Item 7. Management’s Discussion and Analysis
Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This
Form 10-K 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-K that are not statements of historical fact including, without limitation, statements
under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the
Company’s financial position, business strategy and the plans and objectives of management for future operations, 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 but 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. Such forward-looking
statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s
management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors
detailed in our filings with the SEC.
33
The
following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial
statements and the notes thereto contained elsewhere in this Report. Certain information contained in the discussion and analysis set
forth below includes forward-looking statements that involve risks and uncertainties.
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, South Korea and the People’s Republic of China. We manage our three principal businesses
primarily through our 85.7% owned subsidiary, Alset International Limited, a public company traded on the Singapore Stock Exchange (“Alset
International”). 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 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.
Additionally,
we have ownership interests outside of Alset International, including a 36.9% equity interest in American Pacific Financial, Inc., a
48.9% equity interest in DSS Inc. (“DSS”), an indirect 48.7% equity interest in Value Exchange International, Inc., a
29.0% equity interest in Sharing Services Global Corporation and 39.7% equity interest in Impact Biomedical Inc. American Pacific
Financial, Inc. is a financial network holding company. DSS is a multinational company operating businesses with five divisions:
product packaging, biotechnology, direct marketing, commercial lending, and securities and investment management. 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). Sharing Services Global Corporation (OTC Pink: SHRG), is a publicly traded company dedicated to building shareholder value by
developing or acquiring businesses, products and technologies in the direct selling industry and other industries that augment the
Company’s product and services portfolio, business competencies, and geographic reach. Impact BioMedical Inc. is focused on
discovery, development, and commercialization of products and technologies to address unmet needs in human healthcare and wellness
for specialty biopharmaceuticals, antivirals, antimicrobials, consumer healthcare, and wellness products in the United
States. Impact BioMedical Inc. is listed on NYSE American (NYSE: IBO).
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.
Additionally, the Company operates
a portfolio of trading securities with the objective of generating profits from short-term fluctuations in market prices. The portfolio
is actively managed, and securities are bought and sold with the intent to realize gains from price movements within a short-term horizon.
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 makers (the “CODMs”), or decision–making group, in deciding how to allocate resources
and in assessing performance. The Company’s chief operating decision makers are the two Co-CEOs, who review and assess the performance
of the Company as a whole. The Company reports its segment information to reflect the manner in which the CODMs review and assess performance.
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. In determination of segments, the Company, together with its CODMs, considers factors that include the nature of
business activities, allocation of resources and management structure.
34
The
primary financial measures used by the CODMs to evaluate performance and allocate resources are net income (loss) and operating income
(loss). The CODMs use net income (loss) and operating income (loss) to evaluate the performance of the Company’s ongoing operations
and as part of the Company’s internal planning and forecasting processes. Information on net income (loss) and operating income
(loss) is disclosed in the Consolidated Statements of Income. Segment expenses and other segment items are provided to the CODMs on the
same basis as disclosed in the Consolidated Statements of Income.
The
CODMs do not evaluate performance or allocate resources based on segment assets, and therefore such information is not presented in the
Notes to the Financial Statements.
Our
Revenue Model
Our
total revenue for the years ended December 31, 2024, and 2023, was $21,115,899 and $22,088,507, respectively. Our net losses for the
years ended December 31, 2024, and 2023, were $4,165,816 and $61,278,733, respectively.
We
currently recognize revenue from the sale of our subdivision development properties, rental homes, the sale of our biohealth products,
food and beverage business, and other activities. Sales of real properties accounted for approximately 79%, revenue from home rentals
accounted for approximately 14% and revenue from other activities accounted for approximately 7% of our total revenue in the year ended
December 31, 2024. Sales of real properties accounted for approximately 82%, revenue from home rentals accounted for approximately 13%,
and revenue from other activities accounted for approximately 5% of our total revenue in the year ended December 31, 2023.
From
a geographical perspective, we recognized 93% and 95% of our total revenue in the years ended December 31, 2024, and 2023, respectively,
in the United States. 0% and 0% of our revenue in 2024 and 2023, respectively, was recognized from our sales in South Korea. 7% and 5%
of our revenue in 2024 and 2023, respectively, was recognized from our sales in Singapore.
We
believe that, on an ongoing basis, revenue generated from our property development business will decline as a percentage of our total
revenue, as we expect to experience greater revenue contribution from our rental business, digital transformation technology, biohealth
businesses, food and beverage business and future business acquisitions.
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 operations;
●
Our
ability to attract competent and skilled technical and sales personnel for each of our businesses at acceptable compensation levels
to manage our overhead; and
●
Our
ability to control our operating expenses as we expand each of our businesses and product and service offerings.
Summary
of Significant Accounting Policies
Basis
of Presentation and Principles of Consolidation
Our
consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America (“U.S. GAAP”). The consolidated financial statements include all accounts of the Company and its majority owned
and controlled subsidiaries. The Company consolidates entities in which it owns more than 50% of the voting common stock and controls
operations. All intercompany transactions and balances among consolidated subsidiaries have been eliminated.
35
Use
of Estimates and Critical Accounting Estimates and Assumptions
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, recoverability and useful lives of property, plant and equipment, valuation of real
estate assets, allocation of development costs and capitalized interest to sold lots, the valuation allowance of deferred taxes, contingencies
and equity compensation. Actual results could differ from those estimates.
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 would be allocated based on area method.
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 December 31, 2024
and 2023, the Company adjusted $0 and $951,349 between building and land, respectively. During the years ended December 31,
2024 and 2023, the Company adjusted depreciation expenses of $0 and $17,525, respectively.
Revenue
Recognition and Cost of Revenue
The
following represents a disaggregation of our revenue recognition policies by segment:
Real
Estate
●
Property Sales. Part of the Company’s real estate business is land development. The Company purchases land and develops
it into residential communities. The developed lots are sold to builders (customers) for the construction of new homes. The builders
enter into a sales contract with the Company before they take the lots. The prices and timeline are determined and agreed upon in the
contract. 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 Lakes at Black Oak project, which represented approximately
79% and 82% of the Company’s revenue in the years ended on December 31, 2024 and 2023, respectively, is as follows:
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. 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.
36
Allocate
the transaction price to performance obligations in the contract. Each lot 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 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. Revenue is recognized at a point in time.
●
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 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 years ended December 31,
2024 and 2023, the Company did not recognize any deferred revenue and collected all rents due.
●
Cost of Revenue. 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 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.
Digital
Transformation Technology
●
Software Development Income. Revenue is recognized when (or as) the Company transfers promised goods or services to its customers
in amounts that reflect the consideration to which the Company expects to be entitled to in exchange for those goods or services, which
occurs when (or as) the Company satisfies its contractual obligations and transfers over control of the promised goods or services to
its customers. We generate revenue from a project involving provision of services and web/software development for customers. In respect
to the provision of services, the agreements are less than one year with a cancellation clause and customers are typically billed on
a monthly basis.
37
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 years ended December 31, 2024 and
2023 were approximately $0 and $1,183, respectively.
●
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 and 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. The Company recognizes revenue from membership fee over the one-year period of the membership.
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”), acquired a restaurant franchise licenses at the end of 2021 and 2022 respectively. 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 (“Hapi Cafes”).
The
cafes are operated by subsidiaries of HCI-T, namely Hapi Café SG Pte. Ltd. in Singapore and Hapi Café Korea Inc. 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
2023 the Company incorporated new subsidiaries Guangdong LeFu Wealth Investment Consulting Co., Ltd. (f.k.a. Shenzhen Leyouyou Catering
Management Co., Ltd.) and Dongguan Leyouyou Catering Management Co., Ltd. in the People’s Republic of China. These companies will
be principally engaged in the food and beverage business in Mainland China.
Additionally,
through its subsidiary Hapi Group HK Limited (f.k.a. MOC HK Limited), the Company is focusing on operating café business in Hong
Kong. This business was acquired on October 5, 2022. During the acquisition, a goodwill of $60,343 had been generated for the Company.
The café was closed on September 16, 2024 and the goodwill was impaired during the year ended December 31, 2024.
In
the second quarter of 2024, the Company ceased operations of its subsidiary Alset F&B (PLQ). Due to the closure of this subsidiary,
the Company wrote off $5,820 of fixed assets, which is included in general and administrative expenses and recorded a gain on termination
of lease of $246, which is included in other income on the Company’s Statement of Operations for the year ended December 31, 2024.
38
The
revenue earned from Food and Beverage businesses for the years ended December 31, 2024 and 2023 were $1,507,715 and $1,019,634, respectively.
●
Remaining performance obligations. As of December 31, 2024 and 2023, there were no remaining performance obligations or continuing
involvement, as all service obligations within the other business activities segment have been completed.
Real
Estate Assets
Real
estate assets are recorded at cost, except when acquired real estate assets meet the definition of a business combination in accordance
with ASC 805, “Business Combinations,” which 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.
The
Company capitalized construction costs of approximately $0 million and $1.2 million in the years ended December 31, 2024 and 2023, respectively.
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. 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 years ended on December 31, 2024 and 2023.
The
Company did not have any real estate property under development as of December 31, 2024
On
December 31, 2023, total real estate property under development was $10.4 million, including:
●
land
held for development in the amount of $3.4 million (consisting of $2.8 million for Lakes at Black Oak and $0.6 million for Alset
Villas);
●
capitalized
development costs in the amount of $5.8 million (consisting of $5.3 million for Lakes at Black Oak and $0.5 million for Alset Villas);
and
●
capitalized
finance costs were $1.2 million.
On
December 31, 2024, the capitalized construction costs were as follows:
Lakes at
Black Oak
Alset
Villas
Total
Land held for development
$ -
$ -
$ -
Capitalized development costs:
Hard construction costs
16,976,358
2,442,835
19,419,193
Engineering
3,698,576
207,998
3,906,574
Consultation
117,923
19,635
137,558
Project management
6,267,746
-
6,267,746
Legal
296,043
3,610
299,653
Taxes
1,374,131
117,950
1,492,081
Other services
124,052
17,454
141,506
Impairment reserve
(5,230,828 )
-
(5,230,828 )
Construction - sold lots
(23,624,001 )
(2,809,482 )
(26,433,483 )
Total capitalized development costs
$ -
$ -
$ -
Capitalized finance costs
$ -
Total property under development
$ -
39
On
December 31, 2023, the capitalized construction costs were as follows:
Lakes at
Black Oak
Alset
Villas
Total
Land held for development
$ 2,743,730
$ 639,062
$ 3,382,792
Capitalized development costs:
Hard construction costs
14,549,098
63,079
16,612,177
Engineering
3,563,359
206,998
3,770,357
Consultation
114,073
17,750
131,523
Project management
5,481,101
-
5,481,101
Legal
288,863
2,485
291,348
Taxes
1,365,155
117,950
1,483,105
Other services
78,701
11,891
90,592
Impairment reserve
(5,230,828 )
-
(5,230,828 )
Construction - sold lots
(14,871,140 )
-
(14,871,140 )
Total capitalized development costs
$ 5,338,382
$ 419,853
$ 5,758,235
Capitalized finance costs
$ 1,225,739
Total property under development
$ 10,366,766
Results
of Operations
Summary
of Consolidated Statements of Operations and Other Comprehensive Loss for the Years Ended December 31, 2024 and 2023
Years Ended December 31,
2024
2023
Revenue
$ 21,115,899
$ 22,088,507
Operating Expenses
(25,232,975 )
(24,961,161 )
Other Income (Expenses)
102,046
(58,313,729 )
Income Tax Expense
(150,786 )
(92,350 )
Net Loss
$ (4,165,816 )
$ (61,278,733 )
Revenue
The
following table sets forth period-over-period changes in revenues for each of our reporting segments:
Years Ended December 31,
Change
2024
2023
Dollars
Percentage
Real Estate
$ 19,608,184
$ 20,963,661
$ (1,355,477 )
-6 %
Digital Transformation Technology
-
28,117
(28,117 )
-100 %
Biohealth
-
12,758
(12,758 )
-100 %
Other
1,507,715
1,083,971
423,744
39 %
Total revenue
$ 21,115,899
$ 22,088,507
$ (972,608 )
-4 %
Revenue
was $21,115,899 and $22,088,507 for the years ended December 31, 2024 and 2023, respectively. The decrease in property sales in the 2024
caused lower revenue in this period.
40
In
late 2022 and early 2023, the Company entered into three contracts with builders to sell multiple lots from its Lakes at Black Oak project.
The sales contemplated by these contracts were contingent on certain conditions which the parties to such contracts had to meet and were
expected to generate approximately $23 million of funds from operations, not including certain expenses that the Company was required
to pay. The sale of 335 lots closed in the first six months of 2023 generating approximately $18.1 million revenue. The sale of remaining
lots closed on January 4, 2024 generating approximately $5.0 million revenue.
On
November 13, 2023, the Company entered into two contracts with builders to sell multiple lots from its Lakes at Black Oak and Alset Villa
projects. The closing of these transactions depended on the satisfaction of certain conditions. The sale of the first 70 lots closed
on July 1, 2024 generating approximately $3.8 million and the sale of the 72 lots closed on October 10, 2024 generating approximately
$3.9 million. The sale of lots in Alset Villa project closed on December 17, 2024 generating approximately $3.8 million.
Revenue from the rental business
was $2,891,807 and $2,776,911 for the years ended December 31, 2024 and 2023, 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
May 2023, the Company entered into lease agreement for one of its model houses located in Montgomery County, Texas. The revenue from
the lease was $25,200 and $16,800 in the years ended December 31, 2024 and 2023, respectively.
In
January 2024, the Company entered into lease agreement for another model house located in Montgomery County, Texas. The revenue from
the lease was $26,409 in the year ended December 31, 2024.
Revenue
from digital transformation technology segment consists primarily of the services rendered to customers in the amount of $0 and $28,117,
for the years ended December 31, 2024 and 2023, respectively. The Company began generating revenue from a project providing AI chatbot
services to Value Exchange Int’l (Hong Kong) Limited, a related company of the Company and a subsidiary of VEII located in Hong
Kong, on a monthly basis in 2022. This service was terminated on June 30, 2023.
The
Company operates its biohealth segment in 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 $12,758
in revenue in the years ended December 31, 2024 and 2023, 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.
The
financial services, food and beverage businesses and new venture businesses are small and diversified, and accordingly they are not separately
addressed as independent categories. In the years ended December 31, 2024 and 2023, the revenue from other businesses was $1,507,715
and $1,083,971, respectively, generated mainly by Korean and Singaporean café shops and restaurants.
Operating
Expenses
The
following table sets forth period-over-period changes in cost of revenue for each of our reporting segments:
Years Ended December 31,
Change
2024
2023
Dollars
Percentage
Real Estate
$ 12,034,348
$ 13,915,144
$ (1,880,796 )
-14 %
Digital Transformation Technology
-
9,145
(9,145 )
-100 %
Biohealth
3,370
54,529
(51,159 )
-94 %
Other
744,906
597,391
147,515
25 %
Total cost of sales
$ 12,782,624
$ 14,576,209
$ (1,793,585 )
-12 %
41
Cost
of revenue decreased from $14,576,209 in the year ended December 31, 2023 to $12,782,624 in the year ended December 31, 2024, as a result
of the decrease in the number of lots sold in the Lakes at Black Oak project. Capitalized construction expenses, finance costs and land
costs are allocated to sales.
The
gross margin increased from $7,512,298 to $8,333,275 in the years ended December 31, 2023 and 2024, respectively. The increase of
gross margin was caused by the increase of gross margin from F&B business, mostly due to the increase in the sales in that
business.
The
following table sets forth period-over-period changes in operating expenses for each of our reporting segments.
Years Ended December 31,
Change
2024
2023
Dollars
Percentage
Real Estate
$ 1,793,188
$ 1,312,024
$ 481,164
37 %
Digital Transformation Technology
616,403
468,679
147,724
32 %
Biohealth
1,076,095
869,683
206,412
24 %
Other
8,964,666
7,734,566
1,230,100
16 %
Total operating expenses
$ 12,450,351
$ 10,384,952
$ 2,065,399
20 %
The
increase of operating expenses in the twelve months of 2024 compared to the same period of 2023 was mostly caused by recording impairment
of goodwill and investment and increase in professional fees.
Other
Income (Expense)
In
the year ended December 31, 2024, the Company had other income of $102,046 compared to other expense of $58,313,729 in the year ended
December 31, 2023. The change in realized gain/loss on securities investment, loss on equity method investment and loss on consolidation
of HWH International Inc. (f.k.a. Alset Capital Acquisition Corp.) are the primary reasons for the volatility in these two periods. Realized
gain on securities investment was $461,247 in year ended December 31, 2024, compared to $11,375,747 loss in the year ended December 31,
2023. Loss on equity method investment was $3,234,851 in year ended December 31, 2024, compared to $24,483,374 loss in the year ended
December 31, 2023. Loss on consolidation of HWH International Inc. was $0 in the year ended December 31, 2024, compared to $21,657,036
in the year ended December 31, 2023.
Net
Loss
In
the year ended December 31, 2024, the Company had net loss of $4,165,816 compared to net loss of $61,278,733 in the year ended December
31, 2023.
Liquidity
and Capital Resources
Our
real estate assets have decreased to $30,695,669 as of December 31, 2024, from $42,137,152 as of December 31, 2023. This decrease reflects
the sale of multiple lots in Lakes at Black Oak project during 2024.
Our
cash has increased from $26,921,727 as of December 31, 2023 to $27,243,787 as of December 31, 2024. Our liabilities decreased from $9,066,700
at December 31, 2023 to $6,563,126 at December 31, 2024. Our total assets have decreased to $96,761,977 as of December 31, 2024 from
$126,314,028 as of December 31, 2023 due to the decrease in real estate assets and cash held in Trust Account.
42
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 $8,000,000, with a cumulative loan advance amount of $18,500,000. The line of credit bore interest rate on LIBOR plus 375
basis points. SeD Maryland Development LLC was also provided with a Letter of Credit (“L/C”) Facility in an aggregate amount
of up to $900,000. The L/C commission is 1.5% per annum on the face amount of the L/C. Other standard lender fees apply in the event
the L/C is drawn down. The loan is a revolving line of credit. The L/C Facility is not a revolving loan, and amounts advanced and repaid
may not be re-borrowed. Repayment of the Loan Agreement was secured by a $2,600,000 collateral fund and a Deed of Trust issued to the
Lender on the property owned by SeD Maryland. On March 15, 2022, approximately $2,300,000 was released from collateral, leaving approximately
$300,000 as collateral for outstanding letters of credit. On December 14, 2023 approximately $201,751 was released from collateral,
leaving approximately $100,000 as collateral for outstanding letters of credit.
On
November 13, 2023, 150 CCM Black Oak Ltd. (the “Seller”), a Texas Limited Partnership, entered into two Contracts for Purchase
and Sale and Escrow Instructions (each an “Agreement,” collectively, the “Agreements”) with Century Land Holdings
of Texas, LLC, a Colorado limited liability company (the “Buyer”). Pursuant to the terms of one of the aforementioned Agreements,
the Seller has agreed to sell approximately 142 single-family detached residential lots (the “Section 4 Agreement”) comprising
a section of a residential community in the city of Magnolia, Texas known as the “Lakes at Black Oak.” Pursuant to the other
Agreement, the Seller has agreed to sell 63 single-family detached residential lots (the “Alset Villas Agreement”) in the
city of Magnolia, Texas. In 2021, our subsidiary Alset EHome Inc. acquired approximately 19.5 acres of partially developed land near
Houston, Texas which was used to develop a community named Alset Villas (“Alset Villas”). Alset EHome was in the process
of developing the 63 lots at Alset Villas in 2023. The closing of the transactions described above depended on the satisfaction of certain
conditions. The sale of the first 70 lots closed on July 1, 2024 generating approximately $3.8 million and the sale of the 72 lots closed
on October 10, 2024 generating approximately $3.9 million. The sale of lots in Alset Villa project closed on December 17, 2024 generating
approximately $3.8 million. In addition, the Company will be entitled to receive certain reimbursements in the year ended December 31,
2025.
The
Company is entitled to receive certain developer reimbursements for the Lakes at Black Oak and Alset Villas projects. The Company expects
that approximately $4.7 million of the receivable will be collected within the next twelve months.
The
management believes that the available cash on hand, available debt and equity financing are sufficient to fund our operations for at
least the next 12 months.
Summary
of Cash Flows for the Years Ended December 31, 2024 and 2023
Years Ended December 31,
2024
2023
Net cash provided by operating activities
$ 5,156,047
$ 7,478,823
Net cash provided by (used in) investing activities
$ 17,468,306
$ (2,128,986 )
Net cash (used in) provided by financing activities
$ (21,419,083 )
$ 3,187,489
Cash
Flows from Operating Activities
Net
cash provided by operating activities was $5,156,047 in the year ended December 31, 2024, as compared to net cash provided by operating
activities of $7,478,823 in the same period of 2023. Property sales from the Lakes at Black Oak project in 2024 and 2023 were the main
reason for the cash provided by operating activities in those periods.
Cash
Flows from Investing Activities
Net
cash provided by investing activities was $17,468,306 in the year 2024, as compared to net cash used in investing activities of $2,128,986
in the same period of 2023. In the year ended December 31, 2024 we invested $814,158 in marketable securities, issued $3,029,758 in promissory
notes ($1,811,881 of which was to related parties) and withdrew $21,102,871 cash for redemptions. In the year ended December 31, 2023
we invested $756,078 in marketable securities, issued $3,338,081 in promissory notes to related parties and received $2,672,438 repayment
of promissory notes from related parties.
43
Cash
Flows from Financing Activities
Net
cash used in financing activities was $21,419,083 in the year ended December 31, 2024, compared to net cash provided of $3,187,489 the
year ended December 31, 2023. Cash used in financing activities in the year 2024 is primarily related to the repayment of Class A Common
Stock of $21,102,871 and repayment of note payable of $446,260. Cash provided by financing activities in the year 2023 is primarily related
to the proceeds from stock issuance of $3,433,921. During the year ended December 31, 2023, we also repaid $31,499 of a note payable.
Equity
Security Investments
Investment
Securities at Fair Value
The
Company commonly holds investments in equity securities with readily determinable fair values, equity investments without readily determinable
fair values, investments accounted for under the equity method, and investments at cost. Certain of the Company’s investments in
marketable equity securities and other securities are long-term, strategic investments in companies that are in various stages of development.
The
Company accounts for certain of its investments in equity securities in accordance with ASU 2016-01 Financial Instruments—Overall
(Subtopic 825- 10): Recognition and Measurement of Financial Assets and Financial Liabilities (“ASU 2016-01”) . In accordance
with ASU 2016-01, 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. Amarantus BioScience Holdings (“AMBS”) is a publicly traded company.
The Company does not have significant influence over AMBS as the Company holds approximately 4.3% of the common shares of AMBS. The stock
fair value is determined by quoted stock prices.
On
April 12, 2021, the Company acquired 6,500,000 common shares of Value Exchange International, Inc. (“Value Exchange International”
or “VEII”), an OTCQB listed company, for an aggregate subscription price of $650,000. On October 17, 2022 the Company purchased
additional 7,276,163 common shares of VEII for an aggregate purchase price of $1,743,734. On September 6, 2023, the Company
converted $1,300,000 of VEII loan into 7,344,632 common shares. After these transactions, the Company owns approximately 48.7%
of VEII and exercises significant influence over it. Our Chief Executive Officer, Chan Heng Fai, is also an owner of the common stock
of VEII (not including any common shares we hold). Additionally, certain members of our board of directors serve as directors of Value
Exchange International. The stock’s fair value is determined by quoted stock prices.
On
January 27, 2023, the Company and New Electric CV Corporation (together with the Company, the “Lenders”) entered into a Convertible
Credit Agreement (the “First Credit Agreement”) with VEII. The First Credit Agreement provides VEII with a maximum credit
line of $1,500,000 with simple interest accrued on any advances of the money under the First Credit Agreement at 8%. The First Credit
Agreement grants conversion rights to each Lender. Each Advance shall be convertible, in whole or in part, into shares of VEII’s
Common Stock at the option of the Lender who made that Advance (being referred to as a “Conversion”), at any time and from
time to time, at a price per share equal the “Conversion Price”. In the event that a Lender elects to convert any portion
of an Advance into shares of VEII Common Stock in lieu of cash payment in satisfaction of that Advance, then VEII would issue to the
Lender five (5) detachable warrants for each share of VEII’s Common Stock issued in a Conversion (“Warrants”). Each
Warrant will entitle the Lender to purchase one (1) share of Common Stock at a per-share exercise price equal to the Conversion Price.
The exercise period of each Warrant will be five (5) years from date of issuance of the Warrant. On February 23, 2023, the Company’s
subsidiary Hapi Metaverse Inc. loaned VEII $1,400,000 (the “Loan Amount”). The Loan Amount can be converted into shares of
VEII pursuant to the terms of the First Credit Agreement for a period of three years. There is no fixed price for the derivative security
until Hapi Metaverse converts the Loan Amount into shares of VEII Common Stock.
On
September 6, 2023, the Company 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 First Credit Agreement, Hapi Metaverse received Warrants to purchase a maximum of 36,723,160 shares of
VEII’s Common Stock at an exercise price of $0.1770 per share. Such warrants expire five (5) years from date of their issuance.
44
On
December 14, 2023, Hapi Metaverse entered into a Convertible Credit Agreement (“Second Credit Agreement”) with VEII. On December
15, 2023, the Company loaned VEII $1,000,000. The Second Credit Agreement was amended pursuant to an agreement dated December 19, 2023.
Under the Second Credit Agreement, as amended, this amount can be converted into VEII’s Common Shares pursuant to the terms of
the Second Credit Agreement for a period of three years. In the event that Hapi Metaverse converts this loan into shares of VEII’s
Common Stock, the conversion price shall be $0.045 per share. In the event that Hapi Metaverse elects to convert any portion of the loan
into shares of VEII’s Common Stock in lieu of cash payment in satisfaction of that loan, then VEII will issue to Hapi Metaverse
five (5) detachable warrants for each share of VEII’s Common Stock issued in a conversion (“Warrants”). Each Warrant
will entitle the Company to purchase one (1) share of VEII’s Common Stock at a per-share exercise price equal to the Conversion
Price. The exercise period of each Warrant will be five (5) years from date of issuance of the Warrant. At the time of this filing, the
Company has not converted the Loan Amount.
Our
Chairman, Chan Heng Fai and a 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, three other members of the Board of Directors of Alset Inc. are also members of the Board
of Directors of VEII (Wong Shui Yeung, Wong Tat Keung and Lim Sheng Hon, Danny). The Company currently owns a total of 21,179,275 shares
(representing approximately 48.7%) of VEII.
The
Company has 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 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., American Premium Water Corporation (“APW”, d.b.a. New Electric CV Corporation, “NECV”),
Value Exchange International Inc., Sharing Services Global Corp. (“SHRG”) and Impact Biomedical Inc. (“Impact”)
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 under fair value accounting.
The
Company has significant influence over DSS as we owned approximately 48.9% of the common stock of DSS as of December 31, 2024, and our
Chief Executive Officer, Chan Heng Fai, is an owner of additional common stock of DSS (not including any common or preferred shares we hold).
In addition, our Chief Executive Officer is the Chairman of the Board of Directors of DSS. Apart from Chan Heng Fai, two other members
of the Board of Directors of Alset Inc. are also members of the Board of Directors of DSS (Chan Tung Moe, our Co-Chief Executive Officer,
a son of Chan Heng Fai, and Lim Sheng Hon, Danny). The Company did not have a controlling interest and therefore the Company’s
investment would be accounted for under equity method accounting or we could elect the fair value option accounting.
The
Company has significant influence over APW as the Company holds approximately 0.5% of the common shares of APW. Additionally, our Chief
Executive Officer, Chan Heng Fai, is the majority owner of the common stock of APW (not including any common shares we hold). The Company
did not have a controlling interest and therefore the Company’s investment would be accounted for under equity method accounting
or we could elect the fair value option accounting.
The
Company has significant influence over SHRG as the Company holds approximately 29.0% of the common shares of SHRG, our Chief Executive
Officer holds a director and chairman position on SHRG’s Board of Directors and three of the directors of the Company are the directors
of SHRG. Additionally, our Chief Executive Officer is a significant stockholder of SHRG shares.
On
August 8, 2023, DSS Inc. distributed shares of Impact Biomedical Inc., 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 4,568,165 shares
of Impact, representing 39.7% of the issued and outstanding shares of Impact’s 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. On September 17, 2024, Impact completed its
Initial Public Offering and its shares started to trade on New York Stock Exchange. Based on the management’s analysis, the fair
value of Impact shares was approximately $0 at the distribution date and December 31, 2023. The Company did not have a controlling
interest and therefore the Company’s investment would be accounted for under equity method accounting or we could elect the fair
value option accounting.
45
The
Company has elected the fair value options for the equity securities noted above that would otherwise be accounted for under the equity
method of accounting to better match the measurement of assets and liabilities in the Consolidated Statements of Operations. DSS, VEII,
SHRG and Impact are publicly traded companies and fair value of these equity investments is determined by the quoted stock prices. On
December 31, 2024 and 2023, the fair value (calculated by market trading prices on the end dates of the periods) of total held equity
stock of DSS, VEII, SHRG and Impact was $11,028,405 and $9,381,636, respectively.
On
July 17, 2020, the Company purchased 122,039,000 shares, approximately 0.5% ownership, and 1,220,390,000 warrants with an exercise price
of $0.0001 per share, from APW, for an aggregated purchase price of $122,039. We value APW warrants under level 3 category through a
Black Scholes option pricing model and the fair value of the warrants from APW were $860,342 as of July 17, 2020, the purchase date and
$973 and $430 as of December 31, 2024 and 2023, respectively.
The
changes in the fair values of the investment were recorded directly to accumulated other comprehensive income (loss). Due to the inherent
uncertainty of these estimates, these values may differ materially from the values that would have been used had a ready market for these
investments existed.
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 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’s indirect subsidiary, Hapi Robot Pte. Ltd. (f.k.a. Impact Biohealth Pte. Ltd.), acquired 1,666
shares, approximately 1.45% ownership, from Nervotec Pte Ltd (“Nervotec”), a private company, at the purchase price of $36,628.
The Company applied ASC 321 and measured Nervotec at cost, less any impairment, plus or minus changes resulting from observable price
changes in orderly transactions for an identical or similar investment of the same issuer. As of December 31, 2024, the value of the
investment in Nervotec is $589, as the Company wrote off $37,287 of this investment.
On
September 30, 2020, the Company’s former indirect subsidiary, HWH Global Inc. (f.k.a. HWH International Inc.), acquired 3,800 shares,
approximately 19% ownership, in HWH World Company Limited (f.k.a. Hyten Global (Thailand) Co., Ltd.) (“HWH World Co.”), a
private company, at a purchase price of $42,562. HWH Global Inc. was sold on December 31, 2023.
On
May 31, 2021, the Company’s indirect subsidiary, UBeauty Limited, invested $19,609 in K Beauty Research Lab Co., Ltd (“K
Beauty”) for 18% ownership. K Beauty was established for sourcing, developing and producing variety of Korea-made beauty products
as well as Korea - originated beauty contents for the purpose of distribution to HWH’s membership distribution channel.
On
March 14, 2024, the Company entered into shares subscription agreement to subscription of shares in Ideal Food & Beverage Pte. Ltd.
(“IFBPL”) with the subscription of 19,000 shares, constituting 19% of the shares of IFBPL. The subscription
fee of $14,010 was paid to IFBPL on May 23, 2024. The Company impaired this investment of $14,010 and total impairment expenses
were $14,205 due to net liabilities of IFBPL as of December 31, 2024.
46
On
April 25, 2024, the Company entered into a binding term sheet (the “Term Sheet”) through its subsidiary Health Wealth
Happiness Pte Ltd. (“HWHPL”) outlining a joint venture with Chen Ziping, an experienced entrepreneur in the travel
industry, and Chan Heng Fai, the Company’s Executive Chairman, as a part of the Company’s strategy of building its
travel business in Asia. The joint venture company (referred to here as the “JVC”) is known as HapiTravel Holding Pte.
Ltd. The JVC was incorporated in July 2024 and is owned by: (a) HWHPL holds 19% of the shares in the JVC; (b) Chan Heng Fai
holds 11%; and (c) the remaining 70% of the shares in the JVC are held by Chen Ziping.
There
has been no indication of impairment or changes in observable prices via transactions of similar securities and is still carried at a
cost.
Investment
Securities under Equity Method Accounting
The
Company accounts for equity investments in certain 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 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 be liable for the obligations of the investee or provide 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. 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 16.4% of American Medical REIT Inc. (“AMRE”),
a company concentrating on medical real estate. AMRE acquires state-of-the-art, purpose-built healthcare facilities and leases them to
leading clinical operators with dominant market share under secure triple net leases. AMRE targets hospitals (both Critical Access and
Specialty Surgical), Physician Group Practices, Ambulatory Surgical Centers, and other licensed medical treatment facilities. Chan Heng
Fai, our CEO, is the executive chairman and director of AMRE. DSS, of which we own 48.9% and have significant influence over, owns 80.4%
of AMRE. Therefore, the Company has significant influence on AMRE.
American
Pacific Financial, Inc.
Pursuant
to Securities Purchase Agreement from March 12, 2021 the Company purchased 4,775,523 shares of the common stock of American Pacific Financial
Inc., formerly known as American Pacific Bancorp, Inc. (“APF”) and gained majority ownership in that entity. APF was consolidated
into the Company under common control accounting. On September 8, 2021 APF sold 6,666,700 shares Series A Common Stock to DSS, Inc. for
$40,000,200 cash. As a result of the new share issuances, the Company’s ownership percentage of APF fell below 50% to 41.3% (and
subsequently to 36.9%) and the entity was deconsolidated in accordance with ASC 810-10. Upon deconsolidation the Company elected to apply
the equity method accounting as the Company still retained significant influence. During the year ended December 31, 2024 the investment
loss was $3,205,094. During the year ended December 31, 2023 the investment loss was $24,241,856. As of December 31, 2024 and 2023, the
investment in APF was $4,221,296 and $7,426,390, respectively.
Ketomei
Pte. Ltd.
On
June 10, 2021 the Company’s indirect subsidiary Hapi Café Inc. lent $76,723 to Ketomei Pte. Ltd. (“Ketomei”).
On March 21, 2022 HCI-T entered into an agreement pursuant to which the principal of the loan together with accrued interest were converted
into an investment in Ketomei. At the same time, Hapi Cafe invested an additional $179,595 in Ketomei. After the conversion and
fund investment HCI-T held 28% of Ketomei as of December 31, 2023. Ketomei is in the business of selling cooked food and drinks
through a subscription model. At December 31, 2023, the Company wrote off the investment in Ketomei of $121,471, as the Company did not
believe it was be able to recover this investment. On February 20, 2024, Hapi Cafe invested $312,064 for an additional 38.41%
ownership interest in Ketomei by converting $312,064 of convertible loan. The loan was impaired at the year ended of December 31,
2023, therefore, $312,064 was transferred from impairment of convertible loan to impairment of equity method investment. After this
additional investment, Hapi Cafe owns 55.65% (the Company owns indirectly 45.5%) of Ketomei’s outstanding shares and
Ketomei is consolidated into the financial statements of the Company beginning on February 20, 2024.
47
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 39.8 shares (10.4%) 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
as our CEO holds a director position on Sentinel’s Board of Directors. Additionally, DSS, of which we own 48.9% and have significant
influence over, owns 80.1% of Sentinel. During the years ended December 31, 2024 and 2023, the investment loss in Sentinel was
$15,013 and $154,956, respectively. Investment in Sentinel was $109,750 and $124,763 at December 31, 2024 and 2023, respectively.
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.
On
February 26, 2021, the Company invested approximately $88,599 in the convertible note of Vector Com Co., Ltd (“Vector Com”),
a private company in South Korea. The interest rate of this note was 2% per annum. The conversion price was approximately $21.26 per
common share of Vector Com. As of December 31, 2023, the management estimated the fair value of the note to be $77,307. The Company wrote
off this loan on March 31, 2024.
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.
The
Company identified Smart Reward Express Limited as a VIE and consolidated it into its financial statements.
48
Impact
of Inflation
We
believe that inflation has not had a material impact on our results of operations for the years ended December 31, 2024 and 2023. 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 $30 million and $23 million on December 31, 2024 and 2023, respectively, are the reason for
the significant fluctuation of foreign currency transaction Gain or Loss on the Consolidated Statements of Operations and Other Comprehensive
Income. Because the intercompany loan balances between Singapore and United States will remain at approximately $30 million over the
next year, we expect this fluctuation of foreign exchange rates to still significantly impact the results of operations in the year 2025,
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.
Controls
and Procedures
We
are not currently required to maintain an effective system of internal controls as defined by Section 404 of the Sarbanes-Oxley Act.
Only in the event that we are deemed to be a large accelerated filer or an accelerated filer would we be required to comply with the
independent registered public accounting firm attestation requirement. Further, for as long as we remain an emerging growth company as
defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to
other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent
registered public accounting firm attestation requirement.
Management
is responsible for the preparation and fair presentation of the financial statements included in this Report. The financial statements
have been prepared in conformity with accounting principles generally accepted in the United States of America and reflect management’s
judgment and estimates concerning effects of events and transactions that are accounted for or disclosed.
Management
is also responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial
reporting includes those policies and procedures that pertain to our ability to record, process, summarize and report reliable data.
Management recognizes that there are inherent limitations in the effectiveness of any internal control over financial reporting, including
the possibility of human error and the circumvention or overriding of internal control. Accordingly, even effective internal control
over financial reporting can provide only reasonable assurance with respect to financial statement presentation. Further, because of
changes in conditions, the effectiveness of internal control over financial reporting may vary over time.
In
order to ensure that our internal control over financial reporting is effective, management regularly assesses controls and did so most
recently for its financial reporting as of December 31, 2024. This assessment was based on criteria for effective internal control over
financial reporting described in the Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations (COSO)
of the Treadway Commission. In connection with management’s evaluation of the effectiveness of our Company’s internal control
over financial reporting as of December 31, 2024, management determined that our Company did not maintain effective controls over financial
reporting due to having a limited staff. This limited number of staff prevents us from segregating duties within our internal control
system; and restricts our ability to timely evaluate the accuracy and completeness of our financial statement disclosures. Management
determined that the ineffective controls over financial reporting constitute a material weakness. To remediate such weaknesses, we plan
to appoint additional qualified personnel with financial accounting, GAAP and SEC experience.
This
Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the
SEC that permit us to provide only management’s report in this Report.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk
Not
applicable to smaller reporting companies.
49