10-K/A: Mag Mile Capital Files Amended 10-K After SEC Comments, Reports $3.1 Million Net Loss for 2023

Mag Mile Capital files an amended 10-K to address SEC comments regarding its 2022 financials and warrants issued, while reporting a net loss of $3.1 million for 2023 due to increased expenses and a drop in transaction activity.

Summary

• Mag Mile Capital filed an amendment to its annual report to address SEC comments on its 2022 financial statements and warrants issued to GK Partners ApS.
• The company reported a net loss of $3.1 million for the year ended December 31, 2023, compared to a net income of $864,190 in 2022.
• Revenue decreased by 42.2% to $1.9 million in 2023, primarily due to rising interest rates and a drop in transaction activity.
• Commission expenses also decreased by 35.9% to $802,464, aligning with the revenue decline.
• However, related party commission expenses increased by 36.9% to $678,750 due to a new commission agreement.
• The company incurred a significant non-cash expense of $1.58 million for the fair value of warrants issued.
• Professional fees increased substantially to $590,607 due to legal fees associated with the acquisition.
• Payroll expenses rose by 47.6% to $360,341 due to increased CEO salary and new hires.
• General and administrative expenses increased by 28.2% to $549,628, including non-cash stock compensation.
• The company had approximately $56,000 in cash and $220,000 in working capital as of December 31, 2023.
• The company used $367,869 of cash in operating activities during 2023.
• The company's ability to continue as a going concern is dependent on generating future profitable operations and/or obtaining necessary financing.

Sentiment

Score: 3

Explanation: The document presents a negative outlook due to significant financial losses, decreased revenue, and concerns about the company's ability to continue as a going concern. The identified internal control weaknesses and the need for potential capital raises further contribute to the negative sentiment.

Positives

• Commission expenses decreased by 35.9% to $802,464, aligning with the revenue decline.
• The company has developed a commercial real estate origination software platform named CapLogiq that uses automation and artificial intelligence to increase the efficiency of the loan closing process.
• The company intends to license CapLogiq to prospective acquisition targets as well as to other companies in the industry as a separate revenue stream.

Negatives

• The company experienced a significant net loss of $3.1 million in 2023, a sharp contrast to the net income of $864,190 in 2022.
• Revenue decreased by 42.2% to $1.9 million due to rising interest rates and reduced transaction activity.
• The company incurred a substantial non-cash expense of $1.58 million for the fair value of warrants issued.
• Professional fees increased significantly to $590,607 due to legal fees associated with the acquisition.
• The company's auditors have raised concerns about its ability to continue as a going concern.
• The company's internal controls over financial reporting were deemed ineffective as of December 31, 2023.

Risks

• The company's performance is significantly related to general economic, political and regulatory conditions, which could adversely affect its business.
• Adverse developments in the credit markets may materially harm the company's business, results of operations and financial condition.
• The company faces intense competition in the commercial mortgage banking business.
• Failure to manage growth effectively could adversely affect the company's business, operating results and financial condition.
• The company may need to raise additional funds, which may not be available when needed or may be available only on unfavorable terms.
• The company's brand and reputation are key assets, and its business may be affected by how it is perceived in the marketplace.
• Failure to maintain the security of the company's information and technology networks could materially adversely affect it.
• The company is subject to various litigation and regulatory risks.
• The company's financial condition and results of operations are likely to fluctuate on a quarterly basis.
• The company will incur significant increased expenses and administrative burdens as a public company.
• There is no active trading market for the company's shares of common stock.
• The company's common stock is subject to the Penny Stock Rules of the SEC.
• The company's stock price will be volatile.

Future Outlook

The company expects to use the exercise of warrants to meet its needs for growth for more than twelve months from the date of issuance of these financial statements. The company intends to continue to attract new customers through an increase in the number of salespeople it engages by leveraging its public company stock to provide a more competitive compensation package. The company intends to explore potential high-quality acquisition opportunities using its public company status. The company intends to license CapLogiq to prospective acquisition targets as well as to other companies in the industry as a separate revenue stream.

Management Comments

• Management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
• Management has evaluated subsequent events pursuant to the requirements of ASC Topic 855, from the balance sheet date through the date the financial statements were issued and has determined that no material subsequent events exist.

Industry Context

The document highlights the impact of rising interest rates on the commercial real estate market, which is a broader industry trend affecting many companies in the sector. The company's focus on technology with its CapLogiq platform is a response to the need for efficiency in a competitive market. The company's reliance on hotel franchise financing also places it within a specific niche of the commercial real estate market.

Comparison to Industry Standards

• The company's 42.2% revenue decrease is significant and likely worse than the average for the commercial real estate mortgage banking industry, which has seen a slowdown but not typically of this magnitude.
• The increase in related party commission expenses is unusual and may raise concerns about conflicts of interest, which is not a typical practice in the industry.
• The company's net loss of $3.1 million is a significant deviation from the previous year's net income, indicating a substantial underperformance compared to industry averages.
• The company's reliance on a single CEO and director is not in line with best practices for corporate governance, which typically involves a diverse board with independent members.
• The company's internal control weaknesses are a concern, as most public companies in the financial sector are expected to have robust internal controls.
• The company's cash position of $56,000 is very low for a public company, indicating a need for immediate capital raising, which is not typical for established players in the industry.

Management Changes

Corporate Governance

Related Party Transactions

• The company has an office lease with 1141 W. Randolph, LLC, a company owned and controlled by Rushi Shah.
• The company has a loan payable due to Mag Mile Capital LLC of $40,000.
• Rushi Shah earned commissions of $678,750 and $495,625 in 2023 and 2022, respectively, under his employment agreement.
• Reddington Partners LLC, a majority shareholder, advanced the company $23,256 to pay for general operating expenses, which was later forgiven and credited to additional paid in capital.

Stakeholder Impact

• Shareholders are negatively impacted by the significant net loss and the decrease in revenue.
• Employees may be concerned about the company's financial stability and future prospects.
• Customers may be affected by the company's ability to provide services due to financial constraints.
• Creditors may be concerned about the company's ability to repay its debts.
• Suppliers may be affected by the company's financial difficulties.

Next Steps

• The company intends to continue to attract new customers through an increase in the number of salespeople it engages.
• The company intends to explore potential high-quality acquisition opportunities using its public company status.
• The company intends to license CapLogiq to prospective acquisition targets as well as to other companies in the industry as a separate revenue stream.

Key Dates

Keywords

commercial real estate, mortgage banking, financial results, reverse merger, SEC filing, warrants, net loss, revenue, internal controls, risk factors