MDJM LTD swings to $1.15M loss in first-half 2026
Japan trading generated $2,018,746 of six-month revenue; MDJM's Class A shares are quoted on OTCQB under UOKAF.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
MDJM LTD reported unaudited results for the six months ended June 30, 2026, including revenue of $2,028,128 versus $21,536 in 2025. The company attributed the increase primarily to its newly acquired Japanese trading business, which supplied $2,018,746 of revenue; UK hotel revenue was $9,382. Gross profit was $14,119, compared with $21,536, and net loss was $1,153,175, compared with net income of $154,412 a year earlier.
Operating activities used $2,867,927 of cash, compared with $804,885 in 2025. Financing activities provided $8,030,802 from share issuance. As of June 30, 2026, cash and cash equivalents were $5,363,207 and accounts payable were $25,136,481. On June 11, 2026, MDJM acquired a 75% interest in Mirai, a Japanese supplier of consumer electronics and cosmeceutical products, for $580,000 cash and 730,000 newly issued Class A ordinary shares valued at $419,750.
MDJM Hong Kong was dissolved on July 3, 2026. On October 1, 2026, Nasdaq filed a Form 25 to remove the Class A ordinary shares from listing and registration under Section 12(b); the shares are currently quoted on OTCQB under UOKAF.
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointRevenue was $2,028,128, versus $21,536 in 2025.
Negative
- Major pointNet result was a $1,153,175 loss, versus $154,412 income in 2025.
- Major pointOperating cash use was $2,867,927, versus $804,885 in 2025.
- Major pointNasdaq's October 1, 2026 Form 25 sought Class A removal from listing.
- Moderate pointGross profit was $14,119, versus $21,536 in 2025.
Filing Explained
The filing says the
Key Figures
Key Terms
Current Expected Credit Loss financial
variable interest entity financial
goodwill financial
Level 3 measurement financial
performance obligation financial
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
How much revenue did MDJM (UOKAF) report for the first half of 2026?
What did MDJM (UOKAF) give for its 75% stake in Mirai?
Where are MDJM (UOKAF) Class A shares quoted now?
AI-generated analysis. How Rhea-AI works. Not financial advice.
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 November 2026
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, 2026 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 statements on Form F-3 of the Company (File Number 333-282701 and 333-294010), 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.
Forward Looking Statements
This Form 6-K and its exhibits contain forward-looking statements. All statements other than statements of historical fact in this announcement are forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations and projections about future events and financial trends that the Company believes may affect its financial condition, results of operations, business strategy, and financial needs. Investors can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the Company cautions investors that actual results may differ materially from the anticipated results and encourages investors to review other factors that may affect its future results in the Company's annual report on Form 20-F and its other filings with the U.S. Securities and Exchange Commission.
EXHIBIT INDEX
Exhibit | | Description |
99.1 | Unaudited Condensed Consolidated Financial Statements for the Six Months Ended June 30, 2026 and 2025 | |
99.2 | | Operating And Financial Review And Prospects for the Six Months Ended June 30, 2026 and 2025 |
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) |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MDJM LTD | |
| |
By: | /s/ Siping Xu |
| Siping Xu |
| Chief Executive Officer |
| |
By: | /s/ Bo Wang |
| Bo Wang |
| Chief Financial Officer |
| |
Date: November 5, 2026
Exhibit 99.1
MDJM LTD and Subsidiaries
Condensed Consolidated Balance Sheets
| | | | | | |
| | June 30, | | December 31, | ||
| | 2026 | | 2025 | ||
| | (Unaudited) | | | | |
Assets | | | | | | |
| | | | | | |
Current Assets | | | | | | |
Cash and cash equivalents | | $ | | | $ | |
Accounts receivable, net of allowance for Current Expected Credit Loss (“CECL”) - trade receivable of $ | |
| | |
| — |
Prepayments | |
| | |
| |
Other receivables | |
| | |
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Total Current Assets | |
| | |
| |
| | | | | | |
Property and equipment, net | |
| | |
| |
| | | | | | |
Non-Current Assets | | | | | | |
Goodwill | | | | | | — |
Intangible assets, net | | | | | | |
VAT credit | | | | | | |
Deferred tax assets | | | | | | — |
Total Other Assets | |
| | |
| |
| | | | | | |
Total Assets | | $ | | | $ | |
| | | | | | |
Liabilities and Equity | | | | | | |
| | | | | | |
Current Liabilities: | | | | | | |
Accounts payable | | $ | | | $ | — |
Accrued expenses and other payables | | | | | | |
Deferred income | | | | | | |
Income tax payable | | | | | | — |
Series A warrants liabilities | | | | | | |
Total Current Liabilities | |
| | |
| |
| | | | | | |
Total Liabilities | |
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Shareholders’ Equity: | | | | | | |
Ordinary shares: | |
| | |
| |
Additional paid in capital | |
| | |
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Accumulated deficit | |
| ( | |
| ( |
Accumulated other comprehensive income | |
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Total equity attributable to owners of the Company | | | | | | |
Non-controlling interest | | | | | | — |
Total Shareholders’ Equity | |
| | |
| |
Total Liabilities and Shareholders’ Equity | | $ | | | $ | |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-1
MDJM LTD and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
For the Six Months Ended June 30,
| | | | | | |
| | 2026 | | 2025 | ||
| | | | | | |
Revenues | | $ | | | $ | |
Cost of revenues | | | | | | — |
Gross profit | | | | | | |
| |
| | |
| |
Operating Expenses: | |
| | |
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Payroll and payroll taxes | |
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Professional fees | | | | | | |
Depreciation and amortization | |
| | |
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(Reversal of allowance) allowance for CECL - accounts receivable, net | |
| ( | |
| |
Other general and administrative expenses | |
| | |
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Total Operating Expenses | |
| | |
| |
| |
| | |
| |
Loss From Operations | |
| ( | |
| ( |
| |
| | |
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Other Income (Expense): | |
| | |
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Gain (loss) on foreign currency transactions | |
| | |
| ( |
Gain on deconsolidation | | | — | | | |
Gain on valuation of warrants | | | | | | |
Interest income | |
| | |
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Total Other Income | |
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| |
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(Loss) Income Before Income Tax | |
| ( | |
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Income tax | |
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| — |
Net (Loss) Income | | $ | ( | | $ | |
| |
| | |
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Net (Loss) Income attributable to: | | | | | | |
Owners of the Company | | $ | ( | | $ | |
Non-controlling interest | | $ | | | $ | — |
| | | | | | |
Net (loss) income per ordinary share - basic and diluted | | $ | ( | | $ | |
| | | | | | |
Weighted-average shares outstanding, basic and diluted | |
| | |
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Comprehensive (Loss) Income: | |
| | |
| |
Net (loss) income | | $ | ( | | $ | |
Other comprehensive (loss) income, net of tax: | |
| | |
| |
Change in foreign currency translation adjustments | |
| ( | |
| |
Total Comprehensive (Loss) Income | | $ | ( | | $ | |
| | | | | | |
Comprehensive (Loss) Income attributable to: | | | | | | |
Owners of the Company | | | ( | | | |
Non-controlling interest | | | | | | — |
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, 2026 and 2025
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Ordinary Shares | | | | | | | | | | Accumulated | | | | | | | | | | ||||
| | Number of | | Number of | | | | | | | | Other | | Total | | Non- | | Total | |||||||
| | Class A | | Class B | | Additional Paid in | | Statutory | | Accumulated | | Comprehensive | | Company’s | | controlling | | Shareholders’ | |||||||
| | Ordinary Shares | | Ordinary Shares | | Capital | | Reserve | | Deficit | | Income (Loss) | | Equity | | Interest | | Equity | |||||||
Balance - December 31, 2025 | | | | | | $ | | | $ | — | | $ | ( | | $ | | | $ | | | $ | — | | $ | |
Recognition of non-controlling interest in business combination | | — | | — | | | — | | | — | | | — | | | — | | | — | | | | | | |
Issue of shares | | | | — | | | | | | — | | | — | | | — | | | | | | — | | | |
Share-based compensation | | | | | | | ( | | | — | | | — | | | — | | | | | | — | | | |
Exercise of Series A Warrants | | | | — | |
| ( | |
| — | |
| — | |
| — | | | — | |
| — | |
| — |
Net (loss) income | | — | | — | |
| — | |
| — | |
| ( | |
| — | | | ( | |
| | |
| ( |
Change in foreign currency translation adjustment | | — | | — | | | — | | | — | | | — | | | ( | | | ( | | | ( | | | ( |
Balance - June 30, 2026 | | | | | | $ | | | $ | — | | $ | ( | | $ | | | $ | | | $ | | | $ | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Ordinary Shares | | | | | | | | | | Accumulated | | | | | | | | | | ||||
| | Number of | | Number of | | | | | | | | Other | | Total | | Non- | | Total | |||||||
| | Class A | | Class B | | Additional Paid in | | Statutory | | Accumulated | | Comprehensive | | Company’s | | controlling | | Shareholders’ | |||||||
| | Ordinary Shares | | Ordinary Shares | | Capital | | Reserve | | Deficit | | Income (Loss) | | Equity | | Interest | | Equity | |||||||
Balance - December 31, 2024 | | | | | | $ | | | $ | | | $ | ( | | | | | $ | | | $ | — | | $ | |
Rounding up of fractional shares resulting from the reverse stock split | | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — |
Deconsolidation of VIE | | — | | — | | | ( | | | ( | | | | | | | | | — | | | — | | | — |
Exercise of Series A Warrants - Cash received | | | | — | | | | | | — | | | — | | | — | | | | | | — | | | |
Exercise of Series A Warrants | | — | | — | | | | | | — | | | — | | | — | | | | | | — | | | |
Net income | | — | | — | |
| — | |
| — | |
| | |
| — | | | | |
| — | |
| |
Change in foreign currency translation adjustment | | — | | — | |
| — | |
| — | |
| — | |
| | | | | |
| — | |
| |
Balance - June 30, 2025 | | | | | | $ | | | $ | — | | $ | ( | | $ | | | $ | | | $ | — | | $ | |
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,
| | | | | | |
| | 2026 | | 2025 | ||
Cash Flows from Operating Activities: | | | |
| | |
Net (loss) income | | $ | ( | | $ | |
Adjustments to reconcile income (loss) to net cash used in operating activities: | |
| | |
| |
Depreciation and amortization | |
| | |
| |
(Reversal of allowance) allowance for CECL - trade receivable, net | |
| ( | |
| |
(Gain) loss on foreign currency transactions | |
| ( | |
| |
Gain on valuation of warrants | | | ( | | | ( |
Gain on deconsolidation | |
| — | |
| ( |
Share-based compensation | | | | | | — |
Deferred income tax | | | | | | — |
Changes in operating assets and liabilities: | |
| | |
| |
Accounts receivables | |
| | |
| ( |
Prepayments | |
| ( | |
| ( |
Other receivables | | | ( | | | ( |
Accounts payable | | | ( | | | — |
Accrued expenses and other payables | | | ( | | | ( |
Related party payable | | | — | | | ( |
Deferred income | |
| | |
| |
Income tax payable | | | | | | — |
Net Cash Used in Operating Activities | |
| ( | |
| ( |
| |
| | |
| |
Cash Flows from Investing Activities: | |
| | |
| |
Purchase of property and equipment | | | ( | | | ( |
Purchase of intangible assets | | | ( | | | — |
Cash received on acquisition of a subsidiary | | | | | | — |
Cash removed from consolidation due to deconsolidation of VIE | | | — | | | ( |
Net Cash Used in Investing Activities | |
| ( | |
| ( |
| |
| | |
| |
Cash Flows from Financing Activities: | |
| | |
| |
Proceeds from issuance of shares | | | | | | — |
Proceeds from exercise series warrants A | | | — | | | |
Net Cash Provided by Financing Activities | | | | | | |
| | | | | | |
Effect of exchange rate changes on cash and cash equivalents | |
| | |
| |
| | | | | | |
Net increase (decrease) in cash and cash equivalents | | | | | | ( |
Cash and cash equivalents - beginning of the period | | | | | | |
Cash and cash equivalents - end of the period | | $ | | | $ | |
| | | | | | |
Supplemental Disclosure Cash Flow Information: | |
| | |
| |
Cash paid for: | |
| | |
| |
Interest | | $ | — | | $ | — |
Income taxes | | $ | — | | $ | — |
| | | | | | |
Non-cash investing and financing activities | | | | | | |
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 originally named MDJLEAD LTD. On May 7, 2018, the Company adopted its current name, MDJM LTD. Prior to 2023, the Company, through its subsidiaries and its consolidated variable interest entity (“VIE”), was primarily engaged in providing comprehensive services throughout the life cycle of residential real estate projects in the People’s Republic of China (the “PRC”). These services included primary real estate agency, consulting, and the training and evaluation for primary agency sales. Since 2022, the Company has diversified its business into the hospitality industry by purchasing and managing hotel and restaurant businesses in the United Kingdom (the “UK”). In 2022, through its UK subsidiaries, the Company acquired
The Company and its subsidiaries are collectively referred to as the “Group”. Where appropriate, the term, the “Company” also refer to MDJM or the Company and its subsidiaries as a whole.
Ownership and Control Structure
MDJM wholly owned MDJCC Limited (“MDJM Hong Kong”), which was incorporated on February 9, 2018 under the laws of Hong Kong. MDJM Hong Kong held
On April 28, 2018, Mingda Beijing entered into a series of contractual arrangements, commonly referred to as a variable interest entity structure, with Tianjin Mingda Jiahe Real Estate Co., Ltd. (“Mingda Tianjin”). Mingda Tianjin, a limited liability company organized on September 25, 2002 under the laws of the PRC, changed its name to Mingdajiahe (Tianjin) Co., Ltd. on February 2, 2021. Mingda Tianjin conducted MDJM’s primary business operations in China prior to 2023.
MDJM wholly owns MD Local Global Limited (“MDJM UK”), which was incorporated in the UK under the Companies Act 2006 as a private company on October 28, 2020. It is registered in England and Wales. MDJM UK holds
At the time of Mansions’ incorporation, MDJM UK held
MDJM wholly owned Fernie Castile Culture Limited (“FCC”), which was incorporated in the UK on August 22, 2023. FCC was expected to engage in the management and development of the “Fernie” brand, including related products and services. FCC did not conduct significant business activities and did not generated any revenue. As of the date of this report, FCC has been dissolved.
MD Lokal Global GmbH (“MD German”) is a wholly owned subsidiary of MDJM, incorporated on February 16, 2022, under the laws of Germany. Since its establishment, MD German has not conducted significant business activities and has not generated any revenue.
Mingda Jiahe Development Investment Co., Ltd. (“MD Japan”) is a wholly owned subsidiary of MDJM, incorporated on January 14, 2022, under the laws of Japan. Since its establishment, MD Japan has not conducted significant business activities and has not generated any revenue.
F-5
On June 11, 2026, Mansions acquired
Subsequent to the period end date in July 2026, MDJM Hong Kong was dissolved.
VIE Arrangements
PRC regulations 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 owned any equity interest in Mingda Tianjin. Instead, for accounting purposes, the Company controlled and received the economic benefits of Mingda Tianjin’s business operation through the VIE Agreements, which enabled the Company to consolidate the financial results of Mingda Tianjin and its subsidiaries in its 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 would provide a series of consulting and technical support services to Mingda Tianjin and was 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 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 would be equal to the registered capital of Mingda Tianjin, and if PRC law required the consideration to be greater than the registered capital, the consideration would be the minimum amount as permitted by PRC law. The Option Agreements were valid for
On April 28, 2018, each of the shareholders of Mingda Tianjin also entered into a “Share 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 Mingda Tianjin. Mingda Beijing, as pledgee, would 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 could not 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 would expire when the exclusive business cooperation between Mingda Beijing and Mingda Tianjin was terminated, and all service fees were paid. The equity pledges of Mingda Tianjin were registered with the relevant local branch of the State Administration for Industry and Commerce.
The Company, through its subsidiaries and the VIE Agreements, had (1) the power to direct the activities of Mingda Tianjin that most significantly affect the entity’s economic performance and (2) the right to receive benefits from Mingda Tianjin. Accordingly, the Company was the primary beneficiary of Mingda Tianjin and had consolidated the financial results of Mingda Tianjin.
F-6
Termination of the VIE Agreements
On March 3, 2025, the Board of Directors resolved to terminate the contractual arrangements with Mingda Tianjin. On March 1, 2025, Mingda Beijing entered into termination agreements (the “Termination Agreement”) with Mingda Tianjin and its shareholders, pursuant to which all VIE agreements were terminated. As a result, Mingda Beijing ceased providing business support and related consulting services to Mingda Tianjin and was no longer recognized as a beneficial owner of Mingda Tianjin. On March 5, 2025, the local authorities in Beijing issued a Notice of Deregistration of Equity Pledge to each shareholder of Mingda Tianjin, thereby formally completing the deregistration of equity pledges and officially terminating the contractual arrangements between Mingda Beijing and Mingda Tianjin.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
These 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 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, 2025, filed with the SEC on April 1, 2026.
The condensed consolidated balance sheet as of December 31, 2025, included herein has been derived from the audited consolidated financial statements as of December 31, 2025, but does not include all disclosures required by the U.S. GAAP.
The accompanying condensed consolidated financial statements include the financial statements of the Company, its subsidiaries, Mingda Tianjin from January 1, 2025 to March 5, 2025, and Mingda Beijing from January 1, 2025 to August 25, 2025. All significant inter-company accounts and transactions have been eliminated on consolidation.
On February 19, 2026, the board of directors of Company approved a resolution to effect a
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.
Use of Estimates
The preparation of these unaudited condensed 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 unaudited condensed consolidated financial statements include useful lives and valuation of long-lived assets, allowance for CECL - accounts receivable, valuation allowance on deferred tax, valuation on stock-based compensation and valuation on derivative liabilities.
F-7
Fair Value of Financial Instruments
The Company 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 which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.
The carrying amounts reported in the accompanying consolidated balance sheets for cash and cash equivalents, accounts receivable, other receivables, prepayments, accounts payable, accrued expenses and other payables and income tax payable approximate their fair value based on the short-term maturity of these instruments.
Cash and Cash Equivalents
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 in the UK. Cash held in the UK is denominated in British pound sterling and is freely transferable out of the UK.
The Group also maintains cash and cash equivalents with various commercial banks in Japan. Cash held in Japan is denominated in Japanese Yen and is freely transferable out of Japan.
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, facilities, furniture, and landscaping | | |
Office equipment and fixtures | | |
Vehicles | |
Revenue Recognition
The Group adopted ASC 606, Revenue from Contracts with Customers (“ASC 606”). The Group determines revenue recognition through the following five steps: (1), identification of the contract, or contracts, with a customer, (2), identification of the performance obligations in the contract, (3), determination of the transaction price, (4), allocation of the transaction price to the performance obligations in the contract; and (5), recognition of revenue when, or as, the Group satisfies a performance obligation.
F-8
MDJM UK and Mansions
The operating entities’ 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.
The Group engages in the business of managing rental properties through Mansions. Revenue from one-time referral fees paid by tenants is recognized proportionally over the lease term. The Group recognizes this revenue when both of the following conditions are met: (a) the lease agreement has been executed, and (b) the tenant has made its first payment. Mansions also provides property management services to tenants and collects service fees for these services. Management service fees are recognized on a monthly basis. Any prepayment of monthly service fees is recorded as deferred income until the related services are provided.
The Group engages in the hotel business through MDJM UK and Mansions, which began operations in March 2023. Revenue from hotel operations is recognized when control of goods and services is transferred to the customer, typically at the point in time when the customer consumes or utilizes the services provided by the Group’s hotels. The Group’s hotel revenue streams primarily consist of room accommodations, food and beverage services, event and meeting space rentals, and other ancillary services. Revenue from these streams is recognized as follows:
Room Accommodations: Revenue from room accommodations 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.
Food and Beverage Services: 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 menu prices and is recognized as the customer consumes the items.
Event and Meeting Space Rentals: Revenue from event and meeting space rentals is recognized at the point in time when the event or meeting space is made available to the customer for the event. Revenue is recognized based on the agreed-upon rental fee for the space.
Ancillary Services: 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.
Mirai
The Group engages in the business of supply of consumer electronics and cosmeceutical products to corporate distributors in Japan through Mirai. The Group recognized revenue from the sale of products at the point in time when the goods were delivered and title to the goods passed to the customer, provided that there were no uncertainties regarding customer acceptance; persuasive evidence of an arrangement existed; the sales price was fixed or determinable; and collectability was deemed probable.
The transaction price is the amount of consideration to which the Group expects to be entitled in exchange for transferring promised goods to a customer. The transaction price is generally fixed. None of the Group’s contracts contain a significant financing component. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to government entities.
Sales of products are for cash or otherwise agreed-upon credit terms. The payment terms vary by location and customer. The revenue generating activities have a single performance obligation and are recognized at the point in time when control transfers and obligation has been fulfilled. Revenue is measured as the amount of consideration. The Group expects to receive in exchange for products. The sales terms do not allow for a right of return except for matters related to any defects on the Group’s part.
F-9
Principal vs. Agent Considerations
In accordance with the guidance under ASC 606, the Group has assessed whether it acts as a principal or an agent in transactions involving customers and suppliers. The management has concluded that it acts as a principal.
For sales of products, the Group obtains control of the products before they are transferred to end users (customers), and it has the ability to direct the suppliers to supply the products as well as logistics services. The Group is contractually responsible for fulfilling the performance obligations to the customers under separate agreements. As such, the Group controls the specified goods before they are transferred to the customer.
The Group periodically reviews its contracts to ensure that revenue recognition practices remain consistent with the principles of ASC 606. Any changes in estimates or adjustments to revenue recognition are recognized in the period in which the change or adjustment becomes known.
Segment
ASC 280, Segment Reporting requires a public entity to report separately information about an operating segment that meets any of the following quantitative thresholds: (a) 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; (b) 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 or 2. the combined reported loss of all operating segments that did report a loss; or (c) 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 (“CODM”) 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 CODM for making operating decisions and assessing performance as the source for determining the Group’s reportable segments.
Lease
ASC 842 requires the Group to determine whether a contract is a lease or contains a lease at the inception of the contract, considering all relevant facts and circumstances. A contract is a lease or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration.
A lease is classified as a finance lease when the lease meets any of the following criteria: (i) the lease transfers ownership of the underlying asset to the lessee by the end of the lease term, (ii) the lease grants the lessee an option to purchase the underlying asset that the lessee is reasonably certain to exercise, (iii) the lease term is for the major part of the remaining economic life of the underlying asset, (iv) the present value of the sum of the lease payments and any residual value guaranteed by the lessee that is not already reflected in the lease payments equals or exceeds substantially all (90% or more) of the fair value of the underlying asset, or (v) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. A lease not classified as a finance lease is classified as an operating lease.
A lessee should recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. When measuring assets and liabilities arising from a lease, a lessee should include payments to be made in optional periods only if the lessee is reasonably certain to exercise its option to extend the lease or not exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option.
The Group elected not to recognize on balance sheet leases with terms of 12 months or less. The Group typically only includes the initial lease term in its assessment of a lease arrangement. Options to extend the lease are not included in the Group’s assessment unless there is reasonable certainty that the Group will renew.
F-10
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 and consolidated VIE of the Company was
The UK government charges VAT on business services and commissions. The standard VAT rate is
The Japan government charges VAT or consumption tax on supply of goods. The standard VAT rate is
The Group accrues VAT payable when revenue is recognized.
Income Taxes
The Group’s operation in the PRC was governed by the income tax laws of the PRC. The Chinese Corporate Income Tax applies to all companies in China, foreign owned and Chinese owned. It is levied on company profits at a rate of
The Group’s operations in the UK are subject to UK corporation tax. For financial years beginning on or after April 1, 2023, a small profits rate of
The Group’s operation in Japan was governed by the income tax laws of Japan. The applicable statutory effective tax rate is
Deferred income taxes are recognized for temporary differences between the tax basis of assets and liabilities, and their reported amounts in the condensed consolidated 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 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 condensed consolidated financial statements. The Group records interest and penalties as a component of income tax expense. There were
Per Share Amounts
The Company computes per share amounts in accordance with ASC 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.
F-11
As of June 30, 2026, the Company had a total of
| | | | | | |
| | June 30, | ||||
| | 2026 | | 2025 | ||
Numerator for earnings per share: | | | | | | |
Net (loss) income attributable to the Company’s ordinary shareholders | | $ | ( | | $ | |
Denominator for basic and diluted EPS: | | | | | | |
Basic and weighted average ordinary shares | |
| | |
| |
Per share amount | | | | | | |
Per share - basic and diluted | | $ | ( | | $ | |
Comprehensive Income
The Company 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 Japan, and, prior to 2024, also in the PRC. Its financial position and operational results are determined by using GBP, JPY and RMB as functional currencies, as applicable. However, the condensed consolidated financial statements of the Company 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 condensed consolidated statements of cash flows may not align precisely with changes in corresponding balances on the condensed 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 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, 2026 and 2025, a transaction gain of $
The following table outlines the currency exchange rates used in the condensed consolidated financial statements:
| | | | | | |
| | June 30, | | June 30, | | December 31, |
1 US$ = RMB | | 2026 | | 2025 | | 2025 |
At end of the period – RMB |
| N/A |
| |
| |
Average rate for the period ended – RMB |
| N/A |
| |
| |
| | | | | | |
1 US$ = GBP | | | | | | |
At end of the period – GBP | | | | | | |
Average rate for the period ended – GBP | | | | | | |
| | | | | | |
1 US$ = JPY | | | | | | |
At end of the period – JPY | | | | N/A | | N/A |
Average rate for the period ended – JPY | | | | N/A | | N/A |
F-12
Concentration Risk
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 (PRA) are protected by the Financial Services Compensation Scheme (FSCS) up to GBP
Deconsolidation
In accordance with ASC 810-10-40, deconsolidation of a subsidiary occurs when: (a) some or all of the ownership interests of the subsidiary are sold resulting in the loss of a controlling financial interest; (b) a contractual agreement granting control of the subsidiary expires; (c) the subsidiary issues its shares to outsiders reducing the parent’s ownership interest resulting in the loss of a controlling financial interest; or (d) the subsidiary becomes subject to the control of a government, court, administrator, or regulator.
The parent should recognize a gain or loss measured as the difference between: (a) the aggregate of: (i) the fair value of any consideration received, (ii) the fair value of any retained non-controlling interest, and (iii) the carrying amount of any non-controlling interest at the date the subsidiary is deconsolidated; and (b) the carrying amount of the subsidiary’s assets and liabilities.
A subsidiary should be deconsolidated from the date a controlling financial interest is lost and should also consider the equity components included in the non-controlling interest and the amounts previously recognized in accumulated other comprehensive income (loss), that is, the foreign currency translation adjustment.
Recently Adopted Accounting Pronouncements
In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets. The ASU provides a practical expedient to assume that conditions as of the balance sheet date remain unchanged over the life of the asset when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. This guidance is effective for annual reporting periods beginning after December 15, 2025, and for interim periods within those annual reporting periods, with early adoption permitted. The amendments in ASU 2025-05 should be applied prospectively. The Group adopted this standard for the period beginning January 1, 2026 and the adoption did not have a material impact on the 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 a 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.
In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses (Subtopic 220-40). The ASU requires the disaggregated disclosure of specific expense categories, including purchases of inventory, employee compensation, depreciation, and amortization, within relevant income statement captions. This ASU also requires disclosure of the total amount of selling expenses along with the definition of selling expenses. The ASU is effective for annual periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Adoption of this ASU can either be applied prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. Early adoption is also permitted. This ASU will likely result in the required additional disclosures being included in the consolidated financial statements, once adopted.
F-13
NOTE 3 – ACCOUNTS RECEIVABLE
Accounts receivable for the six months ended June 30, 2026 primarily consisted of receivable from sales of goods to third-party customers. There were
As of June 30, 2026 and December 31, 2025, accounts receivable consisted of the following:
| | | | | | |
| | June 30, | | December 31, | ||
| | 2026 | | 2025 | ||
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”), requires entities to measure and recognize expected credit losses on all financial assets held at amortized cost. The CECL model requires the measurement of expected credit losses, even when the 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 accounts receivable at the reporting date is consistent with the data used in developing the historical credit-loss percentages. In other words, customer risk characteristics and payment practices have remained relatively stable over time. However, current and reasonably foreseeable economic conditions are expected to have a significant impact on the Company’s collectability of accounts receivable. The Company applies the Bank of England’s lending rate, together with its historical loss rate, as a forward-looking adjustment in estimating expected credit losses under CECL. Management believes this approach appropriately reflects the potential time value of money while incorporating expectations about broader economic conditions. Accounts receivable with similar risk characteristics are pooled for purposes of calculating CECL.
The following CECL rates were used to calculate expected credit losses for the six months ended June 30, 2026.
| | | |
Age of accounts receivable | | Current | |
Historical loss rate |
| | % |
Adjustment rate |
| | % |
CECL rate |
| | % |
NOTE 4 – PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
| | | | | | |
| | June 30, | | December 31, | ||
| | 2026 | | 2025 | ||
Land and buildings | | $ | | | $ | |
Building fixtures, facilities, and furniture | | | | | | |
Leasehold improvement | | | | | | |
Landscaping | | | | | | |
Office equipment and fixtures | |
| | |
| |
Vehicles | | | | | | |
Construction in progress | | | | | | |
Total Assets | |
| | |
| |
Less: accumulated depreciation | |
| ( | |
| ( |
Net Assets | | $ | | | $ | |
For the six months ended June 30, 2026 and 2025, depreciation and amortization expenses were $
NOTE 5 – GOODWILL
On June 11, 2026, the Group acquired
F-14
The transaction was accounted for in accordance with the provisions of ASC 805-10, Business Combinations. The Group retained independent appraisers to advise management in the determination of the fair value of the various assets acquired and liabilities assumed. The values assigned in these condensed consolidated financial statements represent management’s best estimate of fair values as of the acquisition date.
As required by ASC 805-20, Business Combinations – Identifiable Assets and Liabilities, and Any Non-controlling Interest, management conducted a review to reassess whether they identified all the assets acquired and liabilities assumed, and followed ASC 805-20’s measurement procedures for recognition of the fair value of net assets acquired.
The excess of the purchase price over the aggregate fair value of assets acquired was allocated to goodwill. The results of operations of the acquired subsidiary have been included in the condensed consolidated statements of operations and comprehensive income from the date of acquisition.
The following table summarizes the allocation of estimated fair values of net assets acquired and liabilities assumed:
| | | |
| | June 11, | |
| | 2026 | |
Cash and cash equivalents | | $ | |
Accounts receivable, net | |
| |
Prepayments | |
| |
Other receivables | |
| |
Intangible assets, net | |
| |
Deferred tax assets | |
| |
Accounts payable | |
| ( |
Accrued expenses and other payables | |
| ( |
Income tax payable | |
| ( |
Total | | $ | ( |
Impairment testing is performed on a scheduled basis at the end of period and on an ad hoc basis where there are indications of impairment. The management performed an evaluation of impairment of goodwill as at June 30, 2026 by using discounted cash flow method on the expected results of its business operations with annual growth rate of
NOTE 6 – INCOME TAX AND DEFERRED TAX ASSETS
The Company and its subsidiaries have no presence in the United States and do not conduct business in the United States, so no United States income tax is imposed upon the Company and its subsidiaries.
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 income tax or capital gains tax. In addition, dividends paid by the Company to its shareholders are not subject to Cayman Islands withholding tax. For the six months ended June 30, 2026, MDJM reported net loss before income tax of $
MDJM Hong Kong was incorporated under the laws of Hong Kong and is subject to the uniform tax rate of
MDJM UK and Mansion were incorporated in the UK. A UK company is subject to UK corporation tax on its income and capital profits. From April 1, 2023, the main rate of corporation tax increased from
F-15
The Group conducted substantially all of its business in the PRC through its VIE and subsidiaries before deconsolidation in 2025. The operating entities located in the PRC were subject to PRC income taxes, a standard tax rate of
Mirai is subject to Japan national and local corporate taxes. The applicable statutory effective tax rate is
| | | | | | |
| | June 30, | | June 30, | ||
| | 2026 | | 2025 | ||
(Loss) income before income tax |
| | |
| | |
UK | | $ | ( | | $ | ( |
Japan | |
| | |
| — |
Other foreign jurisdictions | |
| ( | |
| |
| | $ | ( | | $ | |
| | | | | | |
Income tax expenses | |
| | |
| |
Current tax – Japan | | $ | | | $ | — |
Deferred tax – Japan | |
| | |
| — |
| | $ | | | $ | — |
Deferred income tax assets are recognized for temporary differences between the tax bases of assets and liabilities and their reported amounts in the condensed 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 condensed consolidated statements of operations and comprehensive income (loss) in the period of the enactment of the change.
Deferred tax assets, net were as follows:
| | | | | | |
| | June 30, | | December 31, | ||
Deferred Tax Assets: | | 2026 | | 2025 | ||
Allowance for CECL - accounts receivable | | $ | | | $ | — |
Net operating loss – UK | | | | |
| |
Total deferred tax assets | | | | | | |
Valuation allowance | | | ( | | | ( |
Net deferred tax assets | | $ | | | $ | — |
F-16
Reconciliation of the statutory income tax rate and the Group’s effective income tax rate for the six months ended June 30, 2026 and 2025 were as follows:
| | | | | |
| | June 30, | | June 30, |
|
PRC | | 2026 | | 2025 |
|
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 |
| | % | | % |
| | | | | |
UK | | | | | |
UK statutory income tax rate | | | % | | % |
Valuation allowance recognized with respect to the loss in UK | | ( | % | ( | % |
Effect of valuation and deferred tax adjustments | | | % | | % |
Effective rate | | | % | | % |
| | | | | |
Japan | | | | | |
Japan statutory income tax rate | | | % | — | |
Effect of valuation and deferred tax adjustments | | ( | % | — | |
Effective rate | | | % | — | |
As of June 30, 2026 and December 31, 2025, the Company had no significant uncertain tax positions that qualified for either recognition or disclosure in the condensed consolidated financial statements. As of June 30, 2026 and December 31, 2025, income tax returns for the tax years ended December 31, 2021 through December 31, 2025 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 condensed consolidated financial statements as of June 30, 2026. In addition, the outcome of these examinations may impact on the valuation of certain deferred tax assets (such as net operating losses) in future periods. The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits, if any, as a component of income tax expense. The Company does not anticipate any significant increases or decreases in its liability for unrecognized tax benefit within the next 12 months.
The management evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. As of June 30, 2026 and December 31, 2025 and 2024, the Group did not have any unrecognized uncertain tax positions. For the six months ended June 30, 2026 and 2025, the Group did not incur any interest and penalties related to potential underpaid income tax expenses.
NOTE 7 – ACCOUNTS PAYABLE
| | | | | | |
| | June 30, 2026 | | December 31, 2025 | ||
Total Accounts Payable | | $ | | | $ | — |
The Group normally obtains credit terms ranging from
F-17
NOTE 8 – ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables consisted of the following:
| | | | | | |
| | June 30, 2026 | | December 31, 2025 | ||
Payroll and social security payable | | $ | | | $ | |
Other payables and accrued liabilities | |
| | |
| |
Total Accrued Expenses and Other Payables | | $ | | | $ | |
NOTE 9 - OPERATING LEASES
The Group is a lessee under short-term operating leases for office premises with initial non-cancellable terms of less than 1 year. 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 selected the short-term lease practical expedient under ASC 842, therefore no right-of-use assets or lease liabilities are recorded.
The lease expense recognized for such leases is on a straight-line basis over the lease terms. Such operating lease expenses amounted to $
As of June 30, 2026 and December 31, 2025, undiscounted committed future payments under outstanding short-term leases do not differ materially from annual short-term lease costs recognized in the condensed consolidated statements of operations, thus no separate schedule of future short-term lease commitments is presented.
NOTE 10 – WARRANT LIABILITIES
The Company accounts for its outstanding Series A Warrants as liabilities on the condensed consolidated balance sheet due to their derivative characteristics. These warrants are measured at fair value upon issuance and are subsequently remeasured at each reporting date, with changes in fair value recognized in the condensed consolidated statement of operations. The fair value of the warrant liabilities is based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. As of June 30, 2026, the fair value of the warrant liabilities was $
Private Placement – 2024
On September 18, 2024, the Company completed a private placement with
The September 2024 Series A Warrant entitles the holder to purchase
Classification of September 2024 Series A Warrants as Liabilities
According to ASC 815-40-25, a financial instrument is classified as equity if it meets the following criteria: 1. Settlement in Issuer’s Own Shares: The instrument must be settled solely by delivering a fixed number of shares; and. 2. Fixed-for-Fixed Rule: The instrument must have a fixed exercise price and entitles the holder to a fixed number of shares.
September 2024 Series A Warrants have the following key characteristics:
| ● | Downward Adjustment Mechanism: The exercise price adjusts for future dilutive issuances. |
| ● | Floor Price: $ |
| ● | Dilution of Units: The number of September 2024 Series A Warrants increased from |
F-18
Therefore, the September 2024 Series A Warrants likely fail to meet the fixed-for-fixed criterion under ASC 815-40 and should be classified as liabilities rather than equity. Additionally, September 2024 Series A Warrants with downward pricing adjustments linked to future events are treated as derivatives.
Fair Value Measurements of Warrant Liabilities
September 2024 Series A Warrants are classified as liabilities or derivatives and must be measured at fair value in accordance with ASC 815-10-45. The fair value measurement process involves the following steps:
| ● | Initial Measurement: The September 2024 Series A Warrants are measured at fair value at the time of issuance. |
| ● | Subsequent Measurement: The fair value of the September 2024 Series A Warrants is re-measured at each reporting date. |
| ● | Changes in Fair Value: Any changes in fair value are recognized in earnings on the condensed consolidated statement of operations for the relevant reporting period. |
| ● | Derivative Impact: As derivatives, the September 2024 Series A Warrants require ongoing fair value adjustments based on stock price changes and other relevant factors. This remeasurement process is essential for capturing the financial impact of the warrants’ reset and adjustment features. |
The Company utilized the Black-Scholes option pricing model to estimate the fair value of the warrants. The significant assumptions and inputs applied in the remeasurement as of June 30, 2026 are summarized below:
| ● | Expected Volatility: |
| ● | Risk-Free Interest Rate: |
| ● | Exercise Price: $ |
| ● | Term: |
These inputs are critical in determining the fair value of the warrants and are reassessed at each reporting date to ensure accuracy and compliance with ASC 815 requirements.
Exercise of September 2024 Series A Warrants – 2025
In February 2025, investors exercised
The following table provides a summary of the assessment for September 2024 Series A Warrants for the six months ended June 30, 2025 and 2026.
| | | | | |
| | Units | | FMV | |
Balance at December 31, 2024 | | | | $ | |
Exercise of Series A Warrants – 2025 |
| ( | |
| ( |
Re-measurement adjustment | | — | | | ( |
FMV of Series A Warrants at June 30, 2025 | | | | $ | |
| | | | | |
| | Units | | FMV | |
Balance at December 31, 2025 |
| | | $ | |
Re-measurement adjustment |
| — | |
| ( |
FMV of Series A Warrants at June 30, 2026 |
| | | $ | |
The remeasurement of September 2024 Series A Warrants resulted in a gain of $
All September 2024 Series B Warrant were exercised before December 31, 2024.
F-19
NOTE 11 – SHAREHOLDERS’ EQUITY
Ordinary Shares
The Company was originally authorized to issue up to
On September 22, 2025, the shareholders approved a resolution to re-designate the Company’s
On the same date, the shareholders further approved an increase in the Company’s authorized share capital from
On January 22, 2026, at the Company’s extraordinary general meeting, the shareholders of the Company passed the resolution to authorize that in the event that the closing bid price per listed share of the Company on the Nasdaq Capital Market falls below US$
On April 21, 2026, the shareholders further approved an increase in the Company’s authorized share capital from
In February 2025, investors exercised
In February and March, 2026, the Company issued
On April 30, 2026, the Company issued
On June 11, 2026, the Company issued
On June 24, 2026, the Company issued
On June 25, 2026, the Company issued
F-20
As of June 30, 2026 and up to the date of this report, the Company had
NOTE 12 - COMMITMENTS AND CONTINGENCIES
New Businesses and New Market Risk
The Company has shifted its focus to the UK and Japan markets through the acquisition of operating subsidiaries in the UK and Mirai since 2022. To further develop and expand business in these markets, the Company needs to secure experts and skilled workers from the local markets and obtain long-term financial support. However, there is no guarantee that these new ventures will be profitable in the short to medium term, nor that the Company will have sustainable financial resources to support long-term operations. Additionally, the continuous increase in energy and labor costs in the UK and Japan is expected to have negative impacts on the Company’s operations.
In addition, the Company is currently executing a strategic transformation to shift its business focus toward developing and monetizing a global cultural IP ecosystem. This new strategy integrates content creation and cultural tourism by converting Scotland’s Fernie Castle into an immersive Animation Art Museum. The success of the cultural IP ecosystem depends fundamentally on the Company’s ability to create and monetize original content rooted in Eastern culture that achieves significant commercial success and resonates with global audiences. However, there is no guarantee that the Company will successfully develop, commercialize, or profit from this strategy.
Legal Proceeding
As of June 30, 2026 and up to the date of this report, the Company is not a party to any litigation of which, if determined adversely to the Company, would individually or in the aggregate be reasonably expected to have a material adverse effect on the Company’s business, operating results, cash flows or financial condition.
Service Agreement
On January 30, 2024, MDJM, through its subsidiary FCC, entered into a service agreement with a third-party consultant, who is 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 at the Fernie Castle. As compensation, the Company will issue its ordinary shares to the Scholar in the following stages: (i)
On August 5, 2024, MDJM, through its subsidiary FCC, entered into a service agreement with a second scholar (“Scholar II”), who will also act as third-party consultant to the Company. Under the terms of the agreement, Scholar II will also utilize his cultural and academic expertise to provide professional advisory services for the Company’s Ancient Eastern Garden project at the Fernie Castle. As compensation, the Company will issue its ordinary shares to Scholar II in the following stages: (i)
On July 15, 2025, the Company entered into an Architectural Design Service Agreement with KENGO KUMA & ASSOCIATES, INC. for the Fernie Castle Oriental Landscape Project in Scotland. Under the agreement, the architect will provide concept design services for the renovation of the castle, as well as for the landscape, garden, museum, and lodging components. The total fixed design fee is approximately $
F-21
Pursuant to a script development agreement dated August 1, 2025 with Isabel Herguera García and Gianmarco Serra (the “Screenwriters”), the Company engaged the Screenwriters to develop and deliver the script and related materials for an animated short film currently titled “Journey to the West.” The total contractual remuneration was approximately $
On November 10, 2025, the Company entered into an International Production Service Agreement with ABANO PRODUCIÓNS S.L. for the animated short film Journey to the West. Under the agreement, the service provider will perform scriptwriting, graphic development, animation production, dubbing, soundtrack creation, and related technical services. The Company agreed to pay fixed fees of approximately $
On November 20, 2025, the Company entered into a development and co-production agreement with H5 S.A.R.L. for an animated short film project. Under the agreement, the Company committed to fund development costs of approximately $
NOTE 13 – RELATED PARTY TRANSACTIONS
On April 30, 2026, the Company issued
On June 24, 2026, the Company issued
On June 24, 2026, the Company issued
On June 25, 2026, the Company issued
NOTE 14 – SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Group’s major income source was the hospitality business conducted in the UK during the six months ended June 30, 2025. The Group’s major income sources were the hospitality business conducted in the UK and the trading business conducted in Japan during the six months ended June 30, 2026.
The Company’s chief operating decision maker (“CODM”), identified as the Chief Executive Officer, reviews consolidated financial information for purposes of evaluating financial performance and allocating resources. The CODM regularly reviews discrete financial information by geographic region. Accordingly, management has determined that the Company operates as
F-22
The following tables present a summary of the Group’s long-lived assets, net by geographic region as of June 30, 2026 and December 31, 2025.
| | | | | | | | | |
| | June 30, 2026 | | December 31, 2025 | | ||||
Assets by Geographic Region |
| US$ |
| % |
| US$ |
| % |
|
UK |
| |
| % | |
| % | ||
Japan |
| |
| % | — |
| — | | |
Total Assets |
| |
| % | |
| % | ||
The following tables present a summary of the Group’s revenues by source and by geographic region for the six months ended June 30, 2026 and 2025:
| | | | | | | | |
| | June 30, 2026 | ||||||
| | UK – | | Japan – | | Cayman | | |
| | Hotel business | | Trading business | | and others | | Consolidated |
| | US$ | | US$ | | US$ | | US$ |
Revenues |
| |
| |
| — |
| |
Cost of revenues |
| — |
| ( |
| — |
| ( |
| | | | | | | | |
Payroll and payroll taxes |
| ( |
| ( |
| ( |
| ( |
Professional fees |
| ( |
| — |
| ( |
| ( |
Depreciation and amortization |
| ( |
| ( |
| — |
| ( |
Reversal of allowance for CECL – accounts receivable, net |
| — |
| |
| — |
| |
Other general and administrative expenses |
| ( |
| ( |
| ( |
| ( |
| | | | | | | | |
Other income |
| |
| — |
| |
| |
Income tax |
| — |
| ( |
| — |
| ( |
| | | | | | | | |
Net (loss) income |
| ( |
| |
| ( |
| ( |
| | | | | | | | |
| | June 30, 2025 | ||||||
| | UK – | | Japan – | | Cayman | | |
| | Hotel business | | Trading business | | and others | | Consolidated |
| | US$ | | US$ | | US$ | | US$ |
Revenues |
| |
| — |
| — |
| |
| | | | | | | | |
Payroll and payroll taxes |
| ( |
| — |
| ( |
| ( |
Professional fees |
| ( |
| — |
| ( |
| ( |
Depreciation and amortization |
| ( |
| — |
| — |
| ( |
Allowance for CECL – accounts receivable, net |
| ( |
| — |
| — |
| ( |
Other general and administrative expenses |
| ( |
| — |
| ( |
| ( |
| | | | | | | | |
Other income |
| ( |
| — |
| |
| |
| | | | | | | | |
Net (loss) income |
| ( |
| — |
| |
| |
NOTE 15 – SUBSEQUENT EVENT
On July 3, 2026, MDJM Hong Kong was officially dissolved.
On July 15, 2026, the Board approved and adopted the Company’s 2026 Second Equity Incentive Plan (the “Plan”), effective immediately. The Plan reserves
On October 1, 2026, Nasdaq filed a Form 25 with the SEC to remove the Company’s Class A ordinary shares from listing and registration under Section 12(b) of the Exchange Act. The Class A ordinary shares are currently quoted on the OTCQB Venture Market under the ticker symbol “UOKAF.”
F-23
Exhibit 99.2
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our unaudited condensed consolidated financial statements and their related notes included in this report. This report contains forward-looking statements. In evaluating our business, you should carefully consider the information provided under the caption “Item 3. Key Information—D. Risk Factors” in our annual report. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.
A. | Operating Results |
Comparison of Results of Operations for the Six Months Ended June 30, 2026 and 2025
Revenues
| | | | | | | | | | | | |
| | 2026 | | 2025 | | Change in $ | | Change in % |
| |||
Revenues | | $ | 2,028,128 | | $ | 21,536 | | $ | 2,006,592 |
| 9,317 | % |
Revenues for the six months ended June 30, 2026 were $2,028,128, compared to $21,536 for the six months ended June 30, 2025, representing an increase of $2,006,592, or 9,317%. The increase was primarily attributable to the new trading business operated through the subsidiary in Japan newly acquired in June 2026.
Operating Expenses
The following table summarizes the operating expenses for the six months ended June 30, 2026 and 2025:
| | | | | | | | | | | | |
| | 2026 | | 2025 | | Change in US$ | | Change in % |
| |||
Operating Expenses: |
| | |
| | |
| | |
| | |
Payroll and payroll taxes | | $ | 347,686 | | $ | 49,737 | | $ | 297,949 |
| 599 | % |
Professional fees | |
| 1,107,360 | |
| 349,532 | |
| 757,828 |
| 217 | % |
Depreciation and amortization | |
| 41,635 | |
| 38,404 | |
| 3,231 |
| 8 | % |
(Reversal of allowance) allowance for CECL - accounts receivable, net | |
| (6,609) | |
| 69 | |
| (6,678) |
| (9,678) | % |
Other general and administrative expenses | |
| 197,560 | |
| 239,199 | |
| (41,639) |
| (17) | % |
Total Operating Expenses | | $ | 1,687,632 | | $ | 676,941 | | $ | 1,010,691 |
| 149 | % |
Operating expenses for the six months ended June 30, 2026 were $1,687,632, representing an increase of $1,010,691, or 149%, compared to $676,941 for the six months ended June 30, 2025. The increase was primarily attributable to the increase in payroll and payroll taxes and professional fees.
Payroll and payroll taxes were $347,686 for the six months ended June 30, 2026, representing an increase of $297,949, or 599%, compared to $49,737 for the six months ended June 30, 2025. The increase was primarily attributable to increase in headcount due to acquisition of the subsidiary in Japan in June 2026 and the recognition of share-based compensation expenses of $97,020 during the six months ended June 30, 2026. The shares were issued to directors and employees and valued based on the closing market price of the Company’s ordinary shares on Nasdaq or OTCQB on the date of issue. No share-based compensation expense was recognized during the six months ended June 30, 2025.
Professional fees consist primarily of legal, U.S. GAAP audit, consulting, investor relations, and other U.S. SEC filing-related fees. Professional fees were $1,107,360 for the six months ended June 30, 2026, representing an increase of $757,828, or 217%, compared to $349,532 for the six months ended June 30, 2025. The increase in professional fees was primarily attributable to our acquisition transaction of 75% equity interest of a Japan company in June 2026 and increased compliance costs associated with U.S. SEC filing requirements.
Depreciation and amortization expenses totaled $41,635 for the six months ended June 30, 2026, representing an increase of $3,231, or 8%, compared to $38,404 for the six months ended June 30, 2025. The increase was primarily attributable to the amortization charge for intangible assets acquired through acquisition of the subsidiary in Japan in June 2026. As of June 30, 2026, all of the Group’s fixed assets were located either in the United Kingdom or Japan, and no fixed assets remained in China. Currently, the Group has no plan to acquire new assets in China.
As of June 30, 2026, accounts receivable and allowance for CECL were solely related to the trading business in Japan acquired in June 2026. The Group recorded a reversal of allowance for credit losses on trade receivables of $6,609. As of December 31, 2025, the Group had no accounts receivable.
Other general and administrative expenses totaled $197,560 for the six months ended June 30, 2026, representing a decrease of $41,639, or 17%, compared to $239,199 for the six months ended June 30, 2025. The decrease in other general and administrative expenses was primarily attributable to the implementation of cost control measures since 2025, especially for the hotel operations in the United Kingdom.
Net (Loss) Income
| | | | | | | | | | | | |
| | 2026 | | 2025 | | Change in US$ | | Change in % |
| |||
Revenues | | $ | 2,028,128 | | $ | 21,536 | | $ | 2,006,592 |
| 9,317 | % |
Operating expenses | |
| 1,687,632 | |
| 676,941 | |
| 1,010,691 |
| 149 | % |
Loss from operations | |
| (1,673,513) | |
| (655,405) | |
| (1,018,108) |
| 155 | % |
Gain (loss) on foreign currency translations | |
| 137,213 | |
| (142,028) | |
| 279,241 |
| N/A | * |
Gain on deconsolidation | |
| — | |
| 157,555 | |
| (157,555) |
| N/A | * |
Gain on valuation of warrants | |
| 329,002 | |
| 770,352 | |
| (441,350) |
| N/A | * |
Interest income | |
| 56,532 | |
| 23,938 | |
| 32,594 |
| N/A | * |
Total other income | |
| 522,747 | |
| 809,817 | |
| (287,070) |
| N/A | * |
(Loss) income before income tax | |
| (1,150,766) | |
| 154,412 | |
| (1,305,178) |
| (845) | % |
Income tax | |
| 2,409 | |
| — | |
| 2,409 |
| 100 | |
Net (loss) income | | $ | (1,153,175) | | $ | 154,412 | | $ | (1,307,587) |
| (847) | % |
* N/A, percentage change is not meaningful
Total other income was $522,747 for the six months ended June 30, 2026, representing a decrease of $287,070 compared to $809,817 for the six months ended June 30, 2025. Other income for the six months ended June 30, 2026 consisted of: (i) foreign currency translation gain of $137,213; (ii) gain from remeasurement of warrant liabilities related to the Company’s September 2024 Series A Warrants of $329,002; and (iii) interest income of $56,532 derived from bank certificate of deposit accounts.
The Company accounts for its outstanding September 2024 Series A Warrants as liabilities on the unaudited condensed consolidated balance sheets. These warrants were measured at fair value upon issuance and subsequently remeasured at each reporting date, with changes in fair value recognized in the unaudited condensed consolidated statements of operations. As of June 30, 2026 and December 31, 2025, there were 16,543 units of September 2024 Series A Warrants outstanding.
Income taxes were charged to the subsidiary operating in Japan newly acquired in June 2026 which was profit making for the six months ended June 30, 2026. Income tax expenses totaled $2,409 for the six months ended June 30, 2026. The Group had no income tax expenses for the six months ended June 30, 2025.
Net loss was $1,153,175 for the six months ended June 30, 2026, compared to net income of $154,412 for the six months ended June 30, 2025. The increase in net loss was primarily attributable to the increased operating expenses and income tax and reduced other income.
| B. | Liquidity and Capital Resources |
Our principal sources of cash were revenues from the hotel and rental business operating in the UK and the trading business operating in Japan.
Most of our cash resources were used to fund our revenue related expenses, such as purchase of goods and staff costs, daily administrative expenses, and the maintenance of regional offices.
As of June 30, 2026, we had cash and cash equivalents of $5,363,207.
The following table sets forth a summary of changes in our working capital as of June 30, 2026 and December 31, 2025:
| | | | | | | | | | | | |
Working Capital | | 2026 | | 2025 | | Change in $ | | Change in % | | |||
Total current assets |
| | 30,763,613 |
| | 837,297 |
| | 29,926,316 |
| 3,574 | % |
Total current liabilities |
| | 25,201,537 |
| | 379,582 |
| | 24,821,955 |
| 6,539 | % |
Working Capital | | $ | 5,562,076 | | $ | 457,715 | | $ | 5,104,361 |
| 1,115 | % |
Working capital was $5,562,076 as of June 30, 2026, representing an increase of $5,104,361, or 1,115%, compared to $457,715 as of December 31, 2025.
As of June 30, 2026, total current assets were $30,763,613, an increase of $29,926,316, or 3,574%, compared to $837,297 as of December 31, 2025. The increase was primarily attributable to higher cash balance and accounts receivable, which mainly resulted from expanded operation from trading business in Japan.
Total current liabilities were $25,201,537 as of June 30, 2026, representing an increase of $24,821,955, or 6,539%, compared to $379,582 as of December 31, 2025. The increase was primarily attributable to higher accounts payable resulted from expanded operation from trading business in Japan.
The September 2024 Series A Warrant liabilities represent non-cash accounting liabilities measured at fair value in accordance with applicable accounting guidance and do not constitute obligations that will require the use of the Company’s cash resources.
The following table summarizes the activity and fair value of the September 2024 Series A Warrants for the six months ended June 30, 2025 and 2026.
| | | | | |
| | Units | | FMV | |
Balance at December 31, 2024 |
| 18,258 | | $ | 1,424,932 |
Exercise of Series A Warrants - 2025 |
| (1,715) | |
| (126,180) |
Re-measurement adjustment |
| — | |
| (770,352) |
FMV of Series A Warrants at June 30, 2025 |
| 16,543 | | $ | 528,400 |
| | | | | |
| | Units | | FMV | |
Balance at December 31, 2025 |
| 16,543 | | $ | 333,657 |
Re-measurement adjustment |
| — | |
| (329,002) |
FMV of Series A Warrants at June 30, 2026 |
| 16,543 | | $ | 4,655 |
Public Offering on February 11, 2026
On February 11, 2026, the Company closed an underwritten follow-on offering of 122,286 units, with each unit consisting of (i) one Class A Ordinary Share and (ii) one February 2026 Series A Warrant at a public offering price of $49.00 per unit, for aggregate gross proceeds of approximately $6 million, before deducting underwriting discounts and offering expenses. The Company received net proceeds of approximately $5.44 million at closing.
Public Offering on March 2, 2026
On March 2, 2026, the Company closed a registered direct offering and issued and sold 702,858 Class A Ordinary Shares of the Company, par value $0.875 per share, to certain institutional investors at a purchase price of $3.55 per share. The Company received net proceeds of approximately $2.17 million at the closing.
Management believes that the Company’s current cash position, together with other components of working capital, and the proceeds from the offerings successfully closed on February 11, 2026 and March 2, 2026, will be sufficient to support its operations and meet its obligations as they become due for at least the next 12 months from the date of issuance of this report. This assessment is based on current operating plans and assumptions, and there can be no assurance that such plans will be successfully executed.
Cash Flows
Because the exchange rate conversion is different for the condensed consolidated balance sheets and the condensed consolidated statements of cash flows, the changes in assets and liabilities reflected on the condensed consolidated statements of cash flows are not necessarily identical to the comparable changes reflected on the condensed consolidated balance sheets.
Cash flows results for the six months ended June 30, 2026 and 2025 are summarized as follows:
| | | | | | |
| | 2026 | | 2025 | ||
Net cash (used in) operating activities | | $ | (2,867,927) | | $ | (804,885) |
Net cash (used in) investing activities | |
| (508,710) | |
| (41,034) |
Net cash provided by financing activities | |
| 8,030,802 | |
| 324,000 |
Effect of exchange rate changes on cash and cash equivalents | |
| 8,563 | |
| 1,185 |
Net increase (decrease) in cash and cash equivalents | | $ | 4,662,728 | | $ | (520,734) |
Operating activities
Net cash used in operating activities for the six months ended June 30, 2026 was $2,867,927. This primarily consisted of a net loss of $1,153,175, non-cash negative adjustments of $332,689, and a net negative change in operating assets and liabilities of $1,382,063. The non-cash adjustments were primarily attributable to a gain on fair value remeasurement of warrant liabilities of $329,002 and a gain on foreign currency translation of $137,213, partially offset by other non-cash items. Changes in operating assets and liabilities included mainly an increase in accounts receivable of $660,907, which was offset by decrease in prepayments of $338,573, other receivables of $1,025,553 and accrued expenses and other payables of $655,442.
Net cash used in operating activities for the six months ended June 30, 2025 was $804,885. This consisted of a net income of $154,412, non-cash negative adjustments of $747,406, and a net negative change in operating assets and liabilities of $211,891. The non-cash adjustments were primarily attributable to a gain on fair value remeasurement of warrant liabilities of $770,352 and a gain on deconsolidated of $157,555, partially offset by other non-cash items. Changes in operating assets and liabilities included mainly decrease in accounts receivable of $19,612, prepayments of $154,566, other receivables of $31,464 and accrued expenses and other payables of $10,483.
Investing activities
Net cash used in investing activities for the six months ended June 30, 2026 and 2025 were $508,710 and $41,034, respectively.
The purchases of property and equipment for the six months ended June 30, 2026 and 2025 were $488,640 and $40,916, respectively.
The purchases of intangible assets for the six months ended June 30, 2026 and 2025 were $38,585 and $Nil, respectively.
In June 2026, the Group completed the acquisition of 75% equity interest in Mirai Co., Ltd. (株式会社みらい) (“Mirai”) which had cash and cash equivalents of $18,515.
Financing activities
Net cash provided by financing activities for the six months ended June 30, 2026 and 2025 were $8,030,802 and $324,000, respectively.
The Company issued 1,801,377 ordinary shares during the six months ended June 30, 2026, resulting in gross proceed of $8,030,802 to the Company.
In February 2025, 1,715 units of September 2024 Series A Warrants were exercised at a price of $189 per unit, resulting in gross proceed of approximately $324,000 to the Company.
Capital Expenditures
We incurred capital expenditures of $527,225 and $40,916 for the six months ended June 30, 2026 and 2025, respectively. The capital expenditures were primarily related to the improvements and renovations of premises.
Contractual Obligations
As of June 30, 2026 and December 31, 2025, the Company had 16,543 units of September 2024 Series A Warrants outstanding, which were issued in connection with the private placement completed on September 18, 2024. The Company classifies these outstanding warrants as liabilities on the condensed consolidated balance sheet due to their derivative characteristics. The warrants are initially measured at fair value upon issuance and are subsequently remeasured at each reporting date, with changes in fair value recognized in the condensed consolidated statement of operations. As of June 30, 2026 and December 31, 2025, the fair values of the warrants liabilities were $4,655 and $333,657, respectively. The September 2024 Series A Warrants are set to expire on March 20, 2028.
Commitments
On January 30, 2024, MDJM, through its subsidiary Fernie Castile Culture Limited (“FCC”), entered into a service agreement with a third-party consultant, who is 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 at the Fernie Castle. As compensation, the Company has agreed to issue its ordinary shares to the Scholar in the following stages: (i) 27 shares (representing 0.2% of MDJM’s equity based on a total of 13,344 shares outstanding at December 31, 2023) upon signing the agreement; (ii) 27 shares upon completion of the design, planning, and construction report for the Ancient Eastern Garden project at Fernie Castle, and commencement of construction; (iii) 27 shares within one year following the second issuance of shares; and (iv) 27 shares upon completion of the overall development of the Fernie Castle project and the official operation of the hotel and Eastern Garden. This agreement is intended to be long-term. If the Company wishes to terminate the agreement, it must provide the Scholar with a three-month notice. On May 14, 2024, the Company issued 27 shares to the Scholar as the agreed-upon first-stage compensation.
On August 5, 2024, MDJM, through its subsidiary FCC, entered into a service agreement with a second scholar (“Scholar II”), who will also act as third-party consultant to the Company. Under the terms of the agreement, Scholar II will also utilize his cultural and academic expertise to provide professional advisory services for the Company’s Ancient Eastern Garden project at the Fernie Castle. As compensation, the Company will issue its ordinary shares to Scholar II in the following stages: (i) 27 shares (representing 0.2% of MDJM’s equity based on a total of 13,344 shares outstanding at December 31, 2023) upon signing the agreement; (ii) 27 shares upon completion of the design, planning, and construction report for the Ancient Eastern Garden project at Fernie Castle, and commencement of construction; (iii) 27 shares within one year following the second issuance of shares; and (iv) 27 shares upon completion of the overall development of the Fernie Castle project and the official operation of the hotel and Eastern Garden. This agreement is intended to be long-term. If the Company wishes to terminate the agreement, it must provide Scholar II with a three-month notice. On August 26, 2024, the Company issued 27 shares to Scholar II as the agreed-upon first-stage compensation.
On July 15, 2025, the Company entered into an Architectural Design Service Agreement with KENGO KUMA & ASSOCIATES, INC. for the Fernie Castle Oriental Landscape Project in Scotland. Under the agreement, the architect will provide concept design services for the renovation of the castle, as well as for the landscape, garden, museum, and lodging components. The total fixed design fee is approximately $360,000 (JPY58,000,000), payable in installments of 20% upon execution of the agreement, 30% upon midterm presentation, and 50% upon completion of the concept design phase. Reimbursable expenses, including travel costs, are payable separately. The agreement has an 18-month term and is governed by the laws of Scotland. As of June 30, 2026, the Company had paid approximately $178,000 (JPY29,000,000).
On November 10, 2025, the Company entered into an International Production Service Agreement with ABANO PRODUCIÓNS S.L. for the animated short film Journey to the West. Under the agreement, the service provider will perform scriptwriting, graphic development, animation production, dubbing, soundtrack creation, and related technical services. The Company agreed to pay fixed fees of approximately $13,000 (10,000 Euros, excluding VAT) for scriptwriting and approximately $4,000 (3,000 Euros, excluding VAT) for graphic style development. The overall production budget is currently estimated to range from approximately $282,000 to $417,000 (210,000 to 310,000 Euros). The service provider is required to perform its services in accordance with an agreed-upon budget and production schedule, and any budget overruns require prior written approval from the Company. All intellectual property rights in the resulting work product will be exclusively owned by the Company. The agreement is governed by the laws of England and Wales.
On November 20, 2025, the Company entered into a development and co-production agreement with H5 S.A.R.L. for an animated short film project. Under the agreement, the Company committed to fund development costs of approximately $34,000 (25,000 Euros, excluding VAT), payable in installments upon achievement of specified development milestones. Following completion of development and mutual approval to proceed to production, the Company will provide production financing, with an estimated budget ranging from approximately $336,000 to $403,000 (250,000 to 300,000 Euros). Net revenue from exploitation of the film will be shared 70% to the Company and 30% to H5, while derivative revenue will be shared 85% to the Company and 15% to H5. The agreement has a term of 10 years from the first public screening and is governed by French law. As of June 30, 2026, the Company had paid approximately $14,000 (12,500 Euros) toward development costs.
The Group did not have any other significant commitments or long-term obligations as of June 30, 2026.
| C. | Research and Development, Patents and Licenses, etc. |
Research and Development
For the six months ended June 30, 2026 and 2025, we did not spend funds on research and development.
Intellectual Property
The Company is developing animation and other creative works and holds intellectual property rights in certain materials developed to date. As of June 30, 2026, the Company did not hold any registered trademarks. Certain trademark applications relating to Fernie Castle were approved subsequent to June 30, 2026 and prior to the date of this report.
| D. | Trend Information |
Factors Affecting Our Results of Operations
Our operating results through the operating subsidiaries in the UK are subject to general conditions typically affecting the real estate services industry, including changes in governmental policies and laws affecting real estate and real estate financing, uneven economic growth and development across different regions of the UK, supply of and demand for housing and other types of property in local markets, entry barriers and competition from other real estate services companies, and increases in operating costs and expenses due to inflation and other factors. Unfavorable changes in any of these general conditions could negatively affect the results of the UK subsidiaries; the number of customers visiting the hotels and other properties managed by them and otherwise adversely affect their results of operations. Our operating results are more directly affected by company-specific factors, including the UK subsidiaries’ revenue growth and ability to effectively manage their operating costs and expenses.
Our operating results through the operating subsidiary in Japan are subject to general conditions typically affecting the local product trading industry, including changes in governmental policies and laws affecting the tax imposed on sales and purchases of goods, import restriction, supply of and demand for our products in local markets, consumption power of customers, entry barriers and competition from other companies, and increases in operating costs and expenses due to inflation and other factors. Unfavorable changes in any of these general conditions could negatively affect the results of Mirai. Our operating results are more directly affected by company-specific factors, including Mirai’s revenue growth and ability to effectively manage its operating costs and expenses.
Economic and Political Risks
Our current operations are conducted through the operating subsidiaries in the UK and in Japan. Accordingly, our business, financial conditions, and results are influenced by political, economic, and legal environment of the UK and Japan.
Our results may be affected by changes in the political and social conditions in the UK and Japan, and by changes in governmental policies with respect to laws and regulations, industry production regulations and guidance, anti-inflationary measures, currency conversions, remittances abroad, and rates and methods of taxation, among other things.
| E. | Critical Accounting Estimates |
The preparation of these condensed 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 condensed consolidated financial statements include useful lives and valuation of long-lived assets, allowance for CECL - accounts receivable, valuation allowance on deferred tax, valuation on stock-based compensation and valuation on derivative liabilities.