LUDUSON G INC. The following discussion and analysis of our Company's financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in the report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors. See "Cautionary Note Concerning Forward-Looking Statements" on page 2. The description of our business included in this quarterly report is summary in nature and only includes material developments that have occurred since the latest full description. The full discussion of the history and general development of our business is included in "Item 1. Description of Business" section of the Company's Annual Report on Form 10-K filed with theSEC onApril 15, 2022 (the "10-K"), which section is incorporated by reference. Currency and exchange rate Unless otherwise noted, all currency figures quoted as "U.S. dollars", "dollars" or "US$" refer to the legal currency ofthe United States . References to "Hong Kong Dollar" are to the Hong Kong Dollar, the legal currency of theHong Kong Special Administrative Region ofthe People's Republic of China . Throughout this report, assets and liabilities of the Company's subsidiaries are translated intoU.S. dollars using the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders' equity. Overview We were incorporated under the laws of theState of Delaware onMarch 6, 2014 , under the name "Jovanovic-Steele, Inc. " Our name was changed toBaja Custom Designs, Inc. onOctober 26, 2017 . OnMay 8, 2020 , we acquiredLuduson Holding Company Limited , a limited liability company organized under the laws ofBritish Virgin Islands ("LHCL"). As a result of our acquisition of LHCL, we entered into the business-to-business gaming technology industry. We are aDelaware holding company that, through our wholly ownedHong Kong operating subsidiaries, are a business-to-business gaming technology company. We provide events marketing strategies with a combination of digital interactive solutions and content production services inHong Kong . In digital marketing industry, we offer business-to-business digital marketing solutions on our proprietary and secure network, which accommodates a wide range of devices and theme-based gaming content, including multi-touch table, body motion sensing, indoor positioning device and electronic circuit system, together with the customized game content, as an integrated marketing solution. We are principally engaged in developing and distributing digital entertainment - interactive game software and providing system development consultancy, maintenance services to our customers and providing interactive games installations in shopping mall events, exhibitions and brand promotions. We provide our business customers in the entertainment industry with a full line of custom-made interactive gaming services. In this entertainment segment, we offer a customized device box with a library of self-developed interactive game contents, such as, sport-themed social games, motion-sensing action games, logic and puzzle games, original IP characters education game for children, etc., to meet with our business customers' operational use or business-to-business social solutions.
Our goal is to provide an innovative and effective interactive solution services to satisfy diverse marketing needs. We are committed to working at a high-quality standard to address the needs of differing budgets. We provide services to wide range of customer across different industry segments and regions.
Our principal executive and registered offices are located at 17/F,
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We are not a Chinese operating company but aDelaware holding company with operations conducted through our wholly owned subsidiaries based inHong Kong . Our holding company structure presents unique risks as our investors may never directly hold equity interests in ourHong Kong subsidiaries and will be dependent upon contributions from our subsidiaries to finance our cash flow needs. OurHong Kong subsidiaries are currently not required to obtain permission from the Chinese authorities including theChina Securities Regulatory Commission , or CSRC, or Cybersecurity Administration Committee, or CAC, to operate or to issue securities to foreign investors. The business of our subsidiaries until now are not subject to cybersecurity review with theCyberspace Administration of China , or CAC, given that: (i) data processed in our business does not have a bearing on national security and thus may not be classified as core or important data by the authorities; (ii) we do not possess a large amount of personal information in our business operations. In addition, we are not subject to merger control review byChina's anti-monopoly enforcement agency due to the level of our revenues which provided from us and audited by our auditor and the fact that we currently do not expect to propose or implement any acquisition of control of, or decisive influence over, any company with revenues withinChina of more thanRMB400 million . Currently, these statements and regulatory actions have had no impact on our daily business operations, the ability to accept foreign investments and list our securities on anU.S. or other foreign exchange. However, since these statements and regulatory actions are new, it is highly uncertain how soon legislative or administrative regulation making bodies will respond and what existing or new laws or regulations or detailed implementations and interpretations will be modified or promulgated, if any, and the potential impact such modified or new laws and regulations will have on our daily business operation, the ability to accept foreign investments and list our securities on anU.S. or other foreign exchange. Further, in light of the recent statements and regulatory actions by the PRC government, such as those related toHong Kong's national security, the promulgation of regulations prohibiting foreign ownership of Chinese companies operating in certain industries, which are constantly evolving, and anti-monopoly concerns, we may be subject to the risks of uncertainty of any future actions of the PRC government in this regard, including the risk that we inadvertently conclude that such approvals are not required, that applicable laws, regulations or interpretations change such that we are required to obtain approvals in the future, which may result in a material change in our operations, including our ability to continue our existing holding company structure, carry on our current business, accept foreign investments, and offer or continue to offer securities to our investors, and the resulting adverse change in value to our common stock. We may also be subject to penalties and sanctions imposed by the PRC regulatory agencies, including theChinese Securities Regulatory Commission , if we fail to comply with such rules and regulations, which could adversely affect the ability of the Company's securities to continue to trade on the Over-the-Counter Bulletin Board, which may cause the value of our securities to significantly decline or become worthless. For a detailed description of the risks facing the Company and the offering associated with our operations inHong Kong , please refer to "Risk Factors - Risk Factors Relating to Doing Business inHong Kong ." set forth
in the 10-K.
Impact of COVID-19 on our business
The outbreak of COVID-19 that started in lateJanuary 2020 in the PRC has negatively affected our business. InMarch 2020 , theWorld Health Organization declared COVID-19 as a pandemic and has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities inHong Kong, China and theU.S. in the subsequent months. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially all of the Company's business operations and its workforce are concentrated inHong Kong , the Company's business, results of operations, and financial condition for calendar year 2021 have been adversely affected. Management believes that COVID-19 could continue to have a material impact on its financial results for the first half of calendar year 2022 and could cause the potential impairment of certain assets. To mitigate the overall financial impact of COVID-19 on the Company's business, management is continuing to work closely with its service centers to enhance their marketing and promotion activities to generate revenue. We believe that the Company can generate sufficient cash flow over the next 12 months to implement the revised business plan. We believe that we will need approximately$1.5 million to implement our revised business plan for the 12 months thereafter. 22 Results of Operations.
Comparison of the three months ended
The following table sets forth certain operational data for the three months
ended
Three Months Ended March 31,
2022 2021
Revenues $ 1,281 $ 193,376
Cost of revenue - (34,371 )
Gross profit 1,281 159,005
Total operating expenses (90,733 ) (38,853 )
(Loss) Income before Income Taxes (89,452 ) 120,152
Income tax expense - (12,840 )
Net (loss) income (89,452 ) 107,312
Revenue. We generated revenues of$1,281 and$193,376 for the three months endedMarch 31, 2022 and 2021. The significant decrease is due to the decrease in business volume in digital advertising income from our online entertainment portal from the unexpected Omicron outbreak, starting fromDecember 2021 up toMarch 2022 , globally and inHong Kong andChina .
During the three months ended
Three Months ended
March 31, 2022 March 31, 2022
Percentage Accounts
Revenues of revenues receivable
Ease Audio Group Limited $ 1,281 100% $ 1,281
$ 1,281 100% $ 1,281
Three months ended March 31, 2021 March 31, 2021
Percentage Accounts
Customer Revenues of revenues receivable
Ease Audio Group Limited $ 116,026 60% $ 2,132,021
Yu Lin Nuo Ya Interactive Entertainment
Company Limited 38,675 20% 1,398,494
Shenzhen Jiu Sheng Optoelectronic Comm
Tech Co., Ltd 38,675 20% 1,124,229
Total: $ 193,376 100% Total: $ 4,654,744
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All of our major customers are located in
Cost of Revenue. Cost of revenue for the three months endedMarch 31, 2022 , was$0 , and as a percentage of net revenue, approximately 0%. Cost of revenue for the three months endedMarch 31, 2021 , was$34,371 , and as a percentage of net revenue, approximately 17.8%. Cost of revenue increased primarily as a result of the decrease in our business volume . Gross Profit. We achieved a gross profit of$1,281 and$159,005 for the three months endedMarch 31, 2022 and 2021, respectively. The increase in gross profit is primarily attributable to the increase in our business volume. General and Administrative Expenses ("G&A"). We incurred G&A expenses of$90,733 and$38,853 for the three months endedMarch 31, 2022 , and 2021, respectively. The increase in G&A is due to the addition of legal, accounting and review fees.
Income Tax Expense. Our income tax expenses for the quarters ended
Net (Loss) Income. During the three months endedMarch 31, 2022 , we incurred a net loss of$89,452 , as compared to a net income of$107,312 for the same period endedMarch 31, 2021 . The decrease in net income is primarily attributable to the decrease in our business volume amid the unexpected omicron outbreak in
the first quarter of 2022.
Liquidity and Capital Resources
As of
We believe that our current cash and other sources of liquidity discussed below are adequate to support general operations for at least the next 12 months.
Three Months Ended March 31,
2022 2021
Net cash provided by (used in) operating activities
$ (9,959 ) Net cash provided by (used in) investing activities $ - $ - Net cash used in financing activities$ (59,941 )
$ (9,674 )
Net Cash Provided By (Used In) Operating Activities.
For the three months endedMarch 31, 2022 , net cash provided by operating activities was$83,112 , which consisted primarily of a net loss of$89,452 , a decrease in deposits, prepayments and other receivables of$3,509 , a decrease in accounts receivables of$120,574 , an increase in accrued expenses and other payables of$9,241 , and depreciation of plant and equipment of$39,240 . For the three months endedMarch 31, 2021 , net cash used in operating activities was$9,959 , which consisted primarily of a net income of$107,312 , an increase in income tax payable of$10,733 , offset by an increase in accounts receivables of$160,401 , an decrease in accrued expenses and other payables of$7,346 , and depreciation of plant and equipment of$39,743 . 24
Net Cash Provided By (Used In) Investing Activities.
For the three months ended
For the three months ended
For the three months ended
For the three months ended
Off-Balance Sheet Arrangements
We have no outstanding off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. We do not engage in trading activities involving non-exchange traded contracts.
Critical Accounting Policies and Estimates.
The preparation of financial statements in conformity with accounting principles generally accepted inthe United States requires our management to make assumptions, estimates and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the presentation of our financial condition and results of operations and require management's subjective or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management's current judgments. We believe the following accounting policies are critical in the preparation of our financial statements. - Basis of presentation
These accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles in
- Use of estimates and assumptions
In preparing these consolidated financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and revenues and expenses during the period reported. Actual results may differ from these estimates. - Basis of consolidation The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant inter-company balances and transactions within the Company have been eliminated upon consolidation. 25 - Accounts receivable Accounts receivable are recorded at the invoiced amount and do not bear interest, which are due within contractual payment terms, generally 30 to 90 days from completion of service. Credit is extended based on evaluation of a customer's financial condition, the customer credit-worthiness and their payment history. Accounts receivable outstanding longer than the contractual payment terms are considered past due. Past due balances over 90 days and over a specified amount are reviewed individually for collectability. At the end of fiscal year, the Company specifically evaluates individual customer's financial condition, credit history, and the current economic conditions to monitor the progress of the collection of accounts receivables. The Company will consider the allowance for doubtful accounts for any estimated losses resulting from the inability of its customers to make required payments. For the receivables that are past due or not being paid according to payment terms, the appropriate actions are taken to exhaust all means of collection, including seeking legal resolution in a court of law. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance-sheet credit exposure related to its customers. - Revenue recognition
The Company adopted Accounting Standards Codification ("ASC") 606 - Revenue from
Contracts with Customers" ("ASC 606"). Under ASC 606, a performance obligation
is a promise within a contract to transfer a distinct good or service, or a
series of distinct goods and services, to a customer. Revenue is recognized when
performance obligations are satisfied and the customer obtains control of
promised goods or services. The amount of revenue recognized reflects the
consideration to which the Company expects to be entitled to receive in exchange
for goods or services. Under the standard, a contract's transaction price is
allocated to each distinct performance obligation. To determine revenue
recognition for arrangements that the Company determines are within the scope of
ASC 606, the Company performs the following five steps:
· identify the contract with a customer;
· identify the performance obligations in the contract;
· determine the transaction price;
· allocate the transaction price to performance obligations in the
contract; and· recognize revenue as the performance obligation is satisfied.
- Foreign currencies translation
Transactions denominated in currencies other than the functional currency are
translated into the functional currency at the exchange rates prevailing at the
dates of the transaction. Monetary assets and liabilities denominated in
currencies other than the functional currency are translated into the functional
currency using the applicable exchange rates at the balance sheet dates. The
resulting exchange differences are recorded in the consolidated statement of
operations.
The reporting currency of the Company is United States Dollar ("US$") and the
accompanying consolidated financial statements have been expressed in US$. In
addition, the Company's operating subsidiaries in Hong Kong and Seychelles
maintain their books and record in its local currency, Hong Kong Dollars
("HKD"), which is a functional currency as being the primary currency of the
economic environment in which their operations are conducted. In general, for
consolidation purposes, assets and liabilities of its subsidiaries whose
functional currency is not US$ are translated into US$, in accordance with ASC
Topic 830-30, "Translation of Financial Statement", using the exchange rate on
the balance sheet date. Revenues and expenses are translated at average rates
prevailing during the year. The gains and losses resulting from translation of
financial statements of foreign subsidiaries are recorded as a separate
component of accumulated other comprehensive income within the statements of
changes in stockholder's equity.
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- Debt issued with common stock
Debt issued with common stock is accounted for under the guidelines established
by ASC 470-20 - Accounting for Debt With Conversion or Other Options. The
Company recorded the relative fair value of common stock and warrants related to
the issuance of debt as a debt discount or premium. The discount or premium is
subsequently amortized to interest expense over the expected term of the debt.
- Leases
The Company adopts the FASB Accounting Standards Update ("ASU") 2016-02 "Leases
(Topic 842)." for all periods presented. This standard requires lessees to
recognize lease assets ("right of use") and related lease obligations ("lease
liabilities") on the balance sheet for leases with terms in excess of 12 months.
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use ("ROU") assets and operating lease liabilities in the consolidated balance sheets. Finance leases are included in finance lease ROU assets and finance lease liabilities in the consolidated balance sheets.
ROU assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease and finance lease ROU assets and liabilities are recognized atJanuary 1, 2019 based on the present value of lease payments over the lease term discounted using the rate implicit in the lease. In cases where the implicit rate is not readily determinable, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the
lease term.
- Recent accounting pronouncements
InMay 2021 , the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40), ("ASU 2021-04"). This ASU reduces diversity in an issuer's accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. This ASU provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. It specifically addresses: (1) how an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; (2) how an entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange; and (3) how an entity should recognize the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange. This ASU will be effective for all entities for fiscal years beginning afterDecember 15, 2021 . An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted, including adoption in an interim period. The adoption of ASU 2021-04 onJanuary 1, 2022 did not have a material impact on the Company's financial statements or disclosures.
The Company has reviewed all recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on its financial condition or the results of its operations.
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