PINX:UCCC Uan Cultural & Creative Co Ltd Quarterly Report 10-Q/A Filing - 6/30/2012

Effective Date 6/30/2012

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q/A

Amendment No. 1 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 September 13, 2012, there were 53,672,708 shares of the registrant’s Common Stock outstanding.

 
 

EXPLANATORY NOTE

 

 

This Amendment No. 1 on Form 10-Q/A (this “Amendment”) amends our Quarterly Report on Form 10-Q for the quarter ended June 30, 2012, originally filed on August 20, 2012 (the “Form 10-Q”),furnish Exhibit 101 to the Form 10-Q in accordance with Rule 405 of Regulation S-T. Exhibit 101 to the Form 10-Q provides the financial statements and related notes from the Form 10-Q formatted in XBRL (eXtensible Business Reporting Language).

 

The Amendment also amends and restates Item 1 of the Form 10-Q in its entirety, to amend certain information in the financial statements and footnotes included within the Form 10-Q. We believe these changes, which were discovered as we prepared the financial statements and related notes in XBRL, are not material.

 

In addition, in connection with the filing of this Amendment, and pursuant to Rules 12b-15 and 13a-14 under the Exchange Act, we are including with this Amendment currently dated certifications. Except as described above, no other changes have been made to the Form 10-Q. This Amendment speaks as of the date of the Form 10-Q, and we have not updated the disclosures contained therein to reflect any events which occurred at a date subsequent to the filing of the Form 10-Q.

 

Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

 

 
 

PART I

 

Item 1.  Financial Statements

 

UAN Cultural & Creative Co., Ltd.

Balance Sheets

 

   June 30,
2012
   December 31,
2011
 
   (Unaudited)     
         
ASSETS          
Current Assets:          
Cash and cash equivalents  $127,929   $441,448 
Accounts and notes receivable   174,691    307,793 
Inventory   39,328    441,607 
Other current assets   164,210    118,933 
Total current assets   506,158    1,309,781 
           
Fixed assets, net (Note 4)   107,599    74,900 
Other assets   254,746    68,268 
Total assets  $868,502   $1,452,949 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
Current Liabilities:          
Accounts payable  $63,825   $93,206 
Accrued expenses   33,843    123,974 
Notes payable   130,218    39,645 
Deposit from customers   3,343    31,925 
Other payables   7,076    6,457 
Demand Notes Payable to shareholder (Note 7 and 9)   -    - 
Due to officer & shareholder (Note 9)   21,920    99,991 
Income Taxes Payable (Note 5)   -    31,510 
Total current liabilities   260,226    426,708 
           
Long Term Notes Payable   173,601    58,998 
Total liabilities   433,827    485,706 
           
Commitments & Contingencies (Note 6)   -    - 
           
Stockholders' Equity (Notes 2, 7 and 8):          
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 June 30, 2012 and December 31, 2011   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   (2,611,520)   (2,074,530)
Accumulated other comprehensive income (loss)   (7,306)   (11,728)
Total stockholders' equity   434,675    967,243 
Total liabilities and stockholders' equity  $868,502   $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   For the six months ended 
   June 30,
2012
   June 30,
2011
   June 30,
2012
   June 30,
2011
 
                 
Revenue  $339,929   $756,694   $575,069   $1,073,576 
                     
Cost of Sales   270,145    369,290    512,100    408,134 
                     
Gross Profit (Loss)  $69,784   $387,404   $62,969   $665,442 
                     
Operating expenses:                    
Selling, general & administrative expenses   341,110    210,975    594,987    406,045 
       Total operating expenses   341,110    210,975    594,987    406,045 
                     
Income (Loss) from operations   (271,326)   176,429    (532,018)   259,397 
                     
Other income/(expenses)                    
Interest income/(expense), net   55    (3,895)   (6,626)   (7,840)
Other gains, net   308    -    2,537    - 
       Total other expenses   363    (3,895)   (4,089)   (7,840)
                     
Income (Loss) before provision for income taxes   (270,963)   172,534    (536,107)   251,557 
                     
Provision for income taxes (Note 5)   882    45,264    882    69,458 
                     
Net Income (Loss)  $(271,845)  $127,270   $(536,989)  $182,100 
                     
Weighted average number of common shares outstanding, basic   53,672,708    53,552,708    53,672,708    53,552,708 
                     
Net Income (Loss) per share, basic  $(0.005)  $0.002   $(0.010)  $0.003 
                     
Weighted average number of common shares outstanding, diluted   53,672,708    53,552,708    53,672,708    53,552,708 
                     
Net Income (Loss) per share, diluted  $(0.005)  $0.002   $(0.010)  $0.003 
                     
Comprehensive Income (Loss)                    
Net income (loss)  $(271,845)  $127,270   $(536,989)  $182,100 
Foreign currency translation gain (loss)   (7,679)   3,649    4,422    2,863 
Comprehensive income (loss)  $(279,524)  $130,919   $(532,567)  $184,963 

 

See accompanying notes to financial statements.

 

4
 

UAN Cultural & Creative Co., Ltd.

Statements of Stockholders Equity (Deficit)

(Unaudited)

 

                           Accumulated     
       Common Stock,   Additional       Accumulated   Other     
   Common Stock   Class B   Paid-In   Treasury   Earnings   Comprehensive     
   Shares   Amount   Shares   Amount   Capital   Stock   (deficit)   Income (Loss)   Total 
                                     
Balance, December 31, 2009   3,672,708   $367       $   $2,050,388   $(30,000)  $(2,041,292)  $   $(20,537)
                                              
Net loss for the period                                 (203,295)        (203,295)
Sale of common shares - Proceeds of $999,718   50,000,000    5,000              994,718                   999,718 
Capital contribution cancellation of notes payable and accrued expense                       33,028                   33,028 
                                              
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                                 (536,989)        (536,989)
Foreign currency translation loss                                      4,422    4,422 
                                              
Balance, June 30, 2012   53,672,708   $5,367       $   $3,048,134   $   $(2,611,520)  $(7,306)  $434,675 

 

See accompanying notes to financial statements.

 

5
 

UAN Cultural & Creative Co., Ltd.

Statement of Cash Flows

(Unaudited)

 

   For the six months ended 
   June 30, 2012   June 30, 2011 
         
Cash Flows from Operating Activities          
Net income (loss) for the period  $(536,989)  $182,100 
Depreciation and amortization expense   70,423    73,400 
Adjustments to reconcile net (loss) to net cash used in operating activities:          
Changes in operating assets and liabilities:          
Increase in accounts and notes receivable   133,102    - 
(Increase) Decrease in inventory   402,279    (78,677)
Increase in other assets   (231,755)   (101,629)
Increase (Decrease) in accounts payable & accrued expenses   (119,512)   127,199 
Increase in notes payable   205,176    - 
Decrease in deposit from customers   (28,582)   - 
Decrease in other payables   619    - 
Increase in income tax payables   (31,510)   - 
           
Net cash provided by (used in) operating activities   (136,747)   202,393 
           
Cash Flows from Investing Activities          
Purchase of leasehold improvements   (105,154)   - 
           
Net cash used in investing activities   (105,154)   - 
           
Cash Flows from Financing Activities          
Advances from shareholders & officers   (78,071)   (6,353)
           
Net cash used in financing activities   (78,071)   (6,353)
           
Effect of exchange rate change on cash   6,453    2,863 
           
Net increase (decrease) in cash and cash equivalents   (313,519)   198,903 
           
Cash and cash equivalents          
Beginning of period   441,448    377,433 
           
End of period  $127,929   $576,336 
           
Supplemental disclosure of cash flow information:          
Interest paid  $27,317   $- 

 

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 57,500 Series A Units and 529,000 Series B Units at a price of $85 and $101 per unit, 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 $.50 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 2,500 additional Series A Units and/or 23,000 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 and six months ended June 30, 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 two 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 and six months ended June 30, 2012 and 2011 is as follows:

9
 

 

   For the three months ended   For the six months ended 
   June 30, 2012   June 30, 2011   June 30, 2012   June 30, 2011 
Numerator:                
Net Income/(Loss)  $(271,845)  $127,270   $(536,989)  $182,100 
Denominator                    
Weighted average common shares outstanding – basic   53,672,708    53,552,708    53,672,708    53,552,708 
Dilution associated with W and Z warrants   -    -    -    - 
Weighted average common share outstanding – diluted   53,672,708    53,552,708    53,672,708    53,552,708 
Basic earnings (loss) per share  $(0.005)  $0.002   $(0.010)  $0.003 
Diluted earnings (loss) per share  $(0.005)  $0.002   $(0.010)  $0.003 

 

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 six months ended June 30, 2012, two hundred sixty four (264) pieces of arts were sold from the inventory.

 

ADVERTISING COSTS

 

Advertising costs are expensed as incurred and included in selling, general and administrative expenses. The Company incurred advertising expense of $71,131 and $887 for the three months ended June 30, 2012 and 2011, respectively, and $106,775 and $4,773 for the six months ended June 30, 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. Two customers accounted for 92% of the Company’s revenues for six months ended June 30, 2012. The Company generated 91% of revenues for the six months ended June 30, 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 six months ended June 30, 2012 and 2011:

 

   2012       2011    
Largest Customers               
Espoir  $307,621    53%   $981,955   91% 
Roundex   223,299    39%    54,294   5% 
Others   44,149    8%    37,327   3% 
Total revenues  $575,069    100%   $1,073,576   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 June 30, 2012, the cumulative translation adjustments of $(7,306), were classified as items of accumulated other comprehensive income in the stockholders’ equity section of the balance sheet. For the three ended June 30, 2012, other comprehensive (loss) income was $(7,649) and $3,649, respectively. For the six months ended June 30, 2012, other comprehensive income was $4,422 and $2,863, respectively.

 

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 June 30, 2012, the Company used the spot rates of exchange for assets and liabilities of $1.00 US to TWD 29.91. For the six months ended June 30, 2012, the Company used the period’s average rate of exchange to convert revenues, costs, and expenses of $1.00 US to TWD 29.66. 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.

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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.

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NOTE 4 – FIXED ASSETS, NET

 

The balances of fixed assets are as follows:

 

   June 30,
2012
   December 31,
2011
 
Leasehold Improvements  $346,875   $250,000 
Machinery & Equipment   8,813    534 
    355,688    250,534 
Accumulated Depreciation & Amortization   (248,089)   (175,634)
Net Fixed Assets  $107,599   $74,900 

 

The depreciation and amortization expense for the three and six months ended June 30, 2012 and 2011 were $41,529, $42,722, $70,423 and $73,400, respectively.

 

NOTE 5 — INCOME TAXES

 

The Company has cumulative net operating tax loss carryover (the “NOL”) of approximately $2.6 million at June 30, 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 June 30, 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 June 30, 2012.

 

Income/(Loss) before Income Taxes for the six months ended June 30 were as follows:

 

   2012   2011 
United States  $(165,015)  $(140,801)
Taiwan   (371,092)   392,358 
Total Income (Loss) before Tax  $(536,107)  $251,557 

 

Provisions for Income Taxes for the six months ended June 30 were as follows:

 

   2012   2011 
United States  $-   $2,762 
Taiwan   882    66,696 
Total Tax Expense  $882   $69,458 

 

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Reconciliations of statutory rates to effective tax rates for the six months ended June 30 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% 

 

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

In August 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 $15,440 and $8,180 for the three months ended June 30, 2012 and 2011, respectively. Rent expenses incurred were $29,643, and $19,436 for the six months ended June 30, 2012 and 2011, respectively.

 

On October 7, 2011, the Company entered into a three years automobile lease agreement.

 

On June 5, 2012, the Company entered into a three years automobile lease agreement.

 

Automobile Lease expenses incurred were $13,730, and $0 for the three months ended June 30, 2012 and 2011, respectively; and $21,981 and $0 for six months ended June 30, 2012 and 2011, respectively.  

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Future aggregate minimum automobile lease payments will be as follows:

 

Year   Amounts 
 2012   $87,900 
 2013    157,077 
 2014    100,736 
 2015    28,385 
 Total   $374,098 

 

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.

 

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 June 30, 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 June 30, 2012, the following shares of Common Stock, which take into account the Reverse Split, are reserved for issuance pursuant to outstanding warrants:

 

•     575,000 shares of Common Stock underlying the outstanding Class Z warrants sold in the IPO on March 8, 2006. We refer to these warrants as the “IPO Warrants.”

 

•     247,500 shares of Common Stock underlying the outstanding Class Z warrants issued to former officers and directors of the Company. Specifically, an aggregate of 247,500 Class W warrants and 247,500 Class Z warrants were sold to former officers and directors for an aggregate of $247,500 (or a purchase price of $.50 per warrant). These warrants have the same terms as the other Class Z and Class W warrants, including an exercise price of $50 per share. We refer to these warrants as the “Affiliate Warrants.”

 

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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 completion of a Business Combination as further described in the IPO registration statement; and

 

•     March 8, 2007.


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 June 30, 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.

 

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 June 30, 2012, David Chen-Te Yen (Chairman, director and shareholder of the Company) has an outstanding receivable of $33,434 from the Company which was advanced to commence the Taiwan operations.

 

At June 30, 2012, Yuan-Hao Chang (shareholder and consultant to the Company) has an outstanding payable of $10,735 to the Company.

 

At June 30, 2012, Parashar Patel (shareholder and CEO of the Company) has an outstanding payable of $778 to the Company. which the Company advanced to Mr. Patel to pay certain Company expenses.

 

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 June 30, 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 six months ended June 30, 2012 and 2011, respectively. The related accrued interest of $27,317 was repaid in March 2012.

 

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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.

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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 June 30, 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 2012. At June 30, 2012, the outstanding working capital advances payable to shareholders and officers were $21,920.

 

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. Our lease for this gallery will expire on August 24, 2012. Due to current weakness in the Taiwan real estate market, we expect to negotiate an extension of the lease on terms that are favorable to us. 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 displayed a small number of artworks for a period of approximately 90 days. We have discontinued this lease but, in the future, we may attempt to lease additional space in the gallery 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 1,600 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.

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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 June 30, 2012 v. June 30, 2011

 

Revenues

 

Sales revenues for the three months ended June 30, 2012 and 2011 were $339,929 and $756,694, respectively, a decrease of $416,765 or approximately 55%. Our sales decline during the period was attributable to an economic downturn in Taiwan, which has significantly affected our business. We are actively seeking alternate distribution channels to increase our sales.

 

Cost of Sales and Gross Profit

 

Cost of sales for the three months ended June 30, 2012 and 2011 were $270,145 and $369,290, respectively, a decrease of $99,145. Our gross profit for the three months ended June 30, 2012 and 2011 were $69,784 and $387,404, respectively. Gross margin for the three months ended June 30, 2012 and 2011 were approximately 20.5% and 51.2%, respectively. The decrease in gross profit reflects the sale of four high-value paintings below our cost during the three months ended June 30, 2012. These paintings were sold at negative gross margin of approximately (14)% and accounted for approximately 37% of gross sales.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses for the three months ended June 30, 2012 and 2011 were $341,110 and $210,975, respectively, an increase of $130,135 or approximately 62%. Our major operating expenses for the three months ended June 30, 2012 consisted of advertising expenses of $71,131, salaries and related expenses of $34,473, rent expenses in the amount of $29,710, professional fees in the amount of $50,573 and leasehold improvement amortization of $41,529, compared to advertising expenses of $887, salaries and related expenses of $38,595, rent in the amount of $8,180, professional fees in the amount of $48,606, and leasehold improvement amortization of $42,722 for the three months ended June 30, 2011. We increased our advertising expenses, payroll related expenses and rent expenses primarily as a result of opening our second gallery in Tainan, Taiwan.

 

Other Income/(Expenses)

 

Other income for the three months ended June 30, 2012 amounted to $55, as compared to other expenses $(3,895) for the three months ended June 30, 2011. These expenses consist of interest on related party loans.

 

Provision for Income Tax

 

Income tax provision for the three months ended June 30, 2012 was $882, compared to $45,264 for the three months ended June 30, 2011, a decrease of $44,382. Our worldwide effective tax rate for the three months ended June 30, 2011 was approximately 30%. We have certain tax deferred assets such as net operating loss and foreign tax credit.

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Net Income (Loss)

 

We had a net loss from operations of $(271,845) for the three months ended June 30, 2012, compared to net income of $127,270 incurred in the three months ended June 30, 2011. Our net loss was attributable to the sales of four high-value paintings below our cost in addition to lower sales revenue and the increase in our selling, general and administrative expenses.

 

Six Months Ended June 30, 2012 v. June 30, 2011

 

Revenues

 

Sales revenues for the six months ended June 30, 2012 and 2011 were $575,069 and $1,073,576, respectively, a decrease of $498,507 or approximately 46%. Our sales decline during the period was attributable primarily to an economic downturn in Taiwan, which has significantly affected our business. The decrease in revenues was also attributable to a decline in sales during the first quarter of 2012, 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, and to the redecoration of the gallery space for exhibits of the artworks during the first quarter of 2012, which resulted in delay of sales activities. We are actively seeking alternate distribution channels to increase our sales.

 

Cost of Sales and Gross Profit

 

Cost of sales for the six months ended June 30, 2012 and 2011 were $512,100 and $408,134, respectively, an increase of $103,966. Our gross profit for the six months ended June 30, 2012 and 2011 were $62,969 and $665,442, respectively. Gross margin for the three months ended June 30, 2012 and 2011 were approximately 10.9% and 62%, respectively. The decrease in gross profit reflects the sale of ten high-value paintings below our cost during the six months ended June 30, 2012. These paintings were sold at negative gross margin of approximately (14)% and accounted for approximately 55% of gross sales.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses for the six months ended June 30, 2012 and 2011 were $594,987 and $406,045, respectively, an increase of $188,942 or approximately 47%. Our major operating expenses for the six months ended June 30, 2012 consisted of advertising expenses of $106,775, salaries and related expenses of $82,287, rent expenses in the amount of $51,624, professional fees in the amount of $85,233 and leasehold improvement amortization of $70,423, compared to advertising expenses of $4,773, salaries and related expenses of $66,905, rent in the amount of $19,436, professional fees in the amount of $97,444, and leasehold improvement amortization of $73,400 for the six months ended June 30, 2011. We increased our advertising expenses, payroll related expenses, and rent expenses primarily as a result of opening our second gallery in Tainan, Taiwan.

 

Other Expenses

 

Other expenses for the six months ended June 30, 2012 amounted to $4,089, as compared to $7,840 for the six months ended June 30, 2011. These expenses consist of interest on related party loans.

 

Provision for Income Tax

 

Income tax provision for the six months ended June 30, 2012 was $882, compared to $69,485 for the six months ended June 30, 2011, a decrease of $68,603. Our worldwide effective tax rate for the six months ended June 30, 2011 was 30%. We have certain tax deferred assets such as net operating loss and foreign tax credit.

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Net Income (Loss)

 

We had a net loss from operations of $(536,989) for the six months ended June 30, 2012, compared to net income of $182,100 incurred in the six months ended June 30, 2011. Our net loss was attributable to the sales of ten high-value paintings below our cost, in addition to lower sales revenue and the increase in our selling, general and administrative expenses.

 

Liquidity and Capital Resources

 

As of June 30, 2012, our total assets were $868,502, total liabilities were $433,827, and shareholders’ equity was $434,675, compared to $1,452,949, $485,706 and $967,243, respectively, as of December 31, 2011. Current assets at June 30, 2012 were $506,158, including cash and cash equivalents of $127,929, accounts receivables of $174,691, and inventory of $39,328, compared to $441,448, $307,793 and $441,607, respectively, at December 31, 2011. Included in total assets as of June 30, 2012 are leasehold improvements net of $107,599 and other assets of $254,746, compared to $74,900 and $68,268, respectively, as of December 31, 2011.

 

As of June 30, 2012, total liabilities were $433,827, consisting of accrued expenses of $33,843, advances from related parties of $21,920, and accounts payable of $63,825. 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 June 30, 2012 decreased by $313,519 as compared to December 31, 2011. Our working capital was $245,932 and $883,073 at June 30, 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 in our operating activities in the six months ended June 30, 2012 was $136,747, as compared to net cash provided of $202,393 for the six months ended June 30, 2011. 

 

Net cash used in investing activities in the six months ended June 30, 2012 was $105,154, compared to $0 in the six months ended June 30, 2011. The net increase in cash used in investing activities in 2012 resulted primarily from the expenditures for leasehold improvements and equipment acquisition. 

 

Net cash used in financing activities in the six months ended June 30, 2012 was $78,071, compared to $6,353 in the six months ended June 30, 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 June 30, 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 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.

 

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.

21
 

 

Off-Balance Sheet Arrangements

 

As of June 30, 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 June 30, 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 June 30, 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 June 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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.

 

22
 

 

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

 

Not applicable.

 

Item 1A.  Risk Factors

 

Other than as set forth below, 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.

 

The lease for our first gallery, in Luzhu Township, Taiwan, expires on August 24, 2012.

 

The lease for our first gallery, in Luzhu Township, Taiwan, expires on August 24, 2012. Due to current weakness in the Taiwan real estate market, we expect to negotiate an extension of the lease on terms that are favorable to us. However, we do not have a contractual right to extend the lease, and the landlord could evict us or impose penalties equal to 100% of our rent if we do not reach agreement on the extension terms. Being forced to vacate these premises or to pay those penalties would have a material adverse effect on our financial condition, business and prospects.

 

We have high operating costs, including two automobile leases.

 

In October 2011 we entered into an automobile lease with a three-year term. In June 2012, we entered into a second such lease with a three-year term. The combined minimum lease payments under these leases for the years ending December 31, 2013 and 2014 are $100,908 and $92,712, respectively. We will be required to pay the amounts due under these leases regardless of whether or not we generate profits or sufficient cash flow from our business activities to satisfy the obligations. Our cost structure, including our obligations under these leases, may prevent us from realizing a profit. If we do not make a profit, we may have to suspend or cease operations. 

 

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.

 

23
 

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.
   
10.1(1) Car Lease Agreement between UAN Cultural & Creative Co., Ltd. and Taiwan Life Insurance Co., Ltd.
   
101.INS (2) XBRL Instance Document.
   
101.SCH(2) XBRL Taxonomy Extension Schema Document
   
101.CAL(2) XBRL Taxonomy Extension Calculation Linkbase Document
   
101.DEF(2) XBRL Taxonomy Extension Definition Linkbase Document
   
101.LAB(2) XBRL Taxonomy Extension Label Linkbase Document
   
101.PRE(2) XBRL Taxonomy Extension Presentation Linkbase Document

 

____________________

 

  (1) Previously filed as an exhibit to UAN Cultural & Creative Co., Ltd.’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2012, filed with the Securities and Exchange Commission on August 20, 2012.
     
  (2) Furnished herewith. Pursuant to Rule 406T of Regulation S-T, XBRL (eXtensible Business Reporting Language) information is deemed not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

24
 

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: September 13, 2012   By: /s/ Parashar Patel
      Parashar Patel
      Chief Executive Officer
      (Principal Executive Officer)
       
       
Dated: September 13, 2012   By: /s/ Chung Hua Yang
      Chung Hua Yang
      Chief Financial Officer
      (Principal Financial Officer and Chief Accounting Officer)

 

 

25

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