LUDUSON G INC. 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 endedDecember 31, 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 ofthe United States . References to "Hong Kong Dollar" are to the Hong Kong Dollar, the legal currency of theHong Kong Special Administrative Region ofthe People's Republic of China . Throughout this report, assets and liabilities of the Company's subsidiaries are translated intoU.S. dollars using the exchange rate on the balance sheet date. Revenue and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income within the statement of stockholders' equity.
Impact of COVID-19 on our business
The outbreak of COVID-19 that started in lateJanuary 2020 in the PRC has negatively affected our business. InMarch 2020 , theWorld Health Organization declared COVID-19 as a pandemic and has resulted in quarantines, travel restrictions, and the temporary closure of stores and business facilities inChina and theU.S. in the subsequent months. Given the rapidly expanding nature of the COVID-19 pandemic, and because substantially all of the Company's business operations and its workforce are concentrated inChina , the Company's business, results of operations, and financial condition for calendar year
2020 have been adversely affected.
Management believes that COVID-19 could continue to have a material impact on its financial results for the first half of calendar year 2021 and could cause the potential impairment of certain assets. To mitigate the overall financial impact of COVID-19 on the Company's business, management has worked closely with its service centers to enhance their marketing and promotion activities during the second quarter of 2021 that were designed to generate sales in the second, third and fourth quarters of 2021. To resume normal operations in the second quarter of 2021, we believe that the Company can generate sufficient cash flow over the next 12 months to implement the revised business plan. Results of Operations
We are not required to obtain permission from the Chinese authorities to operate or to issue securities to foreign investors.
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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 endedDecember 31, 2021 , 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 inHong 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 2021. 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 years ended
The following table sets forth certain operational data for the years endedDecember 31, 2021 and 2020: Years ended December 31, 2021 2020 Revenues, net$ 1,001,438 $ 5,935,720 Cost of revenue (230,840 ) (1,027,662 ) Gross profit 770,598 4,908,058 Total operating expenses (5,214,194 ) (659,097 ) Other (expenses) income - (1,898
(Loss) income before Income Taxes (4,443,596 )
4,247,063 Income tax expense (90,993 ) (602,877 ) Net (loss) income$ (4,534,589 ) $ 3,644,186 Net (loss) income (excluding stock-based compensation expense) (4,534,589 ) 3,969,186 Revenue. We generated revenues of$1,001,438 and$5,935,720 for the years endedDecember 31, 2021 and 2020. The significant decrease is due to the decrease in business volume due to downturn economy under the pandemic, respectively.
During the year ended
Accounts
Revenues Percentages of Receivable
(US$) Revenues (US$)
Ease Audio Group Limited $ 693,304 70% $ 2,427,487
Yu Lin Nuo Ya Interactive Entertainment
Company Limited 154,067 15%1,509,812
Shenzhen Jiu Sheng Optoelectronic Comm
Tech Co., Ltd 154,067 15% 1,164,531
Total: $ 1,001,438 100% $ 5,101,830
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During the year ended
Accounts
Revenues Percentages of Receivable
(US$) Revenues (US$)
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 All customers are located in the PRC and
Cost of Revenue. Cost of revenue for the year endedDecember 31, 2021 was$230,840 , and as a percentage of net revenue, approximately 23.0%. Cost of revenue for the year endedDecember 31, 2020 was$1,027,662 , and as a percentage of net revenue, approximately 17.3%. Cost of revenue decreased primarily as a result of the decrease in our business volume.
Gross Profit. We achieved a gross profit of
Operating Expenses. We incurred operating expenses of$5,214,194 and$659,097 for the years endedDecember 31, 2021 , and 2020, respectively. Operating expenses for the year endedDecember 31, 2021 , consisted of$4,977,996 in allowance for doubtful accounts,$88,932 of professional fees and$147,266 of general and administrative expenses. Operating expenses for the year endedDecember 31, 2020 , consisted solely of general and administrative expenses. Operating expenses for the year endedDecember 31, 2020 , consisted of$325,000 in share based compensation,$127,416 of professional fees,$95,283 of payroll expenses and$111,398 of general and administrative expenses. The increase in general and administrative expenses is attributable to a significant allowance for doubtful accounts.
Income Tax Expense. Our income tax expenses for the years ended
Net Income. We incurred a net loss of$4,534,589 and a net income of$3,644,186 for the years endedDecember 31, 2021 and 2020, respectively. The decrease in net income is primarily attributable to the decrease in our business volume and a significant allowance for doubtful accounts.
Liquidity and Capital Resources
As ofDecember 31, 2021 , we had cash and cash equivalents of$290 , net accounts receivable of$129,150 , deposits, prepayments and other receivables of$827,971 and debt discount of$700,000 . As ofDecember 31, 2020 , we had cash and cash equivalents of$40,447 , accounts receivable of$4,499,746 , and deposits, prepayments and other receivables of$665,052 . Years endedDecember 31, 2021 2020
Net cash (used in) provided by operating activities
- (462,109 )
Net cash used in financing activities (14,560 ) (195,154 ) 44
Net Cash Provided by Operating Activities.
For the year endedDecember 31, 2021 , net cash used in operating activities was$4,982 , which consisted primarily of net loss of$4,534,589 , depreciation of plant and equipment of$157,487 , allowance for doubtful accounts of$4,977,996 and an increase of accrued expenses and other payables of$77,805 and tax payable of$86,638 , offset by an increase in accounts receivable of$607,400 , an increase in deposits, prepayments and other receivables of$162,919 . For the year endedDecember 31, 2020 , net cash provided by operating activities was$422,904 , 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
For the year ended
For the year ended
For the year endedDecember 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.
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.
Material Cash Requirements We have not achieved profitability during this year and we expect to continue to incur net losses for the foreseeable future. We expect net cash expended in 2022 to be slightly lower than 2021. As ofDecember 31, 2021 , we had the accumulated loss of$51,127 . Our material cash requirements are highly dependent upon the additional financial support from our major shareholders in the next 12 - 18 months. We had the following contractual obligations and commercial commitments as ofDecember 31, 2021 : Less than More than 5
Contractual Obligations Total 1 year 1-3 Years 3-5 Years Years
$ $ $ $ $
Amount due to director 13,730 13,730 - - -
Commercial commitments
Bank loan repayment - - - - -
Tax payable 830,200 830,200 - - -
Total obligations 843,930 843,930 - - -
Going Concern
The consolidated financial statements contain an explanatory paragraph
expressing substantial doubt about our ability to continue operating as a going
concern. The consolidated financial statements have been prepared "assuming that
we will continue as a going concern," which states that we will realize our
assets and satisfy any liabilities and commitments in the ordinary course of
business. Our continuation as a going concern is dependent upon improving our
profitability and the continuing financial support from our stockholders. Our
sources of capital may include the sale of equity securities, which include
common stock sold in private transactions, capital leases and short-term and
long-term debts. While we believe that we will obtain external financing and the
existing shareholders will continue to provide the additional cash to meet our
obligations as they become due, there can be no assurance that we will be able
to raise such additional capital resources on satisfactory terms. We believe
that our current cash and other sources of liquidity discussed below are
adequate to support operations for at least the next 12 months.
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We require additional funding to meet its ongoing obligations and to fund
anticipated operating losses. Our auditor has expressed substantial doubt about
our ability to continue as a going concern. Our ability to continue as a going
concern is dependent on raising capital to fund its initial business plan and
ultimately to attain profitable operations. These consolidated financial
statements do not include any adjustments to reflect the possible future effects
on the recoverability and classification of assets and liabilities that may
result in the Company not being able to continue as a going concern.
We expect to incur marketing and professional and administrative expenses as
well expenses associated with maintaining our filings with the Commission. We
will need to raise funds to fund our ongoing operational expenses. Additional
funding will likely come from equity financing from the sale of our common
stock. If we are successful in completing equity financing, existing
shareholders will experience dilution of their interest in the Company. We do
not have any financing arranged and we cannot provide investors with any
assurance that we will be able to raise sufficient funding from the sale of our
common stock to fund our 12-month plan of operation and ongoing operational
expenses. In the absence of such financing, our business will likely fail. There
are no assurances that we will be able to achieve further sales of our common
stock or any other form of additional financing. If we are unable to achieve the
financing necessary to continue our plan of operations, then we will not be able
to continue our 12-month plan of operation and our business will fail.
If we cannot raise additional funds, we will have to cease business operations. As a result, our common stock investors would lose all of their investment.
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
We prepare our financial statements in conformity with accounting principles generally accepted bythe United States of America ("U.S. GAAP"), which require us to make judgments, estimates, and assumptions that affect our reported amount of assets, liabilities, revenue, costs and expenses, and any related disclosures. Although there were no material changes made to the accounting estimates and assumptions in the past three years, we continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from our expectations as a result of changes in our estimates. We believe that our accounting policies involve a higher degree of judgment and complexity in their application and require us to make significant accounting estimates. Accordingly, the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations are summarized in "Note 3 - Summary of Significant Accounting Policies" in the notes to our consolidated financial statements.
Recent Accounting Pronouncements
See "Note 2 - Summary of Significant Accounting Policies" in the notes to our consolidated financial statements for a discussion of recent accounting pronouncements.
The Company believes that other recent accounting pronouncement will not have a material effect on the Company's consolidated financial position, results of operations and cash flows.
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