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 onMarch 25, 2021 , 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 business-to-business gaming technology company that provides 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 contents, as an integrated marketing solution. We are principally engaged in developing and granting a right-to-use digital entertainment - interactive game software and providing system development consultancy and maintenance services to our customers and interactive games installations in shopping mall events, exhibitions and brand promotions. We provide our business customers in 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,
18 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 June 30,
2021 2020
Revenues $ 463,755 $ 1,024,510
Cost of revenue (34,335 ) (68,706 )
Gross profit 429,420 877,123
Total operating expenses (64,001 ) (102,854 )
Other income - 34
Income before Income Taxes 365,419 846,292
Income tax expense (58,424 ) (124,938 )
Net income 306,995 721,354
Revenue. We generated revenues of $463,755 and $1,024,510 for the three months
ended June 30, 2021 and 2020. The significant decrease is due to the decrease
in business volume in digital advertising income from our online entertainment
portal from the weak economy amid COVID-19 pandemic.
During the three months ended
Three Months ended June 30, 2021 June 30, 2021
Percentage Accounts
Customer Revenues of revenues receivable
Ease Audio Group Limited $ 386,463 84% $ 2,343,210
Yu Lin Nuo Ya Interactive Entertainment
Company Limited 38,646 8% 1,438,790
Shenzhen Jiu Sheng Optoelectronic Comm
Tech Co., Ltd 38,646 8% 1,113,330
Total: $ 463,755 100% $ 4,895,330
Three months ended June 30, 2020 June 30, 2020
Percentage Accounts
Customer Revenues of revenues receivable
Ease Audio Group Limited $ 928,913 100% $ 916,107 All of our major customers are located in
19
Cost of Revenue. Cost of revenue for the three months endedJune 30, 2021 , was$34,335 , and as a percentage of net revenue, approximately 7.4%. Cost of revenue for the three months endedJune 30, 2020 , was$147,387 , and as a percentage of net revenue, approximately 14.4%. Cost of revenue decreased primarily as a result of the decrease in our business volume. Gross Profit. We achieved a gross profit of$429,420 and$877,123 for the three months endedJune 30, 2021 and 2020, respectively. The decrease in gross profit is primarily attributable to the decrease in our business volume. General and Administrative Expenses ("G&A"). We incurred G&A expenses of$64,001 and$30,865 for the three months endedJune 30, 2021 , and 2020, respectively. The increase in G&A is primarily attributable to the increase in our professional fee.
Income Tax Expense. Our income tax expenses for the quarters ended
Net Income. During the three months endedJune 30, 2021 , we incurred a net income of$306,995 , as compared to$721,354 for the same period endedJune 30, 2020 . The decrease in net income is primarily attributable to the decrease in our business volume from the weak economy amid COVID-19 pandemic inHong Kong andChina .
Comparison of the six months ended
The following table sets forth certain operational data for the six months endedJune 30, 2021 and 2020: Six Months Ended June 30, 2021 2020 Revenues$ 657,131 $ 1,121,029 Cost of revenue (68,706 ) (151,068 ) Gross profit 588,425 969,961 Total operating expenses (102,854 ) (67,557 ) Other income - 34 Income before Income Taxes 485,571 902,438 Income tax expense (71,264 ) (129,655 ) Net income 414,307 772,783 Revenue. We generated revenues of$657,131 and$1,121,029 for the six months endedJune 30, 2021 and 2020. The significant decrease is due to the decrease in business volume in digital advertising income from our online entertainment portal from the weak economy amid COVID-19 pandemic.
During the six months ended
Six Months ended June 30, 2021 June 30, 2021
Percentage Accounts
Customer Revenues of revenues receivable
Ease Audio Group Limited $ 502,513 76% $ 2,343,210
Yu Lin Nuo Ya Interactive Entertainment
Company Limited 77,309 12% 1,438,790
Shenzhen Jiu Sheng Optoelectronic Comm
Tech Co., Ltd 77,309 12% 1,113,330
Total: $ 657,131 100% $ 4,895,330
20
Six months ended June 30, 2020 June 30, 2020
Percentage Accounts
Customer Revenues of revenues receivable
Ease Audio Group Limited $ 966,404 100% $ 916,107 All of our major customers are located in
Cost of Revenue. Cost of revenue for the six months ended
Gross Profit. We achieved a gross profit of$588,425 and$969,961 for the six months endedJune 30, 2021 and 2020, respectively. The decrease in gross profit is primarily attributable to the decrease in our business volume.
General and Administrative Expenses ("G&A"). We incurred G&A expenses of
Income Tax Expense. Our income tax expenses for the quarters ended
Net Income. During the six months endedJune 30, 2021 , we incurred a net income of$414,307 , as compared to$772,783 for the same period endedJune 30, 2020 . The decrease in net income is primarily attributable to the decrease in our business volume from the weak economy amid COVID-19 pandemic.
Liquidity and Capital Resources.
As of
We believe that our current cash and other sources of liquidity discussed below are adequate to support general operations for at least the next 12 months.
Six Months Ended June 30,
2021 2020Net cash used in operating activities$ 11,310 $
101,453
Net cash provided by (used in) investing activities -
-
Net cash (used in) provided by financing activities 19,302 (169,584 )
21
For the six months endedJune 30, 2021 , net cash generated from operating activities was$11,310 , which consisted primarily of a net income of$414,307 , offset by an increase in in accounts receivables of$400,993 and deposits, prepayments and other receivables of$166,346 , an increase in income tax payable of$71,264 , an increase in accrued expenses and other payables of$13,635 , and depreciation of plant and equipment of$79,443 . For the six months endedJune 30, 2020 , net cash generated from operating activities was$101,453 , which consisted primarily of a net income$772,783 ,$2,510 of depreciation of plant and equipment and$9,445 of lease expenses, offset by, an increase in accounts receivables of$360,814 , an increase in deposits, prepayments and other receivables of$445,701 , an increase in accrued expenses and other payables of$3,252 , an increase in income tax payable of$129,655 and a decrease in lease liabilities of$9,677 .
We expect to continue to rely on cash generated through financing from our existing shareholders and private placements of our securities, however, to finance our operations and future acquisitions.
Net Cash Provided By (Used In) Investing Activities.
For the six months ended
For the six months ended
Net Cash Provided By Financing Activities.
For the six months ended
For the six months endedJune 30, 2020 , net cash used in financing activities was$169,584 , consisting primarily of dividends paid to the former shareholder of the Company.
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. 22 · 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. · 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 collectibility. 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.
23
· 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$. In
addition, the Company's operating subsidiaries in Hong Kong and Seychelles
maintain their books and record in its local currency, Hong Kong Dollars ("S$"),
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.
· Leases
The Company adopted Topic 842, Leases ("ASC 842"). At the inception of an
arrangement, the Company determines whether the arrangement is or contains a
lease based on the unique facts and circumstances present. Leases with a term
greater than one year are recognized on the balance sheet as right-of-use
("ROU") assets, lease liabilities and long-term lease liabilities. The Company
has elected not to recognize on the balance sheet leases with terms of one year
or less. Operating lease liabilities and their corresponding right-of-use assets
are recorded based on the present value of lease payments over the expected
remaining lease term. However, certain adjustments to the right-of-use asset may
be required for items such as prepaid or accrued lease payments. The interest
rate implicit in lease contracts is typically not readily determinable. As a
result, the Company utilizes its incremental borrowing rates, which are the
rates incurred to borrow on a collateralized basis over a similar term an amount
equal to the lease payments in a similar economic environment.
In accordance with the guidance in ASC 842, components of a lease should be
split into three categories: lease components (e.g. land, building, etc.),
non-lease components (e.g. common area maintenance, consumables, etc.), and
non-components (e.g. property taxes, insurance, etc.). Subsequently, the fixed
and in-substance fixed contract consideration (including any related to
non-components) must be allocated based on the respective relative fair values
to the lease components and non-lease components.
Lease expense is recognized on a straight-line basis over the lease terms. Lease
expense includes amortization of the ROU assets and accretion of the lease
liabilities. Amortization of ROU assets is calculated as the periodic lease cost
less accretion of the lease liability. The amortized period for ROU assets is
limited to the expected lease term.
The Company has elected a practical expedient to combine the lease and non-lease
components into a single lease component. The Company also elected the
short-term lease measurement and recognition exemption and does not establish
ROU assets or lease liabilities for operating leases with terms of 12 months or
less.
· Recent accounting pronouncements
From time to time, new accounting pronouncements are issued by theFinancial Accounting Standards Board (FASB), or other standard setting bodies and adopted by the Company as of the specified effective date. Under the Jumpstart Our Business Startups Act of 2012 (JOBS Act), the Company meets the definition of an emerging growth company. The Company has elected to use the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company's financial position or results of operations upon adoption.
Recently Adopted Accounting Pronouncements
The Company adopts all applicable, new accounting pronouncements as of the specified effective dates.
24
InSeptember 2016 , the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326) ("ASU 2016-13"), which requires the immediate recognition of management's estimates of current and expected credit losses. InNovember 2018 , the FASB issued ASU 2018-19, which makes certain improvements to Topic 326. In April andMay 2019 , the FASB issued ASUs 2019-04 and 2019-05, respectively, which adds codification improvements and transition relief for Topic 326. InNovember 2019 , the FASB issued ASU 2019-10, which delays the effective date of Topic 326 for Smaller Reporting Companies to interim and annual periods beginning afterDecember 15, 2022 , with early adoption permitted. InNovember 2019 , the FASB issued ASU 2019-11, which makes improvements to certain areas of Topic 326. InFebruary 2020 , the FASB issued ASU 2020-02, which adds anSEC paragraph, pursuant to the issuance ofSEC Staff Accounting Bulletin No. 119, to Topic 326. Topic 326 is effective for the Company for fiscal years and interim reporting periods within those years beginning afterDecember 15, 2022 . Early adoption is permitted for interim and annual periods beginningDecember 15, 2019 . The Company is currently evaluating the potential impact of adopting this guidance on the consolidated financial statements. OnJanuary 1, 2020 , the Company adopted ASU No. 2017-04, "Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment", which eliminates the requirement to calculate the implied fair value of goodwill, but rather requires an entity to record an impairment charge based on the excess of a reporting unit's carrying value over its fair value. Adoption of this ASU did not have a material effect on the consolidated financial statements. OnJanuary 1, 2020 , the Company adopted ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820. Adoption of this ASU did not have a material effect on our consolidated financial statements. All new accounting pronouncements issued but not yet effective are not expected to have a material impact on our results of operations, cash flows or financial position with the exception of the updated previously disclosed above, there have been no new accounting pronouncements not yet effective that have significance to the consolidated financial statements.
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