income equal to the amount by which the carrying value exceeds the fair value of the investment.
On
September 8, 2020, the Company acquired shares, approximately
On
September 30, 2020, the Company acquired shares, representing the ownership of approximately
During
2021, the Company invested $
There has been no indication of impairment or changes in observable prices via transactions of similar securities and investments are still carried at cost.
| F-11 |
Equity Method Investment
The Company accounts for equity investment in entities with significant influence under equity-method accounting. Under this method, the Group’s pro rata share of income (loss) from investment is recognized in the condensed consolidated statements of comprehensive income. Dividends received reduce the carrying amount of the investment. When the Company’s share of loss in an equity-method investee equals or exceeds its carrying value of the investment in that entity, the equity method investment can be reduced below zero based on losses, if the Company either is liable for the obligations of the investee or provides for losses in excess of the investment when imminent return to profitable operations by the investee appears to be assured. Otherwise, the Company does not recognize its share of equity method losses exceeding its carrying amount of the investment, but discloses the losses in the footnotes. Equity-method investment is reviewed for impairment by assessing if the decline in market value of the investment below the carrying value is other-than-temporary. In making this determination, factors are evaluated in determining whether a loss in value should be recognized. These include consideration of the intent and ability of the Group to hold investment and the ability of the investee to sustain an earnings capacity, justifying the carrying amount of the investment. Impairment losses are recognized in other expense when a decline in value is deemed to be other-than-temporary.
American Medical REIT Inc.
LiquidValue
Asset Management Pte. Ltd. (“LiquidValue”), a subsidiary of the Company, owns
American Pacific Bancorp, Inc.
Pursuant
to Securities Purchase Agreement from March 12, 2021 the Company purchased shares of the common stock of American Pacific Bancorp
Inc. (“APB”) and gained majority ownership in that entity. APB was consolidated into the Company under common control accounting
(See Transactions between Entities under Common Control for details). On September 8, 2021 APB sold shares Series A Common
Stock to DSS, Inc. for $
Ketomei Pte Ltd
On
June 10, 2021 the Company’s indirect subsidiary Hapi Cafe Inc. (“Hapi Cafe”) lent $
| F-12 |
Sentinel Brokers Company Inc.
On
May 22, 2023 the Company’s indirect subsidiary, SeD Capital Pte Ltd (“SeD Capital”), entered into a Stock Purchase
Agreement, pursuant to which SeD Capital purchased shares (
Investment in Debt Securities
Debt securities are reported at fair value, with unrealized gains and losses (other than impairment losses) recognized in accumulated other comprehensive income or loss. Realized gains and losses on debt securities are recognized in the net income in the condensed consolidated statements of comprehensive income. The Company monitors its investments for other-than-temporary impairment by considering factors including, but not limited to, current economic and market conditions, the operating performance of the companies including current earnings trends and other company-specific information.
The
Company invested $
On
February 26, 2021, the Company invested approximately $
Variable Interest Entity
Under Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 810, Consolidation, when a reporting entity is the primary beneficiary of an entity that is a variable interest entity (“VIE”), as defined in ASC 810, the VIE must be consolidated into the financial statements of the reporting entity. The determination of which owner is the primary beneficiary of a VIE requires management to make significant estimates and judgments about the rights, obligations, and economic interests of each interest holder in the VIE.
The Company evaluates its interests in VIEs on an ongoing basis and consolidates any VIE in which it has a controlling financial interest and is deemed to be the primary beneficiary. A controlling financial interest has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact its economic performance; and (ii) the obligation to absorb losses of the VIE that could potentially be significant to it or the right to receive benefits from the VIE that could be significant to the VIE.
Real Estate Assets
Real estate assets are recorded at cost, except when real estate assets are acquired that meet the definition of a business combination in accordance with Financial Accounting Standards Board (“FASB”) ASC 805 - “Business Combinations”, which acquired assets are recorded at fair value. Interest, property taxes, insurance and other incremental costs (including salaries) directly related to a project are capitalized during the construction period of major facilities and land improvements. The capitalization period begins when activities to develop the parcel commence and ends when the asset constructed is completed. The capitalized costs are recorded as part of the asset to which they relate and are reduced when lots are sold.
| F-13 |
The
Company capitalized construction costs of approximately -$
The Company’s policy is to obtain an independent third-party valuation for each major project in the United States as part of our assessment of identifying potential triggering events for impairment. Management may use the market comparison method to value other relatively small projects, such as the project in Perth, Australia, which was completed during the year 2022. In addition to the annual assessment of potential triggering events in accordance with ASC 360 – Property Plant and Equipment (“ASC 360”), the Company applies a fair value-based impairment test to the net book value assets on an annual basis and on an interim basis if certain events or circumstances indicate that an impairment loss may have occurred.
The Company did not record impairment on any of its projects during the three and nine months ended on September 30, 2023 and 2022.
Recent Agreements to Sell Lots
On October 28, 2022, 150 CCM Black Oak Ltd. (the “Seller”), a Texas Limited Partnership and subsidiary of the Company, entered into a Contract for Purchase and Sale and Escrow Instructions (the “Agreement”) with Century Land Holdings of Texas, LLC, a Colorado limited liability company (the “Buyer”). Pursuant to the terms of the Agreement, the Seller agreed to sell approximately 242 single-family detached residential lots comprising a residential community in the city of Magnolia, Texas known as the “Lakes at Black Oak.” On November 28, 2022, the parties to the Agreement entered into an amendment to the Agreement (the “Amendment”). Pursuant to the Amendment, the parties agreed that the Buyer would purchase approximately 131 single-family detached residential lots, instead of 242 lots. This transaction closed on April 13, 2023.
On March 16, 2023, 150 CCM Black Oak Ltd. (the “Seller”) entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) with Rausch Coleman Homes Houston, LLC, a Texas limited liability company (“Rausch Coleman”). Pursuant to the terms of the Purchase and Sale Agreement, the Seller has agreed to sell approximately 110 single-family detached residential lots which comprise a section of the Lakes at Black Oak. The transaction closed on May 15, 2023.
On March 17, 2023, 150 CCM Black Oak Ltd. (the “Seller”) entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) with Davidson Homes, LLC, an Alabama limited liability company (“Davidson”). Pursuant to the terms of the Purchase and Sale Agreement, the Seller has agreed to sell approximately 189 single-family detached residential lots developed within section 2 of Black Oak project. The sale of the first 94 lots closed on May 30, 2023. The sale of remaining lots is estimated to close at the end of the year 2023.
Properties under development
Properties under development are properties being constructed for sale in the ordinary course of business, rather than to be held for the Company’s own use, rental or capital appreciation.
Rental Properties
Rental
properties are acquired with the intent to be rented to tenants. As of September 30, 2023 and December 31, 2022, the Company owned 132
homes. The aggregate purchase cost of all the homes is $
Investments in Single-Family Residential Properties
The Company accounts for its investments in single-family residential properties as asset acquisitions and records these acquisitions at their purchase price. The purchase price is allocated between land, building and improvements based upon their relative fair values at the date of acquisition. The purchase price for purposes of this allocation is inclusive of acquisition costs which typically include legal fees, title fees, property inspection and valuation fees, as well as other closing costs.
| F-14 |
Building
improvements and buildings are depreciated over estimated useful lives of approximately
The Company assesses its investments in single-family residential properties for impairment whenever events or changes in business circumstances indicate that carrying amounts of the assets may not be fully recoverable. When such events occur, management determines whether there has been impairment by comparing the asset’s carrying value with its fair value. Should impairment exist, the asset is written down to its estimated fair value. The Company did not recognize any impairment losses during three and nine months ended September 30, 2023 and 2022.
Revenue Recognition and Cost of Revenue
ASC 606 - Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The Company adopted this new standard on January 1, 2018 under the modified retrospective method. The adoption of this new standard did not have a material effect on our financial statements.
In accordance with ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration to which the Company expects to be entitled to receive in exchange for these goods or services. The provisions of ASC 606 include a five-step process by which the determination of revenue recognition, depicting the transfer of goods or services to customers in amounts reflecting the payment to which the Company expects to be entitled in exchange for those goods or services. ASC 606 requires the Company to apply the following steps:
(1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, performance obligations are satisfied.
The following represents the Company’s revenue recognition policies by Segments:
Real Estate
Property Sales
The
Company’s main business is land development. The Company purchases land and develops it for building into residential communities.
The developed lots are sold to builders (customers) for the construction of new homes. The builders enter into sales contracts with the
Company before they take the lots. The prices and timeline are determined and agreed upon in the contracts. The builders do the inspections
to make sure all conditions and requirements in contracts are met before purchasing the lots. A detailed breakdown of the five-step process
for the revenue recognition of the Ballenger project and Black Oak project, which represented approximately
| ● | Identify the contract with a customer. |
The Company has signed agreements with the builders for developing the raw land to ready to build lots. The contract has agreed upon prices, timelines, and specifications for what is to be provided.
| ● | Identify the performance obligations in the contract. |
Performance obligations of the Company include delivering developed lots to the customer, which are required to meet certain specifications that are outlined in the contract. The customer inspects all lots prior to accepting title to ensure all specifications are met.
| ● | Determine the transaction price. |
| F-15 |
The transaction price per lot is fixed and specified in the contract. Any subsequent change orders or price changes are required to be approved by both parties.
| ● | Allocate the transaction price to performance obligations in the contract. |
Each lot or a group of lots is considered to be a separate performance obligation, for which the specified price in the contract is allocated to.
| ● | Recognize revenue when (or as) the entity satisfies a performance obligation. |
The builders do the inspections to make sure all conditions/requirements are met before taking title of lots. The Company recognizes revenue at a point in time when title is transferred. The Company does not have further performance obligations or continuing involvement once title is transferred.
Rental Revenue
The Company leases real estate properties to its tenants under leases that are predominately classified as operating leases, in accordance with ASC 842, Leases (“ASC 842”). Real estate rental revenue is comprised of minimum base rent and revenue from the collection of lease termination fees.
Rent from tenants is recorded in accordance with the terms of each lease agreement on a straight-line basis over the initial term of the lease. Rental revenue recognition begins when the tenant controls the space and continues through the term of the related lease. Generally, at the end of the lease term, the Company provides the tenant with a one-year renewal option, including mostly the same terms and conditions provided under the initial lease term, subject to rent increases.
The Company defers rental revenue related to lease payments received from tenants in advance of their due dates. These amounts are presented within deferred revenues and other payables on the Company’s condensed consolidated balance sheets.
Rental revenue is subject to an evaluation for collectability on several factors, including payment history, the financial strength of the tenant and any guarantors, historical operations and operating trends of the property, and current economic conditions. If our evaluation of these factors indicates that it is not probable that we will recover substantially all of the receivable, rental revenue is limited to the lesser of the rental revenue that would be recognized on a straight-line basis (as applicable) or the lease payments that have been collected from the lessee. Differences between rental revenue recognized and amounts contractually due under the lease agreements are credited or charged to straight-line rent receivable or straight-line rent liability, as applicable. For the three and nine months ended September 30, 2023, the Company did not recognize any deferred revenue and collected all rents due.
Sale of the Front Foot Benefit Assessments
We
have established a front foot benefit (“FFB”) assessment on all of the NVR lots. This is a 30-year annual assessment allowed
in Frederick County which requires homeowners to reimburse the developer for the costs of installing public water and sewer to the lots.
These assessments become effective as homes are settled, at which time we can sell the collection rights to investors who will pay an
upfront lump sum, enabling us to more quickly realize the revenue. The selling prices range from $
| F-16 |
Cost of Revenues
Real Estate
| ● | Cost of Real Estate Sale |
All of the costs of real estate sales are from our land development business. Land acquisition costs are allocated to each lot based on the area method, the size of the lot comparing to the total size of all lots in the project. Development costs and capitalized interest are allocated to lots sold based on the total expected development and interest costs of the completed project and allocating a percentage of those costs based on the selling price of the sold lot compared to the expected sales values of all lots in the project.
If allocation of development costs and capitalized interest based on the projection and relative expected sales value is impracticable, those costs could also be allocated based on area method, the size of the lot comparing to the total size of all lots in the project.
| ● | Cost of Rental Revenue |
Cost of rental revenue consists primarily of the costs associated with management and leasing fees to our management company, repairs and maintenance, depreciation and other related administrative costs. Utility expenses are paid directly by tenants.
Biohealth
| ● | Product Direct Sales |
The Company’s net sales consist of product sales. The Company’s performance obligation is to transfer ownership of its products to its members. The Company generally recognizes revenue when product is delivered to its members. Revenue is recorded net of applicable taxes, allowances, refund or returns. The Company receives the net sales price in cash or through credit card payments at the point of sale.
If
any member returns a product to the Company on a timely basis, they may obtain a replacement product from the Company for such returned
products. We do not have buyback program. However, when the customer requests a return and management decides that the refund is necessary,
we initiate the refund after deducting all the benefits that a member has earned. The returns are deducted from our sales revenue on
our financial statements. Allowances for product and membership returns are provided at the time the sale is recorded. This accrual is
based upon historical return rates for each country and the relevant return pattern, which reflects anticipated returns to be received
over a period of up to 12 months following the original sale. Product and membership returns for the three months ended September 30,
2023 and 2022 were approximately $
| ● | Annual Membership |
The
Company collects an annual membership fee from its members. The fee is fixed, paid in full at the time upon joining the membership; the
fee is not refundable. The Company’s performance obligation is to provide its members the right to (a) purchase products from the
Company, (b) access to certain back-office services, (c) receive commissions and (d) attend corporate events. The associated performance
obligation is satisfied over time, generally over the term of the membership agreement which is for a one-year period. Before the membership
fee is recognized as revenue, it is recorded as deferred revenue. Deferred revenue relating to membership was $
| F-17 |
Other Businesses
| ● | Food and Beverage |
The Company, through Alset F&B One Pte. Ltd. (“Alset F&B One”) and Alset F&B (PLQ) Pte. Ltd. (“Alset F&B PLQ”) each acquired a restaurant franchise licenses at the end of 2021 and 2022 respectively, both of which have since commenced operations. These licenses will allow Alset F&B One and Alset F&B PLQ each to operate a Killiney Kopitiam restaurant in Singapore. Killiney Kopitiam, founded in 1919, is a Singapore-based chain of mass-market, traditional kopitiam style service cafes selling traditional coffee and tea, along with a range of local delicacies such as Curry Chicken, Laksa, Mee Siam, and Mee Rebus.
The Company, through Hapi Café Inc. (“HCI-T”), commenced operation of two cafés during 2022 and 2021, which are located in Singapore and South Korea.
The cafes are operated by subsidiaries of HCI-T, namely Hapi Café SG Pte. Limited (“HCSG”) in Singapore and Hapi Café Korea Inc. (“HCKI”) in Seoul, South Korea. Hapi Cafes are distinctive lifestyle café outlets that strive to revolutionize the way individuals dine, work, and live, by providing a conducive environment for everyone to relish the four facets – health and wellness, fitness, productivity, and recreation all under one roof.
In recent months the Company incorporated two new subsidiaries Shenzhen Leyouyou Catering Management Co., Ltd. and Dongguan Leyouyou Catering Management Co., Ltd. in the People’s Republic of China. Both companies will be principally engaged in the food and beverage business in Mainland China.
Additionally, through its subsidiary MOC HK Limited, the Company is focusing on operating café business in Hong Kong.
| ● | Remaining performance obligations |
As of September 30, 2023 and December 31, 2022, there were no remaining performance obligations or continuing involvement, as all service obligations within the other business activities segment have been completed.
Stock-Based Compensation
The Company accounts for stock-based compensation to employees in accordance with ASC 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including stock options, based on the grant date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period. Stock option forfeitures are recognized at the date of employee termination. Effective January 1, 2019, the Company adopted ASU 2018-07 for the accounting of share-based payments granted to non-employees for goods and services. During the three and nine months ended on September 30, 2023 and 2022, the Company recorded $ as stock-based compensation expense.
Foreign currency
Functional and reporting currency
Items included in the financial statements of each entity in the Company are measured using the currency of the primary economic environment in which the entity operates (“functional currency”). The financial statements of the Company are presented in U.S. dollars (the “reporting currency”).
The functional and reporting currency of the Company is the United States dollar (“U.S. dollar”). The financial records of the Company’s subsidiaries located in Singapore, Hong Kong, Australia and South Korea are maintained in their local currencies, the Singapore Dollar (S$), Hong Kong Dollar (HK$), Australian Dollar (“AUD”), South Korean Won (“KRW”) and Chinese Yuan (CN¥), which are also the functional currencies of these entities.
| F-18 |
Transactions in foreign currencies
Transactions in currencies other than the functional currency during the periods are converted into functional currency at the applicable rates of exchange prevailing when the transactions occurred. Transaction gains and losses are recognized in the statement of operations.
The
majority of the Company’s foreign currency transaction gains or losses come from the effects of foreign exchange rate changes on
the intercompany loans between Singapore entities and U.S. entities. The Company recorded foreign exchange gain of $
Translation of consolidated entities’ financial statements
Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at the rates of exchange ruling at the balance sheet date. The Company’s entities with functional currency of S$, HK$, AUD, KRW and CN¥, translate their operating results and financial positions into the U.S. dollar, the Company’s reporting currency. Assets and liabilities are translated using the exchange rates in effect on the balance sheet date. Revenue, expense, gains and losses are translated using the average rate for the year. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of comprehensive income (loss).
The
Company recorded other comprehensive loss of $
Non-controlling interests
Non-controlling interests represent the equity in subsidiary not attributable, directly or indirectly, to owners of the Company, and are presented separately in the condensed consolidated statements of operation and comprehensive income, and within equity in the Condensed Consolidated Balance Sheets, separately from equity attributable to owners of the Company.
On
September 30, 2023 and December 31, 2022, the aggregate non-controlling interests in the Company were $
Capitalized Financing Costs
Financing costs, such as loan origination fee, administration fee, interests, and other related financing costs should be capitalized and recorded on the balance sheet, if these financing activities are directly associated with the development of real estate.
Capitalized financing costs are allocated to lots sold based on the total expected development and interest costs of the completed project and allocating a percentage of those costs based on the selling price of the sold lot compared to the expected sales values of all lots in the project. If the allocation of capitalized financing costs based on the projection and relative expected sales value is impracticable, those costs could also be allocated based on an area method, which uses the size of the lots compared to the total project area and allocates costs based on their size.
As
of September 30, 2023 and December 31, 2022, the capitalized financing costs were $
| F-19 |
Beneficial Conversion Features
The Company evaluates the conversion feature for whether it was beneficial as described in ASC 470-30. The intrinsic value of a beneficial conversion feature inherent to a convertible note payable, which is not bifurcated and accounted for separately from the convertible note payable and may not be settled in cash upon conversion, is treated as a discount to the convertible note payable. This discount is amortized over the period from the date of issuance to the date the note is due using the effective interest method. If the note payable is retired prior to the end of its contractual term, the unamortized discount is expensed in the period of retirement to interest expense. In general, the beneficial conversion feature is measured by comparing the effective conversion price, after considering the relative fair value of detachable instruments included in the financing transaction, if any, to the fair value of the shares of common stock at the commitment date to be received upon conversion.
Recent Accounting Pronouncements
Accounting pronouncement adopted
In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.” ASU 2021-08 requires the company acquiring contract assets and contract liabilities obtained in a business combination to recognize and measure them in accordance with ASC 606, “Revenue from Contracts with Customers”. At the acquisition date, the company acquiring the business should record related revenue, as if it had originated the contract. Before the update such amounts were recognized by the acquiring company at fair value. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including in interim periods, for any financial statements that have not yet been issued. The Company adopted these requirements prospectively, effective on the first day of the year 2023.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 requires financial assets measured at amortized cost to be presented at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. ASU 2016-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, and a modified retrospective approach is required, with a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In November of 2019, the FASB issued ASU 2019-10, which delayed the implementation of ASU 2016-13 to fiscal years beginning after December 15, 2022 for smaller reporting companies. The Company adopted these requirements prospectively, effective on the first day of the year 2023.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of Reference Rate Reform on Financial Reporting. The amendments in this update provide optional expedients and exceptions for applying generally accepted accounting principles (GAAP) to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in this update apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The Company’s line of credit agreement provides procedures for determining a replacement or alternative rate in the event that LIBOR is unavailable. The amendments in this update are effective for all entities as of March 12, 2020 through December 31, 2024. The Company does not believe that ASU 2020-04 will have significant impact on its future consolidated financial statements.
Accounting pronouncement not yet adopted
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) which simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. Either a modified retrospective method of transition or a fully retrospective method of transition is permissible for the adoption of this standard. Update No. 2020-06 is effective for fiscal years beginning after December 15, 2023 for smaller reporting companies, including interim periods within those fiscal years. Early adoption is permitted no earlier than the fiscal year beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its future consolidated financial statements.
| F-20 |
3. CONCENTRATIONS
The
Company maintains cash balances at various financial institutions in different countries. These balances are usually secured by the central
banks’ insurance companies. At times, these balances may exceed the insurance limits. As of September 30, 2023 and December 31,
2022, uninsured cash and restricted cash balances were $
For
the three months ended September 30, 2023, one customer accounted for approximately
4. SEGMENTS
Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision–making group, in deciding how to allocate resources and in assessing performance. The Company’s chief operating decision-maker is the CEO. The Company operates in and reports four business segments: real estate, digital transformation technology, biohealth, and other business activities. The Company’s reportable segments are determined based on the services they perform and the products they sell, not on the geographic area in which they operate. The Company’s chief operating decision maker evaluates segment performance based on segment revenue. Costs excluded from segment income (loss) before taxes and reported as “Other” consist of corporate general and administrative activities which are not allocable to the four reportable segments.
The following table summarizes the Company’s segment information for the following balance sheet dates presented, and for the nine months ended September 30, 2023 and 2022:
| Real Estate | Digital Transformation Technology | Biohealth Business | Other | Total | ||||||||||||||||
| Nine Months Ended on September 30, 2023 | ||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Cost of Sales | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Gross Margin | ( | ) | ||||||||||||||||||
| Operating Expenses | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Operating Income (Loss) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Other Income (Expense) | ( | ) | ( | ) | ( | ) | ||||||||||||||
| Net Income (Loss) Before Income Tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||
| Real Estate | Digital Transformation Technology | Biohealth Business | Other | Total | ||||||||||||||||
| Nine Months Ended on September 30, 2022 | ||||||||||||||||||||
| Revenue | $ | $ | $ | $ | $ | |||||||||||||||
| Cost of Sales | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Gross Margin | ||||||||||||||||||||
| Operating Expenses | ( | ) | ( | ) | ( | ) | ( | ) | $ | ( | ) | |||||||||
| Operating Loss | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| Other Income (Expense) | ( | ) | ( | ) | ( | ) | $ | ( | ) | |||||||||||
| Net Loss Before Income Tax | ( | ) | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||
| September 30, 2023 | ||||||||||||||||||||
| Cash and Restricted Cash | $ | $ | $ | $ | $ | |||||||||||||||
| Total Assets | ||||||||||||||||||||
| December 31, 2022 | ||||||||||||||||||||
| Cash and Restricted Cash | $ | $ | $ | $ | $ | |||||||||||||||
| Total Assets | ||||||||||||||||||||
| F-21 |
5. REAL ESTATE ASSETS
As of September 30, 2023 and December 31, 2022, real estate assets consisted of the following:
| September 30, 2023 | December 31, 2022 | |||||||
| Construction in Progress | $ | $ | ||||||
| Land Held for Development | ||||||||
| Rental Properties, net | ||||||||
| Total Real Estate Assets | $ | $ | ||||||
Single family residential properties
As
of September 30, 2023 and December 31, 2022, the Company owned
The following table presents the summary of our SRFs as of September 30, 2023:
Number of Homes | Aggregate investment | Average Investment per Home | ||||||||||
| SFRs | $ | $ | ||||||||||
6. BUILDER DEPOSITS
In
November 2015, SeD Maryland Development, LLC (“SeD Maryland”) entered into lot purchase agreements with NVR, Inc. (“NVR”)
relating to the sale of single-family home and townhome lots to NVR in the Ballenger Run Project. The purchase agreements were amended
three times thereafter.
As
part of the agreements, NVR was required to give a deposit in the amount of $
| F-22 |
7. NOTES PAYABLE
As of September 30, 2023 and December 31, 2022, notes payable consisted of the following:
September 30, 2023 | December 31, 2022 | |||||||
| Motor Vehicle Loans | $ | $ | ||||||
| Total notes payable | $ | $ | ||||||
M&T Bank Loan
On
April 17, 2019, SeD Maryland Development LLC entered into a Development Loan Agreement with Manufacturers and Traders Trust Company (“M&T
Bank”) in the principal amount not to exceed at any one time outstanding the sum of $
Paycheck Protection Program Loan
On
February 11, 2021, the Company entered into a
The
PPP Term Note was unsecured and guaranteed by the United States Small Business Administration (“SBA”). The Company applied
to M&T Bank for forgiveness of the PPP Term Note, with the amount which may be forgiven equal to at least
The Company may be subject to CARES Act specific lookbacks and audits of the loan forgiveness as part of the SBA’s audit process.
Australia Loan
On
January 7, 2017, SeD Perth Pty Ltd (“SeD Perth”) entered into a loan agreement with National Australian Bank Limited (the
“Australia Loan”) for the purpose of funding land development. The loan facility provides SeD Perth with access to funding
of up to approximately $
| F-23 |
Motor Vehicle Loans
On
May 17, 2021, Alset International Limited entered into an agreement with Hong Leong Finance Limited to purchase a car for business. The
total purchase price of the car, including associated charges, was approximately $
On
September 22, 2022 Alset International entered into an agreement with United Overseas Bank Limited to purchase additional car for business.
The total purchase price of the car, including associated charges, was approximately $
Future minimum principal payments under existing motor vehicle loans at September 30, 2023 in each calendar year through the end of their terms are as follows:
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total Future Receipts | $ | |||
8. RELATED PARTY TRANSACTIONS
Purchase of Shares and Warrants from NECV
On
July 17, 2020, the Company purchased shares, approximately
Purchase and Sale of Stock in True Partners Capital Holding Limited
On
March 12, 2021, the Company purchased ordinary shares of True Partners Capital Holding Limited for $
SHRG Shares Dividend Received from DSS
On
May 4, 2023, DSS distributed approximately million shares of Sharing Services Global Corporation (“SHRG”) beneficially
held by DSS and its subsidiaries in the form of a dividend to the shareholders of DSS common stock. As a result of this distribution,
the Company directly received shares of SHRG, and through its majority-owned subsidiary Alset International Limited, and certain
subsidiaries of Alset International Limited, indirectly received additional shares of SHRG. The Company and its majority-owned
subsidiaries now collectively own shares of SHRG, representing
| F-24 |
Consolidation of Alset Capital Acquisition Corp.
On
May 1, 2023, Alset Capital Acquisition Corp. (“Alset Capital”) held a Special Meeting of Stockholders. In connection with
the Special Meeting and certain amendments to Alset Capital’s Amended and Restated Certificate of Incorporation, shares
of Alset Capital’s Class A Common Stock were rendered for redemption. Following the redemption, shares of Class A Common
Stock of Alset Capital remained issued and outstanding, including shares held by the Company. The Company also owns
shares of Alset Capital’s Class B Common Stock. Following the redemptions, Company’s ownership in Alset Capital has increased
from % of the total shares of common stock to % of the total number of outstanding shares of the two classes. The Company recognized
$
Purchase of Hapi Travel Ltd. Stock
On
June 14, 2023, one of the Company’s subsidiaries acquired Hapi Travel Ltd. from Business Mobile Intelligence Ltd., a company
Notes Payable
Chan
Heng Fai provided an interest-free, due on demand advance to SeD Perth Pty. Ltd. for its general operations. As of September 30, 2023
and December 31, 2022, the outstanding balance was $
Chan
Heng Fai provided an interest-free, due on demand advance to Hapi Metaverse Inc. for its general operations. As of September 30, 2023
and December 31, 2022, the outstanding balance was $
Management Fees
MacKenzie
Equity Partners, LLC, an entity affiliated with Charles MacKenzie, the Chief Development Officer of the Company, has a consulting agreement
with a majority-owned subsidiary of the Company. Pursuant to an agreement entered into in June of 2022, as supplemented in August, 2023,
the Company’s subsidiary has paid $
The
Company incurred expenses of $
| F-25 |
Notes Receivable from Related Party
On
March 2, 2020 and on October 29, 2021, LiquidValue Asset Management Pte. Ltd. (“LiquidValue”) received two $
As
of September 30, 2023 and December 31, 2022, the Company provided advances for operation of $
In
the first quarter of 2022, a subsidiary of the Company made a non-interest bearing advance in the amount of $
In
June 2022, Alset International Limited, a subsidiary of the Company, entered into a stock purchase agreement with one of our directors
and paid $
On
July 28, 2022 Hapi Café Inc. entered into binding term sheet (the “First Term Sheet”) with Ketomei Pte Ltd and Tong
Leok Siong Constant, pursuant to which Hapi Café lent Ketomei $
On
October 13, 2021 BMI Capital Partners International Limited (“BMI”) entered into loan agreement with Liquid Value Asset Management
Limited (“LVAML”), a subsidiary of DSS, pursuant to which BMI agreed to lend $
On
January 27, 2023, the Company’s subsidiary Hapi Metaverse Inc. and New Electric CV Corp. (“NECV,” and together with
Hapi Metaverse Inc., the “Lenders”) entered into a Convertible Credit Agreement (the “Credit Agreement”) with
Value Exchange International, Inc. (“Value Exchange”), a Nevada corporation. The Credit Agreement provides Value Exchange
with a maximum credit line of $
| F-26 |
9. GOODWILL
The Company and its subsidiaries continually evaluate potential acquisitions that align with the Company’s plans. Starting an F&B business in Hong Kong, China, and Taiwan can be an excellent opportunity due to the large consumer market, diverse food culture, high demand for international cuisine, favorable business environment, skilled labor force, and opportunities for growth.
On October 4, 2022, the Company completed its first F&B business acquisition of MOC HK Limited, a F&B business started in Hong Kong. The accompanying consolidated financial statements include the operations of the acquired entity from its acquisition date. The acquisition has been accounted for as a business combination. Accordingly, consideration paid by the Company to complete the acquisition is initially allocated to the acquired assets and liabilities assumed based upon their estimated acquisition date fair values. The recorded amounts for assets acquired and liabilities assumed are provisional and subject to change during the measurement period, which is up to 12 months from the acquisition date.
As
a result of the acquisition of MOC, goodwill of $
On June 14, 2023, the Company completed its online travel business acquisition of Hapi Travel Limited, an online travel business started in Hong Kong. The accompanying consolidated financial statements include the operations of the acquired entity from its acquisition date. The acquisition has been accounted for as a business combination. Accordingly, consideration paid by the Company to complete the acquisition is initially allocated to the acquired assets and liabilities assumed based upon their estimated acquisition date fair values. The recorded amounts for assets acquired and liabilities assumed are provisional and subject to change during the measurement period, which is up to 12 months from the acquisition date.
As
a result of the acquisition of HTL, goodwill of $
The Company evaluates goodwill on an annual basis in the fourth quarter or more frequently if management believes indicators of impairment exist. Such indicators could include, but are not limited to (1) a significant adverse change in legal factors or in business climate, (2) unanticipated competition, or (3) an adverse action or assessment by a regulator. The Company first assesses qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. If management concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, management conducts a quantitative goodwill impairment test. The impairment test involves comparing the fair value of the applicable reporting unit with its carrying value. The Company estimates the fair values of its reporting units using a combination of the income, or discounted cash flows, approach and the market approach, which utilizes comparable companies’ data. If the carrying amount of a reporting unit exceeds the reporting unit’s fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The Company’s evaluation of goodwill completed during the period resulted in no impairment losses.
| F-27 |
The table below reflects the Company’s estimates of the acquisition date fair value of the assets acquired and liabilities assumed for the 2022 and 2023 acquisition:
| MOC | HTL | |||||||
| Acquisition Date | ||||||||
| Purchase Price | ||||||||
| Cash | $ | $ | ||||||
| Total purchase consideration | ||||||||
| Purchase Price Allocation | ||||||||
| Assets acquired | ||||||||
| Current assets | ||||||||
| Property and Equipment, net | ||||||||
| Operating lease right-of-use assets, net | ||||||||
| Total assets acquired | ||||||||
| Liabilities assumed: | ||||||||
| Current liabilities | ( | ) | ( | ) | ||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Accrued taxes | ( | ) | ||||||
| Total liabilities assumed | ( | ) | ( | ) | ||||
| Net assets acquired | ||||||||
| Goodwill | ||||||||
| Total purchase consideration | $ | $ | ||||||
The following table summarizes changes in the carrying amount of goodwill at September 30, 2023 and December 31, 2022
September 30, 2023 | December 31, 2022 | |||||||
| Balance at beginning of the period/year | $ | $ | ||||||
| Acquisitions | ||||||||
| Foreign currency exchange adjustment | ( | ) | ||||||
| Balance as of end of the period/year | $ | $ | ||||||
10. EQUITY
On June 14, 2021, the Company filed an amendment (the “Amendment”) to its Third Amended and Restated Certificate of Incorporation, as amended, to increase the Company’s authorized share capital. The Amendment increased the Company’s authorized share capital to common shares and preferred shares, from common shares and preferred shares, respectively.
The Company has designated preferred shares as Series A Preferred Stock and as Series B Preferred Stock.
On
December 6, 2022 the
Holders of the Series A Preferred Stock shall be entitled to receive dividends equal, on an as-if-converted basis, to and in the same form as dividends actually paid on shares of the Company’s common stock, par value $ per share (“Common Stock”) when, as and if paid on shares of Common Stock. Each holder of outstanding Series A Preferred Stock is entitled to vote equal to the number of whole shares of Common Stock into which each share of the Series A Preferred Stock is convertible. Holders of Series A Preferred Stock are entitled, upon liquidation of the Company, to receive the same amount that a holder of Series A Preferred Stock would receive if the Series A Preferred Stock were fully converted into Common Stock.
| F-28 |
Holders of the Series B Preferred Stock shall be entitled to receive dividends equal, on an as-if-converted basis, to and in the same form as dividends actually paid on shares of the Company’s common stock par value $ per share (“Common Stock”) when, as and if paid on shares of Common Stock. Each holder of outstanding Series B Preferred Stock is entitled to vote equal to the number of whole shares of Common Stock into which each share of the Series B Preferred Stock is convertible. Holders of Series B Preferred Stock are entitled, upon liquidation of the Company, to receive the same amount that a holder of Series B Preferred Stock would receive if the Series B Preferred Stock were fully converted into Common Stock.
The Company analyzed the Preferred stock and the embedded conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the conversion option should be classified as equity.
On February 6, 2023, the Company entered into an Underwriting Agreement (the “Underwriting Agreement”) in connection with an offering (the “Offering”) of its common stock, par value $ per share (the “Common Stock”), with Aegis Capital Corp. (the “Underwriter”) as the underwriter, relating to an underwritten public offering of shares of Common Stock at a public offering price of $ per share. The Underwriting Agreement provides the Underwriter a 45-day option to purchase up to an additional shares of Common Stock to cover over-allotments, if any.
The
net proceeds to the Company from the Offering were approximately $
The Offering closed on February 8, 2023. The Common Stock was being offered pursuant to an effective registration statement on Form S-3 (File No. 333-264234), as well as a prospectus supplement in connection with the Offering filed with the Securities and Exchange Commission.
On September 30, 2023, there were common shares issued and outstanding.
The following table summarizes the warrant activity for the nine months ended September 30, 2023.
Warrant for Common Shares | Weighted Average Exercise Price | Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Warrants Outstanding as of December 31, 2022 | $ | $ | ||||||||||||||
| Warrants Vested and exercisable at December 31, 2022 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited, cancelled, expired | ||||||||||||||||
| Warrants Outstanding as of September 30, 2023 | $ | $ | ||||||||||||||
| Warrants Vested and exercisable at September 30, 2023 | $ | $ | ||||||||||||||
Changes of Ownership of Alset International
In the year ended December 31, 2022 the Company purchased shares of Alset International from the market.
| F-29 |
On January 17, 2022 the Company entered into a securities purchase agreement with Chan Heng Fai, pursuant to which the Company agreed to purchase from Chan Heng Fai ordinary shares of Alset International for a purchase price of newly issued shares of the Company’s common stock. On February 28, 2022, the Company and Chan Heng Fai entered into an amendment to this securities purchase agreement pursuant to which the Company shall purchase these ordinary shares of Alset International for a purchase price of newly issued shares of the Company’s common stock. The closing of this transaction with Chan Heng Fai was subject to approval of the Nasdaq and the Company’s stockholders. These ordinary shares of Alset International represent approximately % of the total issued and outstanding shares of Alset International. The Company had a Special Meeting of Stockholders to vote on the approval of this transaction on June 6, 2022.
Due
to these transactions the Company’s ownership of Alset International changed from
Promissory Note Converted into Shares
On
December 13, 2021 the Company entered into a Securities Purchase Agreement with Chan Heng Fai for the issuance and sale of a convertible
promissory note in favor of Chan Heng Fai, in the principal amount of $
Registration Statement on Form S-3
On
April 11, 2022 the Company filed a Registration Statement on Form S-3 using a “shelf” registration or continuous offering
process. Under this shelf registration process, the Company may, from time to time, sell any combination of the securities (common stock,
preferred stock, warrants, rights, units) described in the filed prospectus in one or more offerings up to a total aggregate offering
price of $
Class A Common Stock of Alset Capital Acquisition Corp. Subject to Possible Redemption
The
Company accounts for its, and its subsidiaries’ common stock subject to possible redemption in accordance with the guidance enumerated
in ASC 480 “Distinguishing Liabilities from Equity”. Common stock subject to possible redemption are classified as
a liability instrument and are measured at fair value. Conditionally redeemable common stock (including shares of common stock that feature
redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not
solely within the Company’s control) are classified as temporary equity. At all other times, shares of common stock are classified
as stockholders’ equity. The Company’s Class A common stock features certain redemption rights that are considered by the
Company to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, at September
30, 2023, the Class A common stock of Alset Capital Acquisition Corp. subject to possible redemption in the amount of $
On
May 1, 2023, after the redemptions (for further details on this transaction refer to Note 8. – Related Party Transactions, Consolidation
of Alset Capital Acquisition Corp.), the Company consolidated Alset Capital. As of September 30, 2023, non-controlling interest of $(
| F-30 |
11. LEASE INCOME
The
Company generally rents its SFRs under lease agreements with a term of or
| 2023 | $ | |||
| 2024 | ||||
| Total Future Receipts | $ |
Property Management Agreements
The
Company has entered into property management agreement with the property managers under which the property managers generally oversee
and direct the leasing, management and advertising of the properties in our portfolio, including collecting rents and acting as liaison
with the tenants. The Company pays its property managers a monthly property management fee for each property unit and a leasing fee.
For the three months ended September 30, 2023 and 2022, property management fees incurred by the property managers were $
12. ACCUMULATED OTHER COMPREHENSIVE INCOME
Following is a summary of the changes in the balances of accumulated other comprehensive income, net of tax:
| Unrealized Gains and Losses on Security Investment | Foreign Currency Translations | Change in Minority Interest | Total | |||||||||||||
| Balance at January 1, 2023 | $ | ( | ) | $ | $ | $ | ||||||||||
| Other Comprehensive Income | ||||||||||||||||
| Balance at March 31, 2023 | $ | ( | ) | $ | $ | $ | ||||||||||
| Other Comprehensive Loss | ( | ) | ( | ) | ||||||||||||
| Balance at June 30, 2023 | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Other Comprehensive Loss | ( | ) | ( | ) | ||||||||||||
| Balance at September 30, 2023 | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Unrealized Gains and Losses on Security Investment | Foreign Currency Translations | Change in Minority Interest | Total | |||||||||||||
| Balance at January 1, 2022 | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Other Comprehensive Income | ( | ) | ( | ) | ( | ) | ||||||||||
| Balance at March 31, 2022 | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Other Comprehensive Income | ( | ) | ( | ) | ||||||||||||
| Balance at June 30, 2022 | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| Other Comprehensive Income | ( | ) | ( | ) | ||||||||||||
| Balance at September 30, 2022 | $ | ( | ) | $ | ( | ) | $ | $ | ||||||||
| F-31 |
13. INVESTMENTS MEASURED AT FAIR VALUE
Financial assets measured at fair value on a recurring basis are summarized below and disclosed on the condensed consolidated balance sheet as of September 30, 2023 and December 31, 2022:
| Fair Value Measurement Using | Amount at | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| September 30, 2023 | ||||||||||||||||
| Assets | ||||||||||||||||
| Investment Securities- Fair Value | $ | $ | $ | $ | ||||||||||||
| Investment Securities- Fair Value - Related Party | ||||||||||||||||
| Investment Securities- Trading | ||||||||||||||||
| Convertible Note Receivable | ||||||||||||||||
| Warrants - New Electric CV Corp. | ||||||||||||||||
| Warrants - VEII | ||||||||||||||||
| Total Investment in securities at Fair Value | $ | $ | $ | $ | ||||||||||||
| Fair Value Measurement Using | Amount at | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value | |||||||||||||
| December 31, 2022 | ||||||||||||||||
| Assets | ||||||||||||||||
| Investment Securities- Fair Value | $ | $ | $ | $ | ||||||||||||
| Investment Securities- Fair Value - Related Party | ||||||||||||||||
| Investment Securities- Trading | ||||||||||||||||
| Convertible Note Receivable | ||||||||||||||||
| Warrants - New Electric CV Corp. | ||||||||||||||||
| Total Investment in securities at Fair Value | $ | $ | $ | $ | ||||||||||||
Realized
loss on investment securities for the nine months ended September 30, 2023 was $
For U.S. trading stocks, we use Bloomberg Market stock prices as the share prices to calculate fair value. For overseas stock, we use the stock price from the local stock exchange to calculate fair value. The following chart shows details of the fair value of equity security investment at September 30, 2023 and December 31, 2022, respectively.
| F-32 |
| Share price | Market Value | |||||||||||||
| 9/30/2023 | Shares | 9/30/2023 | Valuation | |||||||||||
| DSS (Related Party) | $ | $ | ||||||||||||
| AMBS | $ | $ | ||||||||||||
| Holista | $ | $ | ||||||||||||
| New Electric CV (Related Party) | $ | $ | ||||||||||||
| Value Exchange (Related Party) | $ | $ | ||||||||||||
| Sharing Services (Related Party) | $ | $ | ||||||||||||
| Trading Stocks | $ | |||||||||||||
| Total Level 1 Equity Securities | $ | |||||||||||||
| Nervotec | N/A | $ | ||||||||||||
| HWH World Co. | N/A | $ | ||||||||||||
| UBeauty | N/A | $ | ||||||||||||
| Total Equity Securities | $ | |||||||||||||
| Share price | Market Value | |||||||||||||
| 12/31/2022 | Shares | 12/31/2022 | Valuation | |||||||||||
| DSS (Related Party) | $ | $ | ||||||||||||
| AMBS (Related Party) | $ | $ | ||||||||||||
| Holista (Related Party) | $ | $ | ||||||||||||
| New Electric CV (Related Party) | $ | $ | ||||||||||||
| Value Exchange (Related Party) | $ | $ | ||||||||||||
| Trading Stocks | $ | |||||||||||||
| Total Level 1 Equity Securities | $ | |||||||||||||
| Nervotec | N/A | $ | ||||||||||||
| HWH World Co. | N/A | $ | ||||||||||||
| UBeauty | N/A | $ | ||||||||||||
| Total Equity Securities | $ | |||||||||||||
| F-33 |
Sharing Services Convertible Note
The fair value of the Sharing Services Convertible Note under level 3 category was calculated using a Black-Scholes valuation model.
We
assumed dividend yield rate of
The Sharing Services Convertible Note was redeemed in July 2022.
Changes in the observable input values would likely cause material changes in the fair value of the Company’s Level 3 financial instruments. A significant increase (decrease) in this likelihood would result in a higher (lower) fair value measurement.
The table below provides a summary of the changes in fair value which are recorded as other comprehensive income (loss), including net transfers in and/or out of all financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and nine months ended September 30, 2023 and 2022:
| Total | ||||
| Balance at January 1, 2023 | $ | |||
| Total gains | ||||
| Balance at March 31, 2023 | $ | |||
| Total losses | ( | ) | ||
| Balance at June 30, 2023 | $ | |||
| Acquisition of VEII warrants | ||||
| Total gains | ||||
| Balance at September 30, 2023 | $ | |||
| Total | ||||
| Balance at January 1, 2022 | $ | |||
| Total losses | ( | ) | ||
| Balance at March 31, 2022 | $ | |||
| Total losses | ( | ) | ||
| Balance at June 30, 2022 | $ | |||
| Total losses | ||||
| Balance at September 30, 2022 | $ | |||
Vector Com Convertible Bond
On
February 26, 2021, the Company invested approximately $
Warrants
AMRE
On
March 2, 2020 and October 29, 2021, the Company received warrants to purchase shares of AMRE, a related party private company, in conjunction
with the Company lending two $
| F-34 |
NECV
On
July 17, 2020, the Company purchased
The fair value of the NECV warrants under level 3 category as of September 30, 2023 and December 31, 2022 was calculated using a Black-Scholes valuation model valued with the following weighted average assumptions:
September 30, 2023 | December 31, 2022 | |||||||
| Stock Price | $ | $ | ||||||
| Exercise price | ||||||||
| Risk free interest rate | % | % | ||||||
| Annualized volatility | % | % | ||||||
| Dividend Yield | ||||||||
| Year to maturity | ||||||||
VEII
On
September 6, 2023, the Company received warrants to purchase shares of VEII, a related party listed company. For further details on this
transaction, refer to Note 8 - Related Party Transactions, Note Receivable from a Related Party Company. As of September 30, 2023,
the fair value of the warrants was $
The fair value of the VEII warrants under level 3 category as of September 6, 2023, and September 30, 2023 was calculated using a Black-Scholes valuation model valued with the following weighted average assumptions:
September 30, 2023 | September 6, 2023 | |||||||
| Stock price | $ | $ | ||||||
| Exercise price | ||||||||
| Risk free interest rate | % | % | ||||||
| Annualized volatility | % | % | ||||||
| Dividend Yield | $ | $ | ||||||
| Year to maturity | ||||||||
| F-35 |
14. COMMITMENTS AND CONTINGENCIES
Lots Sales Agreement
On
November 23, 2015, SeD Maryland Development LLC completed the $
During
the three months ended on September 30, 2023 and 2022, NVR purchased
Certain
arrangements for the sale of buildable lots to NVR require the Company to credit NVR with an amount equal to one year of the FFB assessment.
Under ASC 606, the credits to NVR are not in exchange for a distinct good or service and accordingly, the amount of the credit was recognized
as the reduction of revenue. As of September 30, 2023 and December 31, 2022, the accrued balance due to NVR was $
Leases
The
Company leases offices in Bethesda, Maryland, Magnolia, Texas, Singapore, Hong Kong, South Korea and China through leased spaces aggregating
approximately
| Office Location | Lease Term as of December 31, 2021 | |
| Singapore - AI | ||
| Singapore – F&B | ||
| Singapore – Four Seasons Park | ||
| Singapore – Hapi Cafe | ||
| Singapore - PLQ | ||
| Hong Kong - Office | ||
| Hong Kong - Warehouse | ||
| Hong Kong - Shop | ||
| Hong Kong – Hapi Travel | ||
| South Korea – Hapi Cafe | ||
| South Korea – HWH World | ||
| Magnolia, Texas | ||
| Bethesda, Maryland | ||
| China - Cafe | ||
| China - Office |
The
Company adopted ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”) to recognize a right-of-use asset and a lease
liability for all the leases with terms greater than twelve months. We elected the practical expedient to not recognize operating
lease right-of-use assets and operating lease liabilities for lease agreements with terms of 12 months or less.
Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum
lease payments over the lease term at commencement date.
| F-36 |
The table below summarizes future payments due under these leases as of September 30, 2023.
For the Years Ended September 30:
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Total Minimum Lease Payments | $ | |||
| Less: Effect of Discounting | ( | ) | ||
| Present Value of Future Minimum Lease Payments | ||||
| Less: Current Obligations under Leases | ( | ) | ||
| Long-term Lease Obligations | $ |
Agreement to Sell 189 Lots
On
March 17, 2023, 150 CCM Black Oak (the “Seller”) entered into a Contract of Sale (the “Contract of Sale”) with
Davidson Homes, LLC, an Alabama limited liability company (“Davidson Homes”). Pursuant to the terms of the Contract of Sale,
the Seller has agreed to sell approximately 189 single-family detached residential lots comprising an additional section of the Lakes
at Black Oak. The price of the lots and certain community enhancement fees the Seller will be entitled to receive are anticipated to
equal an aggregate of $
The
closing of the transactions described in the Contract of Sale depends on the satisfaction of certain conditions set forth therein. There
can be no assurance that such closings will be completed on the terms outlined herein or at all. Davidson Homes has agreed to purchase
the lots in stages, comprising an initial closing of 94 lots, the remaining lots to be purchased on or before December 29, 2023. Commencing
on March 17, 2023, Davidson Homes had a thirty (30) day inspection period in which to inspect the properties and determine their suitability;
during such inspection period, Davidson Homes was entitled to decline to proceed with the closing of these transactions. Davidson Homes
did not exercise its right to decline, and pursuant to the Contract of Sale, has made an additional deposit in escrow. Through the date
hereof, Davidson Homes has deposited $
The Seller shall be required to complete certain improvements at the property at the Seller’s cost prior to the closing of the remaining lots.
Security Deposits
Our
rental-home lease agreements require tenants to provide a one-month security deposits. The property management company collects all security
deposits and maintains them in a trust account. The Company also has obligation to refund these deposits to the renters at the time of
lease termination. As of September 30, 2023 and December 31, 2022, the security deposits held in the trust account were $
AEI Stock Option plans
Under our 2018 Incentive Compensation Plan (the “Plan”), adopted by our board of directors and holders of a majority of our outstanding shares of common stock in September 2018, shares of common stock (subject to certain adjustments) were reserved for issuance upon exercise of stock options and grants of other equity awards. No options or other equity awards have been granted under the Plan. The reservation of shares under the Incentive Compensation Plan was cancelled in May 2021.
| F-37 |
Alset International Stock Option plans
On November 20, 2013, Alset International approved a Stock Option Plan (the “2013 Plan”). Employees, executive directors, and non-executive directors (including the independent directors) are eligible to participate in the 2013 Plan.
| Options for Common Shares | Exercise Price | Remaining Contractual Term (Years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding as of January 1, 2022 | $ | $ | ||||||||||||||
| Vested and exercisable at January 1, 2022 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited, cancelled, expired | ||||||||||||||||
| Outstanding as of December 31, 2022 | $ | $ | ||||||||||||||
| Vested and exercisable at December 31, 2022 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ||||||||||||||||
| Forfeited, cancelled, expired | ||||||||||||||||
| Outstanding as of September 30, 2023 | $ | $ | ||||||||||||||
| Vested and exercisable at September 30, 2023 | $ | $ | ||||||||||||||
16. SUBSEQUENT EVENTS
On September 28, 2023, Alset International Limited,
a subsidiary of the Company, finalized a Loan Agreement and Promissory Note with Value Exchange International, Inc. (“VEII”),
extending an unsecured loan of $
| F-38 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may”, “will”, “expect”, “believe”, “anticipate”, “estimate” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include by are not limited to economic conditions generally and in the industries in which we may participate, competition within our chosen industry, including competition from much larger competitors, technological advances and failure to successfully develop business relationships.
Business Overview
We are a diversified holding company principally engaged through our subsidiaries in the development of EHome communities and other real estate, financial services, digital transformation technologies, biohealth activities and consumer products with operations in the United States, Singapore, Hong Kong, Australia and South Korea. We manage a significant portion of our businesses through our 85.4% owned subsidiary, Alset International Limited, a public company traded on the Singapore Stock Exchange. Through this subsidiary (and indirectly, through other public and private U.S. and Asian subsidiaries), we are actively developing real estate projects near Houston, Texas and in Frederick, Maryland, in our real estate segment. In our digital transformation technology segment, we focus on serving business-to-business (B2B) needs in e-commerce, collaboration and social networking functions. Our biohealth segment includes the sale of consumer products.
We also have ownership interests outside of Alset International, including a 36.9% equity interest in American Pacific Bancorp Inc., an indirect 14.1% equity interest in Holista CollTech Limited, a 44.8% equity interest in DSS Inc. (“DSS”), a 48.7% equity interest in Value Exchange International, Inc., a 0.5% equity interest in New Electric CV Corporation (“NECV” formerly known as “American Premium Mining Corporation” or “APM,” and earlier known as “American Premium Water Corp.”), and 33.4% equity interest in Sharing Services Global Corp. (“SHRG”). American Pacific Bancorp Inc. is a financial network holding company. Holista CollTech Limited is a public Australian company that produces natural food ingredients (ASX: HCT). DSS is a multinational company operating businesses within nine divisions: product packaging, biotechnology, consumer marketing, commercial lending, securities and investment management, alternative trading, secure living, and alternative energy. DSS Inc. is listed on the NYSE American (NYSE: DSS). Value Exchange International, Inc. is a provider of information technology services for businesses, and is traded on the OTCQB (OTCQB: VEII). NECV is a publicly traded consumer products company (OTCPK: HIPH). SHRG markets and distributes health and wellness products, as well as member-based travel services, using a direct selling business model. SHRG is traded on the OTCQB (OTCQB: SHRG).
We generally acquire majority and/or control stakes in innovative and promising businesses that are expected to appreciate in value over time. Our emphasis is on building businesses in industries where our management team has in-depth knowledge and experience, or where our management can provide value by advising on new markets and expansion. We have at times provided a range of global capital and management services to these companies in order to gain access to Asian markets. We have historically favored businesses that improve an individual’s quality of life or that improve the efficiency of businesses through technology in various industries. We believe our capital and management services provide us with a competitive advantage in the selection of strategic acquisitions, which creates and adds value for our company and our stockholders.
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Recent Developments
Alset Capital Acquisition Corp.
On February 3, 2022 Alset Capital Acquisition Corp. (“Alset Capital”), a special purpose acquisition company sponsored by the Company and certain affiliates, closed its initial public offering of 7,500,000 units at $10 per unit. Each unit consisted of one of Alset Capital’s shares of Class A common stock, one-half of one redeemable warrant and one right to receive one-tenth of one share of Class A common stock upon the consummation of an initial business combination. Each whole warrant entitles the holder thereof to purchase one share of Class A common stock at a price of $11.50 per share. Only whole warrants are exercisable. The underwriters exercised their over-allotment option in full for an additional 1,125,000 units on February 1, 2022, which closed at the time of the closing of the Offering. As a result, the aggregate gross proceeds of this offering, including the over-allotment, were $86,250,000, prior to deducting underwriting discounts, commissions, and other offering expenses.
On February 3, 2022, simultaneously with the consummation of Alset Capital’s initial public offering, Alset Capital consummated the private placement of 473,750 units (the “Private Placement Units”) to the Sponsor, which amount includes 33,750 Private Placement Units purchased by the Sponsor in connection with the underwriters’ exercise of the over-allotment option in full, at a price of $10.00 per Private Placement Unit, generating gross proceeds of approximately $4.7 million (the “Private Placement”) the proceeds of which were placed in the trust account. No underwriting discounts or commissions were paid with respect to the Private Placement. The Private Placement Units are identical to the units sold in the initial public offering, except that (a) the Private Placement Units and their component securities will not be transferable, assignable or saleable until 30 days after the consummation of Alset Capital’s initial business combination except to permitted transferees and (b) the warrants and rights included as a component of the Private Placement Units, so long as they are held by the Sponsor or its permitted transferees, will be entitled to registration rights, respectively.
The Company and its majority-owned subsidiary Alset International together own the sole member of Alset Acquisition Sponsor, LLC, the sponsor of Alset Capital.
On September 9, 2022, Alset Capital entered into an agreement and plan of merger (the “Merger Agreement”) by and among Alset Capital, HWH International Inc., a Nevada corporation (“HWH”) and HWH Merger Sub Inc., a Nevada corporation and a wholly owned subsidiary of Alset Capital (“Merger Sub”). Pursuant to the Merger Agreement, a business combination between Alset Capital and HWH will be effected through the merger of Merger Sub with and into HWH, with HWH surviving the merger as a wholly owned subsidiary of Alset Capital (the “Merger”). HWH is an indirect subsidiary of the Company through its subsidiary Alset International Limited.
Following a Special Meeting of Stockholders held on May 1, 2023 (the “Alset Capital Special Meeting”), Alset Capital filed an amendment to its Amended and Restated Certificate of Incorporation with the Delaware Secretary of State on May 2, 2023, to (i) revise Alset Capital’s right to extend the date by which it has to consummate a business combination; and (ii) expand the methods that it may employ to not become subject to the “penny stock” rules of the Securities and Exchange Commission.
In connection with the Alset Capital Special Meeting, 6,648,964 shares of the Class A Common Stock of Alset Capital were tendered for redemption. Following this redemption, 2,449,786 shares of the Class A Common Stock of Alset Capital remained issued and outstanding, including 473,750 shares held by Alset Acquisition Sponsor, LLC and 1,976,036 public shares. Alset Acquisition Sponsor, LLC owns 2,156,250 shares of Class B Common Stock.
On August 1, 2023, Alset Capital held a Special Meeting of Stockholders. In connection with this Special Meeting, Alset Capital’s business combination with HWH International Inc. was approved by its stockholders and certain amendments to Alset Capital’s Amended and Restated Certification of Incorporation were also approved. Alset Capital is working to close the business combination, subject to the completion of certain closing conditions.
On November 2, 2023, Alset Capital held an additional Special Meeting of Stockholders. The stockholders of Alset Capital extended the date before which the Company must complete a business combination from November 3, 2023, to February 3, 2024.
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Purchase of Rental Business from Majority-Owned Subsidiary
On December 9, 2022, Alset Inc. entered into an agreement with Alset EHome Inc. and Alset International Limited pursuant to which Alset Inc. agreed to reorganize the ownership of its home rental business. Previously, Alset Inc. and certain majority-owned subsidiaries collectively owned 132 single-family rental homes in Texas. 112 of these rental homes are owned by subsidiaries of American Home REIT Inc. (“AHR”). Alset Inc. owns 85.4% of Alset International Limited, and Alset International Limited indirectly owns approximately 99.9% of Alset EHome Inc.
The closing of the transaction contemplated by this agreement was completed on January 13, 2023. Pursuant to this agreement, Alset Inc. has become the direct owner of AHR and its subsidiaries that collectively own these 112 homes, instead of such homes being owned indirectly through Alset International Limited’s subsidiaries.
Alset EHome Inc. sold AHR to Alset Inc. for a total consideration of $26,250,933, including the forgiveness of debt in the amount of $13,900,000, a promissory note in the amount of $11,350,933 and a cash payment of $1,000,000. This purchase price represents the book value of AHR as of November 30, 2022.
The closing of this transaction was approved by the shareholders of Alset International Limited and the transaction was closed on January 13, 2023. Certain members of Alset Inc.’s Board of Directors and management are also members of the Board of Directors and management of each of Alset International Limited and Alset EHome Inc.
Public Offering
On February 6, 2023, we entered into an Underwriting Agreement (the “Underwriting Agreement”) in connection with an offering (the “Offering”) of our common stock, par value $0.001 per share (the “Common Stock”), with Aegis Capital Corp. (the “Underwriter”) as the underwriter, relating to an underwritten public offering of 1,727,273 shares of Common Stock at a public offering price of $2.20 per share. The Underwriting Agreement provides the Underwriter a 45-day option to purchase up to an additional 212,863 shares of Common Stock to cover over-allotments, if any.
The net proceeds to the Company from the Offering were approximately $3.3 million, after deducting underwriting discounts and the payment of other offering expenses associated with the Offering that are payable by the Company.
The Offering closed on February 8, 2023. The Common Stock was being offered pursuant to an effective registration statement on Form S-3 (File No. 333-264234), as well as a prospectus supplement in connection with the Offering filed with the Securities and Exchange Commission.
Purchase of Travel Business
On June 14, 2023, Hotapp Blockchain Pte. Ltd., (“Hotapp”) a wholly owned subsidiary of Hapi Metaverse Inc., a majority owned subsidiary of the Company, entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) in connection with its purchase of all of the outstanding shares of Hapi Travel Limited, a Hong Kong corporation, from Business Mobile Intelligence Inc. (“BMI”) for a total consideration of $214,993 (the “Purchase Price”). In order to facilitate the Stock Purchase Agreement, Hapi Metaverse made a loan (the “Loan”) in an amount equal to the Purchase Price to Hotapp. Chan Heng Fai, the chairman of the Company, is also Chairman of Hotapp and the sole stockholder of BMI, and therefore recused himself from any deliberation or voting regarding the Stock Purchase Agreement and the Loan.
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Purchase of Sentinel Brokers Company Inc. Shares
On May 22, 2023 the Company’s indirect subsidiary, SeD Capital Pte Ltd (“SeD Capital”), entered into a Stock Purchase Agreement, pursuant to which SeD Capital purchased 39.8 shares (19.9%) of the Common Stock of Sentinel Brokers Company Inc. (“Sentinel”) for the aggregate purchase price of $279,719. Sentinel is a broker-dealer operating primarily as a fiduciary intermediary, facilitating institutional trading of municipal and corporate bonds as well as preferred stock, and is registered with the Securities and Exchange Commission, is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”), and is a member of the Securities Investor Protection Corporation (“SIPC”). The Company has significant influence over Sentinel and its CEO holds a director position on Sentinel’s Board of Directors.
Sale of Certain Lots
Sale of 131 Lots
On October 28, 2022, 150 CCM Black Oak Ltd. (the “Seller”), a Texas Limited Partnership and an indirect, majority-owned subsidiary of the Company, entered into a Contract for Purchase and Sale and Escrow Instructions (the “Agreement”) with Century Land Holdings of Texas, LLC, a Colorado limited liability company (the “Buyer”). Pursuant to the terms of the Agreement, the Seller agreed to sell all of the approximately 242 single-family detached residential lots comprising a residential community in the city of Magnolia, Texas known as the “Lakes at Black Oak.”
On November 28, 2022, the parties to the Agreement entered into an amendment to the Agreement, pursuant to which the Seller agreed to sell approximately 131 lots instead of 242 lots, and the anticipated purchase price was reduced.
On April 13, 2023, the sale of the 131 lots was completed and the Seller received a total consideration of $6,615,500 from the Buyer.
The Seller was required to develop and improve the property at the Seller’s cost pursuant to certain development plans and government regulations prior to the closing described above.
Agreement to Sell 110 Lots
On March 16, 2023, 150 CCM Black Oak Ltd. (the “Seller”) entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) with Rausch Coleman Homes Houston, LLC, a Texas limited liability company (“Rausch Coleman”). Pursuant to the terms of the Purchase and Sale Agreement, the Seller has agreed to sell approximately 110 single-family detached residential lots which comprise a section of the Lakes at Black Oak. The transaction closed on May 15, 2023.
Agreement to Sell 189 Lots
On March 17, 2023, 150 CCM Black Oak Ltd. (the “Seller”) entered into a Purchase and Sale Agreement (the “Purchase and Sale Agreement”) with Davidson Homes, LLC, an Alabama limited liability company (“Davidson”). Pursuant to the terms of the Purchase and Sale Agreement, the Seller has agreed to sell approximately 189 single-family detached residential lots developed within section 2 of Black Oak project. The sale of the first 94 lots closed on May 30, 2023. The sale of remaining lots is estimated to close at the end of the year 2023.
Purchase of Value Exchange International, Inc. Shares and Conversion of Loan
On October 17, 2022, our majority-owned subsidiary Hapi Metaverse entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Chan Heng Fai, who is the Chairman of Hapi Metaverse’s Board of Directors and the Chairman, Chief Executive Officer and largest stockholder of Alset Inc. Pursuant to the Stock Purchase Agreement, Hapi Metaverse bought an aggregate of 7,276,163 shares of Value Exchange International Inc. (“VEII”) for the following purchase prices: (i) $1,733,079 for 7,221,163 shares, representing a price of $0.24 per share; (ii) $2,314 for 10,000 shares, representing a price of $0.2314 per share; (iii) $5,015 for 25,000 shares, representing a price of $0.2006 per share; and (iv) $3,326 for 20,000 shares, representing a price of $0.1663 per share. Collectively, these purchases represent an aggregate purchase price of $1,743,734 for 7,276,163 shares of VEII. Such purchase prices were negotiated between the parties to the Stock Purchase Agreement.
In September of 2023, the Company’s subsidiary Hapi Metaverse converted $1,300,000 of the principal amount loaned to VEII into 7,344,632 shares of VEII’s common stock. Under the terms of the Credit Agreement, the Company’s subsidiary Hapi Metaverse received common stock warrants to purchase a maximum of 36,723,160 shares of VEII common stock at an exercise price of $0.1770 per share. Such warrants expire five (5) years from date of their issuance.
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Mr. Chan and another member of the Board of Directors of Hapi Metaverse, Lum Kan Fai Vincent, are both members of the Board of Directors of VEII. In addition to Mr. Chan, two other members of the Board of Directors of Alset Inc. are also members of the Board of Directors of VEII (Mr. Wong Shui Yeung and Mr. Wong Tat Keung).
Matters that May or Are Currently Affecting Our Business
In addition to the matters described above, the primary challenges and trends that could affect or are affecting our financial results include:
● Our ability to improve our revenue through cross-selling and revenue-sharing arrangements among our diverse group of companies;
● Our ability to identify complementary businesses for acquisition, obtain additional financing for these acquisitions, if and when needed, and profitably integrate them into our existing operation;
● Our ability to attract competent, skilled technical and sales personnel for each of our businesses at acceptable compensation levels to manage our overhead;
● Our ability to control our operating expenses as we expand each of our businesses and product and service offerings; and
● The effects of public health issues such as a major epidemic or pandemic, including the impact of COVID-19 on the economy and our business.
Results of Operations
Summary of Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022
| Three- Months Ended | Nine-months Ended | |||||||||||||||
| September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
| Revenue | $ | 990,199 | $ | 721,905 | $ | 21,070,983 | $ | 3,600,482 | ||||||||
| Operating Expenses | $ | 3,067,103 | $ | 2,792,917 | $ | 20,128,121 | $ | 8,979,297 | ||||||||
| Other Expenses | $ | 14,903,980 | $ | 11,163,538 | $ | 28,060,334 | $ | 25,546,935 | ||||||||
| Income Tax (Expense) Benefit | (45,124 | ) | 153,159 | (45,124 | ) | (68,955 | ) | |||||||||
| Net Loss | $ | 17,026,008 | $ | 13,081,391 | $ | 27,162,596 | $ | 30,994,705 | ||||||||
Revenue
The following tables set forth period-over-period changes in revenue for each of our reporting segments:
| Three-months Ended | Change | |||||||||||||||
| September 30, 2023 | September 30, 2022 | Dollars | Percentage | |||||||||||||
| Real Estate | $ | 711,634 | $ | 569,791 | $ | 141,843 | 25 | % | ||||||||
| Biohealth | - | 22,154 | (22,154 | ) | -100 | % | ||||||||||
| Digital Transformation Technology | 20 | 6,365 | (6,345 | ) | -100 | % | ||||||||||
| Other | 278,545 | 123,595 | 154,950 | 125 | % | |||||||||||
| Total Revenue | $ | 990,199 | $ | 721,905 | $ | 268,294 | 37 | % | ||||||||
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| Nine-months Ended | Change | |||||||||||||||
| September 30, 2023 | September 30, 2022 | Dollars | Percentage | |||||||||||||
| Real Estate | $ | 20,227,362 | $ | 2,494,707 | $ | 17,732,655 | 711 | % | ||||||||
| Biohealth | 12,786 | 771,847 | (759,061 | ) | -98 | % | ||||||||||
| Digital Transformation Technology | 28,094 | 14,066 | 14,028 | 100 | % | |||||||||||
| Other | 802,741 | 319,862 | 482,879 | 151 | % | |||||||||||
| Total Revenue | $ | 21,070,983 | $ | 3,600,482 | $ | 17,470,501 | 485 | % | ||||||||
Revenue was $990,199 and $721,905 for the three months ended September 30, 2023 and 2022, respectively. Revenue was $21,070,983 and $3,600,482 for the nine months ended September 30, 2023 and 2022, respectively. The increase in property sales from the Black Oak Project in the second quarter of 2023 contributed to higher revenue in this period.
In late 2022 and early 2023, the Company entered into three contracts with builders to sell multiple lots from its Black Oak project. The sales contemplated by these contracts are contingent on certain conditions which the parties to such contracts will need to meet and are expected to generate approximately $22 million of funds from operations, not including certain expenses that the Company will be required to pay. The sale of 335 lots closed in the first six months of 2023 generating approximately $18.1 million revenue.
The Company plans to continue its near-term focus on lot sales to regional and national builders. Funds from such lot sales will substantially improve the Company’s liquidity, strengthen its financial position and meet is working capital requirements.
In May 2023, the Company entered into lease agreement for its model house located in Montgomery County, Texas (AHR Black Oak Lease Agreement”). The revenue from the lease was $6,300 and $10,500 in the three and nine months ending September 30, 2023.
In 2022 the last three homes in the Ballenger Project were sold. In this project, builders were required to purchase a minimum number of lots based on their applicable sale agreements. We collected revenue only from the sale of lots to builders. We are not involved in the construction of homes at the present time.
Income from the sale of Front Foot Benefits (“FFBs”), assessed on Ballenger Run project lots, decreased from $9,968 in the three months ended September 30, 2022 to $0 in the three months ended September 30, 2023. Income from the sale of FFBs decreased from $126,055 in the nine months ended September 30, 2022 to $0 in the nine months ended September 30, 2023. The decrease is a result of the decreased sale of properties to homebuyers in 2023.
Revenue from rental business was $705,334 and $569,791 in the three months ended September 30, 2023 and 2022, respectively. Revenue from rental business was $2,030,112 and $1,206,273 in the nine months ended September 30, 2023 and 2022, respectively. The Company expects that the revenue from this business will continue to increase as we acquire more rental houses and successfully rent them.
In recent years, the Company expanded its biohealth segment to the South Korean market through one of the subsidiaries of HWH International Inc., HWH World Inc (“HWH World”). HWH World operates based on a direct sale model of health supplements. HWH World recognized $0 and $ 22,154 in revenue in the three months ended September 30, 2023 and 2022, respectively. HWH World recognized $12,587 and $771,847 in revenue in the nine months ended September 30, 2023 and 2022, respectively.
The category described as “Other” includes corporate and financial services, food and beverage business and new venture businesses. “Other” includes certain costs that are not allocated to the reportable segments, primarily consisting of unallocated corporate overhead costs, including administrative functions not allocated to the reportable segments from global functional expenses.
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The financial services, food and beverage businesses and new venture businesses are small and diversified, and accordingly they are not separately addressed as one independent category. In the three months ended September 30, 2023 and 2022, the revenue from other businesses was $278,545 and $123,595, respectively. In the nine months ended September 30, 2023 and 2022, the revenue from other businesses was $802,741 and $319,862, respectively, generated by Korean and Singaporean café shops and restaurants.
Cost of Revenues and Operating Expenses
The following tables sets forth period-over-period changes in cost of revenues for each of our reporting segments:
| Three-months Ended | Change | |||||||||||||||
| September 30, 2023 | September 30, 2022 | Dollars | Percentage | |||||||||||||
| Real Estate | $ | 587,232 | $ | 254,972 | $ | 332,260 | 130 | % | ||||||||
| Biohealth | (88,141 | ) | 500,946 | (589,087 | ) | -118 | % | |||||||||
| Digital Transformation Technology | 6 | 1,782 | (1,776 | ) | -100 | % | ||||||||||
| Other | 81,962 | 55,669 | 26,293 | 47 | % | |||||||||||
| Total Cost of Revenues | $ | 581,059 | $ | 813,369 | $ | (232,310 | ) | -29 | % | |||||||
| Nine-months Ended | Change | |||||||||||||||
| September 30, 2023 | September 30, 2022 | Dollars | Percentage | |||||||||||||
| Real Estate | $ | 12,755,702 | $ | 1,880,914 | $ | 10,874,788 | 578 | % | ||||||||
| Biohealth | 21,516 | 512,931 | (491,415 | ) | -96 | % | ||||||||||
| Digital Transformation Technology | 9,145 | 4,574 | 4,571 | 100 | % | |||||||||||
| Other | 222,470 | 80,177 | 142,293 | 177 | % | |||||||||||
| Total Cost of Revenues | $ | 13,008,833 | $ | 2,478,596 | $ | 10,530,237 | 425 | % | ||||||||
Cost of revenues decreased from $813,369 in the three months ended September 30, 2022 to $581,059 in the three months ended September 30, 2023. Cost of revenues increased from $2,478,596 in the nine months ended September 30, 2022 to $13,008,833 in the three months ended September 30, 2023. The increase is a result of the increase in sales in the Black Oak Project. Capitalized construction expenses, finance costs and land costs are allocated to sales. We anticipate the total cost of revenues to increase as revenue increases.
The gross margin increased from negative $91,464 to $409,140 in the three months ended September 30, 2022 and 2023, respectively. The gross margin increased from $1,121,886 to $8,062,150 in the nine months ended September 30, 2022 and 2023, respectively. The increase of gross margin was caused by the increase in sales in the Black Oak Project.
The following tables sets forth period-over-period changes in operating expenses for each of our reporting segments.
| Three-months Ended | Change | |||||||||||||||
| September 30, 2023 | September 30, 2022 | Dollars | Percentage | |||||||||||||
| Real Estate | $ | 426,542 | $ | 667,366 | $ | (240,824 | ) | -36 | % | |||||||
| Biohealth | 160,821 | 311,416 | (150,595 | ) | -48 | % | ||||||||||
| Digital Transformation Technology | 125,316 | 95,788 | 29,528 | 31 | % | |||||||||||
| Other | 1,773,365 | 904,978 | 868,387 | 96 | % | |||||||||||
| Total Operating Expenses | $ | 2,486,044 | $ | 1,979,548 | $ | 506,496 | 26 | % | ||||||||
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| Nine-months Ended | Change | |||||||||||||||
| September 30, 2023 | September 30, 2022 | Dollars | Percentage | |||||||||||||
| Real Estate | $ | 1,418,743 | $ | 1,988,323 | $ | (569,580 | ) | -29 | % | |||||||
| Biohealth | 638,738 | 587,051 | 51,687 | 9 | % | |||||||||||
| Digital Transformation Technology | 327,746 | 255,764 | 71,982 | 28 | % | |||||||||||
| Other | 4,734,061 | 3,669,563 | 1,064,498 | 29 | % | |||||||||||
| Total Operating Expenses | $ | 7,119,288 | $ | 6,500,701 | $ | 618,587 | 10 | % | ||||||||
The decrease of operating expenses of real estate in the first three and nine months of 2023 compared to the same period of 2022 was mostly caused by the decrease rental related expenses. Increase in expenses in our other businesses is mainly caused by the increase in professional and consulting fees.
Other Income (Expense)
In the three months ended September 30, 2023, the Company had other expense of $14,903,980 compared to other expenses of $ 11,163,538 in the three months ended September 30, 2022. In the nine months ended September 30, 2023, the Company had other expense of $28,060,334 compared to other expenses of $25,546,935 in the nine months ended September 30, 2022. The change in realized and unrealized gain (loss) on securities investments and loss on consolidation of Alset Capital Acquisition Corp. are the primary reasons for the volatility in these two periods. Unrealized loss on securities investment was $10,742,675 in the three months ended September 30, 2023, compared to $11,006,833 loss in the three months ended September 30, 2022. Unrealized gain on securities investment was $6,910,205 in the nine months ended September 30, 2023, compared to $ 21,773,223 loss in the nine months ended September 30, 2022. Realized loss on security investment was $602,624 the three months ended September 30, 2023, compared to a loss of $145,122 in the three months ended September 30, 2022. Realized loss on security investment was $11,291,166 the nine months ended September 30, 2023, compared to a loss of $6,500,573 in the nine months ended September 30, 2022. Loss on consolidation was $21,657,036 in the three and nine months ended September 30, 2023, compared to loss on consolidation of $0 in the three and nine months ended September 30, 2022.
Net Loss
In the three months ended September 30, 2023 the Company had net loss of $17,026,008 compared to net loss of $13,081,391 in the three months ended September 30, 2022. In the nine months ended September 30, 2023 the Company had net loss of $27,162,596 compared to net loss of $30,994,705 in the nine months ended September 30, 2022.
Liquidity and Capital Resources
Our real estate assets have decreased to $39,905,237 as of September 30, 2023 from $54,618,729 as of December 31, 2022. This decrease primarily reflects the sale of properties in the Black Oak project.
Our cash has increased from $17,827,383 as of December 31, 2022 to $28,038,818 as of September 30, 2023. Our liabilities increased from $4,827,221 at December 31, 2022 to $8,149,184 at September 30, 2023. Our total assets have increased to $157,014,408 as of September 30, 2023 from $153,490,336 as of December 31, 2022 mainly due to increase in cash held in Trust Account after the consolidation of Alset Capital Acquisition Corp.
The management believes that the available cash in bank accounts and favorable cash revenue from real estate projects are sufficient to fund our operations for at least the next 12 months.
Summary of Cash Flows for the Three Months Ended September 30, 2023 and 2022
| Nine-months Ended | ||||||||
| 2023 | 2022 | |||||||
| Net cash provided by (used in) operating activities | $ | 8,255,675 | $ | (28,331,829 | ) | |||
| Net cash used in investing activities | $ | (748,188 | ) | $ | (15,031,318 | ) | ||
| Net cash provided by financing activities | $ | 3,408,560 | $ | 5,996,133 | ||||
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Cash Flows from Operating Activities
Net cash provided by operating activities was $8,255,675 in the first nine months of 2023, as compared to net cash used in operating activities of $28,331,829 in the same period of 2022. Property sales from the Black Oak project in 2023 were the main reason for the cash provided by operating activities in 2023.
Cash Flows from Investing Activities
Net cash used in investing activities was $748,188 in the first nine months of 2023, as compared to net cash used in investing activities of $15,031,318 in the same period of 2022. In the nine months ended September 30, 2023 we invested $734,688 in real estate improvements, issued $1,693,455 in loans to related parties and received $2,675,735 from repayment of related party notes receivable. In the nine months ended September 30, 2022 we invested $8,479,968 in marketable securities, invested $6,057,493 to purchase real estate properties and $1,082,225 in real estate improvements.
Cash Flows from Financing Activities
Net cash provided by financing activities was $3,408,560 in the nine months ended September 30, 2023, compared to net cash provided of $ 5,996,133 in the nine months ended September 30, 2022. The cash provided by financing activities in the first nine months of 2023 is caused by the proceeds from stock issuance of $3,433,921. The increase in cash provided by financing activities in the first nine months of 2022 was primarily caused by the proceeds from stock issuance of $6,213,000.
Impact of Inflation
We believe that inflation has not had a material impact on our results of operations for the three months ended September 30, 2023 or the year ended December 31, 2022. We cannot assure you that future inflation will not have an adverse impact on our operating results and financial condition.
Impact of Foreign Exchange Rates
The effect of foreign exchange rate changes on the intercompany loans (under ASC 830), which mostly consist of loans from Singapore to the United States and which were approximately $40 million and $51 million on September 30, 2023 and December 31, 2022, respectively, are the reason for the significant fluctuation of foreign currency transaction Gain or Loss on the Condensed Consolidated Statements of Operations and Other Comprehensive Loss. Because the intercompany loan balances between Singapore and United States will remain at approximately $40 million over the next year, we expect this fluctuation of foreign exchange rates to still significantly impact the results of operations in 2023, especially given that the foreign exchange rate may and is expected to be volatile. If the amount of intercompany loan is lowered in the future, the effect will also be reduced. However, at this moment, we do not expect to repay the intercompany loans in the short term.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.” Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of these exemptions until we are no longer an emerging growth company or until we affirmatively and irrevocably opt out of this exemption.
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Seasonality
The real estate business is subject to seasonal shifts in costs as certain work is more likely to be performed at certain times of the year. This may impact the expenses of our subsidiary Alset EHome Inc. from time to time. In addition, should we commence building homes, we are likely to experience periodic spikes in sales as we commence the sales process at a particular location.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
As a “smaller reporting company” as defined by Item 10(f)(1) of Regulation S-K, the Company is not required to provide the information required by this Item.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officers and Chief Financial Officers, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on that evaluation, our management, including our Chief Executive Officers and Chief Financial Officers, concluded that our disclosure controls and procedures are not effective as of September 30, 2023 to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officers and Chief Financial Officers, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in the Company’s Internal Controls Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the quarterly period ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II. Other Information
Item 1. Legal Proceeding
Not applicable.
Item 1A. Risk Factors
Not applicable to smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
Not applicable.
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Item 6. Exhibits
The following documents are filed as a part of this report:
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| ALSET INC. | ||
| November 14, 2023 | By: | /s/ Chan Heng Fai |
Chan Heng Fai Chairman of the Board and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| November 14, 2023 | By: | /s/ Chan Tung Moe |
| Chan Tung Moe | ||
| Co-Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| November 14, 2023 | By: | /s/ Rongguo Wei |
Rongguo Wei Co-Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| November 14, 2023 | By: | /s/ Lui Wai Leung Alan |
Lui Wai Leung Alan Co-Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
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