CREDIT ONE FINANCIAL INC - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - CREDIT ONE FINANCIAL INC	Financial_Report.xls
EX-32 - EX 32 - CREDIT ONE FINANCIAL INC	exhibit32.htm
EX-31 - EX 31 - CREDIT ONE FINANCIAL INC	exhibit31.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2014

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

Commission File Number: 000-50320

CREDIT ONE FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

Florida 59-3641205

(State or other jurisdiction of incorporation or organization (I.R.S. Employer Identification No.)

80 WALL STREET, SUITE 818, NEW YORK, NEW YORK 10005

(Address of principal executive offices) (Zip Code)

(212) 809-1200

(Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]

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

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

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

Applicable Only to Corporate Issuers

Indicate the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 326,155,623 shares of common stock, par value $0.001, as of July 29, 2014.

TABLE OF CONTENTS


		PAGE

	PART I - FINANCIAL INFORMATION

Item 1	Financial Statements	3

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3	Quantitative and Qualitative Disclosures About Market Risk	17

Item 4T	Controls and Procedures	17

	PART II – OTHER INFORMATION

Item 1	Legal Proceedings	18

Item 1A	Risk Factors	18

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	18

Item 3	Defaults Upon Senior Securities	18

Item 4	Mine Safety Disclosures	18

Item 5	Other Information	18

Item 6	Exhibits	18

	SIGNATURES	19

Item 1. Financial Statements

CREDIT ONE FINANCIAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


				June 30,		December 31,
				2014			2013
ASSETS				(Unaudited)			(Audited)
Current Assets:
	Cash and cash equivalents			$	795,768		$	2,086,943
	Prepaid expenses and other current assets				727,342			753,685
			Total Current Assets		1,523,110			2,840,628

Property, Plant and Equipment
	Furniture and fixture, net of accumulated depreciation of $6,494 and $6,058, respectively				63			498
			Total Property, Plant and Equipment		63			498

Trademark, net					86,642			77,320
Note receivable					5,915,277			4,783,768
Intangible assets, net of accumulated amortization of $1,669,959 and $1,390,315, respectively					3,864,483			3,582,116

Total Assets				$	11,389,575		$	11,284,330

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:
	Accounts payable and accrued expenses			$	285,678		$	201,926
	Deferred revenue				96,757			-
			Total Current Liabilities		382,435			201,926

Stockholders' Equity:
	Common stock, $0.001 par value, 500,000,000 shares authorized, 326,155,623 shares issued and outstanding
		at June 30, 2014 and December 31, 2013, respectively			326,156			326,156
	Additional paid-in capital				12,589,304			12,589,304
	Accumulated deficit				(1,913,159)			(1,833,731)
	Currency translation adjustment				4,839			675
			Total Stockholders' Equity		11,007,139			11,082,404

Total Liabilities and Stockholders' Equity				$	11,389,575		$	11,284,330

See accompanying notes to the consolidated financial statements

CREDIT ONE FINANCIAL, INC.

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


			Three Months Ended June 30,					Six Months Ended June 30,
				2014		2013		2014		2013

Advertising Revenue			$	48,368	$	183,820	$	96,701	$	384,292
TV Program				-		-		-		3,996
	Total revenue			48,368		183,820		96,701		388,288
Operating Expenses
	Selling, general and administrative			223,407		308,231		472,417		584,993
		Total operating expenses		223,407		308,231		472,417		584,993

Loss from operations				(175,039)		(124,411)		(375,716)		(196,705)

Other Income (Expenses)
	Interest income			128,863		97,996		296,289		192,540
	Unrealized gain (loss) on investment			-		(988,723)		-		(1,134,917)
		Total other income (expenses)		128,863		(890,727)		296,289		(942,377)

Net Loss Before Income Taxes				(46,177)		(1,015,138)		(79,427)		(1,139,082)

Income Tax Provision				-		-		-		-

Net Loss			$	(46,177)	$	(1,015,138)	$	(79,427)	$	(1,139,082)

Other Comprehensive Income (Loss)
	Foreign currency translation adjustment			7,866		13,624		4,164		(3,717)

Total Comprehensive Income (Loss)			$	(38,311)	$	(1,001,514)	$	(75,263)	$	(1,142,799)

Income loss Per Share:
	Basic and Diluted		$	(0.00)	$	(0.00)	$	(0.00)	$	(0.00)

Weighted Average Number of Shares:				326,155,623		324,288,970		326,155,623		313,222,304

See accompanying notes to the consolidated financial statements

CREDIT ONE FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


				Six Months Ended
				June 30, 2014		June 30, 2013
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net Income (loss)			$	(79,427)		$	(1,139,082)
	Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
		Accretion of interest on note receivable			(296,275)			(192,538)
		Amortization of intangible asset			278,944			259,478
		Depreciation			435			912
	Unrealized (gain) loss on investment				-			1,134,917
	Changes in operating assets and liabilities:
		Other receivable			-			(3,993)
		Prepaid expenses and other current assets			26,343			163,562
		Account payable and accrued expenses			83,752			77,654
		Deferred revenue			96,757			(352,163)
			Cash provided (used ) by operating activities		110,529			(51,253)

CASH FLOWS FROM INVESTING ACTIVITIES:
	Investments in notes receivable				(1,392,488)			(600,000)
	Investment in trademark				(9,322)			(12,657)
		Cash provided (used) by investing activities			(1,401,810)			(612,657)

CASH FLOWS FROM FINANCING:
	Proceeds from issuance of common stock				-			720,000
		Cash provided by financing activities			-			720,000


Impact of Exchange Rate on Cash and Cash Equivalents					106			3,508

Net Increase (Decrease) in Cash and Cash Equivalents					(1,291,175)			59,598

Cash and Cash Equivalents, Beginning					2,086,943			200,791

Cash and Cash Equivalents, Ending				$	795,768		$	260,389

SUPPLEMENTAL CASH FLOW INFORMATION:

		Cash Paid for Interest		$	-		$	-
		Cash Paid for Income Taxes		$	-		$	-

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
				$	-		$	-

See accompanying notes to the consolidated financial statements

CREDIT ONE FINANCIAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

JUNE 30, 2014

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

Basis of presentation

The accompanying interim consolidated financial statements for the six months ended June 30, 2014 and 2013 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations realized during an interim period are not necessarily indicative of results to be expected for a full year. These consolidated financial statements should be read in conjunction with the information filed as part of the Company’s 2013 Annual Report on Form 10-K, which was filed on March 10, 2014.

Principles of Consolidation

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

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

The consolidated financial statements presented 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 $588,677 in U.S. net operating loss carry-forwards and $1,324,451 in Macau net operating loss carry-forwards as of June 30, 2014, and a valuation allowance equal to the tax benefit of the accumulated net operating losses has been established since it is uncertain that future taxable income from operations in the United States of America will be realized during the applicable carry-forward periods. The net operating loss carry-forwards may be limited under the change of control provisions of the Internal Revenue Code, Section 382.

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

Use of Estimates in the Preparation of the Financial Statements

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

Fair Value Measurements

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

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

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

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

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

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

Cash and Equivalents

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

As of June 30, 2014, the Company maintained $733,394 in foreign bank accounts not subject to FDIC coverage. The remaining balance of $62,374 at June 30, 2014 was maintained in a domestic bank account and fully insured by FDIC.

Investment in Gold Bullion

The Company invested in gold bullion. As a precious metal, the investment in gold bullion was stated at its monetary fair value as determined by the Chinese Gold & Silver Exchange Society. Any adjustments to the fair value of the

investments were 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 William G. Hu, Esq. 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 is still in design and development stage of the above project.

In addition to its investment in gold bullion, the Company also received gold bullion as payment from sale of advertising time. In September 2012, the Company entered into an Advertising Time Purchase Agreement with Scientific Energy, Inc. 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. As a result, the Company received 190 gold bullions, 5-tael per bullion, valued at $2,014,825 at that time.

On February 17, 2013 and on December 12, 2013, the Company sold its all gold bullion on hand for $26,249,236 Hong Kong dollars (approximately US$3,384,203) in cash, which resulted in a cumulative loss of approximately $1,206,798 since the gold was acquired in 2012 and 2011.

In December 2013, Scientific Energy, Inc. decided that the remaining unused advertising time would no longer be needed, and the Company agreed to refund to it for the unused advertising time on Lotus TV in the aggregate amount of $7,593,834.93 Hong Kong dollars (approximately US$979,218) , which represented 6,750 minutes of unused advertising TV time.

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. Assets and liabilities were translated at exchange rates as of the balance sheet date. Revenues, expenses, gains and losses were translated at average exchange rates in effect for the periods presented. Transaction adjustments result from the process of translating the subsidiaries’ financial statements into US dollars and are not included in determining net income, but are reported in other comprehensive income. There was currency translation adjustment of $7,866 and $13,624 for the three months ended June 30, 2014 and 2013, respectively, and $4,164 and $(3,717) for the six months ended June 30, 2014 and 2013, respectively.

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

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. Advance payments for advertising are recorded as deferred revenue. 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 years ended December 31, 2013, $504,752 of revenue was earned under the arrangement. Pursuant to the agreement between the Company and the client, the remaining amount of $978,687 was refund to client on December 30, 2013.

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

Since 2010, the Company has 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 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 June 30, 2014 and 2013, respectively.

Recently Issued Accounting Standards

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. ASU 2014-09 will be effective for the Company beginning in its first quarter of 2018. Early adoption is not permitted. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is currently evaluating the impact of adopting the new revenue standard on its financial statements.

The Company has evaluated all other 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 (amended to US$15 million on June 13, 2014) 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.

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 was being amortized to expense as advertising slots were used.

On April 9, 2013, CEM issued Lotus TV an additional loan HK$4,658,425 (US$600,000), 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$2,578,771 (US$332,143) using an effective interest rate of 8%. This difference between the face value and the present value of HK$2,076,654 (US$267,857) was allocated to the intangible asset captioned Exclusive Advertising Rights.

On February 17, 2014, CEM issued Lotus TV an additional loan HK$7,800,000 (US$1,005,543) , backed by a non-interest bearing promissory note, due on August 31, 2020. The note receivable was discounted to its estimated fair value of $596,862 using an effective interest rate of 8%. This difference between the face value and the present value of $408,681 was allocated to the intangible asset captioned Exclusive Advertising Rights.

On June 13, 2014, CEM issued Lotus TV an additional loan HK$3,000,000 (US$387,027) , backed by a non-interest bearing promissory note, due on August 31, 2020. The note receivable was discounted to its estimated fair value of $235,916 using an effective interest rate of 8%. This difference between the face value and the present value of $151,111 was allocated to the intangible asset captioned Exclusive Advertising Rights.

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 is as follows:

SCHEDULE OF NOTE RECEIVABLE


Date of Note	Amount Paid Lotus TV	Discounted Note Balance at Inception	Note Balance As of 12/31/ 2013	Note Balance As of 6/30/2014
12/17/2010	$ 1,928,839	$ 913,872	$ 293,942	$ 376,088
1/31/2011	780,000	363,279	461,090	480,030
6/12/2011	5,623,255	2,680,610	3,311,907	3,447,964
8/9/2011	614,731	299,814	363,779	391,515
4/9/2013	600,000	332,143	353,050	367,551
2/17/2014	1,005,543	596,862	-	615,426
6/13/2014	387,027	235,916	-	236,703
	$ 10,939,395	$ 5,422,496	$ 4,783,768	$ 5,915,277

SCHEDULE OF INTANGIBLE ASSET


Date of Note	Amount Paid Lotus TV	Amount Allocated to Intangible Asset	Intangible Asset, Net As of 12/31/ 2013	Intangible Asset, Net As of 6/30/2014
12/17/2010	$ 1,928,839	$ 1,014,967	$ 699,075	$ 645,794
1/31/2011	780,000	416,721	291,597	269,832
6/12/2011	5,623,255	2,942,645	2,115,917	1,957,980
8/9/2011	614,731	314,917	234,458	216,723
4/9/2013	600,000	267,857	241,070	223,076
2/17/2014	1,005,543	408,681	-	400,981
6/13/2014	387,027	151,111	-	150,097
	$ 10,939,395	$ 5,516,899	$ 3,582,117	$ 3,864,483

Interest income accrued on the notes amounted to $129,021 and $296,447 for the three and six months ended June, 2014. Amortization of the intangible asset amounted to $142,246 and $ 279,106 for the three and six months ended June 30, 2014, 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 June 30, 2014 was 0% due to the net operating loss carry-forward. The Company’s taxes were subject to a full valuation allowance as follows at June 30, 2014 and December 31, 2013:


June 30, 2014
Tax		Accumulated Net			Deferred		Valuation
Jurisdiction		Operating Loss	Expiration		Tax Asset		Allowance

United States	$	588,677	2019 - 2033	$	221,519	$	(221,519)
Macau		1,324,451	2013 - 2016		158,934		(158,934)
	$	1,913,128		$	380,453	$	(380,453)


December 31, 2013
Tax		Accumulated Net			Deferred		Valuation
Jurisdiction		Operating Loss	Expiration		Tax Asset		Allowance

United States	$	541,035	2019 - 2032	$	203,591	$	(203,591)
Macau		1,292,695	2013 - 2016		155,123		(155,123)
	$	1,833,730		$	358,715	$	(358,715)

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 June 30, 2014 and December 31, 2013.

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 June 30, 2014, there were 326,155,623 shares of the Company’s common stock issued and outstanding.

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 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, of which $720,000 was received on April 9, 2013 for 24,000,000 shares.

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 amount of Annual Fee payable at June 30, 2014 and December 31, 2013 was $85,855 and $-0-, 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 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 three months ended June 30, 2014 and 2013 were $42,919 and $39,004, respectively, and $85,806 and $77,978 for the six months ended June 30, 2014 and 2013, respectively, and is 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 was non-interest bearing and due on demand. In September 2013, the remaining payable balance was paid off.

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 - Subsequent Events

The Company has evaluated subsequent events from the balance sheet date through the date the financial statements were issued. Per our evaluation there were no significant events that require disclosure.

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

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

Overview

Until November 30, 2010, the Company’s main business was processing and distribution of mineral products, primarily graphite products, in China. 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, CEM International Limited (“CEM”, formerly E&M International Ltd.), 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 CEM 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, CEM 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 CEM. Under the agreement, CEM 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 six years.

CEM 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 (amended to US$15 million on June 13, 2014) 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 June 30, 2014, the loan balance to Lotus TV was approximately $10.14 million under this agreement. On June 13, 2014, CEM loaned HK$3,000,000 Hong Kong dollars (approx. US$387,027) to Lotus TV.

Results of Operations

FOR THE THREE MONTHS ENDED JUNE 30, 2014 COMPARED TO 2013

Operating Revenues

The following table presents a breakdown of our operating revenues among advertising revenues and revenue from TV program, i.e., revenue from sale of the advertising TV time obtained from Lotus TV:


	For the Three Month Ended June 30,
	2014				2013
	Amount		%		Amount		%
Operating revenues:
Advertising revenue	$	48,368	100	%	$	183,820	100	%
TV Program	-		-	%	-		-	%
Total operating revenues	$	48,368	100	%	$	183,820	100.0	%

In January 2014, the Company received an advance payment of $193,374, and in December 2012, an advance payment of $154,575 under a contract to provide advertising for all of 2014 and 2013. During the three months ended June 30, 2014 and 2013, the Company recognized revenue of $48,368 and $183,820, respectively, related to the contract. At June 30, 2014, $96,757 of deferred revenue was recorded related to the contact.

Operating expenses

The following table presents a breakdown of our operating expenses:


	For the Three Month Ended June 30,
	2014				2013
	Amount		%		Amount		%
Operating expense:
License fee	$	42,919	19.2	%	$	38,974		12.7		%
Amortization of advertising right assets	142,246		63.6	%	134,208		43.5		%
Other general and administrative	38,242		17.2	%	135,049		43.8		%
Total operating expenses	$	223,407	100.0	%	$	308,231		100.0		%

Operating expenses for the three months ended June 30, 2014 were $223,407, as compared to $308,231 for the same period of 2013. The decrease in operating expenses was mainly due to decrease in other general and administrative expenses.

Other income (expenses)

Our total other income for the three months ended June 30, 2014 was $128,863, which consisted of interest income. For the same period of 2013, the other expense was $890,727, which consisted of interest income of $97,996 and unrealized loss on investment of $988,723.

Net income (loss)

For the three months ended June 30, 2014, the Company had a net loss of $46,177, or $0.00 per share, as compared to a net loss of $1,015,138, or $0.00 per share, for the same period of prior year.

FOR THE SIX MONTHS ENDED JUNE 30, 2014 COMPARED TO 2013

Operating Revenues

The following table presents a breakdown of our operating revenues among advertising revenues and revenue from TV program, i.e., revenue from sale of the advertising TV time obtained from Lotus TV:


	For the Six Month Ended June 30,
	2014				2013
	Amount		%		Amount		%
Operating revenues:
Advertising revenue	$	96,701	100	%	$	384,292	99.0	%
TV Program	-		-	%	3,996		1.0	%
Total operating revenues	$	96,701	100.0	%	$	388,288	100	%

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 six months ended June 30, 2013, $273,409 of revenue was recognized related to advertising time slots used. On December 12, 2013, the Company refund all unused advertising time on Lotus TV in the aggregate amount of 404,995 seconds (or 6,750 minutes) valued $7,593,834.93 Hong Kong dollars.

In January 2014, the Company received an advance payment of $193,374, and in December 2012, an advance payment of $154,575 under a contract to provide advertising for all of 2014 and 2013. During the six months ended June 30, 2014 and 2013, the Company recognized revenue of $96,701 and $384,292, respectively, related to the contract. At June 30, 2014, $96,757 of deferred revenue was recorded related to the contact.

Operating expenses

The following table presents a breakdown of our operating expenses:


	For the Six Month Ended June 30,
	2014				2013
	Amount		%		Amount		%
Operating expense:
License fee	$	85,806	18.2	%	$	77,978	13.4	%
Amortization of advertising right assets	279,106		59.0	%	259,478		44.3	%
Other general and administrative	107,505		22.8	%	247,537		42.3	%
Total operating expenses	$	472,417	100.0	%	$	584,993	100.0	%

Operating expenses for the six months ended June 30, 2014 were $472,417, as compared to $584,993 for the same period of 2013. The decrease in operating expenses was mainly due to decrease in other general and administrative expenses.

Other income (expenses)

Our total other income for the six months ended June 30, 2014 was $296,289, which consisted of interest income. For the same period of 2013, the other expense was $942,377, which consisted of interest income of $192,540 and unrealized loss on investment of $1,134,917.

Net income (loss)

For the six months ended June 30, 2014, the Company had a net loss of $79,427, or $0.00 per share, as compared to a net loss of $1,139,082, or $0.00 per share, for the same period of prior year.

Liquidity and Capital Resources

Cash flow information is as follows:


	Six Months Ended June 30,
	2014		2013
Cash provided by (used in):
Operating activities	$	110,529	$	(51,253)
Investing activities		(1,401,810)		(612,657)
Financing activities		-		720,000
Effect of exchange rate on cash and cash equivalents		106		3,508
Net increase (decrease) in cash and cash equivalents	$	(1,291,175)	$	59,588

At June 30, 2014, the Company had a cash balance of $795,768. For the six months ended June 30, 2014, the operating activities of the Company generated net cash of $110,529, as compared to net cash used by the operating activities of $51,252 for the prior year. Cash generated from operating activities in 2014 is primarily attributed to increases in the Company’s operating assets and liabilities of $206,852, and partially offset by its current year net loss of $79,427.

Net cash used in investing activities for the six months ended June 30, 2014 amounted to $1,401,810, compared to $612,657 of net cash used in the same period of 2013. The increased cash in investing activities was primarily a result of the additional loan to Lotus TV in February 2014.

For the six months ended June 30, 2014, there were no financing activities. For the same period of the prior year, the Company’s net cash provided by financing activities were $720,000, which were proceeds from issuance of the Company’s common stock.

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 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. As of June 30, 2014, there were 24 million shares of the Company’s common stock issued.

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.

Commitments

On August 26, 2010, CEM International Ltd. entered into an Advertising Agreement with Lotus TV, pursuant to which Lotus TV authorizes CEM as its exclusive agent to operate all of its advertising business, 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, CEM agrees to pay Lotus TV a fixed annual fee every year (the “Annual Fee”) regardless of the total amount of advertising revenues received by CEM. Under the Agreement, CEM 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 until 2017. The amount of Annual Fee payable at June 30, 2014 and December 31, 2013 was $42,897 and $-0-, respectively.

CEM 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 (amended to US$15 million on June 13, 2014) over a period of 10 years. The terms of each Loan and the increase of Annual Fee after the first three years of the Agreement will be 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 three months ended June 30, 2014 and 2013 was $42,919 and $39,004, respectively, and was included in selling, general and administrative expenses.

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.

Inflation

In general, our costs are affected by inflation and we may experience the effects of inflation in future periods. Such effects have not been material to us in the past and we believe will not materially affect us in the future.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to foreign currency fluctuations and changes in the market values of our investments in gold bullion.

Foreign Exchange Risk

The functional currency of our subsidiary in Macau is the Hong Kong dollar. The results of operations of, and certain of our intercompany balances associated with, are exposed to foreign exchange rate fluctuations. Upon consolidation, as exchange rates vary, net sales and other operating results may differ materially from expectations, and we may record significant gains or losses on the remeasurement of intercompany balances. During the three months ended June 30, 2014 and 2013 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.

Investment Risk

We invested in gold bullion. As of June 30, 2014 and 2013, we held gold bullion valued at $-0- and $2,971,500, 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, 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.

We reviewed our investments in gold bullion for impairment when events and circumstances indicate that the decline in fair value of such gold bullion below its carrying value. As of June 30, 2014, all of our investments in gold were sold.

We do not own any derivative financial instruments. Accordingly, we do not believe there is any material market risk exposure with respect to derivatives or other financial instruments that require disclosure under this item.

Item 4T. Controls and Procedures

(a) Evaluation of disclosure controls and procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based upon that evaluation, our CEO and CFO concluded that, as of June 30, 2014, our disclosure controls and procedures were effective at providing reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that our controls and procedures are effective in timely alerting them to material information required to be included in this report.

(b) Changes in control over financial reporting

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None

Item 1A. Risk Factors

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

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

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

Item 6. Exhibits

(a) Exhibits:

Exhibit No. Title of Document

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

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

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

SIGNATURES

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

CREDIT ONE FINANCIAL, INC.

By: /s/ Dicky Cheung

Dicky Cheung

President, Chief Executive Officer and Chief Financial Officer

July 29, 2014

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