Alset(AEI) - 2023 Q4 - Annual Report

Part I Business Alset Inc. is a diversified holding company primarily engaged in real estate development, digital transformation technologies, and biohealth, with real estate being the largest revenue contributor in 2023 - The company is a diversified holding company with three main segments: Real Estate, Digital Transformation Technology, and Biohealth, primarily managed through its 85.5% owned subsidiary, Alset International Limited[6] - The real estate segment, focused on developing EHome communities and single-family rentals near Houston, Texas, was the primary revenue driver in 2023[6][9] - The company's growth strategy focuses on acquiring majority stakes in businesses where its management, led by Chairman and CEO Chan Heng Fai, can add value, particularly in expanding to Asian markets[6] Revenue Contribution by Business Segment (2023 vs 2022) | Business Segment | 2023 Revenue % | 2022 Revenue % | | :--- | :--- | :--- | | Property Development | 82% | 29% | | Other Business Activities | 5% | 13% | Our Current Operations The company's operations are segmented into Real Estate, Digital Transformation Technology, Biohealth, and Other Business Activities, encompassing property development, B2B e-commerce, health product distribution, and diverse strategic investments - The Real Estate business consists of two main activities: property development (selling developed lots to builders) and a home rental business with 132 single-family homes in Texas[9][13] - In 2023, the company entered into agreements to sell a combined 434 lots from its 'Lakes at Black Oak' project and 63 lots from 'Alset Villas', with closings occurring in 2023 and extending into 2024[10][11] - The Digital Transformation business, through Hapi Metaverse, focuses on B2B solutions including e-commerce, social media, and metaverse services, and holds a significant stake in Value Exchange International Inc. (VEII)[15] - The Biohealth segment, primarily through HWH World, distributes dietary supplements in South Korea using a direct sales model[17] - Other business activities include corporate advisory services via BMI Capital Partners, operating Killiney Kopitiam restaurant franchises and Hapi Cafes in Asia, and a planned acquisition of New Energy Asia Pacific Inc. for $103.75 million via a convertible note[18][19] Risk Factors The company faces significant risks including material weakness in internal controls, a history of net losses, challenges in integrating acquisitions, reliance on key personnel, and high stock concentration by the CEO - Management has identified a material weakness in internal controls due to a limited number of staff, preventing proper segregation of duties and potentially affecting the accuracy and timeliness of financial reporting[33] - The company has a history of significant net losses, which may continue and negatively impact its ability to achieve business objectives[34] Recent Financial Performance (in USD) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $22,088,507 | $4,480,442 | | Net Loss | ($61,278,733) | ($46,212,505) | - The company's success is highly dependent on its founder, Chairman, and CEO, Chan Heng Fai; the loss of his services could have a material adverse effect on the business[43] - Principal stockholder Chan Heng Fai owns approximately 53.5% of the outstanding common stock, giving him significant influence over corporate decisions[68] Unresolved Staff Comments This item is not applicable as the company qualifies as a smaller reporting company - Not applicable to smaller reporting companies[72] Cybersecurity Cybersecurity risk management is integrated into the company's overall framework, and no material cybersecurity challenges have impacted operations or financial condition to date - Cybersecurity risk management is integrated into the company's broader risk management framework[73] - The company reports that it has not encountered any cybersecurity challenges that have materially impaired its operations or financial standing[73] Properties The company's key properties include the Lakes at Black Oak and Alset Villas residential developments, alongside a portfolio of 132 single-family rental homes in Texas, many featuring sustainable technologies - The Lakes at Black Oak property in Magnolia, Texas, is a key residential land development project where the company has been selling developed lots[74] - The Alset Villas community, also near Houston, consists of 19.5 acres where 63 lots are being developed for sale[75] - The company owns a portfolio of 132 rental homes in Montgomery and Harris Counties, Texas, with an aggregate purchase cost of $30,998,258; many of these homes feature smart and sustainable technologies, including Tesla solar panels and Powerwalls[76] Legal Proceedings Litigation involving former subsidiary iGalen International Inc. was resolved via a settlement agreement in April 2022, and the company does not anticipate material adverse effects from current legal matters - Litigation involving former subsidiary iGalen International Inc. and Gara Group, Inc. was resolved via a settlement agreement on April 13, 2022[77] - The company does not currently believe that the final outcome of any ongoing legal matters will have a material adverse effect on its business, financial condition, or results of operations[77] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[78] Part II Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "AEI", has seven shareholders of record, has never paid dividends, and did not repurchase shares in 2023 - The company's common stock is traded on the Nasdaq Capital Market under the symbol "AEI"[80] - The company has never paid dividends and does not plan to in the foreseeable future, retaining earnings for growth[81] - In January 2022, a convertible promissory note of $6,250,000 held by Chairman Chan Heng Fai was converted into 500,000 shares of common stock[83] - In July 2022, the company issued 1,765,964 shares of common stock to Chan Heng Fai to purchase 293,428,200 ordinary shares of Alset International Limited[84] - No shares of the company's common stock were repurchased during 2023[85] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, revenue surged to $22.1 million driven by real estate sales, yet net loss widened to $61.3 million due to increased other expenses, while operating cash flow improved to $7.5 million and cash position increased to $26.9 million Results of Operations Total revenue increased by 393% to $22.1 million in 2023, primarily from real estate sales, but net loss widened to $61.3 million due to increased operating and other expenses, including significant investment losses Revenue by Segment | Segment | 2023 (USD) | 2022 (USD) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Real Estate | $20,963,661 | $3,088,628 | $17,875,033 | 579% | | Digital Transformation Technology | $28,117 | $69,915 | ($41,798) | -60% | | Biohealth | $12,758 | $753,651 | ($740,893) | -98% | | Other | $1,083,971 | $568,248 | $515,723 | 91% | | Total Revenue | $22,088,507 | $4,480,442 | $17,608,065 | 393% | Consolidated Operations Summary | Metric | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Total Revenue | $22,088,507 | $4,480,442 | | Operating Expenses | ($24,961,161) | ($11,569,816) | | Other Expenses | ($58,313,729) | ($39,123,131) | | Net Loss | ($61,278,733) | ($46,212,505) | - The increase in Other Expenses was primarily driven by a realized loss on securities investment of $11.4 million, a loss on equity method investment of $24.5 million, and a loss on the consolidation of Alset Capital Acquisition Corp. of $21.7 million[111] Liquidity and Capital Resources As of December 31, 2023, cash increased to $26.9 million, total assets decreased to $126.3 million, and net cash from operations significantly improved to $7.5 million, with management confident in funding future operations Key Balance Sheet Items | Item | Dec 31, 2023 (USD) | Dec 31, 2022 (USD) | | :--- | :--- | :--- | | Cash | $26,921,727 | $17,827,383 | | Real Estate Assets | $42,137,152 | $54,618,729 | | Total Assets | $126,314,028 | $153,490,336 | | Total Liabilities | $9,066,700 | $4,827,221 | Summary of Cash Flows | Cash Flow Activity | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Net cash from operating activities | $7,478,823 | ($31,855,435) | | Net cash used in investing activities | ($2,128,986) | ($15,123,041) | | Net cash from financing activities | $3,187,489 | $6,057,481 | - Management believes that available cash, along with debt and equity financing, is sufficient to fund operations for at least the next 12 months[114] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2023 and 2022, including the independent auditor's report, balance sheets, statements of operations, equity, cash flows, and accompanying notes - The independent auditor's report highlights significant transactions with related parties, noting that such transactions cannot be presumed to be at arm's length[136] Notes to Consolidated Financial Statements The notes detail accounting policies, consolidation basis, revenue recognition, investment valuation, significant related-party transactions, and disclose a material weakness in internal controls due to limited staff - The company's ownership of its primary operating subsidiary, Alset International, was 85.5% as of December 31, 2023[142] - The company has elected the fair value option for equity securities where it has significant influence but not control, including its investments in DSS, Inc. (44.4% ownership) and Sharing Services Global Corp. (33.4% ownership)[158] - The company's investment in American Pacific Bancorp Inc. (APB) is accounted for under the equity method, and it recognized a loss of $24.2 million from this investment in 2023[162] - On January 13, 2023, the company reorganized its home rental business, acquiring direct ownership of American Home REIT Inc. (AHR) from a subsidiary for a total consideration of $26.3 million, which included forgiveness of debt and a promissory note[211] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of December 31, 2023, due to a material weakness from limited staff, with plans to remediate by hiring additional qualified personnel - Management concluded that disclosure controls and procedures were ineffective as of December 31, 2023[259] - A material weakness was identified due to limited staff, which prevents segregation of duties and hinders timely and accurate financial statement disclosure evaluation[259] - The company plans to remediate the material weakness by appointing additional qualified personnel with financial accounting, GAAP, and SEC experience[260] Part III Directors, Executive Officers and Corporate Governance The company's leadership, including founder Chairman and CEO Chan Heng Fai, comprises experienced professionals, many with roles in affiliated companies, and the Board maintains independent Audit, Nominations, and Compensation Committees - The leadership team is headed by founder, Chairman, and CEO Chan Heng Fai, age 79[261] - Many executive officers and directors hold concurrent positions in affiliated or subsidiary companies, such as Alset International, DSS, Inc., and HWH International Inc[261][262] - The Board of Directors maintains an Audit Committee, a Nominations and Corporate Governance Committee, and a Compensation Committee, each composed of independent directors Wong Tat Keung, William Wu, and Wong Shui Yeung[270] Executive Compensation Executive compensation, particularly for CEO Chan Heng Fai, is heavily performance-based, with bonuses tied to market capitalization and net asset value growth, while other executives and directors receive salaries and fees Summary Compensation for Named Executive Officers | Name | Position | Total Compensation (2022 USD) | | :--- | :--- | :--- | | Chan Heng Fai | Chairman and CEO | $7,836,133 | | Chan Tung Moe | Co-CEO & Director | $289,536 | | Charles MacKenzie | Chief Development Officer | $350,000 | - CEO Chan Heng Fai's compensation is primarily driven by bonuses tied to 5% of the annual growth in the company's market capitalization and 5% of the annual growth in its Net Asset Value (NAV)[276] - No stock options or other equity awards were granted to any named executive officers during the year ended December 31, 2023[276] Security Ownership of Certain Beneficial Owners and Management As of April 1, 2024, Chairman and CEO Chan Heng Fai is the principal stockholder, beneficially owning 53.3% of outstanding common stock, granting him significant influence over corporate matters - As of April 1, 2024, Chairman and CEO Chan Heng Fai beneficially owned 4,922,818 shares, constituting 53.3% of the outstanding common stock[282] - All directors and executive officers as a group beneficially own 53.3% of the common stock, with the ownership concentrated in Mr. Chan[282] Certain Relationships and Related Transactions, and Director Independence The company engages in numerous related-party transactions, primarily with entities affiliated with CEO Chan Heng Fai, including significant acquisitions, share purchases, loans, and exchanges, all subject to audit committee review - The company has a planned acquisition of New Energy Asia Pacific Inc. from Chairman Chan Heng Fai for a $103.75 million convertible promissory note with a conversion price of $12.00 per share[304] - In January 2023, the company reorganized its rental business by purchasing American Home REIT Inc. from its subsidiary, Alset EHome Inc., for $26.3 million, a transaction involving debt forgiveness and a promissory note[299] - The company's subsidiary, Hapi Metaverse, provided convertible loans to and purchased shares of Value Exchange International Inc. (VEII), an affiliated company where several Alset directors also serve on the board[299][300][301] - In 2022, the company sold its shares of True Partner Limited to affiliated company DSS, Inc. in exchange for 17.6 million shares of DSS common stock[291] Principal Accounting Fees and Services For fiscal year 2023, the company paid its independent registered public accounting firm, Grassi & Co., CPAs, P.C., a total of $330,341 for audit, audit-related, and tax services Accounting Fees | Fee Category | 2023 (USD) | 2022 (USD) | | :--- | :--- | :--- | | Audit Fees | $275,370 | $294,750 | | Audit-Related Fees | $48,806 | $24,500 | | Tax Fees | $6,165 | $6,000 | | All Other Fees | $0 | $0 | | Total | $330,341 | $325,250 | Part IV Exhibit and Financial Statement Schedules This section lists the consolidated financial statements and a comprehensive array of exhibits filed with or incorporated by reference into the Form 10-K, including corporate governance and material contracts - This section lists the financial statements and all exhibits filed with the report, such as material contracts and corporate documents[309][310] Form 10-K Summary This item is not applicable - None[314]