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 quarterly period ended September 30, 2009

 

or

 

o

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 000-50320

 

 

Credit One Financial, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

Florida		59-3641205
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification Number)
80 Wall Street, Suite 818 New York, New York		10005
(Address of Principal Executive Offices)		(Zip Code)

 

(212) 809-1200

(Registrant’s Telephone Number, Including Area Code)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required 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  x    No  o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date 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   o    No  o

 

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 definition of  “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x

 

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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes  o    No  x

 

Applicable Only to Corporate Issuers

Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 107,781,150 shares of common stock, par value $0.001, as of November 12, 2009.

 

CREDIT ONE FINANCIAL, INC.

 

PART 1 – FINANCIAL INFORMATION
Item 1.		Financial Statements	3
		Consolidated Balance Sheets as of September 30, 2009 and December 31, 2008	3
		Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2009 and 2008	4
		Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2009 and 2008	5
		Notes to Consolidated Financial Statements	6
Item 2.		Management’s Discussion and Analysis of Financial Conditions and Results of Operations	12
Item 3.		Quantitative and  Qualitative Disclosure about Market Risk	16
Item 4 (T).		Controls and Procedures	16
PART 2 – OTHER INFORMATION
Item 6.		Exhibits	17
SIGNATURES			18

 

 

PART I — FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

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CREDIT ONE FINANCIAL, INC.

(A Development Stage Company)

 

CONSOLIDATED BALANCE SHEETS

 

		September 30,			December 31,
		2009			2008
		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	429,083		$	2,924,405
Accounts receivable		1,620,583			-
Inventories		1,036,765			-
Prepaid expenses		166,648			-
Total current assets		3,253,079			2,924,405
Property and equipment
Office equipment		1,299			1,299
Construction in progress		1,619,221			-
Less: Accumulated depreciation		(1,048)			(273)
Total Property and Equipment		1,619,472			1,026
Total assets		$	4,872,551		$	2,925,431
Liabilities and Stockholders Equity
Current liabilities:
Accounts payable		$	48,209		$	-
Salaries payable		57,568			-
Total current liabilities		105,776			-
Stockholders’ Equity
Common stock: par value $0.001: 110,000,000 shares authorized;
107,781,150 shares issued and outstanding		107,781			107,781
Additional paid-in capital		3,087,678			3,087,678
Deficit accumulated during the development stage		(324,087)			(270,028)
Non-controlling interest in subsidiary		1,895,403			-
Total Stockholders’ Equity		4,766,775			2,925,431
Total liabilities and members’ (deficit) equity		$	4,872,551		$	2,925,431

 

See accompanying notes to consolidated financial statements.

 

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CREDIT ONE FINANCIAL, INC.
(A Development Stage Company)

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)

 

													C
		Three Months Ended						Nine Months Ended					C
		Sept. 30,			Sept. 30,			Sept. 30		Sept. 30,			Cumulative from Inception to Sept. 30,
		2009			2008			2009		2008			2009
Revenues:
Sales		$	1,205,534		$	-		$	1,933,382	$	-	$	1,933,382
Service fees		-			-			-		-			21,000
Commissions		-			-			-		-			11,397
Consulting		-			-			-		-			4,881
CTota		1,205,534			-			1,933,382		-			1,970,660
Cost of goods sold		1,199,152						1,882,616					1,882,616
Gross profit		6,382						50,766					88,044
Expenses
Consulting expense		-			-								6,892
Commission expense		-			-								6,962
Salary expense		19,222			6,000			49,843		18,000			126,737
General and administrative expense		26,560			6,235			81,484		25,402			268,298
		45,782			12,235			131,327		43,402			408,889
Loss from operations		(39,400)			(12,235)			(80,561)		(43,402)			(320,845)
Other income (expense):
Interest income		1,033			-			1,836		11,178			13,270
Interest expense		-			(6,708)			-		(20,125)			(42,850)
Foreign currency loss		(1,671)			-			(16,900)		-			(15,229)
Total other income (expense)		(638)			(6,708)			(15,064)		(8,947)			(44,809)
Net loss before taxes and non-controlling interest		(40,038)			(18,943)			(95,625)		(52,349)			(365,654)
Income tax provision		-			-			-		-			-
NET LOSS	$	(40,038)		$	(18,943)		$	(95,625)		$	(52,349)	$	(365,654)
Loss attributed to non-controlling interest in subsidiary		(18,203)			-			(41,567)		-			$	(41,567)
Loss attributed to common stockholders		(21,835)			(18,943)			(54,058)		(52,349)			$	(324,087)
Basic and diluted loss per share	$$$	$	(0.00)		$	(0.00)	$	(0.00)		$	(0.00)
Weighted average common shares outstanding		107,781,150			7,781,150			107,781,150		7,781,150

 

See accompanying notes to consolidated financial statements.

CREDIT ONE FINANCIAL, INC.
(A Development Stage Company)

 

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CONSOLIDATED STATEMENTS OF CASH FLOWS

 (unaudited)

 

		Nine Months Ended September 30,			Nine Months Ended September 30,		C Cumulative from Inception to September 30,
		2009			2008		2009
Cash Flow From Operating Activities
Net loss		$	(95,625)		$	(52,349)		$	(365,654)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization		775			191		1,048
Non-cash expenses contributed		-			-
Non-cash consulting and legal fees paid with common stock		-			-
Changes in operating assets and liabilities:					-
Increase in prepaid expenses		(166,649)			-		(166,649)
Increase in accounts receivable		(1,620,583)			-		(1,620,583)
Increase in inventory		(1,036,765)			-		(1,036,765)
Increase in accrued interest payable					20,125		-
Increase in salary payable		57,568			6,000		57,568
Increase in accounts payable		48,209			32		48,209
Net cash provided by operating activities		(2,813,070)			(26,001)		(3,082,826)
Cash Flow From Investing Activities
Purchase of property and equipment		(1,619,221)			(249)		(1,620,519)
Return of project advances		-			600,000		-
Net cash used in investing activities		(1,619,221)			599,751		(1,620,519)
Cash Flow From Financing Activities
Proceeds from issuance of common stock		-			-		2,540,314
Proceeds from non-controlling interest		1,936,969			-		1,936,969
Loan from a related party		-			-		620,000
Additional capital contributed by shareholders		-			-		35,145
Net cash provided by (used in) financing activities		1,936,969			-		5,132,428
Increase in cash and cash equivalents		(2,495,322)			573,750		429,083
Cash and cash equivalents, beginning of period		2,924,405			21,401		-
Cash and cash equivalents, end of period		$	429,083		$	595,151	$		429,083
Supplemental disclosure of cash flow information:
Interest paid in cash		$	-		$	-		$	9,143
Non-cash investing and financing transactions:
Common stock issued on conversion of loans payable and accrued interest to a related party		$	-		$	-		$	653,708
Stock issued costs		$	-		$	-		$	41,208

See accompanying notes to consolidated financial statements.

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CREDIT ONE FINANCIAL, INC.

(A Development Stage Company)

Notes to Consolidated Financial Statements

September 30, 2009

 Note 1 –Nature of Business

Credit One Financial, Inc. (the “Company”) was incorporated in the State of Florida on September 24, 1999. The Company was engaged in market research regarding the cost and availability of non-performing credit card debt portfolios.  It was also engaged in research regarding the current market price for re-performing portfolios as well as the market prices offered for portfolios deemed non-collectable at the time of sale.

In February 2008, the Company entered into a Joint Venture Agreement with Global Select Limited in Hong Kong. Under the agreement, a joint venture company, Moderation Limited, was set up in Hong Kong, whereby, on January 12, 2009, the Company contributed $16 million Hong Kong dollars, approximately $2.06 million, in exchange for 51.6% of the equity interest in Moderation, and Global Select and its partner together contributed $15 million Hong Kong dollars, approximately $1.94 million, for 48.4% of the equity interest in Moderation. The purpose of the joint venture is to engage in a business of natural resources products, primarily graphite at this time, in China.

In January 2009, Moderation Limited established a wholly owned subsidiary “Liaoning Sinorth Resources Co., Ltd.” in Yingkou, Liaoning Province, China. The main business of Liaoning Sinorth Resources Co., Ltd. is producing, processing and sale of mineral products, primarily graphite, in China.

Note 2 - Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of Credit One Financial, Inc., Moderation Ltd. and Liaoning Sinorth Resources Co., Ltd.  All inter-company accounts and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”). This basis differs from that used in the statutory accounts of Liaoning Sinorth Resources Co., Ltd. (“Liaoning”), which were prepared in accordance with the accounting principles and relevant financial regulations applicable to enterprises in China. All necessary adjustments have been made to present the financial statements in accordance with US GAAP. There were no material adjustments to Liaoning’s accounts to convert to US GAAP.

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with US GAAP and the rules of the United States Securities and Exchange Commission.  In the opinion of management, these interim financial statements contain all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. The financial statements should be read in conjunction with the audited financial statements of the Company for the most recent fiscal year ended December 31, 2008, as reported in Form 10-K filed on March 26, 2009.

Provision for Income Taxes

Deferred income taxes result from temporary differences between the basis of assets and liabilities recognized for differences between the financial statement and tax basis thereon, and for the expected future tax benefits to be derived from net operating losses and tax credit carry forwards. The Company has $365,654 in net operating losses as of September 30, 2009, and a valuation allowance equal to the tax benefit of the accumulated net operating losses has been established since it is uncertain that future taxable income from operations in the United States of America will be realized during the applicable carry-forward periods. The net operating loss carry-forwards may be limited under the change of control provisions of the Internal Revenue Code, Section 382.

The Company applies the provisions of income tax accounting standards for uncertainty in income taxes, which prescribe a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

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When applicable, the Company will include interest and penalties related to uncertain tax positions in income tax expense.

Use of Estimates in the Preparation of the Financial Statements

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and those differences could be material.

Fair Value Measurements

The Company follows accounting guidance relating to fair value measurements. This guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date.

Level 2 – inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data.

Level 3 – unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date.

The asset or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the unobservable inputs.

Cash and Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Concentrations of Credit Risk

The Company maintains its cash in banks which participates in the Federal Deposit Insurance Corporation (FDIC) Temporary Liquidity Guarantee Program, which provides separate FDIC coverage on the full balance of personal and non-personal checking accounts, so long as they are not interest-bearing.  Under that program, through December 31, 2009, all non-interest bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account.  Coverage is in addition to and separate from the coverage available under the FDIC’s general deposit insurance rules, which provide coverage on interest bearing balances up to $250,000. After December 31, 2013, balances up to $100,000 will be insured.  The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

As of September 30, 2009, the Company maintained $350,179 in foreign bank accounts not subject to FDIC coverage.

Foreign Currency

The Company reports it financial position and results of operations in U.S. dollars.  For its subsidiaries that have functional currencies that are foreign currencies, the elements of the financial statements are translated by using a current exchange rate. For assets and liabilities, the exchange rate at the balance sheet date is used and for revenues, expenses, gains, and losses, the exchange rate at the dates on which those elements are recognized is used. Transaction adjustments result from the process of translating the subsidiaries’ financial statements into US dollars and are not included in determining net income, but are reported in other comprehensive income.  There were no currency translation adjustments during the quarters ended September 30, 2009 and 2008.

Foreign currency transactions are transactions denominated in a currency other than the entity's functional currency. At the date the transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction is measured and recorded in the functional currency of the recording entity by use of the exchange rate in effect at that date. At each balance sheet date, recorded balances that are denominated in a currency other than the functional currency of the recording entity are adjusted to reflect the current exchange rate, with any resulting differences reported in the current period statement of operations. During the quarters ended September 30, 2009

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and 2008, the Company recognized net losses of $1,671 and $0, respectively, in foreign currency exchange differences in other income (expenses) in the consolidated statements of operations.

Inventory

Inventory consists primarily of graphite products.  Inventory is stated at the lower of cost or market, using the first-in, first out method. Cost includes materials, labor, and production overhead related to the purchase and production of inventory. The Company reviews its inventory regularly to identify potentially obsolete inventory.  No reserve is considered necessary as of September 30, 2009.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company determines the allowance based on a review of specifically identified accounts and aging data. The Company reviews its allowance for doubtful accounts monthly. As of September 30, 2009, allowance for doubtful accounts has been deemed unnecessary.

Revenue Recognition

The Company recognizes revenue in accordance with Securities and Exchange Commission revenue recognition accounting standards.  Sales revenues are recognized when the products are shipped to the customers, net of discounts and collectibility is reasonably assured.  No provisions are made for returns because, historically in China and in the industry, there have been very few sales returns and adjustments that have impacted the Company’s ultimate collection of revenues.

Impairment of Long Lived Assets

Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of assets to be held and used is measured by a comparison for the carrying amount of an asset to future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount exceeds the fair value of the assets which considers the discounted future net cash flows.

Prepaid Expenses

Prepaid expenses at September 30, 2009 represent prepayment for the purchase of graphite from miners and other graphite suppliers, as well as prepaid valued-added taxes.

Property, Plant and Equipment

Acquisitions of property, plant and equipment are recorded at cost. Improvements and replacements of property, plant and equipment are capitalized. Maintenance and repairs that do not improve or extend the lives of furniture and equipment are charged to expense as incurred. Depreciation is computed using the straight-line method over the estimated useful life of each class of depreciable assets, which for furniture and fixtures is 5 -7 years.

Properties under construction are recorded as construction in progress, and upon completion of construction, are transferred to a depreciable asset class, at which time the depreciation would start.

Earnings Per Share

Earnings Per Share is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year.  Diluted EPS is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year plus potential dilutive instruments such as stock options and warrants. The effect of stock options on diluted EPS is determined through the application of the treasury stock method, whereby proceeds received by the Company based on assumed exercises are hypothetically used to repurchase the Company's common stock at the average market price during the period. The Company has no stock options, warrants or other potentially dilutive instruments outstanding at September 30, 2009.

Consolidation Scope and Principles of Consolidation

The consolidated financial statements present the financial position and the results of operations of Credit One Financial, Inc. and its 51.6% owned subsidiary, Moderation Limited (a Hong Kong corporation, “Moderation”).  

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Moderation, in turn, is the 100% owner and consolidates Liaoning Sinorth Resources Co., Ltd (a People’s Republic of China corporation).  

The non-controlling interest in Moderation is classified as part of stockholders’ equity in the consolidated balance sheet, and the non-controlling interest’s share of Moderation’s net loss is shown as a reduction of the Company’s net loss in the consolidated statement of operations.

All significant intercompany transactions and balances have been eliminated in consolidation.

Reclassifications

Certain amounts reflected in the accompanying financial statements for the three and nine month periods ended September 30, 2009 have been reclassified from the previously reported.

Recent Accounting Pronouncements

 

In June 2009, the FASB issued the FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles (the “Codification”). The Codification became the single official source of authoritative, nongovernmental U.S. generally accepted accounting principles (“GAAP”). The Codification did not change GAAP but reorganizes the literature. The Codification is effective for interim and annual periods ending after September 15, 2009, and the Company adopted the Codification during the three months ended September 30, 2009.

 

In August 2009, the FASB issued authoritative guidance regarding accounting and disclosures related to the fair value measurement of liabilities.  The new guidance establishes valuation techniques in circumstances in which a quoted price in an active market for the identical liability is not available.  Additionally, it clarifies appropriate valuation techniques when restrictions exist that prevent the transfer of liabilities measured at fair value.  Finally, it provides further guidance on the classification of liabilities measured at fair value within the fair value hierarchy.  The new guidance is effective for interim periods ending after August 26, 2009.  The adoption of the guidance did not have a material impact on the Company’s results of operations or financial position.

 

In May 2009, the FASB issued authoritative guidance on subsequent events. This guidance establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance is effective for interim or annual financial periods ending after June 15, 2009. The adoption of the guidance did not have an impact on the Company’s  results of operations or financial position.

 

In April 2009, the FASB issued guidance regarding the determination of fair value when the volume and level of activity for an asset or liability have significantly decreased and identifying transactions that are not orderly.  The new guidance provides for estimating fair value when the volume and level of activity for an asset or liability have significantly decreased in relation to normal market activity.  Additionally, the new guidance identifies circumstances that indicate a transaction is not orderly. The new guidance requires interim disclosures of the inputs and valuation techniques used to measure fair value reflecting changes in the valuation techniques and related inputs.   The guidance is effective for interim and annual reporting periods ending after June 15, 2009, and is to be applied prospectively.  The adoption of the guidance did not have a material impact on the Company’s results of operations or financial position.

 

In April 2009, the FASB issued guidance requiring companies to disclose information about fair value of financial instruments not measured on the balance sheet at fair value in interim financial statements as well as in annual financial statements.  Prior to this guidance, fair value for these assets and liabilities was only disclosed annually.  The guidance requires all entities to disclose the methods and significant assumptions used to estimate the fair value of financial instruments.  The new guidance is effective for interim periods ending after June 15, 2009.  In periods after initial adoption, the guidance requires comparative disclosures only for periods ending after initial adoption.  The adoption of the new guidance did not have a material impact on the Company’s results of operations or financial position.

Note 3 – Stockholders’ Equity

On September 22, 2008, the Company entered into a Securities Purchase Agreement with sixteen investors in a private placement.  Pursuant to the agreement, the Company issued and investors purchased an aggregate of 100,000,000 shares of the Company's common stock, par value $0.001 per share, at a price of $0.03 per share, for an aggregate consideration of $3,000,000 in cash.  Net cash proceeds of $2,346,292 were received in December 2008.

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During the nine months ended September 30, 2009, the Company invested capital into the subsidiary Moderation Limited. The 48.4% ($1,895,402) of the subsidiary’s capital held by the non-controlling party has been recorded in stockholders’ equity as the non-controlling interest in subsidiary.  The only other equity transaction for the quarter ended September 30, 2009 was the net loss for the period.

 Note 4 – Transactions with Related Parties

On July 25, 2007, the Company issued to Dicky Cheung, the President and CEO of the Company, a promissory note, in the principal amount of $20,000 in consideration for a $20,000 cash loan made by Mr. Cheung to the Company.  Interest on the note accrues at the rate of 5% per year.  Pursuant to the terms of the note, the entire principal sum and all accrued interest was due on or before January 30, 2008.

On September 25, 2007, the Company issued to Dicky Cheung, the President and CEO of the Company, a promissory note, in the principal amount of $100,000 in consideration for a $100,000 cash loan made by Mr. Cheung to the Company.  Interest on the note accrues at the rate of 5% per year.  Pursuant to the terms of the note, the entire principal sum and all accrued interest was due on or before March 25, 2008.

On October 5, 2007, the Company issued to Dicky Cheung, the President and CEO of the Company, a promissory note, in the principal amount of $500,000 in consideration for a $500,000 cash loan made by Mr. Cheung to the Company.  Interest on the note accrues at the rate of 5% per year.  Pursuant to the terms of the note, the entire principal sum and all accrued interest was due on or before April 4, 2008.

On April 2, 2008, the above three notes were extended under the same terms and conditions. On December 22, 2008, as a part of the transaction described in Note 4 above, all three notes and accrued interest in a total amount of $653,708 were converted into the equity shares of the Company at $0.03 per share. At the same time, Mr. Cheung purchased additional 9 million shares of the Company’s common stock at a purchase of $0.03 per share.

Note 5 – Capital Stock and Contributed Capital

On March 30, 2005, the Company amended its Articles of Incorporation, to authorize the maximum number of shares to have outstanding at any one time to be 110,000,000 shares of common stock having a par value of $0.001 per share. As of September 30, 2009, there were 107,781,150 shares of the Company’s common stock issued and outstanding.

Note 6 – Establishment of a Subsidiary

On January 12, 2009, the Company remitted $2.8 million to its joint venture company, Moderation Limited (“Moderation”).  Of the $2.8 million remitted, $2,063,185 were the Company’s capital investment to Moderation for 51.6% of the equity interest in Moderation, the remaining $736,815 was provided by the Company to Moderation as temporary working capital at interest rate of 8% annually.  On October 29, 2008, the Chinese government approved Moderation’s application for setting up a wholly owned subsidiary “Liaoning Sinorth Resources Co., Ltd.” (“Liaoning”) in Yingkou, Liaoning province, China. The working capital loan and intercompany accounts are eliminated in consolidation.

The main business of Liaoning is producing, processing and sale of mineral products, primarily graphite, in China.  Liaoning began operation on January 1, 2009.

Note 7 - Going Concern

The nature of the Company's financial status makes the Company lack the characteristics of a going concern. This is because the Company, due to its financial condition, may have to seek loans or the sale of its securities to raise cash to meet its cash needs. The level of current operations does not sustain the Company's expenses and the Company has no commitments for obtaining additional capital. These factors, among others, raise substantial doubt about its ability to continue as a going concern.

Note 8 – Subsequent Events

The Company has no material subsequent events to report through the date these financial statements were issued on November 12, 2009.

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Item 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The discussion in this quarterly report on Form 10-Q contains forward-looking statements.  Such statements are based upon our beliefs, as well as assumptions made by and information currently available to us as of the date of this report.  These forward-looking statements can be identified by their use of such verbs as "expect", "anticipate", "believe" or similar verbs or conjugations of such verbs.  If any of these assumptions prove incorrect or should unanticipated circumstances arise, the actual results could materially differ from those anticipated by such forward-looking statements.  

Overview

In January 2008, we ceased our project financing business. In February 2008, we entered into a joint venture agreement with Global Select Ltd in Hong Kong. Under the agreement, a joint venture company, Moderation Limited (“JVC”), has been set up in Hong Kong, whereby, on January 12, 2009, we contributed $16 million Hong Kong dollars, approximately $2.06 million, in exchange for 51.6% of the equity interest in the JVC, and Global Select and its partner together contributed $15 million Hong Kong dollars, approximately $1.92 million, for 48.4% of the equity interest in the JVC.  The purpose of the joint venture is to engage in a business of natural resources products, primarily graphite at this time, in China.

On October 29, 2008, the Chinese government approved Moderation’s application for setting up a wholly-owned subsidiary “Liaoning Sinorth Resources Co., Ltd.” (“Liaoning”) in Yingkou, Liaoning Province, China. The main business of Liaoning is producing, processing and sale of mineral products, primarily graphite, in China.  On January 1, 2009, Liaoning began its operation, and since April 2009, it has started to generate sales to customers in China and abroad.

Results of Operations for the Three Months Ended September 30, 2009 and 2008

Sales

In April 2009, the Company started to generate sales from processing and sale of mineral products, primarily graphite, in China.  For the three months ended September 30, 2009, the Company’s sales were $1,205,534.  For the same period of 2008, the Company had no sales or revenue from its operations.

Cost of Goods Sold

Cost of goods sold for the three months ended September 30, 2009 was $1,199,152, or approximately 99.5% of net sales. There was no cost of goods sold for the three months ended September 30, 2008.  Cost of goods sold consists primarily of the purchase of raw materials and storage, processing, freight and direct labor expenses.

Operating expenses

Operating expenses for the three months ended September 30, 2009 were $45,782, an increase of $33,547, or 274%, as compared to $12,235 for the same period of the prior year. The significant increase in operating expenses was due to newly launched graphite business operation of the Company in 2009.  The Company’s biggest expense item was salary expense, which represented approximately 42% and 49% of the total operating expenses for the three months ended September 30, 2009 and 2008, respectively.

Other income (expenses)

Our total other expense for the three months ended September 30, 2009 was $638, which consisted of interest income of $1,033 and loss from foreign exchange transactions ($1,671).  For the same period of the last year, our other income (expenses) was $6,708, which represented interest expense in connection with the borrowings from our President and CEO.

Net loss

For the three months ended September 30, 2009, we had a net loss of $40,038, or $0.00 per share, as compared to a net loss of $18,943, or $0.00 per share, for the same period of the previous year.

Results of Operations for the Nine Months Ended September 30, 2009 and 2008

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Sales

In April 2009, the Company started to generate sales from processing and sale of mineral products, primarily graphite, in China.  For the nine months ended September 30, 2009, the Company’s sales were $1,933,382.  For the same period of 2008, the Company had no sales or revenue from its operations.

Cost of Goods Sold

Cost of goods sold for the nine months ended September 30, 2009 was $1,882,616, or approximately 97% of net sales. There was no cost of goods sold for the nine month period ended September 30, 2008, because there were no sales generated.

Operating expenses

Operating expenses for the nine months ended June 30, 2009 were $131,327, an increase of $87,925, or 203%, as compared to $43,402 for the same period of the prior year. The significant increase in operating expenses was due to newly launched graphite business operation of the Company in 2009.  The Company’s biggest expense item was salary expense, which represented approximately 38% and 41% of the total operating expenses for the nine months ended June 30, 2009 and 2008, respectively.

Other income (expenses)

Our total other expense for the nine months ended September 30, 2009 was $15,064, which consisted of interest income of $1,836 and loss from foreign exchange transactions ($16,900). For the same period of the last year, our other expenses were $8,947, which consisted of interest income of $11,178 from the Company’s now discontinued project financing business and interest expense of $20,215 in connection with the borrowings from our President and CEO.

Net loss

For the nine months ended September 30, 2009, we had a net loss of $95,625, or $0.00 per share, as compared to a net loss of $52,349, or $0.00 per share, for the same period of the previous year.

Liquidity and Capital Resources

We historically met our capital requirements through the issuance of stock and borrowings from its executive officers and directors.  In 2007, we entered into three promissory notes with Dicky Cheung, our President and CEO, for an aggregate principal amount of $620,000 with interest rate at 5% per year. In April 2008, all notes mentioned above were extended under the same terms and conditions.  In December 2008, as a part of a private placement as set out below, the notes ($620,000) with their accrued interests ($33,708) were converted into the equity shares of the Company at $0.03 per share.

At September 30, 2009, we had cash balance of $429,083. For the nine months ended September 30, 2009, our operating activities used $2,813,070 of net cash, and our investing activities used cash of $1,619,221 for purchase of property and equipment. For the same period under the review, our financing activities provided $1,936,969 of net cash, which represented proceeds from non-controlling interest.

On January 12, 2009, we remitted $2.8 million to set up a 51.6% owned subsidiary, Moderation Limited. Of the $2.8 million remitted, $2,063,185 were our capital investment to Moderation for 51.6% of the equity interest in Moderation, the remaining $736,815, which was eliminated in consolidation, was provided to Moderation as temporary working capital at an interest rate of 8% per year.

In our opinion, available funds will satisfy our capital requirements for the next twelve months. However, we may need to raise additional funds to implement our business plan. We may raise funds through private placements, either in equity offerings, or interest bearing borrowings. There is no guarantee that we will be able to raise additional funds through offerings or other sources.  If we are unable to raise funds, our ability to continue with operations will be materially hindered.

Off-Balance Sheet Arrangements

None

Going Concern

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Our ability to continue as a going concern remains dependent upon successful operation under our business plan, obtaining additional capital and financing, and generating positive cash flow from operations. This is because we, due to our financial condition, may have to seek additional capital either through debt or equity offerings to meet its cash needs.  The level of current operations may not sustain our expenses and we have no commitments for obtaining additional capital. These factors, among others, raise substantial doubt about our ability to continue as a going concern.

Critical Accounting Policies

Our discussion and analysis of results of operations and financial condition are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those related to provisions for uncollectible accounts receivable, inventories, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and those differences could be material.

The accounting policies that we follow are set forth in Note 2 to our financial statements as included in this report. These accounting policies conform to accounting principles generally accepted in the United States, and have been consistently applied in the preparation of the financial statements.

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

A smaller reporting company is not required to provide the information in this Item.

Item 4 (T).  Controls and Procedures

(a) Evaluation of disclosure controls and procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our CEO and CFO concluded that, as of September 30, 2009, our disclosure controls and procedures were effective at providing reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that our controls and procedures are effective in timely alerting them to material information required to be included in this report.

 

(b) Changes in control over financial reporting

There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

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Item 4. Submission of Matters to a Vote of Security Holders

None

Item 5. Other Information

None

 

Item 6.  Exhibits

(a)    Exhibits:

Exhibit No.                                                Title of Document

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      31.1     Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

      32.1     Certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CREDIT ONE FINANCIAL, INC.

By: /s/ Dicky Cheung

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 Dicky Cheung

 President, Chief Executive Officer and Chief Financial Officer

November 12, 2009

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