Business Overview and History
HWH International Inc. (NASDAQ:HWH) is an early-stage and emerging growth company that has undergone a significant transformation in recent years. From its initial focus on a single-level membership marketing model in South Korea, the company has now expanded its operations across multiple geographies and diversified its business offerings to capitalize on evolving market trends and consumer preferences.
HWH International Inc. was originally incorporated in Delaware on October 20, 2021 under the name Alset Capital Acquisition Corp. The company was formed as a special purpose acquisition company (SPAC) for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. The company consummated the Business Combination on January 9, 2024 and changed its name from Alset Capital Acquisition Corp. to HWH International Inc.
The company's newly acquired business began in South Korea in 2019, initially focusing on selling dietary supplements and other health products through a single-level membership marketing model. While the business experienced initial profitability and growth, the COVID-19 pandemic had a significant negative impact on its performance starting in 2020. In response to these challenges, the company implemented a strategic reorganization in 2022, introducing a tiered membership model and expanding its product and service offerings.
Prior to the business combination, the company had accumulated losses and was classified as an emerging growth company. The merger transaction was accounted for as a reverse recapitalization, with HWH Nevada being considered the accounting acquirer. Following the business combination, HWH International Inc. has faced ongoing challenges in achieving consistent profitability, reporting net losses in both 2023 and the first nine months of 2024. Additionally, the company has had to address issues related to maintaining compliance with Nasdaq listing requirements during this period.
Financial Performance
For the three months ended September 30, 2024, HWH reported total revenue of $345,523, up from $226,910 in the prior year period, representing a 52.2% year-over-year increase. This growth was primarily driven by increased sales in the company's food and beverage business in Singapore and South Korea. The food and beverage segment accounted for 100% of revenue in the third quarter of 2024 and 98% in the prior year period.
Net loss for the three months ended September 30, 2024 was $548,492, compared to a net loss of $156,130 in the prior year period. The increase in net loss was largely attributable to higher operating expenses, particularly in the areas of general and administrative costs and impairment charges.
For the nine months ended September 30, 2024, HWH reported total revenue of $966,510, up from $622,670 in the prior year period. Net loss for the nine-month period was $2,280,000, compared to a net loss of $47,220 in the prior year period.
Liquidity
The company's liquidity position remains a concern, with cash and cash equivalents of $832,370 as of September 30, 2024, down from $1,160,000 at the end of 2023. HWH has obtained letters of financial support from its majority owners, Alset International Limited and Alset Inc., to provide additional funding as needed.
As of September 30, 2024, HWH's current ratio and quick ratio were both 0.91, indicating potential short-term liquidity challenges. The company has a $1 million credit facility with Alset Inc., of which $700,000 was available as of September 30, 2024. The debt-to-equity ratio stood at -4.91 as of November 30, 2023, reflecting the company's negative equity position.
Operating cash flow (OCF) for the third quarter of 2024 was negative $2,219,254, while free cash flow (FCF) was negative $2,249,357, primarily due to increased operating expenses and impairment charges.
Geographic Performance
HWH's operations are currently focused in two primary markets: Singapore and South Korea. In the third quarter of 2024, 94% of revenue was generated in Singapore, while the remaining 6% came from South Korea. This geographic split remained consistent with the same period in 2023, reflecting the company's continued focus on these two markets.
Product Segments and Revenue Streams
HWH International Inc. operates primarily in the food and beverage (F&B) industry through its various subsidiaries. The company's main revenue streams come from the following product segments:
Food and Beverage Business This is HWH's core business, generating the majority of its revenue. The company operates four cafés, two in South Korea and two in Singapore, under the "Hapi Café" brand. Additionally, HWH runs an online healthy food store serving customers in Singapore. For the three months ended September 30, 2024, the food and beverage business accounted for $345,523, or 100% of the company's total revenue. Similarly, for the nine months ended September 30, 2024, the food and beverage business generated $966,510, or 100% of total revenue.
Membership Fees Previously, HWH operated a membership model where individuals paid an upfront fee to become members and receive discounted access to the company's products and services. However, this membership business has been temporarily suspended, and the company only recognized $12,580 in membership revenue for the nine months ended September 30, 2023, representing around 2% of total revenue for that period. HWH intends to resume the membership business following an ongoing restructuring of the model.
Product Sales In addition to food and beverage offerings, HWH also sold products to its members. For the nine months ended September 30, 2023, product sales accounted for $184, or approximately 30% of total revenue. However, the company did not generate any product sales revenue for the nine months ended September 30, 2024, as it has currently focused its efforts on the food and beverage business.
Diversification and Expansion Efforts
In addition to its core food and beverage business, HWH has been actively diversifying its operations and exploring new growth opportunities. Some of the key developments include:
Hapi Marketplace Launch On November 4, 2024, the company announced the launch of its business-to-consumer marketplace, Hapi Marketplace. The platform features a selection of over forty-seven product categories including wellness, elderly care, auto accessories and more. HWH plans to expand Hapi Marketplace to South Korea, Hong Kong, and other Asian markets in the near future.
Hapi Wealth Program On October 31, 2024, HWH announced the upcoming launch of Hapi Wealth, a program dedicated to providing comprehensive education in equity investment and wealth-building strategies. The company is targeting a soft launch in China and other parts of Asia in November 2024, followed by an official global rollout in January 2025.
Joint Venture in Travel Business In April 2024, HWH entered into a joint venture through its subsidiary Health Wealth Happiness Pte Ltd. with an experienced entrepreneur in the travel industry and the company's Executive Chairman. The new joint venture company, HapiTravel Holding Pte. Ltd., is part of HWH's strategy to build its travel business in Asia.
Acquisition and Expansion of Hapi Cafés HWH has been actively acquiring and expanding its Hapi Café concept, with the launch of a second location in South Korea in May 2024. The company views Hapi Café as a key driver of its Health, Wealth, and Happiness vision, offering a platform to roll out lifestyle products and enhance the customer experience.
Risks and Challenges
Despite its diversification efforts, HWH continues to face several risks and challenges that could impact its long-term growth and profitability:
1. Dependence on limited number of large customers: A significant portion of HWH's revenue is derived from a limited number of large customers, which could expose the company to concentration risk.
2. Intense competition in the food and beverage industry: The company operates in a highly competitive market, with established players and new entrants vying for market share.
3. Regulatory and compliance risks: As HWH expands its operations globally, it must navigate a complex web of regulatory environments, which could lead to increased compliance costs and potential legal issues.
4. Volatility in foreign exchange rates: The company's intercompany loans and operations across multiple countries expose it to foreign exchange rate fluctuations, which could impact its financial results.
5. Limited operating history and emerging growth status: As an early-stage and emerging growth company, HWH faces the inherent risks and uncertainties associated with its relatively short operating history.
6. Liquidity and profitability challenges: The company's negative cash flow, net losses, and reliance on external financial support highlight ongoing concerns about its financial stability and ability to achieve sustainable profitability.
Outlook and Guidance
HWH has not provided formal financial guidance for the upcoming fiscal year. However, the company's management has highlighted its focus on continued expansion and diversification of its business offerings to drive long-term growth and profitability.
The successful launch of Hapi Marketplace and the Hapi Wealth program, as well as the ongoing development of the Hapi Café concept, are expected to be key areas of emphasis for the company in the near future. Additionally, the joint venture in the travel business represents a strategic move to capitalize on the recovery of the tourism industry in Asia.
Conclusion
HWH International Inc. (NASDAQ:HWH) has undergone a remarkable transformation, transitioning from a single-market membership model to a diversified, global enterprise with a range of business offerings. The company's recent initiatives, such as the launch of Hapi Marketplace and the Hapi Wealth program, along with its expansion in the food and beverage sector and the travel business, demonstrate its commitment to innovation and growth.
However, HWH continues to face significant risks and challenges, including its dependence on a limited number of large customers, intense competition, regulatory complexities, and ongoing financial pressures. The company's ability to effectively navigate these obstacles, improve its liquidity position, and execute its diversification strategy will be crucial in determining its long-term success and shareholder value creation.
Investors should closely monitor HWH's progress in achieving profitability, expanding its revenue streams, and strengthening its financial position. The company's performance in its core food and beverage business, as well as the success of its new initiatives, will be key indicators of its potential for future growth and sustainability in the competitive markets it serves.