UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2009
[ ] TRANSITIONAL REPORT UNDER 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.
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(Exact name of small business issuer as specified in its charter)
Florida 59-3641205
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State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
80 Wall Street, Suite 818, New York, NY 10005
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(Address of principal executive offices)
(212) 809-1200
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(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
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 is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definition of "larger accelerated filer", and "accelerated filer" and
"smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non Accelerated filer [ ] (Do not check if a smaller reporting company)
Smaller Reporting Company [X]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the exchange Act.) Yes [ ] No [X]
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 107,781,150 shares of
common stock, par value $0.001, as of May 13, 2009.
TABLE OF CONTENTS
Part I. Financial Information
Item1. Financial Statements
Consolidated Balance Sheets as of March 31, 2009 (unaudited)
and December 31, 2008......................................... 4
Consolidated Statements of Operations (unaudited) for the
Three Months Ended March 31, 2009 and 2008.................... 5
Consolidated Statements of Cash Flows (unaudited) for the
Three Months Ended March 31, 2009 and 2008.................... 6
Notes to Financial Statements.................................... 7
Item 2. Management's Discussion and Analysis.......................... 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk... 15
Item 4T. Controls and Procedures..................................... 15
Part II. Other Information
Item 1. Legal Proceedings........................................... 16
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 16
Item 3. Defaults Upon Senior Securities............................. 16
Item 4. Submission of Matters to a Vote of Security Holders......... 16
Item 5. Other Information........................................... 16
Item 6. Exhibits.................................................... 17
Signatures............................................................ 17
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
CREDIT ONE FINANCIAL, INC.
(A Development Stage Company)
Consolidated Balance Sheets
March 31, December 31,
2009 2008
---------------- -----------------
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ASSETS
Current Assets:
Cash and cash equivalents.................................. $ 1,660,629 $ 2,924,405
Inventory.................................................. 42,272 -
Prepaid expenses........................................... 2,813,151 -
---------------- ----------------
Total Current Assets.................................. 4,516,052 2,924,405
Property & Equipment:
Furniture and fixtures..................................... 4,193 1,299
Less: Accumulated depreciation............................. (338) (273)
--------------- ---------------
Total Property & Equipment............................ 3,855 1,026
--------------- ---------------
Other Assets:
Other assets............................................... 347,680 -
--------------- ---------------
Total Other Assets.................................... 347,680 -
--------------- ----------------
Total Assets............................................... $ 4,867,587 $ 2,925,431
=============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable........................................... $ 37,194 $ -
Salaries payable........................................... 14,353 -
-------------- ---------------
Total Current Liabilities............................. 51,547 -
Stockholders' Equity:
Common stock: par value $0.001; 110,000,000 shares authorized;
107,781,150 shares issued and outstanding.............. 107,781 107,781
Additional paid-in capital................................. 3,087,678 3,087,678
Deficit accumulated during the development stage........... (297,089) (270,028)
Non-controlling interest in subsidiary..................... 1,917,670 -
-------------- ---------------
Total Stockholders' Equity............................ 4,816,040 2,925,431
-------------- ---------------
Total Liabilities and Stockholders' Equity................. $ 4,867,587 $ 2,925,431
============== ===============
See accompanying notes to consolidated financial statements
CREDIT ONE FINANCIAL, INC.
(A Development Stage Company)
Consolidated Statements of Operations
For the Three Months Ended March 31, 2009 and 2008
and Cumulative from Inception
Cumulative
Since Sept. 24, 1999
2009 2008 (Inception) to 3/31/2009
--------------- -------------- -----------------------
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Revenue:
Service fees..................................... $ - $ - $ 21,000
Commissions...................................... - - 11,397
Consulting....................................... - - 4,881
--------------- ------------- ----------------
Total revenues.............................. - - 37,278
Expenses:
Consulting expense............................... - - 6,892
Commission expense............................... - - 6,962
Salary expense................................... 10,396 6,000 87,291
General and administrative expense............... 26,203 12,002 211,344
-------------- ------------- ---------------
Total expenses.............................. 36,599 18,002 312,489
-------------- ------------- ---------------
Loss from operations............................. (36,599) (18,002) (275,211)
-------------- ------------- ---------------
Other income (expense):
Interest income.................................. 424 11,178 11,858
Interest expense................................. - (6,708) (42,850)
Foreign currency loss............................ (10,185) - (10,185)
-------------- ------------- ---------------
Total other income (expense)............... (9,761) 4,470 (41,177)
-------------- ------------- ---------------
Net loss before taxes and non-controlling interest (46,360) (13,532) (316,388)
Income tax provision............................. - - -
Loss attributed to non-controlling interest in subsidiary 19,299 - 19,299
-------------- ------------- ---------------
Net loss......................................... $ (27,061) $ (13,532) $ (297,089)
============== ============= ===============
Basic and diluted loss per share................. $ (0.00) $ (0.00)
============== =============
Weighted average common shares outstanding....... 107,781,150 7,781,150
============== =============
See accompanying notes to consolidated financial statements
CREDIT ONE FINANCIAL, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2009 and 2008
And Cumulative from Inception
Cumulative
From Inception
2009 2008 To 3/31/2009
---------------- --------------- -----------------
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Cash Flows from Operating Activities:
Net loss...................................................... $ (27,061) $ (13,532) $ (297,089)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................................ 65 61 338
Non-cash expenses contributed............................... - - 1,054
Non-cash consulting and legal fees paid with common stock... - - 6,500
Non-cash interest expense paid with common stock to a related party - - 33,708
Non-controlling interest in subsidiary...................... 1,917,670 - 1,917,670
Changes in operating assets and liabilities:
Increase in prepaid expenses................................ (2,813,151) - (2,813,151)
Increase in inventory....................................... (42,272) - (42,272)
Increase in other assets.................................... (347,680) - (347,680)
Increase in accrued interest payable........................ - 6,708 -
Increase in salary payable.................................. 14,353 6,000 14,353
Increase in accounts payable................................ 37,194 1,950 37,194
--------------- --------------- -----------------
Net cash used in operating activities.................... (1,260,882) 1,187 (1,489,375)
--------------- --------------- -----------------
Cash Flows from Investing Activities:
Purchase of property and equipment............................ (2,894) (249) (4,193)
Project advances.............................................. - 600,000 -
--------------- --------------- -----------------
Net cash used in investing activities.................... (2,894) 599,751 (4,193)
--------------- --------------- -----------------
Cash Flows from Financing Activities:
Proceeds from issuance of common stock........................ - - 2,499,052
Loan from a related party..................................... - - 620,000
Additional capital contributed by shareholders................ - - 35,145
-------------- --------------- -----------------
Net cash provided by financing activities................ - - 3,154,197
-------------- --------------- -----------------
Increase (decrease) in cash and cash equivalents.............. (1,263,776) 600,938 1,660,629
Cash and cash equivalents, beginning of period................ 2,924,405 21,401 -
-------------- --------------- -----------------
Cash and cash equivalents, end of period...................... $ 1,660,629 $ 622,339 $ 1,660,629
============== =============== =================
Supplemental disclosures:
Interest paid in cash......................................... $ - $ - $ 9,143
=============== ================ =================
Non-cash investing and financing transactions:
Common stock issued on conversion of loans payable and
accrued interest to a related party......................... $ - $ - $ 653,708
=============== ================ =================
See accompanying notes to consolidated financial statements
CREDIT ONE FINANCIAL, INC.
(A Development Stage Company)
Notes to Financial Statements
March 31, 2009
NOTE 1 - NATURE OF BUSINESS
Credit One Financial, Inc. (the "Company") was incorporated in the State of
Florida on September 24, 1999. The Company was engaged in market research
regarding the cost and availability of non-performing credit card debt
portfolios. It was also engaged in research regarding the current market price
for re-performing portfolios as well as the market prices offered for portfolios
deemed non-collectable at the time of sale.
After the change in control in July 2007, the Company tried to engage some
businesses of small and medium sized companies that have good and feasible
business plans, but lacking working capital to implement their business plans.
On February 27, 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, has been set up in Hong Kong, whereby, on January
12, 2009, the Company contributed $16 million Hong Kong dollars, approximately
$2.05 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 $1.92 million, for 48.4% of the equity interest in
Moderation. The purpose of the joint venture is to engage in a business of
natural resources products, primarily graphite at this time, in China.
In January 2009, Moderation Limited established a wholly owned subsidiary
"Liaoning Sinorth Resources Co., Ltd." in Yingkou, Liaoning province, China.
The main business of Liaoning Sinorth Resources Co., Ltd. is producing,
processing and sale of mineral products, primarily graphite, in China.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Credit One
Financial, Inc., Moderation Ltd. and Liaoning Sinorth Resources Co., Ltd. All
inter-company accounts and transactions have been eliminated in consolidation.
The accompanying consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States of America
("US GAAP"). This basis differs from that used in the statutory accounts of
Liaoning Sinorth Resources Co., Ltd. ("Liaoning"), which were prepared in
accordance with the accounting principles and relevant financial regulations
applicable to enterprises in China. All necessary adjustments have been made to
present the financial statements in accordance with US GAAP. There were no
material adjustments to Liaoning's accounts to convert to US GAAP.
The accompanying unaudited interim financial statements of the Company have been
prepared in accordance with US GAAP and the rules of the United States
Securities and Exchange Commission. In the opinion of management, these
interim financial statements contain all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of financial position
and the results of operations for the interim periods presented. The results
of operations for interim periods are not necessarily indicative of the results
to be expected for the full year. The financial statements should be read in
conjunction with the audited financial statements of the Company for the most
recent fiscal year ended December 31, 2008, as reported in Form 10-K filed on
March 26, 2009.
Provision for Income Taxes
Deferred income taxes result from temporary differences between the basis of
assets and liabilities recognized for differences between the financial
statement and tax basis thereon, and for the expected future tax benefits to
be derived from net operating losses and tax credit carry forwards. The Company
has $297,089 in net operating losses as of March 31, 2009, and a valuation
allowance equal to the tax benefit of the accumulated net operating losses has
been established since it is uncertain that future taxable income from
operations in the United States of America will be realized during the
applicable carry-forward periods. The net operating loss carry-forwards may be
limited under the change of control provisions of the Internal Revenue Code,
Section 382.
The Company applies the provisions of FASB, Interpretation No. 48, or FIN 48,
"Accounting for Uncertainty in Income Taxes - an Interpretation of FASB
Statement 109." FIN 48 prescribes 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.
Financial Instruments
The fair values of all financial instruments approximate their carrying values.
Cash and Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid investments purchased with an original maturity of three months or less
to be cash equivalents.
Concentrations of Credit Risk
The Company maintains its cash in banks which participates in the Federal
Deposit Insurance Corporation (FDIC) Temporary Liquidity Guarantee Program,
which provides separate FDIC coverage on the full balance of personal and non-
personal checking accounts, so long as they are not interest-bearing. Under
that program, through December 31, 2009, all non-interest bearing transaction
accounts are fully guaranteed by the FDIC for the entire amount in the account.
Coverage is in addition to and separate from the coverage available under the
FDIC's general deposit insurance rules. After December 31, 2009, balances up
to $100,000 will be insured.
The Company has not experienced any losses in such accounts and believes it is
not exposed to any significant credit risk on cash and cash equivalents.
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.
Translation adjustments result from the process of translating the subsidiaries'
financial statements into US dollars and are not included in determining net
income, but are reported in other comprehensive income. There were no currency
translation adjustments during the quarters ended March 31, 2009 and 2008.
Foreign currency transactions are transactions denominated in a currency other
than the entity's functional currency. At the date the transaction is
recognized, each asset, liability, revenue, expense, gain, or loss arising from
the transaction is measured and recorded in the functional currency of the
recording entity by use of the exchange rate in effect at that date. At each
balance sheet date, recorded balances that are denominated in a currency other
than the functional currency of the recording entity are adjusted to reflect
the current exchange rate, with any resulting differences reported in the
current period statement of operations. During the quarters ended March 31,
2009 and 2008, the Company recognized net losses of $10,185 and $0,
respectively, in foreign currency exchange differences in other income
(expenses) in the consolidated statements of operations.
Inventory
Inventory consists primarily of graphite products. Inventory is stated at the
lower of cost or market, using the first-in, first out method. Cost includes
materials, labor, and production overhead related to the purchase and production
of inventory. The Company reviews its inventory regularly to identify
potentially obsolete inventory. No reserve is considered necessary for the
quarter ended March 31, 2009.
Impairment of Long Lived Assets
Management reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison for the carrying amount of an asset to future cash flows expected to
be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount exceeds the fair value of the assets which considers the discounted
future net cash flows.
Prepaid Expenses
Prepaid expenses at March 31, 2009 represent prepayment for the purchase of
graphite from miners and other graphite suppliers.
Furniture and Fixtures
Acquisitions of furniture and equipment are recorded at cost. Improvements and
replacements of furniture 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.
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, 2008.
Consolidation Scope and Principles of Consolidation
The consolidated financial statements present the financial position and the
results of operations of Credit One Financial, Inc. and its 51.6% owned
subsidiary, Moderation Limited (a Hong Kong corporation, "Moderation").
Moderation, in turn, is the 100% owner and consolidates Liaoning Sinorth
Resources Co., Ltd (a People's Republic of China corporation).
The non-controlling interest in Moderation is classified as part of
stockholders' equity in the consolidated balance sheet, and the non-controlling
interest's share of Moderation's net loss is shown as a reduction of the
Company's net loss in the consolidated statement of operations.
All significant intercompany transactions and balances have been eliminated in
consolidation.
Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51, or SFAS 160.
SFAS 160 amends Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," or ARB 51, to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. This statement also amends certain of ARB 51's consolidation
procedures for consistency with the requirements of SFAS 141(R). In addition,
SFAS 160 also includes expanded disclosure requirements regarding the interests
of the parent and its noncontrolling interest. The provisions of SFAS 160 were
effective for fiscal years beginning January 1, 2009.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles." SFAS No. 162 identifies the sources of accounting
principles and the framework for selecting the principles to be used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with GAAP. SFAS No. 162 is effective 60 days following
the Securities and Exchange Commission's approval of the Public Company
Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present
Fairly in Conformity with Generally Accepted Accounting Principles." The
Company is currently evaluating the potential impact of the adoption of SFAS
No. 162.
Note 3 - Project Advances
In 2007, the Company entered into two project agreements with Tinloon Trading
Company, a Hong Kong corporation, to advance it an aggregate of $600,000. The
proceeds were used exclusively by Tin Loon Trading as working capital for its
graphite trading business. In consideration for the advances, the Company
received the right to earn a certain percentage of the profit each quarter of
Tin Loon Trading or a minimum fee. The Company earned $21,000 from the
agreements during 2007. The agreements allow for the return of the advances
and in March 2008 the Company received the $600,000 along with accrued
interest.
Note 4 - Stockholders' Equity
On September 22, 2008, the Company entered into a Securities Purchase Agreement
with sixteen investors in a private placement. Pursuant to the agreement, the
Company issued and investors purchased an aggregate of 100,000,000 shares of
the Company's common stock, par value $0.001 per share, at a price of $0.03 per
share, for an aggregate consideration of $3,000,000 in cash. Net cash proceeds
of $2,346,292 were received in December 2008.
During the three months ended March 31, 2009, the Company invested capital into
the subsidiary Moderation Limited. The 48.4% ($1,917,670) of the subsidiary's
capital held by the non-controlling party has been recorded in stockholders'
equity as the non-controlling interest in subsidiary. The only other equity
transaction for the quarter ended March 31, 2009 was the net loss for the
period.
Note 5 - Transactions with Related Parties
On July 25, 2007, the Company issued to Dicky Cheung, the President and CEO of
the Company, a promissory note, in the principal amount of $20,000 in
consideration for a $20,000 cash loan made by Mr. Cheung to the Company.
Interest on the note accrues at the rate of 5% per year. Pursuant to the terms
of the note, the entire principal sum and all accrued interest was due on or
before January 30, 2008.
On September 25, 2007, the Company issued to Dicky Cheung, the President and
CEO of the Company, a promissory note, in the principal amount of $100,000 in
consideration for a $100,000 cash loan made by Mr. Cheung to the Company.
Interest on the note accrues at the rate of 5% per year. Pursuant to the terms
of the note, the entire principal sum and all accrued interest was due on or
before March 25, 2008.
On October 5, 2007, the Company issued to Dicky Cheung, the President and CEO
of the Company, a promissory note, in the principal amount of $500,000 in
consideration for a $500,000 cash loan made by Mr. Cheung to the Company.
Interest on the note accrues at the rate of 5% per year. Pursuant to the terms
of the note, the entire principal sum and all accrued interest was due on or
before April 4, 2008.
On April 2, 2008, the above three notes were extended under the same terms and
conditions. On December 22, 2008, as a part of the transaction described in
Note 4 above, all three notes and accrued interest in a total amount of
$653,708 were converted into the equity shares of the Company at $0.03 per
share. At the same time, Mr. Cheung purchased additional 9 million shares of the
Company's common stock at a purchase of $0.03 per share.
Note 6 - Capital Stock and Contributed Capital
On March 30, 2005, the Company amended its Articles of Incorporation, to
authorize the maximum number of shares to have outstanding at any one time to
be 110,000,000 shares of common stock having a par value of $0.001 per share.
As of March 31, 2009, there were 107,781,150 shares of the Company's common
stock issued and outstanding.
Note 7 - Establishment of a Subsidiary
On January 12, 2009, the Company remitted $2.8 million to its joint venture
company, Moderation Limited ("Moderation"). Of the $2.8 million remitted,
$2,063,185 were the Company's capital investment to Moderation for 51.6% of the
equity interest in Moderation, the remaining $736,815 was provided by the
Company to Moderation as temporary working capital at interest rate of 8%
annually. The Chinese government has approved Moderation's application for
setting up a wholly owned subsidiary "Liaoning Sinorth Resources Co., Ltd." in
Yingkou, Liaoning province, China. The main business of Liaoning Sinorth
Resources Co., Ltd. is producing, processing and sale of mineral products,
primarily graphite, in China.
Note 8 - Going Concern
The nature of the Company's financial status makes the Company lack the
characteristics of a going concern. This is because the Company, due to its
financial condition, may have to seek loans or the sale of its securities to
raise cash to meet its cash needs. The level of current operations does not
sustain the Company's expenses and the Company has no commitments for obtaining
additional capital. These factors, among others, raise substantial doubt about
its ability to continue as a going concern.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The discussion in this quarterly report on Form 10-Q contains forward-looking
statements. Such statements are based upon our beliefs, as well as assumptions
made by and information currently available to us as of the date of this report.
These forward-looking statements can be identified by their use of such verbs
as "expect", "anticipate", "believe" or similar verbs or conjugations of such
verbs. If any of these assumptions prove incorrect or should unanticipated
circumstances arise, the actual results could materially differ from those
anticipated by such forward-looking statements.
Overview
In January 2008, we ceased our project financing business. In February 2008, we
entered into a joint venture agreement with Global Select Ltd in Hong Kong.
Under the agreement, a joint venture company, Moderation Limited ("JVC"), has
been set up in Hong Kong, whereby, on January 12, 2009, we contributed $16
million Hong Kong dollars, approximately $2.05 million, in exchange for 51.6%
of the equity interest in the JVC, and Global Select and its partner together
contributed $15 million Hong Kong dollars, approximately $1.92 million, for
48.4% of the equity interest in the JVC. The purpose of the joint venture is
to engage in a business of natural resources products, primarily graphite at
this time, in China.
In January 2009, Moderation Limited established a wholly owned subsidiary
"Liaoning Sinorth Resources Co., Ltd." in Yingkou, Liaoning province, China. The
main business of Liaoning Sinorth Resources Co., Ltd. is producing, processing
and sale of mineral products, primarily graphite, in China.
Results of Operations for the Three Months Ended March 31, 2009 and 2008
Revenues
For the three months ended March 31, 2009 and 2008, we did not generate any
revenue.
Operating expenses
Operating expenses for the three months ended March 31, 2009 and 2008, were
$36,599 and $18,002, respectively. For the three months ended March 31, 2009,
our biggest expense items were salary expense ($10,396) and professional fees
($10,366).
Other income (expenses)
Our total other expense for the three months ended March 31, 2009 was $10,185,
which represented the loss from foreign exchange transactions. For the same
period of the last year, our other income (expenses) was $4,470, which consisted
of $11,178 of interest income from our discontinued operation and $6,770 of
interest expense in connection with the borrowings from our President and CEO.
Net loss
For the three months ended March 31, 2009, we had a net loss of $27,061, or
$0.00 per share, as compared to a net loss of $13,532, or $0.00 per share, for
the same period of the previous year.
Liquidity and Capital Resources
We historically met our capital requirements through the issuance of stock and
borrowings from its executive officers and directors. In 2007, we entered into
three promissory notes with Dicky Cheung, our President and CEO, for an
aggregate principal amount of $620,000 with interest rate at 5% per year. In
April 2008, all notes mentioned above were extended under the same terms and
conditions. In December 2008, as a part of a private placement as set out
below, the notes ($620,000) with their accrued interests ($33,708) were
converted into the equity shares of the Company at $0.03 per share.
At March 31, 2009, we had cash balance of $1,660,629. For the three months
ended March 31, 2009, our operating activities used $1,260,882 of net cash. For
the same period under the review, our investing activities used $2,894 of net
cash.
On January 12, 2009, we remitted $2.8 million to set up a 51.6% owned
subsidiary, Moderation Limited. Of the $2.8 million remitted, $2,063,185 were
our capital investment to Moderation for 51.6% of the equity interest in
Moderation, the remaining $736,815 was provided to Moderation as temporary
working capital at an interest rate of 8% per year.
In our opinion, available funds will satisfy our capital requirements for the
next twelve months. However, we may need to raise additional funds to implement
our business plan. We may raise funds through private placements, either in
equity offerings, or interest bearing borrowings. There is no guarantee that
we will be able to raise additional funds through offerings or other sources.
If we are unable to raise funds, our ability to continue with operations will
be materially hindered.
Off-Balance Sheet Arrangements
None
Going Concern
Our ability to continue as a going concern remains dependent upon successful
operation under our business plan, obtaining additional capital and financing,
and generating positive cash flow from operations. This is because we, due to
our financial condition, may have to seek additional capital either through debt
or equity offerings to meet its cash needs. We have no significant revenue and
have little cash. The level of current operations does not sustain our
expenses and we have no commitments for obtaining additional capital. These
factors, among others, raise substantial doubt about our ability to continue as
a going concern.
Critical Accounting Policies
Our discussion and analysis of results of operations and financial condition are
based upon our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. We
evaluate our estimates on an ongoing basis, including those related to
provisions for uncollectible accounts receivable, inventories, valuation of
intangible assets and contingencies and litigation. We base our estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The accounting policies that we follow are set forth in Note 2 to our financial
statements as included in this report. These accounting policies conform to
accounting principles generally accepted in the United States, and have been
consistently applied in the preparation of the financial statements.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
A smaller reporting company is not required to provide the information in this
Item.
Item 4 (T). Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our principal executive
officer and principal financial officer, we evaluated our disclosure controls
and procedures, as such term is defined under Rule 13a-15(e) promulgated under
the Securities Exchange Act of 1934, as amended, and concluded that our
disclosure controls and procedures were effective as of March 31, 2009 to ensure
that information required to be disclosed in reports we file or submit under the
Exchange Act is recorded, processed, and summarized and reported within the
time periods specified in SEC rules and forms.
Inherent Limitations Over Internal Controls
Internal control over financial reporting cannot provide absolute assurance of
achieving financial reporting objectives because of its inherent limitations,
including the possibility of human error and circumvention by collusion or
overriding of controls. Accordingly, even an effective internal control system
may not prevent or detect material misstatements on a timely basis. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions
or that the degree of compliance with the policies or procedures may
deteriorate.
Changes in Internal Control Over Financial Reporting.
We have made no change in our internal control over financial reporting during
the last fiscal quarter that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
(a) Exhibits:
Exhibit No. Title of Document
- ----------- ------------------------------------------------------------------
31.1 Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section
302 of the Sarbanes - Oxley Act of 2002
32.1 Certification pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the
Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes - Oxley Act of
2002
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CREDIT ONE FINANCIAL, INC.
By: /s/ Dicky Cheung
- -----------------------------------------
Dicky Cheung
President, Chief Executive Officer and Chief Financial Officer
May 13, 2009