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EX-31 - EX 31 - CREDIT ONE FINANCIAL INCexhibit31.htm
EX-32 - EX 32 - CREDIT ONE FINANCIAL INCexhibit32.htm
EX-10 - EX 10 - CREDIT ONE FINANCIAL INCtrustagreement.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-K /A

Amendment No. 1

(Mark One)


x

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

 

For the fiscal year ended December 31, 2012

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, including zip code)


(212) 809-1200

 (Registrant’s telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act:  None


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


Common Stock, $.001 par value


 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES  ¨    NO  x


Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES  ¨    NO  x


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  ¨

 



1



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):   YES  x    NO  ¨


Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨


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


Large accelerated filer        o

Accelerated filer                         o

 

  

  

 

Non-accelerated filer          o

Smaller reporting company        x

 


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    YES  ¨   NO  x


State the aggregate market value of the voting and non-voting equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter:  Approximately $1,057 million.


(APPLICABLE ONLY TO CORPORATE REGISTRANT)


Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date:  302,155,623 shares of the registrant’s common stock were outstanding as of April 12, 2013.



DOCUMENTS INCORPORATED BY REFERENCE:


A description of "Documents Incorporated by Reference" is contained in Part IV, Item 15.


Explanatory Note


This Amendment No. 1 to the Annual Report on Form 10-K for the year ended December 31, 2012 of Credit One Financial, Inc. (the “Company”) is being filed in response to comments by the Staff of the Securities and Exchange Commission (the “SEC”) in connection with its review of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2012, filed with the SEC on April 15, 2013 (the “Original Filing”).


The Original Filing is primarily being amended to: (1) revise the Company’s disclosure on Description of Business; (2) add two more risk factors on the Company’s dependence on our relationship with Lotus TV and on its investment in gold bullion; (3) revise the Company’s disclosure on MD&A; and (4) provide more detailed information on certain relationship and related transactions.


In addition, as required by Rule 12b-15 of the Securities Exchange Act of 1934, as amended, this Form 10-K/A (No. 1) contains new certifications by the Company’s principal executive officer and the Company’s principal financial and accounting officer filed as exhibits hereto.

 

Except as set forth above, all other information in the Company’s Original Filing remains unchanged, and the Company has not updated or amended the disclosure contained in the amended items to reflect events that have occurred since the filing of the original Form 10-K.





2



CREDIT ONE FINANCIAL, INC.


TABLE OF CONTENTS

 

ITEM

  

Page

PART I

  

  

  

 1.

Business

4

  

  

 

1A.

Risk Factors

5

  

  

 

1B.

Unresolved Staff Comments

9

  

  

 

 2.

Properties

9

  

  

 

 3.

Legal Proceedings

9

  

  

 

4.

Mine Safety Disclosure

9

PART II

  

  

  

5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

10

  

  

 

 6.

Selected Financial Data

11

  

  

 

 7.

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

11

  

  

 

7A.

Quantitative and Qualitative Disclosures About Market Risk

13

  

  

 

 8.

Financial Statements and Supplementary Data

14

  

  

 

 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

26

  

  

 

9A

Controls and Procedures

26

  

  

 

9B.

Other Information

27

  

  

 

PART III

  

  

  

 10.

Directors, Executive Officers and Corporate Governance

27

  

  

 

 11.

Executive Compensation

30

  

  

 

 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

31

  

  

 

 13.

Certain Relationships and Related Transactions, and Director Independence

33

  

  

 

 14.

Principal Accounting Fees and Services

33

  

  

 

PART IV

  

  

  

 15.

Exhibits, Financial Statement Schedules

35

  





3



PART I



Item 1.  BUSINESS


Background


Credit One Financial, Inc. (the "Company") was incorporated in the State of Florida on September 24, 1999.  Prior to July 2007, the Company was engaged in market research regarding the cost and availability of non-performing credit card debt portfolio and in contemplating the acquisition of non-performing accounts receivable.  In spite of it, no meaningful operations were carried out.  


In July 2007, the Company’s four principal shareholders sold an aggregate of 6,962,438 shares, which represented 89.48% of the Company’s capital shares, to ten persons for a total of $625,000 in cash.  Following the change of control, the Company made an effort to provide funding, primarily in the form of advance, to small- and medium-sized companies with good and feasible business plans, but lacking capital to implement their business plans.  In January 2008, the Company ceased this business, and a joint venture, Moderation Limited (“Moderation”) was established in Hong Kong.  The Company owned 51.6% of Moderation’s equity interest.


In January 2009, Liaoning Sinorth Resources Co., Ltd. was established in Liaoning, China, as Moderation’s wholly owned subsidiary.  Its main business was production, processing and sale of mineral products, primarily graphite, in China. Despite the efforts the Company had made, 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 planned.  Accordingly, the Company started looking for new business opportunities.


On November 18, 2010, the Company sold its 51.6% equity interest in Moderation for $16 million Hong Kong dollars, approximately $2.06 million in cash. The transaction was closed on November 30, 2010, and the Company ceased to be a processor and distributor of graphite products.


On August 26, 2010, E&M International Limited (“E&M”), a 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.


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 exclusive advertising rights, E&M agrees to pay Lotus TV a fixed fee on an annual basis regardless of the total amount of revenues generated from the advertising business to be received by E&M.  Under the agreement, E&M paid Lotus TV an annual fee of HK$1,000,000 (approximately US$128,900) for the first year of the agreement. Such 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 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. As of December 31, 2012, the Company has loaned Lotus TV approximately $8.17 million under this agreement.


On September 16, 2010, the name of E&M was changed to CEM International Ltd.


The Company has not been involved in any bankruptcy, receivership or similar proceeding.


Description of Business


The Company, through its wholly owned subsidiary CEM International Ltd, operates as an advertising agent dedicated to creating, planning and handling advertising for its clients.  On August 26, 2010, CEM entered into an exclusive agreement with Macau Lotus Satellite TV Media Limited (“Lotus TV”) to provide advertising services for a ten - year period commencing on September 1, 2010.   Because our clients have created and produced their own advertising clips and trailers, or programs, we currently act only as an advertising placement agent for Lotus TV, and there is no advertising creating and planning activities involved at this time. Currently we only have two employees.



4




In consideration for the exclusive advertising rights granted by Lotus TV, CEM agreed to extend to Lotus TV, interest free, a credit facility consisting of a series of loans totaling $10 million over the course of the agreement.  As of December 31, 2012, CEM has loaned Lotus TV approximately $8.17 million under this agreement , and as of December 31, 2012, Lotus TV has repaid $800,000 due under the notes


The funds the Company loaned to Lotus TV were from the private placements conducted in reliance upon exemptions from registration provided by Regulation S and/or Section 4(a)(2) promulgated under the Securities Act of 1933, as amended. All investors were not a “U.S. Person” as that term is defined in Regulation S.


As Lotus TV’s exclusive advertising agent, the Company provides advertising agency services to its clients by providing them with the advertising time slots the Company obtains from Lotus TV. Advertisers can purchase advertising time slots of Lotus TV directly from the Company.  

The Company generates revenues primarily from advertising sales paid by clients for the planning and placement of advertisements on Lotus TV, which does not charge the Company for the advertising time slots allocated to the Company.  


Sales and Marketing


Currently, all our clients are introduced or brought in by Lotus TV.


Government Regulation


As a U.S. based company doing business in Macau, the Company seeks to comply with all Macau laws, rules and regulations and pronouncements, and endeavor to obtain all necessary approvals from applicable Chinese regulatory agencies.  The Company believes it is in compliance in all material respects with existing applicable statutes and government regulations affecting its business and operations.


Research and Development


For the year ended December 31, 2012, the Company did not conduct any research or development activities.  The Company does not anticipate conducting such activities in the near future.


Seasonality

 

In general, there is no seasonal nature in our business.


Patents, trademarks, franchises, concessions, royalty agreements or labor contracts


The Company does not own any copyrights, franchises, concessions, royalty agreements, or labor contracts.


The Company has applied for certain patent and trademark. The legal costs associated with serving and protecting patent and trademark are being capitalized and will be amortized over its estimated useful life.


Employees


As of December 31, 2012, the Company had two employees.  As its business activities increase in size, the Company may need to hire additional employees.  None of the Company’s employees are covered by collective bargaining agreements.  We believe our relationships with employees to be satisfactory.


 

Item 1A.   RISK FACTORS





5



An investment in us involves a high degree of risk.  Investors should carefully consider the risks below before making an investment decision. Our business, financial condition or results of operations could be materially adversely affected by any of these risks.  In such case, the trading price of our common stock could decline and investors could lose all or part of their investment.  As of the date of this report, our management is aware of the following material risks.





Risks Related to the Company’s Business

We have incurred net losses in the past and may incur losses in the future.

We have incurred operating losses since our inception. As a result, at December 31, 2012 we had an accumulated deficit of $1,162,312.  Our revenues from continuing operations for the years ended December 31, 2012 and 2011 were $407,832 and $128,643, respectively.  There is no assurance that we can achieve profitability.  

We have a limited operating history, which may make it difficult for you to evaluate our business and prospects.


We began our current business operations in 2010.  Our limited operating history may not provide a meaningful basis for you to evaluate our business, financial performance and prospects.  As a young company, we are subject to all of the risks associated with a new business enterprise.  Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by new business endeavors.  We do not have a significant operating history which would provide you with meaningful information about our future operations. 


Our business is mainly dependent on our relationship with Lotus TV, and the loss of this relationship could materially reduce our revenues, liquidity and cash flows.


We entered into an exclusive agreement with Macau Lotus Satellite TV Media Limited (“Lotus TV”) on August 26, 2010 to provide advertising services for a ten year period commencing on September 1, 2010.  Currently our business is mainly dependent on our relationship with Lotus TV.  The loss of this relationship, or Lotus TV’s inability to continue its business, could materially adversely our business, operating results and financial conditions.


We are dependent on limited number of clients to generate revenues.  The loss of our clients’ business could result in a total lack of revenues unless we are able to continually attract additional clients.

Currently, the number of our clients is limited.  If there were a material business disruption in any of those clients, we would likely lose a substantial amount of revenues.  We intend to seek new and additional clients.  With minimal clientele and no long-term arrangements or agreements with those clients, our future operations could be seriously affected especially if we fail to continue to secure additional and new clients.  This could result in a total lack of revenues and would negatively impact our cash flows.

We generally do not have long-term contracts with our clients.


Our clients typically hire us on a project-by-project basis. Moreover, they generally have the right to terminate their relationships with us without penalty and with relatively short or no notice.  Once a project is completed there is no assurance that a client will engage us for further services.  The termination of our business relationships with any of our significant clients, or a material reduction in the use of our services by any of our significant clients, could adversely affect our future business, operating results and financial condition.


The market price of gold is volatile. A decline in gold price could result in decreased net income or losses and may negatively affect our business.

 

We invest in gold bullion. As of December 31, 2012 and 2011, we held gold bullion valued at $4,367,420 and $2,312,683, respectively. The price of gold can fluctuate significantly. The price of gold has been and will continue to be affected by numerous factors beyond our control, including interest rates, expectations regarding inflation, speculation, currency values,



6



central bank activities, governmental decisions regarding the disposal of precious metals stockpiles, global and regional demand and production, political and economic conditions and other factors. The gold price may decline in the future.  A substantial or extended decline in gold price would adversely impact our net income and may negatively affect our business.

The impact of worldwide economic and business conditions, including the resulting effect on advertising budgets as the same are being reallocated to Internet marketing, may adversely affect our business, operating results and financial condition.


Our performance is subject to worldwide economic conditions and their impact on levels of advertising. In addition, the marketing budgets that have been traditionally invested in mediums such as print and television media are now being reallocated to Internet marketing, our existing and potential clients may no longer consider investment in our marketing solutions a necessity, or may reduce their advertising budgets in television. Historically, economic downturns have resulted in overall reductions in advertising spending.  In particular, television marketing advertising solutions may be viewed by some of our existing and potential clients as a lower priority and may be among the expenditures to be reduced first as a result of unfavorable economic conditions.  These developments could have an adverse effect on our business, operating results and financial condition.


We will require additional financing in the future, but such financing may not be available to us.


We will require additional capital to continue our operations. To date, our revenues from operations have not generated cash flow sufficient to finance our operations and growth. As a result, we have since our inception sought financing and we will likely continue to require additional financing in the future.  If adequate funds are not available on acceptable terms, we may be unable to fund the operation of our business. As a result, we would likely be forced to dramatically alter or cease our operations.


If we raise additional capital, such capital raisings could dilute current shareholders’ ownership interests.


If additional funds are raised by the issuance of our equity securities, such as through the issuance of stock or convertible securities, then the ownership interest of our existing stockholders will be diluted. If additional funds are raised by the issuance of debt or other equity instruments, we may become subject to certain operational limitations (e.g., negative operating covenants), and such securities may have rights senior to those of the existing holders of common stock.

We face significant competition, and if we do not compete successfully, our profits may decline.

As a small business in the advertising industry, we face significant competition.  We compete for advertisers primarily on the basis of network size and coverage, location, price, program quality, the range of services offered and brand recognition.  We compete for advertising dollars spent in the television advertising sector.  We also compete for overall advertising spending with other alternative advertising media, such as Internet, street facilities, billboard and public transport advertising, and with other traditional advertising media such as newspapers, magazines and radio.  

Significant competition could reduce our operating margins and profitability and could have an adverse effect on our business, operating results and financial condition.  Even though we have entered a long-term exclusive agreement with Lotus TV, our competitors generally have significantly larger advertising networks than we do, which gives them an ability to reach a larger number of potential consumers.  There is no assurance that we will be able to successfully compete against new or existing competitors, and failure to compete may have an adverse effect on our business, operating results and financial condition.


Our operating results may fluctuate significantly, which make our future results difficult to predict and could cause our operating results to fall below expectations.


Our operating results may fluctuate significantly in the future due to a variety of factors, many of which are beyond our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful, and, therefore, prior results are not necessarily indicative of results to be expected in future periods.




7



Loss of key management personnel or our inability to attract and retain new qualified personnel could hurt our ability to operate and grow successfully.


Our success is dependent to a significant extent on our executive officers and key personnel.  We do not have key man life insurance covering any of our executive officers.  We may not be able to retain our executive officers and key personnel or attract additional qualified personnel.  The loss of any of our executive officers or other key personnel, or our inability to recruit and retain qualified personnel, could hurt our ability to operate and make it difficult to execute our acquisition and internal growth strategies.


Risks Related to Doing Business in Macau


Our business operations may be adversely affected by the changing political and economic policies in Macau.


Considerable portions of our assets are located in Macau, and a considerable portion of our revenues are expected to derive from our operations in Macau. The Macau government exerts substantial influence and control over the manner in which we must conduct our business activities.  Our ability to operate in Macau may be adversely affected by changes in Macau laws and regulations, including those relating to taxation, import and export tariffs, raw materials, environmental regulations, land use rights, property and other matters.  As a result, changes in the political and economic policies of the Macau government could have a significant impact on the results of our operations and financial condition.


Our assets, officers and directors are located outside of the U.S.  It is difficult to effect service of process and enforcement of legal judgments upon us and our officers and directors.


Our assets, officers and directors are located outside of the United States.  As a result, it may be difficult to effect service of process within the United States and enforce judgment of the US courts obtained against us and our executive officers and directors.  Particularly, our shareholders may not be able to:


·

Effect service of process within the United States on us or any of our executive officers and directors;


·

Enforce judgments obtained in U.S. courts against us based upon the civil liability provisions of the U.S. federal securities laws;


·

Enforce, in a court in Macau, judgments of U.S. courts based on the civil liability provisions of the U.S. federal securities laws; and


·

Bring an original action in a court in Macau to enforce liabilities against us or any of our executive officers and directors based upon the U.S. federal securities laws.


Fluctuations in the exchange rate between the Hong Kong dollar and the United States dollar may bring down our operating income.


The functional currency of our operations in Macau is the Hong Kong dollar.  Results of our operations are translated at average exchange rates into United States dollars for purposes of reporting results.  During the years ended December 31, 2012 and 2011 and through this date, there has been no significant fluctuation in exchange rates between Hong Kong dollars and US dollars.  However, future fluctuations in exchange rates may adversely affect our expenses and results of operations as well as the value of our assets and liabilities. Any significant fluctuations in the exchange rate between the Hong Kong dollar and the United States dollar may bring down our operating income and lower our stock price.  We have no current plans to undertake any hedging activity to minimize exchange rate fluctuations.


Risks Related to the Company’s Securities


Management exercises significant control over matters requiring shareholder approval which may result in the delay or prevention of a change in our control.


Dicky Cheung, our President and CEO, beneficially owned 90,693,454 shares, or approximately 30.02%, of our outstanding common stock as of December 31, 2012.  Accordingly, he could significantly influence us on matters



8



submitted to the stockholders for approval.  These matters include the election of directors, mergers, consolidations, the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control that might otherwise be beneficial to our other stockholders.  His interests may differ from the interests of our other shareholders.


Our stock is very thinly traded, and the price has been extremely volatile and may continue to fluctuate significantly, which may make it more difficult for you to resell shares when you want at prices you find attractive.


Our common stock is very thinly traded, and the price, if traded, has been and may continue to be subject to significant daily fluctuations.  Consequently, investors may not be able to liquidate their investment at all, or if they are able to liquidate it may only be at a price that does not reflect the value of the business.  Even if a more active market should develop, the price may be highly volatile. Consequently, there can be no assurances as to whether:


·

any market for our common stock will develop;


·

the prices at which our common stock will trade; or


·

the extent to which investor interest in us will lead to the development of an active, liquid trading market.


Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors.

 

In addition, our common stock is unlikely to be followed by any market analysts, and there may be few institutions acting as market makers for our common stock.  Either of these factors could adversely affect the liquidity and trading price of our common stock.  Until our common stock is fully distributed and an orderly market develops in our common stock, if ever, the price at which it trades is likely to fluctuate significantly.  There are no assurances that an orderly or liquid market will ever develop for the shares of our common stock.

Our common stock is subject to the penny stock restrictions which will create a lack of liquidity and make trading difficult or impossible.


Our common stock is currently subject to the penny stock rules adopted by the Securities and Exchange Commission. Under the SEC Rule 15g-9, a stock is considered a “penny stock” if it meets one or more of the following conditions:  (i) the stock trades at a price less than $5.00 per share; (ii) it is not traded on a “recognized” national exchange; (iii) it is not quoted on the Nasdaq Capital Market, or even if so, has a price less than $5.00 per share; or (iv) is issued by a company that has been in business less than three years with net tangible assets less than $5 million. The penny stock rules require brokers to provide extensive disclosure explaining the penny stock market and the risks associated with investing in penny stocks to their customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would make it difficult for our shareholders to sell their securities.


We may never pay any dividends to shareholders.


We have paid no cash dividends on our common stock to date and it is not anticipated that any cash dividends will be paid to holders of our common stock in the near future.  While our dividend policy will be based on our operating results and capital needs of the business, it is anticipated that any earnings will be retained to finance our future expansion.  As an investor, you should take note of the fact that a lack of a dividend can further affect the market value of our stock, and could significantly affect the value of any investment in the Company.



Item 1B.   UNRESOLVED STAFF COMMENTS



None.



Item 2.  PROPERTIES

 



9




Our principal executive offices are located at 80 Wall Street, Suite 818, New York, NY 10005. We pay rent of $650 per month for this space on a month-by-month sublease basis.


We believe that our property is suitable and adequate for our present and proposed needs.  If additional spaces are required, we believe that we will be able to obtain such space on commercially reasonable terms.



Item 3.  LEGAL PROCEEDINGS


We are not a party to any pending legal proceedings and, to our knowledge, none of our officers, directors or principal shareholders are party to any legal proceeding in which they have an interest adverse  to us.



Item 4.  MINE SAFETY DISCLOSURE


Not applicable.





PART II



Item 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



Market Information


The Company’s common stock is currently quote on the OTC QB maketplace under the symbol "COFI" , and has been traded very thinly and infrequently. , which limits its ability to locate accurate high and low bid prices for each quarter within the last two fiscal years. T he following table lists the quotations for the high and low bid prices . which reflect inter-dealer prices without retail mark-up, markdown, or commissions and may not represent actual transactions.


 

 

High

 

Low

 

Year ended December 31, 2012:

 

 

 

 

 

 

 

 

First quarter

 


$


3.00

 


$

1.01

 

 

Second quarter

 

$

5.00

 

$

1.01

 

 

Third quarter

 

$

5.00

 

$

5.00

 

 

Fourth quarter

 

$

5.00

 

$

5.00

 

 

 

 

 

 

 

 

 

Year ended December 31, 2011:

 

 

 

 

 

 

 

 

First quarter

 


$


0.01

 


$


0.01

 

 

Second quarter

 

$

0.01

 

$

0.01

 

 

Third quarter

 

$

3.00

 

$

0.01

 

 

Fourth quarter

 

$

3.00

 

$

0.01

 



Holders


As of March 29, 2013, the Company had approximately 58 holders of record of its common stock.


Dividends


The Company has never declared or paid any cash dividends on its common stock nor does the Company anticipate paying any in the foreseeable future.  The Company expects to retain any future earnings to finance its operations and expansion.  The payment of cash dividends in the future will be at the discretion of our Board of Directors and will depend upon the Company’s earnings levels, capital requirements, any restrictive loan covenants and other factors the Board considers relevant.


Securities Authorized for Issuance under Equity Compensation Plans


The Company does not have any equity compensation plans.


Performance graph


As a smaller reporting company, the Company is not required to provide the information under this item.




Recent Sales of Unregistered Securities


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.


On January 30, 2013, the Company entered into a Securities Purchase Agreement with certain investors in a private placement.  Pursuant to the agreement, the Company agreed to issue and investors agree to purchase an aggregate of 183 million shares of the Company's common stock, at a price of $0.03 per share, for an aggregate consideration of $5,490,000 in cash, which has not been received as of April 12, 2013.


All shares sold as described above were unregistered under the Securities Act of 1933, as amended. The shares were issued in reliance upon exemptions from registration provided by Regulation S and/or Section 4(a)(2) promulgated under the Securities Act of 1933, as amended.


Purchases of Equity Securities by the Issuer and Affiliated Purchasers


No purchases of our equity securities were made by us or any affiliated entity during the year ended December 31, 2012.



Item 6.   SELECTED FINANCIAL DATA



Not required for smaller reporting companies.



Item 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





11



The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this Form 10-K.  In addition to historical information, the following discussion and other parts of this Form 10-K contain forward-looking information that involves risks and uncertainties.  Our actual results could differ materially from those anticipated by this forward-looking information due to the factors discussed under "Risk factors," and elsewhere in this Form 10-K.


Overview


Until November 30, 2010, the Company’s main business was processing and distribution of mineral products, primarily graphite products, in China. Despite the efforts it had made, the Company’s sales did not grow as much as the Company had expected.  Because it was more and more difficult to carry out its graphite business, on November 18, 2010, the Company entered into a share purchase agreement with China Minerals International Ltd., by which the Company sold its 51.6% equity interest in Moderation Ltd. for $16 million Hong Kong dollars, approximately $2.06 million in cash, to China Mineral. The transaction was closed on November 30, 2010, and the Company ceased to be a processor and distributor of graphite products.


On August 26, 2010, E&M International Limited (“E&M”), a 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 authorized 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 agreed to pay Lotus TV a fixed fee on an annual basis regardless of the total amount of revenues generated from the advertising business to be received by E&M. Under the agreement, E&M paid Lotus TV an initial annual fee of HK$1,000,000 for the first year of the agreement, which will increase at 10% every year for the following two years.


E&M also agreed to extend to Lotus TV, interest free, a credit facility consisting of a series of loans 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 renegotiated by the parties. As of December 31, 2012, the Company has loaned Lotus TV approximately $8.17 million under this agreement , and as of December 31, 2012, $800,000 has been repaid due under the notes.


The funds the Company loaned to Lotus TV were from the private placements conducted in reliance upon exemptions from registration provided by Regulation S and/or Section 4(a)(2) promulgated under the Securities Act of 1933, as amended. All investors were not a “U.S. Person” as that term is defined in Regulation S.


On September 16, 2010, the name of E&M was changed to CEM International Ltd.


As an advertising agent, we operate as an advertising agent dedicated to creating, planning and handling advertising for its clients. Because all of our clients have created and produced their own advertising clips and trailers, or programs, we currently act only as an advertising placement agent for Lotus TV, and there is no advertising creating and planning activities involved at this time. Currently we only have two employees.


As Lotus TV’s exclusive advertising agent, the Company provides advertising agency services to its clients by providing them with the advertising time slots the Company obtains from Lotus TV.  Advertisers can purchase advertising time slots of Lotus TV directly from the Company.


In September 2012, the Company entered into an advertising agreement through Lotus TV in exchange for gold bullions valued at $2,014,825 at the time The terms of the contract provide that the Company will sell 10,000 minutes of advertising time divided into 30-second time slots for a total of 20,000 advertising slots.  Revenue is recognized as advertisements are aired. During the year ended December 31, 2012, $149,978 of revenue was recognized related to advertising time slots used. The remaining amount is included in deferred revenue.


The Company invests in gold bullion.  As of December 31, 2012 and 2011, we held gold bullion valued at $4,367,420 and $2,312,683, respectively.  In September 2012, the Company entered into a Trust Agreement with a law firm as the trustee to hold the Company’s gold bullions.  Upon receipt of the gold bullions, the Trustee issued electronic receipts, each known



12



as a “Goldeq”, which can be used, in lieu of gold, as an intermediary to facilitate the exchange of goods and services conducted on the Company’s proposed joint venture with Lotus TV, in which a series of interactive game shows will be launched via satellite TV and the Internet for viewers throughout the world to participate, and Lotus TV will provide broadcasting time.  The goods and services originally proposed for exchange were household items or household services, such as books and audios, cosmetics, shoes and leather bags, computers and office suppliers, home repairs or web design, etc. To date, however, the Company has neither participated in the exchange of goods and services, nor in the interactive game shows .


Results of Operations


For the Year ended December 31, 2012 Compared to 2011


Revenue


For the year ended December 31, 2012, the Company generated total revenue of $407,832, of which $37,519 were from the sale the advertising TV time obtained from Lotus TV, and $370,313 from advertising.  Total revenue for the previous year was $128,643.


In September 2012, the Company entered into an advertising agreement in exchange for $2,014,825 of gold bullion.  The terms of the contract provide that the Company will sell 10,000 minutes of advertising time divided into 30-second time slots for a total of 20,000 advertising slots.  Revenue is recognized as advertisements are aired. During the year ended December 31, 2012, $149,978 of revenue was recognized related to advertising time slots used. The remaining amount is included in deferred revenue.


Operating expenses


Operating expenses for the year ended December 31, 2012 were $1,056,445, as compared to $622,346 for 2011.  The increase in operating expenses was primarily due to handling fees paid for obtaining the Lotus TV advertising time and amortization of the advertising rights during the period.


On September 25, 2012, Lotus TV invoiced the Company $1,000,000 for handling fees related to an advertising agreement which had not commenced.  The invoice terms included $200,000 cash and $800,000 reduction in the note receivable from Lotus TV.  The $1,000,000 fee was set up as prepaid expense. The terms of the invoice are that the handling fee costs US $50 per 30-second time slot, for a total of 20,000 slots.  The expense will be recognized over the use of the 20,000 time slots. During the year ended December 31, 2012, $74,880 of handling fee costs were included in operating expenses related to advertising time slots used.


Other income (expenses)


Our total other income (expenses) for the year ended December 31, 2012 was $397,023, which consisted of interest income of $364,793, unrealized gain on investments of $35,130, and a foreign currency exchange loss of $2,900.  For 2011, the other income (expense) was $(41,467), which consisted of interest income of $223,247 and unrealized loss on investment of $264,714.


Net income (loss)


For the year ended December 31, 2012, the Company had a net loss of $251,590, or $0.00 per share, as compared to a net loss of $535,170, or $0.00 per share, for 2011.


Liquidity and Capital Resources


At December 31, 2012, the Company had a cash balance of $200,791.  For the year ended December 31, 2012, the operating activities of the Company used net cash of $29,906, as compared to net cash used by the operating activities of $406,686 for the prior year.  Cash used in 2012 operating activities resulted primarily from the following: current year net



13



loss of $251,590; offset by the net change in operating assets and liabilities of $118,635; and non-cash operating inflows of $103,049.


Net cash used in investing activities for the year ended December 31, 2012 amounted to $25,941 compared to $8,558,204 of net cash used in 2011.  This 2012 amount pertains primarily to investments in trademark. The 2011 amount was primarily due to investment in note receivable of $7,019,778, investment in gold bullion of $2,577,397, and offset by changes in amounts due to director for gold investment of $275,223, and payment received on notes of $790,754.


For the year ended December 31, 2012, there were no financing activities. For the prior year (2011), the Company’s financing activities provided net cash of $9,000,000, which were proceeds from issuance of 300 million shares of the Company’s common stock in a private placement.  


On January 30, 2013, the Company entered into a Securities Purchase Agreement with certain investors in a private placement. Pursuant to the agreement, the Company issued and investors purchased an aggregate of 183 million shares of the Company's common stock, at a price of $0.03 per share, for an aggregate consideration of $5,490,000 in cash.  


Other than the funds the Company may loan to Lotus TV, it is estimated that the Company will require appropriately $450,000, or about $37,500 a month. In our opinion, available funds and revenues generated from our operation may not able to  satisfy our capital requirements for the next 12 months , and we may need to raise additional funds to meet our needs and to pursue growth opportunities . 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.



Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



As a smaller reporting company, the Company is not required to provide the information under this Item.









14









Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




Report of Independent Registered Certified Public Accounting Firm



To The Board of Directors of

Credit One Financial, Inc.

New York, New York


We have audited the accompanying consolidated balance sheets of Credit One Financial, Inc. and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity, and cash flows for the years then ended. Credit One Financial, Inc.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Credit One Financial, Inc. and subsidiaries as of December 31, 2012 and 2011, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.




/s/ Moss, Krusick & Associates, LLC

Winter Park, Florida

April 12, 2012















15








CREDIT ONE FINANCIAL, INC.

Consolidated Balance Sheets



 

 

 

 

 

 

 

 

 

 

December 31,
2012

 

December 31,
2011

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

200,791

 

$

250,167

 

Investment in gold bullion

 

 

4,367,420

 

 

2,312,683

 

Prepaid expenses and other current assets

 

 

1,105,628

 

 

173,772

 

Total current assets

 

 

5,673,839

 

 

2,736,622

 

 

 

 

 

 

 

 

 

Property, Plant and Equipment

 

 

 

 

 

 

 

   Furniture and fixtures

 

 

6,556

 

 

6,556

 

   Less: Accumulated depreciation

 

 

(4,295)

 

 

(2,331)

 

       Total Property, Plant and Equipment

 

 

2,261

 

 

4,225

 

 

 

 

 

 

 

 

 

Trademark, net

 

 

48,370

 

 

21,824

 

Note receivable

 

 

4,058,268

 

 

4,487,907

 

Intangible assets, net of accumulated amortization of $862,427 and $360,212

 

 

3,843,938

 

 

4,335,309

 

 

 

 

 

 

 

 

 

Total Assets

 

$

13,626,676

 

$

11,585,887

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

295,067

 

$

49,421

 

Advance from officer

 

 

275,828

 

 

275,223

 

Deferred revenue

 

 

2,020,448

 

 

-

 

Total current liabilities

 

 

2,591,343

 

 

324,644

 

 

 

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.001 par value, 500,000,000 shares authorized, 302,155,623 and 302,155,623 shares issued and outstanding  as of December 31, 2012 and 2011, respectively

 

 

302,156

 

 

302,156

 

Additional paid-in capital

 

 

11,893,303

 

 

11,893,303

 

Accumulated deficit

 

 

(1,162,312)

 

 

(910,722)

 

Currency translation adjustment

 

 

2,186

 

 

(23,494)

 

Total shareholders’ equity

 

 

11,035,333

 

 

11,261,243

 

 

 

 

 

 

 

 

 

Total Liabilities and Shareholders’ Equity

 

$

13,626,676

 

$

11,585,887

 

 

 

 

 

 

 

 

 

See the accompanying notes to consolidated financial statements.




16





CREDIT ONE FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)


 

 

 

For the Year Ended December 31,

 

 

 

 

 

2012

 

 

2011

 

Revenue

 

 

 

 

 

 

 

 

Advertising Revenue

$

370,313

 

$

123,504

 

TV Program

 

37,519

 

 

5,139

 

 

Total revenue

 

407,832

 

 

128,643

 

Operating Expenses

 

 

 

 

 

 

 

Selling, general and administrative

 

1,056,445

 

 

622,346

 

 

 

Total operating expenses

 

1,056,445

 

 

622,346

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

(648,613)

 

 

(493,703)

 

 

 

 

 

 

 

 

Other Income (Expenses)

 

 

 

 

 

 

 

Foreign currency exchange gain (loss)

 

(2,900)

 

 

-

 

 

Interest income

 

364,793

 

 

223,247

 

 

Unrealized gain (loss) on investment

 

35,130

 

 

(264,714)

 

 

 

Total other income (expenses)

 

397,023

 

 

(41,467)

 

 

 

 

 

 

 

 

 

 

Net Loss Before Income Taxes (Benefit)

 

(251,590)

 

 

(535,170)

 

 

 

 

 

 

 

 

 

 

Income Tax Provision (Benefit)

 

-

 

 

-

 

 

 

 

 

 

 

 

 

Net Loss

$

(251,590)

 

$

(535,170)

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss)

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

25,680

 

 

(18,131)

 

 

 

 

 

 

 

 

Total Comprehensive Income (Loss)

 $

(225,910)

 

 $

(553,301)

 

 

 

 

 

 

 

 

 

 

Income (Loss) Per Share:

 

 

 

 

 

 

 

Basic and Diluted

$

(0.00)

 

$

(0.00)

 

 

 

 

 

 

 

 

 

 

Weighted Average Number of Shares:

 

302,155,623

 

 

302,155,623

 





See the accompanying notes to consolidated financial statements. 



17






CREDIT ONE FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY

For the Years Ended December 31, 2012 and 2011




 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Currency

 

 

Total

 

 

Common Shares

 

Paid in

 

Accumulated

 

Translation

 

 

Stockholders’

 

 

Number

 

Amount

 

Capital

 

Deficit

 

Adjustment

 

 

Equity

Balance at December 31, 2010

 

2,155,623  

$

     2,156   

$

3,193,303

$

 (375,552)

$

(5,363)          

 

$

2,814,544

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

          300,000,000  

 

        300,000  

 

          8,700,000

 

         -  

 

                  -

 

 

9,000,000

Currency translation adjustment

 

-

 

-

 

-

 

-

 

(18,131)

 

 

(18,131)

Loss for the year ended December 31, 2011

 

-

 

            -  

 

                   -

 

(535,170)  

 

                     -  

 

 

      (535,170)

Balance at December 31, 2011

 

302,155,623  

 

   302,156   

 

11,893,303

 

 (910,722)

 

(23,494)

 

 

11,261,243

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustment

 

         -  

 

         -  

 

                -

 

        -  

 

25,680

 

 

25,680

Loss for the year ended December 31, 2012

 

 

 

 

(251,590)

 

-

 

 

(251,590)

Balance at December 31, 2012

 

302,155,623

 $

302,156         

 $

11,893,303

 $

(1,162,312)

 $

2,186

 

 $

11,035,333







See the accompanying notes to consolidated financial statements.





18



CREDIT ONE FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2012 and 2011


 

 

 

 

 

2012

 

2011

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net Loss

 

$

(251,590)

 

$

(535,170)

 

Adjustments to reconcile net loss to net

 

 

 

 

 

 

 

 

cash used in operating activities:

 

 

 

 

 

 

 

 

 

Accretion of interest on note receivable

 

 

(364,793)

 

 

(223,661)

 

 

 

Amortization of intangible asset

 

 

501,008

 

 

355,850

 

 

 

Depreciation

 

 

1,964

 

 

1,538

 

 

 

Unrealized (gain) loss on investment

 

 

(35,130)

 

 

264,714

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(131,854)

 

 

(173,772)

 

 

 

Accounts payable and accrued expenses

 

 

245,646

 

 

(96,185)

 

 

 

Deferred revenue

 

 

4,843

 

 

-

 

 

 

Cash used in operating activities

 

 

(29,906)

 

 

(406,686)

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

-

 

 

(5,182)

 

Investment in note receivable

 

 

-

 

 

(7,019,778)

 

Payments received on notes

 

 

-

 

 

790,754

 

Investment in gold bullion

 

 

-

 

 

(2,577,397)

 

Change in amount due to director for gold investment

 

 

605

 

 

275,223

 

Investment in trademark

 

 

(26,546)

 

 

(21,824)

 

 

 

Cash used in investing activities

 

 

(25,941)

 

 

(8,558,204)

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

-

 

 

9,000,000

 

 

 

Cash provided by financing activities

 

 

-

 

 

9,000,000

 

 

 

 

 

 

 

Impact of foreign currency on cash

 

 

6,471

 

 

(26,068)

Net increase (decrease) in cash and cash equivalents

 

 

(49,376)

 

 

9,042

 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents, Beginning

 

 

250,167

 

 

241,125

 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents, Ending

 

$

200,791

 

$

250,167

 

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Information:

 

 

 

 

 

 

 

Cash Payments For:

 

 

 

 

 

 

 

 

Interest

 

$

-

 

$

-

 

 

Income Taxes

 

$

-

 

$

-

 

Non-Cash Investing Activities:

 

 

 

 

 

 

 

 

Note receivable converted to prepaid expenses

 

$

800,000

 

$

-

 

 

Gold bullion received for advertising agreement (deferred revenue)

 

$

2,014,825

 

$

-



See the accompanying notes to consolidated financial statements.



19



CREDIT ONE FINANCIAL, INC.

Notes to Consolidated Financial Statements

December 31, 2012



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


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 100% owned subsidiary, CEM International Ltd.


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 $474,192 in U.S. net operating loss carry-forwards and $688,119 in Macau net operating loss carry-forwards as of December 31, 2012, 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



20



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.


As of December 31, 2012, the Company maintained $175,715 in foreign bank accounts not subject to FDIC coverage.  The remaining balance of $25,076 at December 31, 2012 was maintained in a domestic bank account and fully insured by FDIC.


Investment in Gold Bullion


The Company invests in gold bullion. As a precious metal, the investment in gold bullion is stated at its monetary fair value as determined by the Chinese Gold & Silver Exchange Society. Any adjustments to the fair value of the investments are recorded in unrealized gain or loss on the accompanying consolidated statements of operations and comprehensive income (loss).


In September 2012, the Company entered into a Trust Agreement with a law firm as the trustee to hold the Company’s gold bullions. Upon receipt of the gold bullions, the Trustee issued electronic receipts, each known as a “Goldeq”, which can be used, in lieu of gold, as an intermediary to facilitate the exchange of goods and services conducted on the Company’s proposed joint venture with Lotus TV, in which a series of interactive game shows will be launched via satellite TV and the Internet for viewers throughout the world to participate, and Lotus TV will provide broadcasting time. To date, the Company has neither participated in the exchange of goods and services, nor interactive game shows.





21




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 currency translation adjustments of $25,680 and $(18,131) as of December 31, 2012 and 2011, respectively. These were included in Other Comprehensive Income (Loss).


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 years ended December 31, 2012 and 2011, the Company recognized $2,900 and $0, respectively, of foreign currency exchange losses in the consolidated statements of operations.


Revenue Recognition


The Company recognizes revenue in accordance with Securities and Exchange Commission revenue recognition accounting standards.  


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.


In September 2012, the Company entered into an advertising agreement in exchange for $2,014,825 of gold bullion.  During the year ended December 31, 2012, $149,978 of revenue was earned under the arrangement. The remaining amount of $1,864,847 is included in deferred revenue at December 31, 2012.


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 non-interest bearing notes receivable from Lotus and the present value of the notes receivable at the time of issuance. This intangible asset is being amortized over the remaining life of the rights, which expire August 31, 2020.


Trademark


Legal costs associated with serving and protecting trademark are being capitalized and will be amortized over its estimated useful life.


Imputed Interest


In 2010 and 2011, the Company issued non-interest bearing notes receivable which mature in 2020.  The notes receivable were 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



22



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.


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 December 31, 2012 and 2011, respectively.


Recently Issued Accounting Standards


The Company has evaluated all newly issued accounting pronouncements and believes such pronouncements do not have a material effect on the Company’s financial statements.


Note 3 - 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.


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.


On June 12, 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.


On August 9, 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.




23



On September 25, 2012, Lotus TV invoiced the Company $1,000,000 for handling fees related to an advertising agreement which had not commenced.  The invoice terms included $200,000 cash and $800,000 reduction in the note receivable balance due from Lotus TV.  The $1,000,000 fee was included in prepaid expense, and is being amortized to expense as advertising slots are used. As of December 31, 2012, the balance of prepaid expenses related to this advertising agreement is approximately $931,000.


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.


A Summary of the notes receivable and intangible asset are as follows:


SCHEDULE OF NOTE RECEIVABLE




Date of Note


Amount Paid

Lotus TV

Discounted

 Note Balance

at Inception


Note Balance

As of 12/31/ 2011


Note Balance

 As of 12/31/2012

12/17/2010

$                 1,928,839

$                    913,872

$                   967,444

236,804

1/31/2011

780,000

363,279

392,395

425,945

6/12/2011

5,623,255

2,680,610

2,818,486

3,059,468

8/9/2011

616,523

299,814

309,582

336,051

 

$                8,948,617

$                 4,257,575

$                 4,487,907

4,058,268



SCHEDULE OF INTANGIBLE ASSET





Date of Note


Amount Paid

Lotus TV

Amount

 Allocated to

Intangible Asset

Intangible

Asset, Net

As of 12/31/ 2011

Intangible

Asset, Net

 As of 12/31/2012

12/17/2010

$                 1,928,839

$                1,014,967

$                   907,347

804,298

1/31/2011

780,000

416,721

377,149

335,489

6/12/2011

5,623,255

2,942,645

2,747,651

2,434,403

8/9/2011

616,523

316,709

303,162

269,748

 

$                8,948,617

$                 4,691,042

$                 4,335,309

3,843,938



Interest income accrued on the notes amounted to $364,793 for 2012 and $223,661 for 2011.  Amortization of the intangible asset amounted to $501,008 for 2012 and $355,850 for 2011, and was included in selling, general and administrative expenses in the accompanying consolidated financial statements.


Note 4 – 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 December 31, 2012 was 0% due to the net operating loss carry-forward.  The Company’s taxes were subject to a full valuation allowance as follows at December 31, 2012 and December 31, 2011:




24




December 31, 2012

 

 

 

 

 

 

 

 

 

 

 


Tax

 


Accumulated Net

 

 

 

 


Deferred

 

 


Valuation

Jurisdiction

 

Operating Loss

 

Expiration

 

 

Tax Asset

 

 

Allowance

 

 

 

 

 

 

 

 

 

 

 

United States

$

474,192

 

2019 - 2032

 

$

178,438

 

$

(178,438)

Macau

 

688,120

 

2013 - 2015

 

 

82,574

 

 

(82,574)

 

$

1,162,312

 

 

 

$

261,012

 

$

(261,012)

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

 

 

 

 

 


Tax

 


Accumulated Net

 

 

 

 


Deferred

 

 


Valuation

Jurisdiction

 

Operating Loss

 

Expiration

 

 

Tax Asset

 

 

Allowance

 

 

 

 

 

 

 

 

 

 

 

United States

$

414,498

 

2019-2031

 

$

155,976

 

$

(155,976)

Macau

 

496,223

 

2013-2014

 

 

59,547

 

 

(59,547)

 

$

910,721

 

 

 

$

215,523

 

$

(215,523)

 

 

 

 

 

 

 

 

 

 

 



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 December 31, 2012 and 2011.


Note 5 – Capital Stock


On April 9, 2010, the Company filed a Certificate of Amendment with the Secretary of State of the State of Florida 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. As of December 31, 2012, there were 302,155,623 shares of the Company’s common stock issued and outstanding.


On May 3, 2011, the Company issued an aggregate of 300 million shares of the Company’s common stock to 16 investors in a private placement at a price of $0.03 per share, for an aggregate consideration of $9,000,000 in cash.


Note 6 - 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 paid Lotus TV an initial Annual Fee of $1,000,000 Hong Kong dollars (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. The initial annual fee of $128,900 was paid in August 2011, and the second annual fee of $141,919 was due in August 2012, of which $103,544 was paid.  The amount of Annual Fee payable at December 31, 2012 and December 31, 2011 was $90,412 and $47,197, respectively.


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



25



after the first three years of the Agreement will be renegotiated by the parties. 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 expense for the year ended December 31, 2012 and 2011 was $146,540 and $132,752, respectively, and was included in selling, general and administrative expenses.


Note 7 – 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 Macau, the Company must comply with all Macau laws, rules and regulations, and pronouncements, and endeavor to obtain all necessary approvals from applicable Chinese regulatory authorities.


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


Note 8 – Related Party Transactions

A director of the Company purchased investments in gold bullion on behalf of the Company in August 2011. Purchases made under this arrangement totaled approximately HKD $20 Million (USD $2.6 Million). HKD $2,137,915 (USD $275,828)  remained payable to the director at December 31, 2012 and is non-interest bearing and due on demand.


In May 2011, the Company issued 90 million shares of its common stock, as part of the 300 million issued in a private placement, to a related party of Dicky Cheung, the Company’s president and CEO, in exchange for $2,700,000 in cash.


Note 9 – Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following at December 31, 2012 and 2011.


SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

 

 

December 31, 2012

 

 

December 31, 2011

Accounts payable

 

$

202,075

 

$

2,224

Wages payable

 

 

2,580

 

 

-

License fee payable

 

 

90,412

 

 

47,197

Total

 

$

295,067

 

$

49,421


Note 10 - Subsequent Events


The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued.


On January 30, the Company entered into a Securities Purchase Agreement with certain investors in a private placement. Pursuant to the agreement, the Company agreed to issue and investors agreed to purchase an aggregate of 183 million shares of the Company’s common stock at a price of $0.03 per share, for an aggregate consideration of $5,490,000 in cash which has not been received as of April 12, 2013.








26



Item 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON AUDITING AND FINANCIAL DISCLOSURE


None.



Item 9A.  CONTROLS AND PROCEDURES


(a) Evaluation of disclosure controls and procedures. 


Our management, under the supervision and with the participation of our principal executive officer and 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 December 31, 2012.  Based on that evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.


A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, 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.


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.


(b) Management’s report on internal control over financial reporting


The management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal controls over our financial reporting. 


The term internal control over financial reporting is defined as a process designed by, or under the supervision of, the issuer's principal executive and principal financial officers, or persons performing similar functions, and effected by the issuer's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:


(1) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the issuer;


(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance with authorizations of management and directors of the issuer; and


(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the issuer's assets that could have a material effect on the financial statements.


To evaluate the effectiveness of our internal controls over financial reporting, we have adopted the framework prescribed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and the related guidance provided in Internal Control Over Financial Reporting — Guidance for Smaller Public Companies, also issued by COSO.


Based on our evaluation of our internal controls as of December 31, 2012, our principal executive officer and principal financial officer concluded that our internal controls over financial reporting were effective.



27



Because of the inherent limitations in all control systems, no evaluation of control can provide absolute assurance that all control issues and instances of fraud or deviations, if any, within the Company have been detected.  While we believe that our disclosure controls and procedures and our internal control over financial reporting are effective, in light of the foregoing, we intend to continue to examine and refine our disclosure controls and procedures and our internal control over financial reporting to monitor ongoing developments in this area.

 

(c) Changes in internal controls over financial reporting


There were no changes in our internal control over financial reporting that occurred during the fourth quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


(d) Attestation Report of the Registered Public Accounting Firm


This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting because as a smaller reporting company we are not subject to attestation by our independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.  



Item 9B.  OTHER INFORMATION



None.




PART III



Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE


Directors and Executive Officers


The following table sets forth the information about our directors and executive officer:



Name

Age

Positions Held

Director Since

 

 

 

 

Dicky Cheung

41

President, Chief Executive Officer, Chief Financial Officer, Secretary and Director


2007

 

 

 

 

Xueyi Fan

43

Director

2011

 

 

 

 


Mr. Dicky Cheung has been the Company's President, Chief Executive Officer, Chief Financial Officer, Secretary and the Director since July 2007.  Mr. Cheung also serves the President of Companhhia Internacional Tek Tat Limitada, a privately held company located in Macau, since its formation in 2007.


Ms. Fan has been selected as a director of the Company since December 2011.  She is the founder of XYZ Gallery, which makes and markets a variety of paintings and drawings in Beijing, China.  Since 2002, Ms. Fan has been XYZ Gallery’s President, Chief Executive Officer, and Chief Financial Officer.  In 2007, Ms. Fan co-founded Four-Season Matou Space Gallery in Beijing, China, and she has been served as its vice president in Arts and Business Development.


During the past five years, each of Mr. Cheung and Ms. Fan did not hold any directorship in any company with a class of securities registered pursuant to Section 12 of the Exchange Act or subject to the requirements of Section 15(d) of such Act or any company registered as an investment company under the Investment Company Act of 1940.



28



Significant Employees


There are no significant employees other than our executive officer.


Family Relationships


None of our directors, executive officers, or key employees is related by blood, marriage, or adoption to any other Director, executive officer, or other key employees. 


Involvement in Certain Legal Proceedings


None.


CORPORATE GOVERNANCE


The business, properties and affairs of the Company are managed by the Chief Executive Officer under the direction of the Board of Directors. The Board has responsibility for establishing broad corporate policies and for overall performance and direction of the Company, but is not involved in day-to-day operations. Members of the Board keep informed of the Company’s business by participating in Board meetings, by reviewing analyses and reports sent to them regularly, and through discussions with the Chief Executive Officer and other officers.


Board Leadership Structure and Board's Role in Risk Oversight


Mr. Dicky Cheung, our Chief Executive Officer, serves as the Chairman of the Board of Directors. As a result of the size of the Company and only having one executive officer, the Board believes this leadership structure provides the most efficient and effective leadership model for the Company by enhancing the Chairman and Chief Executive Officer’s ability to provide clear insight and direction of business strategies and plans to both the Board and management. 


Management is responsible for the day-to-day management of risks the Company faces, while our whole board of directors has responsibility for the oversight of risk management.  In its risk management role, our board of directors has the responsibility to satisfy itself that the risk management processes designed and implemented by management are adequate and functioning as designed.


Because the Company has two board members, the board of directors’ role in overseeing the management of risk we face is conducted primarily through its committees, as discussed in the description of each committee below and as specified in each committee’s respective charter.  The board of directors (or the appropriate board committee in the case of risks that are under the purview of a particular committee) discusses with management potential risk exposures, their potential impact on our company and the steps we take to manage them.  When a board committee is responsible for evaluating and overseeing the management of a particular risk or risks, the committee will report such matters to the full board.  This enables the board of directors and its committees to coordinate the risk oversight role, particularly with respect to risk interrelationships.


Management provides timely and comprehensive information to the board to support the board’s role in oversight, approval and decision-making. As often as required, the board reviews the Company’s strategy, the key risks affecting strategy, operations, reporting, legal and compliance, the status of those risks, and how those risks are being managed. At present the board has a standing Audit Committee, but the board does not have outstanding Nominating or Compensation Committees.


The board also regularly receives reports from our internal personnel and independent accountants.


Committees of the Board of Directors


The Company does not have nominating, compensation or audit committees of the Board.  The full board conducts the function of an audit committee. 







29



Audit Committee


Presently, the board of directors acts as the audit committee.  Our board of directors does not have an “audit committee financial expert,” within the meaning of such phrase under applicable regulations of the Securities and Exchange Commission, serving on its audit committee.  However, the board of directors believes that all members of its board are financially literate and experienced in business matters, and that one or more members of the board are capable of (i) understanding generally accepted accounting principles ("GAAP") and financial statements, (ii) assessing the general application of GAAP principles in connection with our accounting for estimates, accruals and reserves, (iii) analyzing and evaluating our financial statements, (iv) understanding our internal controls and procedures for financial reporting;  and (v) understanding audit committee functions, all of which are attributes of an audit committee financial expert.  The board believes that its current board is able to fulfill its role under SEC regulations despite not having a designated "audit committee financial expert."


Nominating Committee


The full board of directors of the Company functions as a Nominating Committee to select potential directors of the Company.   The board has not specifically designated a separate nominating committee because all members of the board of directors desire to be involved in the selection of any new director.  The board does not have a specific charter to govern its actions as a nominating committee.  


There are no specific, minimum qualifications that the board of directors believes must be met by a candidate recommended by the board of directors. The entire board of directors will assess candidates, whether submitted by management or stockholders, and make recommendations for election or appointment.  


Stockholders may recommend director nominee candidates by sending the following information to the Board of Directors, Credit One Financial, Inc., 80 Wall Street, Suite 818, New York, NY 10005: stockholder’s name, number of shares owned, length of period held, and proof of ownership; name, age and address of candidate; candidate’s detailed resume; description of any arrangements or understandings between the stockholder and the candidate; and signed statement from the candidate confirming his or her willingness to serve on the Board of Directors.


The Company intends to seek additional qualified independent directors to serve on the board and ultimately form standing audit, nominating and compensation committees.


Director Independence

 

We are presently not required to comply with the director independence requirements of any securities exchange, which requires that a majority of a company's directors be independent.  


Our board of directors has determined that Ms. Xueyi Fan is independent within the applicable rules of the SEC, and that she is also an independent director under Rule 10A-3 of the Exchange Act for the purpose of audit committee membership.


Code of Business Conduct and Ethics


Our Code of Ethics is applicable to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and all of our employees. It has been designed to deter wrongdoing and to promote:


l

Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;


l

Full, fair, accurate, timely, and understandable disclosure in reports and documents that the Company files with, or submits to, the Commission and in other public communications made by the Company;


l

Compliance with applicable governmental laws, rules and regulations;


l

Prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and



30




l

Accountability for adherence to the Code.


Compensation Interlocks and Insider Participation


There were no compensation committee or board interlocks among the members of our Board.


Compliance with Section 16(a) of the Exchange Act


Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of our common stock, to file initial reports of ownership and reports of changes in ownership with the SEC. Executive officers, directors and greater than 10% beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, as of the date of this report, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten percent beneficial owners are complied with.



Item 11.  EXECUTIVE COMPENSATION



Summary Compensation Table


The following tables set forth the compensation of the Company's executive officers during the last two fiscal years:


Summary Compensation Table


  

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-

Equity

 

 

Nonqualified

 

 

 

 

 

 

 

  

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

Incentive

 

 

Deferred

 

 

All

 

 

 

 

Name and

 

  

 

 

 

 

 

 

 

Stock

 

 

Option

 

 

Plan

 

 

Compensation

 

 

Other

 

 

 

 

Principal

 

  

 

Salary

 

 

Bonus

 

 

Awards

 

 

Awards

 

 

Compensation

 

 

Earnings

 

 

Compensation

 

 

Total

 

Position

 

Year

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

 

($)

 

Dicky Cheung

 

2012

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

CEO,

 

2011

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

President

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

& CFO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


There were no "most highly compensated executive officers" as that term is defined in Item 402(a)(2) of Regulation S-K and there were no additional individuals for whom disclosure would have been made in this table.


Equity Compensation Plans


The Company has no equity compensation plans at present, and there have been no grants of plan-based award made to a named executive officer in the last two completed fiscal years under any plan.


Outstanding Equity Awards at Fiscal Year-End


The Company does not have any equity incentive plans. There was no outstanding equity awards at fiscal year ended December 31, 2012.








31



Option Exercises and Stock Vested


The Company does not have any equity incentive plans. There have been no exercise of stock options, SARs and similar instruments, and no vesting of stock, including restricted stock, restricted stock units and similar instruments, during the last two completed fiscal year for each of the named executive officers.


Employment Contracts, Termination of Employment, Change-in-Control Arrangements


The Company does not have employment agreements in place with its executive officers and directors. There are no contracts, agreements, plans or arrangements, whether written or unwritten, that provides for payment(s) to a named executive officer at, following, or in connection with the resignation, retirement or other termination of a named executive officer, or a change in control of the Company or a change in the named executive officer's responsibilities following a change in control, with respect to each named executive officer.


Employee Benefits Plans


(i) Pension Benefits

 

We do not sponsor any qualified or non-qualified pension benefit plans.


(ii) Nonqualified Deferred Compensation


We do not maintain any non-qualified defined contribution or deferred compensation plans.  At this time we do not have a tax qualified defined contribution 401(k) plan in which all eligible executive officers and employees may participate.


Securities Authorized for Issuance under Equity Compensation Plans


As of the end of the most recently completed fiscal year, there were no compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.


Potential Conflicts of Interest of Compensation Consultants


No compensation consultants have ever been hired to advise the Company and its Board of Directors.


Director Compensation


Directors do not receive any compensation for their services as directors. Our Board of Directors has the authority to fix the compensation of directors. No amounts have been paid to, or accrued to, directors in such capacity. As of the date of this proxy statement, no guidelines for the compensation of our non-employee directors have been adopted.



Item 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS  AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The following tables set forth certain information as of March 29, 2013, regarding (i) each person known by the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock, (ii) each director, nominee and executive officer of the Company and (iii) all officers and directors as a group.










32



Security Ownership of Certain Beneficial Owners



Title of Class


Name and Address of Beneficial Owner


Amount and Nature of Beneficial Owner (3)


Percent of Class

Common

Dicky Cheung

80 Wall Street, Suite 818

New York, NY 10005


90,693,454


30.02%



Security Ownership of Management


 

 

 

 


Title of Class


Name and Address of Beneficial Owner


Amount and Nature of Beneficial Owner (3)


Percent of Class

Common

Dicky Cheung

80 Wall Street, Suite 818

New York, NY 10005


90,693,454


30.02%

Common

All officers and directors

as a group(a)


90,693,454


30.02%



Notes:


(1)

Except as otherwise noted herein, percentage is determined on the basis of 302,155,623 shares of the Company’s common stock outstanding plus securities deemed outstanding pursuant to Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act").  Under Rule 13d-3, a person is deemed to be a beneficial owner of any security owned by certain family members and any security of which that person has the right to acquire beneficial ownership within 60 days, including, without limitation, shares of common stock subject to currently exercisable options.

 

 

(2)

The Company has not granted any stock options or warrants to purchase shares of its common stock, and the Company has not issued and does not have any securities outstanding that may be converted into its common shares or have any rights convertible or exchangeable into shares of the Company’s common stock.

 (3)

All shares are held by a corporation of which he is a controlling shareholder.


Changes in Control


There are no arrangements, known to the Company, including any pledge by any person of securities of the Company, the operation of which may at a subsequent date result in a change in control of the registrant.


Securities Authorized for Issuance under Equity Compensation Plans


As of the end of the most recently completed fiscal year, there were no compensation plans (including individual compensation arrangements) under which our equity securities are authorized for issuance.










33




Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS; AND DIRECTOR INDEPENDENCE



Transactions with Related Persons


Dicky Cheung, the  Company ’s director, President and CEO, purchased investments in gold bullion on behalf of the Company in August 2011. Purchases made under this arrangement totaled approximately HKD $20 Million (USD $2.6 Million). HKD $2,137,915 (USD $275,828) remained payable to the director at December 31, 2012 and is non-interest bearing and due on demand.


In May 2011, the Company issued 90 million shares of its common stock as part of the 300 million issued in the private placement to Indonesian Petroleum Engineering Limited, a company controlled by Dicky Cheung, the Company’s president and CEO, in exchange for $2,700,000 in cash.


Procedures for Approval of Transactions with Related Persons


All transactions involving related persons are to be presented to and assessed by the independent members of the board of directors.  Related persons include the Company’s directors and executive officers, immediate family members of the directors and executive officers, and certain large security holders and their family members.  If the determination is made that a related person has or may have a material direct or indirect interest in any Company transaction and that the amount involved equals or exceeds $120,000, the Company’s independent directors will review, approve and ratify the transaction, if appropriate, and the transaction will be disclosed if required under SEC rules. If the related party at issue is a director of the Company or a family member of a director, then that director will not participate in the relevant discussion and review.

 

Information considered in evaluating such transactions include the nature of the related person’s interest in the transaction, the material terms of the transaction, the importance of the transaction to the Company and the related person, whether the transaction is on terms no less favorable to the Company than those available with other parties, whether the transaction would impair the judgment of a director or an executive officer to act in the best interests of the Company, and any other matters that management or the independent directors deem appropriate.


Parents


Not Applicable.




Item 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES



Principal Accountant Fees and Services


The following is a summary of the fees billed to us by Moss, Krusick and Associates, LLC (“Moss Krusick”) for professional services rendered for the fiscal years ended December 31, 2012 and 2011:




 

 

 

 

 

 

 

 

Fee Category

  

2012

  

2011

Audit Fees

  

$

41,427

  

$

67,090

Audit-Related Fees

  

 

-

  

 

-

Tax Fees*

  

 

2,300

  

 

2,255

 

  

 

 

  

 

 

Total Fees

  

$

43,727

  

$

69,345

 

  

 

 

  

 

 

*  100% of the services were pre-approved by the Board of Directors.


(1)  Audit fees represent fees for professional services provided in connection with the audit of our financial statements and review of our quarterly financial statements included in our Form 10-Q.


(2)  Audit related fees.  None.


(3)  Tax fees.   Tax return preparation.


(4)   All other fees.   None.


(5)   Pre-Approval Policies


The Company does not have an audit committee at present. Our Board of Directors has reviewed and discussed with Moss Krusick the audited financial statements of the Company contained in the Company's Annual Report on Form 10-K for the Company's 2012 fiscal year. Our Board has also discussed with Moss Krusick the matters required to be discussed pursuant to Public Company Accounting Oversight Board Standards and to SAS No. 61 (Codification of Statements on Auditing Standards, AU Section 380), which includes, among other items, matters related to the conduct of the audit of the Company's financial statements.


Our Board has received and reviewed the written disclosures and the letter from Moss Krusick required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees), and has discussed with Moss Krusick its independence from the Company.


Our Board has considered whether the provision of services other than audit services is compatible with maintaining auditor independence.


The Board’s policy is to pre-approve all audit services and all permitted non-audit services (including the fees and terms thereof) to be provided by the Company's independent auditor; provided, however, pre-approval requirements for non-audit services are not required if all such services (1) do not aggregate to more than five percent of total revenues paid by the Company to its accountant in the fiscal year when services are provided; (2) were not recognized as non-audit services at the time of the engagement; and (3) are promptly brought to the attention of the Board and approved prior to the completion of the audit.


Our Board pre-approved all of the fees described above.



Item 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES



3.1

Articles of Incorporation, incorporated by reference herein from Exhibit 3(i) (A) to our Form 10-SB filed June 25, 2003.


 

 

3.2

Amended Articles of Incorporation, incorporated by reference herein from Exhibit 3(i)(B) to our Form 10-SB filed June 25, 2003



 

 

3.3

Amended Articles of Incorporation, incorporated by reference herein from Exhibit 3(i)(C) to our Form 10-QSB for the fiscal quarter ended March 31, 2005.


 

 

3.3(i)

Amended Articles of Incorporation, incorporated by reference herein from Exhibit 3.3 to our Current Report on Form 8-K filed January 4, 2010.

 

 

3.4

By-laws incorporated by reference herein from Exhibit 3(ii) to our Form 10-SB filed June 25, 2003




35






 

 

10.1

Stock Purchase Agreement with STM 1, LLC dated May 3, 2006, incorporated by reference herein from Exhibit 99 to our Form 8-K filed May 9, 2006.

 

 

10.2

Exclusive Advertising Agreement dated August 26, 2010, incorporated by reference herein from Exhibit 10.2 to our Form 8-K filed October 9, 2013

 

 

10.3

A Form of Promissory Note, incorporated by reference herein from Exhibit 10.3 to our Form 8-K filed October 9, 2013

 

 

10.4

Advertising Time Purchase dated September 27, 2012, incorporated by reference herein from Exhibit 10.4 to our Form 8-K filed October 9, 2013

 

 

10.5

Securities Purchase Agreement dated January 30,2013, incorporated by reference herein from Exhibit 10.5 to our Form 8-K filed October 9, 2013

 

 

10.6

Trust Agreement dated September 5, 2012

 

 

14

Code of Ethics, incorporated by reference herein from Exhibit 14 to our Form 8-K filed February 1, 2010

 

 

21

List of Subsidiaries of the Company


 

 

31.1

Certification pursuant to Section 13a-14 of the Securities Exchange Act of 1934


 

 

32.1

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 USC 1830)

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



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



CREDIT ONE FINANCIAL, INC.



By: /s/ Dicky Cheung

Dicky Cheung

President & CEO

(Principal Executive Officer and Principal Financial Officer)


Date:   October 9 , 2013


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons behalf of the registrant and in the capacities and on the dates indicated.



36




By: /s/ Dicky Cheung

Dicky Cheung

President & CEO

(Principal Executive Officer and Principal Financial Officer)                         Date:   October 9 , 2013


By: /s/ Xueyi Fan

Xueyi Fan, Director                                                                                  Date:   October 9 , 2013



37