Corporate Structure and Operations - The company operates through subsidiaries in the UK and China, utilizing a VIE structure to consolidate financial results under U.S. GAAP[10] - The VIE structure allows for foreign investment in China-based companies, despite legal restrictions on direct foreign ownership[10] - The VIE Agreements provide WFOE with operational control, but there are risks associated with the enforcement of these agreements under PRC law[24] - The company has received all requisite licenses and permissions needed to engage in its current business operations in China[31] - WFOE has completed foreign exchange registration under PRC regulations, allowing it to legally distribute earnings to the Company without prior approval from the State Administration of Foreign Exchange[48] Financial Performance - Revenue generated through the PRC operating entities for the year ended December 31, 2023, was $41,954, a decrease of $392,417, or 90%, from $434,371 in the same period of 2022[75] - Revenue for the year ended December 31, 2022, was $434,371, a decrease of $4,012,393, or 90%, from $4,446,764 in the same period of 2021[76] - The decline in revenue for 2023 was primarily due to decreased sales in the new residential housing market in China[75] - The average commission rate achieved by the PRC operating entities in 2023, 2022, and 2021 was 0.47%, 0.5%, and 0.72%, respectively[74] - During the year ended December 31, 2023, revenue from one major customer represented 28% of total revenue, with major clients accounting for approximately 29%, 79%, and 67% of total revenue in 2023, 2022, and 2021 respectively[98] Regulatory Environment - The company is subject to regulatory risks due to its operations in China, which could impact the value of its securities[27] - The PRC government imposes controls on the conversion of RMB into foreign currencies, which may hinder the company’s ability to remit foreign currency for dividend payments[45] - The Cybersecurity Review Measures require online platform operators with personal information of at least one million users to undergo a cybersecurity review before listing overseas[157] - The CSRC's Trial Measures require domestic companies seeking to list securities overseas to complete filing procedures within three working days of submission[166] - The PRC legal system's rapid evolution creates uncertainties in the interpretation and enforcement of laws, which could materially affect the company's operations[147] Dividend and Profit Distribution - The company intends to keep future earnings to finance business expansion and does not anticipate paying cash dividends in the foreseeable future[40] - Current PRC regulations permit WFOE to pay dividends to MDJH Hong Kong only out of its accumulated profits[44] - The PRC operating entities can only pay dividends to offshore subsidiaries from accumulated profits, and must set aside at least 10% of profits for reserve funds[203] - If the company is considered a PRC tax resident enterprise, dividends paid to overseas shareholders may be subject to PRC withholding tax at a rate of up to 10.0%[46] - A reduced withholding tax rate of 5% may apply if certain conditions are met, including at least 25% ownership by a Hong Kong enterprise for 12 consecutive months[205] Market Conditions and Competition - The PRC real estate market has experienced rapid demand growth over the past decade, but this growth is often accompanied by volatility in market conditions and prices[51] - The PRC operating entities face intense competition in their business segments, which may affect their ability to maintain current fee arrangements or margin levels[79] - The PRC operating entities have been reducing their operations in China since 2021 and have expanded into European markets by establishing subsidiaries in the UK and Germany[75] - The overall impact of relaxed restrictions on the real estate market will depend on the implementation and interpretation of policies by governmental agencies and local governments[66] - The PRC operating entities' sales performance is influenced by various factors, including the appetite of prospective buyers and the general economic environment[74] Labor and Employment - The average wage level for employees has increased, and labor costs are expected to continue rising, potentially impacting profitability[114] - The PRC operating entities must comply with strict regulatory requirements regarding labor contracts and employee benefits, which could limit operational flexibility[116] - The PRC operating entities have taken steps to decrease the number of seconded employees to comply with labor regulations, which may incur additional costs[116] Risks and Uncertainties - The company may face challenges in obtaining required government approvals or completing registrations for future capital contributions or loans to its PRC subsidiary, impacting liquidity and expansion[188] - There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, which may affect the profitability of the PRC operating entities[144] - The COVID-19 pandemic did not have a material impact on the company's business operations and financial results in 2023[67] - Political uncertainties in Europe, including Brexit, could negatively impact the real estate market and the financial condition of MD German, which has not yet generated revenue[125] - The potential for a Eurozone member to default on debt obligations could lead to significant financial and legal consequences, adversely affecting MD German's future business[126]
MDJM(MDJH) - 2023 Q4 - Annual Report