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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 2 to
FORM S-1/A
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
LUDUSON G INC.
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(Exact name of registrant as specified in its charter)
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Delaware
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7372
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82-3184409
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(State or Other Jurisdiction of
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(Primary Standard Industrial
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(IRS Employer
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Incorporation or Organization)
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Classification Number)
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Identification Number)
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17/F, 80 Gloucester Road
Wanchai, Hong Kong
+852 2818 7199
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Ka Leung Wong
Chief Executive Officer
Luduson G Inc.
17/F, 80 Gloucester Road
Wanchai, Hong Kong
+852 2818 7199
(Address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Jenny Chen-Drake, Esq.
Law Offices of Jenny Chen-Drake
8491 Sunset Boulevard, Suite 368
West Hollywood, California 90069
Telephone No.: (310) 358-0880
Facsimile No.: (888) 896-7763
Approximate date of proposed sale to the public: As soon as practicable
and from time to time after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number
of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to rule 462(c)
under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration
statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration
statement for the same offering. ☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company; or an emerging growth company. See
definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and
“emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non-accelerated filer
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☒
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Smaller reporting company
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☒
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Emerging Growth Company
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☐
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If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant Section 7(a)(2)(B) of the Exchange Act. ☐
CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be Registered
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Amount to Be
Registered (1)
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Proposed
Maximum
Offering Price
per Share (2)
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Proposed
Maximum
Aggregate
Offering Price
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Amount of
Registration Fee (3)
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Common Stock, par value $0.0001 per share issuable pursuant to Investment Agreement (4)
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1,000,000
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(4)
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$
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5.00
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$
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5,000,000
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$
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545.50
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Common Stock, par value $0.0001 per share (5)
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6,100,000
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(5)
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$
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5.00
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$
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30,500,000
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$
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3,327.55
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TOTAL
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7,100,000
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$
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5.00
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$
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35,500,000
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$
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3,873.05
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*
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______________
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(1)
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In the event of a stock split, stock dividend or similar transaction involving our common stock, the number of shares registered shall automatically be increased to cover the additional shares of common stock issuable pursuant to Rule 416 under the Securities Act of 1933, as amended (the “Securities Act”)
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(2)
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This offering price has been estimated solely for the purpose of
computing the registration fee in accordance with Rule 457(c) of the Securities Act on the basis of the average of the high and low
prices of the common stock of the Company as reported on the OTCQB on October 28, 2021. The offering price of the shares
of common stock offered by the selling stockholders was determined by the effective lack of any liquidity in the shares of common
stock of the Registrant and the desire to not offer shares at a price higher than the price of shares being offered by the
Registrant.
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(3)
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The registration fee for securities to be offered by the Registrant is based on an estimate of the proposed maximum aggregate offering price of the securities, and such estimate is solely for the purpose of calculating the registration fee pursuant to Rule 457(c).
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(4)
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Represents the number of shares of common stock of the Registrant that we will put (“Strattner Put Shares”) to Strattner Alternative Credit Fund LP, a Delaware limited partnership (“Strattner”), pursuant to that certain Investment Agreement (the “Investment Agreement”) by and between Strattner and the Registrant, dated April 6, 2021. In the event that adjustment provisions of the Investment Agreement require the Company to issue more shares than are being registered in this registration statement, for reasons other than those stated in Rule 416 of the Securities Act, the Company will file a new registration statement to register those additional shares.
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(5)
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Represents the number of shares of common stock of the Registrant that
we will put (“Williamsburg Put Shares”) to Williamsburg Venture Holdings, LLC, a Nevada limited liability company
(“Williamsburg”), pursuant to that certain Equity Purchase Agreement (the “Equity Purchase Agreement”) by
and between Williamsburg and the Registrant, dated August 20, 2021 and 100,000 shares of common stock issued to Williamsburg as
commitment shares. In the event that adjustment provisions of the Equity Purchase Agreement require the Company to issue more shares
than are being registered in this registration statement, for reasons other than those stated in Rule 416 of the Securities Act, the
Company will file a new registration statement to register those additional
shares.
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*
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Previously paid.
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The Registrant hereby amends this
registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further
amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a)
of the securities act of 1933, or until the registration statement shall become effective on such date as the Commission, acting pursuant
to section 8(a), may determine.
The
information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration
statement filed with the U.S. Securities and Exchange Commission ("SEC") is effective. This preliminary prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale
is not permitted.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION DATED DECEMBER 27, 2021
7,100,000 SHARES OF COMMON STOCK OFFERED BY
SELLING STOCKHOLDERS
This prospectus relates to the resale of shares
of our common stock, par value $0.0001 per share, by (i) Strattner Alternative Credit Fund LP (“Strattner”) of 1,000,000 Strattner
Put Shares that we will put to Strattner pursuant to the Investment Agreement, and (ii) Williamsburg Venture Holdings, LLC (“Williamsburg”)
of up to 6,100,000 Williamsburg Put Shares that we will put to Williamsburg pursuant to the Equity Purchase Agreement. Strattner and Williamsburg
are collectively referred to as the “Selling Security Holders.”
The Investment Agreement with Strattner provides
that Strattner is committed to purchase up to $5,000,000 of our common stock. We may draw on the facility from time to time, as and when
we determine appropriate in accordance with the terms and conditions of the Investment Agreement. The per share purchase price for the
Strattner Put Shares shall be equal to 85% of volume weighted average price (“VWAP”) for the five (5) consecutive trading
days including and immediately after the date on which the Company submits a put notice to Strattner.
The Equity Purchase Agreement with Williamsburg
provides that Williamsburg is committed to purchase up to $30,000,000 of our common stock. We may draw on the facility from time to time,
as and when we determine appropriate in accordance with the terms and conditions of the Equity Purchase Agreement. The per share purchase
price for the Williamsburg Put Shares shall be equal to 88% the lowest traded price of the Common Stock on the principal market during
the five (5) consecutive trading days immediately preceding the date which Williamsburg received the Williamsburg Put Shares as DWAC Shares
in its brokerage account (as reported by Bloomberg Finance L.P., Quotestream, or other reputable source).
The Registrant is a Delaware holding company conducting
our operations in Hong Kong through wholly owned subsidiaries with direct equity ownership. We are not a Hong Kong operating company.
We are a holding company and do not directly own any substantive business operations in Hong Kong. We conduct our operations primarily
through our subsidiaries based in Hong Kong. This is an offering of common stock of our Delaware holding company, instead of shares of
our operating companies in Hong Kong. Therefore, you will not directly hold any equity interests in our Hong Kong operating companies.
Our holding company structure involves unique risks to investors. Chinese regulatory authorities could disallow our operating structure,
which would likely result in a material change in our operations and/or the value of our common stock, including that it could cause the
value of such securities to significantly decline or become worthless. For a detailed description of risks related to the holding corporate
structure, see “Risk Factors – Risk Factors Relating to Doing Business in Hong Kong.” for detailed discussions.
Additionally, we are subject to certain legal
and operational risks associated with our business operations in Hong Kong which is subject to significant and increasing influence and
interference from China. PRC laws and regulations governing our current business operations are sometimes vague and uncertain, and we
face the risk that changes in the policies of the PRC government could have a significant impact upon the business we may be able to
conduct in Hong Kong and the profitability of such business. Therefore, these risks associated being based in or having the majority
of our operations in Hong Kong could cause the value of our securities to significantly decline or be worthless. Furthermore, these risks
may result in a material change in our business operations or a complete hinderance of our ability to offer or continue to offer our
securities to investors. Recently, the PRC government initiated a series of regulatory actions and statements to regulate business operations
in China with little advance notice, including cracking down on illegal activities in the securities market, enhancing supervision over
China-based companies listed overseas using variable interest entity structure, adopting new measures to extend the scope of cybersecurity
reviews, and expanding the efforts in anti-monopoly enforcement. The business of our subsidiaries until now are not subject to cybersecurity
review with the Cyberspace Administration of China, or CAC, given that: (i) our products and services are offered not directly to individual
users but through our institutional customers; (ii) we do not possess a large amount of personal information in our business operations;
and (iii) 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. In addition, we are not subject to merger control review by China’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 within Hong Kong or China of more than
RMB400 million. Currently, these statements and regulatory actions have had no impact on our daily business operation, the ability to
accept foreign investments and list our securities on an U.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 an U.S. or other foreign exchange.
Our ability to pay dividends to our shareholders
and to service any debt we may incur may depend upon dividends paid by our Hong Kong Subsidiaries. Current Hong Kong regulations permit
our Hong Kong Subsidiaries to pay dividends to us, only out of their accumulated profits, if any, determined in accordance with Chinese
accounting standards and regulations. As of the date hereof, we have had no transactions that involved the transfer of cash or assets
throughout our corporate structure. The Hong Kong Subsidiaries have not transferred cash or other assets to Luduson G Inc., including
by way of dividends. Luduson G Inc. does not currently plan or anticipate transferring cash or other assets from our operations in Hong
Kong to any non-Chinese entity. For a detailed description of how cash is transferred through our corporate structure, see “Prospectus
Summary - Transfers of Cash to and from Our Subsidiaries.”
In light of the recent statements and regulatory
actions by the PRC government, such as those related to Hong Kong, data security, and anti-monopoly concerns, we may be subject to the
risks of uncertainty of any future actions of the PRC government in this regard, which may result in a material change in our operations,
including our ability to carry on our current business or accept foreign investments, 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 the Chinese 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
in Hong Kong, please refer to “Risk Factors – Risk Factors Relating to Doing Business in Hong Kong.”
Our common stock is quoted on the QB tier of the
OTC Markets Group, Inc. (the “OTC Markets”) under the symbol “LDSN.” The shares of our common stock registered
hereunder are being offered for sale by Selling Security Holders at prices established on the OTC Markets during the term of this offering.
This offering will terminate on ____, 2022 [16 months after the effective date of this prospectus]. On October 28, 2021, the last day
that our common stock traded on the OTC Markets, the closing price of our common stock was $7.75 per share. These prices will fluctuate
based on the demand for our common stock.
We will receive gross proceeds of up to $5,000,000
from our own sale of the Strattner Put Shares and up to $30,000,000 from our own sale of the Williamsburg Put Shares. The proceeds will
be used for working capital or general corporate purposes. We will bear all costs associated with this registration.
Each of the selling stockholders are
an "underwriter" as such term is defined in the Securities Act of 1933, as amended (the "Securities Act"). The net
proceeds to be received by the selling stockholders is approximately $34,960,181 assuming that the Selling Security Holders sell the
lesser of: (i) such number of Strattner Put Shares and Williamsburg Put Shares necessary to result in gross proceeds of $35,000,000;
or (ii) all 7,100,000 shares offered herein.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION
NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Investing in our common stock involves a high
degree of risk. Before buying any shares, you should carefully read the discussion of material risks of investing in our common stock
in "Risk Factors" beginning on page 12 of this prospectus.
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We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or supplements carefully before you make your investment decision.
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The following table of contents has been designed to help you find
information contained in this prospectus. We encourage you to read the entire prospectus.
TABLE OF CONTENTS
A CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
This prospectus includes "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially
from those expected and projected. All statements, other than statements of historical facts, included in this prospectus including, without
limitation, statements in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
regarding the Company’s market projections, financial position, business strategy and the plans and objectives of management for
future operations, events or developments which the Company expects or anticipates will or may occur in the future, including such things
as future capital expenditures (including the amount and nature thereof); expansion and growth of the Company's business and operations;
and other such matters are forward-looking statements. These statements are based on certain assumptions and analyses made by the Company
in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other
factors it believes are appropriate under the circumstances. However, whether actual results or developments will conform with the Company's
expectations and predictions is subject to a number of risks and uncertainties, including general economic, market and business conditions;
the business opportunities (or lack thereof) that may be presented to and pursued by the Company; changes in laws or regulation; and other
factors, most of which are beyond the control of the Company.
These forward-looking statements
can be identified by the use of predictive, future-tense or forward-looking terminology, such as "believes," "anticipates,"
"expects," "estimates," "plans," "may," "will," or similar terms. These statements appear
in a number of places in this filing and include statements regarding the intent, belief or current expectations of the Company, and its
directors or its officers with respect to, among other things: (i) trends affecting the Company's financial condition, including without
limitation, the trend of increased government scrutiny and control into private enterprises by the PRC government or results of operations
for its limited history; (ii) the Company's business and growth strategies; and, (iii) the Company's financing plans. Investors are cautioned
that any such forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and
that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Such
factors that could adversely affect actual results and performance include, but are not limited to, the Company's limited operating history,
potential fluctuations in quarterly operating results and expenses, government regulation, technological change and competition. For information
identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements,
please refer to the Risk Factors section of this prospectus.
Consequently, all of the forward-looking
statements made in this prospectus are qualified by these cautionary statements and there can be no assurance that the actual results
or developments anticipated by the Company will be realized or, even if substantially realized, that they will have the expected consequence
to or effects on the Company or its business or operations. The Company assumes no obligations to update any such forward-looking statements.
PROSPECTUS SUMMARY
As used in this prospectus, references to the "Company",
"we", "our", "us", "Luduson G" refer to Luduson G Inc. unless the context otherwise indicates.
The following summary highlights selected information
contained in this prospectus. Before making an investment decision, you should read the entire prospectus carefully, including the "Risk
Factors" section, the financial statements, and the notes to the financial statements.
THE OFFERING
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Common Stock offered by Selling Security Holders:
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This Prospectus relates to the resale of 7,100,000
million shares of our Common Stock, issuable to the Selling Security Holders.
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Common Stock outstanding before the Offering:
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28,200,000 shares of Common Stock as of the date of this Prospectus.
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Common Stock outstanding after the Offering:
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35,300,000
shares of Common Stock (1)
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Terms of the Offering:
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The Selling Security Holders will determine when and how it will sell the Common Stock offered in this Prospectus. The prices at which the Selling Security Holders may sell the shares of Common Stock in this Offering will be determined by the prevailing market price for the shares of Common Stock or in negotiated transactions.
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Termination of the Offering
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The Offering will conclude upon such time as all of the Common Stock has been sold pursuant to the Registration Statement.
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Trading Market
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Our Common Stock is subject to quotation on the OTC Markets QB under the symbol “LDSN.”
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Use of proceeds
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The Company is not selling any shares of the Common Stock covered by this Prospectus. As such, we will not receive any of the Offering proceeds from the registration of the shares of Common Stock covered by this Prospectus. See “Use of Proceeds.”
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Risk Factors
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The Common Stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of his/her/its entire investment. See “Risk Factors”.
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(1) This total reflects the number of shares of
Common Stock that will be outstanding assuming that the Selling Security Holders purchase all of the 7,100,000 shares of our common stock
under the Investment Agreement and the Equity Purchase Agreement.
OUR COMPANY
Business Overview
We are a Nevada holding company
that, through our wholly owned Hong 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 in Hong 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 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, 80 Gloucester Road, Wanchai, Hong Kong, telephone number +852-2119 1031.
We are not a Chinese operating
company but a Nevada holding company with operations conducted through our wholly owned subsidiaries based in Hong Kong. We are currently
not required to obtain permission from the Chinese authorities to operate or
to issue securities to foreign investors. Our holding company structure presents unique risks as our investors may never directly
hold equity interests in our Hong Kong subsidiaries and will be dependent upon contributions from our subsidiaries to finance our cash
flow needs. Further, in light of the recent statements and regulatory actions by the PRC government, such as those related to Hong 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, 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 the Chinese 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 in Hong Kong, please refer to “Risk Factors – Risk Factors
Relating to Doing Business in Hong Kong.”
Our corporate structure
is below:
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(1)
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Luduson G Inc. was incorporated in
the state of Nevada on March 6, 2014.
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(2)
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Luduson Holding Company Limited is
a holding company incorporated under the laws of the British Virgin Islands.
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(3)
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Luduson Entertainment Limited is
a sales and marketing company incorporated under the laws of Hong Hong.
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(4)
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G Music Asia Limited is an event
planning company incorporated under the laws of the British Virgin Islands.
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Risk Factor Summary
In addition to the foregoing risks, we face
various legal and operational risks and uncertainties arising from doing business in Hong Kong as summarized below and in “Risk
Factors — Risks Relating to Doing Business in Hong Kong.”
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Adverse changes in economic
and political policies of the PRC government could have a material and adverse effect on overall economic growth in China and Hong
Kong, which could materially and adversely affect our business.
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We
are a holding company and will rely on dividends paid by our subsidiaries for our cash needs any limitation on the ability of our
subsidiaries to make payments to us could have a material adverse effect on our ability to conduct business. We do not anticipate
paying dividends in the foreseeable future; you should not buy our stock if you expect dividends.
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PRC
regulation of loans to and direct investments in PRC entities by offshore holding companies may delay or prevent us from using the
proceeds of this offering to make loans or additional capital contributions to our operating subsidiaries in Hong Kong.
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Substantial
uncertainties exist with respect to the interpretation of the PRC Foreign Investment Law and how it may impact the viability of our
current corporate structure, corporate governance and business operations.
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The
Chinese government exerts substantial influence over, and can intervene at any time with little to no advance notice: (i) in
the manner in which we operate and conduct our business activities; and (ii) offering conducted overseas and or foreign investment
in China-based issuers, which could result in a material change in our operations and or the value of our securities. . We are currently
not required to obtain approval from Chinese authorities to list on U.S. exchanges. However, to the extent that the Chinese government
exerts more control over offerings conducted overseas and/or foreign investment in Hong Kong-based issuers over time and if our subsidiaries
or the holding company were required to obtain approval in the future and were denied permission from Chinese authorities to list
on U.S. exchanges, we will not be able to continue listing on a U.S. exchange and the value of our common stock may significantly
decline or become worthless, which would materially affect the interest of the investors.
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Governmental
control of currency conversion may limit our ability to utilize our revenues effectively and affect the value of your investment.
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We
may become subject to a variety of laws and regulations in the PRC regarding privacy, data security, cybersecurity, and data protection.
We may be liable for improper use or appropriation of personal information provided by our customers.
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Under
the Enterprise Income Tax Law, we may be classified as a “Resident Enterprise” of China. Such classification will likely
result in unfavorable tax consequences to us and our non-PRC shareholders.
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PRC
regulation of loans to, and direct investments in, Hong Kong entities by offshore holding companies may delay or prevent us from
using proceeds from this offering and/or future financing activities to make loans or additional capital contributions to our Hong
Kong operating subsidiaries.
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Failure
to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our
PRC resident Shareholders to personal liability, may limit our ability to acquire Hong Kong and PRC companies or to inject capital
into our Hong Kong subsidiaries, may limit the ability of our Hong Kong subsidiaries to distribute profits to us or may otherwise
materially and adversely affect us.
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The
recent joint statement by the SEC and PCAOB, and the Holding Foreign Companies Accountable Act all call for additional and more stringent
criteria to be applied to emerging market companies upon assessing the qualification of their auditors, especially the non-U.S. auditors
who are not inspected by the PCAOB. These requirements include requiring auditors of publicly traded companies to submit to
regular inspections every three years to assess such auditors’ compliance with applicable professional standards. If
the U.S. securities regulatory agencies are unable to conduct such investigations, they may determine to suspend or de-register our
registration with the SEC and may also delist our securities from applicable trading market within the US.
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You
may be subject to PRC income tax on dividends from us or on any gain realized on the transfer of shares of our common stock.
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We
face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
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We
are organized under the laws of the State of Nevada as a holding company that conducts its business through a number of subsidiaries
organized under the laws of foreign jurisdictions such as Hong Kong. This may have an adverse impact on the ability of U.S. investors
to enforce a judgment obtained in U.S. Courts against these entities, bring actions in Hong Kong against us or our management or
to effect service of process on the officers and directors managing the foreign subsidiaries.
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U.S.
regulatory bodies may be limited in their ability to conduct investigations or inspections of our operations in Hong Kong.
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There
are significant uncertainties under the EIT Law relating to the withholding tax liabilities of PRC subsidiaries, and dividends payable
by PRC subsidiaries to our offshore subsidiaries may not qualify to enjoy certain treaty benefits
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Transfers of Cash to and from Our Subsidiaries
Luduson G Inc. is a Delaware
holding company with no operations of its own. We conduct our operations in Hong Kong primarily through our subsidiaries in Hong Kong.
We may rely on dividends to be paid by our Hong Kong subsidiaries to fund our cash and financing requirements, including the funds necessary
to pay dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses.
If our Hong Kong subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability
to pay dividends or make other distributions to us.
Luduson G Inc. is permitted
under the Delaware laws to provide funding to our subsidiaries in Hong Kong through loans or capital contributions without restrictions
on the amount of the funds, subject to satisfaction of applicable government registration, approval and filing requirements. Our Hong
Kong subsidiaries are also permitted under the laws of Hong Kong to provide funding to DH Enchantment, Inc. through dividend distribution
without restrictions on the amount of the funds. As of the date of this prospectus, there has been no dividends or distributions among
the holding company or the subsidiaries.
We currently intend to
retain all available funds and future earnings, if any, for the operation and expansion of our business and do not anticipate declaring
or paying any dividends in the foreseeable future. Any future determination related to our dividend policy will be made at the discretion
of our board of directors after considering our financial condition, results of operations, capital requirements, contractual requirements,
business prospects and other factors the board of directors deems relevant, and subject to the restrictions contained in any future financing
instruments.
Subject to the Nevada
Revised Statutes and our bylaws, our board of directors may authorize and declare a dividend to shareholders at such time and of such
an amount as they think fit if they are satisfied, on reasonable grounds, that immediately following the dividend the value of our assets
will exceed our liabilities and we will be able to pay our debts as they become due. There is no further Nevada statutory restriction
on the amount of funds which may be distributed by us by dividend.
Under the current practice
of the Inland Revenue Department of Hong Kong, no tax is payable in Hong Kong in respect of dividends paid by us. The laws
and regulations of the PRC do not currently have any material impact on transfer of cash from DH Enchantment, Inc. to Ho Shun Yi Limited
or from Ho Shun Yi Limited to DH Enchantment, Inc. There are no restrictions or limitation under the laws of Hong Kong imposed on the
conversion of HK dollar into foreign currencies and the remittance of currencies out of Hong Kong or across borders and to U.S investors.
Current PRC regulations
permit PRC subsidiaries to pay dividends to Hong Kong subsidiaries only out of their accumulated profits, if any, determined in accordance
with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10%
of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each
of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although
the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be
used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective
companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. As of the date of this prospectus,
we do not have any PRC subsidiaries.
The PRC government also
imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may
experience difficulties in completing the administrative procedures necessary to obtain and remit foreign currency for the payment of
dividends from our profits, if any. Furthermore, if our subsidiaries in the PRC incur debt on their own in the future, the instruments
governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive
all of the revenues from our operations, we may be unable to pay dividends on our common stock.
Cash dividends, if any,
on our common stock will be paid in U.S. dollars. If we are considered a PRC tax resident enterprise for tax purposes, any dividends
we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at
a rate of up to 10.0%.
In order for us to pay
dividends to our shareholders, we will rely on payments made from our Hong Kong subsidiary to DH Enchantment, Inc. If in the future we
have PRC subsidiaries, certain payments from such PRC subsidiaries to Hong Kong subsidiaries will be subject to PRC taxes, including
business taxes and VAT. As of the date of this prospectus, we do not have any PRC subsidiaries and our Hong Kong subsidiary has not made
any transfers or distributions.
Pursuant to the Arrangement
between Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income,
or the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no
less than 25% of a PRC entity. However, the 5% withholding tax rate does not automatically apply and certain requirements must be satisfied,
including, without limitation, that (a) the Hong Kong entity must be the beneficial owner of the relevant dividends; and (b) the Hong
Kong entity must directly hold no less than 25% share ownership in the PRC entity during the 12 consecutive months preceding its receipt
of the dividends. In current practice, a Hong Kong entity must obtain a tax resident certificate from the Hong Kong tax authority to
apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case
basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and
enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to dividends to be paid by a PRC
subsidiary to its immediate holding company. As of the date of this prospectus, we do not have a PRC subsidiary. In the event that we
acquire or form a PRC subsidiary in the future and such PRC subsidiary desires to declare and pay dividends to our Hong Kong subsidiary,
our Hong Kong subsidiary will be required to apply for the tax resident certificate from the relevant Hong Kong tax authority. In such
event, we plan to inform the investors through SEC filings, such as a current report on Form 8-K, prior to such actions. See “Risk
Factors – Risk Factors Relating to Doing Business in Hong Kong.”
Corporate Developments
We were incorporated under
the laws of the State of Delaware on March 6, 2014, under the name “Jovanovic-Steele, Inc.” Our name was changed to Baja Custom
Designs, Inc. on October 26, 2017.
April 2020 Change in Control
On April 3, 2020, the Company,
Linda Masters, our Chief Executive Officer and President, entered into that certain Stock Purchase Agreement (the “SPA”),
pursuant to which Ms. Masters agreed to sell to Lan CHAN 14,960,000 shares of common stock of the Company, par value $0.0001 (the “Shares”),
representing approximately 95.8% of the issued and outstanding common stock of the Company, for aggregate consideration of Three Hundred
Ninety One Thousand Dollars ($391,000) in accordance with the terms and conditions of the SPA. The acquisition of the Shares consummated
on April 15, 2020, and was purchased by Lan CHAN with his personal funds. As a result of the acquisition, Mr. Chan holds a controlling
interest in the Company and may unilaterally determine the election of the Board and other substantive matters requiring approval of the
Company’s stockholders.
Upon the consummation of the
sale of the Shares, Linda Masters, our Chief Executive Officer, President and director, and Kathleen Chula, our Vice President and Director,
resigned from all of their positions with the Company, effective April 15, 2020. Their resignations were not due to any dispute or disagreement
with the Company on any matter relating to the Company's operations, policies or practices.
Concurrently with such resignations,
Lan CHAN was appointed to serve as the Chief Executive Officer, Chief Financial Officer, President, Secretary and sole Director of the
Company, until the next annual meeting of stockholders of the Company and until such director’s successor is elected and qualified
or until such director’s earlier death, resignation or removal. None of the directors or executive officers has a direct family
relationship with any of the Company’s directors or executive officers, or any person nominated or chosen by the Company to become
a director or executive officer. Mr. Chan will serve in his positions without compensation. The Company hopes to enter into a compensatory
arrangement with each officer in the future.
Acquisition of Luduson
Holding Company Limited
On May 8, 2020, we executed
a Share Exchange Agreement, or the “Share Exchange Agreement,” with Luduson Holding Company Limited, a limited liability company
organized under the laws of British Virgin Islands, or “LHCL,” and the shareholders of LHCL. Pursuant to the Share Exchange
Agreement, we purchased Ten Thousand (10,000) shares of LHCL, or the “LHCL Shares,” representing all of the issued and outstanding
shares of common stock of LHCL. As consideration, we agreed to issue to the shareholders of LHCL Ten Million (10,000,000) shares of our
common stock, at a value of US $0.10 per share, for an aggregate value of US $1,000,000. We consummated the acquisition of LHCL on May
22, 2020. LHCL is a business-to-business gaming technology company. As a result of our acquisition of LHCL, we entered into the business-to-business
gaming technology industry.
Investment Agreement with Strattner Alternative
Credit Fund LP
The Company is a party to
an Investment Agreement dated as of April 6, 2021, or the “Investment Agreement,” with Strattner pursuant to which Strattner
is committed to purchase up to $5,000,000, or the “Strattner Total Commitment,” worth of the Company’s common stock,
$0.0001 par value, over the 36-month term of the Investment Agreement.
From time to time over the
term of the Investment Agreement, commencing on the trading day immediately following the date on which the initial registration statement
is declared effective by the Securities and Exchange Commission, or the “Commission,” as further discussed below, the Company
may, in its sole discretion, provide Strattner with written notices, or a “Strattner Put Notice,” stating the amount of Common
Shares of the Company that the Company intends to sell to Strattner, or the “Strattner Put Amount,” with each put subject
to the limitations discussed below. The maximum amount of common stock that the Company shall be entitled to put to Strattner under any
applicable put notice, or the “Maximum Strattner Put Amount,” shall be an amount of shares up to or equal to 200% of the average
of the daily trading volume of our common stock for the ten (10) consecutive trading days immediately prior to the applicable date on
which we make our put to Strattner, so long as such amount is at least $5,000 and does not exceed $250,000, as calculated by multiplying
the number of shares under our put by the average daily volume weighted average price for the 10 consecutive trading days immediately
prior to the applicable date we submit our put to Strattner.
Once presented with a Strattner
Put Notice, Strattner is required to purchase the number of Strattner Put Shares underlying the Strattner Put Notice. The per share purchase
price for the Common Shares subject to a Strattner Put Notice shall be equal to 85% of the lowest volume weighted average price of the
Common Shares during the five (5) consecutive trading days including and immediately following the applicable Strattner Put Notice date,
provided, however, an additional 10% will be added to the discount of each Put if (i) the Company is not DWAC eligible and (ii) an additional
15% will be added to the discount of each Put if the Company is under DTC “chill” status on the applicable Strattner Put Notice
Date.
Among other conditions, the
Company is prohibited from issuing a Strattner Put Notice if (i) the amount requested in such Strattner Put Notice exceeds Two Hundred
Fifty Thousand Dollars ($250,000), as calculated by multiplying the Strattner Put Amount by the average daily VWAP for the ten (10) consecutive
trading days immediately prior to the applicable Strattner Put Notice Date, (ii) the sale of Shares pursuant to such Strattner Put Notice
would cause the Company to issue or sell or Strattner to acquire or purchase an aggregate dollar value of Shares that would exceed Five
Million Dollars ($5,000,0000), or (iii) the sale of Shares pursuant to the Strattner Put Notice would cause the Company to sell or Strattner
to purchase an aggregate number of shares of the Company’s common stock which would result in beneficial ownership by Strattner
of more than 9.99% of the Company’s common stock (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder). The Company cannot make more than one put in any pricing period and must allow
10 days to elapse between the completion of the settlement of any one put and the commencement of a pricing period for any other put.
Registration Rights Agreement with Strattner
Alternative Credit Fund LP
In connection with the execution
of the Investment Agreement, on April 6, 2021, the Company and Strattner also entered into a Registration Rights Agreement, or the “Strattner
Registration Rights Agreement.” Pursuant to the Registration Rights Agreement, the Company has agreed to file an initial registration
statement, the “Registration Statement,” with the Commission to register an agreed upon number of Strattner Put Shares, on
or prior to July 5, 2021, or the “Filing Deadline,” and have it declared effective on or before the 150th calendar day the
Company has filed the Registration Rights Agreement, or the “Effectiveness Deadline.” Notwithstanding anything to the contrary,
the Company is not obligated to file Registration Statements with respect to securities not issued pursuant to the Investment Agreement.
If at any time all of the
Registrable Securities (as defined in the Registration Rights Agreement) are not covered by the initial Registration Statement, the Company
has agreed to file with the Commission one or more additional Registration Statements so as to cover all of the Registrable Securities
not covered by such initial Registration Statement, in each case, as soon as practicable, but in no event later than the applicable filing
deadline for such additional Registration Statements as provided in the Registration Rights Agreement.
Equity Purchase Agreement with Williamsburg
Venture Holdings, LLC
The Company is a party to
an Equity Purchase Agreement dated August 20, 2021, or the “Equity Purchase Agreement,” pursuant to which Williamsburg is
committed to purchase up to $30,000,000 worth of the Company’s common stock, $0.0001 par value, over the 36-month term of the Equity
Purchase Agreement, or the “Williamsburg Total Commitment”. From time to time over the term of the Equity Purchase Agreement,
the Company may, in its sole discretion, provide Williamsburg with written notices, or a “Williamsburg Put Notice,” stating
the amount of Common Shares of the Company that the Company intends to sell to Williamsburg, or the “Williamsburg Put Amount.”
Once presented with a Williamsburg Put Notice, Williamsburg is required to purchase the number of Williamsburg Put Shares underlying
the Williamsburg Put Notice with each put subject to the limitations discussed below.
The per share purchase price
for the Williamsburg Put Shares shall be equal to 88% the lowest traded price of the Common Stock on the principal market during the five
(5) consecutive trading days immediately preceding the date which Williamsburg received the Williamsburg Put Shares as DWAC Shares in
its brokerage account (as reported by Bloomberg Finance L.P., Quotestream, or other reputable source).
The exercise of each put option is
subject to the following limitations:
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each investment amount must be at least than $25,000
and not in excess of an amount that equals the lesser of (i) 200% of the average daily trading volume, and (ii) $500,000;
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(ii)
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the aggregate investment amount of all option puts shall not exceed $30,000,000;
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(iii)
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the lowest traded price of the Common Stock in the five trading days preceding the respective Put Date must exceed $0.01 per share;
and
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at least ten trading days must have lapsed since the most recent Put Notice.
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The Equity Purchase Agreement provides that the
number of Williamsburg Put Shares to be sold to Williamsburg shall not exceed the number of shares that when aggregated together with
all other shares of the Company’s common stock which Williamsburg is deemed to beneficially own, would result in Williamsburg owning
more than 4.99% of the Company’s outstanding common stock (as calculated pursuant to Section 13(d) of the Securities Exchange Act
of 1934, as amended, and the rules and regulations thereunder). The Equity Purchase Agreement provides that any provision of the Investment
Agreement may be amended or waived only by an instrument in writing signed by the party to be charged with enforcement.
The Company has paid to Williamsburg a commitment
fee equal in the form of 100,000 restricted shares of the Company’s common stock (the “Williamsburg Initial Commitment Shares”).
Registration Rights Agreement with Williamsburg
Venture Holdings, LLC
In connection with the Equity
Purchase Agreement, on August 20, 2021, the Company and Williamsburg also entered into a Registration Rights Agreement, or the “Williamsburg
Registration Rights Agreement.” Pursuant to the Williamsburg Registration Rights Agreement, the Company has agreed to file an initial
registration statement, or the “Registration Statement,” with the Commission to register the Williamsburg Initial Commitment
Shares and that number of Williamsburg Put Shares as set forth in the Williamsburg Registration Rights Agreement, within 90 days after
the execution date, or the “Filing Deadline.”.
If at any time all of the
Registrable Securities (as defined in the Registration Rights Agreement) are not covered by the initial Registration Statement, the Company
has agreed to file with the Commission one or more additional Registration Statements so as to cover all of the Registrable Securities
not covered by such initial Registration Statement, in each case, as soon as practicable, but in no event later than the applicable filing
deadline for such additional Registration Statements as provided in the Registration Rights Agreement.
We are a “Smaller Reporting Company”
We are a “smaller reporting
company,” meaning that we are not an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company
that is not a smaller reporting company and have (i) a public float of less than $250 million or (ii) annual revenues of less than $100
million during the most recently completed fiscal year and no public float, or a public float of less than $700 million. As a “smaller
reporting company,” the disclosure we will be required to provide in our SEC filings are less than it would be if we were not considered
a “smaller reporting company.” Specifically, “smaller reporting companies” are able to provide simplified executive
compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002 requiring
that independent registered public accounting firms provide an attestation report on the effectiveness of internal control over financial
reporting; are not required to conduct say-on-pay and frequency votes until annual meetings; and have certain other decreased disclosure
obligations in their SEC filings, including, among other things, being permitted to provide two years of audited financial statements
in annual reports rather than three years.
SUMMARY FINANCIAL INFORMATION
The tables and information
below are derived from our audited financial statements for the fiscal year ended December 31, 2020, and our unaudited financial statements
for the nine months ended September 30, 2021 and 2020. Our working capital as at September 30, 2021 was $_______.
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September 30, 2021
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December 31, 2020
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(Unaudited)
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(Audited)
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ASSETS
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Current asset:
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Cash and cash equivalents
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$
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60,618
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$
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40,447
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Accounts receivable
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5,098,954
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4,499,746
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Deposits, prepayments and other receivables
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829,108
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665,052
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Total current assets
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5,988,680
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5,205,245
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Non-current asset:
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Plant and equipment
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301,795
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422,414
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TOTAL ASSETS
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$
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6,290,475
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$
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5,627,659
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Current liabilities:
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Accrued liabilities and other payables
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$
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44,447
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$
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26,772
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Tax payable
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843,826
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743,562
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Amount due to a director
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56,568
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28,290
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Total current liabilities
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944,841
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798,624
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TOTAL LIABILITIES
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944,841
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798,624
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Nine Months Ended September 30,
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2021
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2020
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Revenues
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$
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927,053
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$
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2,945,508
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Cost of revenue
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(102,986
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(743,860
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Gross profit
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824,067
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2,201,648
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Total operating expenses
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(181,215
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(523,390
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Other income
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–
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(1,341
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Income before Income Taxes
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642,852
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1,676,917
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Income tax expense
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(103,772
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(178,846
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Net income
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$
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539,080
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$
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1,498,071
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As of December 31,
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2020
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2019
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ASSETS
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Current asset:
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Cash and cash equivalents
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$
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40,447
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$
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269,691
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Accounts receivable
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4,499,746
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760,733
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Deposits, prepayments and other receivables
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665,052
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142,001
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Operating lease right-of-use assets
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–
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35,816
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Total current assets
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5,205,245
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1,208,241
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Non-current asset:
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Plant and equipment
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422,414
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9,172
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TOTAL ASSETS
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$
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5,627,659
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$
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1,217,413
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
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$
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3,251
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$
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–
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Accrued liabilities and other payables
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23,521
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1,289
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Tax payable
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743,562
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139,804
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Operating lease liabilities
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–
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36,690
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Amount due to a director
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28,290
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–
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Total current liabilities
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798,624
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177,783
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TOTAL LIABILITIES
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798,624
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177,783
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Years ended December 31,
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2020
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2019
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Revenues
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$
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5,935,720
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$
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1,426,354
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Cost of revenue
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(1,027,662
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(283,828
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Gross profit
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4,908,058
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1,142,526
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Total operating expenses
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(659,097
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(164,293
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Other (expenses) income
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(1,898
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2
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Income before Income Taxes
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4,247,063
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978,235
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Income tax expense
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(602,877
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(138,959
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Net income
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3,644,186
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839,276
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Net income (excluding stock-based compensation expense)
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3,969,186
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839,276
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RISK FACTORS
An investment in our common stock involves a number
of very significant risks. You should carefully consider the following known material risks and uncertainties in addition to other information
in this prospectus in evaluating our company and its business before purchasing shares of our company's common stock. You could lose all
or part of your investment due to any of these risks.
Risks Relating to the Company
COVID-19
has had an adverse effect that is material on our business and may continue to do so for the next twelve months.
During
March 2020, the World Health Organization declared the rapidly growing coronavirus outbreak to be a global pandemic. The COVID-19 pandemic
has significantly impacted health and economic conditions throughout Hong Kong and China. National, regional and local governments took
a variety of actions to contain the spread of COVID-19, including office and store closures or capacity limitations. These developments
have caused a material adverse impact on the Company’s results of operations, financial condition and cash flows.
We
cannot predict how soon we will be able to resume normal operations as our ability to resume will depend in part on the actions of a number
of governmental bodies over which we have no control. Moreover, once restrictions are lifted, it is unclear how quickly customers will
commence operations and resume consuming our products and service, which may be a function of continued concerns over safety and/or depressed
consumer sentiment due to adverse economic conditions, including job losses. Considering the significant uncertainty as to when we can
resume operations and the uncertain customer demand environment, in addition to the actions described above, we expect to engage in conversations
with potential investors to secure additional sources of financing.
The
outbreak of COVID-19 has caused significant disruptions to the Company’s ability to generate revenues and cash flows, and uncertainty
regarding the length of the disruption may adversely impact our financial condition and ability to raise additional capital. As part of
our business continuity efforts, we reduced expenses broadly, including by furloughing our workforce except a small team of essential
personnel, reducing pay and benefits for remaining employees, and cutting back capital spending. The ultimate impact of the COVID-19 pandemic
on our business, results of operations, financial condition and cash flows will depend on our ability to have sufficient liquidity until
such time as we again generate revenue and profits capable of supporting our ongoing operations, all of which remain highly uncertain
at this time.
We may be materially
and adversely affected by the complexity, uncertainties and changes in PRC regulation of the companies and businesses in the digital space.
In recent activity, the PRC
government has issued extensive regulations affecting the digital industry such as online gaming, online tutoring, e-commerce and other
online and technology companies, including foreign ownership of, and the licensing and permit requirements pertaining to, companies in
the digital space. These laws and regulations are relatively new and evolving, and their interpretation and enforcement involve significant
uncertainty. As a result, in certain circumstances it may be difficult to determine what actions or omissions may be deemed to be in violations
of applicable laws and regulations. There is also uncertainty regarding such laws may be expanded to increase its effect on our business
and operations. Issues, risks and uncertainties relating to PRC regulations of digital businesses include, but are not limited to, the
following:
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There are uncertainties relating to the regulation of the online gaming and Internet business in China, including evolving licensing
practices and the requirement for real-name registrations and the applicability of PRC regulations to Hong Kong companies. Permits, licenses
or operations of our Hong Kong subsidiaries may be subject to challenge, we may not be able to timely obtain or maintain all the required
licenses or approvals, permits, or to complete filing, registration or other formalities necessary for our present or future operations,
and we may not be able to renew certain permits or licenses or renew certain filing or registration or other formalities.
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The evolving PRC regulatory system in the digital space may lead to the establishment of new regulatory agencies. For example, in May 2011,
the State Council announced the establishment of a new department, the State Internet Information Office. The primary role of this new
agency is to facilitate the policy-making and legislative development in this field to direct and coordinate with the relevant departments
in connection with online content administration and to deal with cross-ministry regulatory matters in relation to the Internet industry.
We are unable to determine what policies this new agency or any new agencies to be established in the future may have or how they may
interpret existing laws, regulations and policies and how they may affect us. Further, new laws, regulations or policies may be promulgated
or announced that will regulate Internet activities, including online video and online advertising businesses. In August 2021, the National
Press and Publication Administration issued new limits restricting online gaming for minors which may adversely impact our gaming business
in Hong Kong. If these new laws, regulations or policies are promulgated, additional licenses may be required for our operations. If
our operations do not comply with these new regulations after they become effective, or if we fail to obtain any licenses required under
these new laws and regulations, we could be subject to penalties, and our business could be disrupted.
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The interpretation and application
of existing PRC laws, regulations and policies and possible new laws, regulations or policies relating to the digital industry have created
substantial uncertainties regarding the legality of existing and future foreign investments in, and the businesses and activities of,
Internet businesses in China and Hong Kong including our business. There are also risks that we may be found to violate the existing or
future laws and regulations given the uncertainty and complexity of China’s regulation of the digital industry.
Our business generates
and processes personal data, and we are required to comply with PRC laws and regulations relating to cyber security. These laws and regulations
could create unexpected costs, subject us to enforcement actions for compliance failures, or restrict portions of our business or cause
us to change our data practices or business model.
Our business generates and
processes personal data and face risks inherent in handling and protecting personal data. In particular, we face a number of challenges
relating to data we collect through our game distribution platform, including:
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protecting the data in and hosted on our system, including against attacks on our system by outside parties or fraudulent behavior or
improper use by our employees;
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•
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addressing concerns related to privacy and sharing, safety, security and other factors; and
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complying with applicable laws, rules and regulations relating to the collection, use, storage, transfer, disclosure and security of
personal information, including any requests from regulatory and government authorities relating to this data.
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Governments around the world,
including the PRC government, have enacted or are considering legislation related to online businesses. There may be an increase in legislation
and regulation related to the collection and use of anonymous internet user data and unique device identifiers, such as IP address or
mobile unique device identifiers, and other data protection and privacy regulation. The PRC regulatory and enforcement regime with regard
to data security and data protection is evolving. We may be required by Chinese governmental authorities to share personal information
and data that we collect to comply with PRC laws relating to cybersecurity. All these laws and regulations may result in additional expenses
to us and any non-compliance may subject us to negative publicity which could harm its reputation and negatively affect the trading price
of our securities. There are also uncertainties with respect to how these laws will be implemented in practice. PRC regulators have been
increasingly focused on regulation in the areas of data security and data protection. We expect that these areas will receive greater
attention and focus from regulators, as well as attract continued or greater public scrutiny and attention going forward, which could
increase our compliance costs and subject it to heightened risks and challenges associated with data security and protection. If we are
unable to manage these risks, we could become subject to penalties, fines, suspension of business and revocation of required licenses,
and our reputation and results of operations could be materially and adversely affected. In addition, regulatory authorities around the
world have recently adopted or are considering a number of legislative and regulatory proposals concerning data protection. These legislative
and regulatory proposals, if adopted, and the uncertain interpretations and application thereof could, in addition to the possibility
of fines, result in an order requiring that we change our data practices, which could have an adverse effect on our business and results
of operations.
We may be liable for improper use or appropriation
of personal information provided directly or indirectly by its customers or end users.
We may become subject to a
variety of laws and regulations in the PRC and Hong Kong regarding privacy, data security, cybersecurity, and data protection. These laws
and regulations are continuously evolving and developing. The scope and interpretation of the laws that are or may be applicable to us
are often uncertain and may be conflicting, particularly with respect to foreign laws. In particular, there are numerous laws and regulations
regarding privacy and the collection, sharing, use, processing, disclosure, and protection of personal information and other user data.
Such laws and regulations often vary in scope, may be subject to differing interpretations, and may be inconsistent among different jurisdictions.
We expect to obtain information
about various aspects of our operations as well as regarding our employees and third parties. We also maintain information about various
aspects of our operations as well as regarding our employees. The integrity and protection of our customer, employee and company data
is critical to our business. Our customers, end users and employees expect that we will adequately protect their personal information.
We are required by applicable laws to keep strictly confidential the personal information that we collects, and to take adequate security
measures to safeguard such information.
The PRC Criminal Law, as amended
by its Amendment 7 (effective on February 28, 2009) and Amendment 9 (effective on November 1, 2015), prohibits institutions, companies
and their employees from selling or otherwise illegally disclosing a citizen’s personal information obtained during the course of
performing duties or providing services or obtaining such information through theft or other illegal ways. On November 7, 2016, the Standing
Committee of the PRC National People’s Congress issued the Cyber Security Law of the PRC, or Cyber Security Law, which became effective
on June 1, 2017.
Pursuant to the Cyber Security
Law, network operators must not, without users’ consent, collect their personal information, and may only collect users’ personal
information necessary to provide their services. Providers are also obliged to provide security maintenance for their products and services
and shall comply with provisions regarding the protection of personal information as stipulated under the relevant laws and regulations.
The Civil Code of the PRC (issued
by the PRC National People’s Congress on May 28, 2020 and effective from January 1, 2021) provides main legal basis for privacy
and personal information infringement claims under the Chinese civil laws. PRC regulators, including the Cyberspace Administration of
China, MIIT, and the Ministry of Public Security have been increasingly focused on regulation in the areas of data security and data protection.
The PRC regulatory requirements
regarding cybersecurity are constantly evolving. For instance, various regulatory bodies in China, including the Cyberspace Administration
of China, the Ministry of Public Security and the SAMR, have enforced data privacy and protection laws and regulations with varying and
evolving standards and interpretations. In April 2020, the Chinese government promulgated Cybersecurity Review Measures, which came into
effect on June 1, 2020. According to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity
review when purchasing network products and services which do or may affect national security.
In November 2016, the Standing
Committee of China’s National People’s Congress passed China’s first Cybersecurity Law (“CSL”), which became
effective in June 2017. The CSL is the first PRC law that systematically lays out the regulatory requirements on cybersecurity and data
protection, subjecting many previously under-regulated or unregulated activities in cyberspace to government scrutiny. The legal consequences
of violation of the CSL include penalties of warning, confiscation of illegal income, suspension of related business, winding up for rectification,
shutting down the websites, and revocation of business license or relevant permits. In April 2020, the Cyberspace Administration of China
and certain other PRC regulatory authorities promulgated the Cybersecurity Review Measures, which became effective in June 2020. Pursuant
to the Cybersecurity Review Measures, operators of critical information infrastructure must pass a cybersecurity review when purchasing
network products and services which do or may affect national security. On July 10, 2021, the Cyberspace Administration of China issued
a revised draft of the Measures for Cybersecurity Review for public comments (“2021 Measures”), which required that, in addition
to “operator of critical information infrastructure,” any “data processor” carrying out data processing activities
that affect or may affect national security should also be subject to cybersecurity review, and further elaborated the factors to be considered
when assessing the national security risks of the relevant activities, including, among others, (i) the risk of core data, important data
or a large amount of personal information being stolen, leaked, destroyed, and illegally used or exited the country; and (ii) the risk
of critical information infrastructure, core data, important data or a large amount of personal information being affected, controlled,
or maliciously used by foreign governments after listing abroad. The Cyberspace Administration of China has said that under the proposed
rules companies holding data on more than 1,000,000 users must now apply for cybersecurity approval when seeking listings in other nations
because of the risk that such data and personal information could be “affected, controlled, and maliciously exploited by foreign
governments.” The cybersecurity review will also investigate the potential national security risks from overseas IPOs. We do not
know what regulations will be adopted or how such regulations will affect us. In the event that the Cyberspace Administration of China
determines that we are subject to these regulations, our securities may no longer be traded on the OTC QB and we may be subject to fines
and penalties.
On June 10, 2021, the Standing
Committee of the NPC promulgated the PRC Data Security Law, which took effect on September 1, 2021. The Data Security Law also sets forth
the data security protection obligations for entities and individuals handling personal data, including that no entity or individual may
acquire such data by stealing or other illegal means, and the collection and use of such data should not exceed the necessary limits.
The costs of compliance with, and other burdens imposed by, CSL and any other cybersecurity and related laws may limit the use and adoption
of our products and services and could have an adverse impact on our business.
Further, if the enacted version
of the Measures for Cybersecurity Review mandates clearance of cybersecurity review and other specific actions to be completed by companies
like us, we face uncertainties as to whether such clearance can be timely obtained, or at all.
We believe that we will not
be subject to the cybersecurity review by the CAC for this offering, given that: (i) our products and services are offered not directly
to individual users but through our business customers; (ii) we do not possess a large amount of personal information in our business
operations; and (iii) 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. However, there remains uncertainty as to how the 2021 Measures will be interpreted or implemented
and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation
related to the 2021 Measures. If any such new laws, regulations, rules, or implementation and interpretation comes into effect, we will
take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on us.
On August 20, 2021, the Standing
Committee of the NPC approved the Personal Information Protection Law (“PIPL”), which will become effective on November 1,
2021. The PIPL regulates collection of personal identifiable information and seeks to address the issue of algorithmic discrimination.
Companies in violation of the PIPL may be subject to warnings and admonishments, forced corrections, confiscation of corresponding income,
suspension of related services, and fines. We offer our products and services mainly to corporate clients and have limited interactions
with individual end-users, which means our potential access or exposure to end-users’ personal identifiable information is limited.
However, in the event we inadvertently accesses or becomes exposed to end-users’ personal identifiable information, through its
corporate clients’ end-user-facing applications which access or store end users’ personal identifiable information, then we
may face heightened exposure to the PIPL. We cannot assure you that PRC regulatory agencies, including the CAC, would take the same view
as we do, and there is no assurance that we can fully or timely comply with such laws. In the event that we are subject to any mandatory
cybersecurity review and other specific actions required by the CAC, we face uncertainty as to whether any clearance or other required
actions can be timely completed, or at all. Given such uncertainty, we may be further required to suspend relevant business, shut down
our website, or face other penalties, which could materially and adversely affect our business, financial condition, and results.
If we fail to retain
existing or attract new advertising customers to advertise within their customized gaming content, maintain and increase our wallet share
of advertising budget, or if we are unable to collect accounts receivable in a timely manner, our business, financial condition may be
adversely affected.
We
generate a substantial part of our revenues from advertising or marketing customers who engage us to develop their customized gaming
content to launch in their digital interactive marketing campaigns. However, because our advertising customers are not under long term
contracts, we may not be able to retain our advertising customers in the future, attract new advertising customers continuously or be
able to retain our advertising customers at all. If our advertising customers find that they can generate better returns elsewhere, or
if our competitors provide better online advertising services to suit the advertising customers’ goals, we may lose some or all
of our advertising customers. Since most of our advertising customers are not bound by long-term contracts, they may easily reduce or
discontinue advertising arrangements without incurring material liabilities. Failure to retain existing advertising customers or attract
new advertising customers to advertise within the video content produced by us or on our e-commerce platform may materially and adversely
affect our business, financial conditions and results of operations.
The financial soundness of our marketing customers and agencies may
affect our collection of accounts receivable. We make a credit assessment of our marketing customers and agencies to evaluate the collectability
of the digital marketing service fees before entering into a contract. However, we may not be able to accurately assess the creditworthiness
of each customer or agency, and any inability of customers or agencies to pay us for our services in a timely manner would negatively
our liquidity and cash flows and may materially and adversely affect our business, financial condition and results of operations.
We
may need to raise additional financing to support our operations and future acquisitions, but we cannot be sure that we will be able to
obtain additional financing on terms favorable to us when needed. If we are unable to obtain additional financing to meet our needs, our
operations may be adversely affected or terminated.
Our ability to generate future
operating revenues depends in part on whether we can obtain the financing necessary to implement our business plan. We will likely require
additional financing through the issuance of debt and/or equity in order to establish profitable operations, and such financing may not
be forthcoming. There can be no assurance that we will be able to obtain financing to fund our operations
in light of factors beyond our control such as the market demand for our securities, the state of financial markets, generally, and other
relevant factors. Even if additional financing is available, it may not be available on terms favorable to us. At this time, we
have not identified or secured sources of additional financing. Any sale of our Common Stock in
the future may result in dilution to existing stockholders. Furthermore, there is no assurance that we will not incur debt in the future,
that we will have sufficient funds to repay any future indebtedness or that we will not default on our future debts, which would thereby
jeopardize our business viability. We may not be able to borrow or raise additional capital in the future to meet our needs, which might
result in the loss of some or all of your investment in our Common Stock. Even if we do raise sufficient capital and generate revenues
to support our operating expenses, there can be no assurance that the revenue will be sufficient to enable us to develop our business
to a level where it will generate profits and cash flows from operations or provide a return on investment. In addition, if we raise additional
funds through the issuance of equity or convertible debt securities, the percentage ownership of our stockholders could be significantly
diluted, the newly-issued securities may have rights, preferences or privileges senior to those of existing stockholders and the trading
price of our Common Stock could be adversely affected. Further, if we obtain additional debt financing, a substantial portion of our operating
cash flow may be dedicated to the payment of principal and interest on such indebtedness, and the terms of the debt securities issued
could impose significant restrictions on our operations. If we are unable to continue as a going concern, you may lose your entire investment.
Our future performance
depends to a significant degree upon the continued service of key members of management as well as marketing, sales and product development
personnel.
We are dependent upon the
continued service of Mr. Ka Leung WONG, our Chief Executive Officer and Director, and Lan Chan, our Chief Financial Officer, Secretary
and Director. The loss of Messrs. WONG or CHAN or one or more of our other key personnel would have a material adverse effect on
our business, operating results and financial condition. We believe our future success will also depend in large part upon our ability
to attract, retain and further motivate highly skilled management, marketing, sales and product development personnel. We expect
to establish an incentive compensation plan for our key personnel to retain their services. We have experienced intense competition
for personnel, and we cannot assure you that we will be able to retain our key employees or that we will be successful in attracting,
assimilating and retaining personnel in the future.
Lan CHAN, our Chief
Financial Officer, Secretary and director, beneficially owns approximately or has the right to vote 53.05% of our outstanding common
stock. As a result, Mr. Chan has a substantial voting power in all matters submitted to our stockholders for approval including:
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Election of our board of directors;
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Removal of any of our directors or officers;
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Amendment of our Amended Certificate of Incorporation or Bylaws;
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Adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination involving us.
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As a result of his ownership and position, Mr.
Wong is able to substantially influence all matters requiring stockholder approval, including the election of directors and approval of
significant corporate transactions. In addition, the future prospect of sales of significant amounts of shares held by him could affect
the market price of our common stock if the marketplace does not orderly adjust to the increase in shares in the market and the value
of your investment in our company may decrease. Mr. Wong’s stock ownership may discourage a potential acquirer from making a tender
offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing
a premium over our stock price.
Our procurement of new
games and amusement offerings is contingent upon availability, and in some instances, our ability to obtain licensing rights.
Our
ability to continue to procure new games, amusement offerings, and other entertainment-related equipment is important to our business
strategy. The number of suppliers from which we can purchase games, amusement offerings and other entertainment-related equipment is limited.
To the extent that the number of suppliers declines, we could be subject to the risk of distribution delays, pricing pressure, lack of
innovation and other associated risks. We may not be able to anticipate or react to changing amusement offerings cost by adjusting purchasing
practices or game prices, and a failure to do so could have a material adverse effect on our operating results. In addition, any decrease
in availability of new amusement offerings that appeal to customers could lead to decreases in revenues as customers negatively react
to lack of new game options.
We
have successfully developed several proprietary amusement offerings that are not available to operations outside the Company. Our ability
to develop future offerings is dependent on, among other things, obtaining rights to compelling game content and developing new amusement
offerings that are accepted by our customers. There is no guarantee that additional licensing rights will be obtained by us or that our
customers will accept the future offerings that we develop. The result could be increased expenses without increased revenues putting
downward pressure on our results of operations and financial performance.
A
significant disruption in our computer systems and our inability to adequately maintain and update those systems could adversely affect
our operations and our ability to maintain user confidence.
We
rely extensively on our computer systems to manage and account for inventory, process user transactions, manage and maintain the privacy
of users data, communicate with our vendors and other third parties, service accounts, and summarize and analyze results. We also rely
on continued and unimpeded access to the Internet to use our computer systems. Our systems are subject to damage or interruption from
power outages, telecommunications failures, computer viruses, malicious attacks, security breaches, and catastrophic events. If our systems
are damaged or fail to function properly or reliably, we may incur substantial repair or replacement costs, experience data loss or theft
and impediments to our ability to manage inventories or process user transactions, engage in additional promotional activities to retain
our users, and encounter lost user confidence, which could adversely affect our results of operations.
We
continually invest to maintain and update our computer systems. Implementing significant system changes increases the risk of computer
system disruption. The potential problems and interruptions associated with implementing technology initiatives, as well as providing
training and support for those initiatives, could disrupt or reduce our operational efficiency, and could negatively impact user experience
and user confidence.
If
our efforts to protect the security of information about our resellers, customers, and other third parties are unsuccessful, we may face
additional costly government enforcement actions and private litigation, and our sales and reputation could suffer.
We
regularly receive and store information about our resellers, customers, merchants, vendors and other third parties. We have programs in
place to detect, contain, and respond to data security incidents. However, because the techniques used to obtain unauthorized access,
disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable
to anticipate these techniques or implement adequate preventive measures. In addition, hardware, software, or applications we develop
or procure from third parties or through open source solutions may contain defects in design or manufacture or other problems that could
unexpectedly compromise information security. Unauthorized parties may also attempt to gain access to our systems or facilities, or those
of third parties with whom we do business, through fraud, trickery, or other forms of deceiving our team members, contractors, and vendors.
To
date, we have not encountered significant incidents of data breach or breaches that were material to our consolidated financial statements.
If we, our vendors, or other third parties with whom we do business experience significant data security breaches or fail to detect and
appropriately respond to significant data security breaches, we could be exposed to government enforcement actions and private litigation.
In addition, our users could lose confidence in our ability to protect their information, which could cause them to discontinue using
our e-wallets, our digital products, or loyalty programs, or stop shopping with us altogether.
The
success of our business depends on our ability to maintain and enhance our brand.
We
believe that maintaining and enhancing our brand is of significant importance to the success of our business. Our well-recognized brand
is critical to increasing our user base and, in turn, expanding our shoppers for our e-commerce platform and attractiveness to advertising
customers and content providers. Since the internet video industry is highly competitive, maintaining and enhancing our brand depends
largely on our ability to become and remain a market leader in Hong Kong, which may be difficult and expensive to accomplish. To the extent
our original content is perceived as low quality or otherwise not appealing to users, our ability to maintain and enhance our brand may
be adversely impacted which in turn may result in a loss of users for our mobile and online video and e-commerce platform.
We may grow our business
through acquisitions in the near future, which may result in operating difficulties, dilution, and other harmful consequences.
We expect to achieve our business
plan through a combination of organic growth and acquisitions and investments. We periodically evaluate an array of potential strategic
transactions and may make one or more acquisitions in the near future. The process of integrating an acquired company, business, or technology
may create unforeseen operating difficulties and expenditures. The areas where we face risks include:
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Implementation or remediation of controls, procedures, and policies at the acquired company;
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Diversion of management time and focus from operating our business to acquisition integration challenges;
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Cultural challenges associated with integrating employees from the acquired company into our organization;
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Retention of employees from the businesses we acquire;
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Integration of the acquired company’s accounting, management information, human resource, and other administrative systems;
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Liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities;
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Litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former stockholders, or other third parties;
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In the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political, and regulatory risks associated with specific countries; and
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Failure to successfully further develop the acquired product, service or technology.
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Our failure to address these
risks or other problems encountered in connection with future acquisitions and investments could cause us to fail to realize the anticipated
benefits of such acquisitions or investments, incur unanticipated liabilities, and harm our business generally.
Future acquisitions may also
result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities, or amortization expenses, or write-offs
of goodwill, any of which could harm our financial condition. Also, the anticipated benefit of many of our acquisitions may not materialize.
Other
factors can have a material adverse effect on our future profitability and financial condition.
Many
other factors can affect our profitability and financial condition, including:
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changes in, or interpretations of, laws and regulations including changes in accounting standards and taxation requirements;
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changes in the rate of inflation, interest rates and the performance of investments held by us;
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changes in the creditworthiness of counterparties that transact business with;
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changes in business, economic, and political conditions, including: war, political instability, terrorist attacks, the threat of future terrorist activity and related military action; natural disasters; the cost and availability of insurance due to any of the foregoing events; labor disputes, strikes, slow-downs, or other forms of labor or union activity; and, pressure from third-party interest groups;
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changes in our business and investments and changes in the relative and absolute contribution of each to earnings and cash flow resulting from evolving business strategies, changing product mix, changes in tax rates and opportunities existing now or in the future;
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difficulties related to our information technology systems, any of which could adversely affect business operations, including any significant breakdown, invasion, destruction, or interruption of these systems;
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changes in credit markets impacting our ability to obtain financing for our business operations; or
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legal difficulties, any of which could preclude or delay commercialization of products or technology or adversely affect profitability, including claims asserting statutory or regulatory violations, adverse litigation decisions, and issues regarding compliance with any governmental consent decree.
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Risk Factors Relating to Doing Business in Hong Kong
We face the risk that
changes in the policies of the PRC government could have a significant impact upon the business we may be able to conduct in the Hong
Kong and the profitability of such business.
Our
business and assets are primarily located in Hong Kong. Accordingly, economic, political and legal
developments in Hong Kong and the PRC will significantly affect our business, financial condition, results of operations and prospects.
Policies of the PRC government can have significant effects on economic conditions in Hong Kong. While we believe that the PRC will continue
to strengthen its economic and trading relationships with foreign countries and that business development in the PRC will continue to
follow market forces, we cannot assure you that this will be the case. Our interests may be adversely affected by changes in
policies by the PRC government, including:
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changes in laws, regulations or their interpretation especially with respect to application of PRC tax, labor, currency restriction and other laws to Hong Kong operations;
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confiscatory taxation or changes in taxation;
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Currency revaluations or restrictions on currency conversion, imports or sources of supplies, or ability to continue as a for-profit enterprise;
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expropriation or nationalization of private enterprises; and
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the allocation of resources.
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Substantial uncertainties
and restrictions with respect to the political and economic policies of the PRC government and PRC laws and regulations could have a significant
impact upon the business that we may be able to conduct in Hong Kong and accordingly on the results of our operations and financial condition.
Our business operations may be adversely affected by the current and future political environment in the PRC. The PRC government
has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and
state ownership. We expect the Hong Kong legal system to rapidly evolve in the near future and may become closer aligned with legal system
in China with the PRC government exerting more oversight and control over companies operating in Hong Kong, offerings conducted overseas
and or foreign investment in Hong Kong based issuers. The interpretations of many laws, regulations and rules may not always be uniform
and the enforcement of these laws, regulations and rules may involve uncertainties for you and us. Our ability to operate in Hong Kong,
conduct overseas offerings and continue to investment in Hong Kong based issuers may be harmed by these changes in its laws and regulations,
including those relating to taxation, import and export tariffs, healthcare regulations, environmental regulations, land use and property
ownership rights, and other matters. Accordingly, government actions in the future, including any decision not to continue to support
recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic
policies, could have a significant effect on economic conditions in Hong Kong or particular regions thereof, and could limit or completely
hinder our ability to offer or continue to offer securities to investors or require us to divest ourselves of any interest we then hold
in Hong Kong properties or joint ventures. Any such actions (including divesture or similar actions) could result in a material adverse
effect on us and on your investment in us and could render our securities and your investment in our securities worthless.
There are substantial
uncertainties regarding the interpretation and application of PRC laws and regulations, including, but not limited to, the laws and regulations
governing our business, or the enforcement and performance of our contractual arrangements with borrowers in the event of the imposition
of statutory liens, death, bankruptcy or criminal proceedings. Only after 1979 did the Chinese government begin to promulgate a comprehensive
system of laws that regulate economic affairs in general, deal with economic matters such as foreign investment, corporate organization
and governance, commerce, taxation and trade, as well as encourage foreign investment in China. Although the influence of the law has
been increasing, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently
cover all aspects of economic activities in China. Also, because these laws and regulations are relatively new, and because of the limited
volume of published cases and their lack of force as precedents, interpretation and enforcement of these laws and regulations involve
significant uncertainties. New laws and regulations that affect existing and proposed future businesses may also be applied retroactively.
In addition, there have been constant changes and amendments of laws and regulations over the past 30 years in order to keep up with
the rapidly changing society and economy in China. Because government agencies and courts that provide interpretations of laws and regulations
and decide contractual disputes and issues may change their interpretation or enforcement very rapidly with little advance notice at
any time, we cannot predict the future direction of Chinese legislative activities with respect to either businesses with foreign investment
or the effectiveness on enforcement of laws and regulations in China. The uncertainties, including new laws and regulations and changes
of existing laws, as well as, may cause possible problems to foreign investors.
Although the PRC government
has been pursuing economic reform policies for more than two decades, the PRC government continues to exercise significant control over
economic growth in the PRC through the allocation of resources, controlling payments of foreign currency, setting monetary policy and
imposing policies that impact particular industries in different ways. We cannot assure you that the PRC government will continue
to pursue policies favoring a market oriented economy or that existing policies will not be significantly altered, especially in the event
of a change in leadership, social or political disruption, or other circumstances affecting political, economic and social life in the
PRC.
The Holding Foreign
Companies Accountable Act requires the Public Company Accounting Oversight Board (PCAOB) to be permitted to inspect the issuer's public
accounting firm within three years. There are uncertainties under the PRC Securities Law relating to the procedures and requisite timing
for the U.S. securities regulatory agencies to conduct investigations and collect evidence within the territory of the PRC. If the U.S.
securities regulatory agencies are unable to conduct such investigations, they may suspend or de-register our registration with the SEC
and delist our securities from applicable trading market within the US.
The Holding Foreign Companies
Accountable Act was signed into law on December 18, 2020, and requires Auditors of publicly traded companies to submit to regular inspections
every three years to assess such auditors’ compliance with applicable professional standards. On June 22, 2021, the U.S. Senate
passed a bill which, if passed by the U.S. House of Representatives and signed into law, would reduce the number of consecutive non-inspection
years required for triggering the prohibitions under the HFCA Act from three years to two. As a result, the time period before our
securities may be prohibited from trading or delisted will be reduced. If the U.S. securities regulatory agencies are unable to conduct
such investigations, there exists a risk that they may determine to suspend or de-register our registration with the SEC and may also
delist our securities from applicable trading market within the US. On December 2, 2021, the SEC adopted final amendments implementing
congressionally mandated submission and disclosure requirements of the Holding Foreign Companies Accountable Act. The rules apply to
registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm
that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by
an authority in foreign jurisdictions.
According to Article 177 of
the Securities Law of the PRC (“Article 177”), overseas securities regulatory authorities are prohibited from engaging in
activities pertaining to investigations or evidence collection directly conducted within the territories of the PRC, and Chinese entities
or individuals are further prohibited from providing documents and information in connection with securities business activities to any
organizations and/or persons abroad without the prior consent of the securities regulatory authority of the State Council and the competent
departments of the State Council. As of the date of this prospectus, we are not aware of any implementing rules or regulations which have
been published regarding application of Article 177.
We believe Article 177 is
only applicable where the activities of overseas authorities constitute a direct investigation or evidence collection by such authorities
within the territory of the PRC. Our principal business operation is conducted in Hong Kong. In the event that the U.S. securities regulatory
agencies carry out an investigation on us such as an enforcement action by the Department of Justice, the SEC or other authorities, such
agencies’ activities will constitute conducting an investigation or collecting evidence directly within the territory of the PRC
and accordingly fall within the scope of Article 177. In that case, the U.S. securities regulatory agencies may have to consider establishing
cross-border cooperation with the securities regulatory authority of the PRC by way of judicial assistance, diplomatic channels or establishing
a regulatory cooperation mechanism with the securities regulatory authority of the PRC. However, there is no assurance that the U.S. securities
regulatory agencies will succeed in establishing such cross-border cooperation in this particular case and/or establish such cooperation
in a timely manner.
Furthermore, it remains unclear
as to how Article 177 will be interpreted, implemented or applied by the Chinese Securities Regulatory Commission or other relevant government
authorities. As such, there are uncertainties as to the procedures and requisite timing for the U.S. securities regulatory agencies to
conduct investigations and collect evidence within the territory of the PRC. The Holding Foreign Companies Accountable Act requires the
Public Company Accounting Oversight Board (PCAOB) be permitted to inspect the issuer's public accounting firm within three years. If the
U.S. securities regulatory agencies are unable to conduct such investigations, there exists a risk that they may determine to suspend
or de-register our registration with the SEC and may also delist our securities from applicable trading market within the US.
Our auditor is located
in Kuala, Lumpur and is subject to PCAOB inspections with its most recent inspection occurring during 2021. Therefore, it is not subject
to the determinations announced by the PCAOB on December 16, 2021. However, in the event the Malaysian authorities subsequently take
a position disallowing the PCAOB to inspect our auditor, then we would need to change our auditor. Furthermore, due to the recent developments
in connection with the implementation of the Holding Foreign Companies Accountable Act, we cannot assure you whether the SEC or other
regulatory authorities would apply additional and more stringent criteria to us after considering the effectiveness of our auditor’s
audit procedures and quality control procedures, adequacy of personnel and training, or sufficiency of resources, geographic reach or
experience as it relates to the audit of our financial statements. The requirement in the HFCA Act that the PCAOB be permitted to inspect
the issuer’s public accounting firm within two or three years, may result in the delisting of our securities from applicable trading
markets in the U.S, in the future if the PCAOB is unable to inspect our accounting firm at such future time.
Adverse regulatory developments
in China may subject us to additional regulatory review, and additional disclosure requirements and regulatory scrutiny to be adopted
by the SEC in response to risks related to recent regulatory developments in China may impose additional compliance requirements for companies
like us with Hong Kong-based operations, all of which could increase our compliance costs, subject us to additional disclosure requirements.
The
recent regulatory developments in China, in particular with respect to restrictions on China-based companies raising capital offshore,
may lead to additional regulatory review in China over our financing and capital raising activities in the United States. In addition,
we may be subject to industry-wide regulations that may be adopted by the relevant PRC authorities, which may have the effect of limiting
our service offerings, restricting the scope of our operations in Hong Kong, or causing the suspension or termination of our business
operations in Hong Kong entirely, all of which will materially and adversely affect our business, financial condition and results of
operations. We may have to adjust, modify, or completely change our business operations in response to adverse regulatory changes or
policy developments, and we cannot assure you that any remedial action adopted by us can be completed in a timely, cost-efficient, or
liability-free manner or at all.
On July 30, 2021, in response to the recent regulatory developments in China and actions adopted
by the PRC government, the Chairman of the SEC issued a statement asking the SEC staff to seek additional disclosures from offshore issuers
associated with China-based operating companies (including Hong Kong) before their registration statements will be declared effective.
On August 1, 2021, the China Securities Regulatory Commission stated in a statement that it had taken note of the new disclosure requirements
announced by the SEC regarding the listings of Chinese companies and the recent regulatory development in China, and that both countries
should strengthen communications on regulating China-related issuers. Since we operate in Hong Kong, we cannot guarantee that we will
not be subject to tightened regulatory review and we could be exposed to government interference from China.
Under the PRC enterprise income tax law, we
may be classified as a “PRC resident enterprise”, which could result in unfavorable tax consequences to us and our shareholders
and have a material adverse effect on our results of operations and the value of your investment.
Under the PRC enterprise income
tax law that became effective on January 1, 2008, an enterprise established outside the PRC with “de facto management bodies”
within the PRC is considered a “resident enterprise” for PRC enterprise income tax purposes and is generally subject to a
uniform 25% enterprise income tax rate on its worldwide income. On April 22, 2009, the State Administration of Taxation, or the SAT, issued
the Notice Regarding the Determination of Chinese-Controlled Overseas Incorporated Enterprises as PRC Tax Resident Enterprise on the Basis
of De Facto Management Bodies, or SAT Circular 82, which provides certain specific criteria for determining whether the “de facto
management body” of a PRC-controlled enterprise that is incorporated offshore is located in China. Further to SAT Circular 82, on
August 3, 2011, the SAT issued the Administrative Measures of Enterprise Income Tax of Chinese-Controlled Offshore Incorporated Resident
Enterprises (Trial), or SAT Bulletin 45, which became effective on September 1, 2011, to provide more guidance on the implementation of
SAT Circular 82.
According to SAT
Circular 82, an offshore incorporated enterprise controlled by a PRC enterprise or a PRC enterprise group will be considered a PRC
tax resident enterprise by virtue of having its “de facto management body” in China and will be subject to PRC
enterprise income tax on its worldwide income only if all of the following conditions are met: (a) the senior management and
core management departments in charge of its daily operations function have their presence mainly in the PRC; (b) its financial and
human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) its major assets,
accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC;
and (d) not less than half of the enterprise’s directors or senior management with voting rights habitually reside in the
PRC. SAT Bulletin 45 further clarifies the resident status determination, post-determination administration as well as competent tax
authorities.
Although SAT Circular 82 and
SAT Bulletin 45 only apply to offshore incorporated enterprises controlled by PRC enterprises or PRC enterprise group instead of those
controlled by PRC individuals or foreigners, the determination criteria set forth therein may reflect SAT’s general position on
how the term “de facto management body” could be applied in determining the tax resident status of offshore enterprises, regardless
of whether they are controlled by PRC enterprises, individuals or foreigners.
We believe that none of our
entities outside of China is a PRC resident enterprise for PRC tax purposes even if the standards for “de facto management body”
prescribed in the SAT Circular 82 are applicable to us. However, the tax resident status of an enterprise is subject to determination
by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body.”
If the PRC tax authorities determine that we or any of our subsidiaries outside of China is a PRC resident enterprise for enterprise income
tax purposes, we may be subject to PRC enterprise income on our worldwide income at the rate of 25%, which could materially reduce our
net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations.
Although dividends paid by
one PRC tax resident to another PRC tax resident should qualify as “tax-exempt income” under the enterprise income tax law,
we cannot assure you that dividends by our Hong Kong subsidiaries to our British Virgin Islands holding company will not be subject to
a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax on dividends, and the PRC tax
authorities have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident
enterprises for PRC enterprise income tax purposes.
Non-PRC resident holders of
our common stock may also be subject to PRC withholding tax on dividends paid by us and PRC tax on gains realized on the sale or other
disposition of common stock, if such income is sourced from within the PRC. The tax would be imposed at the rate of 10% in the case of
non-PRC resident enterprise holders and 20% in the case of non-PRC resident individual holders. In the case of dividends, we would be
required to withhold the tax at source. Any PRC tax liability may be reduced under applicable tax treaties or similar arrangements. Although
our holding company is incorporated in the British Virgin Islands, it remains unclear whether dividends received and gains realized by
non-PRC resident holders of our common stock will be regarded as income from sources within the PRC if we are classified as a PRC resident
enterprise. Any such tax will reduce the returns on your investment in our common stock.
We cannot assure you that the
PRC tax authorities will not, at their discretion, adjust any capital gains and impose tax return filing and withholding or tax payment
obligations with respect to any internal restructuring, and our Hong Kong subsidiaries may be requested to assist in the filing. Any PRC
tax imposed on a transfer of our shares not through a public stock exchange, or any adjustment of such gains would cause us to incur additional
costs and may have a negative impact on the value of your investment in the company.
We face
uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
We face uncertainties regarding
the reporting on and consequences of private equity financing transactions involving the transfer of shares in the Company by non-resident
investors. In February 2015, the SAT issued the Bulletin on Issues of Enterprise Income Tax on Indirect Transfers of Assets by Non-PRC
Resident Enterprises, or SAT Bulletin 7, as amended in 2017. Pursuant to this bulletin, an “indirect transfer” of assets,
including equity interests in a PRC resident enterprise, by non-PRC resident enterprises may be re-characterized and treated as a direct
transfer of PRC taxable assets, if such arrangement does not have a reasonable commercial purpose and was established for the purpose
of avoiding payment of PRC enterprise income tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise
income tax. According to SAT Bulletin 7, “PRC taxable assets” include assets attributed to an establishment in China, immovable
properties located in China, and equity investments in PRC resident enterprises, in respect of which gains from their transfer by a direct
holder, being a non-PRC resident enterprise, would be subject to PRC enterprise income taxes. When determining whether there is a “reasonable
commercial purpose” of the transaction arrangement, features to be taken into consideration include: whether the main value of the
equity interest of the relevant offshore enterprise derives from PRC taxable assets; whether the assets of the relevant offshore enterprise
mainly consist of direct or indirect investment in China or if its income mainly derives from China; whether the offshore enterprise and
its subsidiaries directly or indirectly holding PRC taxable assets have real commercial nature which is evidenced by their actual function
and risk exposure; the duration of existence of the business model and organizational structure; the replicability of the transaction
by direct transfer of PRC taxable assets; and the tax situation of such indirect transfer and applicable tax treaties or similar arrangements.
In respect of an indirect offshore transfer of assets of a PRC establishment, the resulting gain is to be included with the enterprise
income tax filing of the PRC establishment or place of business being transferred, and would consequently be subject to PRC enterprise
income tax at a rate of 25%. Where the underlying transfer relates to the immovable properties located in China or to equity investments
in a PRC resident enterprise, which is not related to a PRC establishment or place of business of a non-resident enterprise, a PRC enterprise
income tax of 10% would apply, subject to available preferential tax treatment under applicable tax treaties or similar arrangements,
and the party who is obligated to make the transfer payments has the withholding obligation. SAT Bulletin 7 does not apply to transactions
of sale of shares by investors through a public stock exchange where such shares were acquired from a transaction through a public stock
exchange.
There is uncertainty as to
the application of SAT Bulletin 7. We face uncertainties as to the reporting and other implications of certain past and future transactions
where PRC taxable assets are involved, such as offshore restructuring, sale of the shares in our offshore subsidiaries or investments.
We may be subject to filing obligations or taxed if we are a transferor in such transactions, and may be subject to withholding obligations
if we are a transferee in such transactions under SAT Bulletin 7. For transfer of shares in us by investors that are non-PRC resident
enterprises, our Hong Kong subsidiaries may be requested to assist in the filing under SAT Bulletin 7. As a result, we may be required
to expend valuable resources to comply with SAT Bulletin 7 or to request the relevant transferors from whom we purchase taxable assets
to comply with these circulars, or to establish that we should not be taxed under these circulars, which may have a material adverse effect
on our financial condition and results of operations.
The M&A Rules and
certain other PRC regulations may make it more difficult for us to pursue growth through acquisitions.
The Regulations on Mergers
and Acquisitions of Domestic Companies by Foreign Investors, or the M&A Rules, adopted by six PRC regulatory agencies in 2006 and
amended in 2009, and some other regulations and rules concerning mergers and acquisitions established complex procedures and requirements
for acquisition of Chinese companies by foreign investors, including requirements in some instances that the Ministry of Commerce of the
PRC be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic
enterprise. Moreover, the Anti-Monopoly Law promulgated by the Standing Committee of the National People’s Congress, which became
effective in 2008, requires that transactions which are deemed concentrations and involve parties with specified turnover thresholds must
be cleared by the Ministry of Commerce before they can be completed. In addition, the security review rules issued by the Ministry of
Commerce and became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national
defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic
enterprises that raise “national security” concerns are subject to strict review by the Ministry of Commerce, and the rules
prohibit any activities attempting to bypass a security review, including by structuring the transaction through a proxy or contractual
control arrangement.
In the future, we may pursue
potential strategic acquisitions that are complementary to our business and operations. Complying with the requirements of the above-mentioned
regulations and other rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining
approval or clearance from the Ministry of Commerce, may delay or inhibit our ability to complete such transactions, which could affect
our ability to expand our business or maintain our market share. Furthermore, according to the M&A Rules, if a PRC entity or individual
plans to merger or acquire its related PRC entity through an overseas company legitimately incorporated or controlled by such entity or
individual, such a merger and acquisition will be subject to examination and approval by the Ministry of Commerce. The application and
interpretations of M&A Rules are still uncertain, and there is possibility that the PRC regulators may promulgate new rules or
explanations requiring that we obtain approval of the Ministry of Commerce for our completed or ongoing mergers and acquisitions. There
is no assurance that we can obtain such approval from the Ministry of Commerce for our mergers and acquisitions, and if we fail to obtain
those approvals, we may be required to suspend our acquisition and be subject to penalties. Any uncertainties regarding such approval
requirements could have a material adverse effect on our business, results of operations and corporate structure.
Furthermore, the M&A Rules,
among other things, purport to require that an offshore special purpose vehicle controlled directly or indirectly by PRC domestic companies
or individuals and formed for purposes of overseas listing through acquisition of PRC domestic interests obtain the approval of the CSRC
prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. The CSRC has not issued
any definitive rules or interpretations concerning whether offerings such as this offering are subject to the CSRC approval procedures
under the M&A Rules. Although we are of the position that we are not required to obtain approval from the CSRC under the M&A Rules
for listing and trading of our securities, uncertainties still exist as to how the M&A Rules will be interpreted and implemented and
the opinion stated above is subject to any new laws, rules and regulations or detailed implementations and interpretations in any form
relating to the M&A Rules.
PRC regulations relating to offshore investment
activities by PRC residents may limit our Hong Kong subsidiaries’ ability to increase their registered capital or distribute profits
to us or otherwise expose us to liability and penalties under PRC law.
The State Administration of
Foreign Exchange (“SAFE”) promulgated the Circular on Relevant Issues Relating to PRC Resident’s Investment and Financing
and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, in July 2014 that requires PRC residents or entities
to register with SAFE or its local branch in connection with their establishment or control of an offshore entity established for the
purpose of overseas investment or financing. In addition, such PRC residents or entities must update their SAFE registrations when the
offshore special purpose vehicle undergoes material events relating to any change of basic information (including change of such PRC residents
or entities, name and operation term), increases or decreases in investment amount, transfers or exchanges of shares, or mergers or divisions.
SAFE Circular 37 is issued
to replace the Circular on Relevant Issues Concerning Foreign Exchange Administration for PRC Residents Engaging in Financing and Roundtrip
Investments through Overseas Special Purpose Vehicles. If our shareholders who are PRC residents or entities do not complete their registration
with the local SAFE branches, our Hong Kong subsidiaries may be prohibited from distributing their profits and proceeds from any reduction
in capital, share transfer or liquidation to us, and we may be restricted in our ability to contribute additional capital to our Hong
Kong subsidiaries. Moreover, failure to comply with SAFE registration described above could result in liability under PRC laws for evasion
of applicable foreign exchange restrictions.
However, we may not be informed
of the identities of all the PRC residents or entities holding direct or indirect interest in us, nor can we compel our shareholders
to comply with the requirements of SAFE Circular 37. As a result, we cannot assure you that all of our shareholders who are PRC
residents or entities have complied with, and will in the future make or obtain any applicable registrations or approvals required by,
SAFE Circular 37. Failure by such shareholders to comply with SAFE Circular 37, or failure by us to amend the foreign exchange registrations
of its Hong Kong subsidiaries, if applicable, could subject us to fines or legal sanctions, restrict our overseas or cross-border investment
activities, limit our Hong Kong subsidiaries’ ability to make distributions or pay dividends to us or affect o our ownership structure,
which could adversely affect our business and prospects. For a detailed description of the potential government regulations facing the
Company and the offering associated with our operations in Hong Kong, please refer to “Government and Industry Regulations –
Regulations Relating to Foreign Exchange and Dividend Distribution.”
PRC regulation of loans
to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent
us from using the proceeds we receive from offshore financing activities to make loans to or make additional capital contributions to
our Hong Kong subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand business.
Any transfer of funds by us
to our Hong Kong subsidiaries, either as a shareholder loan or as an increase in registered capital, may become subject to approval by
or registration or filing with relevant governmental authorities in China. According to the relevant PRC regulations on foreign-invested
enterprises in China, capital contributions to PRC subsidiaries are subject to the approval of or filing with the Ministry of Commerce
in its local branches and registration with a local bank authorized by SAFE. It is unclear if Hong Kong subsidiaries will be deemed a
PRC subsidiary. If Hong Kong subsidiaries are deemed to be PRC subsidiaries, (i) any foreign loan procured by our Hong Kong subsidiaries
will be required to be registered with SAFE or its local branches or filed with SAFE in its information system; and (ii) our Hong
Kong subsidiaries will not be able to procure loans which exceed the difference between their total investment amount and registered capital
or, as an alternative, only procure loans subject to the calculation approach and limitation as provided in the People’s Bank of
China Notice No. 9 (“PBOC Notice No. 9”). We may not be able to obtain these government approvals or complete such
registrations on a timely basis, if at all, with respect to future capital contributions or foreign loans by us to our Hong Kong subsidiaries,
if required. If we fail to receive such approvals or complete such registration or filing, our ability to use the proceeds we receive
from our offshore financing activities and to capitalize our Hong Kong operations may be negatively affected, which could adversely affect
our liquidity and ability to fund and expand our business.
The Circular on Reforming the
Administration of Foreign Exchange Settlement of Capital of Foreign-Invested Enterprises, or SAFE Circular 19, effective as of June 1,
2015, as amended by Circular of the State Administration of Foreign Exchange on Reforming and Regulating Policies on the Control over
Foreign Exchange Settlement under the Capital Account, or SAFE Circular 16, effective on June 9, 2016, allows FIEs to settle their
foreign exchange capital at their discretion, but continues to prohibit FIEs from using the Renminbi fund converted from their foreign
exchange capitals for expenditure beyond their business scopes, and also prohibit FIEs from using such Renminbi fund to provide loans
to persons other than affiliates unless otherwise permitted under its business scope. If Safe Circulars 16 and 19 are interpreted to apply
to the Hong Kong Dollar, our ability to use Hong Kong Dollars converted from the net proceeds from our offshore financing activities to
fund the establishment of new entities in Hong Kong, to invest in or acquire any other Hong Kong or PRC companies may be limited, which
may adversely affect our business, financial condition and results of operations.
Our Hong Kong subsidiaries
may be subject to restrictions on paying dividends or making other payments to us, which may restrict its ability to satisfy liquidity
requirements, conduct business and pay dividends to holders of our common stock.
We are a holding company incorporated
in Nevada. We rely on dividends from our Hong Kong subsidiaries for our cash and financing requirements, such as the funds necessary to
service any debt we may incur. Current PRC regulations permit PRC subsidiaries to pay dividends to foreign parent companies only out of
their accumulated after-tax profits upon satisfaction of relevant statutory condition and procedures, if any, determined in accordance
with Chinese accounting standards and regulations. In addition, PRC subsidiaries are required to set aside at least 10% of their accumulated
profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered capital. Furthermore,
if PRC subsidiaries and their subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict
their ability to pay dividends or make other payments to the foreign parent company, which may restrict the ability of the foreign parent
company to satisfy its liquidity requirements. If such restrictions on dividend and other payments are interpreted to apply to Hong Kong
entities, our ability to rely on payments from our Hong Kong subsidiaries will be adversely affected.
In addition, the Enterprise
Income Tax Law of the PRC, or the PRC EIT Law, and its implementation rules provide that withholding tax rate of 10% will be applicable
to dividends payable by Chinese companies to non-PRC-resident enterprises unless otherwise exempted or reduced according to treaties
or arrangements between the PRC central government and governments of other countries or regions where the non-PRC-resident enterprises
are incorporated. For a detailed description of the potential government regulations facing the Company and the offering associated with
our operations in Hong Kong, please refer to “Government and Industry Regulations – Regulations Relating to Foreign Exchange
and Dividend Distribution.”
Governmental control of currency conversion
may limit our ability to utilize revenues effectively and affect the value of your investment.
The PRC government imposes
controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China.
Approval from or registration with appropriate government authorities is required where Renminbi is to be converted into foreign currency
and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. In light of the flood
of capital outflows of China in 2016 due to the weakening Renminbi, the PRC government has imposed more restrictive foreign exchange policies
and stepped up scrutiny of major outbound capital movement including overseas direct investment. More restrictions and substantial vetting
process are put in place by SAFE to regulate cross-border transactions falling under the capital account. If any of our shareholders regulated
by such policies fail to satisfy the applicable overseas direct investment filing or approval requirement timely or at all, it may be
subject to penalties from the relevant PRC authorities. The PRC government may at its discretion further restrict access in the future
to foreign currencies for current account transactions.
We receive substantially
all of our revenues in Hong Kong Dollars. Under our current corporate structure, we and our British Virgin Islands holding company may
rely on dividend payments from our Hong Kong subsidiaries to fund any cash and financing requirements that we may have. If the PRC government
expands its currency controls to include the Hong Kong Dollar, we will be required to obtain SAFE approval to use cash generated from
the operations of our Hong Kong subsidiaries and consolidated affiliated entities to pay off their respective debt in a currency other
than Hong Kong Dollar or Renminbi owed to entities outside China, or to make other capital expenditure payments outside China in a currency
other than Renminbi or the Hong Kong Dollar. We may be prevented from obtaining sufficient foreign currencies to satisfy our foreign
currency demands. As a result, we may not be able to pay dividends in foreign currencies to our shareholders. For a detailed description
of the potential government regulations facing the Company and the offering associated with our operations in Hong Kong, please refer
to “Government and Industry Regulations – Regulations Relating to Foreign Exchange and Dividend Distribution.”
Failure to comply with
PRC regulations regarding the registration requirements for employee stock ownership plans or share option plans may subject the PRC plan
participants or us to fines and other legal or administrative sanctions.
Pursuant to SAFE Circular 37,
PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications to SAFE or its
local branches for the foreign exchange registration with respect to offshore special purpose companies. In the meantime, our directors,
executive officers and other employees who are PRC citizens or who are non-PRC residents residing in the PRC for a continuous period of
not less than one year, subject to limited exceptions, and who have been granted incentive share awards by us, may follow the Notices
on Issues Concerning the Foreign Exchange Administration for Domestic Individuals Participating in Stock Incentive Plan of Overseas Publicly-Listed
Company, or 2012 SAFE notices, promulgated by the SAFE in 2012. Pursuant to the 2012 SAFE notices, PRC citizens and non-PRC citizens who
reside in China for a continuous period of not less than one year who participate in any stock incentive plan of an overseas publicly
listed company, subject to a few exceptions, are required to register with SAFE through a domestic qualified agent, which could be the
PRC subsidiaries of such overseas listed company, and complete certain other procedures. In addition, an overseas entrusted institution
must be retained to handle matters in connection with the exercise or sale of stock options and the purchase or sale of shares and interests.
Our executive officers and other employees who are PRC citizens or who reside in the PRC for a continuous period of not less than one
year and who have been granted options will be subject to these regulations. It is unclear if these regulations will be expanded to include
Hong Kong residents or citizens. Failure to complete the SAFE registrations may subject them to fines, and legal sanctions and may also
limit our ability to contribute additional capital into our Hong Kong subsidiaries and limit our Hong Kong subsidiaries’ ability
to distribute dividends to us if Hong Kong residents or citizens are covered under these PRC regulations. We also face regulatory uncertainties
that could restrict our ability to adopt additional incentive plans for our directors, executive officers and employees under PRC law.
The SAT has issued certain
circulars concerning employee share options and restricted shares. Under these circulars, employees working in China who exercise share
options or are granted restricted shares will be subject to PRC individual income tax. It is unclear whether these regulations will be
expanded in the future to cover our employees in Hong Kong. Our Hong Kong subsidiaries may become obligated to file documents related
to employee share options or restricted shares with relevant tax authorities and to withhold individual income taxes of those employees
who exercise their share options. If our employees fail to pay or we fail to withhold their income taxes according to relevant laws and
regulations, we may face sanctions imposed by the tax authorities or other PRC governmental authorities.
Risks Related to our International Operations
We are subject to risks
associated with doing business internationally including compliance with domestic and foreign laws and regulations, economic downturns,
political instability and other risks that could adversely affect our operating results.
We conduct our businesses
and have assets located in Hong Kong. We are required to comply with numerous and broad reaching laws and regulations administered by
United States federal, state and local, and foreign governmental authorities. We must also comply with other general business regulations
such as those directed toward accounting and income taxes, anti-corruption, anti-bribery, global trade, handling of regulated substances,
and other commercial activities, conducted by our employees and third-party representatives globally. Any failure to comply with applicable
laws and regulations could subject us to administrative penalties and injunctive relief, and civil remedies including fines, injunctions,
and recalls of our products. In addition, changes to regulations or implementation of additional regulations may require us to modify
existing processing facilities and/or processes, which could significantly increase operating costs and negatively impact operating results.
Our operating results may
be affected by changes in trade, monetary, fiscal and environmental policies, laws and regulations, and other activities of governments,
agencies, and similar organizations. These conditions include but are not limited to changes in a country’s or region’s economic
or political conditions, trade regulations affecting production, pricing and marketing of products, local labor conditions and regulations,
reduced protection of intellectual property rights, changes in the regulatory or legal environment, restrictions on currency exchange
activities, currency exchange fluctuations, burdensome taxes and tariffs, enforceability of legal agreements and judgments, other trade
barriers, and regulation or taxation of greenhouse gases. International risks and uncertainties, including changing social and economic
conditions as well as terrorism, political hostilities, and war, may limit our ability to transact business in these markets and may adversely
affect our revenues and operating results.
We
may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices
Act could have a material adverse effect on our business.
We
are subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign
governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining
or retaining business. We will have operations, agreements with third parties and make sales in Asia, which may experience corruption.
Our proposed activities in Asia create the risk of unauthorized payments or offers of payments by one of the employees, consultants, or
sales agents of our Company, because these parties are not always subject to our control. It will be our policy to implement safeguards
to discourage these practices by our employees. Also, our existing practices and any future improvements may prove to be less than effective,
and the employees, consultants, or sales agents of our Company may engage in conduct for which we might be held responsible. Violations
of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect
our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor
liability FCPA violations committed by companies in which we invest or that we acquire.
We expect our revenues
to be paid in non-U.S. currencies, and if currency exchange rates become unfavorable, we may lose some of the economic value of the revenues
in U.S. dollar terms.
Our primary operations are
conducted in Hong Kong and our operating currency is the Hong Kong Dollar. Since we conduct business in currencies other than U.S. dollars
but report our financial results in U.S. dollars, we face exposure to fluctuations in currency exchange rates. For instance, if currency
exchange rates were to change unfavorably, the U.S. dollar equivalent of our operating income recorded in foreign currencies would be
diminished.
We currently do not, but may
in the future, implement hedging strategies, such as forward contracts, options, and foreign exchange swaps to mitigate this risk. There
is no assurance that our efforts will successfully reduce or offset our exposure to foreign exchange fluctuations. Additionally, hedging
programs expose us to risks that could adversely affect our financial results, including the following:
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We have limited experience in implementing or operating hedging programs. Hedging programs are inherently risky and we could lose money as a result of poor trades;
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We may be unable to hedge currency risk for some transactions or match the accounting for the hedge with the exposure because of a high level of uncertainty or the inability to reasonably estimate our foreign exchange exposures;
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We may be unable to acquire foreign exchange hedging instruments in some of the geographic areas where we do business, or, where these derivatives are available, we may not be able to acquire enough of them to fully offset our exposure;
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We may determine that the cost of acquiring a foreign exchange hedging instrument outweighs the benefit we expect to derive from the derivative, in which case we would not purchase the derivative and would be exposed to unfavorable changes in currency exchange rates;
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To the extent we recognize a gain on a hedge transaction in one of our subsidiaries that is subject to a high statutory tax rate, and a loss on the related hedged transaction that is subject to a lower rate, our effective tax rate would be higher; and
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Significant fluctuations in foreign exchange rates could greatly increase our hedging costs.
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We anticipate increased
exposure to exchange rate fluctuations as we expand the breadth and depth of our international sales.
In our financial statements,
we translate our local currency financial results into U.S. dollars based on average exchange rates prevailing during a reporting period
or the exchange rate at the end of that period. To the extent the U.S. dollar strengthens against foreign currencies, the translation
of these foreign currency denominated transactions could result in reduced revenue, operating expenses and net income for our international
operations. Similarly, to the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency denominated
transactions could result in increased revenue, operating expenses and net income for our international operations.
Because our holding
company structure creates restrictions on the payment of dividends, our ability to pay dividends is limited.
We are a holding company whose
primary assets are our ownership of the equity interests in our subsidiaries. We conduct no other business and, as a result, we depend
entirely upon our subsidiaries’ earnings and cash flow. If we decide in the future to pay dividends, as a holding company, our ability
to pay dividends and meet other obligations depends upon the receipt of dividends or other payments from our operating subsidiaries. Our
subsidiaries and projects may be restricted in their ability to pay dividends, make distributions or otherwise transfer funds to us prior
to the satisfaction of other obligations, including the payment of operating expenses or debt service, restrictions on the conversion
of local currency into U.S. dollars or other hard currency and other regulatory restrictions. If future dividends are paid in the Hong
Kong Dollars, fluctuations in the exchange rate for the conversion of any of these currencies into U.S. dollars may adversely affect the
amount received by U.S. stockholders upon conversion of the dividend payment into U.S. dollars. We do not presently have any intention
to declare or pay dividends in the future. You should not purchase shares of our common stock in anticipation of receiving dividends in
future periods.
It may be difficult
for stockholders to enforce any judgment obtained in the United States against us, which may limit the remedies otherwise available to
our stockholders.
Substantially all of our assets
are located in Hong Kong. Moreover, our current directors and officers are nationals of Hong Kong. All or a substantial portion of the
assets of this person are located outside the United States. As a result, it may be difficult for our stockholders to effect service of
process within the United States upon this person. In addition, there is uncertainty as to whether the courts of Hong
Kong would recognize or enforce judgments of U.S. courts obtained against us or such officers and/or directors predicated upon
the civil liability provisions of the securities law of the United States or any state thereof or be competent to hear original
actions brought in Hong Kong against us or such persons predicated upon the securities laws of the United States or
any state thereof.
Risks Related to our Common
Stock
Due to the limited trading market for our securities,
you may have difficulty selling any shares you purchase in this offering.
While our shares of common
stock are quoted on the OTCQB tier of the OTC Markets Group, Inc., there is presently no meaningful demand for our common stock and virtually
no public market exists for the shares being offered in this prospectus. The OTCQB is a regulated quotation service that displays real-time
quotes, last sale prices and volume information in over-the-counter securities. The OTCQB is not an issuer listing service, market or
exchange. Although the OTCQB does not have any listing requirements per se, to be eligible for quotation on the OTCQB, issuers must remain
current in their filings with the SEC or applicable regulatory authority. Market makers are not permitted to begin quotation of a security
whose issuer does not meet this filing requirement. If no market is ever developed for our common stock, it will be difficult for you
to sell any shares you purchase in this offering. In such a case, you may find that you are unable to achieve any benefit from your investment
or liquidate your shares without considerable delay, if at all.
Our common stock may become
subject to the "penny stock" rules of the sec and the trading market in our securities is limited, which makes transactions
in our stock cumbersome and may reduce the value of an investment in our stock.
Under U.S. federal securities
legislation, our common stock will constitute "penny stock" is if has a market price of less than $5.00 per share, subject to
certain exceptions. While the market price of our common stock is currently above $5.00, there can be no assurance that are price will
consistently remain above $5.00, given the lack of liquidity in our stock. For any transaction involving a penny stock, unless exempt,
the rules require that a broker or dealer approve a potential investor's account for transactions in penny stocks, and the broker or dealer
receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve an investor's account for transactions in penny stocks, the broker or dealer must obtain financial information and
investment experience objectives of the person, and make a reasonable determination that the transactions in penny stocks are suitable
for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions
in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prepared by
the Commission relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the
suitability determination. Brokers may be less willing to execute transactions in securities subject to the "penny stock" rules.
This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock. Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions
payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies
available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the limited market in penny stocks.
FINRA sales practice
requirements may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny
stock” rules described above, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that
in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable
for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information.
Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not
be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers
buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Certain restrictions
on the extent of puts may have little, if any, effect on the adverse impact of our issuance of shares in connection with the Investment
Agreement and the Equity Purchase Agreement, and as such, the Selling Security Holders may sell a large number of shares, resulting in
substantial dilution to the value of shares held by existing stockholders.
Each Selling Security Holder
has agreed to refrain from holding an amount of shares which would result in Strattner and Williamsburg owning more than 9.99% and 4.99%,
respectively, of the then-outstanding shares of our common stock at any one time. These restrictions, however, do not prevent the Selling
Security Holders from selling shares of common stock received in connection with a put, and then receiving additional shares of common
stock in connection with a subsequent put. In this way, each Selling Security Holder could sell more than the foregoing limits in a relatively
short time frame while still maintaining compliance with the prescribed limitations.
Because the Selling
Security Holders will be paying less than the then-prevailing market price for our common stock, your ownership interest may be diluted
and the value of our common stock may decline by exercising the put right pursuant to the Investment Agreement or the Equity Purchase
Agreement.
The common stock to be issued
to the Selling Security Holders pursuant to the Investment Agreement or the Equity Purchase Agreement will be purchased at a price that
is a discount to market. Because the put price is lower than the prevailing market price of our common stock, to the extent that the put
right is exercised, your ownership interest may be diluted. The Selling Security Holders have a financial incentive to sell our common
stock immediately upon receiving the shares to realize the profit equal to the difference between the discounted price and the market
price. If the Selling Security Holders sell the shares, the price of our common stock could decrease. If our stock price decreases, the
Selling Security Holders may have a further incentive to sell the shares of our common stock that it holds. These sales may have a further
adverse impact on our stock price.
The pricing structure
of the Investment Agreement and the Equity Purchase Agreement may result in dilution to our stockholders.
Pursuant to the Investment
Agreement and the Equity Purchase Agreement, the Selling Stockholders committed to purchase, subject to certain conditions, up to an aggregate
of $35,000,000 of our common stock over a prescribed period. If we sell shares to the Selling Security Holders under the Investment Agreement
or the Equity Purchase Agreement, it will have a dilutive effect on the holdings of our current stockholders, and may result in downward
pressure on the price of our common stock. If we draw down amounts under the Investment Agreement or the Equity Purchase Agreement, we
will issue shares to the Selling Security Holders at a discount. If we draw down amounts under these agreements when our share price is
decreasing, we will need to issue more shares to raise the same amount than if our stock price was higher. Issuances in the face of a
declining share price will have an even greater dilutive effect than if our share price were stable or increasing, and may further decrease
our share price.
We may not be able to
access sufficient funds pursuant to the terms of the Investment Agreement or the Equity Purchase Agreement.
Our ability to purchase shares
of our common stock to the Selling Security Holders and obtain funds pursuant to the terms of the Investment Agreement and Equity Purchase
Agreement is limited, including restrictions on when we may exercise our put rights, restrictions on the amount we may put to the Selling
Security Holders at any one time, which is determined in part by the trading price of our common stock, and a limitation on the obligation
of the Selling Security Holders to purchase if such purchase would result in the Selling Security Holders beneficially owning more than
9.99% or 4.99%, as applicable, of our common stock. Accordingly, we may not be able to access sufficient funds when needed.
Future
issuances of our common stock could dilute current stockholders or adversely affect the market.
Our
business plan contemplates expanding our operations through acquisitions which may involve significant issuances of our common stock.
Future issuances of our common stock may be at values substantially below the price paid by the current holders of our common stock.
In addition, common stock could be issued to fend off unwanted tender offers or hostile takeovers without further stockholder approval.
Sales of substantial amounts of our common stock, or even just the prospect of such sales, could depress the prevailing price of our common
stock and our ability to raise equity capital in the future. Additionally, large share issuances would generally have a negative impact
on our share price. It is possible that, due to additional share issuance, you could lose a substantial amount, or all, of your investment.
In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock,
possibly at a discount to market. These actions will result in dilution of the ownership interests of existing shareholders, further dilute
common stock book value, and that dilution may be material.
The
market for penny stocks has experienced numerous frauds and abuses that could adversely impact investors in our stock.
Company
management believes that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
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Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;
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Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;
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"Boiler room" practices involving high pressure sales tactics and unrealistic price projections by sales persons;
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Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and
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Wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.
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The
market price of our common stock may be volatile, and our stock price may fall below your purchase price at the time you desire to sell
your shares of our common stock, resulting in a loss on your investment.
The
market price of our common stock may fluctuate substantially due to a variety of factors, many of which are beyond our control, including,
without limitation:
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actual or anticipated variations in our quarterly and annual operating results, financial condition or asset quality;
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changes in general economic or business conditions, both domestically and internationally;
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the effects of, and changes in, trade, monetary and fiscal policies, including the interest rate policies of the Federal Reserve, or in laws and regulations affecting us;
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the number of securities analysts covering us;
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publication of research reports about us, our competitors, or the financial services industry generally, or changes in, or failure to meet, securities analysts’ estimates of our financial and operating performance, or lack of research reports by industry analysts or ceasing of coverage;
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changes in market valuations or earnings of companies that investors deemed comparable to us;
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the average daily trading volume of our common stock;
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future issuances of our common stock or other securities;
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additions or departures of key personnel;
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perceptions in the marketplace regarding our competitors and/or us;
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significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving our competitors or us; and
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other news, announcements or disclosures (whether by us or others) related to us, our competitors, our core market or the financial services industry.
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The stock
market and, in particular, the market for financial institution stocks have experienced significant fluctuations in recent years. In many
cases, these changes have been unrelated to the operating performance and prospects of particular companies. In addition, significant
fluctuations in the trading volume in our common stock may cause significant price variations to occur. Increased market volatility may
materially and adversely affect the market price of our common stock, which may make it difficult for you to resell your shares at the
volume, prices and times desired.
Investing
in our Company is highly speculative and could result in the entire loss of your investment.
An
investment in our shares is highly speculative and involves significant risk. Our shares should not be purchased by any person who cannot
afford to lose their entire investment. Our business objectives are also speculative, and it is possible that we would be unable to accomplish
them. Our shareholders may be unable to realize a substantial or any return on their purchase of the offered shares and may lose their
entire investment. For this reason, each prospective purchaser of the offered shares should read this prospectus and all of its exhibits
carefully
and consult with their attorney, business and/or investment advisor.
State securities laws may
limit secondary trading, which may restrict the states in which and conditions under which you can sell the shares offered by this prospectus.
Secondary trading in common
stock sold in this offering will not be possible in any state until the common stock is qualified for sale under the applicable securities
laws of the state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for
secondary trading in the state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of, the
common stock in any particular state, the common stock could not be offered or sold to, or purchased by, a resident of that state. In
the event that a significant number of states refuse to permit secondary trading in our common stock, the liquidity for the common stock
could be significantly impacted thus causing you to realize a loss on your investment.
The Company does not intend
to seek registration or qualification of its shares of common stock the subject of this offering in any State or territory of the United
States. Aside from a "secondary trading" exemption, other exemptions under state law and the laws of US territories may be available
to purchasers of the shares of common stock sold in this offering,
Anti-takeover effects of
certain provisions of Delaware state law hinder a potential takeover of our company.
Though not now, in the future
we may become subject to Delaware’s business combination law which prohibits certain business combinations between Delaware corporations
and "interested stockholders" for three years after the "interested stockholder" first becomes an "interested
stockholder," unless the corporation's board of directors approves the combination in advance. For purposes of Delaware law, an "interested
stockholder" is any person who is the beneficial owner, directly or indirectly, of fifteen percent or more of the voting power of
the outstanding voting shares of the corporation. A corporation is subject to Delaware’s business combination law if it has more
than 2000 stockholders or has its securities listed on a national securities exchange. The effect of Delaware’s business combination
law is to potentially discourage parties interested in taking control of our company from doing so if it cannot obtain the approval of
our board of directors.
Because we do not intend
to pay any cash dividends on our common stock, our stockholders will not be able to receive a return on their shares unless they sell
them.
We intend to retain any future
earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock
in the foreseeable future. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they
sell them. Stockholders may never be able to sell shares when desired. Before you invest in our securities, you should be aware that there
are various risks. You should consider carefully these risk factors, together with all of the other information included in this annual
report before you decide to purchase our securities. If any of the following risks and uncertainties develop into actual events, our business,
financial condition or results of operations could be materially adversely affected.
USE OF PROCEEDS
Selling Security Holders may
sell all of the common stock offered by this Prospectus from time-to-time. We will not receive any proceeds from the sale of those shares
of common stock.
We will pay for expenses of
this offering, except that the Selling Security Holders will pay any broker discounts or commissions or equivalent expenses and expenses
of its legal counsel applicable to the sale of its shares.
DETERMINATION OF THE OFFERING PRICE
There currently is a limited public market for
our common stock. The Selling Security Holders may sell their shares in the over-the-counter market or otherwise, at market prices prevailing
at the time of sale, at prices related to the prevailing market price, or at negotiated prices.
SELLING STOCKHOLDERS
This Prospectus relates to
the resale of up to (i) 1,000,000 shares of our Common Stock, issuable to Strattner, pursuant to the Investment Agreement, and (ii) 6,100,000
shares of our Common Stock, issuable to Williamsburg, pursuant to the Equity Purchase Agreement.
Investment Agreement with Strattner Alternative
Credit Fund LP
The Company is a party to
an Investment Agreement dated as of April 6, 2021, or the “Investment Agreement,” with Strattner pursuant to which Strattner
is committed to purchase up to $5,000,000, or the “Strattner Total Commitment,” worth of the Company’s common stock,
$0.0001 par value, over the 36-month term of the Investment Agreement.
From time to time over the
term of the Investment Agreement, commencing on the trading day immediately following the date on which the initial registration statement
is declared effective by the Securities and Exchange Commission, or the “Commission,” as further discussed below, the Company
may, in its sole discretion, provide Strattner with written notices, or a “Strattner Put Notice,” stating the amount of Common
Shares of the Company that the Company intends to sell to Strattner, or the “Strattner Put Amount,” with each put subject
to the limitations discussed below. The maximum amount of common stock that the Company shall be entitled to put to Strattner under any
applicable put notice, or the “Maximum Strattner Put Amount,” shall be an amount of shares up to or equal to 200% of the average
of the daily trading volume of our common stock for the ten (10) consecutive trading days immediately prior to the applicable date on
which we make our put to Strattner, so long as such amount is at least $5,000 and does not exceed $250,000, as calculated by multiplying
the number of shares under our put by the average daily volume weighted average price for the 10 consecutive trading days immediately
prior to the applicable date we submit our put to Strattner.
Once presented with a Strattner
Put Notice, Strattner is required to purchase the number of Strattner Put Shares underlying the Strattner Put Notice. The per share purchase
price for the Common Shares subject to a Strattner Put Notice shall be equal to 85% of the lowest volume weighted average price of the
Common Shares during the five (5) consecutive trading days including and immediately following the applicable Strattner Put Notice date,
provided, however, an additional 10% will be added to the discount of each Put if (i) the Company is not DWAC eligible and (ii) an additional
15% will be added to the discount of each Put if the Company is under DTC “chill” status on the applicable Strattner Put Notice
Date.
Among other conditions, the
Company is prohibited from issuing a Strattner Put Notice if (i) the amount requested in such Strattner Put Notice exceeds Two Hundred
Fifty Thousand Dollars ($250,000), as calculated by multiplying the Strattner Put Amount by the average daily VWAP for the ten (10) consecutive
trading days immediately prior to the applicable Strattner Put Notice Date, (ii) the sale of Shares pursuant to such Strattner Put Notice
would cause the Company to issue or sell or Strattner to acquire or purchase an aggregate dollar value of Shares that would exceed Five
Million Dollars ($5,000,0000), or (iii) the sale of Shares pursuant to the Strattner Put Notice would cause the Company to sell or Strattner
to purchase an aggregate number of shares of the Company’s common stock which would result in beneficial ownership by Strattner
of more than 9.99% of the Company’s common stock (as calculated pursuant to Section 13(d) of the Securities Exchange Act of 1934,
as amended, and the rules and regulations thereunder). The Company cannot make more than one put in any pricing period and must allow
10 days to elapse between the completion of the settlement of any one put and the commencement of a pricing period for any other put.
The Company shall not be entitled to submit a notice of put to Strattner until after the previous put closing has been completed or any
prior put notices have expired, been withdrawn or expired. The Company may not deliver a notice of a put to Strattner on or earlier of
the tenth (10th) trading day immediately following the preceding date on which the Company last submitted a put to Strattner. The Company
and Strattner have entered into an enforceable oral agreement that neither will amend or waive any provision in the Investment Agreement
that alters the pricing mechanism or the 9.99% ownership cap which will result in the transaction becoming ineligible to be made on a
shelf basis under Rule 415(a)(1)(i).
If, during the term of the
Agreement, the Company (i) subdivides or combines the common stock; (ii) pays a dividend in shares of common stock or makes any other
distribution of shares of common stock; (iii) issues any options or other rights to subscribe for or shares of common stock and the price
per share is less than closing price in effect immediately prior to such issuance; (iv) issues any securities convertible into shares
of common stock and the consideration per share for which shares of common stock may at any time thereafter be issuable pursuant to the
terms of such convertible securities shall be less that the closing price in effect immediately prior to such issuance; (v) issue shares
of common stock otherwise than as provided in the foregoing subsections (i) through (iv) at a price per share less than the closing price
in effect immediately prior to such issuance, or without consideration; or (vi) makes a distribution of its assets or evidences of its
indebtedness to the holders of common stock as a dividend in liquidation or by way of return of capital or other than as a dividend payable
out of earnings or surplus legally available for dividends under applicable law (collectively, a “Valuation Event”), then
a new Valuation Period shall begin on the trading day immediately after the occurrence of such Valuation Event and end on the fifth trading
day thereafter.
Registration Rights Agreement with Strattner
Alternative Credit Fund LP
In connection with the execution
of the Investment Agreement, on April 6, 2021, the Company and Strattner also entered into a Registration Rights Agreement, or the “Strattner
Registration Rights Agreement.” Pursuant to the Registration Rights Agreement, the Company has agreed to file an initial registration
statement, the “Registration Statement,” with the Commission to register an agreed upon number of Strattner Put Shares, on
or prior to July 5, 2021, or the “Filing Deadline,” and have it declared effective on or before the 150th calendar day the
Company has filed the Registration Rights Agreement, or the “Effectiveness Deadline.” Notwithstanding anything to the contrary,
the Company is not obligated to file Registration Statements with respect to securities not issued pursuant to the Investment Agreement.
If at any time all of the
Registrable Securities (as defined in the Registration Rights Agreement) are not covered by the initial Registration Statement, the Company
has agreed to file with the Commission one or more additional Registration Statements so as to cover all of the Registrable Securities
not covered by such initial Registration Statement, in each case, as soon as practicable, but in no event later than the applicable filing
deadline for such additional Registration Statements as provided in the Registration Rights Agreement.
The Equity Purchase
Agreement
The Company is a party to
an Equity Purchase Agreement dated August 20, 2021, or the “Equity Purchase Agreement,” pursuant to which Williamsburg is
committed to purchase up to $30,000,000 worth of the Company’s common stock, $0.0001 par value, over the 36-month term of the Equity
Purchase Agreement, or the “Williamsburg Total Commitment.”. From time to time over the term of the Equity Purchase Agreement,
the Company may, in its sole discretion, provide Williamsburg with written notices, or a “Williamsburg Put Notice,” stating
the amount of Common Shares of the Company that the Company intends to sell to Williamsburg, or the “Williamsburg Put Amount.”
Once presented with a Williamsburg Put Notice, Williamsburg is required to purchase the number of Williamsburg Put Shares underlying
the Williamsburg Put Notice with each put subject to the limitations discussed below.
The per share purchase price
for the Williamsburg Put Shares shall be equal to 88% the lowest traded price of the Common Stock on the principal market during the
five (5) consecutive trading days immediately preceding the date which Williamsburg received the Williamsburg Put Shares as DWAC Shares
in its brokerage account (as reported by Bloomberg Finance L.P., Quotestream, or other reputable source).
The exercise of each put option
is subject to the following limitations:
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(v)
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each investment amount must be at least than $25,000
and not in excess of an amount that equals the lesser of (i) 200% of the average daily trading volume, and (ii) t $500,000;
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(vi)
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the aggregate investment amount of all option puts shall not exceed $30,000,000;
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(vii)
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the lowest traded price of the Common Stock in the five trading days preceding the respective Put Date must exceed $0.01 per share;
and
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(viii)
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at least ten trading days must have lapsed since the most recent Put Notice.
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The Equity Purchase Agreement
provides that the number of Williamsburg Put Shares to be sold to Williamsburg shall not exceed the number of shares that when aggregated
together with all other shares of the Company’s common stock which Williamsburg is deemed to beneficially own, would result in Williamsburg
owning more than 4.99% of the Company’s outstanding common stock (as calculated pursuant to Section 13(d) of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder). The Equity Purchase Agreement provides that any provision of the Investment
Agreement may be amended or waived only by an instrument in writing signed by the party to be charged with enforcement.
If, during the term of the
Agreement, the Company (i) subdivides or combines the common stock; (ii) pays a dividend in shares of common stock or makes any other
distribution of shares of common stock; (iii) issues any options or other rights to subscribe for or shares of common stock and the price
per share is less than closing price in effect immediately prior to such issuance; (iv) issues any securities convertible into shares
of common stock and the consideration per share for which shares of common stock may at any time thereafter be issuable pursuant to the
terms of such convertible securities shall be less that the closing price in effect immediately prior to such issuance; (v) issue shares
of common stock otherwise than as provided in the foregoing subsections (i) through (iv) at a price per share less than the closing price
in effect immediately prior to such issuance, or without consideration; or (vi) makes a distribution of its assets or evidences of its
indebtedness to the holders of common stock as a dividend in liquidation or by way of return of capital or other than as a dividend payable
out of earnings or surplus legally available for dividends under applicable law (collectively, a “Valuation Event”), then
a new Valuation Period shall begin on the trading day immediately after the occurrence of such Valuation Event and end on the fifth trading
day thereafter.
The Company has paid to Williamsburg
a commitment fee equal in the form of 100,000 restricted shares of the Company’s common stock (the “Williamsburg Initial Commitment
Shares”).
Registration Rights Agreement with Williamsburg
Venture Holdings, LLC
In connection with the Equity
Purchase Agreement, on August 20, 2021, the Company and Williamsburg also entered into a Registration Rights Agreement, or the “Williamsburg
Registration Rights Agreement.” Pursuant to the Williamsburg Registration Rights Agreement, the Company has agreed to file an initial
registration statement, or the “Registration Statement,” with the Commission to register the Williamsburg Initial Commitment
Shares and that number of Williamsburg Put Shares as set forth in the Williamsburg Registration Rights Agreement, within 90 days after
the execution date, or the “Filing Deadline.”.
If at any time all of the
Registrable Securities (as defined in the Registration Rights Agreement) are not covered by the initial Registration Statement, the Company
has agreed to file with the Commission one or more additional Registration Statements so as to cover all of the Registrable Securities
not covered by such initial Registration Statement, in each case, as soon as practicable, but in no event later than the applicable filing
deadline for such additional Registration Statements as provided in the Registration Rights Agreement.
The volume weighted average
prices of the common stock of the Company on the OTC Markets for the 10 trading days prior to October 22, 2021, is $7.00. At such a price,
we will be able to receive up to $35,000,000 in gross proceeds, assuming the sale of the lesser of: (i) the entire 1,000,000 Strattner
Put Shares and 6,100,000 Williamsburg Put Shares being registered hereunder; (ii) such number of Strattner Put Shares and Williamsburg
Put Shares necessary to result in gross proceeds of $35,000,000.
Generally
We are relying on an exemption
from the registration requirements of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder. The transaction involves
a private offering, each of Strattner and Williamsburg is an “accredited investor” and/or qualified institutional buyer and
each of Strattner and Williamsburg has access to information about us and its investment.
The amount of $35,000,000
was selected based on our potential use of funds over the effective time period to acquire targeted businesses, including their intellectual
property, and scale our business at a rapid rate. Our ability to receive the full amount is largely dependent on the daily dollar volume
of stock traded during the effective period. Based strictly on the current daily trading dollar volume up to June 21, 2021, we believe
it is unlikely that we will be able to receive the entire $35,000,000. We are not dependent on receiving the full amount to execute our
business.
Assuming the resale of all
7,100,000 shares offered in this prospectus as Strattner Put Shares and Williamsburg Put Shares, this would constitute approximately 20%
of our outstanding common stock, such 20% figure being calculated using the number of our outstanding common stock on a fully diluted
basis. Assuming the sale of the entire $5,000,000 in Strattner Put Shares and $30,000,000 in Williamsburg Put Shares being registered
hereunder pursuant to the Investment Agreement, we will be able to receive $35,000,000 in gross proceeds. Neither the Investment Agreement
or the Equity Purchase Agreement nor any rights or obligations of the parties under such agreements may be assigned by either party to
any other person.
Each of Strattner and Williamsburg
will periodically purchase our common stock under the Investment Agreement and Equity Purchase Agreement and will, in turn, sell such
shares to investors in the market at the prevailing market price. This may cause our stock price to decline, which will require us to
issue increasing numbers of common shares to Strattner and Williamsburg to raise the same amount of funds, as our stock price declines.
As a result, it is likely that the number of shares offered in this registration statement will be insufficient to allow us to receive
the full amount of proceeds under the Investment Agreement and the Equity Purchase Agreement.
There are substantial risks
to investors as a result of the issuance of shares of our common stock under the Investment Agreement and the Equity Purchase Agreement.
These risks include dilution of stockholders, significant decline in our stock price and our inability to draw sufficient funds when needed.
The Selling Security Holders Table
The following table sets forth
the names of the Selling Security Holders, the number of shares of common stock beneficially owned by each Selling Security Holders as
of the date hereof and the number of shares of common stock being offered by each Selling Security Holders. The shares being offered hereby
are being registered to permit public secondary trading, and the Selling Security Holders may offer all or part of the shares for resale
from time to time. However, the Selling Security Holders are under no obligation to sell all or any portion of such shares nor are the
Selling Security Holders obligated to sell any shares immediately upon effectiveness of this prospectus. All information with respect
to share ownership has been furnished by the Selling Security Holders. The “Amount Beneficially Owned After Offering” column
assumes the sale of all shares offered.
To our knowledge, the none
of the Selling Security Holders is a broker-dealer or an affiliate of a broker-dealer. We may require the Selling Security Holders to
suspend the sales of the shares of our common stock being offered pursuant to this Prospectus upon the occurrence of any event that makes
any statement in this Prospectus or the related registration statement untrue in any material respect or that requires the changing of
statements in those documents in order to make statements in those documents not misleading.
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Name of Selling Security Holders
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Shares Beneficially Owned Prior to Offering(1)
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Amount Beneficially Owned After Offering
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Number of Shares to Be Owned by Selling Security Holders After the Offering and Percent of Total Issued and Outstanding Shares(1)
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# of
Shares(2)
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% of
Class(2)
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Strattner Alternative Credit Fund LP (3)
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0
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0
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0
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*
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Williamsburg Venture Holdings, LLC (4)
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0
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0
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0
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*
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_________
* Less than 1%
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(1)
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Beneficial ownership is determined in accordance with Securities and Exchange Commission rules and generally includes voting or investment power with respect to shares of Common Stock. Shares of Common Stock subject to options and warrants currently exercisable, or exercisable within 60 days, are counted as outstanding for computing the percentage of the person holding such options or warrants but are not counted as outstanding for computing the percentage of any other person.
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(2)
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We have assumed that the Selling Security Holder will sell all of the shares being offered in this offering.
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(3)
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Strattner Capital Management Limited, a Hong Kong entity, is the general partner of Strattner Alternative Credit Fund LP and has voting and investment power over the shares beneficially owned by Strattner Alternative Credit Fund LP. Timo Strattner has voting and investment power over the shares beneficially owned by Strattner Capital Management Limited.
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(4)
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Ronald Glenn beneficially owns all issued and outstanding securities of Williamsburg Venture Holdings, LLC.
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PLAN OF DISTRIBUTION
This prospectus relates to the resale of shares
of our common stock, par value $0.001 per share, by the Selling Security Holders, including (i) 1,000,000 Strattner Put Shares that we
will put to Strattner, and (ii) 6,100,000 Williamsburg Put Shares that we will put to Williamsburg.
We will not receive any proceeds from the sale
of the shares of common stock offered by the Selling Security Holders. We may receive proceeds of up to $5,000,000 from the sale of our
Strattner Put Shares under the Investment Agreement and $30,000,000 from the sale of our Williamsburg Put Shares under the Equity Purchase
Agreement.
The Selling Security Holders may, from time to
time sell any or all of their shares of common stock on any market or trading facility on which the shares are traded or in private transactions.
These sales may be at fixed or negotiated prices. The Selling Security Holders may use any one or more of the following methods when selling
shares:
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ordinary brokerage transactions and transactions in which the broker-dealer solicits the purchaser;
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block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal;
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facilitate the transaction;
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purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
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an exchange distribution in accordance with the rules of the applicable exchange;
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privately negotiated transactions;
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broker-dealers may agree with the Selling Security Holders to sell a specified number of such shares at a stipulated price per share;
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a combination of any such methods of sale; and
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any other method permitted pursuant to applicable law.
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The Selling Security Holders may also sell securities
under Rule 144 under the Securities Act of 1933, if available, rather than under this Prospectus.
The Selling Security Holders or their respective
pledgees, donees, transferees or other successors in interest, may also sell the shares directly to market makers acting as principals
and/or broker-dealers acting as agents for themselves or their customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Security Holders and/or the purchasers of shares for whom such broker-dealers may
act as agents or to whom they sell as principal or both, which compensation as to a particular broker-dealer might be in excess of customary
commissions. Market makers and block purchasers purchasing the shares will do so for their own account and at their own risk. It is possible
that the Selling Security Holders will attempt to sell shares of common stock in block transactions to market makers or other purchasers
at a price per share which may be below the then market price. The Selling Security Holders cannot assure that all or any of the shares
offered in this prospectus will be issued to, or sold by, the Selling Security Holders. In addition, the Selling Security Holders and
any brokers, dealers or agents, upon effecting the sale of any of the shares offered in this prospectus are “underwriters”
as that term is defined under the Securities Act or the Exchange Act, or the rules and regulations under such acts. In such event, any
commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
Discounts, concessions, commissions and similar
selling expenses, if any, attributable to the sale of shares will be borne by a Selling Security Holders. The Selling Security Holders
may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities
are imposed on that person under the Securities Act.
The Selling Security Holders may from time to
time pledge or grant a security interest in some or all of the shares of common stock owned by them, and, if they default in the performance
of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this
prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or any other applicable provision of the Securities
Act amending the list of Selling Security Holders to include the pledgee, transferee or other successors in interest as Selling Security
Holders under this prospectus.
The Selling Security Holders also may transfer
the shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest will be the
selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time under this prospectus
after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending
the list of Selling Security Holders to include the pledgee, transferee or other successors in interest as a Selling Security Holders
under this prospectus.
We are required to pay all fees and expenses incident
to the registration of the shares of common stock. Otherwise, all discounts, commissions or fees incurred in connection with the sale
of our common stock offered hereby will be paid by the Selling Security Holders.
The Selling Security Holders acquired or will
acquire the securities offered hereby in the ordinary course of business and have advised us that they have not entered into any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares of common stock, nor is there
an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by any Selling Security Holders.
We will file a supplement to this prospectus if a Selling Security Holders enters into a material arrangement with a broker-dealer for
sale of common stock being registered. If the Selling Security Holders use this prospectus for any sale of the shares of common stock,
it will be subject to the prospectus delivery requirements of the Securities Act.
The anti-manipulation rules of Regulation M under
the Exchange Act, may apply to sales of our common stock and activities of the Selling Security Holders. The Selling Security Holders
will act independently of us in making decisions with respect to the timing, manner and size of each sale.
We will pay all expenses incident to the registration,
offering and sale of the shares of our common stock to the public hereunder other than commissions, fees and discounts of underwriters,
brokers, dealers and agents. If any of these other expenses exists, we expect the Selling Security Holders to pay those expenses. We estimate
that the expenses of the offering to be borne by us will be approximately $30,000. We will not receive any proceeds from the resale of
any of the shares of our common stock by the Selling Security Holders.
DESCRIPTION OF SECURITIES
The following is a description
of the material provisions of our capital stock, as well as other material terms of our Amended Certificate of Incorporation and Bylaws.
We refer you to our Amended Certificate of Incorporation, as amended, and Bylaws, copies of which have been filed as exhibits to this
report.
Common Stock
We are authorized, subject
to limitations prescribed by Delaware law, to issue up to 100,000,000 shares of common stock with a nominal par value of $0.0001.
Dividend Rights
Subject to preferences that
may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of our common stock are entitled to
receive dividends out of funds legally available if our board of directors, in its discretion, determines to issue dividends and only
then at the times and in the amounts that our board of directors may determine.
Voting Rights
Each holder of common stock
is entitled to one vote for each share of common stock held on all matters submitted to a vote of stockholders. Under our Amended
Certificate of Incorporation, stockholders do not have the right to cumulate votes for the election of directors.
No Preemptive or Similar Rights
Our common stock is not entitled
to preemptive rights and is not subject to conversion, redemption or sinking fund provisions.
Right to Receive Liquidation Distributions
Upon our dissolution, liquidation
or winding-up, the assets legally available for distribution to our stockholders are distributable ratably among the holders of our common
stock, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights and payment of liquidation preferences,
if any, on any outstanding shares of preferred stock.
Preferred Stock
We are authorized to issue
up to 20,000,000 shares of preferred stock with a nominal par value of $0.0001. Our Amended Certificate of Incorporation allows
our board of directors to authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting
power or other rights of the holders of the common stock. The issuance of preferred stock, while providing flexibility in connection
with possible acquisitions and other corporate purposes, could, among other things, have the effect of delaying, deferring or preventing
a change in control of our company and may adversely affect the market price of our common stock and the voting and other rights of the
holders of common stock. We have no current plans to issue any shares of preferred stock.
Options and Warrants
As of the date of this Report,
we had no outstanding options to purchase shares of our common stock.
2,500,000 common stock purchase
warrants of the Company were distributed to all administrative creditors of PSD, with these creditors receiving five common stock purchase
warrants of the Company for each $0.10 of PSD's administrative debt held. The 2,500,000 warrants consisted 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. The exercise price of
the warrants was reduced to $0.10 per share on April 7, 2020, and on April 15, 2020, the warrant expiration date was extended to August
30, 2025.
Transfer Agent and Registrar
Our transfer agent is Globex
Transfer, LLC. located at 780 Deltona Boulevard, Suite 202, Deltona, Florida 32725, telephone number is (813) 344-4490.
Delaware Anti-Takeover Provisions
Section 203 of the Delaware
General Corporation Law (the “DGCL”) prohibits public companies from entering into a business combination (including a merger,
sale of assets or transfer of stock) with an “interested stockholder” for a period of three years after the person becomes
an interested stockholder, unless certain conditions apply. An “interested stockholder” is defined as a person or group of
persons who beneficially acquire 15% or more of the outstanding voting stock of the corporation. Section 203 does not apply if the corporation’s
board of directors preapproves the transaction by which a stockholder becomes an interested stockholder, or if the subsequent business
combination with an interested stockholder is authorized at a stockholder meeting by two-thirds of the corporation’s outstanding
voting stock (excluding the stock held by the interested stockholder). Further, a stockholder who acquires 85% or more of the voting stock
of a corporation (excluding stock held by directors who are also officers and certain employee stock plans) in the first transaction in
which it becomes an interested stockholder is not subject to the three-year waiting period for any subsequent business combination.
A Delaware corporation may
amend its certificate of incorporation to “opt out” of Section 203’s anti-takeover protection. The amendment must be
approved by the affirmative vote of a majority of the shares entitled to vote, in addition to any other vote required by law, and it must
be effected before any stockholder becomes an interested stockholder. Subject to certain exceptions, such amendment will not take effect
until twelve months after its adoption.
Because we do not have a class
of voting stock that is listed on a national securities exchange or held of record by more than 2,000 stockholders, the restrictions of
Section 203 of the Delaware General Corporation Law do not apply to us. We intend, however, to amend our Certificate of Incorporation
to elect not to be governed by Section 203 of the DGCL to facilitate potential future business combinations regardless of whether such
business combinations are with interested stockholders.
Registration Rights Agreements.
In connection with the execution
of the Investment Agreement and the Equity Purchase Agreement, the Company also entered into the Registration Rights Agreement with each
of Strattner and Williamsburg. Pursuant to the Registration Rights Agreements, the Company has agreed, at its expense, to file one or
more Registration Statements with the Commission to register an agreed upon number of Strattner Put Shares and Williamsburg Put Shares,
on or prior to the Filing Deadline and have it declared effective on or before the Effectiveness Deadline.
We must use commercially reasonable
best efforts to keep such registration statement continuously effective until all registrable securities covered by such registration
statement (i) have been sold, thereunder or pursuant to Rule 144, or (ii) may be sold without volume or manner-of-sale restrictions pursuant
to Rule 144, as determined by the counsel to the Company pursuant to a written opinion letter to such effect.
DESCRIPTION OF BUSINESS
Overview
We were incorporated under
the laws of the State of Delaware on March 6, 2014, under the name “Jovanovic-Steele, Inc.” Our name was changed to Baja Custom
Designs, Inc. on October 26, 2017. On May 8, 2020, we acquired Luduson Holding Company Limited, a limited liability company organized
under the laws of British 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 in Hong 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, 80 Gloucester Road, Wanchai, Hong Kong, telephone number +852-2119 1031.
History
We were established as part
of the Chapter 11 Plan of Reorganization of Pacific Shores Development, Inc. ("PSD"). PSD and its subsidiary, Jovanovic-Steele,
were in the real estate development business, and the real estate crash and the recession of 2008 made it impossible for them to obtain
the financing needed to carry on their projects. In 2010, PSD filed for chapter 11 bankruptcy protection. The U.S. Bankruptcy Court for
the Southern District of California ordered the incorporation of the Company and the distribution of the following securities:
|
|
•
|
80,000 shares of the Company’s common stock were distributed to all general unsecured creditors of PSD on a pro rata basis according to amount of debt held;
|
|
|
•
|
500,000 shares of the Company’s common stock were distributed to all administrative creditors of PSD, with these creditors receiving one share of common stock in the Company for each $0.10 of PSD's administrative debt held;
|
|
|
•
|
2,500,000 common stock purchase warrants of the Company were distributed to all administrative creditors of PSD, with these creditors receiving five common stock purchase warrants of the Company for each $0.10 of PSD's administrative debt held. The 2,500,000 warrants consisted 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, 2020.
|
The exercise price of the
warrants was reduced to $0.10 per share on April 7, 2020, and on April 15, 2020, the warrant expiration date was extended to August 30,
2025.
On March 6, 2014, we issued
20,000 common shares for services at par value, $0.0001 per share, for total value of $2. On June 16, 2014, we issued a total of 15,000,000
common shares for services at par value, $0.0001 per share, for total value of $1,500. On August 1, 2017, we issued a total of 10,000
common shares for services at par value, $0.0001 per share, for a total value of $1.
On April 3, 2020, the Company,
Linda Masters, our Chief Executive Officer and President, entered into that certain Stock Purchase Agreement (the “SPA”),
pursuant to which Ms. Masters agreed to sell to Lan CHAN 14,960,000 shares of common stock of the Company, par value $0.0001 (the “Shares”),
representing approximately 95.8% of the issued and outstanding common stock of the Company, for aggregate consideration of Three Hundred
Ninety One Thousand Dollars ($391,000) in accordance with the terms and conditions of the SPA. The acquisition of the Shares consummated
on April 15, 2020, and was purchased by Lan CHAN with his personal funds. As a result of the acquisition, Mr. Chan holds a controlling
interest in the Company and may unilaterally determine the election of the Board and other substantive matters requiring approval of the
Company’s stockholders.
Upon the consummation of the
sale of the Shares, Linda Masters, our Chief Executive Officer, President and director, and Kathleen Chula, our Vice President and Director,
resigned from all of their positions with the Company, effective April 15, 2020. Their resignations were not due to any dispute or disagreement
with the Company on any matter relating to the Company's operations, policies or practices.
Concurrently with such resignations,
Lan CHAN was appointed to serve as the Chief Executive Officer, Chief Financial Officer, President, Secretary and sole Director of the
Company, until the next annual meeting of stockholders of the Company and until such director’s successor is elected and qualified
or until such director’s earlier death, resignation or removal. None of the directors or executive officers has a direct family
relationship with any of the Company’s directors or executive officers, or any person nominated or chosen by the Company to become
a director or executive officer. Mr. Chan will serve in his positions without compensation. The Company hopes to enter into a compensatory
arrangement with each officer in the future.
Acquisition of LHCL
Effective May 22, 2020, we
consummated the acquisition of LHCL. As a result of the acquisition, our corporate structure is below:
Our Products and Services
We
provide a wide range of interactive game software that targets customers in Hong Kong and China. Notably a number of the games developed,
operated or published by us are game adaptations of famous or popular literature, comics or animations. Our game library includes more
than 100 games. Our game library consists of our self/co-developed games and third-party developed games. Our self/co-developed
games generate revenue primarily from grant a right-to-use to our clients who subscribe to our games via an online portal. Clients are
able to select from a wide range of games and download them from our portal.
For
shopping malls, exhibition organizers and brand owners, we provide customized interactive games according to the intellectual properties,
licenses or brands and offer technical consultancy services, including system deployment, service maintenance and user analytics. After
initial commercialization or game launch with specific literature, comics or animations, we would further reuse the game engine to generate
another game title with our self-developed characters. The newly developed interactive game will be included to our game library, and
provide another stream of revenue, i.e. game license.
Markets and Regions
With
the development of digital technology, interactive gaming and its applications have increased their footprint in the marketplace. Interactive
gaming involves Sound Design, Interface Design, Design Simulation, Navigation Design, Application Design, etc. Today, interactive
technology is used in art and games including in museums, commercial special exhibitions, marketing, mutual media, business innovation,
theme parks, etc. We communicate with business customers to assist them in converting their thought into feasible technology, as part
of their B2B marketing strategies and solutions to appeal to their target audience in the launch of their marketing events and campaigns.
Traditional
forms of gaming such as PC game and online games with its single form of display are gradually being replaced by interactive gaming. The
wide application of interactive game has attracted the attention of the public, mobilizing the enthusiasm of participants. We believe
that, in the near future, the multimedia interactive games will be well-accepted, especially in Hong Kong and China. We believe that interactive
games will become the trend in the 21th century globally.
The below
statistic shows the digital advertising expenditure in Hong Kong from 2016 to 2022.
* Projected figures
Sourced
from Statista 2020
Currently,
we derive revenue from two main business segments: digital marketing and entertainment.
During
the quarters ended June 30, 2021, our digital marketing and entertainment revenues accounted for 100% of our revenues as follows:
|
|
|
Quarters ended June 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
US$
|
|
|
US$
|
|
|
Digital marketing
|
|
$
|
657,131
|
|
|
$
|
1,101,701
|
|
|
Entertainment
|
|
|
–
|
|
|
|
19,328
|
|
|
|
|
$
|
657,131
|
|
|
$
|
1,121,029
|
|
During
the year ended December 31, 2020, our digital marketing and entertainment revenues accounted for 99% and 1% of our revenues as follows:
|
|
|
Years ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
US$
|
|
|
US$
|
|
|
Digital marketing
|
|
$
|
5,916,380
|
|
|
$
|
502,324
|
|
|
Entertainment
|
|
|
19,340
|
|
|
|
924,030
|
|
|
|
|
$
|
5,935,720
|
|
|
$
|
1,426,354
|
|
We
commenced our operations in Hong Kong. Our services and products are marketed and sold in Hong Kong and China.
During
the quarters ended June 30, 2021 and 2020, our revenues are attributable from the following regions:
|
Region
|
Revenue Percentage
Quarter Ended June 30, 2021
|
Revenue Percentage
Quarter Ended June 30, 2020
|
|
Hong Kong
|
76%
|
88%
|
|
China
|
24%
|
12%
|
|
All other regions
|
–%
|
–%
|
During
the years ended December 31, 2020 and 2019, our revenues are attributable from the following regions:
|
Region
|
Revenue Percentage
Year Ended December 31, 2020
|
Revenue Percentage
Year Ended December 31, 2019
|
|
Hong Kong
|
56%
|
63%
|
|
China
|
44%
|
37%
|
|
All other regions
|
–%
|
–%
|
Digital
Marketing
In
Hong Kong, we usually co-operate with shopping malls, exhibition organizers, brand owners and marketing agency, offering events marketing
strategies with the combination of intellectual-property or branding interactive game solutions in order to provide entertainment experiences
to our target audience and increase attractions to the venue.
Entertainment
For
the entertainment industry, the marketing strategy is slightly different. We offer and provide the library of our custom-made game contents
in a customized computer device through a plug and play model for business-to-business (B2B) content aggregation used by their operators.
Our device is easily connected to TV sets and our game contents are freely distributed to play for leisure and entertainment, such as,
sport-themed social games, motion-sensing action games, logic and puzzle games, original IP characters education games for children, etc.
As
of June 30, 2021, the following customers represented 10% or more of our revenues:
|
|
|
Six Months ended June 30, 2021
|
|
|
June 30, 2021
|
|
|
Customer
|
|
Revenues
|
|
|
Percentage
of revenues
|
|
|
Accounts
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
|
|
As
of June 30, 2020, the following customers represented 10% or more of our revenues:
|
|
|
Six months ended June 30, 2020
|
|
|
June 30, 2020
|
|
|
Customer
|
|
Revenues
|
|
|
Percentage
of revenues
|
|
|
Accounts
receivable
|
|
|
Ease Audio Group Limited
|
|
$
|
966,404
|
|
|
|
100%
|
|
|
$
|
916,107
|
|
As
of December 31, 2020, the following customers represented 10% or more of our revenues:
|
|
|
Revenues
(US$)
|
|
Percentages of Revenues
|
|
Accounts Receivable (US$)
|
|
Ease Audio Group Limited
|
|
$
|
3,284,657
|
|
|
|
55%
|
|
|
$
|
2,041,928
|
|
|
Yu Lin Nuo Ya Interactive Entertainment Company Limited
|
|
|
1,448,086
|
|
|
|
24%
|
|
|
|
1,352,108
|
|
|
Shenzhen Jiu Sheng Optoelectronic Comm Tech Co., Ltd
|
|
|
1,183,637
|
|
|
|
20%
|
|
|
|
1,088,683
|
|
|
Total:
|
|
$
|
5,916,380
|
|
|
|
99%
|
|
|
$
|
4,482,719
|
|
As
of December 31, 2019, the following customers represented 10% or more of our revenues:
|
|
|
Revenues (US$)
|
|
Percentages of Revenues
|
|
Accounts Receivable (US$)
|
|
Shenzhen Jiu Sheng Optoelectronic Comm Tech Co., Ltd
|
|
$
|
316,545
|
|
|
|
22%
|
|
|
$
|
132,268
|
|
|
Excellent Entertainment Limited
|
|
|
256,555
|
|
|
|
18%
|
|
|
|
139,331
|
|
|
Ease Audio Group Limited
|
|
|
245,067
|
|
|
|
17%
|
|
|
|
169,508
|
|
|
Yu Lin Nuo Ya Interactive Entertainment Company Limited
|
|
|
210,604
|
|
|
|
15%
|
|
|
|
94,000
|
|
|
Knotbase Technology Limited
|
|
|
185,077
|
|
|
|
13%
|
|
|
|
105,301
|
|
|
Total:
|
|
$
|
1,213,848
|
|
|
|
85%
|
|
|
$
|
640,408
|
|
Our Strategies
We
are focused on executing on key strategies to achieve long-term growth in revenues, profit and cash flow. We seek to achieve our targets
by delivering innovative and differentiated products that provide value to our clients and exciting experiences. We place great emphasis
on developing creative solutions, in terms of interactive game and play, that deliver and sustain superior performance primarily for distributed
gaming. This networked strategy often allows us to update our games and operating software remotely, keeping pace with evolving requirements
in game play, security, technology and regulations.
Our
primary objectives are (i) to strengthen our position as an operator and developer in the interactive game industry in Hong Kong and China
and (ii) to actively expand into overseas markets in respect of self/co-developed games. To this end, we plan to pursue the following
business strategies:
|
|
•
|
expand our game portfolio through developing more high-quality self/co-developed games and introducing licensed games with a focus on interactive games;
|
|
|
•
|
continue to secure development rights for popular literatures, comics and animations;
|
|
|
•
|
fully utilize existing games and development rights to broaden our revenue stream;
|
|
|
•
|
enhance our game development capacity and increase the investment in game technology to increase the number of self-developed games;
|
|
|
•
|
consolidate our market position and enhance our marketing efforts;
|
|
|
•
|
pursue strategic alliances and acquisition opportunities;
|
|
|
•
|
further expand into the interactive gaming market in China;
|
|
|
•
|
broaden reach into international markets; and
|
|
|
•
|
pursue strategic acquisitions and partnerships
|
We
currently develop and operate interactive games. To maximize the value of our self/co-developed games, we intend to explore market opportunities
of other geographic markets by offering other language versions (such as English or Malay or Chinese versions) of our self/co-developed
games.
We
strive to introduce high-quality games and deliver a superior game experience to our customers in order to retain their interest in our
games. It is our constant endeavour to elevate the awareness of our brand-name in order to associate our brand with high-quality games
and appealing game experience. This is achieved through investments in our game development team and staff, upgrades of software such
as game engines, game-designing tools, and the acquisition of hardware to accommodate increasing technical demands for operating the games.
Furthermore, we believe that our investment in technology, both in terms of hardware and software, would raise the barrier to entry for
future competitors as well as maintaining our competitive edge against existing competitors.
Development and Modification
Our project team in our technical
department is responsible for creating game logic, in-game graphics as long as music and sound effect. The project team may further adopt
other interactive technologies such as augmented reality (AR), virtual reality (VR), mixed reality (MR), human motion sensing, gesture
control, location-based detection, projection mapping and other special effects to our game so as to maximize the gaming experience for
our players. We engage external service providers for the soundtracks, motion pictures and part of the artwork associated with the game.
We also engage external third party services providers for special-themed game artwork.
During the development process,
our project team will test-play the game to look for errors, bugs, lagging, faulty designs and etc. This is a continuous process until
the project manager is satisfied with the performance and the overall playability of the alpha version.
INTELLECTUAL PROPERTY AND PATENTS
We expect to rely on, trade
secrets, copyrights, know-how, trademarks, license agreements and contractual provisions to establish our intellectual property rights
and protect our “Luduson” brand, as well as its related products and services. These legal means, however, afford only limited
protection and may not adequately protect our rights. Litigation may be necessary in the future to enforce our intellectual property rights,
protect our trade secrets or determine the validity and scope of the proprietary rights of others. Litigation could result in substantial
costs and diversion of resources and management attention.
The laws of Hong Kong, China
and our target countries may not protect our brand and services and intellectual property to the same extent as U.S. laws, if at all.
We may be unable to fully protect our intellectual property rights in these countries. Further, companies in the internet, social media
technology and other industries may own large numbers of patents, copyrights and trademarks and may frequently request license agreements,
threaten litigation or file suit against us based on allegations of infringement or other violations of intellectual property rights.
We intend to seek the widest
possible protection for significant product and process developments in our major markets through a combination of copyrights, trade secrets,
trademarks, patents, confidentiality provisions and procedures and other contractual provisions, if applicable. We anticipate that the
form of protection will vary depending upon the level of protection afforded by the particular jurisdiction. We expect that our revenue
will be derived principally from our operations in Hong Kong and China where intellectual property protection may be limited and difficult
to enforce. In such instances, we may seek protection of our intellectual property through measures taken to increase the confidentiality
of our findings.
We intend to register trademarks
as a means of protecting the brand names of our companies and products. We intend protect our trademarks against infringement and also
seek to register design protection where appropriate.
We rely on trade secrets and
unpatentable know-how that we seek to protect, in part, by confidentiality agreements. We expect that, where applicable, we will require
our employees to execute confidentiality agreements upon the commencement of employment with us. We expect these agreements to provide
that all confidential information developed or made known to the individual during the course of the individual's relationship with us
is to be kept confidential and not disclosed to third parties except in specific limited circumstances. The agreements will also provide
that all inventions conceived by the individual while rendering services to us shall be assigned to us as the exclusive property of our
company. There can be no assurance, however, that all persons who we desire to sign such agreements will sign, or if they do, that these
agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets or unpatentable know-how
will not otherwise become known or be independently developed by competitors.
We also devote financial and
operational resources to implement systems, processes and technologies to guard against cyber events and to help protect our intellectual
property, employee and consumer data and information technology systems against intrusions or other security breaches. In addition, we
engage in activities designed to limit the impact of abuse of our digital products and services, including monitoring our games for evidence
of exploitation and re-balancing our game environments in the event that such abuse is discovered.
COMPETITION
Competition in the game industry
is intense in Hong Kong and China. We compete with other game developers, operators and publishers of interactive games in Hong Kong and
China. We may also face competition from emerging mobile game developers, operators and publishers, as well as some traditional online
PC game companies that are entering the mobile game market. The game industry is fragmented and sensitive to price and service. We believe
the principal competitive factors in our market include the following:
|
|
•
|
strong in-house game development expertise with a track record of successful games and robust pipeline;
|
|
|
•
|
leading publishing platform;
|
|
|
•
|
large game portfolio and diversified publishing network; and
|
|
|
•
|
collaborative culture led by a stable management team.
|
|
|
•
|
local presence and understanding of local business trends;
|
|
|
•
|
ability to minimize the time-to-market of the game solutions;
|
|
|
•
|
ability to build up a high volume of game titles in the library;
|
|
|
•
|
ability to form partnership with famous IP and brand owners;
|
|
|
•
|
ability to assist our client to generate positive feedback on adopting our products; and
|
|
|
•
|
strength and recognition of our brand.
|
Although we believe we compete
favorably on the factors described above, many of our current and potential competitors have longer operating histories, significantly
greater financial, technical, marketing and other resources, larger product and services offerings, larger customer base and greater brand
recognition. These factors may allow our competitors to benefit from their existing customer base with lower development costs or to respond
more quickly than we can to new or emerging technologies and changes in customer requirements.
These competitors may engage
in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing
policies, which may allow them to build a larger customer base more effectively than us. Our competitors may develop products or services
that are similar to our products and services or that achieve greater market acceptance than our products and services. In addition, although
we do not believe that customer payment terms are a principal competitive factor in our market, they may become such a factor, and we
may be unable to compete on such terms.
EMPLOYEES
As of June 30, 2021, we have
the following full time employees: [update]
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Administration / Finance
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3
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Total
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3
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We work with our programmers
and developers on a contractual basis as they are not employees of the Company.
All of our employees are
located in Hong Kong. None of our employees are members of a trade union. We believe that we maintain good relationships with our employees
and have not experienced any strikes or shutdowns and have not been involved in any labor disputes.
GOVERNMENT AND INDUSTRY REGULATIONS
Our business is located in Hong Kong and is subject to the laws and regulations of Hong
Kong governing businesses concerning, in particular labor, occupational safety and health, contracts, tort and intellectual property.
Furthermore, we need to comply with the rules and regulations of Hong Kong governing the data usage and regular terms of service applicable
to our potential customers or clients. As the information of our potential customers or clients is preserved in Hong Kong, we need to
comply with the Hong Kong Personal Data (Privacy) Ordinance.
If
PRC authorities reinterpret PRC laws to apply to Hong Kong companies, we may become subject to the laws and regulations of China governing
businesses in general, including labor, occupational safety and health, contracts, tort and intellectual property. We may also become
subject to foreign exchange regulations might limit our ability to convert foreign currency into Renminbi or Hong Kong Dollars, acquire
any other PRC companies, establish VIEs in the PRC, or make dividend payments from any future WFOEs to us.
Hong Kong
The Employment Ordinance is
the main piece of legislation governing conditions of employment in Hong Kong since 1968. It covers a comprehensive range of employment
protection and benefits for employees, including Wage Protection, Rest Days, Holidays with Pay, Paid Annual Leave, Sickness Allowance,
Maternity Protection, Statutory Paternity Leave, Severance Payment, Long Service Payment, Employment Protection, Termination of Employment
Contract, Protection Against Anti-Union Discrimination. In addition, every employer must take out employees’ compensation insurance
to protect the claims made by employees in respect of accidents occurred during the course of their employment.
An employer must also comply
with all legal obligations under the Mandatory Provident Fund Schemes Ordinance, (CAP485). These include enrolling all qualifying employees
in MPF schemes and making MPF contributions for them. Except for exempt persons, employer should enroll both full-time and part-time employees
who are at least 18 but under 65 years of age in an MPF scheme within the first 60 days of employment. The 60-day employment rule does
not apply to casual employees in the construction and catering industries. Pursuant to the said Ordinance, we are required to make MPF
contributions for our Hong Kong employees once every contribution period (generally the wage period within 1 month). Employers and employees
are each required to make regular mandatory contributions of 5% of the employee’s relevant income to an MPF scheme, subject to the
minimum and maximum relevant income levels. For a monthly-paid employee, the minimum and maximum relevant income levels are $7,100 and
$30,000, respectively.
China [Company
please confirm if the below is true, accurate and complete.]
Depending upon the political
climate, we may also become subject to the laws and regulations of China governing businesses in general, including labor, occupational
safety and health, contracts, tort and intellectual property. We may also become subject to foreign exchange regulations might limit our
ability to convert foreign currency into Renminbi, acquire PRC companies, or make dividend payments to ENMI.
Regulations on Tax
PRC Corporate Income Tax
The PRC corporate income tax,
or CIT, is calculated based on the taxable income determined under the applicable CIT Law and its implementation rules, which became effective
on January 1, 2008 and amended on February 24, 2017 and December 29, 2018 respectively. The CIT Law imposes a uniform corporate income
tax rate of 25% on all resident enterprises in China, including foreign-invested enterprises.
Uncertainties exist with respect
to how the CIT Law applies to the tax residence status of the Company and our offshore subsidiaries. Under the CIT Law, an enterprise
established outside of China with a “de facto management body” within China is considered a “resident enterprise,”
which means that it is treated in a manner similar to a Chinese enterprise for corporate income tax purposes. Although the implementation
rules of the CIT Law define “de facto management body” as a managing body that exercises substantive and overall management
and control over the production and business, personnel, accounting books and assets of an enterprise, the only official guidance for
this definition currently available is set forth in Circular 82 issued by the State Administration of Taxation, which provides guidance
on the determination of the tax residence status of a Chinese-controlled offshore incorporated enterprise, defined as an enterprise that
is incorporated under the laws of a foreign country or territory and that has a PRC enterprise or enterprise group as its primary controlling
shareholder. Although the Company does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore
not a Chinese-controlled offshore incorporated enterprise within the meaning of Circular 82, in the absence of guidance specifically applicable
to us, we have made reference to the guidance set forth in Circular 82 to evaluate the tax residence status of the Company and our subsidiaries
organized outside the PRC.
According to Circular 82,
a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management
body” in China and will be subject to PRC corporate income tax on its worldwide income only if all of the following criteria are
met:
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•
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the primary location of the day-to-day operational management is in the PRC;
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•
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decisions relating to the enterprise’s financial and human resource matters are made or are subject to approval by organizations
or personnel in the PRC;
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•
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the enterprise’s primary assets, accounting books and records, company seals, and board and shareholders meeting minutes are located
or maintained in the PRC; and
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•
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50% or more of voting board members or senior executives habitually reside in the PRC.
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Currently, our Hong Kong entities
are not considered entities inside China and therefore not deemed to be a PRC resident enterprise for PRC tax purposes as defined above.
However, the tax resident status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with
respect to the interpretation of the term “de facto management body.” As all of our management members are based in Hong Kong,
it remains unclear how the tax residency rule will apply to our case. If the PRC tax authorities determine that we or any of our subsidiaries
outside of China is a PRC resident enterprise for PRC enterprise income tax purposes, then we or such subsidiary could be subject to PRC
tax at a rate of 25% on its world-wide income, as our entity enterprise in China is an state high-tech enterprise, it is possible to be
impose 15% enterprise income tax on state high-tech enterprises in accordance with provisions of the Chinese tax law, thus materially
reducing our net income. In addition, we will also be subject to PRC enterprise income tax reporting obligations. Furthermore, if the
PRC tax authorities determine that we are a PRC resident enterprise for enterprise income tax purposes, gains realized on the sale or
other disposition of our ordinary shares may be subject to PRC tax, at a rate of 10% in the case of non-PRC enterprises or 20% in the
case of non-PRC individuals (in each case, subject to the provisions of any applicable tax treaty), if such gains are deemed to be from
PRC sources. It is unclear whether non-PRC shareholders of our company would be able to claim the benefits of any tax treaties between
their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the
returns on your investment in our common stock.
Value-Added Tax and
Business Tax
The Provisional Regulations
of the PRC on Value-added Tax (“VAT”) were promulgated by the State Council on December 13, 1993 and came into effect on January
1, 1994 which were subsequently amended on November 10, 2008, February 6, 2016 and November 19, 2017. The Detailed Rules for the Implementation
of the Provisional Regulations of the PRC on Value-added Tax (Revised in 2011) were promulgated by the Ministry of Finance and the State
Administration of Taxation (“SAT”) on 28 October 2011 and came into effect on November 1, 2011 (collectively, the “VAT
Law”). According to the VAT Law, all enterprises and individuals engaged in the sale of goods, the provision of processing, repair
and replacement services, and the importation of goods within the territory of the PRC must pay value-added tax. For general VAT taxpayers
selling or importing goods other than those specifically listed in the VAT Law, the VAT rate is 17%. Starting from April 1, 2019, the
VAT rate for revenue generated from providing products was changed from 16% into 13%. VAT is reported as a deduction of revenue when incurred.
Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities.
Net VAT balance between input VAT and output VAT is recorded in taxes payable.
On March 23, 2016, the Ministry
of Finance and the SAT jointly issued the Circular on Full Implementation of Business Tax to Value-added Tax Reform which has been partially
repealed on July 1, 2017 and January 1, 2018, confirms that business tax would be completely replaced by VAT from May 1, 2016.
Regulations Relating
to Foreign Exchange and Dividend Distribution
Foreign Exchange Regulations
The principal regulations
governing foreign currency exchange in China are the Foreign Exchange Administration Regulations. Under the PRC foreign exchange regulations,
payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, may be made
in foreign currencies without prior approval from the State Administration of Foreign Exchange (“SAFE”) by complying with
certain procedural requirements. By contrast, approval from or registration with appropriate government authorities is required where
RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of foreign currency-denominated
loans or foreign currency is to be remitted into China under the capital account, such as a capital increase or foreign currency loans
to PRC subsidiaries. Our operating currency is the Hong Kong Dollar. If PRC authorities reinterpret foreign exchange regulations to include
the Hong Kong Dollar, then we may become subject to the regulations affecting foreign exchange and dividend distributions as set forth
herein.
In November 2012, SAFE promulgated
the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment. Pursuant to this
circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expense accounts, foreign exchange
capital accounts and guarantee accounts, the reinvestment of RMB proceeds by foreign investors in the PRC, and remittance of foreign exchange
profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE,
and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. In addition,
SAFE promulgated the Circular on Printing and Distributing the Provisions on Foreign Exchange Administration over Domestic Direct Investment
by Foreign Investors and the Supporting Documents in May 2013, which specifies that the administration by SAFE or its local branches over
direct investment by foreign investors in the PRC shall be conducted by way of registration and banks shall process foreign exchange business
relating to the direct investment in the PRC based on the registration information provided by SAFE and its branches.
Additionally, pursuant to
the Notice of the State Administration of Foreign Exchange on Further Simplifying and Improving the Direct Investment related Foreign
Exchange Administration Policies (“SAFE Notice No. 13”), which was promulgated on February 13, 2015 and became effective on
June 1, 2015, the foreign exchange registration in relation to foreign direct investment shall be directly reviewed and handled by qualified
banks in accordance with SAFE Notice No. 13, and SAFE and its branches shall perform indirect regulation over the foreign exchange registration
via qualified banks.
We typically do not need to
use our offshore foreign currency to fund our Hong Kong operations. In the event we need to do so, we may be required to apply to obtain
the relevant approvals of, registration or filing with SAFE and other PRC government authorities as necessary.
On August 29, 2008, SAFE issued
the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign
Currency Capital of Foreign-Invested Enterprises, or SAFE Circular 142. Pursuant to SAFE Circular 142, RMB resulting from the settlement
of foreign currency capital of a foreign-invested enterprise must be used within the business scope as approved by the applicable government
authority and cannot be used for domestic equity investment, unless it is otherwise approved. Documents certifying the purposes of the
settlement of foreign currency capital into RMB, including a business contract, must also be submitted for the settlement of the foreign
currency. In addition, SAFE strengthened its oversight of the flow and use of RMB capital converted from foreign currency registered capital
of a foreign-invested company. The use of such RMB capital may not be altered without SAFE’s approval, and such RMB capital may
not be used to repay RMB loans if such loans have not been used. Violations of SAFE Circular 142 could result in severe monetary fines
or penalties. We expect that our use of RMB funds have been, and will be, within the approved business scope of our PRC subsidiary. We
believe that our PRC subsidiary is permitted to conduct its castor seeds distribution operations and provide consulting services to castor
farmers. However, we may not be able to use such RMB funds to make equity investments in the PRC through our PRC subsidiaries. There are
no costs associated with applying for registration or approval of loans or capital contributions with or from relevant PRC governmental
authorities, other than nominal processing charges. Under PRC laws and regulations, the PRC governmental authorities are required to process
such approvals or registrations or deny our application within a prescribed time period, which is usually less than 90 days. The actual
time taken, however, may be longer due to administrative delays. If we are required to obtain these registrations or approvals, we cannot
assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all, with respect to our
operations in Hong Kong. If we fail to receive such registrations or approvals, our ability to use the proceeds from our funds to capitalize
our Hong Kong operations may be negatively affected, which could materially and adversely affect our liquidity and ability to fund and
expand our business.
SAFE Circular 37
SAFE promulgated the Circular
on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment
through Special Purpose Vehicles, or SAFE Circular 37, on July 4, 2014, which replaced the former circular commonly known as “SAFE
Circular 75” promulgated by SAFE on October 21, 2005. SAFE Circular 37 requires PRC residents to register with local branches of
SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and
financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests,
referred to in SAFE Circular 37 as a “special purpose vehicle.” SAFE Circular 37 further requires amendment to the registration
in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed
by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding
interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle
may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange
activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary.
Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law
for evasion of foreign exchange controls. On February 13, 2015, SAFE Notice No. 13 was promulgated, pursuant to which the aforementioned
registration shall be conducted with and handled by qualified banks.
We have notified substantial
beneficial owners of our ordinary shares who we know are PRC residents of their filing obligation, and to the best of our knowledge, those
shareholders whom we know are PRC residents have completed the registration or will carry out the registration as required under SAFE
Circular 37. However, we may not be aware of the identities of all our beneficial owners who are PRC residents. In addition, we do not
have control over our beneficial owners and cannot assure you that all of our PRC resident beneficial owners will comply with SAFE Circular
37. The failure of our beneficial owners who are PRC residents to register or amend their SAFE registrations in a timely manner pursuant
to SAFE Circular 37 or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures
set forth in SAFE Circular 37 may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions. Failure to register
or amend the registration may also limit our ability to contribute additional capital to our PRC subsidiaries or receive dividends or
other distributions from our PRC subsidiaries or other proceeds from disposal of our PRC subsidiaries, or we may be penalized by SAFE.
Share Option Rules
Under the Administration Measures
on Individual Foreign Exchange Control issued by the PBOC on December 25, 2006, all foreign exchange matters involved in employee share
ownership plans and share option plans in which PRC citizens participate require approval from SAFE or its authorized branch. Pursuant
to SAFE Circular 37, PRC residents who participate in share incentive plans in overseas non-publicly-listed companies may submit applications
to SAFE or its local branches for the foreign exchange registration with respect to offshore special purpose companies. In addition, under
the Notices on Issues concerning the Foreign Exchange Administration for Domestic Individuals Participating in Share Incentive Plans of
Overseas Publicly-Listed Companies, or the Share Option Rules, issued by SAFE on February 15, 2012, PRC residents who are granted shares
or share options by companies listed on overseas stock exchanges under share incentive plans are required to (i) register with SAFE or
its local branches, (ii) retain a qualified PRC agent, which may be a PRC subsidiary of the overseas listed company or another qualified
institution selected by the PRC subsidiary, to conduct the SAFE registration and other procedures with respect to the share incentive
plans on behalf of the participants, and (iii) retain an overseas institution to handle matters in connection with their exercise of share
options, purchase and sale of shares or interests and funds transfers.
Regulation of Dividend
Distributions
The principal laws, rules
and regulations governing dividend distributions by foreign-invested enterprises in the PRC are the Company Law of the PRC, as amended,
the Wholly Foreign-owned Enterprise Law and its implementation regulations, the Chinese-foreign Cooperative Joint Venture Law and its
implementation regulations, and the Chinese-foreign Equity Joint Venture Law and its implementation regulations. Under these laws, rules
and regulations, foreign-invested enterprises may pay dividends only out of their accumulated profit, if any, as determined in accordance
with PRC accounting standards and regulations. Both PRC domestic companies and wholly-foreign owned PRC enterprises are required to set
aside a general reserve of at least 10% of their after-tax profit, until the cumulative amount of such reserve reaches 50% of their registered
capital. A PRC company is not permitted to distribute any profits until any losses from prior fiscal years have been offset. Profits
retained from prior fiscal years may be distributed together with distributable profits from the current fiscal year.
Seasonality.
Our business is highly dependent
upon various festivals in Hong Kong and China. In Hong Kong and China, we experience peak demand for our services during Chinese new year,
Easter holiday, summer holiday and Christmas in December.
Insurance.
Our business is located in
Hong Kong are subject to the laws and regulations of Hong Kong governing businesses concerning, in particular labor, occupational safety
and health, contracts, tort and intellectual property. Furthermore, we need to comply with the rules and regulations of Hong Kong governing
the data usage and regular terms of service applicable to our potential customers or clients. As the information of our potential customers
or clients is preserved in Hong Kong, we need to comply with the Hong Kong Personal Data (Privacy) Ordinance.
CORPORATE INFORMATION
Our principal executive and
registered offices are located at 17/F, 80 Gloucester Road, Wanchai, Hong Kong, telephone number +852-2119 1031.
Near-Term Requirements For
Additional Capital
We believe that we will require
approximately $1,000,000 over the next 18-24 months to implement our business plan of expanding throughout Hong Kong. For the immediate
future, we intend to finance our business expansion efforts through sales of our securities and loans from existing shareholders, officers,
directors, financial institutions or sales of our equity.
Available
Information
Access to all of our Securities
and Exchange Commission (“SEC”) filings, including our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), is provided, free of charge, on our website (www.luduson.com) as soon as reasonably
practicable after such reports are electronically filed with, or furnished to, the SEC. Upon written or oral request, we will provide
to each person, including any beneficial owner, to whom a prospectus is delivered, a copy of any or all of the reports or documents that
have been incorporated by reference in the prospectus contained in the registration statement but not delivered with the prospectus. The
reports will be provided at no cost to the requester. Each request for these reports should be made to Luduson G Inc., Attention: Secretary,
17/F, 80 Gloucester Road, Wanchai, Hong Kong.
Globex Transfer, LLC located at 780 Deltona Boulevard,
Suite 202, Deltona, Florida 32725, telephone number (813) 344-4490, facsimile (386) 267-3124, serves as our stock transfer agent.
REPORTS TO SECURITY HOLDERS
We are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended, and accordingly, file current and periodic reports, proxy statements
and other information with the SEC. We have also filed with the Commission a Registration Statement on Form S-1, under the Securities
Act of 1933, as amended, with respect to the securities offered by this prospectus. This prospectus, which forms a part of the registration
statement, does not contain all the information set forth in the registration statement, as permitted by the rules and regulations of
the Commission. You may obtain copies of our reports from the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549,
on official business days during the hours of 10 A.M. to 3 P.M. or on the SEC's website, at www.sec.gov. You may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
Description
of Properties
Our
corporate offices are located at 17/F, 80 Gloucester Road, Wanchai, Hong Kong. [Please describe lease of corporate office or if they
are provided free of charge.]
We
maintain our approximately 2,186 square feet production workshop at Room 8, 4/F, Trans Asia Centre, 18 Kin Hong St, Kwai Chung, Kowloon,
Hong Kong. According to the lease, we pay a monthly rent of HK$25,000 (approximately US$3,205). The lease initially expired on December
31, 2020, but was extended for an additional one (1) year term to December 31, 2021. The foregoing description of the lease and lease
extension is qualified in its entirety by reference to the Lease Agreement and Extension Agreement, which are filed as Exhibits 10.1 and
10.2 to this registration statement and incorporated herein by reference.
We believe that our current
facilities are adequate for our current needs. We expect to secure new facilities or expand existing facilities as necessary to support
future growth. We believe that suitable additional space will be available on commercially reasonable terms as needed to accommodate our
operations.
LEGAL PROCEEDINGS
There are no material pending
legal proceedings to which we or our subsidiaries are a party or to which any of our or their property is subject, nor are there any such
proceedings known to be contemplated by governmental authorities. None of our directors, officers, affiliates or any owner of record or
beneficially of more than 5% of our common stock, or any associate of any of the foregoing, is involved in a proceeding adverse to our
business or has a material interest adverse to our business.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market Information
Shares of our common stock
are quoted on the OTC QB under the symbol “LDSN”. Shares of our common stock began trading on April 1, 2020. As of October
28, 2021, the last closing price of our securities was $7.75, with little to no quoting activity. There is no established public trading
market for our securities and a regular trading market may not develop, or if developed, may not be sustained.
The following table sets forth,
for the fiscal quarters indicated, the high and low bid information for our common stock, as reported on the Pink Sheets. The following
quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
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Quarterly period
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High
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Low
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Fiscal year ended December 31, 2021
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|
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|
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Second Quarter
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$
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14.50
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$
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6.30
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First Quarter
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$
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5.70
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$
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1.75
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Fiscal year ended December 31, 2020:
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|
|
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|
|
|
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Fourth Quarter
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$
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2.00
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|
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$
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0.13
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Third Quarter
|
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$
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0.13
|
|
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$
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0.13
|
|
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Second Quarter
|
|
$
|
0.13
|
|
|
$
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0.13
|
|
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First Quarter
|
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$
|
–
|
|
|
$
|
–
|
|
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Fiscal year ended December 31, 2019:
|
|
|
|
|
|
|
|
|
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Fourth Quarter
|
|
$
|
–
|
|
|
$
|
–
|
|
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Third Quarter
|
|
$
|
–
|
|
|
$
|
–
|
|
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Second Quarter
|
|
$
|
–
|
|
|
$
|
–
|
|
|
First Quarter
|
|
$
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–
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|
|
$
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–
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|
As of October 28, 2021, approximately 2,030,000 shares of our common stock
are eligible to be sold pursuant to Rule 144 of the Securities Act of 1933, as amended. We are further required to register all shares
of common stock put to Strattner and Williamsburg pursuant to the terms of the Investment Agreement and the Equity Purchase Agreement,
as applicable.
(b) Approximate Number of Holders of Common Stock
As of October 28, 2021, there were approximately 61 shareholders of record of our common stock.
Such number does not include any shareholders holding shares in nominee or “street name”.
(c) Dividends
Holders of our common stock
are entitled to receive such dividends as may be declared by our board of directors. On January 2, 2020, prior to the consummation of
the acquisition of LHCL, LHCL declared and paid dividends of $184,919 to the shareholders. Except as otherwise set forth above, we paid
no dividends during the periods reported herein, nor do we anticipate paying any dividends in the foreseeable future.
(d) Equity Compensation Plan Information
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Plan category
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Number of securities
to be issued upon exercise of outstanding options, warrants and rights
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Weighted-average exercise price of outstanding options, warrants and rights
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Number of securities
remaining available for
future issuance under equity compensation plans (excluding securities reflected
in column (a))
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|
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(a)
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(b)
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(c)
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Equity compensation plans approved by security holders
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|
|
–
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|
|
|
–
|
|
|
|
–
|
|
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Equity compensation plans not approved by security holders (1)
|
|
|
2,500,000
|
|
|
|
–
|
|
|
|
–
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|
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Total
|
|
|
2,500,000
|
|
|
|
–
|
|
|
|
–
|
|
|
(1)
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Represents shares of the Company’s common stock to be issued to: Chong Un Chi, Wong Siu Hung, Chan Si In, Chou In Kei and Lai Chi Tong (the “Consultants”) pursuant to certain consulting contracts between the Company and the Consultants.
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Consulting Agreements
On May 1, 2020, the Company
entered into certain Marketing Consultancy Agreements and Programming consultancy Agreements with Chong Un Chi, Wong Siu Hung, Chan Si
In, Chou In Kei and Lai Chi Tong, as applicable, pursuant to which the Consultants provided certain services to market, promote, build,
develop or maintain and regulate the Company’s online gaming portal, as applicable in consideration of an aggregate of 2,500,000
shares of our Common Stock. We issued Two Million Five Hundred Thousand (2,500,000) shares of the Corporation’s Common Stock, par
value $0.0001 (the “Shares”), at a per share price of US$0.13, as payment in full for the such services and the satisfaction
of all of our obligations to the Consultants. These securities were registered on a Registration Statement on Form S-8 filed with the
Securities and Exchange Commission on September 9, 2020. The foregoing description of the Consulting Agreements are qualified in their
entirety by reference to the Consulting Agreements dated May 10 2020, which are filed as Exhibits to that certain Registration Statement
on Form S-8 filed with the Securities and Exchange Commission on September 9, 2020, and incorporated herein by reference.
(e) Recent Sales of Unregistered Securities
None.
TRANSFER AGENT
Our transfer agent is Globex Stock Transfer LLC.,
780 Deltona Boulevard, Suite 202, Deltona, Florida 32725. Globex Stock Transfer LLC's telephone number is (813) 344-4490.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
This discussion summarizes
the significant factors affecting the operating results, financial condition, liquidity and cash flows of the Company and its subsidiary
for the fiscal years ended December 31, 2021, and 2020 and the six month periods ended June 30, 2021 and 2020.. The discussion and analysis
that follows should be read together with the section entitled “Cautionary Note Concerning Forward-Looking Statements” and
our consolidated financial statements and the notes to the consolidated financial statements included elsewhere in this annual report
on Form 10-K.
Except for historical information,
the matters discussed in this section are forward looking statements that involve risks and uncertainties and are based upon judgments
concerning various factors that are beyond the Company’s control. Consequently, and because forward-looking statements are inherently
subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the
forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report.
Currency and exchange
rate
Unless otherwise noted,
all currency figures quoted as “U.S. dollars”, “dollars” or “US$” refer to the legal currency of the
United States. References to “Hong Kong Dollar” are to the Hong Kong Dollar, the legal currency of the Hong Kong Special Administrative
Region of the People’s Republic of China. Throughout this report, assets and liabilities of the Company’s subsidiaries are
translated into U.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.
Impact of COVID-19 on our business
The outbreak of COVID-19 that
started in late January 2020 in the PRC has negatively affected our business. In March 2020, the World Health Organization declared COVID-19
as a pandemic and has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities in China
and the U.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 in Hong Kong, the Company’s business, results of operations,
and financial condition for calendar year 2020 and up to the date of this registration statement have been adversely affected.
Management believes that COVID-19
will continue to have a material impact on our financial results for the second half of calendar year 2021 and could cause the potential
impairment of certain assets. Management continues to closely monitor the development of COVID-19 and its variants and their overall financial
impact on the Company’s business and management. We continue to work closely with our service centers to enhance their marketing
and promotion activities and modify our business approach as necessary.
Results of Operations.
Our audited consolidated financial
statements have been prepared on a going concern basis, which assumes that we will be able to continue to operate in the future in the
normal course of business. In our audited consolidated financial statements for the year ended December 31, 2020, it has included
a note about our ability to continue as a going concern due to consecutive quarterly losses from operations in 2020 as a result of COVID-19.
Business closures in Hong Kong and limitations on business operations arising from COVID-19 has significantly disrupted our ability to
generate revenues and cash flow during the fiscal year 2020.
The success of our business
strategy is dependent in part upon the availability of additional capital resources on terms satisfactory to management as we are not
generating sufficient revenues from our business operations. Our sources of capital in the past have included advance from stockholders
and affiliates. There can be no assurance that we can raise such additional capital resources on satisfactory terms. We believe that our
current cash and other sources of liquidity discussed above are adequate to support operations for at least the next 12 months. We anticipate
continuing to rely on equity sales of our common shares and shareholder loans in order to continue to fund our business operations. Issuances
of additional shares will result in dilution to our existing shareholders. There is no assurance that we will achieve any additional sales
of our equity securities or arrange for debt or other financing to fund our plan of operations.
Comparison of the three months ended
September 30, 2021 and 2020.
The following table sets
forth certain operational data for the three months ended September 30, 2021 and 2020:
|
|
|
Three Months Ended September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Revenues
|
|
$
|
269,922
|
|
|
$
|
1,824,479
|
|
|
Cost of revenue
|
|
|
(34,280
|
)
|
|
|
(592,792
|
)
|
|
Gross profit
|
|
|
235,642
|
|
|
|
1,231,687
|
|
|
Total operating expenses
|
|
|
(78,361
|
)
|
|
|
(455,833
|
)
|
|
Other income
|
|
|
–
|
|
|
|
(1,375
|
)
|
|
Income before Income Taxes
|
|
|
157,281
|
|
|
|
774,479
|
|
|
Income tax expense
|
|
|
(32,508
|
)
|
|
|
(49,191
|
)
|
|
Net income
|
|
|
124,773
|
|
|
|
725,288
|
|
Revenue. We generated
revenues of $269,922 and $1,824,479 for the three months ended September 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 September 30, 2021 and 2020, the following customers accounted for 10% or more of our total net revenues:
|
|
|
Three Months ended September 30, 2021
|
|
|
September 30, 2021
|
|
|
Customer
|
|
Revenues
|
|
|
Percentage
of revenues
|
|
|
Accounts
receivable
|
|
|
Ease Audio Group Limited
|
|
$
|
192,802
|
|
|
|
72%
|
|
|
$
|
2,479,760
|
|
|
Yu Lin Nuo Ya Interactive Entertainment Company Limited
|
|
|
38,560
|
|
|
|
14%
|
|
|
|
1,473,355
|
|
|
Shenzhen Jiu Sheng Optoelectronic Comm Tech Co., Ltd
|
|
|
38,560
|
|
|
|
14%
|
|
|
|
1,140,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
269,922
|
|
|
|
100%
|
|
|
$
|
5,093,559
|
|
|
|
|
Three months ended September 30, 2020
|
|
|
September 30, 2020
|
|
|
Customer
|
|
Revenues
|
|
|
Percentage
of revenues
|
|
|
Accounts
receivable
|
|
|
Ease Audio Group Limited
|
|
$
|
1,302,010
|
|
|
|
71%
|
|
|
$
|
1,245,736
|
|
|
Yu Lin Nuo Ya Interactive Entertainment Company Limited
|
|
|
483,291
|
|
|
|
26%
|
|
|
|
481,194
|
|
|
|
|
$
|
1,785,301
|
|
|
$
|
97%
|
|
|
$
|
1,726,930
|
|
All of our major customers are located in Hong Kong and the PRC
Cost of Revenue.
Cost of revenue for the three months ended September 30, 2021, was $34,280, and as a percentage of net revenue, approximately 12.7%.
Cost of revenue for the three months ended September 30, 2020, was $592,792, and as a percentage of net revenue, approximately 32.5%.
Cost of revenue decreased primarily as a result of the decrease in our business volume.
Gross Profit. We
achieved a gross profit of $235,642 and $1,231,687 for the three months ended September 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 $78,361 and $455,833 for the three months ended September 30, 2021,
and 2020, respectively. The decrease in G&A is primarily attributable to the decrease in our professional fee.
Income Tax Expense.
Our income tax expenses for the quarters ended September 30, 2021 and 2020 was $32,508 and $49,191, respectively.
Net Income. During
the three months ended September 30, 2021, we incurred a net income of $124,773, as compared to $725,288 for the same period ended September
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 in Hong Kong and China.
Comparison of the nine months ended
September 30, 2021 and 2020.
The following table sets
forth certain operational data for the nine months ended September 30, 2021 and 2020:
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Revenues
|
|
$
|
927,053
|
|
|
$
|
2,945,508
|
|
|
Cost of revenue
|
|
|
(102,986
|
)
|
|
|
(743,860
|
)
|
|
Gross profit
|
|
|
824,067
|
|
|
|
2,201,648
|
|
|
Total operating expenses
|
|
|
(181,215
|
)
|
|
|
(523,390
|
)
|
|
Other income
|
|
|
–
|
|
|
|
(1,341
|
)
|
|
Income before Income Taxes
|
|
|
539,080
|
|
|
|
1,676,917
|
|
|
Income tax expense
|
|
|
(103,772
|
)
|
|
|
(178,846
|
)
|
|
Net income
|
|
|
539,080
|
|
|
|
1,498,071
|
|
Revenue. We generated
revenues of $927,053 and $2,945,508 for the nine months ended September 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 nine months ended September 30,
2021 and 2020, the following customers accounted for 10% or more of our total net revenues:
|
|
|
Nine Months ended September 30, 2021
|
|
|
September 30, 2021
|
|
|
Customer
|
|
Revenues
|
|
|
Percentage
of revenues
|
|
|
Accounts
receivable
|
|
|
Ease Audio Group Limited
|
|
$
|
695,289
|
|
|
|
74%
|
|
|
$
|
2,479,760
|
|
|
Yu Lin Nuo Ya Interactive Entertainment Company Limited
|
|
|
115,882
|
|
|
|
13%
|
|
|
|
1,473,355
|
|
|
Shenzhen Jiu Sheng Optoelectronic Comm Tech Co., Ltd
|
|
|
115,882
|
|
|
|
13%
|
|
|
|
1,140,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
927,053
|
|
|
|
100%
|
|
|
$
|
5,093,559
|
|
|
|
|
Nine months ended September 30, 2020
|
|
|
September 30, 2020
|
|
|
Customer
|
|
Revenues
|
|
|
Percentage
of revenues
|
|
|
Accounts
receivable
|
|
|
Ease Audio Group Limited
|
|
$
|
2,268,849
|
|
|
|
77%
|
|
|
$
|
1,245,736
|
|
|
Yu Lin Nuo Ya Interactive Entertainment Company Limited
|
|
|
541,301
|
|
|
|
18%
|
|
|
|
481,194
|
|
|
|
|
$
|
2,810,150
|
|
|
$
|
95%
|
|
|
$
|
1,726,930
|
|
All of our major customers are located in Hong Kong and the PRC.
Cost of Revenue.
Cost of revenue for the nine months ended September 30, 2021, was $102,986, and as a percentage of net revenue, approximately 11.1%.
Cost of revenue for the nine months ended September 30, 2020, was $743,860, and as a percentage of net revenue, approximately 25.3%.
Cost of revenue decreased primarily as a result of the decrease in our business volume.
Gross Profit. We
achieved a gross profit of $824,067 and $2,201,648 for the nine months ended September 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 $181,215 and $523,390 for the nine months ended September 30, 2021,
and 2020, respectively. The decrease in G&A is primarily attributable to the decrease in our professional fee.
Income Tax Expense.
Our income tax expenses for the quarters ended September 30, 2021 and 2020 was $103,772 and $178,846, respectively.
Net Income. During
the nine months ended September 30, 2021, we incurred a net income of $539,080, as compared to $1,498,071 for the same period ended September
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 September 30, 2021,
we had cash and cash equivalents of $60,618, accounts receivable of $5,098,954, deposits, prepayments and other receivables of $829,108.
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.
|
|
|
Nine Months Ended September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Net cash provided by operating activities
|
|
$
|
16,344
|
|
|
$
|
764,699
|
|
|
Net cash used in investing activities
|
|
|
–
|
|
|
|
(862,271
|
)
|
|
Net cash provided by (used in) financing activities
|
|
$
|
28,278
|
|
|
$
|
(119,198
|
)
|
Net Cash Provided By Operating Activities.
For the nine months ended
September 30, 2021, net cash provided by operating activities was $16,344, which consisted primarily of a net income of $539,080, depreciation
of plant and equipment of $119,081, offset by an increase in accounts receivables of $599,208, an increase in deposits, prepayments and
other receivables of $164,056, an increase in income tax payable of $103,772 and an increase in accrued expenses and other payables of
$17,675.
For the nine months ended
September 30, 2020, net cash provided by operating activities was $764,699, which consisted primarily of a net income of $1,498,071,
depreciation of plant and equipment of $7,348, stock-based compensation expense of $325,000, an increase in tax payable of $179,689,
an increase in accrued expenses and other payable of $17,878 a decrease in lease liabilities of $658, offset by an increase in accounts
receivable of $1,003,875 and an increase in deposits, prepayments and other receivables of $258,754.
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 Used In Investing Activities.
For the nine months ended
September 30, 2021, there is no net cash used in investing activities.
For the nine months ended
September 30, 2020, cash used in investing activities was $862,271 from the purchase of property, plant and equipment.
Net Cash Provided By (Used In) Financing
Activities.
For the nine months ended
September 30, 2021, net cash provided by financing activities was $28,278 consisting primarily of advances from a director.
For the nine months ended
September 30, 2020, net cash used in financing activities was $119,198 consisting primarily of $186,084 dividend paid to the shareholder
of the Company, offset by $16,500 advances from a director and proceeds from line of credit of $50,386.
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.
Comparison of the years ended December 31,
2020 and December 31, 2019
The following table sets forth certain operational
data for the years ended December 31, 2020 and 2019:
|
|
|
Years ended December 31,
|
|
|
|
2020
|
|
2019
|
|
Revenues
|
|
$
|
5,935,720
|
|
|
$
|
1,426,354
|
|
|
Cost of revenue
|
|
|
(1,027,662
|
)
|
|
|
(283,828
|
)
|
|
Gross profit
|
|
|
4,908,058
|
|
|
|
1,142,526
|
|
|
Total operating expenses
|
|
|
(659,097
|
)
|
|
|
(164,293
|
)
|
|
Other (expenses) income
|
|
|
(1,898
|
)
|
|
|
2
|
|
|
Income before Income Taxes
|
|
|
4,247,063
|
|
|
|
978,235
|
|
|
Income tax expense
|
|
|
(602,877
|
)
|
|
|
(138,959
|
)
|
|
Net income
|
|
|
3,644,186
|
|
|
|
839,276
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (excluding stock-based compensation expense)
|
|
|
3,969,186
|
|
|
|
839,276
|
|
Revenue. We generated
revenues of $5,935,720 and $1,426,354 for the years ended December 31, 2020 and 2019. The significant increase is due to the increase
in business volume in digital advertising income from online entertainment portal. To cope with the change to entertaining lifestyle since
the COVID-19 pandemic, we launched our self-developed online portal and shared freely our game contents with users, with online advertising
services, since June 2020.
During the years ended December
31, 2020, the following customers accounted for 10% or more of our total net revenues:
|
|
|
Revenues (US$)
|
|
Percentages of Revenues
|
|
Accounts Receivable (US$)
|
|
Ease Audio Group Limited
|
|
$
|
3,284,657
|
|
|
|
55%
|
|
|
$
|
2,041,928
|
|
|
Yu Lin Nuo Ya Interactive Entertainment Company Limited
|
|
|
1,448,086
|
|
|
|
24%
|
|
|
|
1,352,108
|
|
|
Shenzhen Jiu Sheng Optoelectronic Comm Tech Co., Ltd
|
|
|
1,183,637
|
|
|
|
20%
|
|
|
|
1,088,683
|
|
|
Total:
|
|
$
|
5,916,380
|
|
|
|
99%
|
|
|
$
|
4,482,719
|
|
During the years ended December
31, 2019, the following customers accounted for 10% or more of our total net revenues:
|
|
|
Revenues
(US$)
|
|
Percentages of Revenues
|
|
Accounts Receivable (US$)
|
|
Shenzhen Jiu Sheng Optoelectronic Comm Tech Co., Ltd
|
|
$
|
316,545
|
|
|
|
22%
|
|
|
$
|
132,268
|
|
|
Excellent Entertainment Limited
|
|
|
256,555
|
|
|
|
18%
|
|
|
|
139,331
|
|
|
Ease Audio Group Limited
|
|
|
245,067
|
|
|
|
17%
|
|
|
|
169,508
|
|
|
Yu Lin Nuo Ya Interactive Entertainment Company Limited
|
|
|
210,604
|
|
|
|
15%
|
|
|
|
94,000
|
|
|
Knotbase Technology Limited
|
|
|
185,077
|
|
|
|
13%
|
|
|
|
105,301
|
|
|
Total:
|
|
$
|
1,213,848
|
|
|
|
85%
|
|
|
$
|
640,408
|
|
All customers are located
in the PRC and Hong Kong.
Cost of Revenue. Cost
of revenue for the year ended December 31, 2020, was $1,027,662, and as a percentage of net revenue, approximately 17.3%. Cost of revenue
for the year ended December 31, 2019, was $283,828, and as a percentage of net revenue, approximately 19.9%. Cost of revenue increased
primarily as a result of the increase in our business volume.
Gross Profit. We achieved
a gross profit of $4,908,058 and $1,142,526 for the years ended December 31, 2020 and 2019, respectively. The increase in gross profit
is primarily attributable to the increase in our business volume.
Operating Expenses.
We incurred operating expenses of $659,097 and $164,293 for the years ended December 31, 2020, and 2019, respectively. Operating expenses
for the year ended December 31, 2020, consisted of $325,000 in share based compensation, $127,416 of professional fees and $206,681 of
general and administrative expenses. Operating expenses for the year ended December 31, 2019, consisted solely of general and administrative
expenses. The increase in general and administrative expenses is attributable to the increase in our business volume.
Income Tax Expense.
Our income tax expenses for the years ended December 31, 2020 and 2019 was $602,877 and $138,959, respectively.
Net Income. We incurred
a net income of $3,644,186 and $839,276 for the years ended December 31, 2020 and 2019, respectively. The increase in net income is primarily
attributable to the increase in our business volume.
Liquidity and Capital Resources
As of December 31, 2020, we
had cash and cash equivalents of $40,447, accounts receivable of $4,499,746, and deposits, prepayments and other receivables of $665,051.
As of December 31, 2019, we
had cash and cash equivalents of $269,691, accounts receivable of $760,733, and deposits, prepayments and other receivables of $142,001
and operating right-of-use assets of $35,816.
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.
|
|
|
Years ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net cash provided by operating activities
|
|
$
|
422,094
|
|
|
$
|
97,331
|
|
|
Net cash used in investing activities
|
|
|
(462,109
|
)
|
|
|
–
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(195,154
|
)
|
|
|
138,596
|
|
Net Cash Provided by Operating Activities.
For the year ended December
31, 2020, net cash provided by operating activities was $422,094, which consisted primarily of a net income of $3,644,186, stock-based
compensation expense of $325,000, depreciation of plant and equipment of $48,889, non-cash lease expenses of $35,600, an increase in tax
payable of $603,758, an increase in accounts payable of $3,251, and increase in lease liabilities of $2,051 and an increase in accrued
expenses and other payable of $22,232, offset by an increase in accounts receivable of $3,739,013 and an increase in deposits, prepayments
and other receivables of $523,050.
For the year ended December
31, 2019, net cash provided by operating activities was $97,331, which consisted primarily of net income of $839,276, depreciation of
plant and equipment of $5,946, non-cash lease expenses of $874 and an increase of tax payable of $138,959, offset by an increase in accounts
receivable of $746,361, an increase in deposits, prepayments and other receivables of $138,809 and a decrease in accrued expenses and
other payables of $2,554.
Net Cash Used In Investing Activities.
For the year ended December
31, 2020, cash used in investing activities was $462,109 from the purchase of plant and equipment.
For the year ended December
31, 2019, there is no net cash provided by investing activities.
Net Cash (Used In) Provided by Financing Activities.
For the year ended December
31, 2020, net cash used in financing activities was $195,154 consisting primarily of $184,919 dividend paid to the shareholder of the
Company and repayment of lease liabilities of $38,525, offset by $28,290 advances from a director.
For the year ended December
31, 2019, net cash provided by financing activities was $138,596, consisting primarily of advances from a director.
Off-Balance Sheet Arrangements
We have not entered into any
financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered
into any derivative contracts that are indexed to our own shares and classified as shareholders’ equity, or that are not reflected
in our financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated
entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in an unconsolidated
entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development
services with us.
Critical Accounting Policies and Estimates.
The preparation of financial
statements in conformity with accounting principles generally accepted in the 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 the United States of America (“US GAAP”).
• 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;
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|
•
|
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$. In addition, the Company’s
operating subsidiaries in Hong Kong and Seychelles maintain their books and record in its local currency, Hong Kong Dollars (“S$”),
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 the Financial 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
On January 1, 2021, the Company adopted Accounting
Standards Update (“ASU”) No. 2016-02 (Topic 842) “Leases” which supersedes the lease recognition requirements
in ASC Topic 840, “Leases”. Under ASU No. 2016-02, lessees are required to recognize assets and liabilities on the consolidated
balance sheets for most leases and provide enhanced disclosures. For companies that are not emerging growth companies (“EGCs”),
the ASU was effective for fiscal years beginning after December 15, 2018. For EGCs, the ASU is effective for fiscal years beginning after
December 15, 2021. The Company early adopted the new standard using the modified retrospective method by recording and right-of-use asset
of $13.2 million, short-term portion of lease liabilities of $6.3 million and long-term portion of lease liabilities of $7.2 million
as of the effective date. Prior periods will not be restated and will continue to be reported under Topic 840 guidance in effect during
those periods. The Company applied the package of practical expedients to leases that commenced before the effective date whereby the
Company elected to not reassess the following: (i) whether any expired or existing contracts contain leases; (ii) the lease classification
for any expired or existing leases; and (iii) initial direct costs for any existing leases. The adoption did not have a material impact
on its consolidated statements of operations or its consolidated statements of cash flows. See Note 13, Leases, for further information
and disclosures related to the adoption of this standard.
In December 2019, the FASB issued ASU No. 2019-12, Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”), which is intended to simplify various
aspects of the accounting for income taxes. ASU No. 2019-12 removes certain exceptions to the general principles in Topic 740 and clarifies
and amends existing guidance to improve consistent application. This standard is effective for fiscal years and interim periods within
those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company has adopted the pronouncement and it did
not have a material impact on its consolidated financial statements and related disclosures.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes
in or disagreements with accountants on accounting or financial disclosure matters.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS
Set forth below are the present
directors and executive officers of the Company. Note that there are no other persons who have been nominated or chosen to become directors
nor are there any other persons who have been chosen to become executive officers. There are no arrangements or understandings between
any of the directors, officers and other persons pursuant to which such person was selected as a director or an officer. Directors are
elected to serve until the next annual meeting of stockholders and until their successors have been elected and have qualified. Officers
are appointed to serve until the meeting of the board of directors following the next annual meeting of stockholders and until their successors
have been elected and qualified.
|
Name
|
|
Age
|
|
Positions
|
|
Ka Leung Wong
|
|
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41
|
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Chief Executive Officer, Director
|
|
Lan Chan
|
|
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56
|
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Chief Financial Officer, Chief Operating Officer, Secretary, Director
|
Biographies
Set forth below are brief
accounts of the business experience during the past five years of each director, executive officer and significant employee of the Company.
Ka Leung (Wallis) WONG,
age 41, joined us as our President, Chief Executive Officer and Director on May 8, 2020. He has more than 30 years’ experience
in the manufacturing, import and export trade industry in Asia. In 2004, Mr. Wong founded 3 Dynamics (Asia) Limited, a Hong Kong based
mobile game and entertainment services company where he currently serves as the director. Under his leadership, 3 Dynamics has become
one of the top innovators in Hong Kong, leveraging location-based technology in 3G and Wi-Fi game applications. He has successfully developed
and launched more than 80 mobile games and entertainment services (including multiple award-winning games, “3G Mopas”, “Hong
Kong War” and “DigiPublish” Platform) and launched in multiple regions such as Hong Kong, Macau, Taiwan, Mainland China,
Southeast Asia and Europe.
Mr. Wong is the vice chairman
(interaction design) of Hong Kong Digital Entertainment Association and the founding member of International Federation of Creativity
and Technology. Mr. Wong has received numerous awards including the gold award of HSBC Young IT Entrepreneur (2001), second runner-up
of Net King Business Plan Contest (Open Group) (2001), one of the three winners of the 1st Digital Pioneers Programme organized by The
British Council (2007), one of the three Hong Kong finalists of The Creative Young Entrepreneur Awards (2007), and Paragon 100 (Young
Entrepreneurs and Social Changemakers of Up to 30 years of age) by The Foundation of Youth Social Entrepreneurs in 2009.
Mr. Wong holds a Bachelor’s
Degree (Honours) in Electronic Engineering and a Continuing Education Diploma in Information and Internet Security from City University
of Hong Kong. He also holds a Master Degree of Business Administration at Hong Kong University of Science and Technology. Mr. Wong brings
to our board his deep experience in the mobile game and entertainment services industry.
Lan CHAN, age
56, joined us as our Chief Financial Officer, Secretary and Director on April 15, 2020. He has more than 30 years’ experience
in the manufacturing, import and export trade industry in Asia. He graduated from a tertiary school in Hong Kong and received his engineering
diploma. He founded his business that markets and distributes LED products and components throughout the People’s Republic of China
and the Asian region in 2012 and currently serves as its director. Mr. Chan will bring to the Company his deep experience of conducting
business in the PRC and Asia region.
Family Relationships.
There are no family relationships between any of
our directors or executive officers.
Involvement in Certain Legal Proceedings
No executive officer or director
has been involved in the last ten years in any of the following:
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•
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Any bankruptcy petition filed by or against any business or property of such person, or of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
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•
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Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
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•
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Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities;
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•
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Being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
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•
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Being the subject of or a party to any judicial or administrative order, judgment, decree or finding, not subsequently reversed, suspended or vacated relating to an alleged violation of any federal or state securities or commodities law or regulation, or any law or regulation respecting financial institutions or insurance companies, including but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail, fraud, wire fraud or fraud in connection with any business entity; or
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•
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Being the subject of or a party to any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act, any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
|
STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF
DIRECTORS
We have not implemented a
formal policy or procedure by which our stockholders can communicate directly with our board of directors. Nevertheless, every effort
has been made to ensure that the views of stockholders are heard by the board of directors or individual directors, as applicable, and
that appropriate responses are provided to stockholders in a timely manner. We believe that we are responsive to stockholder communications,
and therefore have not considered it necessary to adopt a formal process for stockholder communications with our Board. During the upcoming
year, our Board will continue to monitor whether it would be appropriate to adopt such a process.
EXECUTIVE COMPENSATION
Compensation Philosophy and Objectives
Currently, our executive directors
and officers do not receive compensation for services provided in such capacities. We anticipate providing cash compensation for
services in the future to our executive officers and directors. We expect to establish an incentive compensation plan as our company
matures. We expect that our executive compensation philosophy will be to create a long-term direct relationship between pay and our performance.
Our executive compensation program will be designed to provide a balanced total compensation package over the executive’s career
with us. The compensation program objectives will be to attract, motivate and retain the qualified executives that help ensure our future
success, to provide incentives for increasing our profits by awarding executives when corporate goals are achieved and to align the interests
of executives and long-term stockholders. We expect the compensation package of our named executive officers to consist of the following
main elements:
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|
1.
|
base salary for our executives that is competitive relative to the market, and that reflects individual performance, retention and other relevant considerations;
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|
2.
|
incentive compensation consisting of stock options, restricted stock and the like; and
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3.
|
discretionary bonus awards payable in cash and or securities of the Company tied to the satisfaction of corporate objectives.
|
Process for Setting Executive Compensation
As we do not have Compensation
Committee, our Board will be responsible for developing and overseeing the implementation of our philosophy with respect to the compensation
of executives and for monitoring the implementation and results of the compensation philosophy to ensure compensation remains competitive,
creates proper incentives to enhance stockholder value and rewards superior performance. The Board will annually review and approve for
each named executive officer, and particularly with regard to the Chief Executive Officer, all components of the executive’s compensation.
The Board may award discretionary bonuses to each of the named executives, and reviews and approves the process and factors (including
individual and corporate performance measures and actual performance versus such measures) used by the Chief Executive Officer to recommend
such awards. Additionally, the Board will review and approve the base salary, equity-incentive awards (if any) and any other special or
supplemental benefits of the named executive officers.
We expect our Chief Executive
Officer to periodically provide the Board with an evaluation of each named executive officer’s performance, based on the individual
performance goals and objectives developed by the Chief Executive Officer at the beginning of the year, as well as other factors. The
Board will provide an evaluation for the Chief Executive Officer. These evaluations will serve as the bases for bonus recommendations
and changes in the compensation arrangements of our named executives.
Our Compensation Peer Group
We expect to engage in informal
market analysis in evaluating our executive compensation arrangements. As the Company and its businesses mature, we may retain compensation
consultants that will assist us in developing a formal benchmark and selecting a compensation peer group of companies similar to us in
size or business for the purpose of comparing executive compensation levels.
Program Components
We expect our executive compensation
program to consist of the following elements:
Base Salary
Our base salary structure
will be designed to encourage internal growth, attract and retain new talent, and reward strong leadership that will sustain our growth
and profitability. The base salary for each named executive officer will reflect our past and current operating profits, the named executive
officer’s individual contribution to our success throughout his career, internal pay equity and informal market data regarding comparable
positions within similarly situated companies. In determining and setting base salary, the Board will consider all of these factors, though
it will not assign specific weights to any factor. The Board will generally review the base salary for each named executive officer on
an annual basis. For each of our named executive officers, we expect to review base salary data internally obtained by the Company for
comparable executive positions in similarly situated companies to ensure that the base salary rate for each executive is competitive relative
to the market.
Discretionary Bonus
The objectives of our bonus
awards will be to encourage and reward our employees, including the named executive officers, who contribute to and participate in our
success by their ability, industry, leadership, loyalty or exceptional service and to recruit additional executives who will contribute
to that success.
Each of our named executive
officers will be eligible for consideration for a discretionary cash bonus. The Chief Executive Officer will make recommendations regarding
bonus awards for the named executive officers and the Board provides the bonus recommendation for the Chief Executive Officer. However,
the Board/Compensation Committee will have sole and final authority and discretion in designating to whom awards are made, the size of
the award, if any, and its terms and conditions. The bonus recommendation for each of the named executive officers depends on a number
of factors, including (i) the performance of the Company for the year, (ii) the satisfaction of certain individual and corporate
performance measures, and (iii) other factors which the Board may deem relevant. The Company did not award any cash bonuses during
fiscal year 2020.
Stock Holdings
The Board recognizes the importance
of having a portion of the named executive officers’ compensation be paid in the form of equity, to help align the executives’
interests with the interests of the Company’s shareholders. Initially, we expect the Board to emphasize the cash-based portion of
our compensation program over a stock program because it believes the discretionary nature of the cash-based compensation gives it the
needed flexibility to factor in and reward the attainment of longer-term goals for the Company and the executives, as the Board deems
appropriate.
We have not timed nor do we
plan to time our release of material non-public information for the purpose of affecting the value of executive compensation.
Summary Compensation Table
The following summary compensation
table sets forth the aggregate compensation we paid or accrued during the fiscal years ended December 31, 2020 and 2019 to (i) our Chief
Executive Officer (principal executive officer), (ii) our two most highly compensated executive officers other than the principal executive
officer who were serving as executive officers on December 31, 2020, whose total compensation was in excess of $100,000, and (iii) up
to two additional individuals who would have been within the two-other-most-highly compensated but were not serving as executive officers
on December 31, 2020.
|
Name and Principal Position
|
|
Fiscal Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Equity
Awards
($)
|
|
All Other
Compen-
sation
($)
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Ka Leung WONG
|
|
|
2020
|
|
|
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0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
(Chief Executive Officer, President and Director)
|
|
|
2019
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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Lan CHAN (2)
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|
|
2020
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|
|
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0
|
|
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0
|
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0
|
|
|
|
0
|
|
|
|
0
|
|
|
(Chief Financial Officer, Secretary and Director)
|
|
|
2019
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
|
|
0
|
|
_______________
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(1)
|
Linda Masters served as our Chief Executive Officer, Chief Financial Officer, Secretary and director from February 18, 2016, to March 27, 2018.
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(2)
|
Ka Leung WONG is appointed to serve as our Chief Executive Officer, President and Director effective May 22, 2020
|
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(3)
|
Lan Chan was appointed to serve as our Chief Executive Officer, President, Chief Financial Officer, Secretary and Director effective April 15, 2020. Mr. Chan resigned from his positions as Chief Executive Officer and President effective May 22, 2020, and was concurrently appointed Chief Operating Officer.
|
Narrative disclosure to Summary Compensation
Our executive officers are
not parties to employment agreements with the Company. As the Company matures, we expect to enter into compensation arrangements in the
near future.
Other than set out above and
below, there are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers.
We expect to establish one or more incentive compensation plans in the future. Our directors and executive officers may receive securities
of the Company as incentive compensation at the discretion of our board of directors in the future. We do not have any material bonus
or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers.
Equity Awards
There are no unvested options,
warrants or convertible securities outstanding.
At no time during the last
fiscal year with respect to any of any of our executive officers was there:
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|
•
|
any outstanding option or other equity-based award repriced or otherwise materially modified (such as by extension of exercise periods, the change of vesting or forfeiture conditions, the change or elimination of applicable performance criteria, or the change of the bases upon which returns are determined;
|
|
|
•
|
any waiver or modification of any specified performance target, goal or condition to payout with respect to any amount included in non-stock incentive plan compensation or payouts;
|
|
|
•
|
any option or equity grant;
|
|
|
•
|
any non-equity incentive plan award made to a named executive officer;
|
|
|
•
|
any nonqualified deferred compensation plans including nonqualified defined contribution plans; or
|
|
|
•
|
any payment for any item to be included under All Other Compensation in the Summary Compensation Table.
|
Compensation of Directors
During our fiscal year ended
December 31, 2020, we did not provide compensation to any of our employee directors for serving as our director. We currently have no
formal plan for compensating our directors for their services in their capacity as directors, although we may elect to issue stock options
to such persons from time to time. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred
in connection with attendance at meetings of our board of directors. Our board of directors may award special remuneration to any director
undertaking any special services on our behalf other than services ordinarily required of a director.
Compensation Risk Management
Our Board of directors and
human resources staff conducted an assessment of potential risks that may arise from our compensation programs. Based on this assessment,
we concluded that our policies and practices do not encourage excessive and unnecessary risk taking that would be reasonably likely to
have material adverse effect on the Company. Our compensation programs are substantially identical among business units, corporate functions
and global locations (with modifications to comply with local regulations as appropriate). The risk-mitigating factors considered in this
assessment included:
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|
•
|
the alignment of pay philosophy, peer group companies and compensation amounts relative to local competitive practices to support our business objectives; and
|
|
|
•
|
effective balance of cash, short- and long-term performance periods, caps on performance-based award schedules and financial metrics with individual factors and Board and management discretion.
|
Compensation Committee Interlocks and Insider
Participation
We have not yet established
a Compensation Committee. Our Board of Directors performs the functions that would be performed by a compensation committee. During the
fiscal year ended December 31, 2020, none of our executive officers has served: (i) on the compensation committee (or other board committee
performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose
executive officers served on our board of directors; (ii) as a director of another entity, one of whose executive officers served on the
compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire
board of directors) of the registrant; or (iii) as a member of the compensation committee (or other board committee performing equivalent
functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers
served as a director of the company.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following
table sets forth certain information concerning the number of shares of our common stock owned beneficially as of October 28, 2021by:
(i) each person (including any group) known to us to own more than five percent (5%) of any class of our voting securities, (ii) each
of our directors and each of our named executive officers (as defined under Item 402(m)(2) of Regulation S-K), and (iii) officers and
directors as a group. Unless otherwise indicated, the shareholders listed possess sole voting and investment power with respect to the
shares shown.
|
Name of Beneficial Owner (2)
|
|
Amount and
Nature of
Beneficial
Ownership (1)
|
|
Percent of
Class
|
|
Officers and Directors
|
|
|
|
|
|
Lan CHAN (3)
|
|
14,960,000
|
|
53.05%
|
|
Ka Leung WONG (4)
|
|
1,200,000
|
|
4.25%
|
|
|
|
|
|
|
|
All executive officers and directors as a group (2 persons)
|
|
16,160,000
|
|
57.30%
|
|
|
|
|
|
|
|
Shareholders Holding In Excess of 5%
|
|
|
|
|
|
Siu Chung CHEUNG
|
|
6,800,000
|
|
24.11%
|
|
(1)
|
Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect
to securities. For purposes of this table, a person or group of persons is deemed to have “beneficial ownership” of any shares
of common stock that such person has the right to acquire within 60 days of October 28, 2021. Applicable percentage ownership is based
on 28,210,000 shares of common stock outstanding as of October 28, 2021, and any shares that such person or persons has the right to acquire
within 60 days of October 28, 2021, is deemed to be outstanding for such person, but is not deemed to be outstanding for the purpose of
computing the percentage ownership of any other person. The inclusion herein of any shares listed as beneficially owned does not constitute
an admission of beneficial ownership.
|
|
(2)
|
Unless otherwise noted, the business address of
each beneficial owner listed is 17/F, 80 Gloucester Road,
Wanchai, Hong Kong. Except as otherwise indicated,
the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to
the extent that power may be shared with a spouse.
|
|
(3)
|
Lan Chan was appointed to serve as our Chief Executive Officer, President, Chief Financial Officer, Secretary and Director effective April 15, 2020. Mr. Chan resigned from his positions as Chief Executive Officer and President effective May 22, 2020, and was concurrently appointed Chief Operating Officer.
|
|
(4)
|
Ka Leung Wong was appointed to serve as our Chief Executive Officer, President and Director effective May 22, 2020.
|
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Other than as disclosed below,
there are no transactions during our two most recent fiscal years ended December 31, 2020, and December 31, 2019, or any currently proposed
transaction, in which our Company was or to be a participant and the amount exceeds the lesser of $120,000 or one percent of the average
of our Company’s total assets at year-end for our last two completed years, and in which any of our directors, officers or principal
stockholders, or any other related person as defined in Item 404 of Regulation S-K, had or have any direct or indirect material interest.
From time to time, Mr. Wong
Ka Leung, our director, makes temporary advances on an unsecured, interest-free basis with no fixed repayment terms. As of December 31,
2020, the amount due to Mr. Wong was $28,290.
We have not adopted policies
or procedures for approval of related person transactions but review them on a case-by-case basis. We believe that all related party transactions
were on terms at least as favorable as we would have secured in arm’s-length transactions with third parties. Except as set forth
above, we have not entered into any material transactions with any director, executive officer, and promoter, beneficial owner of five
percent or more of our common stock, or family members of such persons.
Director Independence
Our board of directors currently
consists of Ka Leung Wong, our CEO, and Lan Chan, our Secretary, CFO, and COO. Our directors do not qualify as an independent director
under the published listing requirements of the NASDAQ Stock Market or the NYSE because they are executive officers of the Company. As
of the date hereof, we have not adopted a standard of independence nor do we have a policy with respect to independence requirements for
our board members or that a majority of our board be comprised of “independent directors.”
INTEREST OF NAMED EXPERTS AND COUNSEL
Jenny Chen-Drake, of Law Offices
of Jenny Chen-Drake, counsel to the Company, is the holder of 100,000 shares of Common Stock of the Company. Law Offices of Jenny Chen-Drake,
is counsel named in this Prospectus as having prepared part of this Prospectus. Except with respect to Ms. Chen-Drake, no expert named
in this Prospectus as having prepared or certified any part of this Prospectus or having given an opinion upon the validity of the securities
being registered or upon other legal matters in connection with the registration or offering of the Common Stock was employed on a contingency
basis, or had, or is to receive, in connection with the Offering, a substantial interest exceeding $25,000, directly or indirectly, in
the Company or any of its subsidiaries. Nor was any such person connected with the Company or any of its parents or subsidiaries as a
promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
EXPERTS
The financial statements included
in this Prospectus for the years ended December 31, 2020 and 2019 have been audited by Total Asia Associates PLT, and are included in
reliance upon such report given upon the authority of said firm as experts in auditing and accounting.
Unless otherwise indicated
in the applicable prospectus supplement, Law Offices of Jenny Chen-Drake will provide opinions regarding the validity of the shares of
our Common Stock. Law Offices of Jenny Chen-Drake may also provide opinions regarding certain other matters. Any underwriters will also
be advised about legal matters by their own counsel, which will be named in the prospectus supplement.
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION
FOR SECURITIES ACT LIABILITIES
Our Amended Certificate of
Incorporation and Amended and Restated Bylaws provide to the fullest extent permitted by law that our directors or officers, former directors
and officers, and persons who act at our request as a director or officer of a body corporate of which we are a shareholder or creditor
shall be indemnified by us. We believe that the indemnification provisions in our By-laws are necessary to attract and retain qualified
persons as directors and officers.
Insofar as indemnification
for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling the Company pursuant
to provisions of the State of Nevada, the Company has been informed that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is, therefore, unenforceable.
FINANCIAL STATEMENTS
Our audited financial statements
for the periods ended December 31, 2020 and 2019, and the unaudited financial statements for the nine months ended September 30, 2021 and 2020,
are included herewith.
LUDUSON G, INC.
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER
30, 2021
LUDUSON G INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current asset:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
60,618
|
|
|
$
|
40,447
|
|
|
Accounts receivable
|
|
|
5,098,954
|
|
|
|
4,499,746
|
|
|
Deposits, prepayments and other receivables
|
|
|
829,108
|
|
|
|
665,052
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
5,988,680
|
|
|
|
5,205,245
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current asset:
|
|
|
|
|
|
|
|
|
|
Plant and equipment
|
|
|
301,795
|
|
|
|
422,414
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
6,290,475
|
|
|
$
|
5,627,659
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accrued liabilities and other payables
|
|
$
|
44,447
|
|
|
$
|
26,772
|
|
|
Tax payable
|
|
|
843,826
|
|
|
|
743,562
|
|
|
Amount due to a director
|
|
|
56,568
|
|
|
|
28,290
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
944,841
|
|
|
|
798,624
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
944,841
|
|
|
|
798,624
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 20,000,000 shares authorized, no shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively
|
|
|
–
|
|
|
|
–
|
|
|
Common stock, $0.0001 par value, 100,000,000 shares authorized, 28,110,000 shares issued and outstanding at September 30, 2021 and December 31, 2020
|
|
|
2,811
|
|
|
|
2,811
|
|
|
Additional paid in capital
|
|
|
332,189
|
|
|
|
332,189
|
|
|
Accumulated other comprehensive income
|
|
|
(11,908
|
)
|
|
|
10,573
|
|
|
Retained earnings
|
|
|
5,022,542
|
|
|
|
4,483,462
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
5,345,634
|
|
|
|
4,829,035
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
$
|
6,290,475
|
|
|
$
|
5,627,659
|
|
See accompanying notes to condensed consolidated
financial statements.
LUDUSON G INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Currency expressed in United States Dollars
(“US$”))
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended
September 30,
|
|
|
Nine Months ended
September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue, net
|
|
$
|
269,922
|
|
|
$
|
1,824,479
|
|
|
$
|
927,053
|
|
|
$
|
2,945,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
(34,280
|
)
|
|
|
(592,792
|
)
|
|
|
(102,986
|
)
|
|
|
(743,860
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
235,642
|
|
|
|
1,231,687
|
|
|
|
824,067
|
|
|
|
2,201,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
(40,036
|
)
|
|
|
(63,528
|
)
|
|
|
(117,753
|
)
|
|
|
(131,085
|
)
|
|
Professional fee
|
|
|
(38,325
|
)
|
|
|
(67,305
|
)
|
|
|
(63,462
|
)
|
|
|
(67,305
|
)
|
|
Stock-based compensation
|
|
|
–
|
|
|
|
(325,000
|
)
|
|
|
–
|
|
|
|
(325,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(78,361
|
)
|
|
|
(455,833
|
)
|
|
|
(181,215
|
)
|
|
|
(523,390
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
157,281
|
|
|
|
775,854
|
|
|
|
642,852
|
|
|
|
1,678,258
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
–
|
|
|
|
(1,381
|
)
|
|
|
–
|
|
|
|
(1,381
|
)
|
|
Interest income
|
|
|
–
|
|
|
|
6
|
|
|
|
–
|
|
|
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
–
|
|
|
|
(1,375
|
)
|
|
|
–
|
|
|
|
(1,341
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
157,281
|
|
|
|
774,479
|
|
|
|
642,852
|
|
|
|
1,676,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
(32,508
|
)
|
|
|
(49,191
|
)
|
|
|
(103,772
|
)
|
|
|
(178,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
|
124,773
|
|
|
|
725,288
|
|
|
|
539,080
|
|
|
|
1,498,071
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation (loss) gain
|
|
|
(14,472
|
)
|
|
|
706
|
|
|
|
(22,481
|
)
|
|
|
6,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME
|
|
$
|
110,301
|
|
|
$
|
725,994
|
|
|
$
|
516,599
|
|
|
$
|
1,504,722
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic and diluted
|
|
$
|
0.01
|
|
|
$
|
0.03
|
|
|
$
|
0.02
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Basic and diluted
|
|
|
28,110,000
|
|
|
|
25,610,000
|
|
|
|
28,110,000
|
|
|
|
17,520,146
|
|
See accompanying notes to condensed consolidated
financial statements.
LUDUSON G INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Currency expressed in United States Dollars
(“US$”))
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months ended September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
539,080
|
|
|
$
|
1,498,071
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation of plant and equipment
|
|
|
119,081
|
|
|
|
7,348
|
|
|
Stock-based compensation expense
|
|
|
–
|
|
|
|
325,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(599,208
|
)
|
|
|
(1,003,875
|
)
|
|
Deposits and prepayments and other receivables
|
|
|
(164,056
|
)
|
|
|
(258,754
|
)
|
|
Accrued expenses and other payables
|
|
|
17,675
|
|
|
|
17,878
|
|
|
Lease liabilities
|
|
|
–
|
|
|
|
(658
|
)
|
|
Tax payable
|
|
|
103,772
|
|
|
|
179,689
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
16,344
|
|
|
|
764,699
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
–
|
|
|
|
(862,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
–
|
|
|
|
(862,271
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Advance from a director
|
|
|
28,278
|
|
|
|
16,500
|
|
|
Proceeds from line of credit
|
|
|
–
|
|
|
|
50,386
|
|
|
Dividends paid
|
|
|
–
|
|
|
|
(186,084
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
28,278
|
|
|
|
(119,198
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Effect on exchange rate change on cash and cash equivalents
|
|
|
(24,451
|
)
|
|
|
6,617
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
20,171
|
|
|
|
(210,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
|
|
|
40,447
|
|
|
|
269,691
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
60,618
|
|
|
$
|
59,538
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
Cash paid for tax
|
|
$
|
–
|
|
|
$
|
–
|
|
|
Cash paid for interest
|
|
$
|
–
|
|
|
$
|
–
|
|
See accompanying notes to condensed consolidated
financial statements.
LUDUSON HOLDING COMPANY LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three and Nine Months
ended September 30, 2020 and 2021
|
|
|
|
|
Common stock
|
|
|
Additional paid-in
|
|
|
Accumulated other comprehensive
income
|
|
|
Retained
|
|
|
Total stockholders’
|
|
|
|
|
No. of shares
|
|
|
Amount
|
|
|
capital
|
|
|
(loss)
|
|
|
earnings
|
|
|
equity
|
|
|
Balance as at January 1, 2020 (restated)
|
|
|
10,000,000
|
|
|
$
|
1,000
|
|
|
$
|
9,000
|
|
|
$
|
5,435
|
|
|
$
|
1,024,195
|
|
|
$
|
1,039,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(186,084
|
)
|
|
|
(186,084
|
)
|
|
Foreign currency translation adjustment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
4,735
|
|
|
|
–
|
|
|
|
4,735
|
|
|
Net income for the period
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
51,429
|
|
|
|
51,429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at March 31, 2020
|
|
|
10,000,000
|
|
|
|
1,000
|
|
|
|
9,000
|
|
|
|
10,170
|
|
|
|
889,540
|
|
|
|
909,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
1,210
|
|
|
|
–
|
|
|
|
1,210
|
|
|
Net income for the period
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
721,354
|
|
|
|
721,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at June 30, 2020
|
|
|
10,000,000
|
|
|
|
1,000
|
|
|
|
9,000
|
|
|
|
11,380
|
|
|
|
1,610,894
|
|
|
|
1,632,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
706
|
|
|
|
–
|
|
|
|
706
|
|
|
Net income for the period
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
725,288
|
|
|
|
725,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at September 30, 2020
|
|
|
10,000,000
|
|
|
$
|
1,000
|
|
|
$
|
9,000
|
|
|
$
|
12,086
|
|
|
$
|
2,336,182
|
|
|
$
|
2,683,268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at January 1, 2021 (audited)
|
|
|
28,110,000
|
|
|
$
|
2,811
|
|
|
$
|
332,189
|
|
|
$
|
10,573
|
|
|
$
|
4,483,462
|
|
|
$
|
4,829,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(13,766
|
)
|
|
|
–
|
|
|
|
(13,766
|
)
|
|
Net income for the period
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
107,312
|
|
|
|
107,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at March 31, 2021
|
|
|
28,110,000
|
|
|
|
2,811
|
|
|
|
332,189
|
|
|
|
(3,193
|
)
|
|
|
4,590,774
|
|
|
|
4,922,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
5,757
|
|
|
|
–
|
|
|
|
5,757
|
|
|
Net income for the period
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
306,995
|
|
|
|
306,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2021
|
|
|
28,110,000
|
|
|
|
2,811
|
|
|
|
332,189
|
|
|
|
2,564
|
|
|
|
4,897,769
|
|
|
|
5,235,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(14,472
|
)
|
|
|
–
|
|
|
|
(14,472
|
)
|
|
Net income for the period
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
124,773
|
|
|
|
124,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2021
|
|
|
28,110,000
|
|
|
$
|
2,811
|
|
|
$
|
332,189
|
|
|
$
|
(11,908
|
)
|
|
$
|
5,022,542
|
|
|
$
|
5,345,634
|
|
See accompanying notes to condensed consolidated
financial statements.
LUDUSON G INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
(Unaudited)
NOTE – 1 DESCRIPTION OF BUSINESS AND
ORGANIZATION
Luduson G Inc. was organized under the laws of
the State of Delaware on March 6, 2014. The Company changed its current name on July 15, 2020.
Description of 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 US$1 par value
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
Luduson Entertainment Limited
|
|
Hong Kong
|
|
Sales and marketing
|
|
10,000
ordinary shares for HK$10,000
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
G Music Asia Limited
|
|
British Virgin Islands
|
|
Event planning
|
|
2 ordinary shares at par value of US$1
|
|
100%
|
The Company and its subsidiaries are hereinafter
referred to as (the "Company").
NOTE – 2 SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The accompanying condensed consolidated financial
statements reflect the application of certain significant accounting policies as described in this note and elsewhere in the accompanying
financial statements and notes.
These accompanying condensed consolidated financial
statements have been prepared in U.S. Dollars in conformity with generally accepted accounting principles in the United States of America
(“U.S. GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission
(the “SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary to make the financial
statements not misleading have been included. Operating results for the interim period ended September 30, 2021 are not necessarily indicative
of the results that may be expected for the fiscal year ending December 31, 2021. The information included in this Form 10-Q should be
read in conjunction with Management’s Discussion and Analysis, and the financial statements and notes thereto included in the Company’s
Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC on May 25, 2021.
LUDUSON G INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
(Unaudited)
|
|
l
|
Use of estimates and assumptions
|
In preparing these condensed 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 periods reported. Actual results may differ from these estimates.
The condensed consolidated financial statements
include the financial statements of the Company and its subsidiaries. All significant inter-company balances and transactions within the
Company have been eliminated upon consolidation.
|
|
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.
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. As of September 30, 2021 and December 31, 2020, there was no
allowance for doubtful accounts.
Plant and equipment are stated at cost less accumulated
depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis over the following expected
useful lives from the date on which they become fully operational and after taking into account their estimated residual values:
|
Schedule of property and equipment useful lives
|
|
|
|
|
|
|
|
Expected useful lives
|
|
|
|
Computer equipment
|
|
3 years
|
|
|
|
Furniture and equipment
|
|
5 years
|
|
|
LUDUSON G INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
(Unaudited)
Expenditures for repairs and maintenance are expensed
as incurred. When assets have been retired or sold, the cost and related accumulated depreciation are removed from the accounts and any
resulting gain or loss is recognized in the results of operations.
Depreciation expense for the three months ended
September 30, 2021 and 2020 were $39,638 and $4,838, respectively.
Depreciation expense for the nine months ended
September 30, 2021 and 2020 were $119,081 and $7,348, respectively.
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.
|
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 condensed consolidated 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.
LUDUSON G INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
(Unaudited)
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 nine
months ended September 30, 2021 and 2020.
|
|
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 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
is operating in Hong Kong and maintains 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$, in accordance
with ASC Topic 830-30, “ Translation of Financial Statement”, using the exchange rate on the balance sheet date. Revenues
and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial
statements of foreign subsidiary are recorded as a separate component of accumulated other comprehensive income within the statements
of changes in stockholder’s equity.
Translation of amounts from HKD into US$ has
been made at the following exchange rates for the nine months ended September 30, 2021 and 2020:
|
Schedule of translation rates
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
September 30, 2020
|
|
|
Period-end HKD:US$ exchange rate
|
|
|
0.12843
|
|
|
|
0.12899
|
|
|
Period average HKD:US$ exchange rate
|
|
|
0.12876
|
|
|
|
0.12894
|
|
ASC Topic 220, “Comprehensive Income”,
establishes standards for reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income
as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive income, as presented
in the accompanying condensed consolidated statements of changes in stockholders’ equity, consists of changes in unrealized gains
and losses on foreign currency translation. This comprehensive income is not included in the computation of income tax expense or benefit.
LUDUSON G INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
(Unaudited)
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 condensed consolidated 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. However, disclosure of transactions that are eliminated in the preparation of consolidated
or combined financial statements is not required in those statements. 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
|
Commitments and contingencies
|
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 condensed consolidated 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.
LUDUSON G INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
(Unaudited)
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
|
In September 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. In November 2018, the FASB issued ASU 2018-19, which
makes certain improvements to Topic 326. In April and May 2019, the FASB issued ASUs 2019-04 and 2019-05, respectively, which adds codification
improvements and transition relief for Topic 326. In November 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 after December 15, 2022, with early adoption permitted. In
November 2019, the FASB issued ASU 2019-11, which makes improvements to certain areas of Topic 326. In February 2020, the FASB issued
ASU 2020-02, which adds an SEC paragraph, pursuant to the issuance of SEC 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 after December 15, 2022. Early adoption
is permitted for interim and annual periods beginning December 15, 2019. The Company is currently evaluating the potential impact of adopting
this guidance on the condensed consolidated financial statements.
LUDUSON G INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
(Unaudited)
On January 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 condensed consolidated
financial statements.
On January 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 the condensed 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 condensed consolidated financial statements.
NOTE – 3 ACCOUNTS RECEIVABLE
The majority of the Company’s sales are
on open credit terms and in accordance with terms specified in the contracts governing the relevant transactions. The Company evaluates
the need of an allowance for doubtful accounts based on specifically identified amounts that management believes to be uncollectible.
If actual collections experience changes, revisions to the allowance may be required. Based upon the aforementioned criteria, the Company
has not provide the allowance for the nine months ended September 30, 2021 and 2020.
|
Schedule of accounts receivable
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
December 31, 2020
|
|
|
|
|
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, cost
|
|
$
|
5,098,954
|
|
|
$
|
4,499,746
|
|
|
Less: allowance for doubtful accounts
|
|
|
–
|
|
|
|
–
|
|
|
Accounts receivable, net
|
|
$
|
5,098,954
|
|
|
$
|
4,499,746
|
|
The Company expects these balances to be recovered
in the next 12 months.
NOTE –
4 STOCKHOLDERS’ EQUITY
Authorized shares
As of September 30, 2021 and December 31, 2020,
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 Court 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 $8.00. All warrants are exercisable
at any time prior to August 30, 2020.
LUDUSON G INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
(Unaudited)
As of September 30, 2021, no warrants have been
exercised.
Issued and outstanding shares
As of September 30, 2021 and December 31, 2020,
28,110,000 common shares issued and outstanding, and 2,500,000 warrants to acquire common shares issued and outstanding.
NOTE –
5 INCOME TAX
Income before income taxes within or outside
the United States are shown below:
|
Schedule of income before income taxes
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
|
|
$
|
|
|
Foreign
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
$
|
|
The provision (benefit) for income taxes as shown
in the accompanying consolidated statements of income consists of the following:
|
Schedule of provision benefit for income taxes
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
–
|
|
|
$
|
–
|
|
|
Foreign
|
|
|
103,772
|
|
|
|
178,846
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
–
|
|
|
|
–
|
|
|
Foreign
|
|
|
–
|
|
|
|
–
|
|
|
Provision for income taxes
|
|
$
|
103,772
|
|
|
$
|
178,846
|
|
The effective tax rate in the periods presented
is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rate. The Company operates
in various countries: United States of America and Hong Kong that are subject to taxes in the jurisdictions in which they operate, as
follows:
LUDUSON G INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
(Unaudited)
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 September 30, 2021, the operations in the
United States of America incurred $343,616 of cumulative net operating losses which can be carried forward to offset future taxable income.
The net operating loss carryforwards begin to expire in 2041, if unutilized. The Company has provided for a full valuation allowance against
the deferred tax assets of $72,159 on the expected future tax benefits from the net operating loss carryforwards as the management believes
it is more likely than not that these assets will not be realized in the future.
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.
BVI
Under the current BVI law, the Company is not
subject to tax on income.
Hong Kong
The Company’s subsidiary operating in Hong
Kong is subject to the Hong Kong Profits Tax at the two-tiered profits tax rates from 8.25% to 16.5% on the estimated assessable profits
arising in Hong Kong during the current year, after deducting a tax concession for the tax year. The reconciliation of income tax rate
to the effective income tax rate for the nine months ended September 30, 2021 and 2020 is as follows:
|
Reconciliation of income taxes
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30,
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
$
|
642,852
|
|
|
$
|
2,018,417
|
|
|
Statutory income tax rate
|
|
|
16.5%
|
|
|
|
16.5%
|
|
|
Income tax expense at statutory rate
|
|
|
106,071
|
|
|
|
333,038
|
|
|
Tax effect of non-deductible items
|
|
|
19,648
|
|
|
|
1,212
|
|
|
Tax effect of deductible items
|
|
|
(702
|
)
|
|
|
(131,533
|
)
|
|
Tax holiday
|
|
|
(21,245
|
)
|
|
|
(23,871
|
)
|
|
Income tax expense
|
|
$
|
103,772
|
|
|
$
|
178,846
|
|
LUDUSON G INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
(Unaudited)
NOTE –
6 RELATED PARTY TRANSACTIONS
Apart from the transactions and balances detailed
elsewhere in these accompanying condensed consolidated financial statements, the Company has no other significant or material related
party transactions during the periods presented.
NOTE –
7 CONCENTRATIONS OF RISK
The Company is exposed to the following concentrations of risk:
(a) Major
customers
For the three and nine months ended September
30, 2021 and 2020, the individual customer who accounts for 10% or more of the Company’s revenues and its outstanding receivable
balances as at period-end dates, are presented as follows:
|
Concentrations of risk
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, 2021
|
|
|
September 30, 2021
|
|
|
Customer
|
|
Revenues
|
|
|
Percentage
of revenues
|
|
|
Accounts
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
192,802
|
|
|
|
72%
|
|
|
$
|
2,479,760
|
|
|
Customer B
|
|
|
38,560
|
|
|
|
14%
|
|
|
|
1,473,355
|
|
|
Customer C
|
|
|
38,560
|
|
|
|
14%
|
|
|
|
1,140,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
269,922
|
|
|
|
100%
|
|
Total:
|
$
|
5,093,559
|
|
|
|
|
Three months ended September 30, 2020
|
|
|
September 30, 2020
|
|
|
Customer
|
|
Revenues
|
|
|
Percentage
of revenues
|
|
|
Accounts
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
1,302,010
|
|
|
|
71%
|
|
|
$
|
1,245,736
|
|
|
Customer B
|
|
|
483,291
|
|
|
|
26%
|
|
|
|
481,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
1,785,301
|
|
|
|
98%
|
|
Total:
|
$
|
1,726,930
|
|
|
|
|
Nine months ended September 30, 2021
|
|
|
September 30, 2021
|
|
|
Customer
|
|
Revenues
|
|
|
Percentage
of revenues
|
|
|
Accounts
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
695,289
|
|
|
|
74%
|
|
|
$
|
2,479,760
|
|
|
Customer B
|
|
|
115,882
|
|
|
|
13%
|
|
|
|
1,473,355
|
|
|
Customer C
|
|
|
115,882
|
|
|
|
13%
|
|
|
|
1,140,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
927,053
|
|
|
|
100%
|
|
Total:
|
$
|
5,093,559
|
|
LUDUSON G INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2021
(Currency expressed in United States Dollars
(“US$”), except for number of shares)
(Unaudited)
|
|
|
Nine months ended September 30, 2020
|
|
|
September 30, 2020
|
|
|
Customer
|
|
Revenues
|
|
|
Percentage
of revenues
|
|
|
Accounts
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
2,268,849
|
|
|
|
77%
|
|
|
$
|
1,245,736
|
|
|
Customer B
|
|
|
541,301
|
|
|
|
18%
|
|
|
|
481,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
2,810,150
|
|
|
|
95%
|
|
Total:
|
$
|
1,726,930
|
|
|
|
(b)
|
Economic and political risk
|
The Company’s major operations are conducted
in Hong Kong. Accordingly, the political, economic, and legal environments in Hong Kong, as well as the general state of Hong Kong’s
economy may influence the Company’s business, financial condition, and results of operations.
The Company cannot guarantee that the current
exchange rate will remain steady; therefore there is a possibility that the Company could post the same amount of profit for two comparable
periods and because of the fluctuating exchange rate actually post higher or lower profit depending on exchange rate of HKD converted
to US$ on that date. The exchange rate could fluctuate depending on changes in political and economic environments without notice.
NOTE –
8 COMMITMENTS AND CONTINGENCIES
As of September 30, 2021, the Company has no material
commitments or contingencies.
NOTE –
9 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 consolidated financial statements are issued, the Company has evaluated all events or transactions that occurred after September
30, 2021, up through the date the Company issued the unaudited condensed consolidated financial statements. The Company determined that
there were no further events to disclose.
|
TOTAL ASIA ASSOCIATES PLT
(AF002128 & LLP0016837-LCA)
A Firm registered with US PCAOB and Malaysian MIA
Block C-3-1, Megan Avenue 1, 189, Off Jalan
Tun Razak,
50400, Kuala Lumpur.
Tel: (603) 2733 9989
|
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Board of Directors and Shareholders of
LUDUSON G INC.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Luduson G Inc. and its subsidiaries (the ‘Company’) as of December 31, 2020 and 2019, and the related
consolidated statements of operations and comprehensive income, changes in shareholders’ equity and cash flows for the years
ended December 31, 2020 and 2019, and the related notes (collectively referred to as the “financial statements”). In
our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company
as of December 31, 2020 and 2019, and the results of its operations and its cash flows for the years ended December 31, 2020 and
2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from
the current period audit of the financial statements that were communicated or required to be communicated to those charged with governance
that: (1) related to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective, or complex judgements. We determined that there are no critical matters.
/s/ TOTAL ASIA ASSOCIATES PLT
TOTAL ASIA ASSOCIATES PLT
March 25, 2021
We have served as the Company’s auditor
since 2020.
Kuala Lumpur, Malaysia
LUDUSON G INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2020 and 2019
(Currency expressed in United States
Dollars (“US$”), except for number of shares)
|
|
|
As of December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
ASSETS
|
|
|
|
|
|
|
|
Current asset:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
40,447
|
|
|
$
|
269,691
|
|
|
Accounts receivable
|
|
|
4,499,746
|
|
|
|
760,733
|
|
|
Deposits, prepayments and other receivables
|
|
|
665,052
|
|
|
|
142,001
|
|
|
Operating lease right-of-use assets
|
|
|
–
|
|
|
|
35,816
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
5,205,245
|
|
|
|
1,208,241
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current asset:
|
|
|
|
|
|
|
|
|
|
Plant and equipment
|
|
|
422,414
|
|
|
|
9,172
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
5,627,659
|
|
|
$
|
1,217,413
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,251
|
|
|
$
|
–
|
|
|
Accrued liabilities and other payables
|
|
|
23,521
|
|
|
|
1,289
|
|
|
Tax payable
|
|
|
743,562
|
|
|
|
139,804
|
|
|
Operating lease liabilities
|
|
|
–
|
|
|
|
36,690
|
|
|
Amount due to a director
|
|
|
28,290
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
798,624
|
|
|
|
177,783
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
798,624
|
|
|
|
177,783
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.0001 par value, 20,000,000 shares authorized, no shares issued and outstanding at December 31, 2020 and 2019, respectively
|
|
|
–
|
|
|
|
–
|
|
|
Common stock, $0.0001 par value, 100,000,000 shares authorized, 28,110,000 and 10,000,000 shares issued and outstanding at December 31, 2020 and 2019, respectively
|
|
|
2,811
|
|
|
|
1,000
|
|
|
Additional paid-in capital
|
|
|
332,189
|
|
|
|
9,000
|
|
|
Accumulated other comprehensive income
|
|
|
10,573
|
|
|
|
5,435
|
|
|
Retained earnings
|
|
|
4,483,462
|
|
|
|
1,024,195
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity
|
|
|
4,829,035
|
|
|
|
1,039,630
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
$
|
5,627,659
|
|
|
$
|
1,217,413
|
|
See accompanying notes to consolidated financial
statements.
LUDUSON G INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
(Currency expressed in United States
Dollars (“US$”))
|
|
|
Years ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
Revenue, net
|
|
$
|
5,935,720
|
|
|
$
|
1,426,354
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
|
(1,027,662
|
)
|
|
|
(283,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
4,908,058
|
|
|
|
1,142,526
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
(531,681
|
)
|
|
|
(164,293
|
)
|
|
Professional fee
|
|
|
(127,416
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
(659,097
|
)
|
|
|
(164,293
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other (expenses) income:
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
40
|
|
|
|
2
|
|
|
Interest expenses
|
|
|
(1,938
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other (expenses) income
|
|
|
(1,898
|
)
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME TAXES
|
|
|
4,247,063
|
|
|
|
978,235
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
(602,877
|
)
|
|
|
(138,959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
|
3,644,186
|
|
|
|
839,276
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
Foreign currency translation gain
|
|
|
5,138
|
|
|
|
6,152
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE INCOME
|
|
$
|
3,649,324
|
|
|
$
|
845,428
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.18
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
20,332,350
|
|
|
|
10,000,000
|
|
See accompanying notes to consolidated financial
statements.
LUDUSON G INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
(Currency expressed in United States
Dollars (“US$”))
|
|
|
Years ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Cash flow from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
3,644,186
|
|
|
$
|
839,276
|
|
|
Adjustments to reconcile net income to net cash generated from operating activities
|
|
|
|
|
|
|
|
|
|
Depreciation of plant and equipment
|
|
|
48,889
|
|
|
|
5,946
|
|
|
Share-based compensation for services
|
|
|
325,000
|
|
|
|
–
|
|
|
Non-cash lease expenses
|
|
|
35,600
|
|
|
|
874
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(3,739,013
|
)
|
|
|
(746,361
|
)
|
|
Deposits, prepayments and other receivables
|
|
|
(523,050
|
)
|
|
|
(138,809
|
)
|
|
Accounts payable
|
|
|
3,251
|
|
|
|
–
|
|
|
Accrued expenses and other payables
|
|
|
22,232
|
|
|
|
(2,554
|
)
|
|
Lease liabilities
|
|
|
2,051
|
|
|
|
–
|
|
|
Tax payable
|
|
|
603,758
|
|
|
|
138,959
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash generated from operating activities
|
|
|
422,904
|
|
|
|
97,331
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchases of plant and equipment
|
|
|
(462,109
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(462,109
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow from financing activities:
|
|
|
|
|
|
|
|
|
|
Advances from a director
|
|
|
28,290
|
|
|
|
138,596
|
|
|
Repayment of lease liabilities
|
|
|
(38,525
|
)
|
|
|
–
|
|
|
Dividend paid to former shareholders
|
|
|
(184,919
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) generated from financing activities
|
|
|
(195,154
|
)
|
|
|
138,596
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect on exchange rate change on cash and cash equivalents
|
|
|
5,115
|
|
|
|
6,949
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(229,244
|
)
|
|
|
242,876
|
|
|
|
|
|
|
|
|
|
|
|
|
BEGINNING OF YEAR
|
|
|
269,691
|
|
|
|
26,815
|
|
|
|
|
|
|
|
|
|
|
|
|
END OF YEAR
|
|
$
|
40,447
|
|
|
$
|
269,691
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
Cash paid for tax
|
|
$
|
–
|
|
|
$
|
–
|
|
|
Cash paid for interest
|
|
$
|
–
|
|
|
$
|
–
|
|
See accompanying notes to consolidated financial
statements.
LUDUSON G INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
(Currency expressed in United States
Dollars (“US$”), except for number of shares)
|
|
|
Common stock
|
|
|
Additional
paid-in
|
|
|
Accumulated other comprehensive (loss)
|
|
|
Retained
|
|
|
Total shareholders’
|
|
|
|
|
No. of shares
|
|
|
Amount
|
|
|
capital
|
|
|
income
|
|
|
earnings
|
|
|
equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at January 1, 2019 (restated)
|
|
|
10,000,000
|
|
|
$
|
1,000
|
|
|
$
|
9,000
|
|
|
$
|
(717
|
)
|
|
$
|
184,919
|
|
|
$
|
194,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
6,152
|
|
|
|
–
|
|
|
|
6,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
839,276
|
|
|
|
839,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2019
|
|
|
10,000,000
|
|
|
$
|
1,000
|
|
|
$
|
9,000
|
|
|
$
|
5,435
|
|
|
$
|
1,024,195
|
|
|
$
|
1,039,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at January 1, 2020
|
|
|
10,000,000
|
|
|
$
|
1,000
|
|
|
$
|
9,000
|
|
|
$
|
5,435
|
|
|
$
|
1,024,195
|
|
|
$
|
1,039,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to former shareholders
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
(184,919
|
)
|
|
|
(184,919
|
)
|
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for acquisition of legal acquirer
|
|
|
15,610,000
|
|
|
|
1,561
|
|
|
|
(1,561
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for service rendered
|
|
|
2,500,000
|
|
|
|
250
|
|
|
|
324,750
|
|
|
|
–
|
|
|
|
–
|
|
|
|
325,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
5,138
|
|
|
|
–
|
|
|
|
5,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for the year
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
3,644,186
|
|
|
|
3,644,186
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at December 31, 2020
|
|
|
28,110,000
|
|
|
$
|
2,811
|
|
|
$
|
332,189
|
|
|
$
|
10,573
|
|
|
$
|
4,483,462
|
|
|
$
|
4,829,035
|
|
See accompanying notes to consolidated financial
statements.
LUDUSON G INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
(Currency expressed in United States
Dollars (“US$”), except for number of shares)
|
1.
|
|
DESCRIPTION OF BUSINESS AND ORGANIZATION
|
Luduson G Inc. (formerly Baja Custom Designs,
Inc., or "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 September 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.
On April 15, 2020, Linda Master, the former
Chief Executive Officer, President and majority owner of the Company, sold 14,960,000 shares of her common stock of the Company,
or 95.8% of the issued and outstanding stock of the Company, to Lan Chan, the current Chief Executive Officer, Chief Financial
Officer and Secretary of the Company.
On May 8, 2020, the Company executed a
Share Exchange Agreement with Luduson Holding Company Limited, a limited liability company organized under the laws of British
Virgin Islands (“LHCL”), and the shareholders of LHCL. Pursuant to the Share Exchange Agreement, the Company purchased
Ten Thousand (10,000) shares of LHCL (the “LHCL Shares”), representing all of the issued and outstanding shares of
common stock of LHCL. As consideration, the Company agreed to issue to the shareholders of LHCL Ten Million (10,000,000) shares
of its common stock, at a value of US$0.10 per share, for an aggregate value of US$1,000,000. The Company consummated the acquisition
of LHCL on May 22, 2020.
Because the Company is a shell company,
LHCL will comprise the ongoing operations of the combined entity and its senior management will serve as the senior management
of the combined entity, LHCL is deemed to be the accounting acquirer for accounting purposes. The transaction will be treated as
a recapitalization of the Company. Accordingly, the consolidated assets, liabilities and results of operations of the Company will
become the historical financial statements of LHCL, and the Company’s assets, liabilities and results of operations will
be consolidated with LHCL beginning on the acquisition date. LHCL was the legal acquiree but deemed to be the accounting acquirer.
The Company was the legal acquirer but deemed to be the accounting acquiree in the reverse merger. The historical financial statements
prior to the acquisition are those of the accounting acquirer (LHCL). After completion of the Share Exchange Transaction, the Company’s
consolidated financial statements include the assets and liabilities, the operations and cash flow of the accounting acquirer.
Description of subsidiaries
|
Name
|
|
Place of incorporation
and kind of legal entity
|
|
Principal activities
|
|
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 HK$10,000
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
G Music Asia Limited
|
|
British Virgin Islands
|
|
Event planning
|
|
2 ordinary shares at par value of US$1
|
|
100%
|
The Company and its subsidiaries are hereinafter
referred to as (the “Company”).
|
2.
|
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
The accompanying consolidated financial statements reflect the
application of certain significant accounting policies as described in this note and elsewhere in the accompanying consolidated
financial statements and notes.
These accompanying consolidated financial
statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US
GAAP”).
LUDUSON G INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
(Currency expressed in United States
Dollars (“US$”), except for number of shares)
|
l
|
|
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 years reported. Actual results may differ from these estimates.
The consolidated financial statements include
the financial statements of the Company and its subsidiaries. All significant inter-company balances and transactions within the
Company have been eliminated upon consolidation.
|
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.
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. As of December 31, 2020 and 2019, there was no allowance for doubtful accounts.
Plant and equipment are stated at cost
less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line basis
over the following expected useful lives from the date on which they become fully operational and after taking into account their
estimated residual values:
|
|
|
Expected useful lives
|
|
|
Leasehold improvement
|
|
3 years
|
|
|
Computer equipment
|
|
3-5 years
|
|
|
Furniture and equipment
|
|
5 years
|
|
Expenditures for repairs and maintenance
are expensed as incurred. When assets have been retired or sold, the cost and related accumulated depreciation are removed from
the accounts and any resulting gain or loss is recognized in the results of operations.
The Company adopted Accounting Standards
Codification (“ASC”) 606 – Revenue from Contracts with Customers” (“ASC 606”) as of
January 1, 2019 using the modified retrospective method. This method allows the Company to apply ASC 606 to new contracts entered
into after January 1, 2019, and to its existing contracts for which revenue earned through December 31, 2018 has been recognized
under the guidance in effect prior to the effective date of ASC 606. The revenue recognition processes the Company applied prior
to adoption of ASC 606 align with the recognition and measurement guidance of the new standard, therefore adoption of ASC 606 did
not require a cumulative adjustment to opening equity.
LUDUSON G INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
(Currency expressed in United States
Dollars (“US$”), except for number of shares)
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.
|
Cost of revenue consists primarily of the
fees paid to contracted programmers and labor costs, which are directly attributable to the rendering of services and the production
of contents.
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 consolidated 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 consolidated
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 years ended December 31, 2020 and 2019.
|
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 consolidated statement of operations.
LUDUSON G INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
(Currency expressed in United States
Dollars (“US$”), except for number of shares)
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 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$, in accordance with ASC Topic 830-30, “ Translation of Financial Statement”, using the exchange rate
on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses
resulting from translation of financial statements of foreign subsidiary are recorded as a separate component of accumulated other
comprehensive income within the statements of changes in shareholders’ equity.
Translation of amounts from HKD into US$
has been made at the following exchange rates for the years ended December 31, 2020 and 2019:
|
|
|
December 31,2020
|
|
December 31,2019
|
|
Year-end HKD:US$ exchange rate
|
|
|
0.12899
|
|
|
|
0.12842
|
|
|
Annual average HKD:US$ exchange rate
|
|
|
0.12894
|
|
|
|
0.12764
|
|
ASC Topic 220, “Comprehensive
Income”, establishes standards for reporting and display of comprehensive income, its components and accumulated balances.
Comprehensive income as defined includes all changes in equity during a period from non-owner sources. Accumulated other comprehensive
income, as presented in the accompanying consolidated statements of changes in shareholders’ equity, consists of changes
in unrealized gains and losses on foreign currency translation. This comprehensive income is not included in the computation of
income tax expense or benefit.
Contributions to retirement plans (which
are defined contribution plans) are charged to general and administrative expenses in the accompanying statements of operation
as the related employee service is provided.
|
l
|
|
Share-based compensation
|
The Company follows ASC 718, Compensation—Stock
Compensation (“ASC 718”), which requires the measurement and recognition of compensation expense for all share-based
payment awards, including restricted stock units, based on estimated grant date fair values. Restricted stock units are valued
using the market price of the Company’s common shares on the date of grant. The Company records compensation expense, net
of estimated forfeitures, over the requisite service period.
The Company adopted Topic 842, Leases
(“ASC 842”), using the modified retrospective approach through a cumulative-effect adjustment and utilizing the effective
date of January 1, 2019 as its date of initial application, with prior periods unchanged and presented in accordance with the previous
guidance in Topic 840, Leases (“ASC 840”).
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.
LUDUSON G INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
(Currency expressed in United States
Dollars (“US$”), except for number of shares)
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.
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 consolidated 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. However, disclosure of transactions that are eliminated in the preparation of
consolidated or combined financial statements is not required in those statements. 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
|
|
Commitments and contingencies
|
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.
LUDUSON G INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
(Currency expressed in United States
Dollars (“US$”), except for number of shares)
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 consolidated 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, prepayment and other receivables,
amount due from a director and operating lease right-of-use assets, approximate their fair values because of the short maturity
of these instruments.
|
l
|
|
Recent accounting pronouncements
|
From time to time, new accounting pronouncements
are issued by the Financial Accounting Standard Board (“FASB”) or other standard setting bodies and adopted by the
Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued
standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.
LUDUSON G INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
(Currency expressed in United States
Dollars (“US$”), except for number of shares)
Recently Adopted Accounting Standards
In June 2016, the FASB issued guidance
that affects loans, trade receivables and any other financial assets that have the contractual right to receive cash. Under the
new guidance, an entity is required to recognize expected credit losses rather than incurred losses for financial assets. The new
guidance is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. The Company
adopted the new guidance effective January 1, 2020, with no material impact to the Company’s consolidated financial position,
results of operations or cash flows.
In August 2018, the FASB issued guidance
which modifies certain disclosure requirements over fair value measurements. The guidance is effective for fiscal years beginning
after December 15, 2019, including all interim periods within that fiscal year. The Company adopted the new guidance effective
January 1, 2020. The Company does not currently classify any of its derivative contracts or restoration plan assets as Level 3
assets or liabilities, nor did the Company have any transfers amongst fair value levels during the year ended December 31, 2020.
As a result, the guidance did not have an impact on Company’s the fair value measurement disclosures upon adoption.
In January 2017, the FASB issued guidance
which eliminates the second step from the traditional two-step goodwill impairment test. Under current guidance, an entity performed
the first step of the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount; if an
impairment loss was indicated, the entity computed the implied fair value of goodwill to determine whether an impairment loss existed,
and if so, the amount to recognize. Under the new guidance, an impairment loss is recognized for the amount by which the carrying
amount exceeds the reporting unit’s fair value (the Step 1 test), with no further testing required. Any impairment loss recognized
is limited to the amount of goodwill allocated to the reporting unit. The new guidance is effective for public companies that are
Securities and Exchange Commission (“SEC”) registrants for fiscal years beginning after December 15, 2019. The
Company adopted the new guidance on January 1, 2020, and applied the guidance prospectively to its goodwill impairment tests.
Accounting Standards Not Yet Adopted
as of December 31, 2020
In December 2019, the FASB issued new guidance
to simplify the accounting for income taxes by removing certain exceptions to the general principles and also simplification of
areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment
of tax laws or rate changes. The new guidance is effective for fiscal years beginning after December 15, 2020 and interim periods
within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of this new guidance on
its consolidated financial statements.
In March 2020, the FASB issued guidance
to address certain accounting consequences from the anticipated transition from the use of the London Interbank Offered Rate (“LIBOR”)
and other interbank offered rates to alternative reference rates. The new guidance contains practical expedients for reference
rate reform related activities that impact debt, leases, derivatives and other contracts. The guidance is optional and may be elected
over time as reference rate reform activities occur. During the year ended December 31, 2020, the Company elected to apply the
hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to
assume that the index upon which future hedged transactions will be based on matches the index of the corresponding derivatives.
Application of these expedients preserves the presentation of derivatives consistent with past presentation. The Company continues
to evaluate the impact of the guidance and may apply other elections as applicable as additional changes in the market occur.
LUDUSON G INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
(Currency expressed in United States
Dollars (“US$”), except for number of shares)
The Company considers its business activities
to constitute two reportable segments. The segment analysis of the Company’s revenues is as follows:
|
|
|
Years ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Digital marketing
|
|
$
|
5,916,380
|
|
|
$
|
502,324
|
|
|
Entertainment
|
|
|
19,340
|
|
|
|
924,030
|
|
|
|
|
$
|
5,935,720
|
|
|
$
|
1,426,354
|
|
The majority of the Company’s sales
are on open credit terms and in accordance with terms specified in the contracts governing the relevant transactions. The Company
evaluates the need of an allowance for doubtful accounts based on specifically identified amounts that management believes to be
uncollectible. If actual collections experience changes, revisions to the allowance may be required. Based upon the aforementioned
criteria, the Company has not provided the allowance for the years ended December 31, 2020 and 2019.
|
|
|
As of December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Accounts receivable, cost
|
|
$
|
4,499,746
|
|
|
$
|
760,733
|
|
|
Less: allowance for doubtful accounts
|
|
|
–
|
|
|
|
–
|
|
|
Accounts receivable, net
|
|
$
|
4,499,746
|
|
|
$
|
760,733
|
|
The Company expects these balances to be
recovered in the next 12 months.
Plant and equipment consisted of the following:
|
|
|
As of December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Leasehold improvement
|
|
$
|
64,495
|
|
|
$
|
–
|
|
|
Computer equipment
|
|
|
418,371
|
|
|
|
20,757
|
|
|
Furniture and equipment
|
|
|
6,908
|
|
|
|
6,908
|
|
|
Foreign translation difference
|
|
|
154
|
|
|
|
29
|
|
|
|
|
|
489,928
|
|
|
|
27,694
|
|
|
Less: accumulated depreciation
|
|
|
(67,322
|
)
|
|
|
(18,433
|
)
|
|
Less: foreign translation difference
|
|
|
(192
|
)
|
|
|
(89
|
)
|
|
|
|
$
|
422,414
|
|
|
$
|
9,172
|
|
Depreciation expense for the years ended
December 31, 2020 and 2019 were $48,889 and $5,946, respectively.
LUDUSON G INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
(Currency expressed in United States
Dollars (“US$”), except for number of shares)
|
6.
|
|
DEPOSITS, PREPAYMENTS AND OTHER RECEIVABLES
|
Deposits, prepayments and other receivables
consisted of the following,
|
|
|
As of December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Prepayment for business project
|
|
$
|
139,414
|
|
|
$
|
138,791
|
|
|
Prepayment for vending machine
|
|
|
522,413
|
|
|
|
–
|
|
|
Rental deposit
|
|
|
3,225
|
|
|
|
3,210
|
|
|
|
|
$
|
665,052
|
|
|
$
|
142,001
|
|
Prepayment for business project represents
the security deposit to the project under the collaboration agreement, which is unsecured and non-refundable. The deposit will
be charged to the project cost upon the commencement of its project in the next nine months.
Prepayment for vending machine represents
the deposit of purchasing vending machines. The deposit will be charged to the project cost upon the use of the machine in the
next twelve months.
As of December 31, 2020, the Company entered
into one workshop space operating lease with a lease term of 2 years, commencing from January 1, 2019.
Right of use assets and lease liability
– right of use are as follows:
|
|
|
As of December 31
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Right-of-use assets
|
|
$
|
–
|
|
|
$
|
35,816
|
|
The lease liability – right of use
is as follows:
|
|
|
As of December 31
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Current portion
|
|
$
|
–
|
|
|
$
|
36,690
|
|
|
Non-current portion
|
|
|
–
|
|
|
|
–
|
|
|
Total
|
|
$
|
–
|
|
|
$
|
36,690
|
|
The lease was renewed on December 28, 2020
and extended for one additional year to December 31, 2021.
LUDUSON G INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
(Currency expressed in United States
Dollars (“US$”), except for number of shares)
|
8.
|
|
AMOUNT DUE TO A RELATED PARTY
|
As of December 31, 2020, the amount due
to a related party represented temporary advances made by the Company’s director, Mr Wong Ka Leung, which was unsecured,
interest-free with no fixed repayment term. Imputed interest on this amount is considered insignificant.
Authorized shares
As of December 31, 2020 and 2019, 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, totaling 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 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. The exercise price of the warrants was reduced to $0.10 per share on April 7, 2020, and on April
15, 2020, the warrant expiration date was extended 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.
Issued and outstanding shares
On January 2, 2020, the Company declared
and paid a dividend of $184,919 to its former shareholders.
On May 8, 2020, the Company executed a
Share Exchange Agreement (“the “Share Exchange Agreement”) with Luduson Holding Company Limited, a limited company
organized under the laws of the British Virgin Islands (“LHCL”), and the shareholders of LHCL. Pursuant to the Share
Exchange Agreement, the Company agreed to purchase Ten Thousand (10,000) ordinary shares representing 100% of the issued and outstanding
ordinary shares of the LHCL (the “LHCL Shares”). As consideration, the Company agreed to issue to the shareholders
of LHCL Ten Million (10,000,000) shares of its common stock, at a value of US$0.10 per share, for an aggregate value of US$1,000,000.
The Company consummated the acquisition of LHCL on May 22, 2020.
LUDUSON G INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
(Currency expressed in United States
Dollars (“US$”), except for number of shares)
On September 9, 2020, the Company issued
2,500,000 shares of its common stock to five individuals of consultants and service providers for the IT programming and marketing
services rendered to the Company, at the fair value of $0.13 per shares, totally $325,000.
As of December 31, 2020, 28,110,000 common
shares issued and outstanding and 2,500,000 warrants to acquire common shares issued and outstanding.
Income (loss) before income taxes within
or outside the United States are shown below:
|
|
|
Years ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Domestic
|
|
$
|
(343,616
|
)
|
|
$
|
–
|
|
|
Foreign
|
|
|
4,590,679
|
|
|
|
978,235
|
|
|
Total
|
|
$
|
4,247,063
|
|
|
$
|
978,235
|
|
The provision for income taxes as shown
in the accompanying consolidated statements of income consists of the following:
|
|
|
Years ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
–
|
|
|
$
|
–
|
|
|
Foreign
|
|
|
602,877
|
|
|
|
138,959
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
|
–
|
|
|
|
–
|
|
|
Foreign
|
|
|
–
|
|
|
|
–
|
|
|
Provision for income taxes
|
|
$
|
602,877
|
|
|
$
|
138,959
|
|
The effective tax rate in the years
presented is the result of the mix of income earned in various tax jurisdictions that apply a broad range of income tax rate.
The Company operates in various countries: United States of America and Hong Kong that are subject to taxes in the jurisdictions
in which they operate, 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 December 31, 2020, the operations
in the United States of America incurred $343,616 of cumulative net operating losses which can be carried forward to offset future
taxable income. The net operating loss carryforwards begin to expire in 2040, if unutilized. The Company has provided for a full
valuation allowance against the deferred tax assets of $72,159 on the expected future tax benefits from the net operating loss
carryforwards as the management believes it is more likely than not that these assets will not be realized in the future.
LUDUSON G INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
(Currency expressed in United States
Dollars (“US$”), except for number of shares)
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.
BVI
Under the current BVI law, the Company
is not subject to tax on income.
Hong Kong
The Company’s subsidiary operating
in Hong Kong is subject to the Hong Kong Profits Tax at the two-tiered profits tax rates from 8.25% to 16.5% on the estimated assessable
profits arising in Hong Kong during the current year, after deducting a tax concession for the tax year. The reconciliation of
income tax rate to the effective income tax rate for the years ended December 31, 2020 and 2019 is as follows:
|
|
|
Years ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Income before income taxes
|
|
$
|
4,590,679
|
|
|
$
|
978,235
|
|
|
Statutory income tax rate
|
|
|
16.5%
|
|
|
|
16.5%
|
|
|
Income tax expense at statutory rate
|
|
|
757,462
|
|
|
|
161,408
|
|
|
Tax effect of non-deductible items
|
|
|
8,067
|
|
|
|
1,055
|
|
|
Tax effect of non-taxable items
|
|
|
(138,797
|
)
|
|
|
(35
|
)
|
|
Tax concession
|
|
|
(23,855
|
)
|
|
|
(23,469
|
)
|
|
Income tax expense
|
|
$
|
602,877
|
|
|
$
|
138,959
|
|
Basic net income per share is computed
using the weighted average number of common shares outstanding during the year. The dilutive effect of potential common shares
outstanding is included in diluted net income per share. The following table sets forth the computation of basic and diluted net
income per share for the years ended December 31, 2020 and 2019:
|
|
|
Years ended December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Net income attributable to common shareholders
|
|
$
|
3,644,186
|
|
|
$
|
839,276
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding – Basic and diluted
|
|
|
20,332,350
|
|
|
|
10,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share – Basic and diluted
|
|
$
|
0.18
|
|
|
$
|
0.08
|
|
LUDUSON G INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
(Currency expressed in United States
Dollars (“US$”), except for number of shares)
The Company is required to make contribution
under a defined contribution pension scheme for all of its eligible employees in Hong Kong. The Company is required to contribute
a specified percentage of the participants' relevant income based on their ages and wages level. The total contributions made were
$1,160 and $0 for the years ended December 31, 2020 and 2019, respectively.
|
13.
|
|
RELATED PARTY TRANSACTIONS
|
Apart from the transactions and balances
detailed elsewhere in these accompanying consolidated financial statements, the Company has no other significant or material related
party transactions during the years presented.
|
14.
|
|
CONCENTRATIONS OF RISK
|
The Company is exposed to the following concentrations of risk:
For the years ended December 31, 2020 and
2019, the individual customer who accounts for 10% or more of the Company’s revenues and its outstanding receivable balances
as at year-end dates, are presented as follows:
|
|
|
Year ended December 31, 2020
|
|
|
December 31, 2020
|
|
|
Customers
|
|
Revenues
|
|
|
Percentage
of revenues
|
|
|
Accounts
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer A
|
|
$
|
3,284,657
|
|
|
|
55%
|
|
|
$
|
2,041,928
|
|
|
Customer B
|
|
|
1,448,086
|
|
|
|
24%
|
|
|
|
1,352,108
|
|
|
Customer C
|
|
|
1,183,637
|
|
|
|
20%
|
|
|
|
1,088,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,916,380
|
|
|
|
99%
|
|
|
$
|
4,482,719
|
|
|
|
|
Year ended December 31, 2019
|
|
|
December 31, 2019
|
|
|
Customers
|
|
Revenues
|
|
|
Percentage
of revenues
|
|
|
Accounts
receivable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer C
|
|
$
|
316,545
|
|
|
|
22%
|
|
|
$
|
132,268
|
|
|
Customer D
|
|
|
256,555
|
|
|
|
18%
|
|
|
|
139,331
|
|
|
Customer A
|
|
|
245,067
|
|
|
|
17%
|
|
|
|
169,508
|
|
|
Customer B
|
|
|
210,604
|
|
|
|
15%
|
|
|
|
94,000
|
|
|
Customer E
|
|
|
185,077
|
|
|
|
13%
|
|
|
|
105,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,213,848
|
|
|
|
85%
|
|
|
$
|
640,408
|
|
All customers are located in the PRC and
Hong Kong.
LUDUSON G INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2020
AND 2019
(Currency expressed in United States
Dollars (“US$”), except for number of shares)
|
(b)
|
|
Economic and political risk
|
The Company’s major operations are
conducted in Hong Kong. Accordingly, the political, economic, and legal environments in Hong Kong, as well as the general state
of Hong Kong’s economy may influence the Company’s business, financial condition, and results of operations.
The Company cannot guarantee that the current
exchange rate will remain steady; therefore there is a possibility that the Company could post the same amount of profit for two
comparable periods and because of the fluctuating exchange rate actually post higher or lower profit depending on exchange rate
of HKD converted to US$ on that date. The exchange rate could fluctuate depending on changes in political and economic environments
without notice.
|
15.
|
|
COMMITMENTS AND CONTINGENCIES
|
As of December 31, 2020, the Company has
no material commitments or contingencies.
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 consolidated financial statements are issued, the Company has evaluated all events or transactions that occurred
after December 31, 2020, up through the date the Company issued the audited consolidated financial statements. The Company determined
that there are no further events to disclose.
[OUTSIDE BACK COVER PAGE]
PROSPECTUS
LUDUSON G INC.
7,100,000 SHARES OF
COMMON STOCK
We have not authorized any dealer,
salesperson or other person to give you written information other than this prospectus or to make representations as to matters not stated
in this prospectus. You must not rely on unauthorized information. This prospectus is not an offer to sell these securities or a solicitation
of your offer to buy the securities in any jurisdiction where that would not be permitted or legal. Neither the delivery of this prospectus
nor any sales made hereunder after the date of this prospectus shall create an implication that the information contained herein nor the
affairs of the Issuer have not changed since the date hereof.
Until ___________, 2022 (90 days after
the date of this prospectus), all dealers that effect transactions in these shares of common stock may be required to deliver a prospectus.
This is in addition to the dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold
allotments or subscriptions.
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the
estimated expenses in connection with the issuance and distribution of the securities being registered hereby. All such expenses will
be borne by the Company; none shall be borne by any Selling Security Holders.
|
Item
|
|
Amount ($)
|
|
|
SEC Registration Fee
|
|
$
|
3,819
|
|
|
Transfer Agent Fees
|
|
|
1,000
|
|
|
Accounting Fees
|
|
|
3,500
|
|
|
Printing Costs
|
|
|
1,500
|
|
|
Legal fees and expenses
|
|
|
30,000
|
|
|
TOTAL
|
|
$
|
39,819
|
|
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Amended Certificate of
Incorporation contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware
law. Consequently, our directors are not personally liable to us or our stockholders for monetary damages for any breach of fiduciary
duties as directors, except for liability:
|
|
·
|
for any breach of their duty of loyalty to our company or our stockholders;
|
|
|
·
|
for any act or omission not in good faith or that involves intentional misconduct or a knowing violation
of law;
|
|
|
·
|
unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174
of the Delaware General Corporation Law; or
|
|
|
·
|
for any transaction from which they derived an improper personal benefit.
|
Any amendment to or repeal
of these provisions will not eliminate or reduce the effect of these provisions in respect of any act, omission, or claim that occurred
or arose prior to that amendment or repeal. If the Delaware General Corporation Law is amended to provide for further limitations on the
personal liability of directors of corporations, then the personal liability of our directors will be further limited to the greatest
extent permitted by the Delaware General Corporation Law.
Our Amended and Restated
Bylaws provide that we will indemnify, to the fullest extent permitted by law, any person who is or was a party or is threatened to be
made a party to any action, suit, or proceeding by reason of the fact that he or she is or was one of our directors or officers or is
or was serving at our request as a director or officer of another corporation, partnership, joint venture, trust, or other enterprise.
Our Amended and Restated Bylaws provide that we may indemnify to the fullest extent permitted by law any person who is or was a party
or is threatened to be made a party to any action, suit, or proceeding by reason of the fact that he or she is or was one of our employees
or agents or is or was serving at our request as an employee or agent of another corporation, partnership, joint venture, trust, or other
enterprise.
We intend to enter into
indemnification agreements with each of our directors and executive officers that are broader than the specific indemnification provisions
contained in the Delaware General Corporation Law. These indemnification agreements may require us, among other things, to indemnify our
directors and executive officers against liabilities that may arise by reason of their status or service. These indemnification agreements
may also require us to advance all expenses incurred by the directors and executive officers in investigating or defending any such action,
suit, or proceeding. We believe that these agreements are necessary to attract and retain qualified individuals to serve as directors
and executive officers.
The limitation of liability
and indemnification provisions in our Amended Certificate of Incorporation and Amended and Restated Bylaws or in any indemnification agreements
may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. They may also reduce the
likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and other
stockholders. Further, a stockholder’s investment may be adversely affected to the extent that we pay the costs of settlement and
damage awards against directors and officers as required by these indemnification provisions. At present, we are not aware of any pending
litigation or proceeding involving any person who is or was one of our directors, officers, employees, or other agents or is or was serving
at our request as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise,
for which indemnification is sought, and we are not aware of any threatened litigation that may result in claims for indemnification.
We expect to obtain insurance
policies under which, subject to the limitations of the policies, coverage is provided to our directors and officers against loss arising
from claims made by reason of breach of fiduciary duty or other wrongful acts as a director or officer, including claims relating to public
securities matters, and to us with respect to payments that may be made by us to these officers and directors pursuant to our indemnification
obligations or otherwise as a matter of law.
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling our company pursuant
to the foregoing provisions, we have been informed that, in the opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
RECENT SALES OF UNREGISTERED SECURITIES
Change
in Control to Lan Chan
On April 3, 2020, the Company,
Linda Masters, our Chief Executive Officer and President, entered into that certain Stock Purchase Agreement (the “SPA”),
pursuant to which Ms. Masters agreed to sell to Lan CHAN 14,960,000 shares of common stock of the Company, par value $0.0001 (the “Shares”),
representing approximately 95.8% of the issued and outstanding common stock of the Company, for aggregate consideration of Three Hundred
Ninety One Thousand Dollars ($391,000) in accordance with the terms and conditions of the SPA. The acquisition of the Shares consummated
on April 15, 2020, and was purchased by Lan CHAN with his personal funds. As a result of the acquisition, Mr. Chan holds a controlling
interest in the Company and may unilaterally determine the election of the Board and other substantive matters requiring approval of the
Company’s stockholders. It is our understanding that the Mr. Chan is not a U.S. Persons within the meaning of Regulations S. Accordingly,
the Shares are being sold pursuant to the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended, Regulation
D and Regulation S promulgated thereunder.
Upon the consummation of the
sale of the Shares, Linda Masters, our Chief Executive Officer, President and director, and Kathleen Chula, our Vice President and Director,
resigned from all of their positions with the Company, effective April 15, 2020. Their resignations were not due to any dispute or disagreement
with the Company on any matter relating to the Company's operations, policies or practices.
Concurrently with such resignations,
Lan CHAN was appointed to serve as the Chief Executive Officer, Chief Financial Officer, President, Secretary and sole Director of the
Company, until the next annual meeting of stockholders of the Company and until such director’s successor is elected and qualified
or until such director’s earlier death, resignation or removal. None of the directors or executive officers has a direct family
relationship with any of the Company’s directors or executive officers, or any person nominated or chosen by the Company to become
a director or executive officer. Mr. Chan will serve in his positions without compensation. The Company hopes to enter into a compensatory
arrangement with each officer in the future.
Acquisition of Luduson
Holding Company Limited
On May 8, 2020, the Company
executed a Share Exchange Agreement (“the “Share Exchange Agreement”) with Luduson Holding Company Limited, a limited
liability company organized under the laws of British Virgin Islands (“LHCL”), and the shareholders of LHCL. Pursuant to the
Share Exchange Agreement, we purchased Ten Thousand (10,000) shares of LHCL (the “LHCL Shares”), representing all of the issued
and outstanding shares of common stock of LHCL. As consideration, we agreed to issue to the shareholders of LHCL Ten Million (10,000,000)
shares of our common stock, at a value of US $0.10 per share, for an aggregate value of US $1,000,000. We consummated the acquisition
of LHCL on May 22, 2020. It is our understanding that the shareholders of LHCL are not U.S. Persons within the meaning of Regulations
S. Accordingly, the Shares are being sold pursuant to the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended,
Regulation D and Regulation S promulgated thereunder. The foregoing description of the Share Exchange Agreement is qualified in its entirety
by reference to such agreement which is filed as Exhibit 10.1 to this Current Report and is incorporated herein by reference.
LHCL is a business-to-business
gaming technology company. As a result of our acquisition of LHCL, we entered into the business-to-business gaming industry.
Investment Agreement with
Strattner Alternative Credit Fund LP
On April 16, 2021, the Company
entered into an Investment Agreement dated as of April 16, 2021 (the “Investment Agreement”) with Strattner. The Investment
Agreement provides that, upon the terms and subject to the conditions set forth therein, Strattner is committed to purchase up to
$5,000,000 worth of the Company’s common stock, $0.001 par value, over the 36-month term of the Investment Agreement. The terms
of the Investment Agreement and its accompanying Registration Rights Agreement are more fully described in the section entitled “Selling
Stockholders” herein.
Equity Purchase Agreement with Williamsburg
Venture Holdings, LLC
The Company is a party to
an Equity Purchase Agreement dated August 20, 2021, pursuant to which (the “Equity Purchase Agreement”) with Williamsburg
pursuant to which Williamsburg is committed to purchase up to $30,000,000 worth of the Company’s common stock, $0.0001 par value,
over the 36-month term of the Equity Purchase Agreement. Additionally, under the Equity Purchase Agreement, the Company paid to Williamsburg
a commitment fee equal in the form of 100,000 restricted shares of the Company’s common stock. The terms of the Equity Purchase
Agreement and its accompanying Registration Rights Agreement are more fully described in the section entitled “Selling Stockholders”
herein.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed as part of this registration statement:
|
Exhibit Number
|
Description
|
|
2.1
|
Plan of Reorganization (1)
|
|
3.1
|
Certificate of Incorporation (1)
|
|
3.2
|
Certificate of Amendment to Certificate of Incorporation (1)
|
|
3.3
|
Certificate of Amendment to Certificate of Incorporation (2)
|
|
3.4
|
Amended and Restated Bylaws (2)
|
|
4.1
|
Form of “A” Common Stock Purchase Warrant (1)
|
|
4.2
|
Form of “B” Common Stock Purchase Warrant (1)
|
|
4.3
|
Form of “C” Common Stock Purchase Warrant (1)
|
|
4.4
|
Form of “D” Common Stock Purchase Warrant (1)
|
|
4.5
|
Form of “E” Common Stock Purchase Warrant (1)
|
|
4.6
|
Description of Securities (3)
|
|
5.1
|
Opinion of Law Offices of Jenny Chen-Drake regarding legality of the securities being registered*
|
|
10.1
|
Lease Agreement, dated December 28, 2018, by and between Luduson Entertainment Limited and Chen Xiu Ying (3)
|
|
10.2
|
Investment
Agreement, dated April 6, 2021, by and between Luduson G Inc., a Nevada corporation, and Strattner Alternative Credit Fund LP, a
Delaware limited partnership (4)
|
|
10.3
|
Registration Rights Agreement, dated April 6, 2021, by and between Luduson G Inc., a Nevada corporation, and Strattner Alternative Credit Fund LP, a Delaware limited partnership (4)
|
|
10.4
|
Equity Purchase Agreement, dated August 20, 2021, by and between Luduson G Inc., a Nevada corporation, and Williamsburg Venture Holdings, LLC (5)
|
|
10.5
|
Registration Rights Agreement, dated August 20, 2021, by and between Luduson G Inc., a Nevada corporation and Williamsburg Venture Holdings, LLC (5)
|
|
22
|
List of Subsidiaries (3)
|
|
23.1
|
Consent of Total Asia Associates PLT**
|
|
23.2
|
Consent of Law Offices of Jenny Chen-Drake (contained in Exhibit 5.1)
|
|
*
|
Previously filed with the Company’s S-1
|
|
**
|
Filed herewith
|
|
(1)
|
Incorporated by reference to the Exhibits to Registration Statement on Form 10 filed with the Securities and Exchange Commission on April 30, 2018.
|
|
(2)
|
Incorporated by reference to the Exhibits to the Definitive Information Statement of Schedule 14C filed with the Securities and Exchange Commission on June 8, 2020.
|
|
(3)
|
Incorporated by reference to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 25, 2021.
|
|
(4)
|
Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on May 26, 2021.
|
|
(5)
|
Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 20, 2021.
|
UNDERTAKINGS
The undersigned Registrant hereby undertakes:
|
(1)
|
To file, during any period in which offers or sales of securities are being made, a post-effective amendment to this registration statement to:
|
|
|
(i)
|
Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
|
|
|
(ii)
|
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) (§230.424(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
|
|
|
(iii)
|
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
|
|
(2)
|
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
|
|
(3)
|
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
|
|
|
|
|
(4)
|
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
|
|
|
(i)
|
If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
|
|
(5)
|
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
|
|
|
(i)
|
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
|
|
|
|
|
|
|
(ii)
|
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
|
|
|
|
|
|
|
(iii)
|
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or our securities provided by or on behalf of the undersigned registrant; and
|
|
|
|
|
|
|
(iv)
|
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
|
Insofar as indemnification for liabilities
arising under the Securities Act of 1933 (the “Act”) may be permitted to our directors, officers and controlling persons pursuant
to the provisions above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy
as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification
against such liabilities, other than the payment by us of expenses incurred or paid by one of our directors, officers, or controlling
persons in the successful defense of any action, suit or proceeding, is asserted by one of our directors, officers, or controlling persons
in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification is against public policy as expressed
in the Securities Act, and we will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly
authorized in Hong Kong, on December 28, 2021.
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LUDUSON G INC.
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(Name of Registrant)
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By:
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/s/ Ka Leung Wong
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Name:
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Ka Leung Wong
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Title:
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Chief Executive Officer
(principal executive officer)
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By:
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/s/ Lan Chan
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Name:
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Lan Chan
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Title:
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Chief Financial Officer
(principal accounting officer and principal financial officer)
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POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each
person whose signature appears below constitutes and appoints Ka Leung Wong, as her true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for him and in her name, place and stead, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to this Registration Statement on Form S-1 of Luduson G Inc., and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and Exchange Commission, grant unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the foregoing,
as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact
and agent, or her substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities
Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates stated.
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Dated: December 27, 2021
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By:
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/s/ Ka Leung Wong
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Name:
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Ka Leung Wong
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Title:
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Chief Executive Officer
(principal executive officer)
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Dated: December 27, 2021
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By:
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/s/ Lan Chan
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Name:
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Lan Chan
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Title:
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Chief Financial Officer (principal accounting officer
and principal financial officer)
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Luduson G (PK) (USOTC:LDSN)
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