See accompanying notes to financial statements.
See accompanying notes to financial statements.
NOTES TO UNAUDITED PRO-FORMA FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND
2022
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
(Unaudited)
NOTE – 1 DESCRIPTION OF
BUSINESS AND ORGANIZATION
Luduson G Inc. ("the
Company" or "LDSN") was organized under the laws of the State of Delaware on March 6, 2014 under the name Jovanovic-Steele,
Inc. The Company’s name was changed to Baja Custom Designs, Inc. on November 30, 2017. The Company was established as part of the
Chapter 11 Plan of Reorganization of Pacific Shores Development, Inc. ("PSD"). The Company’s name was further changed
to Luduson G Inc. on July 15, 2020.
Currently, the Company
is actively seeking new business which has the potential to generate a healthy stream of income. The management has primarily targeted
an entertainment company which mainly engages in the service of building and fostering relationships between leading influencers and brands,
through identifying and partnering with top influencers across a range of industries and social media platforms. The Company is principally
engaged in influencer management, commercial film production and online ecosystem development company, with the target to provide a unified
entertainment universe for Southeast Asian market and fans of the genre around the world.
Description of subsidiaries
As of March 31, 2023, the Company has the following
subsidiaries:
| Description of Subsidiaries |
|
|
|
|
|
|
|
|
| Name |
|
Place of incorporation and kind of legal entity |
|
Principal activities and place of operation |
|
Particulars of registered/paid up share capital |
|
Effective interest held |
| |
|
|
|
|
|
|
|
|
| Luduson Holding Company Limited |
|
British Virgin Island |
|
Investment holding |
|
10,000 ordinary shares at par value of $1 |
|
100% |
| |
|
|
|
|
|
|
|
|
| Luduson Entertainment Limited |
|
Hong Kong |
|
Sales and marketing |
|
10,000 ordinary shares for HKD10,000 |
|
100% |
| |
|
|
|
|
|
|
|
|
| G Music Asia Limited |
|
British Virgin Islands |
|
Event planning |
|
2 ordinary shares at par value of $1 |
|
100% |
All of the subsidiaries have been deconsolidated
on May 12, 2023.
NOTE – 2 PROPOSED REVERSE ACQUISITION
AND SPIN-OUT
The Company is in the process of negotiating a
definitive agreement (the “Definitive Agreement”) with the target business (the “Target”), which is primarily
engaged in influencer management, commercial film production and online ecosystem development company, with the target to provide a unified
entertainment universe for Southeast Asian market and fans of the genre around the world.
The Company is expected to issue a minimum of
90% fully diluted shares to the business owner of the Target, in exchange for 100% of their European company and the whole operation.
After such transaction, the business owner of the Target gains the control of the Company and in effect completes a business combination
of the Target with the Company, resulting in a reverse acquisition (the “Reverse Acquisition”). The European company includes
the experienced team with full employment contracts, expertise, and customer and supplier list, but has immaterial tangible assets and
liabilities. The estimated NAV is foreseen to create a big profit for the Company, with more than 1,000 Greater China influencers having
a very dominant track record in the Hong Kong movie industry. At the same time, the deconsolidated 3 entities will be returned to the
Director(s) (the “Spin-out”).
An 8-k will be announced shortly after the Reverse
Acquisition and Spin-out to reflect the timely and accurate presentation of the Company.
NOTE –
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited pro-forma financial
statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying
financial statements and notes.
l Basis
of presentation
The accompanying unaudited pro-forma financial
statements of the Company have been prepared by management in conformity with generally accepted accounting principles in the United States
of America (“U.S. GAAP”) and to give effect to the Reverse Acquisition and Spin-out of the Company’s subsidiaries to
the Director(s). In the opinion of management, the unaudited pro-forma financial statements include all adjustments necessary for the
fair presentation of the transactions described in Note 2 for the purpose of the Reverse Acquisition (see “Pro-Forma Assumptions
and Adjustments” described below).
The unaudited pro−forma statement of financial
position has been prepared as if the Spinout described in Note 2 had occurred on December 31, 2022 for the proposed Reverse Acquisition.
The unaudited pro−forma statement of income/ (loss) and comprehensive income/ (loss) for the 3 months ended March 31, 2023 has been
prepared as if the Spinout had occurred on January 1, 2022.
The unaudited pro-forma financial statements have
been prepared for illustrative purposes only and may not be indicative of the financial position and results of operations that would
have occurred if the transactions had taken place on the dates indicated or of the financial position or operating results which may be
obtained in the future. The unaudited pro-forma financial statements are not a forecast or projection of future results. The actual consolidated
financial statements and results of the Company and its subsidiaries for any period following March 31, 2023 will likely vary from the
amounts set forth in the unaudited pro forma financial statements and such variation may be material
These accompanying unaudited pro-forma financial
statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial statements not misleading
have been included. The information included in this Form 10-Q should be read in conjunction with Management’s Discussion and Analysis.
l Pro-forma
Assumptions and Adjustments
The unaudited pro-forma financial statements incorporate
the following pro-forma assumptions and adjustments to give effect to the transactions described in Note 2 as if they had occurred on
December 31, 2022 and January 1 2022 in the case of the unaudited pro-forma statement of financial position and statement of income (loss)
and comprehensive income (loss) respectively:
| a. | Spin-out of the Company’s subsidiaries’ assets and liabilities to the existing Director(s) |
Pursuant to the Definitive Agreement
of the Target obtained, the Company will transfer all the deconsolidated business, corporate, legal and accounting books, records and
documents, assets, all equipment, hardware, software, office supplies, fixtures, and other tangible property owned, leased or held by
or on behalf of the Company at a consideration of carrying value at balance sheet date of $2,821.
| b. | Reverse acquisition accounting |
The Company will complete such Reverse
Acquisition transaction pursuant to the Merger Accounting standard, in which the Company as the legal acquirer will acquire the Target
which is deemed to be the accounting acquirer. For accounting purposes, the Company is deemed to be the accounting acquiree in such reverse
acquisition transaction. The accounting acquirer will be the surviving legal entity in the Reverse Acquisition and continues to issue
financial statements. The financial reporting will then reflect the accounting from the perspective of the accounting acquirer, except
for the legal capital, which is retroactively adjusted to reflect the capital of the legal acquirer (accounting acquiree) in accordance
with ASC 805-40-45-1. The unaudited pro-forma financial statement is adjusted and prepared for the purpose of the reverse acquisition
accounting with the accounting acquirer.
l Use
of estimates and assumptions
In preparing these condensed 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 periods reported. Actual results may differ from these estimates.
l Cash
and cash equivalents
Cash and cash equivalents are carried at cost
and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an
original maturity of three months or less as of the purchase date of such investments.
l Income
taxes
The Company adopted the ASC 740 Income
tax provisions of paragraph 740-10-25-13, which addresses the determination of whether tax benefits claimed or expected to be
claimed on a tax return should be recorded in the financial statements. Under paragraph 740-10-25-13, the Company may recognize the tax
benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the
taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a
position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon
ultimate settlement. Paragraph 740-10-25-13 also provides guidance on de-recognition, classification, interest and penalties on income
taxes, accounting in interim periods and requires increased disclosures. The Company had no material adjustments to its liabilities for
unrecognized income tax benefits according to the provisions of paragraph 740-10-25-13.
The estimated future tax effects of temporary
differences between the tax basis of assets and liabilities are reported in the accompanying balance sheets, as well as tax credit carry-backs
and carry-forwards. The Company periodically reviews the recoverability of deferred tax assets recorded on its balance sheets and provides
valuation allowances as management deems necessary.
l Uncertain
tax positions
The Company did not take any uncertain tax positions
and had no adjustments to its income tax liabilities or benefits pursuant to the ASC 740 provisions of Section 740-10-25 for the three
months ended March 31, 2023 and 2022.
l 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 statement of operations.
The reporting currency of the Company is United
States Dollar ("US$") and the accompanying financial statements have been expressed in US$. In addition, the Company is operating
in Hong Kong and maintain its books and record in its local currency, Hong Kong Dollars (“HKD”), which is a functional currency
as being the primary currency of the economic environment in which their operations are conducted. In general, for consolidation purposes,
assets and liabilities of its subsidiary whose functional currency is not US$ 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 period. The gains and losses resulting from translation of financial statements of foreign
subsidiary are recorded as a separate component of accumulated other comprehensive income within the statements of changes in stockholder’s
equity.
l Related
parties
The Company follows the ASC 850-10, Related
Party for the identification of related parties and disclosure of related party transactions.
Pursuant to section 850-10-20 the related parties
include a) affiliates of the Company; b) entities for which investments in their equity securities would be required, absent the election
of the fair value option under the Fair Value Option Subsection of section 825–10–15, to be accounted for by the equity method
by the investing entity; c) trusts for the benefit of employees, such as pension and Income-sharing trusts that are managed by or under
the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company
may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one
of the transacting parties might be prevented from fully pursuing its own separate interests; and g) other parties that can significantly
influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting
parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully
pursuing its own separate interests.
The financial statements shall include disclosures
of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary
course of business. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions,
including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented,
and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the
dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the
method of establishing the terms from that used in the preceding period; and d) amount due from or to related parties as of the date
of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
l
The Company follows the ASC 450-20, Commitments to
report accounting for contingencies. Certain conditions may exist as of the date the financial statements are issued, which may result
in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such
contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal
proceedings that are pending against the Company or un-asserted claims that may result in such proceedings, the Company evaluates the
perceived merits of any legal proceedings or un-asserted claims as well as the perceived merits of the amount of relief sought or expected
to be sought therein.
If the assessment of a contingency indicates that
it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would
be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not
probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate
of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally
not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. Management does not believe, based upon
information available at this time that these matters will have a material adverse effect on the Company’s financial position, results
of operations or cash flows. However, there is no assurance that such matters will not materially and adversely affect the Company’s
business, financial position, and results of operations or cash flows.
l Fair
value of financial instruments
The Company follows paragraph 825-10-50-10 of
the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and has adopted paragraph 820-10-35-37
of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments.
Paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair
value measurements and related disclosures, paragraph 820-10-35-37 of the FASB Accounting Standards Codification establishes a fair value
hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The fair value
hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest
priority to unobservable inputs. The three (3) levels of fair value hierarchy defined by paragraph 820-10-35-37 of the FASB Accounting
Standards Codification are described below:
| Level 1 |
|
Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| |
|
|
| Level 2 |
|
Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. |
| |
|
|
| Level 3 |
|
Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their
fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant
model assumption or input is unobservable.
The fair value hierarchy gives the highest priority
to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If
the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is
based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial
assets and liabilities, such as cash and cash equivalents, accounts receivable, deposits, prepayments and other receivables and operating
lease right-of-use assets approximate their fair values because of the short maturity of these instruments.
l Recent
accounting pronouncements
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.
NOTE –
4 STOCKHOLDERS’ EQUITY
Authorized shares
As of March 31, 2023 and December 31, 2022, the
authorized share capital of the Company consisted of 100,000,000 shares of common stock with $0.0001 par value, and 20,000,000 shares
of preferred stock also with $0.0001 par value. No other classes of stock are authorized.
The Company's first issuance of common stock,
totalling 580,000 shares, took place on March 6, 2014 pursuant to the Chapter 11 Plan of Reorganization confirmed by the U.S. Bankruptcy
Court in the matter of Pacific Shores Development, Inc. (“PSD”). The Court ordered the distribution of shares in the Company
to all general unsecured creditors of PSD, with these creditors to receive their Pro Rata share (according to amount of debt held) of
a pool of 80,000 shares in the Company. The Court also ordered the distribution of shares in the Company to all administrative creditors
of PSD, with these creditors to receive one share of common stock in the Company for each $0.10 of PSD's administrative debt which they
held. A total of 500,000 shares were issued to PSD’s administrative creditors.
The Court has also ordered the distribution of
2,500,000 warrants in the Company to all administrative creditors of PSD, with these creditors to receive five warrants in the Company
for each $0.10 of PSD's administrative debt which they held. These creditors received 2,500,000 warrants consisting of 500,000 “A
Warrants” each convertible into one share of common stock at an exercise price of $4.00; 500,000 “B Warrants” each convertible
into one share of common stock at an exercise price of $5.00; 500,000 “C Warrants” each convertible into one share of common
stock at an exercise price of $6.00; 500,000 "D Warrants" each convertible into one share of common stock at an exercise price
of $7.00; and 500,000 “E Warrants” each convertible into one share of common stock at an exercise price of $8.00. All warrants
are exercisable at any time prior to August 30, 2025. As of the date of this report, no warrants have been exercised.
On May 22, 2020, the Company consummated the acquisition
of LHCL and agreed to issue to the shareholders of LHCL Ten Million (10,000,000) shares of its common stock, at a value of $0.10 per share,
for an aggregate value of $1,000,000.
As of March 31, 2023, no warrants have been exercised.
Issued and outstanding shares
As of March 31, 2023 and December 31, 2022, 28,210,000
common shares were issued and outstanding, and 2,500,000 warrants to acquire common shares were issued and exercisable.
NOTE –
5 INCOME TAX
The Company mainly operates in Penang, Malaysia,
and other parts of Asia, and is subject to different taxes in the governing jurisdictions in which it operates. The effective tax rate
in the period presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax
rate, as follows:
United States of America
LDSN is registered in
the State of Delaware and is subject to US federal corporate income tax. The U.S. Tax Cuts and Jobs Act (the “Tax Reform Act”)
was signed into law. The Tax Reform Act significantly revised the U.S. corporate income tax regime by, among other things, lowering the
U.S. corporate tax rate from 35% to 21% effective January 1, 2018. The Company’s policy is to recognize accrued interest and penalties
related to unrecognized tax benefits in its income tax provision. The Company has not accrued or paid interest or penalties which were
not material to its results of operations for the periods presented. Deferred tax asset is not provided for as the tax losses may not
be able to carry forward after a change in substantial ownership of the Company in May 2020.
As of March 31, 2023,
the operations in the United States of America incurred nil cumulative net operating income which can be carried forward to offset future
taxable income. Any net operating loss carry forwards begin to expire in 2038, if unutilized.
ASC 740, Accounting
for Income Taxes, which requires an assessment of both positive and negative evidence when determining whether it is more likely than
not that deferred tax assets are recoverable. Such assessment is required on a jurisdiction by jurisdiction basis. The Company’s
history of cumulative losses, along with expected future U.S. losses required that a full valuation allowance be recorded against all
net deferred tax assets. The Company intends to maintain a full valuation allowance on net deferred tax assets until sufficient positive
evidence exists to support reversal of the valuation allowance.
NOTE –
6 RELATED PARTY TRANSACTIONS
Apart from the transactions and balances detailed
elsewhere in these accompanying financial statements, the Company has no other significant or material related party transactions during
the periods presented.
NOTE –
7 COMMITMENTS AND CONTINGENCIES
As of March 31, 2023, the Company has no material
commitments or contingencies.
NOTE –
8 SUBSEQUENT EVENTS
In accordance with ASC Topic 855, “Subsequent
Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date
but before the Pro-forma financial statements are issued, the Company has evaluated all events or transactions that occurred after March
31, 2023, up through the date the Company issued the unaudited pro-forma financial statements. During the period, the Company did not
have any material subsequent events other than those disclosed above.