Mdjm Ltd 6-K, filed Sep 27, 2024
Mdjm Ltd (UOKAF)
About this 6-K
Mdjm Ltd filed this 6-K on September 27, 2024.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16 UNDER THE
SECURITIES EXCHANGE ACT OF 1934
For the month of September 2024
Commission File Number: 001-38768
Fernie Castle, Letham
Cupar, Fife, KY15 7RU
United Kingdom
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
EXPLANATORY NOTE
MDJM LTD (the “Company”) is furnishing this report on Form 6-K to provide the six-month interim financial statements for the period ended June 30, 2024 and incorporate such financial statements into the Company’s registration statements referenced below.
This Form 6-K is hereby incorporated by reference into the registration statement on Form F-3 of the Company (File Number 333-261347), as amended, and the registration statements on Form S-8 of the Company (File No. 333-278269), and into the base prospectus and any prospectus supplement outstanding under each of the foregoing registration statements, to the extent not superseded by documents or reports subsequently filed or furnished by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
EXHIBIT INDEX
Exhibit |
| Description |
99.1 | ||
101.INS | Inline XBRL Instance Document | |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
Exhibit 99.1
MDJM LTD
TABLE OF CONTENTS
Unaudited Condensed Consolidated Financial Statements | Page |
| |
Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 | F-1 |
F-2 | |
F-3 | |
F-4 | |
F-5 |
MDJM LTD and Subsidiaries
Consolidated Balance Sheets
| | June 30, | | December 31, | ||
|
| 2024 |
| 2023 | ||
| | (Unaudited) | | | | |
Assets | | | | | | |
| | | | | | |
Current Assets | | | | | | |
Cash, cash equivalents, and restricted cash | | $ | | | $ | |
Accounts receivable, net of allowance for CECL - trade receivable of $ | |
| | |
| |
Prepaid expenses | |
| | |
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Other receivables | |
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| |
Total Current Assets | |
| | |
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| | | | | | |
Property and equipment, net | |
| | |
| |
| | |
| | |
|
Other Assets | | | | | | |
VAT credit | | | | | | |
Total Other Assets | |
| | |
| |
Total Assets | | $ | | | $ | |
| | |
| | |
|
Liabilities and Equity | | | | | | |
| | |
| | |
|
Current Liabilities: | | | | | | |
Accounts payable and accrued liabilities | | $ | | | $ | |
|
| | |
| — | |
Deferred income | | | | | | |
Total Current Liabilities | |
| | |
| |
| | | | | | |
Total Liabilities | |
| | |
| |
| | | | | | |
Equity: | | |
| | |
|
Ordinary shares: | |
| | |
| |
Additional paid in capital | |
| | |
| |
Statutory reserve | |
| | |
| |
Retained deficit | |
| ( | |
| ( |
Accumulated other comprehensive (loss) income | |
| | |
| |
Total Shareholders’ Equity | |
| | |
| |
Total Liabilities and Equity | | $ | | | $ | |
The accompanying notes are an integral part of these consolidated financial statements.
F-1
MDJM LTD and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss
For the Six Months Ended June 30,
|
| 2024 |
| 2023 | ||
| | | | | | |
Revenue | | $ | | | $ | |
| |
| | |
| |
Operating Expenses: | |
| | |
|
|
Payroll, payroll taxes, and others | |
| | |
| |
Professional fees | | | | | | |
Depreciation and amortization | |
| | |
| |
Allowance for CECL - trade receivable, net | |
| | |
| ( |
Other general and administrative | |
| | |
| |
Total Operating Expenses | |
| | |
| |
| |
| | |
| |
Loss From Operations | |
| ( | |
| ( |
| |
| | |
| |
Other Income (Expense): | |
| | |
| |
Gain (loss) on sale of asset | |
| — | |
| ( |
Gain (loss) on foreign currency transactions | | | | | | |
Interest (expense) income | |
| | |
| ( |
Other income | |
| | |
| |
Total Other Income | |
| | |
| |
| |
|
| |
|
|
Loss Before Income Tax | |
| ( | |
| ( |
Income tax | |
| — | |
| ( |
Net Loss | | $ | ( | | $ | ( |
| |
| | |
| |
Net loss per ordinary share - basic and diluted | | $ | ( | | $ | ( |
| | | | | | |
Weighted-average shares outstanding, basic and diluted | |
| | |
| |
Comprehensive Income (Loss): | |
| | |
| |
Net loss | | $ | ( | | $ | ( |
Other comprehensive income (loss), net of tax: | |
| | |
| |
Change in foreign currency translation adjustments | |
| ( | |
| ( |
Total other comprehensive loss | | $ | ( | | $ | ( |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-2
MDJM LTD and Subsidiaries
Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity
For the Six Months Ended June 30, 2024 and 2023
| | | | | | | | | | | | | | | | Accumulated | | | | | | | |
| | Ordinary Shares | | | | | | | | Retained | | Other | | | | | | | |||||
| | Number of | | Amount of | | Additional Paid in | | | | | Earnings | | Comprehensive | | Noncontrolling | | | | |||||
For the Six Months Ended June 30, 2024 |
| Ordinary Shares |
| Ordinary Shares |
| Capital |
| Statutory Reserve |
| (Deficits) |
| Income (Loss) |
| Interest |
| Total Equity | |||||||
Balance - December 31, 2023 | | |
| $ | |
| $ | |
| $ | |
| $ | ( |
| $ | |
| $ | — |
| $ | |
Share-based compensation - May 14, 2024 | | | |
| | |
| | |
| — | |
| — | |
| — | |
| — | |
| |
Share-based compensation - May 31, 2024 | | | | | | | | | | | — | | | — | | | — | | | — | | | |
Comprehensive income (loss): | | | | | | | | | | | | | | | | | | | | | | | |
Net loss - six months | | — | |
| — | |
| — | |
| — | |
| ( | |
| — | |
| — | |
| ( |
Change in foreign currency translation adjustment | | — | |
| — | |
| — | |
| — | |
| — | |
| ( | |
| — | |
| ( |
Balance - June 30, 2024 (Unaudited) | | | | $ | | | $ | | | $ | | | $ | ( | | $ | | | $ | — | | $ | |
| | | | | | | | | | | | | | | | | . | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | Accumulated | | | | | | | |
| | Ordinary Shares | | | | | | | | Retained | | Other | | | | | | | |||||
| | Number of | | Amount of | | Additional Paid in | | | | | Earnings | | Comprehensive | | Noncontrolling | | | | |||||
For the Six Months Ended June 30, 2023 | | Ordinary Shares | | Ordinary Shares | | Capital | | Statutory Reserve | | (Deficits) | | Income (Loss) | | Interest | | | Total Equity | ||||||
Balance - December 31, 2022 | | | | $ | | | $ | | | $ | | | $ | ( | | $ | ( | | $ | — | | $ | |
Comprehensive income (loss): | | | |
|
| |
| | |
| | |
| | |
| | |
| | |
| |
Net loss | | — | |
| — | |
| — | |
| — | |
| ( | |
| — | |
| — | |
| ( |
Change in foreign currency translation adjustment | | — | |
| — | |
| — | |
| — | |
| — | |
| ( | |
| — | |
| ( |
Balance - June 30, 2023 | | | | $ | | | $ | | | $ | | | $ | ( | | $ | ( | | $ | — | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-3
MDJM LTD and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June 30,
|
| 2024 |
| 2023 | ||
| | | | | | |
Cash Flows from Operating Activities: | | |
|
| |
|
Net loss | | $ | ( | | $ | ( |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | |
| |
Depreciation and amortization | |
| | |
| |
(Recovery) allowance for CECL - trade receivable, net | |
| | |
| ( |
(Gain) loss on foreign currency transactions | |
| ( | |
| ( |
Loss (gain) on sale of asset | | | — | | | |
Share-based compensation | |
| | |
| |
Non cash interest expense | | | — | | | |
Changes in deferred tax assets | | | — | | | |
Changes in operating assets and liabilities: | |
| | |
| |
Decrease (increase) in accounts receivables | |
| | |
| |
Decrease (increase) in other receivables | |
| | |
| |
Decrease (increase) in prepaid expense | |
| ( | |
| ( |
(Decrease) increase in accounts payable and accrued expenses | |
| | |
| ( |
(Decrease) increase in VAT and other tax payable | |
| | |
| ( |
Increase in related party payable | |
| | |
| — |
(Decrease) increase in deferred income | |
| | |
| |
Net Cash Used in Operating Activities | |
| ( | |
| ( |
| |
| | |
| |
Cash Flows from Investing Activities: | |
| | |
| |
Purchase of fixtures, office equipment and improvements | |
| ( | |
| ( |
Proceeds from disposal of asset | | | — | | | |
Loan repayment received | | | — | | | |
Net Cash Used in Investing Activities | |
| ( | |
| ( |
| |
| | |
| |
Cash Flows from Financing Activities: | |
| | |
| |
Proceeds from short term loans | | | — | | | ( |
Net Cash Used in Financing Activities | | | — | | | ( |
Effect of exchange rate changes on cash, cash equivalents, and restricted cash | |
| ( | |
| |
| | | | | | |
Net decrease in cash, cash equivalents and restricted cash | | | ( | | | ( |
Cash, cash equivalents, and restricted cash - beginning of the period | | | | | | |
Cash, cash equivalents, and restricted cash - end of the period | | $ | | | $ | |
| | | | | | |
Cash and cash equivalents | | $ | | | $ | |
Restricted foreign currency | | | | | | |
Total cash, cash equivalents, and restricted cash | | $ | | | $ | |
| |
| | |
| |
Supplemental Disclosure Cash Flow Information: | |
| | |
| |
Cash paid for: | |
| | |
| |
Interest | | | — | | $ | |
Income taxes | | $ | — | | $ | — |
| | | | | | |
Non-cash investing and financing activities | | | | | | |
Share-based compensation applied to construction in progress | | $ | | | $ | — |
Share-based compensation applied to prepaid expense | | $ | | | $ | — |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-4
MDJM LTD AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Organization
MDJM LTD (the “Company” or “MDJM”) was incorporated on January 26, 2018, under the laws of the Cayman Islands as an exempted company under the name of MDJLEAD LTD. Effective on May 7, 2018, the Company changed its corporate name to MDJM LTD. The Company, through its subsidiaries in the United Kingdom (the “UK”), engages in the hospitality industry and owns and manages hotel and restaurant businesses in the UK. In 2022, the Company’s subsidiaries in the UK acquired two real estate properties located in the UK, which have been remodeled as hotels with restaurant facilities. Historically, the Company, through Mingdajiahe (Tianjin) Co., Ltd. (“Mingda Tianjin” or the “VIE,” formerly known as Tianjin Mingda Jiahe Real Estate Co., Ltd.), was principally engaged in providing end-to-end services in the life cycle of a residential real estate project, including primary real estate agency services in the People’s Republic of China (the “PRC”). The Company, its subsidiaries, and the VIE are also collectively referred to as the “Group.”
MDJCC Limited (“MDJM Hong Kong”) was incorporated on February 9, 2018, under the laws of Hong Kong. MDJM owns
MD Local Global Limited (“MDJM UK”) was incorporated in the UK under the Companies Act 2006 as a private company on October 28, 2020, and it is registered in England and Wales. MDJM owns
Mansions Catering and Hotel LTD (“Mansions,” formerly known as Mansions Estate Agent Ltd) was incorporated under the laws of England as a limited company on June 15, 2021, to conduct residential property management and hospitality business. At the time of incorporation, MDJM UK held
On January 14, 2022, Mingda Jiahe Development Investment Co., Ltd (“MD Japan”) was incorporated under Japanese laws. MDJM holds
On February 16, 2022, MD Lokal Global GmbH (“MD German”) was incorporated under German laws. MDJM holds
On August 22, 2023, the Company incorporated a wholly owned subsidiary in the UK under the name of Fernie Castle Culture Limited (“FCC”). FCC is engaged in the management and development of the “Fernie” brand, including “Fernie” brand name related products and services.
Beijing Mingda Jiahe Technology Development Co., Ltd. (“Mingda Beijing”), is a limited liability company established on March 9, 2018, under the laws of the PRC. Mingda Beijing is a wholly foreign-owned entity and
Mingda Tianjin is a limited liability company established on September 25, 2002, under the laws of the PRC.
F-5
The following table lists the wholly owned subsidiaries and the consolidated VIE of the Company:
| | Date of | | Place of | | Percentage of |
Name of the Company |
| Incorporation |
| Incorporation |
| Ownership |
MDJM Hong Kong |
|
|
| |||
MDJM UK | | | | |||
Mansions | | | | |||
FCC | | | | |||
MD Japan | | | | |||
MD German | | | | |||
Mingda Beijing |
|
|
| |||
Mingda Tianjin |
|
|
|
VIE Arrangements
PRC regulations currently prohibit or restrict foreign ownership of companies that provide services in certain industries. To comply with these regulations, on April 28, 2018, Mingda Beijing entered into a series of contractual arrangements with Mingda Tianjin and shareholders of Mingda Tianjin (collectively, the “VIE Agreements”). Due to PRC legal restrictions on foreign ownership in the real estate sector, neither the Company nor its subsidiaries own any equity interest in Mingda Tianjin. Instead, for accounting purposes, the Company controls and receives the economic benefits of Mingda Tianjin’s business operation through the VIE Agreements, which enable the Company to consolidate the financial results of the VIE and its subsidiaries in the Company’s consolidated financial statements under the generally accepted accounting principles in the United States of America (“U.S. GAAP”).
Agreements that Transfer Economic Benefits of Mingda Tianjin
On April 28, 2018, Mingda Beijing entered into an “Exclusive Business Cooperation Agreement” (the “Business Agreement”) with Mingda Tianjin. Pursuant to the Business Agreement, Mingda Beijing will provide a series of consulting and technical support services to Mingda Tianjin and is entitled to receive
Agreements that Enable the Company to Control and Receive the Economic Benefits of Mingda Tianjin’s Business Operation for Accounting Purposes
On April 28, 2018, each of the shareholders of Mingda Tianjin entered into an “Exclusive Call Option Agreement” (collectively, the “Option Agreements”) with Mingda Beijing. Pursuant to the Option Agreements, each of the shareholders of Mingda Tianjin granted an irrevocable and unconditional option to Mingda Beijing or its designees to acquire all or part of such shareholder’s equity interests in Mingda Tianjin at its sole discretion, to the extent as permitted by PRC laws and regulations then in effect. The consideration for such acquisition of all equity interests in Mingda Tianjin will be equal to the registered capital of Mingda Tianjin, and if PRC law requires the consideration to be greater than the registered capital, the consideration will be the minimum amount as permitted by PRC law. The Option Agreements are valid for
On April 28, 2018, each of the shareholders of Mingda Tianjin also entered into an “Equity Pledge Agreement” (collectively, the “Pledge Agreements”) with Mingda Beijing. Pursuant to the Pledge Agreements, the shareholders pledged their respective equity interests in Mingda Tianjin to guarantee the performance of the obligations of the VIE. Mingda Beijing, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests. Pursuant to the Pledge Agreements, each of the shareholders of Mingda Tianjin cannot transfer, sell, pledge, dispose of, or otherwise create any new encumbrance on their respective equity interests in Mingda Tianjin without the prior written consent of Mingda Beijing. The equity pledge right will expire when the exclusive business cooperation between Mingda Beijing and Mingda Tianjin is terminated and all service fees are paid. The equity pledges of Mingda Tianjin have been registered with the relevant local branch of the State Administration for Industry and Commerce.
F-6
Risks in Relation to the VIE Structure
The Company believes that the VIE Agreements are in compliance with PRC law and are legally enforceable. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce the VIE Agreements and the interests of the shareholders of the VIE may diverge from those of the Company, and that may potentially increase the risk that such shareholders would seek to act inconsistently with the contractual terms, for example by influencing the VIE not to pay the service fees when required to do so.
The Company’s ability to, for accounting purposes, control and receive the economic benefits of Mingda Tianjin’s business operation through the VIE Agreements, and to consolidate the financial results of the VIE and its subsidiaries in its consolidated financial statements, also depends on the power of attorney Mingda Beijing has to vote on all matters requiring shareholder approval in the VIE. The Company believes this power of attorney is legally enforceable but may not be as effective as direct equity ownership.
In addition, if the VIE Agreements are found to be in violation of any existing PRC laws and regulations, the Company may be subject to fines or other actions. The Company does not believe such actions would result in the liquidation or dissolution of the Company, Mingda Beijing, or the VIE.
The Company, through its subsidiaries and the VIE Agreements, has (1) the power to direct the activities of the VIE that most significantly affect the entity’s economic performance and (2) the right to receive benefits from the VIE. Accordingly, the Company is the primary beneficiary of the VIE and has consolidated the financial results of the VIE.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
These interim condensed consolidated financial statements are unaudited. In the opinion of management, all adjustments consisting of normal recurring accruals and disclosures necessary for a fair presentation of these interim condensed consolidated financial statements have been included. The results reported in the unaudited condensed consolidated financial statements for any interim periods are not necessarily indicative of the results that may be reported for the entire year.
The unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. These unaudited condensed consolidated financial statements and accompanying notes should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 20-F for the year ended December 31, 2023, filed with the SEC on April 29, 2024.
The condensed consolidated balance sheet as of December 31, 2023 included herein has been derived from the audited consolidated financial statements as of December 31, 2023, but does not include all disclosures required by U.S. GAAP.
The accompanying condensed consolidated financial statements include the financial statements of the Company, its subsidiaries, the VIE, and the branch offices of the VIE. All significant inter-company accounts and transactions have been eliminated on consolidation.
The Group evaluates each of its interests in private companies to determine whether or not the investee is a VIE and, if so, whether the Group is the primary beneficiary of such VIE. In determining whether the Group is the primary beneficiary, the Group considers if the Group (i) has the power to direct the activities that most significantly affect the economic performance of the VIE, and (ii) receives the economic benefits of the VIE that could be significant to the VIE. If deemed the primary beneficiary, the Group consolidates the VIE.
F-7
Use of Estimates
The preparation of these consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from such estimates. Significant accounting estimates reflected in the Group’s financial statements include useful lives and valuation of long-lived assets, allowance for doubtful accounts, assumptions related to the consolidation of entities in which the Group holds variable interests, and valuation allowance on deferred tax.
Fair Value of Financial Instruments
The Group follows the provisions of Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures (“ASC 820”). It clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
Level 1 - Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date;
Level 2 - Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data; and
Level 3 - Inputs are unobservable inputs that reflect the reporting entity’s assumptions on what assumptions the market participants would use to price the asset or liability based on the best available information.
The carrying amounts reported in the accompanying unaudited condensed consolidated balance sheets for cash and cash equivalents, accounts receivable, other receivables, prepaid expenses, VAT credit, accounts payable and accrued liabilities, due to related party, and deferred income approximate their fair value based on the short-term maturity of these instruments.
Cash, Cash Equivalents, and Restricted Cash
Cash and cash equivalents include cash on hand and all highly liquid investments with an original maturity of three months or less.
The Group maintains cash and cash equivalents with various commercial banks within the PRC and the UK. Cash in the PRC denominated in RMB may not be freely transferable out of the PRC because of exchange control regulations or other reasons. Such restricted cash amounted to $
Property and Equipment, Net
Property and equipment are carried at cost, less accumulated depreciation. Costs include any incremental costs that are directly attributable to the construction or acquisition of the item of property and equipment. Maintenance and repairs are expensed as incurred, while major maintenance and remodeling costs are capitalized if they extend the useful life of the asset. Depreciation is computed using the straight-line method over the estimated useful lives.
When property and equipment are sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts, and any resulting gain or loss is recognized in the results of operations.
Classification |
| Estimated Useful Life |
Buildings and leasehold improvement | | |
Building fixtures, furniture and landscaping | | |
Office Equipment and Fixtures | | |
Software | | |
Vehicles | |
F-8
Revenue Recognition
The Group adopted ASC 606, Revenue from Contracts with Customers (“ASC 606”). The Group determines revenue recognition through the following five steps: (i) identification of the contract, or contracts, with a customer, (ii) identification of the performance obligations in the contract, (iii) determination of the transaction price, (iv) allocation of the transaction price to the performance obligations in the contract; and (v) recognition of revenue when, or as, the Group satisfies a performance obligation.
Historically, the Group’s major revenue is generated by commission fees from selling real estate properties by the VIE. The VIE’s service contracts typically include the terms of parties, services to be provided, service covered period, details of service fee calculation, and terms or conditions when services are to be paid. The performance obligation of the operating entities is clearly defined as to the sale of real properties specified in the contracts. The performance obligation is satisfied when at the point of closing of the sales contract with each property buyer is completed and when the developer receives the proceeds from the sales (cash and/or bank loans). The commission fee is determined based on the total value of the property sold multiplied by the commission rate agreed upon in the contracts. The commission rates vary among developers. The payment terms also vary with certain developers dividing the contracts into several phases and making payment when a phase has been completed. These variable considerations will not change the calculation of the commission fee. The transaction price is determined based on the commission rate and properties sold.
Commission revenue from property brokerage is recognized when: (i) the VIE has completed its performance obligation to sell properties per contract, (ii) the property developer and the buyer have completed a property sales transaction and the developer has received a full or partial amount of proceeds from the buyer or full or partial payment from the bank if mortgaged, and (iii) the property developer granted confirmation to the VIE to issue an invoice per contract. The Group recognizes revenue net of value-added taxes (“VAT”).
The Group does not handle any monetary transactions nor act as an escrow intermediary between the developers and the buyers.
Certain sales contracts allow developers to withhold a certain percentage of the total commission for a certain period as a risk fund to cover potential damages caused by the sales activities of the VIE. In these circumstances, the Group’s operating performance obligations have not been fulfilled until the withholding period has passed. Since the amount being withheld is the risk of loss from the sales transaction, the Group records the amount withheld by developers as deferred income and will recognize the income when the withholding period has passed, and the amount withheld is confirmed by the developers.
The Group started engaging in the business of managing rental property via Mansions in August 2021. Mansions receives a one-time referral fee from tenants, based on a certain percentage of the total leased value of the lease agreement. The Group recognizes the revenue, when (i) the lease agreement is executed, and (ii) the tenant makes its first payment. Mansions also provides management services to tenants and collects service fees. Management service fees are recognized monthly. The prepayment of the monthly service fee is recorded as deferred income.
The Group started engaging in the hotel business via MDJM UK and Mansions in the UK in May 2023. The Group recognizes revenue from its hotel operations in accordance with ASC 606. Revenue is recognized when control of goods and services is transferred to the customer, which typically occurs at the point in time when the customer consumes or utilizes the services provided by the Group’s hotels. The Group’s revenue streams from hotel operations primarily consist of room sales, food and beverage services, event space rentals, and other ancillary services. Revenue recognition for these streams is as follows: revenue from room sales is recognized over the duration of the customer’s stay, as control of the lodging service is transferred to the customer during the stay. Revenue is allocated to each night’s stay based on the agreed-upon room rate. Revenue from food and beverage services is recognized at the point in time when the food and beverages are served to the customer. Revenue is based on the menu prices and is recognized as the customer consumes the items. Revenue from event space rentals is recognized at the point in time when the event space is made available to the customer for the event. Revenue is recognized based on the agreed-upon rental fee for the space. Revenue from other ancillary services, such as parking, and recreational facilities, is recognized at the point in time when the service is provided to the customer. The transaction price for each contract is determined based on the consideration agreed upon with the customer. If contracts include multiple performance obligations, the transaction price is allocated to each performance obligation based on their relative standalone selling prices. The Group periodically assesses its contracts to ensure that revenue recognition is consistent with the principles of ASC 606. Changes in estimates or adjustments to revenue recognition are recognized in the period in which the change in estimate or adjustment becomes known.
F-9
Segment
ASC 280 “Segment Reporting” required a public entity to report separately information about an operating segment that meets any of the following quantitative thresholds: (i) its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 percent or more of the combined revenue, internal and external, of all operating segments; (ii) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount, of either: 1. the combined reported profit of all operating segments that did not report a loss, and 2. the combined reported loss of all operating segments that did report a loss; and (iii) its assets are 10 percent or more of the combined assets of all operating segments. Operating segments that do not meet any of the quantitative thresholds may be considered reportable, and separately disclosed, if management believes that information about the segment would be useful to readers of the financial statements. A company’s operating segments are defined as components of the company that engage in business activities that generate revenue and incur expenses, and whose results are regularly reviewed by the company’s chief operating decision maker in deciding how to allocate resources and assess performance.
The Group uses “the management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Group’s chief operating decision maker for making operating decisions and assessing performance as the source for determining the Group’s reportable segments.
Business Tax and Value Added Tax (“VAT”)
The PRC government implemented a VAT reform pilot program, which replaced the business tax with VAT. Since May 2016, the changes from business tax to VAT have been expanded to all other service sectors which used to be subject to business tax. The VAT rate applicable to subsidiaries of the Company and the VIE is
The UK government will charge VAT on business services and commissions. The standard VAT rate is
Marketing and Advertising Expenses
Marketing and advertising expenses consist primarily of marketing planning fees and advertisements expenses used for targeted sales. The Group expenses all marketing and advertising costs as incurred and records these costs within “Selling expenses” on the consolidated statements of operations when incurred. The Group did not incur such expenses for the six months ended June 30, 2024 and 2023, respectively.
Income Taxes
The Group’s operation in China is governed by the income tax laws of the PRC. The Chinese Corporate Income Tax applies to all companies in China, both foreign owned and Chinese owned. It is levied on company profits at a rate of
The Group’s operation in the UK is governed by the income tax laws of the UK. The main rate of corporation tax is
Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities, and their reported amounts in the financial statements, net operating loss carry forwards and credits by applying enacted statutory tax rates applicable to future years when the reported amounts of the asset or liability are expected to be recovered or settled, respectively. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant taxing authorities.
The Group only recognizes tax liabilities related to uncertain tax positions when such positions are more likely than not of being sustained upon examination. For such positions, the Group recognizes the largest amount of tax liabilities that is more than fifty percent likely of being sustained upon the ultimate settlement of such uncertain position. There were no such tax liabilities recognized in the accompanying consolidated financial statements. The Group records interest and penalties as a component of income tax expense. There were
F-10
Per Share Amounts
The Company computes per share amounts in accordance with ASC Topic 260 “Earnings per Share” (EPS), which requires presentation of basic and diluted EPS. Basic EPS is computed by dividing the net income (loss) available to holders of ordinary shares by the weighted-average number of ordinary shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised or converted into ordinary shares or resulted in the issuance of ordinary shares that then shared in the earnings of the Company, if any. This is computed by dividing net earnings by the combination of dilutive ordinary share equivalents.
The Company had a total of
| | June 30, | | June 30, | ||
|
| 2024 |
| 2023 | ||
Numerator for earnings per share: | | | | | | |
Net loss attributable to the Company’s ordinary shareholders | | $ | ( | | $ | ( |
Denominator for basic and diluted earnings per share: | | | | | | |
Basic and weighted average ordinary shares | |
| | |
| |
Per share amount | | | | | | |
Per share - basic and diluted | | ( | | ( | ||
Comprehensive Income
The Group follows ASC 220-10, “Reporting Comprehensive Income,” which requires the reporting of comprehensive income in addition to net income. Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of information that historically has not been recognized in the calculation of net income. Comprehensive income generally represents all changes in shareholders’ equity during the period except those resulting from investments by, or distributions to shareholders.
Foreign Currency Translation
The Group’s principal operations are based in the UK and the PRC. Its financial position and operational results are determined using GBP and RMB as functional currencies. However, the unaudited condensed consolidated financial statements are presented in U.S. Dollars. Foreign currency-denominated results of operations and cash flows are translated at the average exchange rate during the reporting period. Assets and liabilities in foreign currencies are translated at the exchange rate in effect at the balance sheet date, while equity in the functional currency is translated at the historical rate of exchange at the time of capital contribution. Consequently, amounts reported on the consolidated statements of cash flows may not align precisely with changes in corresponding balances on the consolidated balance sheets. Translation adjustments resulting from period-to-period exchange rate fluctuations are included as a separate component of accumulated other comprehensive income (loss) in the unaudited condensed consolidated balance sheets and statements of changes in shareholders’ equity. Foreign currency transactions are translated into the functional currency at the exchange rates prevailing on the transaction dates. Any resulting gains or losses are recognized in the results of operations as they occur. For the six months ended June 30, 2024 and 2023, transaction gains of $
The following table outlines the currency exchange rates used in the consolidated financial statements:
| | June 30, | | June 30, | | December 31, |
1 US$ = RMB |
| 2024 |
| 2023 |
| 2023 |
At end of the period - RMB |
| |
| |
| |
Average rate for the period ended - RMB |
| |
| |
| |
| | | | | | |
1 US$ = GBP | | | | | | |
At end of the period - GBP | | | | | | |
Average rate for the period ended - GBP | | | | | | |
F-11
Concentration Risk
The Group’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environment in the PRC, and by the general state of the economy of the PRC. The Group’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in North America. The Group’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things. Financial instruments which potentially subject the Group to concentrations of credit risk consist principally of cash and trade accounts receivable. All of the Group’s cash in the PRC is maintained with state-owned banks within the PRC. Per PRC regulations, the maximum insured bank deposit amount is approximately $
The Company’s subsidiaries in the UK have bank accounts in the UK. Customer deposits held by banks, building societies and credit unions (including in Northern Ireland) in UK establishments that are authorized by the Prudential Regulation Authority are protected by the Financial Services Compensation Scheme up to GBP
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued Accounting Standards Update 2019-12-Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This ASU summarizes the FASB’s recently issued Accounting Standards Update (ASU) No. 2019-12, simplifying the Accounting for Income Taxes. The ASU enhances and simplifies various aspects of the income tax accounting guidance in ASC 740. The amendments in this update are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2020. The adoption of this ASU had no material impact on the Group’s condensed consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss methodology, which will result in more timely recognition of credit losses. ASU 2016-13 is effective for annual reporting periods and interim periods within those years beginning after December 15, 2019, excluding entities eligible to be smaller reporting company. For all other entities, the requirements are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. ASU 2016-13 has been amended by ASU 2019-04, ASU 2019-05, and ASU 2019-11. For entities that have not yet adopted ASU No. 2016-13, the effective dates and transition methodology for ASU 2019-04, ASU 2019-05, and ASU 2019-11 are the same as the effective dates and transition methodology in ASU 2016-13. The Group adopted this standard for the year beginning January 1, 2023. The adoption of this standard had no material impact on the Group’s condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
The Group considers the applicability and impact of all ASUs. The ASUs not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on the Group’s consolidated financial position and/or results of operations.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. The Group does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its consolidated financial condition, results of operations, cash flows, or disclosures.
NOTE 3 – ACCOUNTS RECEIVABLE
Accounts receivable are primarily agent service fee receivable due from real estate developers and are recognized and carried at the amount billed to a customer, net of allowance for expected loss from doubtful accounts.
F-12
As of June 30, 2024 and December 31, 2023, accounts receivable consisted of the following:
| | June 30, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Accounts receivable | | $ | | | $ | |
Allowance for CECL | |
| ( |
|
| ( |
Accounts receivable, net | | $ | |
| $ | |
ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses to all financial assets held at amortized cost. Being a smaller reporting company, the Group adopted this standard for the year beginning January 1, 2023.
The current expected credit loss (“CECL”) model requires measurement of the expected credit loss even if that risk of loss is remote. Management believes that historical collection information is a reasonable basis on which to determine expected credit losses because the composition of the accounts receivable at the reporting date is consistent with that used in developing the historical credit-loss percentages. That is, the similar risk characteristics of the customers and their payment practices have not changed significantly over time. However, the foreseeable economic conditions will have a significant impact on the Group’s collectability of the accounts receivable. The Management believes that the treasury bill rate of the U.S. Treasury is a useful indicator to reflect the future cost of the credit and the trend of economic at the time of reporting. The Group combined treasury bill rate and the Group’s historical loss rate to determine the rates of expected estimated credit losses. The accounts receivable sharing similar risk characteristics are pooled when the CECL is calculated. Following CECL rates were used to calculate current expected credit losses:
Age of accounts receivable |
| Current |
| 31-60 days |
| 61-90 days |
| 91-180 days |
| 181-365 days |
| Over 365 days | |
Historical loss rate |
| | % | | % | | % | | % | | % | | % |
Adjustment |
| | % | | % | | % | | % | | % | | % |
CECL rate |
| | % | | % | | % | | % | | % | | % |
Major Customers
For the six months ended June 30, 2024, the Group did not have any major active customers in the PRC market, except for an account receivable balance of approximately $
For the six months ended June 30, 2023, the Group had two major wedding customers. The revenue from these two customers accounted for
NOTE 4 – PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following:
| | June 30, | | December 31, | ||
|
| 2024 |
| 2023 | ||
Land and buildings | | $ | | | $ | |
Building fixtures, facilities, and furniture | | | | | | |
Leasehold improvement | | | | | | |
Landscaping | | | | | | |
Office Equipment and Fixtures | |
| | |
| |
Auto | |
| | |
| |
Construction in progress | | | | | | |
Total Assets | |
| | |
| |
Less accumulated depreciation | |
| ( | |
| ( |
Net Assets | | $ | | | $ | |
For the six months ended June 30, 2024 and 2023, depreciation expenses were $
F-13
NOTE 5 – INCOME TAX AND DEFERRED TAX ASSETS
The Group has no presence in the United States and does not conduct business in the United States, so no United States income tax is imposed upon the Group.
MDJM was incorporated under the laws of the Cayman Islands. Under the current laws of the Cayman Islands, the Company and its subsidiaries are not subject to tax on income or capital gains. Additionally, upon payments of dividends by the Company to its shareholders, no Cayman Islands withholding tax will be imposed.
MDJM Hong Kong was incorporated under the laws of Hong Kong and is subject to the uniform tax rate of
MDJM UK and Mansions were incorporated in the UK. A UK company is subject to UK corporation tax on its income profits and capital profits. The main rate of corporation tax was
Historically, the Company, through its Chinese subsidiary, Mingda Beijing, and the VIE, is principally engaged in business in the PRC and is subject to a standard tax rate of
The Group adopted ASC 740-10-25 Accounting for Uncertainty in Income Taxes and such adoption did not have any material impact on the accompanying consolidated financial statements. Tax regulations are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. All tax positions taken, or expected to be taken, continue to be more likely than not ultimately settled at the full amount claimed. The Group’s tax filings are subject to the PRC tax bureau’s examination for a period up to
Deferred income tax assets are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current income taxes are provided in accordance with the laws of the relevant taxing authorities. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in which temporary differences are expected to be reversed or settled. The effect on deferred tax assets and liabilities of changes in tax rates is recognized in the statement of comprehensive income in the period of the enactment of the change.
The provision for income tax for the six months ended June 30, 2024 and 2023 was as follows:
| | June 30, | | June 30, | ||
|
| 2024 |
| 2023 | ||
Current | | $ | — | | $ | — |
Deferred tax adjustment | |
| — | |
| ( |
Total income tax | | $ | — | | $ | ( |
F-14
Deferred tax assets and liabilities were as follows:
|
| June 30, |
| December 31, | ||
Deferred Tax Assets (Liabilities): | | 2024 | | 2023 | ||
Accounts receivable, net | | $ | | | $ | |
Net operating loss - China | |
| | |
| |
Net operating loss - UK | | | | |
| |
Deferred tax assets | | | | | | |
Valuation allowance | | | ( | | | ( |
Net deferred tax assets (liabilities) | | $ | — | | $ | — |
Reconciliation of the statutory income tax rate and the Group’s effective income tax rate for the six months ended June 30, 2024 and 2023, respectively, were as follows:
| | June 30, | | June 30, |
|
China |
| 2024 |
| 2023 |
|
Hong Kong statutory income tax rate |
| | % | | % |
Valuation allowance recognized with respect to the loss in Hong Kong Company |
| ( | % | ( | % |
PRC statutory income tax rate |
| | % | | % |
Valuation allowance recognized with respect to the loss in PRC Company |
| ( | % | ( | % |
Effect of valuation and deferred tax adjustments |
| | % | ( | % |
Effective rate |
| | % | ( | % |
| | | | | |
United Kingdom | | | | | |
UK statutory income tax rate | | | % | | % |
Valuation allowance recognized with respect to the loss in UK | | ( | % | ( | % |
Effect of valuation and deferred tax adjustments | | | % | | % |
Effective rate | | | % | | % |
Aggregate undistributed earnings of the Company’s subsidiaries, the VIE, and the VIE’s subsidiaries located in the PRC that were available for distribution on June 30, 2024 and December 31, 2023 are considered to be indefinitely reinvested and accordingly, no provision has been made for the Chinese dividend withholding taxes that would be payable upon the distribution of those amounts to any entity within the Company that is outside of the PRC. The Group does not have any present plan to pay any cash dividends on its ordinary shares in the foreseeable future. It intends to retain most of its available funds and any future earnings for use in the operation and expansion of its business. As June 30, 2024 and 2023, the Company had not declared any dividends.
As of June 30, 2024, the Group had no significant uncertain tax positions that qualified for either recognition or disclosure in the financial statements. As of June 30, 2024, income tax returns for the tax years ended December 31, 2019 through December 31, 2023 remained open for statutory examination by PRC tax authorities.
The uncertain tax positions are related to tax years that remain subject to examination by the relevant tax authorities. Based on the outcome of any future examinations, or as a result of the expiration of statute of limitations for specific jurisdictions, it is reasonably possible that the related unrecognized tax benefits for tax positions taken regarding previously filed tax returns, might materially change from those recorded as liabilities for uncertain tax positions in the Group’s condensed consolidated financial statements as of June 30, 2024. In addition, the outcome of these examinations may impact the valuation of certain deferred tax assets (such as net operating losses) in future periods. The Group’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits, if any, as a component of income tax expense. The Group does not anticipate any significant increases or decreases in its liability for unrecognized tax benefit within the next 12 months.
According to the PRC Tax Administration and Collection Law, the statute of limitations is
F-15
The tax authority of the PRC government conducts periodic and tax filing reviews on business enterprises operating in the PRC after those enterprises complete their relevant tax filings. Therefore, the Company’s PRC entities’ tax filings results are subject to change. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s PRC entities’ tax filings, which may lead to additional tax liabilities.
ASC 740 requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. The management evaluated the Group’s tax positions and concluded that
NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consisted of the following as of June 30, 2024 and December 31, 2023:
|
| June 30, |
| December 31, | ||
| | 2024 | | 2023 | ||
Payroll and social security payable | | $ | | | $ | |
Bonus payable | |
| | |
| |
Other payables and accrued liabilities | |
| | |
| |
Total Accounts Payable and Accrued Liabilities | | $ | | | $ | |
NOTE 7 - LEASES
On January 1, 2023, Mansions signed a lease agreement with MDJM UK to rent the “Fernie Castle,” a property owned by MDJM UK, as the site of hotel. The rent is approximately $
On January 1, 2023, Mansions signed a lease agreement with MDJM UK to rent the “Robin Hill,” a property owned by MDJM UK, as the site of a hotel. The rent is approximately $
Mansions and MDJM UK are related companies under common control. ASC 842 requires entities to determine whether a related-party arrangement between entities under common control is a lease on the basis of the legally enforceable terms and conditions of the arrangement. The accounting for a lease depends on the enforceable rights and obligations of each party as a result of the contract. A lease is no longer considered enforceable when either party (i.e., lessee or lessor) can terminate the lease without permission from the other party and with no more than an insignificant penalty (ASC 842-10-55-23). The management believes that lease agreements between Mansions and MDJM UK is not legally enforceable since both Mansions and MDJM UK are under common control, and the lease can be terminated at any time with the needs of business without any penalty. Therefore, the Group did not apply the ASC 842 lessee and lessor accounting to the leases between the Mansions and the MDJM UK.
The Group leases temporary office spaces used for ongoing projects based on its needs. These leases are normally with terms of 12 months or less, and an option of renewing. Due to the temporary nature of these office spaces, the Group typically only includes the initial lease term in its assessment of a lease arrangement. Options to extend a lease are not included in the Group’s assessment unless there is reasonable certainty that the Group will renew the lease. The Group elects not to recognize on the balance sheet leases with terms of 12 months or less. The lease expenses recognized for such leases are on a straight-line basis over the lease terms. Such operating lease expenses amounted to $
F-16
NOTE 8 – SHORT-TERM LOANS
On May 13, 2021, Mingda Tianjin entered into a small business line of credit agreement (the “LOC”) for a maximum amount of $
From March 18, 2022 to June 20, 2022, Mingda Tianjin borrowed a total of $
NOTE 9 – SHAREHOLDERS’ EQUITY
Ordinary Shares
The Company is authorized to issue up to
On May 14, 2024, the Company issued
On May 31, 2024, the Company issued
Underwriter Warrants
Pursuant to the IPO Agreement (defined below), the Company agreed to grant the underwriter of its IPO, Network 1 Financial Securities, Inc., underwriter warrants equal to
The underwriter’s warrants were valued at $
F-17
Potential Share Offering
On March 6, 2023, the Company’s registration statement on Form F-3 (File No. 333-261347) was declared effective by the SEC. The Company may, from time to time, in one or more offerings, offer and sell up to $
NOTE 10 - STATUTORY RESERVE
Pursuant to the applicable PRC laws, PRC entities must make appropriations from after-tax profit to the non-distributable “statutory surplus reserve fund.” Subject to certain cumulative limits, the “statutory surplus reserve fund” requires annual appropriations of 10% of after-tax profit until the aggregated appropriations reach 50% of the registered capital (as determined under accounting principles generally accepted in the PRC at each year-end). The statutory surplus reserve fund is non-discretionary other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of shares currently held by them, provided that the remaining statutory surplus reserve balance after such issuance is not less than 25% of the registered capital before the conversion.
The statutory reserve of Mingda Tianjin amounted to $
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Country Risk
See “Note 2-Summary of Significant Accounting Policies-Concentration Risk.”
New Businesses and New Market Risk
Real estate agent income was a major income source of the Group in the PRC market since its inception. The Group’s real estate agent income declined by
In response to the shrinking sales in the new residential housing market in the PRC, the Group is shifting its focus to the UK and other non-PRC markets. In August 2022, MDJM UK purchased “Fernie Castle,” a real property located in Scotland. The Group remodeled this property into a multi-functional cultural venue with functions for a fine dining restaurant, hotel, and wedding events. “Fernie Castle” is under renovation currently. In December 2022, MDJM UK purchased a second real estate property located at Torquay England. The Group has remodeled this property and is operating it as a hotel with restaurant facilities.
To operate these real properties, the Group needs to find experts and skilled workers in the UK local market and to obtain long-term financial support. There is no guarantee that these new businesses will be profitable in the short to medium term or that the Group will have sustainable financial sources to support such operations in the long term. In addition, the withdrawal of the UK from the European Union, the continuous increase in energy costs, the labor shortage in the UK, and the war in Ukraine are all expected to have negative impacts on the Group’s operations in the UK.
Legal Proceeding
Except for the following disclosure, the Group is currently not a party to any litigation of which, if determined adversely to the Group, would individually or in the aggregate be reasonably expected to have a material adverse effect on its business, operating results, cash flows or financial condition.
The Group will file a civil complaint in local District’s court if there is a dispute on accounts receivable with customers. Historically, the Group has won the civil complaint and received the amounts awarded by court.
F-18
On March 18, 2022, the Chengdu Branch Office of Mingda Tianjin filed a civil complaint in the People’s Court of Dujiangyan City, Sichuan Province, alleging breach of contract and unpaid service fees against Chengdu TEDA New City. The total claimed amount was $
On January 9, 2023, the Chengdu Branch Office of Mingda Tianjin filed a civil complaint in the People’s Court of Dujiangyan City, Sichuan Province, alleging breach of contract and an unpaid service fee against Chengdu TEDA New City. The total claimed amount was approximately $
On July 17, 2023, Mingda Tianjin initiated a civil lawsuit in the Heping District People’s Court of Tianjin City, alleging breach of contract against an individual over an unpaid receivable of $
Service Agreement
On April 11, 2024, MDJM, through its subsidiary FCC, entered into a service agreement with a scholar (“Scholar”). Under the terms of the agreement, the Scholar will utilize his cultural and academic expertise to provide professional advisory services for the Company’s Ancient Eastern Garden project in the Fernie Castle. As compensation, the Company will issue its ordinary shares to the Scholar in the following stages: (i)
NOTE 12 – RELATED PARTY TRANSACTIONS
MDJM conducts real estate services business through Mingda Tianjin, a VIE that it controls through the VIE Agreements. The shareholders of Mingda Tianjin include MDJM’s principal shareholder, Mr. Siping Xu. The VIE Agreements provide MDJM (i) the power to control Mingda Tianjin, (ii) the exposure or rights to variable returns from its involvement with Mingda Tianjin, and (iii) the ability to affect those returns through use of its power over Mingda Tianjin to affect the amount of its returns.
On January 1, 2023, Mansions signed a lease agreement with MDJM UK to rent the “Fernie Castle,” a property owned by MDJM UK, as the site of a hotel. The rent is approximately $
On January 1, 2023, Mansions signed a lease agreement with MDJM UK to rent the “Robin Hill,” a property owned by MDJM UK, as the site of a hotel. The rent is approximately $
F-19
On May 31, 2024, the Company issued
On May 31, 2024, the Company issued
NOTE 13 – SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Group’s major income source was real estate agent commissions before December 31, 2022. The revenue from real estate agent income accounted for
The Group’s major income source has been the hotel and rental management business after December 31, 2022. The revenue from the hotel and rental management business accounted for
The following table provides segment and geographic information as of June 30, 2024 and 2023.
|
| Six Months Ended |
| Six Months Ended |
| ||||
| | June 30, 2024 | | June 30, 2023 | | ||||
Source of revenue | | US$ |
| % | | US$ |
| % | |
Real estate agent income |
| — |
| % | |
| % | ||
Rental management income |
| — |
| % | |
| % | ||
Hotel income |
| |
| % | |
| | % | |
Other income |
| — |
| — |
| — |
| — |
|
Total Revenue |
| |
| % | |
| % | ||
| | | | | | | | | |
Revenue by Geographic Region |
| US$ |
| % |
| US$ |
| % |
|
PRC |
| — |
| % | |
| % | ||
UK |
| |
| % | |
| % | ||
Total Revenue |
| |
| % | |
| % | ||
| | | | | | | | | |
Assets by Geographic Region |
| US$ |
| % |
| US$ |
| % |
|
PRC and Others |
| |
| % | |
| % | ||
UK |
| |
| % | |
| % | ||
Total Assets |
| |
| % | |
| % | ||
NOTE 14 – SUBSEQUENT EVENTS
On September 18, 2024, the Company completed a private placement with several investors, wherein a total of
F-20
The Company received net cash proceeds of approximately $
The Company engaged Maxim Group LLC (“Maxim”) as the Company’s placement agent for the Offering pursuant to a Placement Agency Agreement (the “PAA”) dated as of September 11, 2024. Pursuant to the PAA, the Company agreed to pay Maxim a cash placement fee equal to
In connection with the Offering, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with investors containing customary representations and warranties. The Company and investors also entered into a Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which the Company will be required to file a resale registration statement (the “Registration Statement”) with the SEC to register for resale the ordinary shares and the ordinary shares issuable upon exercise of the Purchaser Warrants, promptly following the Closing Date (as defined in the Purchase Agreement), but in no event later than 30 days after the Closing Date, and to have such Registration Statement declared effective by the Initial Effectiveness Deadline (as defined in the Registration Rights Agreement). The Company will be obligated to pay certain liquidated damages to the investors if the Company fails to file the Registration Statement or fails to file or cause the Registration Statement to be declared effective by the SEC within the period of time provided in the Registration Rights Agreement or fails to maintain the effectiveness of the Registration Statement pursuant to the terms of the Registration Rights Agreement. The liquidated damages are generally equal to
On September 11, 2024, the Company, and its wholly owned subsidiary, MDJM UK jointly entered into an amended and restated Fernie Castle Chinese garden construction project cooperation agreement (the “Agreement”) with Suzhou Xiangshan Workshop Construction Investment Development Co., Ltd. (the “Service Provider”) and its affiliate listed therein. Pursuant to the Agreement, the Company and MDJM UK agreed to engage the Service Provider and its affiliate for procuring, processing, and producing raw materials and for conducting on-site installation and construction in respect of the Chinese garden project in Fernie Castle, an ancient castle located in Scotland owned by MDJM UK (collectively, the “Services”). In exchange for the Services to be provided by the Service Provider and its affiliate, the Company agreed to issue certain number of shares of a par value of US$
On August 5, 2024, MDJM, through its subsidiary FCC, entered into a service agreement with a scholar. Under the terms of the agreement, the scholar will utilize his cultural and academic expertise to provide professional advisory services for the Company’s Ancient Eastern Garden project in the Fernie Castle. As compensation, the Company will issue its ordinary shares to the scholar in the following stages: (i)
F-21