Luduson G (LDSN) Risk Analysis
Risk Overview Q3, 2024
Source: the company's latest filing for the period ended Sep 30, 2024, filed Oct 31, 2024
Risk Change Over Time
- Share Price & Shareholder Rights - Risk 1Lan 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:
- Election of our board of directors; - Removal of any of our directors or officers; - Amendment of our Amended Certificate of Incorporation or Bylaws; - Adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination involving us. 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.
- Accounting & Financial Operations - Risk 2Other 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: - changes in, or interpretations of, laws and regulations including changes in accounting standards and taxation requirements; - changes in the rate of inflation, interest rates and the performance of investments held by us; - changes in the creditworthiness of counterparties that transact business with; - 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; - 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; - 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; - changes in credit markets impacting our ability to obtain financing for our business operations; or - 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.
- Debt & Financing - Risk 3We 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.
- Corporate Activity and Growth - Risk 4We 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: - Implementation or remediation of controls, procedures, and policies at the acquired company; - Diversion of management time and focus from operating our business to acquisition integration challenges; - Cultural challenges associated with integrating employees from the acquired company into our organization; - Retention of employees from the businesses we acquire; - Integration of the acquired company's accounting, management information, human resource, and other administrative systems; - 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; - Litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former stockholders, or other third parties; - 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 - Failure to successfully further develop the acquired product, service or technology. 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.
Risk Highlights Q3, 2024
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 28
- Share Price & Shareholder Rights - Risk 1Because 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.
- Share Price & Shareholder Rights - Risk 2Certain 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, Strattner and Williamsburg, or 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.
- Share Price & Shareholder Rights - Risk 3FINRA 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.
- Share Price & Shareholder Rights - Risk 4It 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.
- Share Price & Shareholder Rights - Risk 5The 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 the Accelerating Holdings Foreign Companies Accountable Act 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, thus reducing the time before our securities may be prohibited from trading or delisted. 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.
- Share Price & Shareholder Rights - Risk 6The 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: - actual or anticipated variations in our quarterly and annual operating results, financial condition or asset quality; - changes in general economic or business conditions, both domestically and internationally; - 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; - the number of securities analysts covering us; - 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; - changes in market valuations or earnings of companies that investors deemed comparable to us; - the average daily trading volume of our common stock; - future issuances of our common stock or other securities; - additions or departures of key personnel; - perceptions in the marketplace regarding our competitors and/or us; - significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving our competitors or us; and - other news, announcements or disclosures (whether by us or others) related to us, our competitors, our core market or the financial services industry. 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.
- Share Price & Shareholder Rights - Risk 7The 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: - Control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; - Manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; - "Boiler room" practices involving high pressure sales tactics and unrealistic price projections by sales persons; - Excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and - 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.
- Share Price & Shareholder Rights - Risk 8Future 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.
- Share Price & Shareholder Rights - Risk 9The 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.
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