PINX:SOCC Social Cube Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.20549


FORM 10-Q


(Mark One)


[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal period ended: March 31, 2012


[ ] 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: 0-24721


SOCIAL CUBE INC.

(Formerly Lexon Technologies, Inc.)

 (Exact name of registrant as specified in charter)

Delaware

87-0502701

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer I.D. No.)


5670 Wilshire Boulevard, Suite 760, Los Angeles, California

90036

(Address of principal executive offices)

(Zip Code)

Issuer's telephone number, including area code: (323) 933-3500


Securities registered pursuant to section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

None

N/A

Securities registered pursuant to section 12(g) of the Act:


Common Stock, par value $0.001 per share

 (Title of class)


Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ]


Check whether the issuer (1) filed all reports required to be filed by section 13 or 15(d) of the Exchange Act during the past 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.

 (1) Yes [ x ] No [ ]

 (2) Yes [ x ] No [ ]


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)

 Yes [ x ] No [ ]




Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act). 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 [ x ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).


Yes [ ] No [ x ]






Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


As of May 11, 2012, Lexon had 9,992,535 shares of common stock, par value $0.001 outstanding.





SOCIAL CUBE INC.

QUARTERLY REPORT ON FORM 10-Q

THREE MONTHS ENDED MARCH 31, 2012


TABLE OF CONTENTS


Part I – FINANCIAL INFORMATION

 

 

Page

ITEM 1.

FINANCIAL STATEMENTS

 

 

Consolidated Balance Sheets (unaudited)

4

 

Consolidated Statements of Operations (unaudited)

6

 

Consolidated Statements of Cash Flows (unaudited)

7

 

Notes to Consolidated Financial Statements (unaudited)

9

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 


ITEM 4.


CONTROLS AND PROCEDURES

 



Part II – OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

5

ITEM 1A.

RISK FACTORS

6

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

6

ITEM 3.

DEFAULT UPON SENIOR SECURITIES

9

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

9

ITEM 5.

OTHER INFORMATION

28

ITEM 6.

EXHIBITS

28

 

EX-31.1

EX-31.2

EX-32

29





Part I – FINANCIAL INFORMATION


SOCIAL CUBE INC.

CONSOLIDATED BALANCE SHEETS

 

 

 

 

 

ASSETS

 

(Unaudited)

 

 

 

 

March 31,

 

December 31,

 

 

  2012

 

  2011

 

Current assets:

 

 

 

 

Cash and cash equivalents

$

642,171

 

$

418,891

 

Accounts receivable, net

598,961

 

417,110

 

Prepaid expenses

171,153

 

160,817

 

Other current assets

79,546

 

158,029

 

 

 

 

 

 

Total current assets

1,491,831

 

1,154,847

 

 

 

 

 

 

Property and equipment, net

1,133,244

 

1,272,919

 

 

 

 

 

 

Other assets:

 

 

 

 

Intangibles, net of amortization

819,285

 

831,442

 

Security deposits

20,934

 

-

 

 

 

 

 

 

Total other assets

840,219

 

831,442

 

 

 

 

 

 

Total assets

$

3,465,294

 

$

3,259,208

 

 

 

 

 

 






SOCIAL CUBE INC.

CONSOLIDATED BALANCE SHEETS


LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

 

(Unaudited)

 

 

 

 

March 31,

 

December 31,

 

 

  2012

 

2011

 

Current liabilities:

 

 

 

 

 

 

 

 

 

Accounts  payable

$

661,983 

 

$

723,569 

 

Current portion of loan payable

131,475 

 

126,650 

 

Accrued expenses

67,232 

 

20,232 

 

Other payable

5,895 

 

40,485 

 

 

 

 

 

 

Total current liabilities

866,585 

 

910,936 

 

 

 

 

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

 

 

 

Loan payable, net of current portion

49,991 

 

53,454 

 

Pension plan benefit obligation

93,748 

 

92,062 

 

 

 

 

 

 

Total long-term liabilities

143,739 

 

145,516 

 

 

 

 

 

 

Total liabilities

1,010,324 

 

1,056,452 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ deficiency:

 

 

 

 

 

 

 

 

 

Common stock - $0.001 par value;

  30,000,000 and 2,000,000,000 shares authorized,

9,992,535 and 9,992,535 shares issued and outstanding

  as of March 31, 2012 and December 31, 2011, respectively

9,993 

 

9,993 

 

Additional paid-in capital

4,489,701 

 

4,489,701 

 

Stock subscription receivable

 

(300,000)

 

Accumulated other comprehensive income

4,252 

 

17,935 

 

     Accumulated deficit

(1,987,218)

 

(1,979,240)

 

     Noncontrolling interest

(61,758 

 

(35,633)

 

 

 

 

 

 

Total stockholders’ deficiency

2,454,970 

 

2,202,756 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ deficiency

$

3,465,294 

 

$

3,259,208 

 

 

 

 

 

 

See Accompanying Notes to Consolidated Financial Statements (Unaudited).

 

 

 

 




SOCIAL CUBE INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



 

Three Months Ended

 

 

March 31,

 

 

2012

 

2011

 

 

 

 

 

 

Net sales

$

1,310,246 

 

$

14,842 

 

 

 

 

 

 

Cost of goods sold

1,064,458 

 

 

 

 

 

 

 

Gross profits

245,788 

 

14,842 

 

 

 

 

 

 

Selling, general and administrative expenses

329,356 

 

64,417 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

(83,568)

 

(49,575)

 

 

 

 

 

 

Other income (expenses):

 

 

 

 

Loss from settlement

(20,000)

 

 

Interest expense

(2,661)

 

 

Foreign currency transaction loss

(2,927)

 

 

Net other income (expense)

(25,588)

 

 

 

 

 

 

 

 

 

 

 

 

Loss before income tax provision

(109,156)

 

(49,575)

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

19,600 

 

 

Loss before noncontrolling interest

(128,756)

 

(49,575)

 

Less : Noncontrolling interest

(26,125)

 

 

 

 

 

 

 

Net loss

$

(154,881)

 

$

(49,575)

 

 

 

 

 

 

 

 

 

 

 

Earnings per share of common stock -

Basic

(0.01)

 

(0.00)

 

 

 

 

 

 

Earnings per share of common stock - Diluted

(0.01)

 

(0.00)

 

 

 

 

 

 

Weighted average shares of common stock outstanding

9,992,535 

 

421,038,028 

 


See Accompanying Notes to Consolidated Financial Statements (Unaudited).



SOCIAL CUBE INC.

CONSOLIDATED STATEMENTS OF CASHFLOWS

(Unaudited)


 

For  The Three Months Ended

 

 

March 31,

 

 

2012

 

2011

 

Cash flows from operating activities:

 

 

 

 

Net loss

$

(154,881)

 

$

(49,575)

 

 

 

 

 

 

            Adjustments to reconcile net income (loss)

to net cash provided by (used in) operating activities:

 

 

 

 

Noncontrolling interest

26,125 

 

 

Depreciation and amortization

250,868 

 

48,916 

 

Changes in assets and liabilities:

 

 

 

 

Accounts receivable

(181,851)

 

276,764 

 

Inventories

 

573,137 

 

Security deposit

(20,934)

 

20,748 

 

Goodwill

 

2,273,556 

 

Other current assets

68,147 

 

 

Bank overdraft

 

(19,796)

 

Accounts payable

(61,586)

 

(589,793)

 

Accrued expenses

47,000 

 

(240,294)

 

Deferred rent

 

(42,900)

 

Other current liabilities

(32,904)

 

 

Total adjustments

94,864 

 

2,300,338 

 

Net cash provided by (used in) operating activities

(60,016)

 

2,250,763 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

      Property and equipment

(19,744)

 

60,310 

 

      Note receivable

 

18,000 

 

      Due from related parties

 

138,000 

 

Net cash provided by (used in) investing activities

(19,744)

 

216,310 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

Proceeds from (payments on) notes payable

1,361 

 

(546,981)

 

Payments on capital lease obligations

 

(30,310)

 

Cancellation of common stock

 

(1,900,000)

 

Foreign currency translation adjustment

1,679 

 

 

Stock subscription receivable  

300,000 

 

 

Net cash provided by (used in) financing activities

303,040 

 

(2,477,291)

 

 

 

 

 

 

Net increase (decrease) in cash

223,280 

 

(10,218)

 

 

 

 

 

 

Cash and cash equivalents, at the beginning of period

418,891 

 

10,218 

 

 

 

 

 

 

Cash and cash equivalents, at the end of period

$

642,171 

 

$

 

 

 

 

 

 







 

 

 

 

See Accompanying Notes to Consolidated Financial Statements (Unaudited).

 

 

 

 


SOCIAL CUBE INC.

CONSOLIDATED STATEMENTS OF CASHFLOWS

(Unaudited)


 

Three Months Ended

 

 

March 31,

 

 

2012

 

2011

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

 

Cash paid during the period:

 

 

 

 

Income Taxes

$

1,600

 

$

0

 

 

 

 

 



See Accompanying Notes to Consolidated Financial Statements (Unaudited).



SOCIAL CUBE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2012 AND 2011


Note 1 - Nature of Business


Lexon Technologies, Inc. ("the Company", "Lexon" or “Social Cube”) was incorporated in April 1989 under the laws of state of Delaware, and owned 90.16% of Lexon Semiconductor Corporation ("Lexon Semi" or formerly known as Techone Co., Ltd ("Techone")) which had developed and manufactured Low Temperature Cofired Ceramic (LTCC) components, including LTCC wafer probe cards, LTCC circuit boards, LTCC Light Emitting Diode (LED) displays and related products for the semiconductor testing and measurement, custom Printed Circuit Board (PCB), and cellular phone industries.  


Initially registered as California Cola Distributing Company, Inc., the Company changed its name four times; first to Rexford, Inc. in October 1992, second to Lexon Technologies, Inc. in July 1999, third to Social Planet Inc. in January 2012 and to the current name Social Cube Inc. in February 2012.  From July 1999 through October 2009, the Company performed three reverse acquisitions and recapitalizations, which resulted in the change of the control of the Company each time.


On January 1, 2011, all assets and all of the liabilities of the Paragon Toner Division of Lexon were exchanged for existing Lexon shares, specifically 133,300,000 shares held by James Park and 66,700,000 shares held by Young Won.  The Internet properties namely 7inkjet.com, nanoninket.com and Yourcartidges.com remained with Lexon, and became the main operation of the Company.


The Company’s Board of Directors and a majority of shareholders on June 6, 2011 approved a reverse share split of the Company’s common stock at a ratio of 641:1 from 315,789,721 shares to 492,535 issued and outstanding shares.


On October 3, 2011, Lexon entered into four subscription agreements: (1) Senderbell Holdings Limited subscribed to 900,000 common unregistered shares for $77,143; (2) Treasure Chest Holdings Limited subscribed to 900,000 common unregistered shares for $77,143; (3) Blueberry Enterprises Limited subscribed to 900,000 common unregistered shares for $77,143; and (4) Hockworth Holdings Limited subscribed to 800,000 common unregistered shares for $68,571.


On October 26, 2011, a shareholder resolution was executed to nominate and accept Byung Jin Kim, Eugene Lee and KyuSeok Lee as Directors (effective as of November 26, 2011) and to change the corporate name from Lexon to Social Planet Inc.


On November 23, 2011, the Company issued 6,000,000 shares of its common stock to Liveplex Co., Ltd. at a purchase price of approximately $0.417 per share for an aggregate of $2,500,000 representing approximately 60% of the total outstanding common stock.


On November 25, 2011, James Park, Young Won, Bong S. Park and Hyung Soon Lee resigned as the Directors and Officers of the Company.


Pursuant to a share subscription agreement dated November 30, 2011, the Company subscribed to 335,574 shares of Asianet Co., Ltd., a company incorporated in the Republic of Korea, for a consideration of $1,500,000.  As a result of this subscription, the Company owns 73% of Asianet Co., Ltd.


On December 30, 2011, a majority of the Company’s directors appointed Byung Jin Kim as Chief Executive Officer and Jonathan Lee as Chief Financial Officer of the Company effective as of January 1, 2012.




SOCIAL CUBE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (Continued)


On January 31, 2012, the Company filed a Certificate of Amendment to the Company’s Certificate of Incorporation under the laws of the state of Delaware, changing the name of the Company from Lexon to Social Planet Inc.


On February 6, 2012, a majority of the Company’s directors and a majority of the Company’s shareholders approved changing the name of the Company from Social Planet Inc. to Social Cube Inc.


On February 16, 2012, the Company filed a Certificate of Amendment to the Company’s Certificate of Incorporation under the laws of the state of Delaware, changing the name of the Company from Social Planet Inc. to Social Cube Inc.


The Financial Industry Regulatory Authority, Inc. (FINRA) approved the Company’s corporate name change to Social Cube Inc., effective as of March 28, 2012, and its ticker symbol change to “SOCC”, effective as of April 2, 2012.

 


Business Overview


Previous Business Model


Prior to the acquisition of a controlling interest of 60% of the common shares of Lexon by Liveplex Co., Ltd. on November 23, 2011, the Company was one of the first movers in recycling toner cartridges for laser printers, fax and multifunction copiers.  Lexon specialized in difficult to find toner as well as color and special niche cartridges with the capacity to manufacture 50,000 cartridges per month and recycle 350 different models of toner cartridges.  Lexon’s main clients included multinational companies such as Micro Center, Royal Imaging, Staples, Inc. and Royal Typewriter.  Lexon also operated an online website for the sale of its toner products and is also a supplier numerous independent online websites.


Current Business Model


After Liveplex Co., Ltd. obtained a 60% controlling interest of the Company, Social Cube has refocused itself as a holding company of social gaming and social networking companies.  Social Cube’s strategy is to grow both organically and by acquisition, and to leverage its existing network of social gaming and networking assets together with other social networking companies and their related technologies.


Our majority shareholder is Liveplex Co., Ltd., an on-line game developer and publisher in Korea, which is publicly listed on the Korea Securities Dealers Automated Quotations (KOSDAQ:050120), a trading board of the Korea Exchange (KRX).   Liveplex Co., Ltd. is a leading developer and service provider of massively multiplayer online role-playing games.


We conduct our business through two operating segments as follows:


Asianet Co., Ltd.


We have a 73% ownership interest in Asianet Co., Ltd., a privately held company incorporated in the Republic of Korea, which publishes the following game titles, primarily in the Philippines:  Dragona, Genghis Khan, Weapons of War, Cross Fire, Special Force, Twelve Sky 2 and iDate.



SOCIAL CUBE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (Continued)



Gameclub.com Inc.


We have a 100% ownership interest in Gameclub.com Inc., a privately held company incorporated in the state of California, which publishes online games in the United States.


While our chief decision makers monitor the revenue streams of our various products and services, operations are managed and financial performance is evaluated on a company-wide basis. Accordingly, we consider our operations to be aggregated in one reportable operating segment.


Note 2 - Summary of Significant Accounting Policies


This summary of significant accounting policies of the Company is presented to assist in understanding the Company’s financial statements.  The financial statements and notes are representations of the Company’s management, who is responsible for their integrity and objectivity.  These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.


Use of Estimates


The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates are primarily used for depreciation of property and equipment, amortization of intangible assets, allowances for doubtful accounts and inventory valuation. Actual results could differ from those estimates.



Revenue Recognition


The Company recognizes revenues from product sales when earned. Specifically, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred (or services have been rendered), the price is fixed or determinable, and collectability is reasonably assured. Revenue is not recognized until title and risk of loss have transferred to the customer. The shipping terms for the majority of the Company’s revenue arrangements are FOB (free on board) destination. Revenue is recorded net of customer returns, allowances and discounts that occur under arrangements established with customers.


Online game revenue


We derive, and expect to continue to generate, most of our revenues from online game subscription revenue generated in the countries where our games are offered by us. We recognize revenue in accordance with Accounting Standard Codification (ASC) 605, Revenue Recognition and other related pronouncements. Online game revenue is deferred until prepaid subscription cards are consumed by users.



SOCIAL CUBE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (Continued)


Cash and Cash Equivalents


The Company considers all highly liquid investments purchased with original maturities of three months or less to be categorized as cash and cash equivalents.


Allowance for Doubtful Accounts


The allowance for doubtful accounts is computed based upon the management’s estimate of uncollectible accounts and historical experience.  The Company performs ongoing credit evaluations of its customers to estimate potential credit losses.  Amounts are written off against the allowance in the period the Company determines that the receivable is uncollectible.


Inventories


Inventories are stated at the lower of cost or market.  Cost is determined by the first-in, first-out (FIFO) method.  Appropriate consideration is given to obsolescence, slow moving items and other factors in evaluating net realizable value.  


Property and Equipment


Property and equipment are stated at cost. The straight-line method is used to calculate depreciation over their estimated useful lives ranging as follows:


Automobile

 

3 to 5 years

Furniture & fixture

 

4 to 7 years

Leasehold improvement

 

5 years

Machinery and equipment

 

4 to 5 years



Leasehold improvements are depreciated to expense over the shorter of the life of the improvement or the remaining lease term. Capital expenditures that enhance the value or materially extend the useful life of the related assets are reflected as additions to property and equipment. Expenditures for repairs and maintenance are charged to expense as incurred. Upon a sale or disposition of assets, a gain or a loss is included in the statement of operations.


Impairment of Long-lived Assets


The Company periodically reviews the recoverability of its long-lived assets using the methodology prescribed in accounting guidance now codified as FASB ASC Topic 360, “Property, Plant and Equipment.” The Company also reviews these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted future net cash flows from the operations to which the assets relate, based on management’s best estimates using appropriate assumptions and projections at the time, to the carrying amount of the assets. If the carrying value is determined not to be recoverable from future operating cash flows, the asset is deemed impaired and an impairment loss is recognized equal to the amount by which the carrying amount exceeds the estimated fair value of the asset. In management’s opinion, no such impairment existed as of March 31, 2012 and December 31, 2011



SOCIAL CUBE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (Continued)


Goodwill - The Company accounts for intangible assets in accordance with the ASC 350, Intangibles - Goodwill and Other. ASC 350 requires that goodwill no longer be amortized, but instead be tested for impairment at least annually. Additionally, ASC 350 requires that recognized intangible assets be amortized over their respective estimated lives and reviewed for impairment in accordance with ASC 360, Property, Plant, and Equipment.  Any recognized intangible assets determined to have an indefinite useful lives will not be amortized, but instead tested for impairment until its life is determined to no longer be indefinite.  ASC 350 requires that the values of intangible assets be tested for impairment on at least an annual basis, by comparing the fair value of the assets to their carrying amounts.  As a result of the impairment testing, the Company determined that goodwill was significantly impaired due to sales of Paragon Toner division. In management’s opinion, no goodwill existed as of March 31, 2012 and December 31, 2011


Accrued Expenses


The Company’s accrued expenses consist of amounts payable for professional fee, corporate income tax and interest.


Income Taxes


The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and net operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in income tax rates is recognized in the results of operations in the period that includes the enactment date. The realizability of deferred tax assets is evaluated based on a “more likely than not” standard, and to the extent this threshold is not met, a valuation allowance is recorded. See Note 8 Income Taxes for more information about the Company’s income taxes.


Recent Accounting Pronouncements


In June 2011, the FASB issued new guidance regarding the presentation of comprehensive income. This guidance eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholder’s equity and requires that all changes in stockholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This guidance is effective retrospectively for fiscal years, and interim periods within those fiscal year, beginning after December 15, 2011.


In September 2011, the FASB issued new guidance addressing the valuation process for goodwill. This guidance provides the ability to first assess qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. Under this guidance, an entity will no longer be required to calculate the fair value of a reporting unit unless it determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.



SOCIAL CUBE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (Continued)


Note 3 – Accounts receivable


The following table provides the components of accounts receivable as of  March 31, 2012 and December 31, 2011:


 

March 31,

 

December 31,

 

2012

 

2011

 

 

 

 

Receivable from game sales

$

596,868

 

$

414,988

Other receivable

2,093

 

2,122

 

598,961

 

417,110

Less: Allowance for bad debt expense

-

 

-

Accounts receivable, net

$

598,961

 

$

417,110



Note 4 – Prepaid expense


The Company’s prepaid expenses consist of amounts prepaid for license, equipment rental, server & webpage.


Note 5 - Property and Equipment


Property and equipment consist of the following as of  March 31, 2012 and December 31, 2011:


 

March 31,

 

December 31,

 

2012

 

2011

 

 

 

 

Automobile

$              145,121

 

$               145,121

Furniture and fixture

14,270

 

-

Leasehold improvement

-

 

-

Machinery and equipment

1,323,033

 

1,317,559

 

1,482,424

 

1,317,825

Less: Accumulated depreciation

(349,180)

 

(189,762)

Net property and equipment

$          1,133,244

 

$            1,272,919



Depreciation expense amounted to $159,418 and $11,595 for the three months ended March 31, 2012 and 2011, respectively.




SOCIAL CUBE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (Continued)


Note 6 - Intangibles


Intangibles consist of the following as of March 31, 2012 and December 31, 2011:



 

March 31,

 

December 31,

 

2012

 

2011

 

 

 

 

Software

$                43,408

 

$                 54,910

License

911,958

 

831,662

Flash Game

1,597

 

1,597

 

956,963

 

888,169

Less: Accumulated amortization

(137,678)

 

(56,527)

Net intangibles

$              819,285

 

$               831,442



The Company amortizes its software, license, and flash game over the estimated useful life of four years. Amortizable intangible assets are tested for impairment when impairment indicators are present, and, if impaired, written down to fair value based on either discounted cash flows or appraised values. As a result of the impairment testing, the Company determined that intangibles were not impaired as of March 31, 2012 and December 31, 2011.


Note 7 – Loan Payable


As of March 31, 2012 and December 31, 2011 , the Company has loan payable as follows:


 

 

March 31,

 

December 31,

 

 

2012

 

2011

 

 

 

 

 

Auto loan payable to a bank, due in monthly installments of $1,346 including interest at 4.39% as of March 31, 2012 and December 31, 2011. The final payment for the loan is scheduled on June 27, 2016.

 

$       65,832

 

$        66,933

 

 

 

 

 

Less: Current portion

 

(15,842)

 

(13,479)

 

 

 

 

 

Notes payable, net of current

 

$      49,991

 

$       53,454





SOCIAL CUBE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (Continued)


Note 8- Commitments and Contingencies


Legal Proceedings


To the best knowledge of management, there are no pending legal proceedings against us.


On July 14, 2008, Advanced Digital Technology Co. Ltd., a Korean corporation (“ADT”), filed a claim against Lexon and certain named individuals who are former officers of the Company.  The claim alleges breach of an agreement to settle an earlier dispute, involving ADT's investment of $150,000 in Lexon on or about January 16, 2007 and ADT's subsequent unilateral decision to rescind and demand a refund of this investment.  The total amount of damages claimed under the pending lawsuit is the investment amount of $150,000 plus filing costs, interest and attorney fees for an aggregate amount of $178,522.  On November 9, 2010, judgment was entered against Lexon Technologies for the amount of $206,547.95.  On approximately November 23, 2011, this case was settled for $205,000.  This settlement effectively concludes this legal proceeding.

On September 5, 2008, Vivien and David Bollenberg, a current shareholder (the “Bollenbergs”), filed a claim against Lexon and other third parties, including Byung Hwee Hwang (also referred to as "Ben Hwang") and other financial agents and institutions involved in the alleged fraudulent transaction.  The filed complaint alleges that Ben Hwang together with his representatives, including his accountant, escrow agent and real estate agent/broker, made certain representations to and solicited the Bollenbergs to make an investment in several companies and ventures including Lexon with the intent to misappropriate the solicited funds for personal use. The Bollenbergs allege that they invested a total of $1,500,000 among and between the various companies and ventures recommended by Ben Hwang, of which investment amount approximately $550,000 was invested in Lexon ($150,000 for 600,000 shares at $0.25 per share and $400,000 initially invested in Lexon Korea and later converted into 1,150,000 shares in Lexon for a total of 1,750,000 shares in Lexon). On April 1, 2011, after a trial was concluded, judgment was entered in favor of the Lexon Technologies whereby Lexon was not found liable for any causes of action brought by the Bollenbergs.  The Bollenbergs were served with a filed stamped copy of the judgment on June 2, 2011.  Thereafter, the Bollenbergs filed an appeal on December 2, 2011 and insisted that they were not served with the judgment on June 2, 2011 and filed the instant Motion to Vacate the Dismissal (or the Petition for Rehearing).  This appeal by the Bollenbergs was denied by the California Court of Appeals (4th District) in February 2012, officially concluding this legal proceeding.




SOCIAL CUBE INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2012 AND 2011 (Continued)


Note 9 - Income Taxes

 

Significant components of deferred tax assets are as follows:

 

 

 

March 31,

 

December 31,

 

 

 

2012

 

2011

 

 

 

 

 

 

 

Loss carry forwards

 

$

2,283,700

 

$

2,281,612

 

Other

 

229,720

 

229,720

 

Total deferred tax asset

 

2,513,420

 

2,511,332

 

 

 

 

 

 

 

Valuation allowance

 

(2,513,420

)

(2,511,332

)

Total deferred tax asset, net

 

$

-

 

$

-

 

 

As of March 31, 2012, the Company had approximately $3,400,000 of net operating loss (“NOL”) carryforwards for U.S. federal income tax purposes expiring in 2020 through 2030. In addition, the Company has California state NOL carryforwards of approximately $2,200,000 expiring in 2013 through 2020.  


The ability to realize the tax benefits associated with deferred tax assets, which includes benefits related to NOL’s, is principally dependent upon the Company’s ability to generate future taxable income from operations.  The Company has provided a full valuation allowance for its net deferred tax assets due to the Company’s net operating losses.  The valuation allowance has increased by $2,088 during the three months ended March 31, 2012.


Section 382 of the Internal Revenue Code (“IRC”) imposes limitations on the use of NOL’s and credits following changes in ownership as defined in the IRC. The limitation could reduce the amount of benefits that would be available to offset future taxable income each year, starting with the year of an ownership change.



Note 10 - Subsequent Events


Management has evaluated subsequent events through the date of issuance of the financial data included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the Consolidated Financial Statements (Unaudited) as of March 31, 2012.






ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


The following discussion and analysis should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this Report.




Cautionary Statement Regarding Forward-looking Statements


This report may contain “forward-looking” statements. Examples of forward-looking statements include, but are not limited to: (a) projections of revenues, capital expenditures, growth, prospects, dividends, capital structure and other financial matters; (b) statements of plans and objectives of our management or Board of Directors; (c) statements of future economic performance; (d) statements of assumptions underlying other statements and statements about us and our business relating to the future; and (e) any statements using the words “anticipate,” “expect,” “may,” “project,” “intend” or similar expressions.


Results of Operation for the Three Months Ended March 31, 2012 as Compared to the Three Months Ended March 31, 2011


Revenues.


Revenues increased by $1,295,404 to $1,310,246 for the three months ended March 31, 2012 as compared to $14,842 for the three months ended March 31, 2011. This increase was primarily attributed to the addition of online game revenues generated by Asianet Co., Ltd.


Cost of Goods Sold.


Cost of Goods Sold increased by $1,064,458 to $1,064,458 for the three months ended March 31, 2012 as compared to $0 for the three months ended March 31, 2011. This increase was primarily attributed to the addition of the online game business.


Selling, General and Administrative Expenses.


Selling, General and Administrative Expenses (“SG&A”) increased by $255,436 to $319,853 for the three months ended March 31, 2012 as compared to $64,417 for the three months ended March 31, 2011. This increase of $255,436 in SG&A was attributed to the addition of the online game business.


Other Income and Expenses.


Other expenses for the three months ended March 31, 2012 was $35,091 as compared to $0 for the three months ended March 31, 2011. For the three months March 31, 2012, interest expense was $2,661, loss from settlement was 20,000, foreign currency transaction loss was 2,927 and taxes were $9,503.


Net income.


As a result, we recorded a net loss of $109,156 for the three months ended March 31, 2012 compared with a net loss of $49,575 for the three months ended March 31, 2011.

 



Liquidity and Capital Resources.


At March 31, 2012, we had current assets of $1,491,831 and current liabilities of $848,585 compared with current assets of 1,154,847 and current liabilities of 910,936 as of December 31, 2011.


Current liabilities at March 31, 2012 was $848,585, consisted of accounts payable of $661,983, current portion of loan payable of $131,475, accrued expenses of $49,232 and other payables of $5,895.


For the three months ended March 31, 2012, net cash used in operating activities totaled $60,016 compared to net cash provided by operating activities of $2,250,763 in the prior year period.




Net cash used in investing activities for the three months ended March 31, 2012 amounted to $19,744 compared to net cash provided by investment activities of $216,310 for the same previous year period.


Net cash provided by financing activities for the three months ended March 31, 2012 was $303,040 compared to net cash used in financing activities of $2,477,291 for the three months ended March 31, 2011.


Net cash and cash equivalents at March 31, 2012 was $642,171.




ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.


ITEM 4.

CONTROLS AND PROCEDURES

Our Chief Executive Officer, President, and Chief Financial Officer (the “Certifying Officer”) is responsible for establishing and maintaining disclosure controls and procedures for the Company. The Certifying Officer has designed such disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which this report was prepared. The Certifying Officer has evaluated the effectiveness of the Company's disclosure controls and procedures within 90 days of the date of this report and believes that the Company’s disclosure controls and procedures are effective based on the required evaluation. There have been no significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


ITEM 4T.

CONTROLS AND PROCEDURES

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.


PART II

ITEM 1.

LEGAL PROCEEDINGS


To the best knowledge of management, there are no pending legal proceedings against us.


On July 14, 2008, Advanced Digital Technology Co. Ltd., a Korean corporation (“ADT”), filed a claim against Lexon and certain named individuals who are former officers of the Company.  The claim alleges breach of an agreement to settle an earlier dispute, involving ADT's investment of $150,000 in Lexon on or about January 16, 2007 and ADT's subsequent unilateral decision to rescind and demand a refund of this investment.  The total amount of damages claimed under the pending lawsuit is the investment amount of $150,000 plus filing costs, interest and attorney fees for an aggregate amount of $178,522.  On November 9, 2010, judgment was entered against Lexon Technologies for the amount of $206,547.95.  On approximately November 23, 2011, this case was settled for $205,000.  This settlement effectively concludes this legal proceeding.


On September 5, 2008, Vivien and David Bollenberg, a current shareholder (the “Bollenbergs”), filed a claim against Lexon and other third parties, including Byung Hwee Hwang (also referred to as "Ben Hwang") and other financial agents and institutions involved in the alleged fraudulent transaction.  The filed complaint alleges that Ben Hwang together with his representatives, including his accountant, escrow agent and real estate agent/broker, made certain representations to and solicited the Bollenbergs to make an investment in several companies and ventures including Lexon with the intent to misappropriate the solicited funds for personal use. The Bollenbergs allege that they invested a total of $1,500,000 among and between the various companies and ventures recommended by Ben Hwang, of which investment amount approximately $550,000 was invested in Lexon ($150,000 for 600,000 shares at $0.25 per share and $400,000 initially invested in Lexon Korea and later converted into 1,150,000 shares in Lexon for a total of 1,750,000 shares in Lexon). On April 1, 2011, after a trial was concluded, judgment was entered in favor of



the Lexon Technologies whereby Lexon was not found liable for any causes of action brought by the Bollenbergs.  The Bollenbergs were served with a filed stamped copy of the judgment on June 2, 2011.  Thereafter, the Bollenbergs filed an appeal on December 2, 2011 and insisted that they were not served with the judgment on June 2, 2011 and filed the instant Motion to Vacate the Dismissal (or the Petition for Rehearing).  This appeal by the Bollenbergs was denied by the California Court of Appeals (4th District) in February 2012, officially concluding this legal proceeding.


ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


None

ITEM 3.

DEFAULT UPON SENIOR SECURITIES


None.

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS

None.

ITEM 5.

OTHER INFORMATION

None.

ITEM 6.

EXHIBITS


Exhibit 31.1 - CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934, RULES 13(A)-14 AND 15(D)-14, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. *

 

Exhibit 31.2 - CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934, RULES 13(A)-14 AND 15(D)-14, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002. *

 

Exhibit 32 - CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002. *


101.INS** XBRL Instance Document


101.SCH** XBRL Taxonomy Extension Schema Document


101.CAL** XBRL Taxonomy Extension Calculation Linkbase Document


101.LAB** XBRL Taxonomy Extension Label Linkbase Document


101.PRE** XBRL Taxonomy Extension Presentation Linkbase Document


101.DEF** XBRL Taxonomy Extension Definition Linkbase Document

________________________


*Filed herewith.


**Furnished herewith.




SIGNATURES


     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Social Cube, INC.

 

 

 

Date: May 21, 2012

By:

/s/ Byung Jin Kim

 

 

Byung Jin Kim

 

 

President, Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates stated.











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