F-1: MDJM LTD Shifts to UK Cultural IP, Seeks $5.7M in Dilutive Offering

MDJM LTD is undergoing a strategic shift from PRC real estate to a UK-focused cultural IP ecosystem, seeking to raise approximately $5.7 million through a highly dilutive unit offering.

Summary

• MDJM LTD is offering 2,336,448 units at an assumed public offering price of $2.14 per unit, with each unit consisting of one Class A Ordinary Share (or one Pre-Funded Warrant) and one Series A Warrant.
• The Series A Warrants have a one-year term, an initial exercise price of $2.14 per share, and include a zero cash exercise price option, which is expected to result in no additional cash proceeds to the company upon exercise.
• If all Series A Warrants are exercised on a zero cash basis, up to 7,009,344 Class A Ordinary Shares could be issued without additional cash payment to the company.
• The company has granted Maxim Group LLC an over-allotment option to purchase up to 350,467 additional Class A Ordinary Shares and/or Series A Warrants.
• Net proceeds from this offering are estimated at approximately $4,329,000 (without over-allotment) or $5,026,000 (with full over-allotment), to be used for cultural IP ecosystem development (55%), working capital (20%), and general corporate purposes (25%).
• The company is transitioning its core business from PRC real estate agency services (ceased operations as of March 2025) to developing a global cultural IP ecosystem in the UK, focusing on animation and cultural tourism.
• Key partnerships for the cultural IP ecosystem include Abano Producins S.L. and H5 S.A.R.L. for animation, and Kengo Kuma & Associates, Inc. and Simpson & Brown LLP for the Fernie Castle Oriental Landscape Project.
• For the six months ended June 30, 2025, the company reported a net income of $154,412, a significant improvement from a net loss of $1,326,011 in the same period of 2024.
• Revenue for the six months ended June 30, 2025, increased by 116% to $21,536, primarily from a newly established third-party internet channel for hotel sales.
• Operating expenses decreased by 49% to $676,941 in H1 2025, mainly due to a $847,961 reduction in payroll, payroll taxes, and others, as stock-based compensation from the prior year was not repeated.
• The company's net tangible book value per Ordinary Share will experience an immediate and substantial dilution of $1.71 per share for existing shareholders upon completion of this offering.
• The company's CEO, Siping Xu, beneficially owns approximately 96.89% of the aggregate voting power of outstanding Ordinary Shares, making the company a 'controlled company' under Nasdaq rules, though it does not intend to rely on exemptions.

Sentiment

Score: 2

Explanation: The offering presents significant risks, particularly extreme dilution for existing shareholders and the speculative nature of the new cultural IP business. While there was a positive net income in H1 2025, historical losses and the structure of the warrant offering (zero cash exercise) suggest a challenging outlook for current investors.

Positives

• Reported a net income of $154,412 for the six months ended June 30, 2025, a substantial improvement from a net loss of $1,326,011 in the prior-year period.
• Revenue increased by 116% to $21,536 for the six months ended June 30, 2025, driven by new third-party internet sales channels for hotel operations.
• Operating expenses decreased by 49% in H1 2025, primarily due to the absence of a large stock-based compensation expense recognized in H1 2024.
• Successfully terminated all Variable Interest Entity (VIE) agreements and ceased PRC operations, simplifying the corporate structure and reducing exposure to the declining Chinese real estate market.
• Secured partnerships with internationally recognized firms like Kengo Kuma & Associates, Inc. and H5 S.A.R.L. for its new cultural IP ecosystem strategy.
• Received $324,000 in cash proceeds from the exercise of Series A Warrants in February 2025.

Negatives

• The offering is highly dilutive, with existing shareholders experiencing an immediate and substantial dilution of $1.71 per share in net tangible book value.
• The Series A Warrants include a zero cash exercise price option, meaning the company does not expect to receive any additional cash proceeds from their exercise, despite potentially issuing up to 7,009,344 Class A Ordinary Shares.
• The company faces a risk of Nasdaq delisting due to the highly dilutive nature of this offering and potential for the share price to fall below the minimum bid requirement.
• Historical financial performance shows significant net losses in prior years: $3,189,205 in 2024, $1,160,446 in 2023, and $2,154,084 in 2022.
• Revenue declined significantly in 2024 ($48,375) and 2023 ($144,863) compared to 2022 ($450,634), primarily due to the cessation of PRC real estate operations.
• The new business strategy focused on the cultural IP ecosystem is complex, highly specialized, and unproven, carrying substantial execution and operational risks.
• There is no established public trading market for the Units, Pre-Funded Warrants, or Series A Warrants, limiting their liquidity.
• The CEO, Siping Xu, maintains control over the company with approximately 96.89% of the aggregate voting power, which may not align with the interests of other shareholders.

Risks

• The absence of PRC operations may adversely affect future business operations and financial condition.
• The new business strategy focused on the cultural IP ecosystem is complex and highly specialized, and failure to execute it successfully could materially and adversely affect future business operations, financial condition, and results of operations.
• Intense competition in the creative industry could result in lost market share and reduced operating margins.
• UK subsidiaries' operating results are subject to conditions typically affecting hospitality service providers in the UK, which could reduce revenue and limit growth opportunities.
• Inability to successfully identify, secure, or operate additional hotel properties in the UK.
• UK subsidiaries are subject to various hospitality industry, health and safety, construction, fire prevention, and environmental laws and regulations that may subject them to liability.
• Accidents, injuries, or prohibited activities in hotels could adversely affect reputation and subject the company to liability.
• Inability to access funds to maintain the condition and appearance of hospitality properties could lead to declining attractiveness and occupancy rates.
• Changes in international trade policies, trade disputes, barriers to trade, or a trade war may dampen growth in the UK.
• UK subsidiaries face risks related to natural disasters, health epidemics, and other outbreaks, which could significantly disrupt operations.
• Failure to hire, train, and retain qualified managerial and other employees could materially and adversely affect business and results of operations.
• Japanese subsidiary (MD Japan) may incur losses if economic conditions in Japan worsen and is exposed to risks of natural disasters, terrorism, and other disruptions.
• German subsidiary (MD German) is exposed to potential political shocks and uncertainties in the European Union, including Brexit, which could have unpredictable consequences for the real estate market and wider economy.
• Failure to satisfy Nasdaq Capital Market listing requirements could lead to delisting, negatively impacting share price and liquidity.
• Nasdaq may halt trading or delist Class A Ordinary Shares due to public interest concerns or if the price falls below the minimum bid price as a result of this offering's dilutive nature.
• No public market exists for the Units, Pre-Funded Warrants, or Series A Warrants, limiting their liquidity.
• The Pre-Funded Warrants and Series A Warrants are speculative in nature.
• Holders of Warrants will not have shareholder rights until exercise.
• The company will likely not receive any additional funds upon the exercise of Series A Warrants due to the zero cash exercise option.
• Pre-Funded Warrants and Series A Warrants have beneficial ownership limitations (4.99% or 9.99%).
• Issuance of Class A Ordinary Shares in this offering is likely to cause the market price to fall and result in substantial dilution to existing shareholders.
• The trading price of Class A Ordinary Shares is likely to be volatile, potentially resulting in substantial losses.
• Difficulty in bringing actions against the company or its officers/directors in the U.S. due to Cayman Islands incorporation and UK operations.
• No intention to pay dividends for the foreseeable future.
• Lack of research or negative reports from securities analysts could cause share price and trading volume to decline.
• CEO Siping Xu's control (96.89% voting power) may not align with other shareholders' interests and could prevent or cause a change of control.
• Ceasing to qualify as a foreign private issuer would require compliance with full U.S. domestic issuer reporting requirements, incurring significant additional expenses.
• Failure to establish and maintain an effective system of internal control over financial reporting could harm business and reputation.
• Anti-takeover provisions in the amended and restated memorandum and articles of association may discourage, delay, or prevent a change in control.
• Sale of Ordinary Shares could encourage short sales, contributing to future share price decline.
• The board of directors may decline to register transfers of Class A Ordinary Shares in certain circumstances.
• Cayman Islands laws may not provide shareholders with benefits comparable to those in the United States.
• Shareholders may be unable to present proposals before annual or extraordinary general meetings not called by shareholders.
• Classification as a Passive Foreign Investment Company (PFIC) could have adverse U.S. federal income tax consequences for U.S. taxpayers.
• Management will have broad discretion over the use of net proceeds from this offering.
• The dual-class share structure with different voting rights may adversely affect the value and liquidity of Class A Ordinary Shares and limit influence over corporate matters.
• Future issuances of Class B Ordinary Shares may be dilutive to holders of Class A Ordinary Shares.

Future Outlook

The company is executing a strategic transformation to shift its core business focus toward developing and monetizing a global cultural IP ecosystem. This strategy integrates content creation (original animation with partners like Abano Producins S.L. and H5 S.A.R.L.) and cultural tourism by converting Scotland's Fernie Castle into an immersive Animation Art Museum. The goal is to build a sustainable revenue model from content, licensing, and cultural experience operations. The Fernie Castle project has an estimated capital investment of $10 million with an expected completion in May 2027, and an animated short film is expected to be released in July 2026.

Management Comments

• Management believes that the establishment of Mansions is a significant step for our global expansion strategy.
• Management believes that the company's current cash position, combined with other components of working capital, will be sufficient to support ongoing operations and meet financial obligations as they come due over the 12-month period following June 30, 2025, assuming the successful execution of the company's business plans.
• Management believes this methodology (for CECL) appropriately incorporates the time value of money and reflects broader economic conditions.
• Management has determined that the company is unlikely to recover the remaining balance of accounts receivable from Chengdu TEDA New City due to the deterioration of the real estate market in China.

Industry Context

The company is undergoing a significant shift from its historical reliance on the declining PRC real estate market to the UK hospitality and creative industries. This move positions it in a highly competitive global creative industry, where it will compete with established media companies and large technology platforms. The UK hospitality market is subject to various economic, competitive, and environmental conditions. The company's strategy to integrate cultural IP with physical assets like Fernie Castle aims to differentiate it in the cultural tourism sector, a niche that requires significant capital investment and specialized expertise.

Management Changes

Corporate Governance

Legal Proceedings

• Initiated legal proceedings against Chengdu TEDA New City on January 9, 2023, for breach of contract and unpaid service fees totaling approximately $257,000. A favorable ruling was received on March 28, 2023, and a partial payment of $124,000 was received on September 1, 2023. The remaining balance is still outstanding and deemed unlikely to be recovered.
• Initiated a civil lawsuit against an individual in Heping District Peoples Court of Tianjin City on July 17, 2023, for an unpaid receivable of $101,692. A mediation agreement on September 8, 2023, resulted in a payment of $64,778, with the remaining balance forgiven.

Related Party Transactions

• Mansions entered into lease agreements with MD UK (a wholly-owned subsidiary) on January 1, 2023, to rent Fernie Castle (annual rent approx. $240,000) and Robin Hill (annual rent approx. $196,000) for hotel operations. These inter-company transactions are eliminated in consolidated financial statements.
• On May 31, 2024, the company issued 5,720 ordinary shares to CEO Siping Xu and 5,720 ordinary shares to CFO Mengnan Wang as part of their 2024 compensation package, each valued at $181,585.
• In 2024, net proceeds of $2,426,460 from a private placement and warrant exercises were deposited directly into MD UK's bank account instead of MDJM's.
• In February 2025, net proceeds of $324,000 from Series A Warrant exercises were deposited directly into MD UK's bank account instead of MDJM's.
• As of December 31, 2024, the company owed $3,395 to its officers for unreimbursed business expenses, which were reimbursed in 2025.

Stakeholder Impact

• **Shareholders:** Existing shareholders will face immediate and substantial dilution from the offering. The dual-class share structure significantly limits the voting power of Class A shareholders. The speculative nature of the new business strategy and Nasdaq delisting risk could negatively impact investment value.
• **Employees:** The company's strategic shift and cessation of PRC operations have led to reductions in staff in China. The new UK-focused business will require hiring and retaining qualified managerial and other employees in the UK hospitality and creative sectors.
• **Customers:** The shift to UK hospitality and cultural IP aims to attract overseas real estate owners and international audiences for cultural experiences. The quality of service in UK hotels and the appeal of the cultural IP will be critical for customer satisfaction.
• **Suppliers/Partners:** The new strategy relies heavily on international partnerships for animation production and architectural design (e.g., Abano Producins S.L., H5 S.A.R.L., Kengo Kuma & Associates, Inc., Simpson & Brown LLP). The success of these collaborations is crucial.
• **Creditors:** The capital raise provides additional funds, but the company's historical losses and the speculative nature of its new ventures introduce uncertainty regarding long-term profitability and debt servicing capacity.

Next Steps

• Complete the Fernie Castle Oriental Landscape Project, with an estimated completion in May 2027.
• Release the 'Journey to the West' animated short film, expected in July 2026.
• Continue developing the Eastern-themed animated short film with H5 S.A.R.L.
• Further develop and monetize the global cultural IP ecosystem.
• Maintain Nasdaq listing compliance, especially given the potential for share price decline due to dilution.

Key Dates

Recommendation

The offering is structured with terms highly unfavorable to existing shareholders, including immediate and substantial dilution of $1.71 per share and Series A Warrants with a zero cash exercise option, meaning the company will not receive additional capital from their exercise. The company's strategic shift to a 'cultural IP ecosystem' is highly speculative, unproven, and represents a significant departure from its historical business, which itself has been unprofitable. The company has a history of significant net losses, and while H1 2025 showed a small net income, this is against a backdrop of substantial prior losses and a complete exit from its former revenue-generating market. Furthermore, the company faces ongoing Nasdaq delisting risk and its CEO retains overwhelming voting control, which may not align with minority shareholder interests. The combination of extreme dilution, high business risk, and weak financial history makes this a 'strong sell' for investors.

Keywords

Cultural IP Ecosystem, SEC F-1 Filing, Unit Offering, Series A Warrants, Pre-Funded Warrants, Dilution, Nasdaq Delisting Risk, UK Hospitality, Animation Art Museum, Fernie Castle, Real Estate Services, Cayman Islands Company, Foreign Private Issuer, Corporate Governance, Siping Xu, MDJM LTD