UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File Number: 000-51693
| UAN Cultural & Creative Co., Ltd. |
| (Exact name of registrant as specified in our charter) |
|
Delaware (State or other jurisdiction of incorporation or organization) |
20-3303304 (I.R.S. Employer Identification No.)
| |
|
1021 Hill Street, Suite 200, Three Rivers, Michigan (Address of principal executive offices) |
49093 (Zip Code) |
| (586) 530-5605 |
| (Registrant’s telephone number, including area code) |
| (Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on our corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| ☐ Large Accelerated Filer | ☐ Accelerated Filer | ||
| ☐ Non-accelerated Filer | ☒ Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of May 14, 2012, there were 53,672,708 shares of the registrant’s Common Stock outstanding.
UAN CULTURAL & CREATIVE CO., LTD.
TABLE OF CONTENTS
| Page | ||
| PART I. | FINANCIAL INFORMATION | |
| Item 1. | Financial Statements | 3 |
| Balance Sheets at March 31, 2012 (unaudited) and December 31, 2011 (audited) | 3 | |
| Statements of Operations for the three months ended March 31, 2012 and 2011 (unaudited) | 4 | |
| Statement of Stockholders’ Equity (Deficit) for the period from December 31, 2011 (audited) to the three months ended March 31, 2012 (unaudited) | 5 | |
| Statements of Cash Flows for the three months ended March 31, 2012 and 2011 (unaudited) | 6 | |
| Notes to Financial Statements | 7 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 17 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 20 |
| Item 4. | Controls and Procedures | 20 |
| PART II. | OTHER INFORMATION | 21 |
| Item 1. | Legal Proceedings | 21 |
| Item 1A. | Risk Factors | 21 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 21 |
| Item 3. | Defaults Upon Senior Securities | 21 |
| Item 4. | Mine Safety Disclosures | 21 |
| Item 5. | Other Information | 21 |
| Item 6. | Exhibits | 21 |
| Signatures | 22 |
PART I
Item 1. Financial Statements
UAN Cultural & Creative Co., Ltd.
Balance Sheets
| March 31, 2012 | December 31, 2011 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 231,254 | $ | 441,448 | ||||
| Accounts and notes receivable | 182,247 | 307,793 | ||||||
| Inventory | 267,052 | 441,607 | ||||||
| Other current assets | 106,467 | 118,933 | ||||||
| Total current assets | 787,019 | 1,309,781 | ||||||
| Fixed assets, net (Note 4) | 142,656 | 74,900 | ||||||
| Other assets | 100,088 | 68,268 | ||||||
| Total assets | $ | 1,029,763 | $ | 1,452,949 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 61,450 | $ | 93,206 | ||||
| Accrued expenses | 18,644 | 123,974 | ||||||
| Notes payable | 101,516 | 39,645 | ||||||
| Deposit from customers | 18,648 | 31,925 | ||||||
| Other payables | 4,219 | 6,457 | ||||||
| Demand Notes Payable to shareholder (Note 7 and 10) | - | - | ||||||
| Due to officer & shareholder (Note 10) | 26,093 | 99,991 | ||||||
| Income Taxes Payable (Note 5) | 32,628 | 31,510 | ||||||
| Total current liabilities | 263,199 | 426,708 | ||||||
| Long Term Notes Payable | 52,365 | 58,998 | ||||||
| Total liabilities | 315,564 | 485,706 | ||||||
| Commitments & Contingencies (Note 6) | - | - | ||||||
| Stockholders' Equity (Notes 2, 8 and 9): | ||||||||
| Preferred stock, $.0001 par value, 5,000 shares authorized, 0 shares issued | - | - | ||||||
| Common stock, $.0001 par value, 100,000,000 shares authorized, 53,672,708 shares issued and outstanding on December 31, 2011 and December 31, 2010. | 5,367 | 5,367 | ||||||
| Common stock, Class B, $.0001 par value,12,000,000 shares authorized, 0 shares issued and outstanding | - | - | ||||||
| Additional paid-in-capital | 3,048,134 | 3,048,134 | ||||||
| Accumulated deficit | (2,339,675 | ) | (2,074,530 | ) | ||||
| Accumulated other comprehensivce income (loss) | 373 | (11,728 | ) | |||||
| Total stockholders' equity | 714,199 | 967,243 | ||||||
| Total liabilities and stockholders' equity | $ | 1,029,763 | $ | 1,452,949 | ||||
| See accompanying notes to financial statements. | ||||||||
| 3 |
UAN Cultural & Creative Co., Ltd.
Statements of Operations and Comprehensive Income (Loss)
(Unaudited)
| For the three months ended | ||||||||
| March 31, 2012 | March 31, 2011 | |||||||
| Revenue | $ | 235,140 | $ | 316,882 | ||||
| Cost of Sales | 241,955 | 38,844 | ||||||
| Gross Profit (Loss) | $ | (6,816 | ) | $ | 278,038 | |||
| Operating expenses: | ||||||||
| Selling, general & administrative expenses | 253,877 | 195,069 | ||||||
| Total operating expenses | 253,877 | 195,069 | ||||||
| Income (Loss) from operations | (260,693 | ) | 82,969 | |||||
| Other income/(expenses) | ||||||||
| Interest expense, net | (6,681 | ) | (3,945 | ) | ||||
| Other gains, net | 2,229 | - | ||||||
| Total other expenses | (4,451 | ) | (3,945 | ) | ||||
| Income (Loss) before provision for income taxes | (265,144 | ) | 79,024 | |||||
| Provision for income taxes (Note 5) | - | 24,194 | ||||||
| Net Income (Loss) | $ | (265,144 | ) | $ | 54,830 | |||
| Weighted average number of common shares outstanding, basic | 53,672,708 | 53,552,708 | ||||||
| Net Income (Loss) per share, basic | $ | (0.005 | ) | $ | 0.003 | |||
| Weighted average number of common shares outstanding, diluted | 53,672,708 | 53,552,708 | ||||||
| Net Income (Loss) per share, diluted | $ | (0.005 | ) | $ | 0.003 | |||
| Comprehensive Income (Loss) | ||||||||
| Net income (loss) | $ | (265,144 | ) | $ | 54,830 | |||
| Foreign currency translation gain (loss) | 12,101 | (786 | ) | |||||
| Comprehensive income (loss) | $ | (253,043 | ) | $ | 54,044 | |||
| See accompanying notes to financial statements. | ||||||||
| 4 |
UAN Cultural & Creative Co., Ltd.
Statements of Stockholders Equity (Deficit)
| Common Stock, | Additional | Accumulated | Accumulated Other | |||||||||||||||||||||||||||||||||
| Common Stock | Class B | Paid-In | Treasury | Earnings | Comprehensive | |||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | (deficit) | Income (Loss) | Total | ||||||||||||||||||||||||||||
| Balance, December 31, 2010 | 53,672,708 | $ | 5,367 | - | $ | - | $ | 3,078,134 | $ | (30,000 | ) | $ | (2,244,587 | ) | $ | - | $ | 808,914 | ||||||||||||||||||
| Retirement of treasury stock | $ | (30,000 | ) | $ | 30,000 | - | ||||||||||||||||||||||||||||||
| Net income for the period | 170,057 | 170,057 | ||||||||||||||||||||||||||||||||||
| Foreign currency translation loss | (11,728 | ) | (11,728 | ) | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2011 | 53,672,708 | $ | 5,367 | - | $ | - | $ | 3,048,134 | $ | - | $ | (2,074,530 | ) | $ | (11,728 | ) | $ | 967,243 | ||||||||||||||||||
| Net loss for the period | (265,144 | ) | (265,144 | ) | ||||||||||||||||||||||||||||||||
| Foreign currency translation gain | 12,101 | 12,101 | ||||||||||||||||||||||||||||||||||
| Balance, March 31, 2012 (unaduited) | 53,672,708 | $ | 5,367 | - | $ | - | $ | 3,048,134 | $ | - | $ | (2,339,674 | ) | $ | 373 | $ | 714,199 | |||||||||||||||||||
| See accompanying notes to financial statements. | ||||||||||||||||||||||||||||||||||||
| 5 |
UAN Cultural & Creative Co., Ltd.
Statement of Cash Flows
(Unaudited)
| For the three months ended | ||||||||
| March 31, 2012 | March 31, 2011 | |||||||
| Cash Flows from Operating Activities | ||||||||
| Net income (loss) for the period | $ | (265,144 | ) | $ | 54,830 | |||
| Depreciation and amortization expense | 28,894 | 30,678 | ||||||
| Adjustments to reconcile net (loss) to net cash used in operating activities: | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease in accounts and notes receivable | 125,546 | - | ||||||
| Decrease in inventory | 174,555 | - | ||||||
| (Increase) in other assets | (19,354 | ) | (9,774 | ) | ||||
| Increase (Decrease) in accounts payable & accrued expenses | (137,086 | ) | 54,810 | |||||
| Increase in notes payable | 55,238 | - | ||||||
| (Decrease) in deposit from customers | (13,277 | ) | - | |||||
| (Decrease) in other payables | (2,238 | ) | - | |||||
| Increase in income tax payables | 1,118 | - | ||||||
| Net cash used in operating activities | (51,748 | ) | 130,544 | |||||
| Cash Flows from Investing Activities | ||||||||
| Purchase of leasehold improvements | (96,875 | ) | - | |||||
| Net cash used by investing activities | (96,875 | ) | - | |||||
| Cash Flows from Financing Activities | ||||||||
| Advances from shareholders & officers | (73,898 | ) | 5,494 | |||||
| Net cash provided by financing activities | (73,898 | ) | 5,494 | |||||
| Effect of exchange rate change on cash | 12,327 | (786 | ) | |||||
| Net increase (decrease) in cash and cash equivalents | (210,194 | ) | 135,252 | |||||
| Cash and cash equivalents | ||||||||
| Beginning of period | 441,448 | 377,433 | ||||||
| End of period | $ | 231,254 | $ | 512,685 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Interest paid | $ | 27,317 | $ | - | ||||
| Income taxes paid | $ | - | $ | - | ||||
| See accompanying notes to financial statements. | ||||||||
| 6 |
UAN CULTURAL & CREATIVE CO., LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1—ORGANIZATION AND BUSINESS OPERATIONS
UAN Cultural & Creative Co., Ltd. (formerly named Good Harbor Partners Acquisition Corp.) (the “Company”) was incorporated in Delaware on August 10, 2005 to serve as a vehicle to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an operating business in the security industry. The registration statement for the Company’s initial public offering (the “Offering”) was declared effective on March 8, 2006. The net proceeds of the offering were segregated in a trust account and the Company was obligated to return the segregated funds to the investors in the event it did not complete a business combination within 18 months (24 months, under certain circumstances). On November 15, 2007, the Company announced the termination of its previously announced letters of intent for business combinations in the security industry. Because the Company had not completed any business combination within the required time period, the Company liquidated the segregated funds held in the trust account, returned the funds to the investors, redeemed the Class B Common Stock the investors acquired in the Offering and reconstituted the Company as an ongoing business corporation. As a result of the foregoing, the Company became a public shell company.
On June 30, 2010, a change of control of the Company occurred when eight purchasers acquired an aggregate of approximately 95.6% of the outstanding voting Common Stock of the Company. In connection with these transactions, the Company’s Board of Directors was reconstituted, and the Company initiated a new business plan involving the sale and appraisal of authentic and high quality works of art, primarily paintings, initially in Taiwan.
NOTE 2—OFFERING
In the Offering, effective March 8, 2006, the Company sold to the public an aggregate of 575,000 Series A Units and 5,290,000 Series B Units at a price of $8.50 and $10.10 per unit pre reverse split, respectively. Proceeds from the initial public offering totaled approximately $54.9 million, which was net of approximately $3.4 million in underwriting and other expenses. Each Series A Unit consists of two shares of the Company's common stock, and ten Class Z Warrants (a “Class Z Warrant”). Each Series B Unit consists of two shares of the Company's Class B common stock, and two Class W Warrants (a “Class W Warrant”).
The Class Z Warrants will expire on March 7, 2013 or earlier upon redemption. The Class W Warrants expired on March 7, 2011. The Company may redeem the outstanding Class Z Warrants with the prior consent of HCFP/Brenner Securities LLC (“HCFP”), the representative of the underwriters of the Offering, in whole and not in part, at a price of $.05 per warrant at any time after the warrants become exercisable, upon a minimum of 30 days' prior written notice of redemption, and if, and only if, the last sale price of the Company’s common stock equals or exceeds $87.50 per share for a Class Z Warrant for any 20 trading days within a 30 trading day period ending three business days before the Company sent the notice of redemption.
At the closing of this offering, the Company sold to HCFP the underwriters for an aggregate of $100, an option (the “Underwriter's Purchase Option” or “UPO”) to purchase up to a total of 25,000 additional Series A Units and/or 230,000 additional Series B Units. The UPO expired on March 7, 2011.
The exercise price and number of shares of Common Stock issuable on exercise of the Class W warrants and Class Z warrants may be adjusted in certain circumstances including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation. Such adjustment occurred as a result of the one-for-ten reverse split of the Company’s Common Stock effected on August 27, 2010 (the “Reverse Split”) and the number of shares of Common Stock purchasable under the Class Z warrants reduced tenfold and the exercise prices increased tenfold. However, the Class Z warrants will not be adjusted for issuances of Common Stock at a price below their respective exercise prices.
| 7 |
NOTE 3—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company has prepared the accompanying financial statements in conformity with accounting principles generally accepted in the United States of America.
Interim financial statements
The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the Company’s audited financial statements and footnotes thereto for the year ended December 31, 2011, included in the Company’s Form 10-K filed on April 13, 2012. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The financial statements reflect all adjustments (consisting primarily of normal recurring adjustments) that are, in the opinion of management necessary for a fair presentation of the Company’s financial position and results of operations. The operating results for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for any other interim period of a future year.
RECLASSIFICATION
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses.
USE OF ESTIMATES
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are deposits in financial institutions as well as short-term money market instruments with maturities of three months or less when purchased.
ACCOUNTS AND NOTES RECEIVABLE
These amounts represent sales to customers in the ordinary course of business. Ninety percent of the notes receivable are due within 90 days and the remainder balance within one year.
INVENTORY
Inventory consists principally of finished art pieces held for sale valued at the specific-cost to purchase each piece. The Company accounts for inventory at the lower of the specifically-identified-cost of each piece (or average cost per piece when purchased in lots of two or greater) or net realizable value. As art is sold, amounts removed from inventory are the same specific cost values at the time of purchase.
| 8 |
FIXED ASSETS, NET
Leasehold improvements are recorded at cost and are amortized over the length of lease which is a two-year period beginning in August 2010. Machinery and equipment are amortized on a straight-line basis over a three to five year period.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets for impairment by comparison of the carrying amounts to future net undiscounted cash flows expected to be generated by such assets when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Should an impairment exist, the impairment loss would be measured based on the excess carrying value of the asset over the asset’s fair value or estimates of future discounted cash flows. The Company has not identified any such impairment losses to date.
NOTES PAYABLE
Notes payable are amounts due to vendors or service providers which are classified into current and non-current portion based on its maturity date. These notes are non-interest.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. However, management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
COMPREHENSIVE INCOME
The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 220, “Comprehensive Income,” which establishes standards for reporting and presentation of comprehensive income (loss) and its components in a full set of general-purpose financial statements. The Company has chosen to report comprehensive income (loss) in the statements of income and comprehensive income. Comprehensive income (loss) is comprised of net income and all changes to stockholders’ equity except those due to investments by owners and distributions to owners.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average common shares outstanding for the period and Class B common stock outstanding prior to its redemption. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The average market price of the common shares is below the exercise price of the outstanding warrants therefore not included in the calculation for dilutive share.
| 9 |
The computation of basic and diluted earnings (loss) per share for the three months ended March 31, 2012 and 2011is as follows:
| 2012 | 2011 | |||||||
| Numerator: | ||||||||
| Net Income/(Loss) | $ | (265,144 | ) | $ | 54,830 | |||
| Denominator | ||||||||
| Weighted average common shares outstanding – basic | 53,672,708 | 53,552,708 | ||||||
| Dilution associated with class Z warrants | - | - | ||||||
| Weighted average common share outstanding – diluted | 53,672,708 | 53,552,708 | ||||||
| Basic earnings (loss) per share | $ | (0.005 | ) | $ | 0.001 | |||
| Diluted earnings (loss) per share | $ | (0.005 | ) | $ | 0.001 | |||
FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB ASC Topic 820, “Fair Value measurement and Disclosures”, an Accounting Standard Update. In September 2009, the FASB issued this Update to amendments to Subtopic 820-10, “Fair Value Measurements and Disclosures”. Overall, for the fair value measurement of investments in certain entities that calculates net asset value per share (or its equivalent). The amendments in this Update permit, as a practical expedient, a reporting entity to measure the fair value of an investment that is within the scope of the amendments in this Update on the basis of the net asset value per share of the investment (or its equivalent) if the net asset value of the investment (or its equivalent) is calculated in a manner consistent with the measurement principles of Topic 946 as of the reporting entity’s measurement date, including measurement of all or substantially all of the underlying investments of the investee in accordance with Topic 820. The amendments in this Update also require disclosures by major category of investment about the attributes of investments within the scope of the amendments in this Update, such as the nature of any restrictions on the investor’s ability to redeem its investments at the measurement date, any unfunded commitments (for example, a contractual commitment by the investor to invest a specified amount of additional capital at a future date to fund investments that will be made by the investee), and the investment strategies of the investees. The major category of investment is required to be determined on the basis of the nature and risks of the investment in a manner consistent with the guidance for major security types in GAAP on investments in debt and equity securities in paragraph 320-10-50-lB. The disclosures are required for all investments within the scope of the amendments in this Update regardless of whether the fair value of the investment is measured using the practical expedient. The amendments in this Update apply to all reporting entities that hold an investment that is required or permitted to be measured or disclosed at fair value on a recurring or non recurring basis and, as of the reporting entity’s measurement date, if the investment meets certain criteria The amendments in this Update are effective for the interim and annual periods ending after December 15, 2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued.
REVENUES
The Company has two principal sources of revenue. Revenues related to the direct sale of art pieces from inventory and commissions on sale of art pieces sold on a consignment basis. The Company recognizes revenues at the time goods are delivered to the customers.
For the three months ended March 31, 2012, sixty-three (63) pieces of arts were sold from the inventory.
ADVERTISING COSTS
The advertising costs are expensed as incurred and included in selling, general and administrative expenses. The Company incurred advertising expense of $35,644 and $3,886 for the three months ended March 31, 2012 and 2011, respectively.
| 10 |
SEGMENT REPORTING AND GEOGRAPHIC INFORMATION
The Company reports all operations under one business segment, the sale of works of art. Three customers accounted for 94% of the Company’s revenues for three months ended March 31, 2012. The Company generated 100% of revenues for the three months ended March 31, 2011 through one Taiwan distributor. All sales revenues were generated in Taiwan. The following table sets forth information as to the revenue derived from those customers that accounted for more than 10% of our revenue for the three months ended March 31, 2012 and 2011:
| 2012 | 2011 | |||||||||||||||
| Largest Customers | ||||||||||||||||
| Espoir | $ | 77,042 | 33% | $ | 316,882 | 100% | ||||||||||
| Andwin | 48,151 | 20% | - | 0% | ||||||||||||
| Roundex | 96,303 | 41% | - | 0% | ||||||||||||
| Others | 13,644 | 6% | - | 0% | ||||||||||||
| Total revenues | $ | 235,140 | 100% | $ | 316,882 | 100% | ||||||||||
| Sales By Region: | ||||||||||||||||
| Taiwan | 100% | 100% | ||||||||||||||
FOREIGN CURRENCY TRANSLATIONS
The functional currency of the Company's branch in Taiwan is the New Taiwan Dollar (“TWD”) and its reporting currency is the U.S. dollar. Transactions denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the date of the transactions. Exchange gains or losses on transactions are included in earnings.
The combined financial statements of the Company are translated into U.S. dollars in accordance with the standard, “Foreign Currency Translation,” codified in ASC 830, using rates of exchange at the end of the period for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for equity. Translation adjustments resulting from the process of translating the local currency combining financial statements into U.S. dollars are included in determining comprehensive income. At March 31, 2012, the cumulative translation adjustments of $373, were classified as items of accumulated other comprehensive income in the stockholders’ equity section of the balance sheet. For the three months ended March 31, 2012, other comprehensive income was $12,101.
The exchange rates used to translate amounts in TWD into U.S. dollars for the purposes of preparing the combined financial statements were as follows: As of March 31, 2012, the Company used the spot rates of exchange for assets and liabilities of $1.00 US to TWD 29.49. For the three months ended March 31, 2012, the Company used the period’s average rate of exchange to convert revenues, costs, and expenses of $1.00 US to TWD 29.71. The Company used historical rates for equity.
INCOME TAXES
The Company accounts for income taxes following the liability method pursuant to FASB ASC 740 “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in income in the period that includes the enactment date.
The Company accounts for uncertainty in income taxes in accordance with FASB ASC 740-10 “Income Taxes-Overall”. The Company has elected to classify interest and penalties related to an uncertain position, if and when required, as part of interest expenses and other expenses, respectively, in the consolidated statements of income and comprehensive income.
| 11 |
NEW ACCOUNTING PRONOUNCEMENTS
In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." This standard clarifies guidance on how to measure fair value and is largely consistent with existing fair value measurement principles. The ASU also expands existing disclosure requirements for fair value measurements and makes other amendments. For the Company, this ASU is effective prospectively beginning January 1, 2012. The adoption of this standard did not have a material impact on the Company’s consolidated results of operations or financial condition.
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” This standard requires entities to present items of net income and other comprehensive income either in a single continuous statement, or in separate, but consecutive, statements of net income and other comprehensive income. The new requirements do not change which components of comprehensive income are recognized in net income or other comprehensive income, or when an item of other comprehensive income must be reclassified to net income. Also, the earnings-per share computation does not change. However, the current option under existing standards to report other comprehensive income and its components in the statement of changes in equity is eliminated. In addition, the previous option to disclose reclassification adjustments in the notes to the financial statements is also eliminated, as reclassification adjustments will be required to be shown on the face of the statement under the new standard. For the Company, this ASU is effective retrospectively beginning January 1, 2012, with early adoption permitted. Since this standard impacts disclosure requirements only, its adoption did not have a material impact on the Company’s consolidated results of operations or financial condition.
In December 2011, the FASB issued ASU No. 2011-11, “Disclosures About Offsetting Assets and Liabilities,” which creates new disclosure requirements regarding the nature of an entity’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. Certain disclosures of the amounts of certain instruments subject to enforceable master netting arrangements or similar agreements would be required, irrespective of whether the entity has elected to offset those instruments in the statement of financial position. The ASU is effective January 1, 2013 with retrospective application required. Since this standard impacts disclosure requirements only, its adoption will not have a material impact on the Company’s results of operations or financial condition.
In December 2011, the FASB released Accounting Standards Update No. 2011-12 (“ASU 2011-12”), “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” ASU 2011-12 defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The provisions of ASU 2011-12 became effective in fiscal years beginning after December 15, 2011. The adoption of ASU 2011-12 did not materially impact our financial statements.
The Company believes that there were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.
| 12 |
NOTE 4 – FIXED ASSETS, NET
The balances of fixed assets are as follows:
| March 31, 2012 | December 31, 2011 | |||||||
| Leasehold Improvements | $ | 346,875 | $ | 250,000 | ||||
| Machinery & Equipment | 534 | 534 | ||||||
| 347,409 | 250,534 | |||||||
| Accumulated Depreciation & Amortization | (204,753 | ) | (175,634 | ) | ||||
| Net Fixed Assets | $ | 142,656 | $ | 74,900 | ||||
The depreciation and amortization expense for the three ended March 31, 2012 and 2011 were $28,894 and $30,678, respectively.
NOTE 5 — INCOME TAXES
The Company has cumulative net operating tax loss carryover (the “NOL”) of approximately $2.4 million at March 31, 2012, which are not likely to be fully realized and consequently a full valuation allowance has been established relating to this deferred tax assets. The final portion of the NOL will expires in 20 years.
The Company has foreign tax credit carryover of approximately (the “FTC”) $33,000 at March 31, 2012. The final portion of the FTC will expire in 10 years.
Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts and are based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred income tax assets to the amount expected to be realized. The deferred income tax asset related to the above noted NOL in the amount of approximately $2.4 million has been reduced by a related allowance of equal amount at December 31, 2011.
Income/(Loss) before Income Taxes for the three months ended March 31 were as follows:
| 2012 | 2011 | |||||||
| United States | $ | (74,425 | ) | $ | (63,293 | ) | ||
| Taiwan | (190,719 | ) | 118,123 | |||||
| Total Income (Loss) before Tax | $ | (293,930 | ) | $ | 54,830 | |||
Provisions for Income Taxes for the three months ended March 31 were as follows:
| 2012 | 2011 | |||||||
| United States | $ | — | $ | — | ||||
| Taiwan | — | 24,194 | ||||||
| Total Tax Expense | $ | — | $ | 24,194 | ||||
Reconciliations of statutory rates to effective tax rates for the three months ended March 31 were as follows:
| 2012 | ||||
| Statutory US Tax Rate | 39.0% | |||
| Foreign Tax Rate | 17.0% | |||
| State Income Tax Rate Effected | 0.0% | |||
| Foreign Tax Credit | -17.0% | |||
| Net Operating Loss Carryforward | -39.0% | |||
| Effective Worldwide Tax Rate | 0.0% | |||
| 13 |
NOTE 6—COMMITMENTS & CONTINGENCIES
Solicitation Services
The Company has engaged HCFP, on a non-exclusive basis, to act as its agent for the solicitation of the exercise of the Company’s Class W Warrants and Class Z Warrants. In consideration for solicitation services, the Company will pay HCFP a commission equal to 5% of the exercise price for each Class W Warrant and Class Z Warrant exercised after March 8, 2007 if the exercise is solicited by HCFP. No solicitation services have been provided to date.
Operating Leases
On August 23, 2010, the Company entered into a two-year real estate operating lease for its initial gallery location in Taiwan.
In November 2011, the Company entered into an office space lease agreement for additional space located in Taiwan.
In January 2012, the Company entered into a two year lease for its second gallery location in Tainan, Taiwan.
Rent expenses incurred were $14,203 and $11,030 for the three months ended March 31, 2012 and 2011, respectively.
Future aggregate minimum office lease payments will be as follows:
| Year | Amounts | |||||
| 2012 | $ | 62,388 | ||||
| 2013 | 56,963 | |||||
| 2014 | 8,138 | |||||
| Total | $ | 127,489 | ||||
On October 7, 2011, the Company entered into a three years automobile lease agreement. Lease expense incurred were $8,251 and $0 for the three months ended March 31, 2012 and 2011, respectively.
Future aggregate minimum automobile lease payments will be as follows:
| Year | Amounts | |||||
| 2012 | $ | 24,936 | ||||
| 2013 | 33,247 | |||||
| 2014 | 24,936 | |||||
| Total | $ | 83,119 | ||||
NOTE 7—CAPITAL STOCK
Preferred Stock
The Company is authorized to issue up to 5,000 shares of Preferred Stock with such designations, voting, and other rights and preferences as may be determined from time to time by the Board of Directors.
Common Stock and Class B Common Stock
The Company’s certificate of incorporation was amended to increase the authorization to issue shares of common stock from 80,000,000 to 100,000,000 on August 27, 2010. This amendment also effected a one-for-ten reverse split of the Company’s Common Stock.
| 14 |
On November 1, 2010 the Company completed an “offshore” private offering of its common stock to investors who qualified as “Non U.S. Persons” under Regulation S of the Securities Act of 1933. This offering for 50,000,000 shares of Common Stock at a price of $0.02 per share has generated gross proceeds to the Company of $999,718. David Chen-Te Yen, Director, at the time of this transaction owned approximately 42.0% of our common stock,
As of March 31, 2012, there are 44,150,490 shares of common stock available for future issuance, after appropriate reserves for the issuance of common stock in connection with the Class Z Warrants, the Underwriters Purchase Option and the officer’s and director’s Class Z Warrants. The Company currently has no commitments to issue any shares of common stock.
NOTE 8—WARRANTS AND OPTION TO PURCHASE COMMON STOCK
In addition to shares of Common Stock common outstanding as of March 31, 2012, the following shares of Common Stock, which take into account the Reverse Split, are reserved for issuance pursuant to outstanding warrants:
|
|
|
Class W Warrants
Each Class W warrant entitles the registered holder to purchase one share of our Common Stock at a price of $50 per share. The Class W warrants expired on March 7, 2011.
Class Z Warrants
Each Class Z warrant entitles the registered holder to purchase one share of our Common Stock at a price of $50 per share, subject to adjustment as discussed below, at any time commencing on the later of:
|
|
|
The Class Z warrants will expire on March 7, 2013. There are 822,500 shares of Common Stock underlying the outstanding Class Z warrants as of March 31, 2012.
The exercise price and number of shares of Common Stock issuable on exercise of the Class Z warrants may be adjusted in certain circumstances including in the event of a stock dividend, or our recapitalization, reorganization, merger or consolidation. Such adjustment occurred as a result of the one-for-ten reverse split of the Company’s Common Stock effected on August 27, 2010 (the “Reverse Split”) and the number of shares of Common Stock purchasable under the Class Z warrants reduced tenfold and the exercise prices increased tenfold. However, the Class Z warrants will not be adjusted for issuances of Common Stock at a price below their respective exercise prices.
| 15 |
No warrants will be exercisable unless at the time of exercise a prospectus relating to Common Stock issuable upon exercise of the warrants is current and the Common Stock has been registered or qualified or deemed to be exempt under the securities laws of the state of residence of the holder of the warrants. Under the terms of the warrant agreement, we have agreed to meet these conditions and to maintain a current prospectus relating to Common Stock issuable upon exercise of the warrants until the expiration of the warrants. However we have not done so, since we do not believe it to be likely that the warrants will be exercised given the current price of our Common Stock is significantly below the exercise price of the warrants.
No fractional shares will be issued upon exercise of the Class Z warrants. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, we will, upon exercise, round up to the nearest whole number the number of shares of Common Stock to be issued to the warrant holder.
NOTE 9—RELATED PARTY TRANSACTIONS
At March 31, 2012, David Chen-Te Yen (Chairman, director and shareholder of the Company) has an outstanding receivable of $33,906 from the Company which was advanced to commence the Taiwan operations.
For the three months ended, Yuan-Hao Chang (shareholder and consultant to the Company) has an outstanding payable of $9,735 to the Company, and Parashar Patel (shareholder and CEO of the Company) advanced $1,922 to the Company as working capital.
The above related parties’ amounts are due upon demand and non-interest bearing.
In July 2010, Mr. David Chen-Te Yen (Chairman, director, and shareholder of the Company) loaned the Company $300,000 in demand notes bearing interest at 8%. This demand note was repaid on December 3, 2010. The related accrued interest of $8,482 remains unpaid at March 31, 2012.
In July 2010, Mr. Yuan-Ho Chang (shareholder and consultant to the Company) loaned the Company $200,000 in demand notes bearing interest at 8%. This demand note was repaid on November 1, 2011. Interest expenses incurred on the notes were $7,241 and $3,945 for the three months ended March 31, 2012 and 2011, respectively. The related accrued interest of $27,317 was repaid in March 2012.
| 16 |
Item 2. Management's Discussion and Analysis of Financial Condition and Result of Operations
Cautionary Note Regarding Forward-Looking Statements
Certain statements made in this Quarterly Report on Form 10-Q are “forward-looking statements” (within the meaning of the Private Securities Litigation Reform Act of 1995) regarding the plans and objectives of management for future operations. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of UAN Cultural & Creative Co., Ltd. (the “Company”, “we”, “our”, or “us”) to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The forward-looking statements included herein are based on current expectations that involve numerous risks and uncertainties. Our plans and objectives are based, in part, on assumptions involving the continued expansion of our business. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of words “may,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. Although we believe our assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance the forward-looking statements included in this Report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by our Company or any other person that our objectives and plans will be achieved. Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
The following discussion should be read in conjunction with our unaudited condensed financial statements and footnotes thereto contained in this Quarterly Report filed on Form 10-Q and our audited financial statements and footnotes thereto for the year ended December 31, 2011 included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on April 13, 2012.
Description of Business
Background
We were formed on August 10, 2005 as a shell company to serve as a vehicle to effect a merger, capital stock exchange, asset acquisition or other similar business combination with an entity that has an operating business in the security industry.
We completed an initial public offering on March 15, 2006 based on that business plan. Stockholder funds raised in the offering were segregated in a trust account and we were obligated to return the segregated funds to the investors in the event that we did not complete a business combination within 18-months (24 months, under certain circumstances). By the end of the 18-month period we had not engaged in any operations, generated any revenues, or incurred any debt or expenses other than in connection with the initial public offering. Since we were not able to consummate our business plan and no business combination was completed within the required time period, we liquidated the segregated funds held in the trust account, returned the funds to the investors in the offering, redeemed the Class B Common Stock the investors acquired in the offering and reconstituted the company as an ongoing business corporation. As a result of the foregoing, we became a public shell company.
The securities issued in our initial public offering consisted of Class A Common Stock, which is now regular Common Stock; Class W Warrants; Class Z Warrants; Class B Common Stock, which was redeemed from the stockholders when the funds raised in the initial public offering were returned to them and is no longer outstanding; Class A Units, which consisted of two shares of Class A Common Stock and ten Class Z Warrants; and Class B Units, which consisted of two shares of Class B Common Stock and two Class W Warrants.
| 17 |
We experienced a change in control on June 30, 2010, both at the stockholder and director levels, as the result of the purchase of 35,095,100 shares of our Common Stock, approximately 95.6 percent of our Common Stock which was issued and outstanding on that date, by eight persons and the simultaneous reconstitution of our Board of Directors. Our new Board of Directors has created a new business plan and we have initiated that business involving the sale and appraisal of authentic and high quality works of art, primarily paintings, initially in Taiwan.
In July 2010, two of our stockholders, David Chen-Te Yen and Yuan-Hao Chang, loaned us $300,000 and $200,000, respectively. David Chen-Te Yen is our President and the Chairman of our Board of Directors, and owns approximately 42.1% of our Common Stock. These loans were evidenced by demand promissory notes bearing interest at the rate of 8% per annum, compounded daily. The $300,000 loan from David Chen-Te Yen was repaid in December 2010; accrued interest of $8,482 remains unpaid at March 31, 2012. The $200,000 loan from Yuan-Hao Chang was repaid on November 1, 2011; accrued interest of $27,317 was paid prior to March 31, 2012. At March 31, 2012, the outstanding working capital advances payable to shareholders and officers were $26,903.
In August 2010, we amended our Certificate of Incorporation to change our name to UAN Cultural & Creative Co., Ltd. and effect a one-for-ten reverse stock split of our Common Stock. We commenced operations in August 2011.
In October and November 2010, we completed an “offshore” private placement of 50,000,000 shares of Common Stock at a price of $0.02 per share, which generated gross proceeds of $1,000,000.
We have used the funds from these loans and from our private placement to initiate and further our art business plan. We hope to fund continuing operations and grow our business with the income we generate from operations. However, there can be no assurance that we will not incur operating losses in the future, in which case additional funds may be required for us to continue as a going concern. We cannot predict the amount of additional funds that we may require.
Our Current Business
We opened our initial art gallery, which is located in Luzhu Township, Taiwan, in July 2010. We also acquired furniture, fixtures and improvements, at a cost of $250,000, such that the gallery would provide a showcase from which to initiate our operations. We commenced operations from this location because most of our officers and directors live nearby, are familiar with the area, and believe it to have an excellent market potential for our artworks. On March 23, 2012, we opened our second gallery in Tainan, Taiwan. We also acquired furniture, fixtures and improvements, at a cost of approximately $100,000. We recently rented approximately 100 square feet of wall space in an art gallery in Chicago, in which we are displaying a small number of artworks for a period of approximately 90 days. If customers purchase our artworks during this trial period, we may attempt to lease additional space in the gallery for longer periods of time and/or conduct similar trials in other cities in the United States.
Our galleries provide elegant and comfortable settings from which we sell our artworks and conduct art shows, exhibitions, private showings, meetings, cocktail parties and other gatherings for the benefit of both our customers and featured artists. We generally offer for sale paintings that we purchased for resale and paintings we hold for sale on a consignment basis. To date we have sold approximately 1,400 paintings from inventory and seven paintings on consignment. Our sale prices for the paintings we hold in inventory are typically recommended by our chief art consultant, Mr. Yung Chien Wu, who also recommends the paintings we acquire and the prices we pay to the artists. Our profit margin with respect to the paintings we sell from inventory varies from painting to painting. We generally pay the artist 50% of the amount we realize on consignment sales. We are currently offering approximately 250 paintings from inventory and we are holding no paintings for sale on consignment.
The galleries are currently open six days per week, during which we sell our artworks and conduct art shows and exhibitions that we advertise to potential customers in the geographic area close to each gallery as well as to potential customers in surrounding cities who our sales force has identified as potential purchasers of our art works.
| 18 |
We also offer on a selective basis customized paintings to our customers through our sales representatives, which include commemorative portraits painted by student artists whom we retain as independent contractors at a low cost to us. In addition, our website, www.uanusa.com, is now operational. It contains a statement of our mission, identifies certain of our featured artists, as well as pictures of certain paintings that we are currently offering for sale at our galleries. We also offer memberships in our club, the UAN Club. We communicate with UAN Club members by e-mail, advising them of items of interest, including artworks we are offering for sale by artists we are featuring. We also inform members of events we are sponsoring at our art galleries, which will give them the opportunity to meet and discuss art with artists and art collectors. We believe that the UAN Club is a platform for us to increase interest in and appreciation of artworks by UAN Club members and also presents a marketing opportunity for us. Members can join UAN Club by registering on-line.
Results of Operations
Three Months Ended March 31, 2012 v. March 31, 2011
Revenues
Sales revenues for the three months ended March 31, 2012 and 2011 were $235,140 and $316,882, respectively, a decrease of $81,742 or approximately 26%. Our sales generally decline during the first quarter of the calendar year because relatively little commerce is conducted in Taiwan during Chinese New Year, which is celebrated over a two-week period commencing in late January or early February. The decrease in revenues was also attributable to the redecoration of the gallery space for exhibits of the artworks, which resulted in delay of sales activities. We believe that sales activities will increase in the coming months, as a result of the completion of our redecoration as well as the opening of our second gallery on March 23, 2012.
Cost of Sales and Gross Profit
Cost of sales for the three months ended March 31, 2012 and 2011 were $241,877 and $38,844, respectively, an increase of $203,111. Our gross profit (loss) for the three months ended March 31, 2012 and 2011 were $(6,816) and $278,038, respectively. Gross margin for the three months ended March 31, 2012 and 2011 were approximately (2.9)% and 87.7%, respectively. The decrease in gross profit reflects the sale of six high-value paintings below our cost during the three months ended March 31, 2012.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended March 31, 2012 and 2011 were $253,877 and $195,069, respectively, an increase of $58,808 or approximately 30%. Our major operating expenses for the three months ended March 31, 2012 consisted of advertising expenses of $35,644, salaries and related expenses of $47,814, rent expenses in the amount of $23,069, professional fees in the amount of $34,660 and leasehold improvement amortization of $28,682, compared to advertising expenses of $3,886, salaries and related expenses of $21,604, rent in the amount of $11,030, professional fees in the amount of $49,827, and leasehold improvement amortization of $31,450 for the three months ended March 31, 2011, during which latter period we were not fully engaged in our business. We increased our advertising expenses, payroll related expenses and rent expenses opening of our second gallery in Tainan, Taiwan.
Other Expenses
Other expenses for the three months ended March 31, 2012 amounted to $4,451, as compared to $3,945 for the three months ended March 31, 2011. These expenses consist of interest on related party loans.
| 19 |
Provision for Income Tax
Income tax provision for the three months ended March 31, 2012 was $0, compared to $21,194 for the three months ended March 31, 2011, a decrease of $21,194. Our worldwide effective tax rate for the three months ended March 31, 2011 was 30%. We have certain tax deferred assets such as net operating loss and foreign tax credit.
Net Income (Loss)
We had a net loss from operations of $(265,144) for the three months ended March 31, 2012, compared to net income of $54,830 incurred in the three months ended March 31, 2011. Our net loss was attributable to the sales of six high-value paintings below our cost, our lower sales revenue and the increase in our selling, general and administrative expenses.
Liquidity and Capital Resources
As of March 31, 2012, our total assets were $1,029,763, total liabilities were $315,564, and shareholders’ equity was $714,199, compared to $1,452,949, $485,706 and $964,243, respectively, as of December 31, 2011. Current assets at March 31, 2012 were $789,513, including cash and cash equivalents of $231,254, accounts receivables of $182,247, and inventory of $267,052, compared to $441,448, $307,793 and $441,607, respectively, at December 31, 2011. Included in total assets as of March 31, 2012 are leasehold improvements net of $142,656 and other assets of $97,594, compared to $74,900 and $68,268, respectively, as of December 31, 2011.
As of March 31, 2012, total liabilities were $315,564, consisting of accrued expenses of $71,009, advances from related parties of $26,093, and accounts payable of $61,450. As of December 31, 2011, total liabilities were $485,706, consisting of advances from related parties of $99,991, and accounts payable and accrued expenses of $217,180.
Cash and cash equivalents as of March 31, 2012 decreased by $210,194 as compared to December 31, 2011. Our working capital was $523,820 and $883,073 at March 31, 2012 and December 31, 2011, respectively.
The decrease in cash resulted from the payment of certain accounts payables, accrued liabilities and related party loans, combined with an increase in expenditures for leasehold improvements for the new gallery which opened in March 2012.
Net cash used by our operating activities in the three months ended March 31, 2012 was $51,748, as compared to net cash provided of $130,544 for the three months ended March 31, 2011.
Net cash used in investing activities in the three months ended March 31, 2012 was $96,875, compared to $0 in the three months ended March 31, 2011. The net increase in cash used in investing activities in 2012 resulted primarily from the expenditures for leasehold improvements.
Net cash used in financing activities in the three months ended March 31, 2012 was $73,898, compared to $5,494 from financing activities in the three months ended March 31, 2011. The net increase in cash used in financing activities in 2012 resulted primarily from repayment of related party loans.
In July 2010, two of our stockholders, David Chen-Te Yen and Yuan-Hao Chang, loaned us $300,000 and $200,000, respectively. David Chen-Te Yen is our President and the Chairman of our Board of Directors, and owns approximately 42.1% of our Common Stock. These loans were evidenced by demand promissory notes bearing interest at the rate of 8% per annum, compounded daily. The $300,000 loan from David Chen-Te Yen was repaid in December 2010; accrued interest of $8,482 remains unpaid at March 31, 2012. The $200,000 loan from Yuan-Hao Chang was repaid on November 1, 2011; accrued interest of $27,317 was paid prior to March 31, 2012. In October and November 2010 we completed an “offshore” private placement of 50,000,000 shares of our Common Stock at a price of $0.02 per share, which generated gross proceeds of approximately $1,000,000. In order for us to successfully engage in this or any business, we may need to raise additional capital. There can be no assurance that we will be able to raise additional capital, on terms favorable to us or at all.
| 20 |
Critical Accounting Policies
Our significant accounting policies are described in detail in Note 3 to our unaudited financial statements included herein. However, certain of our accounting policies require the application of significant judgment by our management, and such judgments are reflected in the amounts reported in our condensed financial statements. In applying these policies, our management uses our judgment to determine the appropriate assumptions to be used in the determination of estimates. Actual results may differ significantly from the estimates contained in our condensed consolidated financial statements.
Off-Balance Sheet Arrangements
As of March 31, 2012, we did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Item 3. Quantitative and Qualitative Disclosure About Market Risks
Not applicable.
Item 4. Controls and Procedures
The certifications of our Chief Executive Officer and Chief Financial Officer attached as Exhibits 31.1 and 31.2 to this Quarterly Report on Form 10-Q include, in paragraph 4 of such certifications, information concerning our disclosure controls and procedures, and internal control over financial reporting. Such certifications should be read in conjunction with the information contained in this Item 4 for a more complete understanding of the matters covered by such certifications.
Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2012. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions to be made regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer concluded that we did maintain effective internal control over financial reporting as of March 31, 2012 and further concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| 21 |
Important Considerations
The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to various inherent limitations, including cost limitations, judgments used in decision making, assumptions about the likelihood of future events, the soundness of our systems, the possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions and the risk that the degree of compliance with policies or procedures may deteriorate over time. Because of these limitations, there can be no assurance that any system of disclosure controls and procedures or internal control over financial reporting will be successful in preventing all errors or fraud or in making all material information known in a timely manner to the appropriate levels of management.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 1A. Risk Factors
There have not been any material changes from the risk factors previously disclosed under Item 1A of our Annual Report on Form 10-K, for the fiscal year ended December 31, 2011.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
Item 6. Exhibits
| 31.1 | Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 31.2 | Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| 32.1 | Certification of the Chief Executive Officer Pursuant to 18 U.S.C. 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 32.2 | Certification of the Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 22 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| UAN Cultural & Creative Co., Ltd. | |||
| Dated: May 15, 2012 | By: | /s/ Parashar Patel | |
| Parashar Patel | |||
| Chief Executive Officer | |||
| (Principal Executive Officer) | |||
| Dated: May 15, 2012 | By: | /s/ Chung Hua Yang | |
| Chung Hua Yang | |||
| Chief Financial Officer | |||
| (Principal Financial Officer and Chief Accounting Officer) | |||
| 23 |
Exhibit 31.1
CERTIFICATION
I, Parashar Patel, hereby certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of UAN Cultural & Creative Co., Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Dated: May 15, 2012 | /s/ Parashar Patel | ||
| Parashar Patel | |||
| Chief Executive Officer | |||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Chung Hua Yang, hereby certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of UAN Cultural & Creative Co., Ltd.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Dated: May 15, 2012 | /s/ Chung Hua Yang | |
| Chung Hua Yang | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Chief Accounting Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of UAN Cultural & Creative Co., Ltd., a Delaware corporation (the “Company”), on Form 10-Q for the period ended March 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Parashar Patel, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| Dated: May 15, 2012 | /s/ Parashar Patel | ||
| Parashar Patel | |||
| Chief Executive Officer | |||
| (Principal Executive Officer) |
This certification accompanies each report of the Company on Form 10-Q and Form 10-K pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by §906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of UAN Cultural & Creative Co., Ltd., a Delaware corporation (the “Company”), on Form 10-Q for the period ended March 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Chung Hua Yang, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
| Dated: May 15, 2012 | /s/ Chung Hua Yang | |
| Chung Hua Yang | ||
| Chief Financial Officer | ||
| (Principal Financial Officer and Chief Accounting Officer) |
This certification accompanies each report of the Company on Form 10-Q and Form 10-K pursuant to §906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by §906 has been provided to the Company and will be retained by the Company and furnished to the Securities
@%J`E:K?.*EK9#6FIW2IU
M);'%O;JS,,'^5E^I%"M/DAF[;^7]YS)7*@^28DU]CE!:.$[^+SUB)/
M\R38->)+7`C7M]Z5PPI-&)\*WAOI%1%[SQ:W/
|
Summary of Significant Accounting Policies
|
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Mar. 31, 2012
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes to Financial Statements | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Summary of Significant Accounting Policies | NOTE 3—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Company has prepared the accompanying financial statements in conformity with accounting principles generally accepted in the United States of America.
Interim financial statements
The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the Company’s audited financial statements and footnotes thereto for the year ended December 31, 2011, included in the Company’s Form 10-K filed on April 13, 2012. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. The financial statements reflect all adjustments (consisting primarily of normal recurring adjustments) that are, in the opinion of management necessary for a fair presentation of the Company’s financial position and results of operations. The operating results for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for any other interim period of a future year.
RECLASSIFICATION
Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses.
USE OF ESTIMATES
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are deposits in financial institutions as well as short-term money market instruments with maturities of three months or less when purchased.
ACCOUNTS AND NOTES RECEIVABLE
These amounts represent sales to customers in the ordinary course of business. Ninety percent of the notes receivable are due within 90 days and the remainder balance within one year.
INVENTORY
Inventory consists principally of finished art pieces held for sale valued at the specific-cost to purchase each piece. The Company accounts for inventory at the lower of the specifically-identified-cost of each piece (or average cost per piece when purchased in lots of two or greater) or net realizable value. As art is sold, amounts removed from inventory are the same specific cost values at the time of purchase.
FIXED ASSETS, NET
Leasehold improvements are recorded at cost and are amortized over the length of lease which is a two-year period beginning in August 2010. Machinery and equipment are amortized on a straight-line basis over a three to five year period.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates its long-lived assets for impairment by comparison of the carrying amounts to future net undiscounted cash flows expected to be generated by such assets when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Should an impairment exist, the impairment loss would be measured based on the excess carrying value of the asset over the asset’s fair value or estimates of future discounted cash flows. The Company has not identified any such impairment losses to date.
NOTES PAYABLE
Notes payable are amounts due to vendors or service providers which are classified into current and non-current portion based on its maturity date. These notes are non-interest.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to a significant concentration of credit risk consist primarily of cash and cash equivalents. The Company maintains deposits in federally insured financial institutions in excess of federally insured limits. However, management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.
COMPREHENSIVE INCOME
The Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 220, “Comprehensive Income,” which establishes standards for reporting and presentation of comprehensive income (loss) and its components in a full set of general-purpose financial statements. The Company has chosen to report comprehensive income (loss) in the statements of income and comprehensive income. Comprehensive income (loss) is comprised of net income and all changes to stockholders’ equity except those due to investments by owners and distributions to owners.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing income (loss) available to common stockholders by the weighted average common shares outstanding for the period and Class B common stock outstanding prior to its redemption. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity. The average market price of the common shares is below the exercise price of the outstanding warrants therefore not included in the calculation for dilutive share.
The computation of basic and diluted earnings (loss) per share for the three months ended March 31, 2012 and 2011is as follows:
FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB ASC Topic 820, “Fair Value measurement and Disclosures”, an Accounting Standard Update. In September 2009, the FASB issued this Update to amendments to Subtopic 820-10, “Fair Value Measurements and Disclosures”. Overall, for the fair value measurement of investments in certain entities that calculates net asset value per share (or its equivalent). The amendments in this Update permit, as a practical expedient, a reporting entity to measure the fair value of an investment that is within the scope of the amendments in this Update on the basis of the net asset value per share of the investment (or its equivalent) if the net asset value of the investment (or its equivalent) is calculated in a manner consistent with the measurement principles of Topic 946 as of the reporting entity’s measurement date, including measurement of all or substantially all of the underlying investments of the investee in accordance with Topic 820. The amendments in this Update also require disclosures by major category of investment about the attributes of investments within the scope of the amendments in this Update, such as the nature of any restrictions on the investor’s ability to redeem its investments at the measurement date, any unfunded commitments (for example, a contractual commitment by the investor to invest a specified amount of additional capital at a future date to fund investments that will be made by the investee), and the investment strategies of the investees. The major category of investment is required to be determined on the basis of the nature and risks of the investment in a manner consistent with the guidance for major security types in GAAP on investments in debt and equity securities in paragraph 320-10-50-lB. The disclosures are required for all investments within the scope of the amendments in this Update regardless of whether the fair value of the investment is measured using the practical expedient. The amendments in this Update apply to all reporting entities that hold an investment that is required or permitted to be measured or disclosed at fair value on a recurring or non recurring basis and, as of the reporting entity’s measurement date, if the investment meets certain criteria The amendments in this Update are effective for the interim and annual periods ending after December 15, 2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued.
REVENUES
The Company has two principal sources of revenue. Revenues related to the direct sale of art pieces from inventory and commissions on sale of art pieces sold on a consignment basis. The Company recognizes revenues at the time goods are delivered to the customers.
For the three months ended March 31, 2012, sixty-three (63) pieces of arts were sold from the inventory.
ADVERTISING COSTS
The advertising costs are expensed as incurred and included in selling, general and administrative expenses. The Company incurred advertising expense of $35,644 and $3,886 for the three months ended March 31, 2012 and 2011, respectively.
SEGMENT REPORTING AND GEOGRAPHIC INFORMATION
The Company reports all operations under one business segment, the sale of works of art. Three customers accounted for 94% of the Company’s revenues for three months ended March 31, 2012. The Company generated 100% of revenues for the three months ended March 31, 2011 through one Taiwan distributor. All sales revenues were generated in Taiwan. The following table sets forth information as to the revenue derived from those customers that accounted for more than 10% of our revenue for the three months ended March 31, 2012 and 2011:
FOREIGN CURRENCY TRANSLATIONS
The functional currency of the Company's branch in Taiwan is the New Taiwan Dollar (“TWD”) and its reporting currency is the U.S. dollar. Transactions denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the date of the transactions. Exchange gains or losses on transactions are included in earnings.
The combined financial statements of the Company are translated into U.S. dollars in accordance with the standard, “Foreign Currency Translation,” codified in ASC 830, using rates of exchange at the end of the period for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for equity. Translation adjustments resulting from the process of translating the local currency combining financial statements into U.S. dollars are included in determining comprehensive income. At March 31, 2012, the cumulative translation adjustments of $373, were classified as items of accumulated other comprehensive income in the stockholders’ equity section of the balance sheet. For the three months ended March 31, 2012, other comprehensive income was $12,101.
The exchange rates used to translate amounts in TWD into U.S. dollars for the purposes of preparing the combined financial statements were as follows: As of March 31, 2012, the Company used the spot rates of exchange for assets and liabilities of $1.00 US to TWD 29.49. For the three months ended March 31, 2012, the Company used the period’s average rate of exchange to convert revenues, costs, and expenses of $1.00 US to TWD 29.71. The Company used historical rates for equity.
INCOME TAXES
The Company accounts for income taxes following the liability method pursuant to FASB ASC 740 “Income Taxes”. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if, based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in income in the period that includes the enactment date.
The Company accounts for uncertainty in income taxes in accordance with FASB ASC 740-10 “Income Taxes-Overall”. The Company has elected to classify interest and penalties related to an uncertain position, if and when required, as part of interest expenses and other expenses, respectively, in the consolidated statements of income and comprehensive income.
NEW ACCOUNTING PRONOUNCEMENTS
In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." This standard clarifies guidance on how to measure fair value and is largely consistent with existing fair value measurement principles. The ASU also expands existing disclosure requirements for fair value measurements and makes other amendments. For the Company, this ASU is effective prospectively beginning January 1, 2012. The adoption of this standard did not have a material impact on the Company’s consolidated results of operations or financial condition.
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” This standard requires entities to present items of net income and other comprehensive income either in a single continuous statement, or in separate, but consecutive, statements of net income and other comprehensive income. The new requirements do not change which components of comprehensive income are recognized in net income or other comprehensive income, or when an item of other comprehensive income must be reclassified to net income. Also, the earnings-per share computation does not change. However, the current option under existing standards to report other comprehensive income and its components in the statement of changes in equity is eliminated. In addition, the previous option to disclose reclassification adjustments in the notes to the financial statements is also eliminated, as reclassification adjustments will be required to be shown on the face of the statement under the new standard. For the Company, this ASU is effective retrospectively beginning January 1, 2012, with early adoption permitted. Since this standard impacts disclosure requirements only, its adoption did not have a material impact on the Company’s consolidated results of operations or financial condition.
In December 2011, the FASB issued ASU No. 2011-11, “Disclosures About Offsetting Assets and Liabilities,” which creates new disclosure requirements regarding the nature of an entity’s rights of setoff and related arrangements associated with its financial instruments and derivative instruments. Certain disclosures of the amounts of certain instruments subject to enforceable master netting arrangements or similar agreements would be required, irrespective of whether the entity has elected to offset those instruments in the statement of financial position. The ASU is effective January 1, 2013 with retrospective application required. Since this standard impacts disclosure requirements only, its adoption will not have a material impact on the Company’s results of operations or financial condition.
In December 2011, the FASB released Accounting Standards Update No. 2011-12 (“ASU 2011-12”), “Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05.” ASU 2011-12 defers only those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. The provisions of ASU 2011-12 became effective in fiscal years beginning after December 15, 2011. The adoption of ASU 2011-12 did not materially impact our financial statements.
The Company believes that there were no other accounting standards recently issued that had or are expected to have a material impact on our financial position or results of operations.
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||