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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q



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


For the quarterly period ended September 30, 2011

Or


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


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 No.)


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 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 [X]     No [   ]


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 [X]     No [   ]


Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non- accelerated filer or a smaller reporting company. See definition of "large accelerated filer, and accelerated filer" and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer        [   ]      Accelerated filer      [   ]      Non Accelerated filer   [   ]     Smaller Reporting Company [X]


Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes [   ]     No    [X]



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:  302,155,623 shares of common stock, par value $0.001, as of November 8, 2011.











1









TABLE OF CONTENTS




 

 

 

 

 

 

 

 

 

PAGE

 

 

 

 

 

 

 

 

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

 

Item 1      Financial Statements

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

Item 2      Management’s Discussion and Analysis of Financial Condition and Results of Operations

12

 

 

 

 

 

 

 

 

 

 

Item 3      Quantitative and Qualitative Disclosures About Market Risk

 

 

15

 

 

 

 

 

 

 

 

 

 

Item 4      Controls and Procedures

 

 

 

 

 

15

 

 

 

 

 

 

 

 

 

 

PART II – OTHER INFORMATION

 

 

 

 

 

 

 

 

 

 

Item 1      Legal Proceedings

 

 

 

 

 

 

16

 

 

 

 

 

 

 

 

 

 

Item 1A     Risk Factors

16

 

 

 

 

 

 

 

 

 

 

Item 2      Unregistered Sales of Equity Securities and Use of Proceeds

16

 

 

 

 

 

 

 

 

 

 

Item 3      Defaults Upon Senior Securities

16

 

 

 

 

 

 

 

 

 

 

Item 5      Other Information

16

 

 

 

 

 

 

 

 

 

 

Item 6      Exhibits

16

 

 

 

 

 

 

 

 

 

 

SIGNATURES

17




















Item 1.    Financial Statements







2








CREDIT ONE FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS



 

 

 

 

September 30,

December 31,

 

 

 

 

2011

 

2010

ASSETS

 

(Unaudited)

 

(Audited)

Current Assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

1,051,779

 

$

241,125

 

Notes receivable from related party

 

 

-

 

 

790,754

 

Investment in gold bullion

 

 

2,417,413

 

 

-

 

Prepaid expense

 

 

173,235

 

 

-

 

 

Total Current Assets

 

 

3,642,427

 

 

1,031,879

 

 

 

 

 

 

 

 

 

Property, Plant and Equipment

 

 

 

 

 

 

 

Furniture and fixtures

 

 

6,556

 

 

1,374

 

Less:  Accumulated depreciation

 

 

(1,840)

 

 

(793)

 

 

Total Property, Plant and Equipment

 

 

4,716

 

 

581

 

 

 

 

 

 

 

 

 

Note receivable

 

 

4,385,727

 

 

916,783

Intangible assets, net of accumulated amortization of $234,427 and $4,357, respectively

 

 

4,463,698

 

 

1,010,907

 

 

 

 

 

 

 

Total Assets

 

$

12,496,568

 

$

2,960,150

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

29,825

 

$

145,606

 

Due to director

 

 

1,065,061

 

 

-

 

 

Total Current Liabilities

 

 

1,094,886

 

 

145,606

 

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

 

 

Common stock, $0.001 par value, 500,000,000 shares authorized, 302,155,623 and 2,155,623 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively

 

 

302,156

 

 

2,156

 

Additional paid-in capital

 

 

11,893,303

 

 

3,193,303

 

Accumulated deficit

 

 

(735,113)

 

 

(375,552)

 

Currency translation adjustment

 

 

(58,664)

 

 

(5,363)

 

 

Total Stockholders' Equity

 

 

11,401,682

 

 

2,814,544

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders' Equity

 

$

12,496,568

 

$

2,960,150




See accompanying notes to the consolidated financial statements







3





CREDIT ONE FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)


 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

 

2011

 

 

2010

 

 

2011

 

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Advertising Revenue

$

44,730

 

$

-

 

$

86,223

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

171,578

 

 

12,573

 

 

427,923

 

 

79,427

 

 

Total operating expenses

 

171,578

 

 

12,573

 

 

427,923

 

 

79,427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(126,848)

 

 

(12,573)

 

 

(341,700)

 

 

(79,427)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expenses)

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

83,890

 

 

-

 

 

134,809

 

 

-

 

Unrealized loss on investment

 

(152,670)

 

 

-

 

 

(152,670)

 

 

-

 

 

Total other income (expenses)

 

(68,780)

 

 

-

 

 

(17,861)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss from Continuing Operations Before Income Taxes

 

(195,628)

 

 

(12,573)

 

 

(359,561)

 

 

(79,427)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income Tax Provision

 

-

 

 

-

 

 

-

 

 

-

Net Loss From Continuing Operations

$

(195,628)

 

$

(12,573)

 

$

(359,561)

 

$

(79,427)

Loss per share from continuing operations

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

(0.00)

 

(0.00)

 

 $

(0.00)

 

(0.00)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued Operations:

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations of discontinued Moderation Ltd.

 

-

 

 

(12,017)

 

 

-

 

 

(394,834)

 

Income tax provision

 

-

 

 

-

 

 

-

 

 

-

Net Loss

$

(195,628)

 

$

(24,590)

 

$

(359,561)

 

$

(474,261)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per Share From Discontinued Operations:

 

Basic and Diluted

 $

          (0.00)

 

 $

              (0.00)  

 

 $

       (0.00) 

 

 $

            (0.00)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss Attributed to Non-Controlling Interest in Subsidiary

 

 

 

(5,714)

 

 

 

 

(190,998)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss Attributed to Common Stockholders

 $

(195,628)

 

 $

(18,876)

 

 $

(359,561)

 

(283,263)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss Per Share:

 

 

 

 

 

 

 

 

 

 

 

 

Basic and Diluted

$

(0.00)

 

$

(0.00)

 

$

(0.00)

 

$

(0.00)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Number of Shares:

 

302,155,623

 

 

107,781,150

 

 

151,680,128

 

 

107,781,150

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(195,628)

 

$

(24,590)

 

$

(359,561)

 

$

(474,261)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustment

 

(18,788)

 

 

65,410

 

 

(53,301)

 

 

82,920

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

$

(214,416)

 

$

40,820

 

$

(412,862)

 

$

(391,341)



See accompanying notes to the consolidated financial statements



5




CREDIT ONE FINANCIAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)



 

 

 

 

 

Nine Months Ended

 

 

 

 

 

September 30, 2011

 

September 30, 2010

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

 

$

(359,561)

 

$

(474,261)

 

Adjustments to reconcile net loss to net cash provided (used) by operating activities:

 

 

Depreciation and amortization

 

 

96,449

 

 

94,242

 

 

Unrealized loss on investments

 

 

152,670

 

 

-

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

-

 

 

453,915

 

 

Inventory

 

 

-

 

 

801,142

 

 

Prepaid expenses and other current assets

 

 

(173,235)

 

 

(727,892)

 

 

Accounts payable and accrued expenses

 

 

(115,781)

 

 

(352,585)

 

 

 

Cash used by operating activities

 

 

(399,458)

 

 

(205,439)

 

 

 

 

 

 

 

 

 

 

CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(5,182)

 

 

(434,202)

 

Investment in note receivable

 

 

(7,019,778)

 

 

-

 

Investment in gold bullion

 

 

(2,570,083)

 

 

-

 

Change in amounts due to director for gold investment

 

 

1,065,061

 

 

-

 

Payments received on notes receivable

 

 

790,754

 

 

224,057

 

Investment in trademark

 

 

(17,132)

 

 

-

 

 

Cash used by investing activities

 

 

(7,756,360)

 

 

(210,145)

 

 

 

 

 

 

 

 

 

 

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:

 

 

 

 

 

 

     Proceeds from issuance of common stock

 

 

9,000,000

 

 

-

 

 

 

 

 

 

 

IMPACT OF FOREIGN CURRENCY ON CASH

 

 

(33,528)

 

 

78,290

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

810,654

 

 

(337,294)

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, BEGINNING

 

 

241,125

 

 

982,315

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, ENDING

 

$

1,051,779

 

$

645,021

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

 

 

 

Cash Payments For:

 

 

 

 

 

 

 

 

Interest

 

$

-

 

$

-

 

 

Income Taxes

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 






See accompanying notes to the consolidated financial statements















7






CREDIT ONE FINANCIAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 2011



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 processing and distribution of mineral products, primarily graphite, in China.


In August 2010, the Company established a wholly owned subsidiary “E&M International Limited (“E&M”)” in the Cayman Islands.  The purpose of E&M is to conduct its operations in the business of entertainment and media. On September 16, 2010, E&M changed its name to CEM International Ltd. (“CEM”).


On November 18, 2010, the Company entered into a share purchase agreement with China Minerals International Limited (“China Minerals”).  Pursuant to the share purchase agreement, the Company agreed to sell and China Minerals agreed to acquire the Company’s 51.6% equity interest in Moderation Limited (“Moderation”), a subsidiary of the Company located in Hong Kong, for $16 million Hong Kong dollars, approximately $2.06 million in cash. The transaction was closed on November 30, 2010.


Note 2 - Summary of Significant Accounting Policies


Financial Reporting


The Company prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America. Revenues and expenses are reported on the accrual basis, which means that income is recognized as it is earned and expenses are recognized as they are incurred.


Management is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company's system of internal accounting control is designed to assure, among other items, that 1) recorded transactions are valid; 2) valid transactions are recorded; and 3) transactions are recorded in the proper period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the Company for the respective periods being presented.


Basis of presentation


The accompanying interim consolidated financial statements for the three and nine months ended September 30, 2011 and 2010 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  The results of operations realized during an interim period are not necessarily indicative of results to be expected for a full year.  These consolidated financial statements should be read in conjunction with the information filed as part of the Company’s 2010 Annual Report on Form 10-K, which was filed on March 31, 2011.


Consolidation Scope and Principles of Consolidation


The consolidated financial statements presented 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”) through



8




November 30, 2010, the date Moderation was sold. Moderation, in turn, was the 100% owner and consolidated Liaoning Sinorth Resources Co., Ltd, a People’s Republic of China corporation.  Also included in the consolidated financial statements are the financial position, results of operations and cash flows of the Company’s 100% owned subsidiary, CEM.


The non-controlling interest in Moderation was classified as part of stockholders’ equity in the consolidated balance sheet, and the non-controlling interest’s share of Moderation’s net loss was 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.


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 approximately $401,000 in U.S. net operating loss carry-forwards and $149,000 in Macau net operating loss carry-forwards as of September 30, 2011, 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.  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.


The fair value of the Company’s financial instruments, which consist principally of cash and cash equivalents and investments in gold bullion, are based on level 1 input, and equal carrying amounts.


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.




9




As of September 30, 2011, the Company maintained $1,016,333 in foreign bank accounts not subject to FDIC coverage.  The remaining balance of $35,446 at September 30, 2011 was maintained in a domestic bank account and fully insured by FDIC.


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 was currency translation adjustment of $58,664 and $5,363 as of September 30, 2011 and December 31, 2010, respectively.


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. For the three months ended September 30, 2011 and 2010, the Company recognized $ 0 and $ 3,234 in foreign currency exchange losses in the consolidated statements of operations, respectively.


Revenue Recognition


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


As an advertising agent, CEM is in the service business dedicated to creating, planning and handling advertising for its clients.  Advertising revenue is recognized upon the delivery of the contracted advertising services and when no significant Company performance obligation remains. Service revenue is recognized as the contracted services are rendered.


Exclusive Advertising Rights


Exclusive advertising rights represent costs for exclusive rights to advertise on Macau Lotus Satellite TV Media Limited’s (“Lotus”) network. The costs were determined as the difference between the face value of a non-interest bearing note receivable from Lotus and the present value of the note receivable at the time of issuance. This intangible asset is being amortized over the remaining life of the rights, which expire August 31, 2020.


Imputed Interest


In 2010 and 2011, the Company issued a non-interest bearing notes receivable which mature in 2020.  The notes receivable was recorded at issuance at its present value using an effective interest rate of 8%, which was the Company’s stated rate on another note receivable.  At the balance sheet date, the notes are revalued with the change in present value recorded as interest income in the Consolidated Statements of Operations.


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.


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 is 3-20 years.




10




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, 2011 and 2010, respectively.


Recently Issued Accounting Standards

In September 2011, the FASB issued an amendment to Topic 350, Intangibles—Goodwill and Other, which simplifies how entities test goodwill for impairment. Previous guidance under Topic 350 required an entity to test goodwill for impairment using a two-step process on at least an annual basis. First, the fair value of a reporting unit was calculated and compared to its carrying amount, including goodwill. Second, if the fair value of a reporting unit was less than its carrying amount, the amount of impairment loss, if any, was required to be measured. Under the amendments in this update, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads the entity to determine that it is more likely than not that its fair value is less than its carrying amount. If after assessing the totality of events or circumstances, an entity determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then the two-step impairment test is unnecessary. If the entity concludes otherwise, then it is required to test goodwill for impairment under the two-step process as described under paragraphs 350-20-35-4 and 350-20-35-9 under Topic 350. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 and early adoption is permitted. The Company is currently evaluating the new standard.


Reclassifications


Certain amounts reflected in the accompanying financial statements for the periods ended September 30, 2010 have been reclassified from previously reported amounts.


Note 3- Discontinued Operations and Disposal Groups


On November 30, 2010 the Company sold its 51.6% equity interest in Moderation Limited, which in turn, owned 100% of Liaoning Sinorth Resources Co., Ltd. The Company decided to sell its stake in order due to a reassessment of its business plan. The Company sold its interest in Moderation for HK$16,000,000 (approximately $2.06 million at date of sale). The purchaser was also required to repay Moderation’s note payable of $790,754 to the Company, which was repaid in January 2011. The Company recognized a gain of $408,467 on the sale of the subsidiary.


Summarized financial information for discontinued operations is shown below for the three and nine months ended September 30:

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30:

 

Nine months ended September 30:

 

 

2011

 

2010

 

2011

 

2010

Sales

 

 $                     -   

 

225,046

 

 $                    -   

 

 $       2,596,942

Cost of sales

 

                        -   

 

(171,440)

 

                       -   

 

(2,703,986)

Gross profit (loss)

 

                        -   

 

53,606

 

                       -   

 

(107,044)

Operating expenses

 

                        -   

 

(3,584)

 

                       -   

 

(225,751)

Income (loss) from operations

 

                        -   

 

50,022

 

                       -   

 

(332,795)

Other income (expenses)

 

                        -   

 

(62,039)

 

                       -   

 

(62,039)

Loss before income taxes

 

                        -   

 

(12,017)

 

                       -   

 

(394,834)

Income tax provision (benefit)

 

                        -   

 

                       -   

 

                       -   

 

                          -   

Loss from discontinued operations

 $                     -   

 

 $        (12,017)

 

 $                    -   

 

 $         (394,834)


Note 4 - Note Receivable and Exclusive Advertising Rights Asset


CEM International Limited entered into an exclusive agreement with Macau Lotus Satellite TV Media Limited (Lotus) on August 26, 2010 to provide advertising services for a ten year period commencing on September 1, 2010.  In consideration for the exclusive advertising rights granted by Lotus, CEM will provide advertising services and issue, over the course of the agreement, US$10 million in loans to Lotus. The amount and duration of each loan shall be negotiated by the parties, depending on Lotus’s financial needs.


On December 17, 2010, CEM issued Lotus TV a HK$15,000,000 (US$1,928,839) loan which is backed by a non-interest bearing promissory note, due on August 31, 2020.  The note receivable was discounted to its estimated fair value of HK$7,105,808 (US$913,872) using an effective interest rate of 8%.  This difference between the face value and the present value of HK$7,894,192 (US$1,014,967) was allocated to an intangible asset captioned Exclusive Advertising Rights.  Interest accreted to this note receivable for the nine months ended September 30, 2011 and for the period from December 17, 2010 through December 31, 2010 was $30,710 and $2,911, respectively.  


On January 31, 2011, CEM issued Lotus TV an additional HK$6,084,000 (US$780,000) loan which is backed by a non-interest bearing promissory note, due on August 31, 2020.  The note receivable was discounted to its estimated fair value of HK$2,833,577 (US$363,279) using an effective interest rate of 8%.  This difference between the face value and the present value of HK$3,250,423 (US$416,721) was allocated to an intangible asset captioned Exclusive Advertising Rights.  Interest accreted to this note receivable for the nine months ended September 30, 2011 was $19,870.


During the quarter ended June 30, 2011, CEM issued Lotus TV a series of additional loans totaling HK$43,700,000 (US$5,623,255), backed by a non-interest bearing promissory note, due on August 31, 2020. The note receivable was discounted to its estimated fair value of HK$20,831,819 (US$ 2,680,610) using an effective interest rate of 8%. This difference between the face value and the present value of HK$22,868,181 (US$2,942,645) was allocated to the intangible asset captioned Exclusive Advertising Rights. Interest accreted to this note receivable for the nine months ended September 30, 2011 was $81,212.


During the quarter ended September 30, 2011, CEM issued Lotus TV an additional loan HK$4,800,000 (US$614,731), backed by a non-interest bearing promissory note, due on August 31, 2020. The note receivable was discounted to its estimated fair value of HK$2,334,232 (US$ 299,814) using an effective interest rate of 8%. This difference between the face value and the present value of HK$2,465,768 (US$314,917) was allocated to the intangible asset captioned Exclusive Advertising Rights. Interest accreted to this note receivable for the nine months ended September 30, 2011 was $3,003.


An intangible asset captioned Exclusive Advertising Rights has been recorded in the accompanying consolidated balance sheets representing the difference between the face amount of the notes receivable and the respective present values at the time of issuance.  This difference was deemed an asset because the interest-free note was a condition of the exclusive agreement. Exclusive Advertising Rights intangible asset referred to above has an assigned cost of $1,015,264 and accumulated amortization of $4,357 for a net balance of $1,010,907 as of December 31, 2010 and an assigned cost of $4,680,999 and accumulated amortization of $234,427 for a net balance of $4,446,572 as of September 30, 2011.  Amortization expense, which is included in selling, general and administrative expenses in the statement of operations, for the nine months ended September 30, 2011 and for the period from December 17, 2010 through December 31, 2010 was $230,080 and $4,357, respectively.  Amortization expense for each of the next five years is expected to approximate $462,000.  


Note 5 – Income Taxes


The Company accounts for income taxes using the liability method, which requires recognition of deferred income tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.


Effective January 1, 2008, the Chinese government enacted the Corporate Income Tax Law, and promulgated related regulations, which, among other things, imposes a unified income tax rate of 25% for both domestic and foreign invested enterprises. The tax rate for Macau is 12%.


Due to the Company’s accumulated net losses, there was no provision for income taxes. The Company’s effective tax rate for the period ended June 30, 2011 was 0% due to the net operating loss carryforward.  The Company’s taxes were subject to a full valuation allowance as follows at September 30, 2011 and December 31, 2010:







12






September 30, 2011

 

 

 

 

 

 

 

 

 

 

 


Tax

 

Accumulated Net

 

 

 

 


Deferred

 

 


Valuation

Jurisdiction

 

Operating Loss

 

Expiration

 

 

Tax Asset

 

 

Allowance

 

 

 

 

 

 

 

 

 

 

 

United States

$

401,660

 

2019-2030

 

$

151,145

 

$

(151,145)

Macau

 

149,053

 

2013-14

 

 

17,886

 

 

(17,886)

 

$

550,713

 

 

 

$

169,031

 

$

(169,031)

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2010

 

 

 

 

 

 

 

 

 

 

 


Tax

 

Accumulated Net

 

 

 

 


Deferred

 

 


Valuation

Jurisdiction

 

Operating Loss

 

Expiration

 

 

Tax Asset

 

 

Allowance

 

 

 

 

 

 

 

 

 

 

 

United States

$

331,649

 

2019-2030

 

$

124,800

 

$

(124,800)

Macau

 

43,903

 

2013

 

 

5,268

 

 

(5,268)

 

$

375,552

 

 

 

$

130,068

 

$

(130,068)

 

 

 

 

 

 

 

 

 

 

 


The net deferred tax asset generated by the loss carry-forward has been fully reserved.


The Company has no United States corporate income tax liability as of September 30, 2011 and December 31, 2010.


Note 6 – Capital Stock


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 December 31, 2010, there were 2,155,623 shares of the Company’s common stock issued and outstanding.


On January 8, 2010, the board of directors and a majority of the Company’s shareholders at its Annual Stockholder Meeting the Company approved to amend its articles of incorporation to increase the number of shares of authorized common stock from 110 million to 500 million.


On April 9, 2010, the Company filed a Certificate of Amendment with the Secretary of State of the State of Florida, wherein the Company effected an amendment to its Articles of Incorporation to increase the authorized number of shares of its common stock from 110,000,000 shares to 500,000,000 shares, with a par value of $0.001 per share.


On October 29, 2010, the stockholders of the Company voted on and approved an amendment to the Company’s Articles of Incorporation, as amended, to approve an amendment to the Company’s Articles of Incorporation to effect an one-for-fifty reverse stock split of its issued and outstanding common stock, $0.001 par value per share.  The amendment became effective as of December 27, 2010.  All share transactions disclosed in these financial statements give retroactive effect to this 1:50 reverse split.


On May 3, 2011 the Company entered into a Securities Purchase Agreement with 16 investors in a private placement. Pursuant to the agreement, the Company issued and investors purchased an aggregate of 300 million 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 $9,000,000 in cash.


Note 7 - Commitments and Contingencies


On August 26, 2010, E&M (name changed to CEM International Ltd on September 16, 2010) entered into an Advertising Agreement (the “Agreement”) with Macau Lotus Satellite TV Media Limited (“Lotus TV”), pursuant to which Lotus TV authorizes E&M as its exclusive agent to operate all of its advertising businesses, and to be entitled to all the revenues generated therefrom (“Advertising Rights”).


The term of this Agreement is 10 years from September 1, 2010 to August 31, 2020. In consideration for Lotus TV’s grant of the Advertising Rights, E&M agrees to pay Lotus TV a fixed annual fee every year (the “Annual Fee”) regardless of the total amount of advertising revenues received by E&M. Under the Agreement, E&M will pay Lotus TV an initial Annual Fee of $1,000,000 Hong Kong dollars (approximately US$128,900) for the first year of the



13




Agreement, which Annual Fee will increase at 10% every year for the following two years. The initial annual fee of $128,900 was paid in August 2011, and the Company accrued $11,763 as payable in the consolidated balance sheet as of September 30, 2011 for the fee due in August 2012.


E&M also agrees to extend to Lotus TV, interest free, a credit facility consisting of a series of loans (each a “Loan”) totaling a minimum of US$10 million over a period of 10 years. The terms of each Loan and the increase of Annual Fee after the first three years of the Agreement will be negotiated by the parties depending on financial needs and the advertising revenues. The Company currently expects that the loans will be originated from its cash reserve, advertising revenue and, if necessary, raised from the capital market.


License fee payable for the three and nine months ended September 30, 2011 was $33,455 and $97,402, respectively, and is included in selling, general and administrative expenses.


Note 8 – Risks and Uncertainties


The Company’s business, financial condition and results of operations could be materially affected by many risks and uncertainties including the following:


As a U.S. based company doing business in China, the Company must comply with all Chinese laws, rules and regulations, and pronouncements, and endeavor to obtain all necessary approvals from applicable Chinese regulatory authorities.


The Company’s operations could be adversely affected by changing political and economic policies in China, and the Chinese government control of currency conversion may affect the Company’s ability to pay dividends declared, if any, in foreign currencies.


Fluctuations in the exchange rate between the Hong Kong currency and the U.S. dollar may impact the Company’s operating income.


Note 9 – Related Party Transactions


The Company’s sole director purchased investments in gold bullion on behalf of the Company during the quarter ended September 30, 2011. Purchases made under this arrangement during the quarter totaled approximately HKD $20 Million (USD $2.6 Million). HKD $8,299,915 (USD $1,065,061) remained payable to the director at September 30, 2011 and is non interest bearing and due on demand.


Note 10 – Accounts Payable and Accrued Expenses


Accounts payable and accrued expenses consisted of the following at September 30, 2011 and December 31, 2010.

 

 

 

September 30, 2011

 

 

December 31, 2010

Accounts payable

 

$

294

 

$

13,506

License fee payable

 

 

11,763

 

 

42,870

Deferred revenue

 

 

17,768

 

 

71,230

Salary payable

 

 

-

 

 

18,000

Total

 

$

29,825

 

$

145,606













14






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


Until November 30, 2010, the Company’s main business was processing and distribution of mineral products, primarily graphite products, in China.  


The Company’s graphite business had been dependent on a relatively small number of industries and customers.  Because of the increased competitive pressure, the Company needed to, in certain cases, lower sales prices in order to maintain its customer base. Despite the efforts it had made, the Company lost some sales and the sales did not grow as much as the Company had expected.  The Company found it more and more difficult to carry out its graphite business as planed.  Accordingly, the Company turned its attention to other new revenue growth sources.


On November 18, 2010, the Company entered into a share purchase agreement with China Minerals International Limited (“China Minerals”).  Pursuant to the share purchase agreement, the Company agreed to sell and China Minerals agreed to acquire the Company’s 51.6% equity interest in Moderation Limited for $16 million Hong Kong dollars, approximately $2.06 million in cash. The transaction was closed on November 30, 2010.


Following the closing of the transaction, the Company owns no equity interest in Moderation, thereby ceasing to be a processor and distributor of graphite products.


On August 26, 2010, E&M International Limited (“E&M”), the newly established, wholly-owned subsidiary of the Company, entered into an advertising agreement with Macau Lotus Satellite TV Media Limited (“Lotus TV”), pursuant to which Lotus TV authorizes E&M as its exclusive agent to operate all of its advertising businesses (“Advertising Rights”).


The term of this agreement is ten years from September 1, 2010 to August 31, 2020. In consideration for Lotus TV’s grant of the Advertising Rights, E&M agrees to pay Lotus TV a fixed fee on an annual basis (the “Annual Fee”) regardless of the total amount of revenues generated from the advertising business to be received by E&M. Under the agreement, E&M will pay Lotus TV an initial Annual Fee of HK$1,000,000 (approximately US$128,900) for the first year of the agreement, which Annual Fee will increase at 10% every year for the following two years.


E&M also agrees to extend to Lotus TV, interest free, a credit facility consisting of a series of loans (each a “Loan”) totaling a minimum of US$10 million over a period of ten years. The terms of each Loan and the increase of the Annual Fee after the first three years of the agreement will be negotiated by the parties depending on Lotus TV’s financial needs and the amount of advertising revenues generated. The Company currently expects that the Loans will be originated from its cash reserve, advertising revenue and, if necessary, raised from the capital market. As of June 30, 2011, the Company has loaned Lotus TV approximately $8.3 million under this agreement.


E&M was incorporated in the Cayman Islands by the Company in August 2010 to engage in, inter alia, entertainment and media business. On September 16, 2010, the name of E&M was changed to CEM International Ltd.


At the Annual Meeting of Stockholders of the Company, held on October 29, 2010, the stockholders voted on and approved an amendment to the Company’s Articles of Incorporation, as amended, to approve an amendment to the Company’s Articles of Incorporation to effect an one-for-fifty reverse stock split of its issued and outstanding common stock, $0.001 par value per share.  The amendment became effective as of December 27, 2010.  All share transactions disclosed in these financial statements give retroactive effect to this 1:50 reverse split.


On May 3, 2011 the Company entered into a Securities Purchase Agreement with 16 investors in a private placement. Pursuant to the agreement, the Company issued and investors purchased an aggregate of 300 million shares of the Company’s common stock, at a price of $0.03 per share, for an aggregate consideration of $9,000,000 in cash.


Results of Operations




15




For the three months ended September 30, 2011 Compared to 2010

Revenue


For the three months ended September 30, 2011, the revenue from the Company’s continuing operations was $44,730 as compared to $-0- for the same period of fiscal 2010, which reflected two advertising contracts relating to CEM’s Lotus TV license agreements.  


Operating expenses


Operating expenses for the three months ended September 30, 2011 were $171,578, as compared to $12,573 for the same period of fiscal 2010. The increase in operating expenses was primarily due to accrual of annual license fees to Lotus TV and amortization of the advertising rights asset.


Other income (expenses)


Our total other income (expense) for the three months ended September 30, 2011 was $(68,780), which consisted of interest income of $83,890 and unrealized loss on gold bullion investments of $(152,670). For the same period of fiscal 2010, there was $-0- of other income (expenses).


Discontinued Operations


The Company recognized losses from the discontinued operations of Moderation, Ltd, which was disposed of on November 30, 2010, for the three months ended September 30, 2010 of $(12,017).  Net sales for the three months ended September 30, 2010 were $225,046. Cost of sales for the three months ended September 30, 2010 was $171,440. Operating expenses were $3,584.  Losses from discontinued operations allocated to the non-controlling interest were $5,714 for the period in 2010.


Net income (loss)


For the three months ended September 30, 2011, the Company had a net loss of $(195,628) attributed to common stockholders, or $(0.00) per share, as compared to a net loss of $(18,876), or $(0.00) per share, for the same period of 2010.


For the nine months ended September 30, 2011 Compared to 2010


Revenue


For the nine months ended September 30, 2011, the revenue from the Company’s continuing operations was $86,223 as compared to $-0- for the same period of fiscal 2010, which reflected two advertising contracts relating to CEM’s Lotus TV license agreements.  


Operating expenses


Operating expenses for the nine months ended September 30, 2011 were $427,923, as compared to $79,427 for the same period of fiscal 2010. The increase in operating expenses was primarily due to accrual of annual license fees to Lotus TV and amortization of the advertising rights asset.


Other income (expenses)


Our total other income (expense) for the nine months ended September 30, 2011 was $(17,861), which consisted of interest income of $134,807 and unrealized loss on investments of ($152,670). For the same period of fiscal 2010, there was $-0- of other income (expenses).


Discontinued Operations


The Company recognized losses from the discontinued operations of Moderation, Ltd, which was disposed of on November 30, 2010, for the nine months ended September 30, 2010 of $(394,834).  Net sales for the nine months ended September 30, 2010 were $2,596,942. Cost of sales for the nine months ended September 30, 2010 was $2,703,986. Operating expenses were $225,751.  Losses from discontinued operations allocated to the non-controlling interest were $190,998 for the nine months ended September 30, 2010.


Net income (loss)




16




For the nine months ended September 30, 2011, the Company had a net loss of $(359,561) attributed to common stockholders, or $(0.00) per share, as compared to a net loss of $(283,263), or $0.00 per share, for the same period of 2010.


Liquidity and Capital Resources


At September 30, 2011, the Company had cash balance of $1,051,779.  For the nine months ended September 30, 2011, the operating activities of the Company used net cash of $399,458, as compared to net cash used of $205,439 for the same period of the prior year. The decrease in cash flows was primarily from increase in prepaid expense ($173,235), deferred revenue ($53,462) and license fees payable ($31,107), partially offset by non-cash expenses totally $249,119 of depreciation, amortization, and unrealized loss on investments. Additionally, the net loss decreased between the periods.


Net cash used by investing activities amounted to $7,756,360 for the nine months ended September 30, 2011 compared to $210,145 for 2010.  This 2011 increase was primarily due to issuances of funds to Lotus TV to totaling approximately $7.2 million and investments in gold bullion of $2.5 million, which were offset by net amounts paid by director of$1,065,061 on behalf of the Company to purchase gold bullion. The 2010 amount pertains to purchase of property, plant and equipment.


During the nine months ended September 30, 2011, the cash provided by financing activities was $9,000,000, which was from issuance of 300 million shares of the Company’s common stock in a private placement.  During the same period of 2010, there were no financing activities.


In our opinion, available funds and revenues generated from our operation will satisfy our capital requirements for the next twelve months.  However, we may need to raise additional funds to pursue growth opportunities and make capital improvements.  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.


Critical Accounting Policies


Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.  The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amount of revenues and expenses during the reporting period.  On an on-going basis, management evaluates its estimates and judgments, such as doubtful accounts, inventories, and impairment of long-lived assets. Management bases its estimates and judgments on historical experience and various other factors 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.


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.


Going Concern


The Company has not been profitable to date. It has financed operations principally through equity investments, and its ability to generate sufficient revenues to fund operations is uncertain. For the nine months ended September 30, 2011, the Company incurred a loss from continuing operations of $359,561, and has accumulated a total deficit of $735,113 as of September 30, 2011. There can be no assurance that it will ever operate profitably, and if the losses continue, the Company’s ability to operate may be severely impacted or alternatively it may be forced to terminate operations.



Item 3.  Quantitative and Qualitative Disclosures about Market Risk



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





17







Item 4.  Controls and Procedures


(a) Evaluation of disclosure controls and procedures. 


Our management, under the supervision and with the participation of our principal executive officer, who is also our principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2011.  Based on that evaluation, our principal executive officer concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this report based on the material weaknesses described below.


As used herein, the term “disclosure controls and procedures” means controls and other procedures of the 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 Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the rules and forms issued by the SEC.  Disclosure controls and procedures include, without limitation, controls and procedures 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 accumulated and communicated to the Company’s management, including its principal executive officer or officers and its principal financial officer or officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.


A material weakness is a deficiency, or a combination of deficiencies, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness identified during management's assessment:


Lack of Independent Directors.  We do not have effective policies regarding the independence of our directors and do not have independent directors. The lack of independent directors means that there is no effective review, authorization, or oversight of management or management’s actions by persons that were not involved in approving or executing those actions.


 Lack of Effective Policies Regarding the General Accounting System. We do not have any documented processes for the input, accumulation, or testing of financial data that would provide assurance that all transactions are accurately and timely recorded or that the financial reports will be prepared on a periodic basis.


Lack of Effective Control over Financial Statement Disclosure. We do not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements.


Our principal executive officer performed additional accounting and financial analyses and other post-closing procedures including detailed validation work with regard to balance sheet account balances, additional analysis on income statement amounts and managerial review of all significant account balances and disclosures in the Quarterly Report on Form 10-Q, to ensure that the Company’s Quarterly Report and the financial statements forming part thereof are in accordance with accounting principles generally accepted in the United States of America. Accordingly, management believes that the financial statements included in this Quarterly Report fairly present, in all material respects, the Company’s financial condition, results of operations, and cash flows for the periods presented.


Our principal executive officer has also indicated that as the Company grows and resources become available, management will develop and implement remedial actions to address the material weakness it has identified. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.


(b) Changes in internal controls over financial reporting


There were no material changes in our internal control over financial reporting that occurred during the quarter.




PART II. OTHER INFORMATION



Item 1. Legal Proceedings


None



18





Item 1A.  Risk Factors


Smaller reporting companies are not required to provide the information required by this item.


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


None


Item 3. Defaults Upon Senior Securities


None


Item 5. Other Information


None

 

Item 6.  Exhibits


(a)    Exhibits:


Exhibit No.                                                Title of Document


      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

     101.INS    XBRL Instance Document

     101.SCH   XBRL Taxonomy Extension Schema Document

     101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document

     101.LAB   XBRL Taxonomy Extension Label Linkbase Document

     101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

     101.DEF   XBRL Taxonomy Extension Definition Linkbase Document


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: Dicky Cheung

Dicky Cheung

President, Chief Executive Officer and Chief Financial Officer


November 8, 2011



19