Note 2 - Summary of Significant Accounting Policies | 3 Months Ended |
Mar. 31, 2015 |
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Note 2 - Summary of Significant Accounting Policies | Note 2 - Summary of Significant Accounting Policies |
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Basis of presentation |
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The accompanying interim consolidated financial statements for the three months ended March 31, 2015 and 2014 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 2014 Annual Report on Form 10-K, which was filed on February 23, 2015. |
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Principles of Consolidation |
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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. |
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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) recoded 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. |
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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. |
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All significant intercompany transactions and balances have been eliminated in consolidation. |
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Provision for Income Taxes |
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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 $639,336 in U.S. net operating loss carry-forwards and $1,403,589 in Macau net operating loss carry-forwards as of March 31, 2015, 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. |
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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. |
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Use of Estimates in the Preparation of the Financial Statements |
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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. |
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Fair Value Measurements |
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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: |
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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. |
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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. |
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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. |
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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. |
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The fair value of the Company’s financial instruments, which consist principally of cash and cash equivalents, are based on level 1 input, and equal carrying amounts. |
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Cash and Equivalents |
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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. |
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As of March 31, 2015, the Company maintained $586,465 in foreign bank accounts not subject to FDIC coverage. The remaining balance of $14,273 at March 31, 2015 was maintained in a domestic bank account and fully insured by FDIC. |
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Foreign Currency |
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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 $4,476 and $(3,702) for the three months ended March 31, 2015 and 2014, respectively. |
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Foreign currency transactions are transactions denominated in a currency other than the entity's functional currency. At the date the transaction is recognized, each asset, liability, revenue, expense, gain, or loss arising from the transaction is measured and recorded in the functional currency of the recording entity by use of the exchange rate in effect at that date. At each balance sheet date, recorded balances that are denominated in a currency other than the functional currency of the recording entity are adjusted to reflect the current exchange rate, with any resulting differences reported in the current period statement of operations. For the three months ended March 31, 2015 and 2014, the Company recognized no foreign currency exchange losses in the consolidated statements of operations. |
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Revenue Recognition |
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The Company recognizes revenue in accordance with Securities and Exchange Commission revenue recognition accounting standards. |
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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. |
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Advertising Rights |
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Advertising rights represented 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. |
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On November 25, 2014, CEM amended the 2010 Agreement with Lotus TV whereby Lotus TV agreed to accelerate its repayment of the loan balance in annual instalments of US$2,000,000 each starting from 2015 until the entire remaining loan balance shall have been paid in full, and CEM agreed to forego its exclusive advertising rights granted by Lotus TV, but remain as Lotus TV’s preferred advertising agent. As a result of the amendment, the intangible asset was reduced by $1,889,427. |
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Trademark |
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Legal costs associated with serving and protecting trademark are being capitalized and will be amortized over its estimated useful life. |
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Imputed Interest |
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In 2010, 2011, 2013 and 2014, the Company issued non-interest bearing notes receivable which fully 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. On November 25, 2014, the repayment of the notes receivable was accelerated and the carrying value of the notes receivable was increased by $1,889,427 for the change in present value of the notes. |
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Impairment of Long Lived Assets |
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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. |
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Property, Plant and Equipment |
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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. |
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Earnings Per Share |
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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 March 31, 2015 and 2014, respectively. |
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Recently Issued Accounting Standards |
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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 is effective for public companies for annual periods beginning after December 15, 2016 and interim periods within those annual periods. 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. |
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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. |