SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K/A
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Date
of
Report (Date of earliest event reported): August 27, 2007
CINTEL
CORP.
(Exact
name of registrant as specified in its charter)
Nevada
(State
or Other Jurisdiction
of
Incorporation)
|
333-100046
(Commission
File
Number)
|
52-2360156
(I.R.S.
Employer
Identification
Number)
|
9900
Corporate Campus Drive, Suite 3,000, Louisville, KY 40223
(Address
of principal executive offices) (zip code)
(502)
657-6077
(Registrant's
telephone number, including area code)
Gregory
Sichenzia, Esq.
Sichenzia
Ross Friedman Ference LLP
61
Broadway, 32
nd
Floor
New
York,
New York 10018
Phone:
(212) 930-9700
Fax:
(212) 930-9725
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
o
Written communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o
Soliciting material pursuant to Rule 14a-12 under the
Exchange Act (17 CFR 240.14a-12)
o
Pre-commencement communications pursuant to Rule
14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o
Pre-commencement communications pursuant to Rule
13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Explanatory
Note:
This
Form
8-K/A is being filed as an amendment to the Form 8-K filed by Cintel Corp.
related to events which occurred on August 27, 2007. The only portion of such
Form 8-K being amended is to include the financial statements required to be
filed thereunder.
Item
9.01
Financial Statements and Exhibits.
(a)
Financial
Statements of Businesses Acquired
Report
of
Independent Registered Public Accounting Firm
Balance
Sheets as of December 31, 2006 and 2005
Statements
of Operations and Comprehensive Income for the years ended December 31, 2006
and
2005
Statements
of Stockholder’s Equity for the years ended December 31, 2006 and 2005
Statements
of Cash Flows for the years ended December 31, 2006 and 2005
(b)
Pro
Forma
Financial Information
Pro
Forma
Consolidated Balance Sheet as
June
30,
2007
Pro-forma
Consolidated Statement of Operations for the Six Months ended June 30,
2007
Pro-forma
Consolidated Statement of Retained Earnings (Accumulated Deficit) for the Six
Months ended June 30, 2007
Notes
to
Pro-Forma Consolidated Financial Statements
(c)
Exhibits.
Exhibit
Number
|
|
Description
|
10.1
|
|
Share
Subscription Agreement dated as of August 27, 2007 (1)
|
99.1
|
|
Press
Release of Cintel Corp. dated August 30, 2007
(1)
|
(1)
Incorporated
by reference to the Company’s Current Report on Form 8-K filed on August 31.
2007.
SIGNATURES
Pursuant
to the requirements of the Securities and Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
|
CINTEL
CORP.
|
|
|
|
|
Dated:
November 12, 2007
|
By:
/s/
Sang Don
Kim
|
|
Sang
Don Kim
|
|
Chief
Executive Officer
|
PHOENIX
DIGITAL TECH CO., LTD.
FINANCIAL
STATEMENTS
DECEMBER
31, 2006 AND 2005
WITH
INDEPENDENT
ACCOUNTANTS’ REPORT
PHOENIX
DIGITAL TECH CO., LTD.
FINANCIAL
STATEMENTS
DECEMBER
31, 2006 AND 2005
CONTENTS
|
PAGE
|
|
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
3
|
|
|
FINANCIAL
STATEMENTS
|
|
|
|
Balance
Sheets
|
4
|
|
|
Statements
of Operation
s
and Comprehensive Income
|
6
|
|
|
Statements
of Stockholders’ Equity
|
7
|
|
|
Statements
of Cash Flows
|
8
|
|
|
Notes
to Financial Statements
|
10
- 20
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board
of
Directors and Stockholders
of
Phoenix Digital Tech Co., Ltd.
We
have
audited the accompanying balance sheets
of
Phoenix Digital Tech Co., Ltd. (a corporation organized under the laws of
Republic of Korea
)
(the
“Company”)
as
of
December 31, 2006 and 2005, and the related statements of operations,
stockholders’ equity and comprehensive income, and cash fl
ows
for
the
years
then ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Phoenix Digital Tech Co., Ltd.
at
December 31, 2006 and 2005, and the results of its operations and its cash
flows
for the years then ended in conformity with accounting principles generally
accepted in the United States.
Los
Angeles, California
October
26
,
2007
PHOENIX
DIGITAL TECH CO., LTD.
B
alance
Sheets
December
31, 2006 and 2005
ASSETS
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,274,092
|
|
$
|
7,582,224
|
|
Accounts
receivable, net (Note 2)
|
|
|
7,205,141
|
|
|
6,333,812
|
|
Inventories
(Note 3)
|
|
|
8,606,785
|
|
|
12,752,585
|
|
Investments,
short-term (Note 4)
|
|
|
604,949
|
|
|
770,037
|
|
Deferred
tax asset (Note 11)
|
|
|
-
|
|
|
101,331
|
|
Prepaid
and other current assets
|
|
|
804,544
|
|
|
207,775
|
|
|
|
|
|
|
|
|
|
Total
current assets
|
|
|
18,495,511
|
|
|
27,747,764
|
|
|
|
|
|
|
|
|
|
Property,
Plant and equipment, net (Note 6)
|
|
|
24,684,809
|
|
|
9,046,808
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
Investments
in securities (Note 5)
|
|
|
12,160,775
|
|
|
10,622,060
|
|
Investments,
long-term (Note 4)
|
|
|
194,985
|
|
|
138,900
|
|
Intangible
assets (Note 7)
|
|
|
1,994,279
|
|
|
-
|
|
Security
deposits and other assets
|
|
|
2,195,064
|
|
|
1,118,538
|
|
|
|
|
|
|
|
|
|
Total
other assets
|
|
|
16,545,103
|
|
|
11,879,498
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
59,725,423
|
|
$
|
48,674,070
|
|
PHOENIX
DIGITAL TECH CO., LTD.
B
alance
Sheets
December
31, 2006 and 2005
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
2006
|
|
2005
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
Accounts
payable (Note 12)
|
|
$
|
9,991,502
|
|
$
|
16,108,243
|
|
Accrued
expenses
|
|
|
2,177,777
|
|
|
1,360,609
|
|
Short-term
notes payable (Note 8)
|
|
|
11,574,868
|
|
|
495,050
|
|
Deposits
from customers
|
|
|
1,896,200
|
|
|
14,098,826
|
|
Income
tax payable
|
|
|
447,918
|
|
|
1,255,905
|
|
Other
payables
|
|
|
134,778
|
|
|
152,678
|
|
|
|
|
|
|
|
|
|
Total
current liabilities
|
|
|
26,223,043
|
|
|
33,471,311
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities:
|
|
|
|
|
|
|
|
Accrued
severance benefits (Note 9)
|
|
|
743,402
|
|
|
-
|
|
Long-term
debts (Note 10)
|
|
|
16,926,900
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Long-term
liabilities
|
|
|
17,670,302
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
43,893,345
|
|
|
33,471,311
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note 16)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity: (Notes 14)
|
|
|
|
|
|
|
|
Common
stocks: 2,000,000 shares authorized,
500,000
shares issued and outstanding at KRW 5,000 par value
|
|
|
2,097,315
|
|
|
2,097,315
|
|
Accumulated
other comprehensive income
|
|
|
2,912,566
|
|
|
4,758,318
|
|
Retained
earnings - appropriated
|
|
|
2,987,588
|
|
|
1,890,061
|
|
Retained
earnings - unappropriated
|
|
|
7,834,609
|
|
|
6,457,065
|
|
|
|
|
|
|
|
|
|
Total
stockholders' equity
|
|
|
15,832,078
|
|
|
15,202,759
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders' equity
|
|
$
|
59,725,423
|
|
$
|
48,674,070
|
|
PHOENIX
DIGITAL TECH CO., LTD.
Statements
of Operation
s
and
Comprehensive Income
For
the
Years Ended December 31, 2006 and 2005
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Net
sales (Notes 2 and 13)
|
|
$
|
58,194,998
|
|
$
|
58,988,018
|
|
|
|
|
|
|
|
|
|
Cost
of goods sold (Note 12)
|
|
|
49,953,785
|
|
|
51,567,731
|
|
|
|
|
|
|
|
|
|
Gross
profits
|
|
|
8,241,213
|
|
|
7,420,287
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses
|
|
|
3,567,816
|
|
|
2,952,528
|
|
|
|
|
|
|
|
|
|
Income
from operations
|
|
|
4,673,397
|
|
|
4,467,759
|
|
|
|
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
Interest
income
|
|
|
218,912
|
|
|
234,922
|
|
Rental
income
|
|
|
-
|
|
|
6,862
|
|
Miscellaneous
income
|
|
|
159,271
|
|
|
161,357
|
|
Net
gain (loss) on sale of investments
|
|
|
878
|
|
|
(9,190
|
)
|
Interest
expenses
|
|
|
(337,023
|
)
|
|
(201,449
|
)
|
Foreign
currency transaction gain (loss)
|
|
|
(34,131
|
)
|
|
98
|
|
Impairment
loss on assets
|
|
|
(526,793
|
)
|
|
-
|
|
|
|
|
(518,886
|
)
|
|
192,600
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
4,154,511
|
|
|
4,660,359
|
|
|
|
|
|
|
|
|
|
Income
taxes (Note 11)
|
|
|
1,141,805
|
|
|
1,326,086
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
3,012,706
|
|
|
3,334,273
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
1,122,121
|
|
|
306,904
|
|
Unrealized
gain (loss) on investments
|
|
|
(2,967,873
|
)
|
|
4,441,752
|
|
|
|
|
(1,845,752
|
)
|
|
4,748,656
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
$
|
1,166,954
|
|
$
|
8,082,929
|
|
|
|
|
|
|
|
|
|
Earnings
per share - basic and diluted (Note 15)
|
|
$
|
6.03
|
|
$
|
6.67
|
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding - basic and
diluted
|
|
|
500,000
|
|
|
500,000
|
|
PHOENIX
DIGITAL TECH CO., LTD.
Statements
of Stockholders’ Equity
For
the
Years Ended December 31, 2006 and 2005
|
|
Common
Stock
|
|
Retained
Earnings
|
|
Accumulated
Other
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Statutory
Reserve
|
|
Un-appropriated
|
|
Comprehensive
Income (loss)
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
January 1, 2005
|
|
|
500,000
|
|
$
|
2,097,315
|
|
$
|
1,869,088
|
|
$
|
3,410,593
|
|
$
|
9,662
|
|
$
|
7,386,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
surplus reserves (Note 14)
|
|
|
|
|
|
|
|
|
20,973
|
|
|
(20,973
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
gain on investment
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
4,441,752
|
|
|
4,441,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency adjustment
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
306,904
|
|
|
306,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
-
|
|
|
3,334,273
|
|
|
-
|
|
|
3,334,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
|
|
|
|
|
|
|
-
|
|
|
(266,828
|
)
|
|
-
|
|
|
(266,828
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
500,000
|
|
|
2,097,315
|
|
|
1,890,061
|
|
|
6,457,065
|
|
|
4,758,318
|
|
|
15,202,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
surplus reserves
|
|
|
|
|
|
|
|
|
1,097,527
|
|
|
(1,097,527
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
loss on investment
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
(2,967,873
|
)
|
|
(2,967,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency adjustment
|
|
|
|
|
|
|
|
|
-
|
|
|
-
|
|
|
1,122,121
|
|
|
1,122,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
-
|
|
|
3,012,706
|
|
|
-
|
|
|
3,012,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends
|
|
|
|
|
|
|
|
|
-
|
|
|
(537,635
|
)
|
|
-
|
|
|
(537,635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2006
|
|
|
500,000
|
|
$
|
2,097,315
|
|
$
|
2,987,588
|
|
$
|
7,834,609
|
|
$
|
2,912,566
|
|
$
|
15,832,078
|
|
PHOENIX
DIGITAL TECH CO., LTD.
Statements
of Cash Flows
December
31, 2006 and 2005
|
|
2006
|
|
2005
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
3,012,706
|
|
$
|
3,334,273
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
|
|
|
|
provided
by operating activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
724,782
|
|
|
799,956
|
|
Provision
for inventory impairment
|
|
|
252,777
|
|
|
-
|
|
Impairment
of intangible assets
|
|
|
230,483
|
|
|
322,275
|
|
Accrued
severance benefits
|
|
|
743,402
|
|
|
-
|
|
Net
loss on sale of property
|
|
|
291,173
|
|
|
-
|
|
Statutory
reserve
|
|
|
1,097,527
|
|
|
20,973
|
|
(Increase)
decrease in assets:
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
578,558
|
|
|
5,045,086
|
|
Other
receivable
|
|
|
(1,449,887
|
)
|
|
599,089
|
|
Inventory
|
|
|
3,893,023
|
|
|
(509,431
|
)
|
Prepaid
expenses and other assets
|
|
|
(495,438
|
)
|
|
321,067
|
|
Increase
(decrease) in liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(6,116,741
|
)
|
|
209,087
|
|
Accrued
expenses
|
|
|
1,463,569
|
|
|
1,330,734
|
|
Deposits
from customers
|
|
|
(12,202,626
|
)
|
|
4,737,984
|
|
Income
tax payable
|
|
|
(807,987
|
)
|
|
1,210,013
|
|
Severance
benefits paid
|
|
|
(646,401
|
)
|
|
(652,436
|
)
|
Other
payables
|
|
|
(17,900
|
)
|
|
83,815
|
|
Cash
provided by (used in) operating activities
|
|
|
(9,448,980
|
)
|
|
16,852,485
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
Investments
in securities
|
|
|
(7,683,405
|
)
|
|
(4,778,040
|
)
|
Acquisition
of fixed assets
|
|
|
(14,381,697
|
)
|
|
(1,456,810
|
)
|
Acquisition
of intangible assets
|
|
|
(2,224,762
|
)
|
|
-
|
|
Increase
in deposits
|
|
|
(1,076,526
|
)
|
|
(263,985
|
)
|
Proceeds
from sale of investments
|
|
|
1,013,561
|
|
|
1,994,261
|
|
Cash
used in investing activities
|
|
|
(24,352,829
|
)
|
|
(4,504,574
|
)
|
PHOENIX
DIGITAL TECH CO., LTD.
Statements
of Cash Flows
December
31, 2006 and 2005
(Continued)
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
Proceeds
from short and long-term notes
|
|
|
36,081,244
|
|
|
6,367,333
|
|
Principal
payments of notes payable
|
|
|
(9,172,053
|
)
|
|
(11,338,720
|
)
|
Dividends
|
|
|
(537,635
|
)
|
|
(266,828
|
)
|
Cash
provided by (used in) financing activities
|
|
|
26,371,556
|
|
|
(5,238,215
|
)
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
(7,430,253
|
)
|
|
7,109,696
|
|
|
|
|
|
|
|
|
|
Effect
of foreign currency translation
|
|
|
1,122,121
|
|
|
306,904
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalent - beginning of year
|
|
|
7,582,224
|
|
|
165,624
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalent - end of year
|
|
$
|
1,274,092
|
|
$
|
7,582,224
|
|
|
|
|
|
|
|
|
|
Supplemental
Information:
|
|
|
|
|
|
|
|
Cash
paid during the year for:
|
|
|
|
|
|
|
|
Interest
paid
|
|
$
|
337,023
|
|
$
|
201,449
|
|
PHOENIX
DIGITAL TECH CO., LTD.
Notes
to Financial Statements
December
31, 2006 and 2005
Note
1 - Nature of Business
Description
of Business
Phoenix
Digital Tech Co., Ltd. (“the Company”) was incorporated under the laws of
Republic of Korea on May 15, 1992 and is located in Pyung Taek, Korea. The
Company is in business of designing, manufacturing and installing automated
assembly line for Flat Panel Displays, and manufacturing and testing PCB related
equipment based on customers’ specification.
Note
2 - Summary of Significant Accounting Policies:
The
following summary of significant accounting policies of the Company is presented
to assist in understanding the Company’s financial statements. The
financial statements and notes are representations of the Company’s management,
who is responsible for their integrity and objectivity. These accounting
policies conform to accounting principles generally accepted in the United
States of America and have been consistently applied in the preparation of
the
financial statements.
The
preparation of the financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date
of the financial statements and the reported amounts of revenues and expenses
during the period. Significant items subject to such estimates and assumptions
include the carrying amount of property, plant and equipment, goodwill and
intangible assets; valuation allowances for doubtful receivables and deferred
tax assets; depreciation and amortizable lives; recoverability of inventories;
and amounts recorded for contingencies. These estimates are often based on
complex judgments and assumptions that management believes to be reasonable
but
are inherently uncertain and unpredictable. Actual results may differ from
those
estimates.
(b)
|
Foreign
Currency Transactions and
Translation
|
Transactions
denominated in currencies other than the functional currency are translated
into
the functional currency at the exchange rates prevailing at the dates of the
transaction. Monetary assets and liabilities denominated in currencies other
than the functional currency are translated into the functional currency using
the applicable exchange rates at the balance sheet dates. The resulting exchange
differences are recorded in the statement of operations and comprehensive
income.
The
functional currency of the Company is the Korean Won (“KRW”). Assets and
liabilities of the Company are translated into U.S. dollars, in accordance
with
Statement of Financial Accounting Standards (“SFAS”) No 52,
Foreign
Currency Translation
,
using
the exchange rate on the balance sheet date. Revenues and expenses are
translated at average rates prevailing during the year. The gains and losses
resulting from translation of financial statements are recorded as a separate
component of accumulated other comprehensive income within stockholders’ equity.
PHOENIX
DIGITAL TECH CO., LTD.
Notes
to Financial Statements
December
31, 2006 and 2005
The
Company recognizes revenue from the sale of automated assembly equipment and
related services at the time when goods are shipped or services are provided,
and the customer takes ownership and assumes risk of loss, collections of the
relevant receivable is probable, persuasive evidence of an arrangement exists
and the sales price is fixed or determinable.
During
2006, the Company changed its revenue recognition policy. Under the revised
policy, revenue is recorded as the goods are shipped rather than the products
are delivered and approved by the customer. The policy change was made based
on
the fact that, according to the terms of sale, the transfer of title to the
goods becomes effective at the time of shipment. This change in method resulted
in increases in sales of $6,190,200 and net income of $140,500 for the year
ended December 31, 2005.
(d)
|
Cash
and Cash Equivalents
|
Cash
and
cash equivalents consist of cash on hand, cash in bank accounts and
interest-bearing savings accounts. Cash deposits that are restricted as to
withdrawal or pledged as security, are disclosed separately on the face of
the
balance sheet or in the note, and not included in the cash total for the purpose
of the statements of cash flow.
The
Company considers all unrestricted highly liquid investments with an initial
maturity of three months or less to be cash equivalents.
(e)
|
Trade
Accounts Receivable
|
Trade
accounts
receivable
are presented at face value less allowance for doubtful accounts.
The
allowance for doubtful accounts is the Company’s best estimate of the amount of
probable credit losses in the existing accounts receivable. The Company
determines the allowance based on Company’s historical experience and review of
specifically identified accounts and ageing data. The Company reviews its
allowance for doubtful accounts periodically. Account balances are charged
off
against the allowance after all means of collection have been exhausted and
the
potential for recovery is considered remote.
Trade
accounts receivables are shown net of allowance of $328,580 and $302,554 as
of
December 31, 2006 and 2005, respectively.
All
inventories are stated at the lower of cost or market where the cost is
determined by using the weighted-average method on perpetual basis. Market
value
for raw materials is based on replacement cost and for work-in-process and
finished goods on net realizable value. Net realizable value is determined
by
deducting selling expenses from selling price.
(g)
|
Investment
in Marketable Securities
|
Investments
with original maturities of less than 90 days are considered cash equivalents,
and all other investments are classified as short-term or long-term investments.
Management determines the appropriate classification of investments at the
time
of purchase and reevaluates such designation as of each balance sheet date.
Marketable securities that are bought and held principally for the purpose
of
selling them in near term are classified as trading securities and are reported
at fair value with net unrealized gain or loss recognized in earnings
Available-for-sale investments are stated at fair value with net unrealized
gain
or loss reported in stockholders’ equity. Investments classified as
held-to-maturity are carried at amortized cost in the absence of any other
than
temporary decline in value. Realized gains and losses, and declines in value
determined from other than temporary are included in interest income. The cost
of securities sold is computed using the specific identification
method.
PHOENIX
DIGITAL TECH CO., LTD.
Notes
to Financial Statements
December
31, 2006 and 2005
(h)
|
Property
and Equipment
|
Property
and equipment, including renewals and betterments, are stated at cost. The
cost of renewals and betterment that extend the economic useful lives of the
related assets are capitalized. Expenditures for ordinary repairs and
maintenance are charged to expense as incurred.
Depreciation
is provided using the straight-line method over the following estimated useful
lives of the assets.
Buildings
and improvements
|
20
to 40 years
|
Machinery
and
equipment
|
5
to 8 years
|
Tools
|
2
to 6 years
|
Vehicles
and transportation equipment
|
4
to 5 years
|
Office
furniture and equipment
|
2
to 10 years
|
Upon
sale
or disposition of assets, gain or loss is included in the statement of
operations.
(i)
|
Construction
in Progress
|
Construction
in progress (CIP) is stated at cost, which includes the cost of construction
and
other direct costs attributable to the construction. No provision for
depreciation is made on construction in progress until such time as the relevant
assets are completed and put into use. CIP at December 31, 2006 represents
capitalized interest expense on a loan for the purchase of a land.
Government
grants, without obligation to repay, are recorded as a contra asset to the
relevant property acquired and reduces the depreciable basis of the assets.
In
accordance with SFAS No. 144,
Accounting
for Impairment or Disposal of Long-Lived Assets
,
long-lived assets, such as property and equipment, and purchased intangible
assets subject to amortization, are reviewed 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 of the carrying amount of an asset to estimated undiscounted future
cash flows expected to be generated by the asset. If the carrying amount of
an
asset exceeds its estimated future cash flows, an impairment charge is
recognized by the amount by which the carrying amount of the asset exceeds
the
fair value of the asset. Assets to be disposed of are separately presented
in
the balance sheet and reported at the lower of the carrying amount or fair
value
less costs to sell, and are no longer depreciated. The assets and liabilities
of
a disposal group classified as held for sale are presented separately in the
appropriate asset and liability sections of the balance sheet.
Goodwill
Goodwill
represents the excess of costs over fair value of assets of businesses acquired.
Goodwill is not amortized, but instead tested for impairment at least annually
in accordance with the provisions of SFAS No. 142,
Goodwill
and Other Intangible Assets.
Goodwill
is tested for impairment more frequently if events and circumstances indicate
that the asset might be impaired.
PHOENIX
DIGITAL TECH CO., LTD.
Notes
to Financial Statements
December
31, 2006 and 2005
At
December 31, 2006 and 2005, the Company’s management believes there was no
significant impairment of its long lived assets. There can be no assurance
however, that market conditions will not change or demand for the Company’s
products and services will continue, which could result in impairment of
long-lived assets in the future.
(l)
|
F
air
Value of Financial
Instruments
|
The
carrying value of cash, cash equivalents, investment securities, accounts
receivable and accounts payable and accrued expenses approximate fair value
due
to the short maturity of these instruments. The carrying value of short and
long-term debts approximates fair value based on discounting the projected
cash
flows using market rates available for similar maturities. None of the financial
instruments are held for trading purposes.
Currency
Risk
The
Company has foreign currency risk as liabilities and expenses are denominated
in
foreign currencies. Depreciation and appreciation of the Korean Won against
foreign currencies affects the
Company’s results of operations and comprehensive income (loss).
Concentration
of Credit Risk
SFAS
No.
105,
Disclosure
of Information about Financial Instruments with Off-Balance Sheet Risk and
Financial Instruments with Concentration of Credit Risk
,
requires disclosure of any significant off- balance sheet risk and credit risk
concentration. The Company does not have significant off-balance sheet risk.
The
Company maintains cash, cash equivalents and short-term investments with major
Korean financial institutions.
The
Company provides credit to its customers in the normal course of operations.
It
carries out, on a continuing basis, credit checks of its customers, and
maintains allowance for credit loss contingent upon management’s
forecasts.
(m)
|
Research
and Development and Advertising
Costs
|
Research
and development costs are charged to expense as incurred.
Advertising
costs are charged to expense as incurred. Expenses so charged amounted to
$197,163 and $55,545 for the years ended December 31, 2006 and
2005.
The
Company accounts for income taxes pursuant to SFAS No. 109,
Accounting
for Income Taxes
.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards. Deferred tax assets
and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of
a
change in tax rates is recognized in income in the period that includes the
enactment date.
The
Company has adopted SFAS No. 130,
Reporting
of Comprehensive Income
.
SFAS
130 establishes standards for reporting and presentation of comprehensive income
and its components on a full set of financial statements. Other comprehensive
income refers to revenues, expenses, gains and losses that under U.S. GAAP
are
included in comprehensive income but are excluded from net income as these
amounts are recorded as a component of stockholders’ equity. The Company’s other
comprehensive income represented unrealized gain or loss on available-for-sale
marketable securities and foreign currency translation adjustment.
PHOENIX
DIGITAL TECH CO., LTD.
Notes
to Financial Statements
December
31, 2006 and 2005
SFAS
No.
128, “Earnings per Share” requires disclosure on the financial statements of
basic and diluted earnings per share. Basic earning (loss) per share is computed
by dividing the net earning (loss) by the weighted average number of shares
of
common stock outstanding during the period. Diluted earning (loss) per share
is
determined using the weighted average number of common shares outstanding during
the period, adjusted for the dilutive effect of common stock equivalents,
consisting of shares that might be issued upon exercise of common stock options
and warrants.
(q)
|
Commitments
and Contingencies
|
Liabilities
for loss contingencies arising from claims, assessments, litigation, fines
and
other sources are recorded when it is probable that a liability has been
incurred and the amount of the assessment can be reasonable estimated.
(r)
|
Recent
Accounting pronouncements
|
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Correction”
(“SFAS 154”), which replaces Accounting Principles Board (“APB”) Opinion No. 20,
“Accounting Changes”, and SFAS No. 3, “Reporting Accounting Changes in Interim
Financial Statements , An amendment of APB Opinion No. 28”. SFAS No. 154
provides guidance on the accounting for and reporting of changes in accounting
principles and error correction. It requires retrospective application to prior
period financial statements of voluntary changes in accounting principle and
changes required by new accounting standards when the standard does not include
specific transition provisions, unless it is impracticable to do so. SAFS No.
154 also requires certain disclosures for restatements due to correction of
an
error. The new pronouncement is effective for accounting changes and correction
of errors made in fiscal years beginning after December 15
th
,
2005,
and is required to be adopted by the Company as of January 1, 2006. The impact
that the adoption of SFAS No. 154 will have on the Company’s results of
operations and financial condition will depend on the nature of future
accounting changes adopted by the Company and the nature of transitional
guidance provided in future accounting pronouncements.
In
June
2006, the FASB issued Interpretation No. 48,
Accounting
for Uncertainty in Income Taxes
(“FIN
48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized
in the Company’s financial statements in accordance with SFAS No. 109. FIN
48 prescribes a recognition threshold and measurement attributes for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The provisions of FIN 48 are effective
for
the fiscal years beginning after December 15, 2006. The Company does not
expect that the adoption of FIN 48 will have a significant effect on its
financial statements.
In
September 2006, the FASB issued SFAS No. 157,
Fair
Value Measurements
(“SFAS
No. 157”)
,
which
defines fair value, provides a framework for measuring fair value, and expands
the disclosures required for fair value measurements. SFAS No. 157 applies
to other accounting pronouncements that require fair value measurements and
does
not require any new fair value measurements. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007 and is required to be
adopted by the Group in fiscal year 2008. Although the Company will continue
to
evaluate the application of SFAS No. 157, management does not currently
believe the adoption of SFAS No. 157 will have a material impact on the
Company’s financial statements.
PHOENIX
DIGITAL TECH CO., LTD.
Notes
to Financial Statements
December
31, 2006 and 2005
In
September 2006, the SEC issued Staff Accounting Bulletin No. 108,
Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements
(“SAB
No
108”). SAB No. 108 provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in
quantifying a current year misstatement. Under SAB No. 108, the Company
should quantify errors using both a balance sheet and income statement approach
(“dual approach”) and evaluate whether either approach results in a misstatement
that is material when all relevant quantitative and qualitative factors are
considered. The adoption of SAB 108 did not have any impact on the Company’s
financial statements.
Note
3
- Inventories
Inventories
consist of the following as of December 31, 2006 and 2005:
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
459,653
|
|
$
|
458,272
|
|
Work
in process
|
|
|
5,576,049
|
|
|
11,468,988
|
|
Finished
goods
|
|
|
2,571,083
|
|
|
825,325
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,606,785
|
|
$
|
12,752,585
|
|
Note
4 - Investments in Non-securities
The
Company holds various short-term and long-term investments in bank time
deposits. Time deposits with original maturities less than twelve months are
classified as short-term investments and over twelve months are classified
as
long-term investments.
As
of
December 31, 2006 and 2005, the Company’s investments in time deposits are as
follows:
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Short-term
investments
|
|
$
|
604,949
|
|
$
|
770,037
|
|
|
|
|
|
|
|
|
|
Long-term
investments
|
|
$
|
194,985
|
|
$
|
138,900
|
|
The
short-term investments at December 31, 2006 and 2005 include restricted cash
of
$604,949 and $550,245, respectively, which are pledged as security for bank
credit facility and for future purchase from vendors.
PHOENIX
DIGITAL TECH CO., LTD.
Notes
to Financial Statements
December
31, 2006 and 2005
Note
5 - Investments in Debt and Equity Securities
The
Company’s investments in equity securities are classified as
available-for-sales, at December 31, 2006 and 2005 as follows:
|
|
Cost
|
|
Unrealized
Gains
(Losses)
|
|
Estimated
Fair
Value
|
|
December
31, 2006:
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
$
|
4,076,000
|
|
$
|
419,528
|
|
$
|
4,462,658
|
|
Non-marketable
securities
|
|
|
7,470,568
|
|
|
-
|
|
|
7,470,568
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11,546,568
|
|
$
|
419,528
|
|
$
|
11,933,226
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005:
|
|
|
|
|
|
|
|
|
|
|
Marketable
securities
|
|
$
|
4,076,000
|
|
$
|
3,070,399
|
|
$
|
7,146,399
|
|
Non-marketable
securities
|
|
|
3,474,474
|
|
|
-
|
|
|
3,474,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,550,474
|
|
$
|
3,070,399
|
|
$
|
10,620,873
|
|
Marketable
securities are carried at their fair market value based on quoted market prices
of the securities at December 31, 2006 and 2005, with net unrealized gain or
loss recorded in stockholders’ equity. Non-marketable investments in which the
company has less than a 20% interest and in which it does not have the ability
to exercise significant influence over the investee are initially recorded
at
cost and periodically reviewed for other than temporary
impairment.
The
Company’s investments in certain government bonds are classified as
held-to-maturity at December 31, 2006 and 2005 as follows:
|
|
Maturity
Date
|
|
Amortized
Cost
|
|
Fair
Value
|
|
December
31, 2006:
|
|
|
|
|
|
|
|
|
|
|
Debt
securities
|
|
|
September
30, 2011
|
|
$
|
227,549
|
|
$
|
227,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2005:
|
|
|
|
|
|
|
|
|
|
|
Debt
securities
|
|
|
February
28, 2009
|
|
$
|
1,187
|
|
$
|
1,187
|
|
The
Company earned investment income of $2,814 from the held-to-maturity for the
year ended December 31, 2006.
Note
6 - Property, Plant and Equipment
Property,
plant and equipment consist of the following at December 31:
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Land
|
|
$
|
16,493,767
|
|
$
|
2,295,383
|
|
Buildings
and improvements
|
|
|
7,345,285
|
|
|
6,210,025
|
|
Machinery
and equipment
|
|
|
4,722,664
|
|
|
4,290,314
|
|
Furniture
and fixtures
|
|
|
540,530
|
|
|
497,716
|
|
Small
tools
|
|
|
439,516
|
|
|
433,033
|
|
Vehicles
|
|
|
155,871
|
|
|
141,428
|
|
|
|
|
29,697,633
|
|
|
13,867,899
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated depreciation
|
|
|
5,545,873
|
|
|
4,821,091
|
|
|
|
|
24,151,760
|
|
|
9,046,808
|
|
|
|
|
|
|
|
|
|
Construction
in progress
|
|
|
533,049
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
$
|
24,684,809
|
|
$
|
9,046,808
|
|
PHOENIX
DIGITAL TECH CO., LTD.
Notes
to Financial Statements
December
31, 2006 and 2005
Depreciation
expenses for the years ended December 31, 2006 and 2005 were $879,373 and
$683,383, respectively.
Note
7 - Intangible Assets
As
a part
of the Company’s expansion into the manufacturing of flat panel display assembly
line business, the Company entered into an agreement on October 2, 2006 to
acquire all of the assets and debts of Sun Tech Win (STW). The acquisition
was
accounted for by the Company as a purchase and recognized goodwill of $1,470,085
and patent of $524,194.
The
goodwill represents the intangible benefits that the acquired business is
expected to bring to the Company in the future by providing the Company the
access to potential strategic customers and broadening the Company’s
product/service offerings to its customers.
Research
and development expenses for the years ended December 31, 2006 and 2005
were $586,223 and $594,259, respectively.
Note
8 - Short-Term Notes Payable
Notes
payable consist of the following at December 31:
|
|
2006
|
|
2005
|
|
Note
payable to Nong-Hyup Center, with interest at 4.0%, is guaranteed
by
Technology Credit Funds and matures in September 2007.
|
|
$
|
537,635
|
|
$
|
495,050
|
|
Notes
payable to Shin-Han Bank, with interest at 4.35% to 5.61%, is secured
by
real property and mature in October and November 2007.
|
|
|
2,150,540
|
|
|
-
|
|
Notes
payable to Citi Bank Korea with interest at 5.51% to 5.59%, is unsecured
and mature in June 2007.
|
|
|
3,225,810
|
|
|
-
|
|
Note
payable to Korea Exchange Bank, with interest at 4.68%, is unsecured
and
matures in November 2007.
|
|
|
1,075,270
|
|
|
-
|
|
Note
payable to Industrial Development Bank, with interest at 5.2%, is
secured
by real property and matures in April 2007.
|
|
|
4,585,613
|
|
|
-
|
|
Total
short-term notes payable
|
|
$
|
11,574,868
|
|
$
|
495,050
|
|
PHOENIX
DIGITAL TECH CO., LTD.
Notes
to Financial Statements
December
31, 2006 and 2005
Note
9 - Employee Severance Benefits
Employees
and directors with one year or more of service are entitled to receive a
lump-sum payment upon termination of their employment based on their length
of
service and rate of pay at the time of termination. Accrued severance benefits
represent the amount which would be payable assuming all eligible employees
and
directors are to terminate their employment as of the balance sheet date. The
accrued severance benefits at December 31, 2006, were $743,402.
Note
10 - Long-Term Debt
Long-term
debts consist of the following at December 31:
|
|
2006
|
|
2005
|
|
Note
payable to Kook Min Bank, with interest at 4.97%, is secured by a
deed of
trust covering the Company’s real property and matures in July
2008.
|
|
$
|
8,602,160
|
|
$
|
-
|
|
Note
payable to Citi Bank Korea, with interest at 4.98%, is secured by
a deed
of trust covering the Company’s real property and matures in July
2008.
|
|
|
7,638,718
|
|
|
-
|
|
Note
payable to Sam Sung Electronics bearing no interest. The note loan
is
secured by a deed of trust covering the Company’s real property and
matures in December 2011.
|
|
|
686,022
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
long-term debts
|
|
$
|
16,926,900
|
|
$
|
-
|
|
Following
is a summary of principal maturities of notes payable over the next five years
as of December 31, 2006:
Years
ending December 31,
|
|
Amount
|
|
|
|
|
|
2007
|
|
$
|
-
|
|
200
8
|
|
|
16,240,900
|
|
200
9
|
|
|
-
|
|
20
10
|
|
|
228,000
|
|
20
11
and thereafter
|
|
|
458,000
|
|
|
|
|
|
|
Total
|
|
$
|
16,926,900
|
|
Note
11 - Income Taxes
The
Company’s provision for income taxes for 2006 and 2005 consists of the
following:
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Current
tax
|
|
$
|
1,004,168
|
|
$
|
1,427,417
|
|
Deferred
tax expense (benefit)
|
|
|
137,637
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Total
provision for income taxes
|
|
$
|
1,141,805
|
|
$
|
1,427,417
|
|
PHOENIX
DIGITAL TECH CO., LTD.
Notes
to Financial Statements
December
31, 2006 and 2005
Deferred
income tax assets and liabilities are computed annually for differences between
the financial statements and tax basis of assets and liabilities that will
result in taxable or deductible amount in the future based on enacted tax laws
and rates applicable to the period in which the differences are expected to
affect taxable income.
The
Company has deferred tax assets (liabilities) at December 31, 2006 and 2005
as
follows:
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Unrealized
gain on investments
|
|
$
|
(115,370
|
)
|
$
|
(931,535
|
)
|
Accrued
severance
|
|
|
51,836
|
|
|
1,032,866
|
|
Bad
debt expense
|
|
|
27,228
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets (liabilities)
|
|
$
|
(36,306
|
)
|
$
|
101,331
|
|
The
statutory income tax rate applicable to the Company was approximately 27.5%
for
2006 and 2005.
Note
12 - Related Party Transactions
Significant
transactions with companies affiliated by common control for the years ended
and
as of December 31, 2006 and 2005 are summarized as follows:
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
Purchases
from affiliated companies
|
|
$
|
2,221,420
|
|
$
|
1,699,140
|
|
|
|
|
|
|
|
|
|
Accounts
payable to affiliated companies
|
|
$
|
319,960
|
|
$
|
396,590
|
|
Note
13 - Significant Concentration of Sales
For
the
years ended December 31, 2006 and 2005, the Company had a major customer which
accounted for 71% and 73% of the total revenue, respectively.
Note
14 - Appropriated Retained Earnings
Under
the
regulation of Restriction of Tax Reduction and Exemption Act in Korea, the
Company is required to appropriate a part of their net profits for statutory
surplus reserve and reserve for technological development and small business
investment.
PHOENIX
DIGITAL TECH CO., LTD.
Notes
to Financial Statements
December
31, 2006 and 2005
For
the
statutory surplus reserve, an amount equivalent to 10% or more of the declared
dividends is transferred to the reserve until the reserve reaches 50% of the
registered capital of the Company. The reserve is not distributable as cash
dividends but can be converted into capital upon approval of the shareholders
of
the Company.
Note
15 - Earnings per Share
The
following reconciles the numerators and denominators of the basic and diluted
per share computation for the years ended December 31, 2006 and
2005:
|
|
2006
|
|
2005
|
|
Numerator
for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
3,012,706
|
|
$
|
3,334,273
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
Basic
and diluted weighted average shares outstanding
|
|
|
500,000
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
Basic
and diluted earnings per share
|
|
$
|
6.03
|
|
$
|
6.67
|
|
Note
16- Commitments and Contingencies
Operating
Rental Lease
The
Company leases transportation vehicles under non-cancellable lease agreement.
At
December 31, 2006, minimum future rental payments for the lease were $170,700,
which are all due in 2007.
Total
rental expenses recorded under such lease amounted to $95,819 and $75,593 for
the years ended December 31, 2006 and 2005, respectively.
Commitment
under Letter of Credit and Loan Guarantee
The
Company has an outstanding commitment under standby letters of credit totaling
approximately $2,000,000 at December 31, 2006. This standby letter of credit
was
issued on behalf of affiliated company
.
As
of
December 31, 2006, the Company has an outstanding debt-guarantee it provided
on
behalf of an affiliated company for debt up to KRW500,000,000.
Note
17- Subsequent Events
On
August
27, 2007, the Company entered into a Share Subscription Agreement to sell
500,000 new shares of common stock to Cintel Corporation, a publicly traded
company in the United Staes, for an aggregate amount of KRW32,500,000,000.
This
transaction will result in sale of 50% of the Company’s equity.
CINTEL
CORP
ORATION
PRO-FORMA
CONSOLIDATED
FINANACIAL
STATEMENTS
JUNE
30,
2007
CINTEL
CORP.
Pro-forma
Consolidated
Balance
Sheet
June
30,
2007
(Unaudited)
|
|
Cintel
Corp.
(US)
June
30, 2007
|
|
PDT
(Korea)
June
30, 2007
|
|
Pro-forma
Adjustments
|
|
Cintel
Corp.
(US)
Pro-forma
June
30, 2007
|
|
Cintel
Corp.
(US)
Dec.
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
30,006,969
|
|
$
|
738,592
|
|
$
|
(24,769,670
|
)
|
$
|
5,975,891
|
|
$
|
4,337,088
|
|
Accounts
receivable, net
|
|
|
8,400,723
|
|
|
9,524,058
|
|
|
|
|
|
17,924,781
|
|
|
5,620,693
|
|
Inventories
|
|
|
7,260,091
|
|
|
10,875,440
|
|
|
|
|
|
18,135,531
|
|
|
5,654,590
|
|
Prepaid
and other current assets
|
|
|
1,484,243
|
|
|
4,886,907
|
|
|
|
|
|
6,371,150
|
|
|
1,068,624
|
|
Current
portion - loans receivable
|
|
|
1,755,004
|
|
|
5,462,318
|
|
|
|
|
|
7,217,322
|
|
|
430,000
|
|
Deferred
financing costs
|
|
|
4,142,290
|
|
|
-
|
|
|
|
|
|
4,142,290
|
|
|
-
|
|
Total
current assets
|
|
|
53,049,320
|
|
|
31,487,315
|
|
|
(24,769,670
|
)
|
|
59,766,965
|
|
|
17,110,995
|
|
Property,
Plant and equipment, net
|
|
|
30,298,614
|
|
|
25,292,823
|
|
|
|
|
|
55,591,437
|
|
|
25,977,243
|
|
Loans
receivable - less current portion
|
|
|
153,909
|
|
|
-
|
|
|
|
|
|
153,909
|
|
|
-
|
|
Investments
|
|
|
42,072,228
|
|
|
285,057
|
|
|
|
|
|
42,357,285
|
|
|
1,959,209
|
|
Investments
in available-for-sale
|
|
|
-
|
|
|
9,341,766
|
|
|
|
|
|
9,341,766
|
|
|
5,257
|
|
Land
rights
|
|
|
344,610
|
|
|
-
|
|
|
|
|
|
344,610
|
|
|
356,172
|
|
Intangible
assets
|
|
|
11,795,619
|
|
|
1,907,176
|
|
|
27,167,600
|
|
|
40,870,395
|
|
|
7,740,271
|
|
Security
deposits and other assets
|
|
|
-
|
|
|
2,755,979
|
|
|
|
|
|
2,755,979
|
|
|
-
|
|
Total
Assets
|
|
$
|
137,714,300
|
|
$
|
71,070,116
|
|
$
|
2,397,930
|
|
$
|
211,182,346
|
|
$
|
53,149,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
13,238,486
|
|
$
|
14,715,720
|
|
$
|
-
|
|
$
|
27,954,206
|
|
$
|
8,164,357
|
|
Deferred
revenue
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
113,793
|
|
Tenant
deposits
|
|
|
75,740
|
|
|
-
|
|
|
|
|
|
75,740
|
|
|
-
|
|
Current
portion - loans payable
|
|
|
16,803,643
|
|
|
23,011,833
|
|
|
|
|
|
39,815,476
|
|
|
11,112,570
|
|
Total
current liabilities
|
|
|
30,117,869
|
|
|
37,727,553
|
|
|
|
|
|
67,845,422
|
|
|
19,390,720
|
|
Accrued
severance
|
|
|
109,951
|
|
|
1,215,163
|
|
|
|
|
|
1,325,114
|
|
|
97,404
|
|
Loans
payable - less current portion
|
|
|
3,545,218
|
|
|
17,062,597
|
|
|
|
|
|
20,607,815
|
|
|
4,877,188
|
|
Convertible
debentures
|
|
|
91,024,295
|
|
|
-
|
|
|
9,930,331
|
|
|
100,954,626
|
|
|
15,284,295
|
|
Total
Liabilities
|
|
|
124,797,333
|
|
|
56,005,313
|
|
|
9,930,331
|
|
|
190,732,977
|
|
|
39,649,607
|
|
Non-controlling
interest
|
|
|
8,783,666
|
|
|
-
|
|
|
7,532,402
|
|
|
16,316,068
|
|
|
8,726,492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
stock
|
|
|
89,124
|
|
|
2,097,315
|
|
|
(2,097,315
|
)
|
|
89,124
|
|
|
87,619
|
|
Additional
paid in capital
|
|
|
14,755,903
|
|
|
-
|
|
|
|
|
|
14,755,903
|
|
|
14,319,408
|
|
Treasury
stock
|
|
|
(5,630
|
)
|
|
-
|
|
|
|
|
|
(5,630
|
)
|
|
(5,630
|
)
|
Accumulated
other comprehensive (loss) income
|
|
|
481,814
|
|
|
1,908,880
|
|
|
(1,908,880
|
)
|
|
481,814
|
|
|
(170,806
|
)
|
Retained
earnings (Accumulated deficit)
|
|
|
(11,187,910
|
)
|
|
11,058,608
|
|
|
(11,058,608
|
)
|
|
(11,187,910
|
)
|
|
(9,457,543
|
)
|
Total
stockholders’ equity
|
|
|
4,133,301
|
|
|
15,064,803
|
|
|
(15,064,803
|
)
|
|
4,133,301
|
|
|
4,773,048
|
|
Total
Liabilities and Stockholders’ equity
|
|
$
|
137,714,300
|
|
$
|
71,070,116
|
|
$
|
2,397,930
|
|
$
|
211,182,346
|
|
$
|
53,149,147
|
|
CINTEL
CORP.
Pro-forma
Consolidated Statement of Operation
For
the
Six Months Ended June 30, 2007
(Unaudited)
|
|
Cintel
Corp.
(US)
June
30, 2007
|
|
PDT
(Korea)
June
30, 2007
|
|
Pro-forma
Adjustments
|
|
Cintel
Corp.
(US)
Pro-forma
June
30, 2007
|
|
Cintel
Corp.
(US)
Dec.
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finished
goods
|
|
$
|
46,630,171
|
|
$
|
24,718,181
|
|
$
|
(24,718,181
|
)
|
$
|
46,630,171
|
|
$
|
16,210,675
|
|
Merchandise
|
|
|
211,771
|
|
|
154,404
|
|
|
(154,404
|
)
|
|
211,771
|
|
|
4,785,720
|
|
Services
|
|
|
987,210
|
|
|
-
|
|
|
-
|
|
|
987,210
|
|
|
138,402
|
|
|
|
|
47,829,152
|
|
|
24,872,585
|
|
|
(24,872,585
|
)
|
|
47,829,152
|
|
|
21,134,797
|
|
Cost
of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finished
goods
|
|
|
44,803,492
|
|
|
22,219,537
|
|
|
(22,219,537
|
)
|
|
44,803,492
|
|
|
15,936,096
|
|
Merchandise
|
|
|
207,955
|
|
|
137,265
|
|
|
(137,265
|
)
|
|
207,955
|
|
|
4,327,766
|
|
Services
|
|
|
620,310
|
|
|
-
|
|
|
-
|
|
|
620,310
|
|
|
-
|
|
|
|
|
45,631,757
|
|
|
22,356,802
|
|
|
(22,356,802
|
)
|
|
45,631,757
|
|
|
20,263,862
|
|
Gross
profit
|
|
|
2,197,395
|
|
|
2,515,783
|
|
|
(2,515,783
|
)
|
|
2,197,395
|
|
|
870,935
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
2,119,998
|
|
|
2,922,531
|
|
|
(2,922,531
|
)
|
|
2,119,998
|
|
|
2,568,989
|
|
Research
and development
|
|
|
10,635
|
|
|
-
|
|
|
-
|
|
|
10,635
|
|
|
19,045
|
|
Depreciation
and amortization
|
|
|
211,718
|
|
|
115,061
|
|
|
(115,061
|
)
|
|
211,718
|
|
|
271,111
|
|
|
|
|
2,342,351
|
|
|
3,037,592
|
|
|
(3,037,592
|
)
|
|
2,342,351
|
|
|
2,859,145
|
|
Income
(loss) from operation
|
|
|
(144,956
|
)
|
|
(521,809
|
)
|
|
521,809
|
|
|
(144,956
|
)
|
|
(1,988,210
|
)
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and other income
|
|
|
266,173
|
|
|
135,088
|
|
|
(135,088
|
)
|
|
266,173
|
|
|
786,677
|
|
Interest
expense and amortization of deferred financing fees
|
|
|
(1,135,373
|
)
|
|
(600,460
|
)
|
|
600,460
|
|
|
(1,135,373
|
)
|
|
(462,177
|
)
|
Gain
(loss) on disposal of assets
|
|
|
-
|
|
|
1,028,846
|
|
|
(1,028,846
|
)
|
|
-
|
|
|
(117,496
|
)
|
Share
of gain (loss) from equity investment
|
|
|
(433,645
|
)
|
|
-
|
|
|
-
|
|
|
(433,645
|
)
|
|
16,393
|
|
Foreign
currency transaction gain (loss)
|
|
|
-
|
|
|
2,800
|
|
|
(2,800
|
)
|
|
-
|
|
|
58,836
|
|
|
|
|
(1,302,845
|
)
|
|
566,274
|
|
|
(566,274
|
)
|
|
(1,302,845
|
)
|
|
282,233
|
|
Income
(loss) before income taxes and non-controlling interest
|
|
|
(1,447,801
|
)
|
|
44,465
|
|
|
(44,465
|
)
|
|
(1,447,801
|
)
|
|
(1,705,977
|
)
|
Income
taxes
|
|
|
8,313
|
|
|
-
|
|
|
-
|
|
|
8,313
|
|
|
52,664
|
|
Non-controlling
interest
|
|
|
274,254
|
|
|
-
|
|
|
-
|
|
|
274,254
|
|
|
27,220
|
|
Net
Income (loss)
|
|
|
(1,730,368
|
)
|
|
44,465
|
|
|
(44,465
|
)
|
|
(1,730,368
|
)
|
|
(1,785,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
869,698
|
|
|
(584,158
|
)
|
|
584,158
|
|
|
869,698
|
|
|
591,604
|
|
Unrealized
loss on investment
|
|
|
-
|
|
|
(419,528
|
)
|
|
419,528
|
|
|
-
|
|
|
(722,409
|
)
|
Total
comprehensive income (loss) before non-controlling
interest
|
|
|
(860,670
|
)
|
|
(959,221
|
)
|
|
959,221
|
|
|
(860,670
|
)
|
|
(1,916,666
|
)
|
Foreign
currency translation adjustment - non-controlling interest
|
|
|
217,078
|
|
|
-
|
|
|
-
|
|
|
217,078
|
|
|
(48,958
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income (loss)
|
|
$
|
(643,592
|
)
|
$
|
(959,221
|
)
|
$
|
959,221
|
|
$
|
(643,592
|
)
|
$
|
(1,965,624
|
)
|
CINTEL
CORP.
Pro-forma
Consolidated Statement of Retained Earnings (Accumulated Deficit)
For
the
Six Months Ended June 30, 2007
(Unaudited)
|
|
Cintel
Corp.
(US)
June
30, 2007
|
|
PDT
(Korea)
June
30, 2007
|
|
Pro-forma
Adjustments
|
|
Cintel
Corp.
(US)
Pro-forma
June
30, 2007
|
|
Cintel
Corp.
(US)
Dec.
31, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings (accumulated deficit) - beginning of period
|
|
$
|
(9,457,542
|
)
|
$
|
10,822,197
|
|
$
|
(10,822,197
|
)
|
$
|
(9,457,542
|
)
|
$
|
(7,671,682
|
)
|
Pro-forma
adjustments
|
|
|
-
|
|
|
191,946
|
|
|
(191,946
|
)
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
|
(1,730,368
|
)
|
|
44,465
|
|
|
(44,465
|
)
|
|
(1,730,368
|
)
|
|
(1,785,861
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
earnings (accumulated deficit)
-
end of period
|
|
$
|
(11,187,910
|
)
|
$
|
11,058,608
|
|
$
|
(11,058,608
|
)
|
$
|
(11,187,910
|
)
|
$
|
(9,457,543
|
)
|
CINTEL
CORP.
Notes
to
Pro-forma Consolidated Financial Statements
June
30,
2007
(Unaudited)
Note
1 - Basis of Presentation
These
unaudited pro-forma consolidated financial statements have been prepared
to give
effect to the following:
On
August
27, 2007, Cintel Corp. (the "Company") entered into a Share Subscription
Agreement with Phoenix Digital Tech Co. Ltd. ("PDT") pursuant to which the
Company acquired 500,000 shares of common stock of PDT (the "Shares") which
constitutes 50% of the total issued and outstanding of PDT on a fully diluted
basis. The Company paid a purchase price of an aggregate of $34,700,000 which
was funded by
Cintel's
convertible bonds financing.
PDT
is a
limited liability corporation organized under the laws of Republic of Korea
with
its principle offices in Pyung Taek, Korea.
The
pro-forma consolidated financial statements are based on the balance sheets
of
the following:
a)
Cintel
as at June 30, 2007 (unaudited) and December 31, 2006 (audited).
b)
PDT as
at June 30, 2007 (unaudited).
The
pro-forma consolidated financial statements include the statement of operations
for the following:
a)
Cintel
for the six months ended June 30, 2007 (unaudited) and for the year ended
December 31, 2006 (audited).
b)
PDT
for the six months ended June 30, 2007 (unaudited).
The
pro-forma consolidated balance sheet as at June 30, 2007 gives effect to
the
transactions as at
August
27, 2007
and the
pro-forma statement of operations for the six months ended June 30, 2007
gives
effect to the transactions as if they had taken place at the beginning of
the
period.
The
pro-forma consolidated financial statements are not necessarily indicative
of
the actual results that would have occurred had the proposed transactions
occurred on the dates indicated and not necessarily indicative of future
earnings or financial position.
2.
Pro-forma Adjustments:
The
consolidation of Cintel with PDT was accounted for by the purchase method,
with
the net assets of PDT brought forward at their fair market value basis, and
the
following adjustments:
a)
To
record the issuance of the convertible bonds by Cintel for the investment
in
PDT.
b)
To
eliminate PDT 50% non controlling interest.
c)
To
reallocate the fair value of the purchase of PDT.
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