UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(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, 2008
¨
TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR
THE
TRANSITION PERIOD FROM __________ TO __________
COMMISSION
FILE NUMBER: 333-100046
CINTEL
CORP.
(Name
of
registrant in its charter)
|
Nevada
(State
or other jurisdiction of incorporation or organization)
|
52-2360156
(I.R.S.
Employer Identification No.)
|
9900
Corporate Campus Drive, Suite 3000, Louisville, KY
40223
(Address
of principal executive offices) (Zip Code)
Issuer’s
telephone Number:
(502)
657-6077
Indicate
by check mark whether the registrant (1) has filed all reports required 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
o
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
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
o
|
Accelerated
filer
o
|
|
Non-accelerated
filer
o
|
Smaller
reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes
o
No
x
The
number of shares of registrant’s common stock outstanding, as of May 14, 2008
was
97,825,196.
.
CINTEL
CORP.
INDEX
|
PART
I: FINANCIAL INFORMATION
|
|
|
ITEM
1:
|
|
FINANCIAL
STATEMENTS (Unaudited)
|
1
|
|
|
|
Condensed
Consolidated Balance Sheets
|
5
|
|
|
|
Condensed
Consolidated Statements of Operations
|
7
|
|
|
|
Condensed
Consolidated Statements of Cash Flows
|
10
|
|
|
|
Notes
to the Condensed Consolidated Financial Statements
|
12
|
|
ITEM
2:
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
34
|
|
ITEM
3
:
|
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
38
|
|
ITEM
4:
|
|
CONTROLS
AND PROCEDURES
|
38
|
|
PART
II: OTHER INFORMATION
|
|
|
Item
1
|
|
LEGAL
PROCEEDINGS
|
38
|
|
ITEM
1A
:
|
|
RISK
FACTORS
|
38
|
|
ITEM
2
|
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
38
|
|
ITEM
3
|
|
DEFAULTS
UPON SENIOR SECURITIES
|
38
|
|
ITEM
4
|
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
39
|
|
ITEM
5
|
|
OTHER
INFORMATION
|
|
|
ITEM
6:
|
|
EXHIBITS
|
39
|
|
SIGNATURES
|
43
|
PART I
-
FINANCIAL INFORMATION
ITEM
1. FINANCIAL STATEMENTS
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
MARCH
31,
2008
AND
2007
(UNAUDITED)
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
|
CONTENTS
|
PAGE
|
|
|
|
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
3
|
|
|
|
|
FINANCIAL
STATEMENTS:
|
|
|
|
|
|
Consolidated
Interim Balance Sheets
|
5
|
|
|
|
|
Consolidated
Interim Statements of Operations and Comprehensive Loss
|
7
|
|
|
|
|
Consolidated
Statements of Stockholders’ Equity
|
9
|
|
|
|
|
Consolidated
Interim Statements of Cash Flows
|
10
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
12
- 33
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders of
Cintel
Corp. and the Subsidiaries
We
have
reviewed the accompanying consolidated interim balance sheets of
Cintel
Corp. and Subsidiaries
(the
"Company") as of
March
31,
2008
and the
related consolidated interim statements of operations and comprehensive loss,
stockholders' equity, and cash flows for the three month ended
March
31,
2008
.
These
consolidated interim financial statements are the responsibility of the
Company's management.
We
conducted our reviews in accordance with standards of the Public Company
Accounting Oversight Board (United States). A review of financial information
consists principally of applying analytical procedures and making inquiries
of
persons responsible for financial and accounting matters. It is substantially
less in scope than an audit conducted in accordance with standards of the Public
Company Accounting Oversight Board (United States), the objective of which
is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based
on
our reviews, we are not aware of any material modifications that should be
made
to such consolidated interim financial statements for them to be in conformity
with accounting principles generally accepted in the United States of
America.
The
financial statements
as
of
March
31,
2007
,
were
reviewed by other accountants, whose report dated June 7
,
2007,
that they were not aware of any material modifications that should be made
to
those statements in order for them to be in conformity with generally accepted
accounting principles.
Kim
& Lee Corporation
Los
Angeles, California
May
9
,
2008
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
MARCH
31, 2008
AND
2007
(UNAUDITED)
|
ASSETS
|
|
|
|
|
|
|
Restated
(Note
20)
|
|
|
|
|
2008
|
|
2007
|
|
|
Current
assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
(Note
2)
|
|
$
|
32,839,823
|
|
$
|
4,958,888
|
|
|
Investments
- short-term (Note 6)
|
|
|
12,160,529
|
|
|
-
|
|
|
Accounts
receivable, net (Note
2)
|
|
|
31,150,805
|
|
|
5,829,031
|
|
|
Inventor
ies
(Note 3)
|
|
|
19,459,524
|
|
|
6,959,950
|
|
|
Loans
receivable - current (Note
4)
|
|
|
17,816,216
|
|
|
212,600
|
|
|
Prepaid
and other current assets
(Note
5)
|
|
|
30,560,720
|
|
|
1,048,214
|
|
|
|
|
|
|
|
|
|
|
|
Total
current
assets
|
|
|
143,987,617
|
|
|
19,008,683
|
|
|
|
|
|
|
|
|
|
|
|
Property,
p
lant
and equipment, net (Note 7)
|
|
|
113,307,269
|
|
|
30,116,133
|
|
|
|
|
|
|
|
|
|
|
|
Other
assets:
|
|
|
|
|
|
|
|
|
Loans
receivable, net of current portion (Note
4)
|
|
|
5,673,776
|
|
|
151,508
|
|
|
Investments
in securities (Note
6)
|
|
|
36,421,841
|
|
|
2,440,802
|
|
|
Land
rights (Note
8)
|
|
|
331,552
|
|
|
356,775
|
|
|
Intangible
assets (Note
9)
|
|
|
28,064,927
|
|
|
7,740,271
|
|
|
Security
deposits
|
|
|
6,870,649
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Total
other
assets
|
|
|
77,362,745
|
|
|
10,689,356
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
334,657,631
|
|
$
|
59,814,172
|
|
The
accompanying notes are an integral part of these consolidated financial
statements
.
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
MARCH
31, 2008
AND
2007
(UNAUDITED)
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
Restated
(Note
20)
|
|
|
|
|
2008
|
|
2007
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
32,470,682
|
|
$
|
16,044,058
|
|
|
Accrued
expenses
|
|
|
9,359,565
|
|
|
-
|
|
|
D
eferred
revenue
|
|
|
9,008,160
|
|
|
-
|
|
|
N
otes
payable, current (Note 10)
|
|
|
84,408,671
|
|
|
10,746,058
|
|
|
Advance
from shareholder
(Note
15)
|
|
|
-
|
|
|
282,758
|
|
|
Other
current liabilities
|
|
|
2,607,083
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Total
current
liabilities
|
|
|
137,854,161
|
|
|
27,072,874
|
|
|
|
|
|
|
|
|
|
|
|
Long-
term
liabilities:
|
|
|
|
|
|
|
|
|
Accrued
severance benefits (Note
11)
|
|
|
4,114,597
|
|
|
88,449
|
|
|
Notes
payable, net of current portion
(Note 10)
|
|
|
33,542,736
|
|
|
4,206,219
|
|
|
Convertible
debentures (Note
12)
|
|
|
112,536,245
|
|
|
15,284,295
|
|
|
|
|
|
|
|
|
|
|
|
L
ong-term
liabilities
|
|
|
150,193,578
|
|
|
19,578,963
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
288,047,739
|
|
|
46,651,837
|
|
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest
|
|
|
44,158,345
|
|
|
8,655,613
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies (Note
19):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders'
equity:
(Note 14)
|
|
|
|
|
|
|
|
|
Common
stocks: 300,000,000 shares authorized, par value $0.001 per share,
97,824,896 shares and 88,299,896 shares issued and outstanding,
respectively
|
|
|
97,824
|
|
|
88,299
|
|
|
Additional
paid
-in
capital
|
|
|
20,293,203
|
|
|
14,437,328
|
|
|
Treasury
stock
|
|
|
-
|
|
|
(5,630
|
)
|
|
Accumulated
other comprehensive
income
(loss)
|
|
|
2,436,213
|
|
|
(214,496
|
)
|
|
Accumulated
deficit
|
|
|
(20,375,693
|
)
|
|
(9,798,779
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders'
equity
|
|
|
2,451,547
|
|
|
4,506,722
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
and stockholders' equity
|
|
$
|
334,657,631
|
|
$
|
59,814,172
|
|
The
accompanying notes are an integral part of these
consolidated financial statements
.
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATION AND COMPREHENSIVE LOSS
THREE
MONTHS
ENDED
MARCH
31, 2008
AND
2007
(UNAUDITED)
|
|
|
2008
|
|
Restated
(Note
20)
2007
|
|
|
Revenues:
|
|
|
|
|
|
|
Finished
goods
|
|
$
|
50,260,975
|
|
$
|
16,484,917
|
|
|
Merchandise
|
|
|
350,814
|
|
|
211,446
|
|
|
Services
|
|
|
2,035,130
|
|
|
978
|
|
|
|
|
|
52,646,919
|
|
|
16,697,341
|
|
|
Cost
of revenue:
|
|
|
|
|
|
|
|
|
Finished
goods
|
|
|
49,096,772
|
|
|
16,160,910
|
|
|
Merchandise
|
|
|
303,682
|
|
|
207,639
|
|
|
Services
|
|
|
1,105,663
|
|
|
-
|
|
|
|
|
|
50,506,117
|
|
|
16,368,549
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
s
|
|
|
2,140,802
|
|
|
328,792
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
General
and administrative expenses
|
|
|
4,149,116
|
|
|
416,108
|
|
|
Research
and development
|
|
|
-
|
|
|
10,630
|
|
|
Depreciation
and amortization
|
|
|
286,286
|
|
|
100,397
|
|
|
|
|
|
4,435,402
|
|
|
527,135
|
|
|
|
|
|
|
|
|
|
|
|
L
oss
from operations
|
|
|
(2,294,600
|
)
|
|
(198,343
|
)
|
|
|
|
|
|
|
|
|
|
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
Interest
income
|
|
|
760,145
|
|
|
133,349
|
|
|
Rental
and other income
|
|
|
139,461
|
|
|
-
|
|
|
Net
income
from sale of assets
|
|
|
37,044
|
|
|
-
|
|
|
Interest
expenses
|
|
|
(1,871,682
|
)
|
|
(253,152
|
)
|
|
Share
of loss from equity investment
|
|
|
(430,249
|
)
|
|
-
|
|
|
Amortization
of deferred financing fees
|
|
|
-
|
|
|
(90,000
|
)
|
|
Foreign
currency transaction
loss
|
|
|
(137,735
|
)
|
|
-
|
|
|
|
|
|
(1,503,016
|
)
|
|
(209,803
|
)
|
|
Los
s
before income taxes and
non-controlling
interest
|
|
|
(3,797,616
|
)
|
|
(408,146
|
)
|
|
|
|
|
|
|
|
|
|
|
Income
tax
expense (Note 13)
|
|
|
(330
|
)
|
|
-
|
|
|
Non-controlling
interest
|
|
|
1,202,225
|
|
|
66,909
|
|
|
|
|
|
1,201,895
|
|
|
66,909
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(2,595,721
|
)
|
|
(341,237
|
)
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
Foreign
currency trans
lation
adjustments
|
|
|
(600,098
|
)
|
|
(47,658
|
)
|
|
Unrealized
gain on investment
|
|
|
32,170
|
|
|
-
|
|
|
|
|
|
(567,928
|
)
|
|
(47,658
|
)
|
|
|
|
|
|
|
|
|
|
|
Other
comprehensive loss before non-controlling interest
|
|
|
(3,163,649
|
)
|
|
(388,895
|
)
|
(Continued)
The
accompanying notes are an integral part of these
consolidated financial statements
.
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATION AND COMPREHENSIVE LOSS
THREE
MONTHS
ENDED
MARCH
31, 2008
AND
2007
(UNAUDITED)
|
|
|
2008
|
|
Restated
(Note
20)
2007
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
-
Non-controlling
interest
|
|
|
(452,634
|
)
|
|
3,968
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive loss
|
|
$
|
(3,616,283
|
)
|
$
|
(384,927
|
)
|
|
|
|
|
|
|
|
|
|
|
L
oss
per share - basic and diluted (Note 18)
|
|
$
|
(0.03
|
)
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of
common
shares outstanding - basic and diluted
|
|
|
97,824,896
|
|
|
87,846,563
|
|
The
accompanying notes are an integral part of these
consolidated financial statements
.
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS
OF STOCKHOLDERS’ EQUITY
THREE
MONTHS
ENDED
MARCH
31, 2008
AND
2007
(UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
Retained
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
other
|
|
earnings
|
|
|
|
|
|
|
Common
stock
|
|
paid-in
|
|
Treasury
|
|
comprehensive
|
|
(Accumulated
|
|
|
|
|
|
|
Shares
|
|
Amount
|
|
capital
|
|
stock
|
|
income
(loss)
|
|
deficit)
|
|
Total
|
|
|
Balance,
January 1, 2007
|
|
|
87,619,896
|
|
$
|
87,619
|
|
$
|
14,319,408
|
|
$
|
(5,630
|
)
|
$
|
(170,806
|
)
|
$
|
(9,343,747
|
)
|
$
|
4,886,844
|
|
|
Restatement
adjustments
(Note
20)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(113,796
|
)
|
|
(113,796
|
)
|
|
Restated
Balance,
January
1, 2007
|
|
|
87,619,896
|
|
|
87,619
|
|
|
14,319,408
|
|
|
(5,630
|
)
|
|
(170,806
|
)
|
|
(9,457,543
|
)
|
|
4,773,048
|
|
|
Issuance
of shares for consulting services
(Note
14)
|
|
|
580,000
|
|
|
580
|
|
|
98,020
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
98,600
|
|
|
Issuance
of shares for employee remuneration
(Note
14)
|
|
|
100,000
|
|
|
100
|
|
|
19,900
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
20,000
|
|
|
Restatement
adjustment
(Note
20)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
113,796
|
|
|
113,796
|
|
|
Foreign
currency
translation
adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(43,690
|
)
|
|
-
|
|
|
(43,690
|
)
|
|
Net
loss for the period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(455,032
|
)
|
|
(455,032
|
)
|
|
Balance,
March
31, 2007
|
|
|
88,299,896
|
|
$
|
88,299
|
|
$
|
14,437,328
|
|
$
|
(5,630
|
)
|
$
|
(214,496
|
)
|
$
|
(9,798,779
|
)
|
$
|
4,506,722
|
|
|
Balance,
January 1, 2008
|
|
|
97,824,896
|
|
$
|
97,824
|
|
$
|
20,293,203
|
|
$
|
-
|
|
$
|
3,004,141
|
|
$
|
(17,779,972
|
)
|
$
|
5,615,196
|
|
|
Unrealized
gain on investment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
32,170
|
|
|
-
|
|
|
32,170
|
|
|
Foreign
currency
translation
adjustment
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(600,098
|
)
|
|
-
|
|
|
(600,098
|
)
|
|
Net
loss for the period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(2,595,721
|
)
|
|
(2,595,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March
31, 2008
|
|
|
97,824,896
|
|
$
|
97,824
|
|
$
|
20,293,203
|
|
$
|
-
|
|
$
|
2,436,213
|
|
$
|
(20,375,693
|
)
|
$
|
2,451,547
|
|
The
accompanying notes are an integral part of these
consolidated financial statements
.
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
THREE
MONTHS
ENDED
MARCH
31, 2008
AND
2007
(UNAUDITED)
|
|
|
2008
|
|
Restated
(Note
20)
2007
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,595,721
|
)
|
$
|
(341,237
|
)
|
|
Adjustments
to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
provided
by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
286,286
|
|
|
972,173
|
|
|
Amortization
of financing fees
|
|
|
-
|
|
|
90,000
|
|
|
Non-controlling
interest’s share of loss
|
|
|
(1,202,225
|
)
|
|
(66,909
|
)
|
|
Common
stocks issued for consulting services
|
|
|
-
|
|
|
118,600
|
|
|
Share
of loss from investment
|
|
|
462,419
|
|
|
-
|
|
|
Net
gain on sale of property
|
|
|
(37,044
|
)
|
|
-
|
|
|
(Increase)
decrease in assets:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(12,752,246
|
)
|
|
(208,339
|
)
|
|
Other
receivable
|
|
|
(7,538,010
|
)
|
|
-
|
|
|
Inventory
|
|
|
(4,751,388
|
)
|
|
(1,305,360
|
)
|
|
Prepaid
expenses and other assets
|
|
|
(7,786,425
|
)
|
|
20,410
|
|
|
Security
deposits
|
|
|
155,611
|
|
|
-
|
|
|
Increase
(decrease) in liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
3,173,406
|
|
|
7,879,704
|
|
|
Deferred
revenue
|
|
|
5,192,082
|
|
|
(113,793
|
)
|
|
Accrued
expense
|
|
|
5,676,785
|
|
|
-
|
|
|
Accrued
severance benefits
|
|
|
771,881
|
|
|
(8,955
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by (used in) operating activities
|
|
|
(20,944,589
|
)
|
|
7,036,294
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisition
of investments in securities
|
|
|
-
|
|
|
(498,547
|
)
|
|
Proceeds
from disposal of securities held for investment
|
|
|
9,554,845
|
|
|
-
|
|
|
Acquisition
of property and equipment
|
|
|
(13,262,725
|
)
|
|
(5,047,672
|
)
|
|
Loan
receivable
|
|
|
(13,212,533
|
)
|
|
(65,892
|
)
|
|
Acquisition
of intangible assets
|
|
|
72,687
|
|
|
-
|
|
|
Changes
in non-controlling interest
|
|
|
2,857,084
|
|
|
(3,968
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
used in investing activities
|
|
|
(13,990,642
|
)
|
|
(5,616,079
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from convertible debenture
|
|
|
8,437,325
|
|
|
-
|
|
|
Proceeds
from short and long-term notes
|
|
|
26,059,224
|
|
|
|
|
|
Advance
from shareholder
|
|
|
-
|
|
|
282,758
|
|
|
Principal
payments of notes payable
|
|
|
(879,244
|
)
|
|
(1,037,481
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
provided by (used in) financing activities
|
|
|
33,617,305
|
|
|
(754,723
|
)
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
(1,317,926
|
)
|
|
665,492
|
|
(Continued)
The
accompanying notes are an integral part of these
consolidated financial statements
.
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
THREE
MONTHS
ENDED
MARCH
31, 2008
AND
2007
(UNAUDITED)
|
|
|
2008
|
|
Restated
(Note
20)
2007
|
|
|
|
|
|
|
|
|
|
Effect
of foreign currency translation
|
|
|
(600,098
|
)
|
|
(43,692
|
)
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalent - beginning of period
|
|
|
29,946,476
|
|
|
4,337,088
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
cash
|
|
|
4,811,371
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalent - end of period
|
|
$
|
32,839,823
|
|
$
|
4,958,888
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flows Information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,466,571
|
|
$
|
253,152
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
330
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these
consolidated financial statements
.
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
Note
1 - Nature of Business
Description
of Business
Cintel
Corp. and Subsidiaries, formerly known as Link2 Technologies, Inc., (“Cintel” or
"the Company") was incorporated in the State of Nevada on August 16, 1996.
The
Company changed its name from Great Energy Corporation International to Link2
Technologies, Inc. on April 24, 2001 and again to Cintel Corp. on September
30,
2003.
On
September 30, 2003, the Company entered into a definitive Share Exchange
Agreement (the “Agreement") with Cintel Co., Ltd., ("Cintel Korea") a Korean
corporation and its shareholders. By the agreement, the Company acquired 100%
of
the issued and outstanding capital stock of Cintel Korea and in return, the
shareholders of Cintel Korea received 16,683,300 shares (equivalent to 82%)
of
the Company. While the Company is the legal parent, as a result of the
reverse-takeover, Cintel Korea became the parent company for accounting
purposes.
Cintel
Korea, located in Seoul Korea, was in business of developing network solutions
to improve technical limitations to the internet traffic. During 2007, Cintel
Korea ceased the network solution operation due to lack of profitability.
On
October 30, 2006, the Company entered into an Equity Purchase Agreement with
STS
Semiconductor & Telecommunications Co., Ltd. ("STS"), a Korean corporation,
to acquire 51% of the total equity of Phoenix Semiconductor Telecommunication
(Suzhou) Co., Ltd. ("PSTS") for $16,500,000. The purchase was financed through
the proceeds raised from the sale of Cintel's convertible bonds in an aggregate
of $15,284,295. Shareholders of PSTS made additional equity investments during
the 1
st
quarter
of 2008. Accordingly, the Company contributed $4,896,000, which is proportionate
to its current ownership, to PSTS and no change in ownership resulted from
this
additional investment.
PSTS
conducts its operations in the Wujiang Economic Development Zone, Jiangsu,
People's Republic of China ("PRC"). PSTS was incorporated on March 2, 2004,
without share capital, pursuant to the commercial law of the PRC to engage
in
the business of manufacturing semiconductor and other electrical components
for
sale to the Korean market.
On
May
18, 2007, the Company entered into a Share Sale and Purchase Agreement to
acquire 100% of the outstanding common stocks of Bluecomm Korea, Co. Ltd.
(“Bluecomm”). Pursuant to the purchase agreement, the Company acquired 220,000
shares of Bluecomm for Korean Won 6,027,600,000 (approximately $6,483,100).
Bluecomm
is a Korean based company engaged in the business of Customer Relationship
Management (CRM) solution and consulting, call center operation, and database
marketing. It also provides total solutions for call center outsourcing and
Home
Service Center (HSC) hosting. Bluecomm commenced its CRM related business in
October 2005 and in June 2006 entered into an agreement with PizzaHut Korea
to
provide HSC and data base management operations services.
On
August
27, 2007, the Company entered into a Share Purchase Agreement to acquire 50%
of
the total equity of Phoenix Digital Tech Co. Ltd. (“PDT”) for Korean Won
32,500,000,000 (approximately $34,700,000). The purchase was financed through
the proceeds raised from the sale of Cintel's convertible bonds. PDT was
incorporated in May 1992 and conducts its operations in Pyung Taek, Korea.
PDT
is in the business of designing, manufacturing and installing automated assembly
line for Flat Panel Displays, and manufacturing and testing of PCB related
equipment based on customers’ specification.
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
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.
Basis
of Financial Statement Presentation
These
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America with
the assumption that the Company will realize its assets and discharge its debts
in the normal course of business.
Basis
of Consolidation
The
consolidated financial statements of the Company include the accounts of Cintel
Corp., Cintel Korea, PSTS, Bluecomm, and PDT. The merger of the Company with
Cintel Korea has been recorded as recapitalization of the Company, with the
net
assets of the Company brought forward at their historical basis. The purpose
of
Cintel Korea’s merger with the Company was to acquire a shell company listed on
NASDAQ. Management does not intend to pursue the business of the Company. As
such, accounting for the merger as recapitalization of the Company is deemed
appropriate.
The
acquisitions of PSTS, Bluecomm, and PDT have been accounted for by the purchase
method, with the net assets of these companies brought forward at their fair
market values.
Use
of
Estimates
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.
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.
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
The
functional currencies of the Company are the Korean Won (“KRW”) and Chinese RMB
(“RMB”). 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 period. The gains and losses
resulting from translation of financial statements are recorded as a separate
component of accumulated other comprehensive income within stockholders’ equity.
Revenue
Recognition
For
finished goods, the Company recognizes revenue when there is a definitive sales
agreement, and upon shipment of products, when title is passed and the amount
collectible can reasonably be determined.
For
merchandise sales, the Company recognizes revenue upon shipment of products,
when title is passed and the amount collectible can reasonably be determined.
For
service revenues, the Company recognizes such revenues when services are
rendered.
For
the
call centers revenue, the Company recognizes revenue at the end of the month
for
services rendered when the relating time costs can be reasonably
determined.
Cash
and Cash Equivalents
Cash
includes currency, checks issued by others, other currency equivalents, current
deposits and passbook deposits held by financial institutions. Cash equivalents
include securities and short-term money market instruments that can be easily
converted into cash. The investments that mature within three months from the
investment date are also included as cash equivalents.
Cash
deposits that are restricted as to withdrawal or pledged as security are
disclosed separately and not included in the cash total for the purpose of
the
statements of cash flow. At
March
31,
2008
and
2007
,
cash
and cash equivalents include restricted cash of $4,133,274 and $80,046,
respectively, pledged as security for a bank loan.
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
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.
Accounts
receivables are shown net of allowance of
$1,432,024
and
$1,130,408 as of
March
31,
2008
and
2007
,
respectively.
Inventories
Raw
materials and supplies are stated at the lower of cost or market where the
cost
is determined by using the first in first out weighted-average method on
perpetual basis.
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
Work-in-process
and finished goods are stated at the lower of cost or market value, using the
first in first out weighted average cost method. Net realizable value is
determined by deducting applicable selling expenses from the product selling
price.
Merchandise
inventory is stated at the lower of cost or net realizable value. Net realizable
value is determined by deducting applicable selling expenses from selling
price.
Investments
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.
Investments
in securities are recorded in accordance with Statement of Accounting Standards
No. 115 "Accounting for Certain Investments in Debt and Equity Securities."
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 the statement of
operations.
Investments
subject to significant influence have been recorded using the equity
method.
Property
and Equipment
Property
and equipment, including renewals and betterments, are stated at cost.
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
located in China
|
20
years
|
|
Buildings
located in Korea
|
30
years
|
|
Machinery
and equipment
|
5
-
10 years
|
|
Measuring
equipment
|
5
years
|
|
Furniture
and fixtures
|
5
years
|
|
Vehicles
|
5
years
|
|
Software
|
5
years
|
|
Landscaping
|
5
years
|
|
Structure
|
5
years
|
Gain
or
loss on sale or disposition of assets is included in the statement of
operations.
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
March
31,
2008
represents capitalized interest expense and other accumulated costs for the
new
manufacturing facilities under construction.
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
Land
Rights
Land
right is stated at cost. Amortization is provided on a straight line basis
over
50 years.
Government
Grants
Government
grants without obligation to repay are recognized as reduction of the
depreciable basis of the assets that are associated with the grants.
Impairment
of Long-Lived 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
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.
For
the
periods ended
March
31,
2008
and
2007
,
no
events or circumstances occurred for which an evaluation of the recoverability
of long-lived assets was required. 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.
Research
and Development Costs
Research
and development costs consist primarily of salaries and subcontracting expenses
and are expensed as incurred.
Fair
Value of Financial Instruments
The
carrying values of cash equivalents, accounts receivable, short-term and
long-term investments, and short-term debt approximate fair value due to the
short maturities of these instruments. The estimated fair values of other
financial instruments, including debt, equity, and risk management instruments,
have been determined using market information and valuation methodologies,
primarily discounted cash flow analysis. These estimates require considerable
judgment in interpreting market data, and changes in assumptions or estimation
methods could significantly affect the fair value estimates.
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
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
or
credit concentration. 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 losses contingent upon management’s forecasts.
For other receivables, the Company determines, on a continuing basis, the
probable losses and sets up a provision for losses based on the estimated
realizable value.
Concentration
of credit risk arises when a group of clients having similar characteristics
such that their ability to meet their obligations is expected to be affected
similarly by changes in economic conditions.
Income
Taxes
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
are
reduced by a valuation allowance when, in the opinion of management, it is
more
likely than not that some portion or all of the deferred tax assets will not
be
realized. Deferred tax assets and liabilities are adjusted for the effects
of
changes in tax laws and rates on the date of enactment.
Comprehensive
Income
The
Company records its other comprehensive income under SFAS No. 130,
Reporting
of Comprehensive Income
.
SFAS
130 which establishes standards for reporting and presentation of comprehensive
income and its components. The Company’s other comprehensive income represents
unrealized gain or loss on available-for-sale marketable securities and foreign
currency translation adjustment.
Earnings
per Share
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.
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.
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
Recent
Accounting pronouncements
In
June
2006, the Financial Accounting Standard Board (“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 adoption of FIN 48
did not have a significant effect on its financial statements.
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.
In
February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS No. 159"), which permits
entities to measure financial instruments and certain other items at fair value
that are not currently required to be measured at fair value. An entity would
report unrealized gains and losses on items for which the fair value option
has
been elected in earnings at each subsequent reporting date. The objective is
to
improve financial reporting by providing entities with the opportunity to
mitigate volatility in reported earnings caused by measuring related assets
and
liabilities differently without having to apply complex hedge accounting
provisions. The decision about whether to elect the fair value option is applied
instrument by instrument, with a few exceptions; the decision is irrevocable;
and it is applied only to entire instruments and not to portions of instruments.
SFAS No. 159 requires disclosures that facilitate comparisons (a) between
entities that choose different measurement attributes for similar assets and
liabilities and (b) between assets and liabilities in the financial statements
of an entity that selects different measurement attributes for similar assets
and liabilities. SFAS No. 159 is effective for financial statements issued
for
fiscal years beginning after November 15, 2007. Early adoption is permitted
as
of the beginning of a fiscal year provided the entity also elects to apply
the
provisions of SFAS No. 157 "Fair Value Measurements.” Upon implementation, an
entity shall report the effect of the first remeasurement to fair value as
a
cumulative-effect adjustment to the opening balance of retained earnings. Since
the provisions of SFAS No. 159 are applied prospectively, any potential impact
will depend on the instruments selected for fair value measurement at the time
of implementation. The Company is currently evaluating the impact, if any,
of
the adoption of SFAS No. 159 on its financial statements.
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
Note
3 - Inventories
Inventories
consist of the following as of March 31:
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
3,236,262
|
|
$
|
5,319,234
|
|
|
Work-in-process
|
|
|
11,842,720
|
|
|
518,734
|
|
|
Finished
goods
|
|
|
3,229,647
|
|
|
-
|
|
|
Merchandise
and supplies
|
|
|
1,150,895
|
|
|
1,121,982
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
19,459,524
|
|
$
|
6,959,950
|
|
Note
4 - Loans Receivable
Loans
receivable from unrelated companies were as follows as of March 31:
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Loan
receivable from CNY, a private company in China. 7% interest, payable
interest only in quarterly installments. Guaranteed by the shareholders
of
the debtor. Matures in January 2009.
|
|
$
|
156,471
|
|
$
|
151,508
|
|
|
|
|
|
|
|
|
|
|
|
Loans
receivable from NIG, a private company in Korea. 9% interest, payable
interest only in quarterly installments. Guaranteed by the shareholders
of
the debtor. Mature in April and August 2008.
|
|
|
3,641,508
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Note
receivable from Phoenix Holdings, a private company in Korea. 8%
interest,
payable interest only in quarterly installments. Matures in September
2008.
|
|
|
14,161,420
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Loan
receivable from unrelated private companies in Korea, unsecured,
bears
interest at 17% payable with principal upon maturity. The loan matured
in
June 2007.
|
|
|
-
|
|
|
212,600
|
|
|
|
|
|
|
|
|
|
|
|
Notes
receivable from F&F Investment, a private company in Korea, 10.5%-12%
interests, payable interest only in monthly and quarterly installments.
Matures in December 2008 and September 2009.
|
|
|
5,057,650
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Other
short-term loans receivable
|
|
|
472,943
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,489,992
|
|
|
364,108
|
|
|
Less:
current portion
|
|
|
17,816,216
|
|
|
212,600
|
|
|
|
|
|
|
|
|
|
|
|
Loan
receivable, net of current
|
|
$
|
5,673,776
|
|
$
|
151,508
|
|
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
Note
5 - Prepaid Expenses and Other Assets
Prepaid
expenses and other current assets consist of the following as of March
31:
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Prepaid
expenses
|
|
$
|
5,683,820
|
|
$
|
1,048,214
|
|
|
Receivables
from sale of assets
|
|
|
3,625,693
|
|
|
-
|
|
|
Advance
payments to vendors
|
|
|
14,454,712
|
|
|
-
|
|
|
Other
current assets
|
|
|
6,796,495
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
30,560,720
|
|
$
|
1,048,214
|
|
Note
6 - Investments
Short-Term
Investments
The
Company holds various time deposits and financial instruments with maturity
of
less than one year, and recorded them as short-term investments. The Company’s
investment in the short-term instruments at
March
31,
2008
was
$
12,160,529
.
Investments
in Debt and Equity Securities
Investment
in non-marketable equity securities in which the Company has less than 20%
interest and does not have the ability to exercise significant influence over
the investee are initially recorded at cost. These investments are periodically
reviewed for other than temporary impairment.
The
Company’s investment in debt and equity securities at
March
31,
2008
and
2007
were as
follows:
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Investment
in Cintel Systems Corp.
|
|
$
|
474,408
|
|
$
|
498,547
|
|
|
Convertible
Debenture A (STS)
|
|
|
11,173,519
|
|
|
-
|
|
|
Pheonix
Asset Management (fka Global Assets Inc.)
|
|
|
10,427,028
|
|
|
1,937,339
|
|
|
Investment
in PluM Tech
|
|
|
202,306
|
|
|
-
|
|
|
We-Tech
|
|
|
1,340,909
|
|
|
-
|
|
|
East
Gate
|
|
|
1,101,272
|
|
|
-
|
|
|
Phoenix
Springs
|
|
|
3,034,590
|
|
|
-
|
|
|
Debt
securities - bonds
|
|
|
219,907
|
|
|
-
|
|
|
Investment
in equity securities held by subsidiaries
|
|
|
8,141,512
|
|
|
-
|
|
|
Other
miscellaneous
|
|
|
306,390
|
|
|
4,916
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,421,841
|
|
$
|
2,440,802
|
|
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
Convertible
Debenture A
The
debenture, issued in April 2007 and maturing on April 20, 2012, is non-interest
bearing until the date of conversion. If the conversion right is not exercised
within the conversion period, April 2008 until March 2012, interest will accrue
at 8% annually. At any time within the conversion period, the bond may, at
the
option of the holder, be converted into common shares in the Company at the
price of $8.60 (8,010 won). The conversion price will be adjusted based on
the
fair market value of the debtor's share. The adjustment shall be limited to
a
maximum of 30% of the conversion price. The debenture has been pledged as
security for the Company’s own Convertible Debenture-B as stated in Note 12.
Note
7 - Property, Plant and Equipment
Property,
plant and equipment consist of the following at March 31:
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
28,306,520
|
|
$
|
-
|
|
|
Buildings
and improvements
|
|
|
34,812,621
|
|
|
11,148,501
|
|
|
Machinery
and equipment
|
|
|
22,155,249
|
|
|
24,216,829
|
|
|
Furniture
and fixtures
|
|
|
9,321,558
|
|
|
873,945
|
|
|
Vehicles
|
|
|
685,325
|
|
|
165,097
|
|
|
Software
|
|
|
230,771
|
|
|
754,682
|
|
|
Small
tools
|
|
|
657,893
|
|
|
-
|
|
|
|
|
|
96,169,937
|
|
|
37,159,054
|
|
|
|
|
|
|
|
|
|
|
|
Less:
Accumulated depreciation
|
|
|
20,787,226
|
|
|
7,042,921
|
|
|
|
|
|
75,382,711
|
|
|
30,116,133
|
|
|
|
|
|
|
|
|
|
|
|
Construction
in progress
|
|
|
37,924,558
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
$
|
113,307,269
|
|
$
|
30,116,133
|
|
Depreciation
expenses for the periods ended
March
31,
2008
and
2007
were
$
230,228
and
$94,343, respectively.
Note
8 - Land Rights
The
Company has an agreement with the government of the PRC for the use of land
until February 14, 2054. According to the agreement, the Company is obligated
to
pay an annual management fee of approximately $2,400, and the land has to be
used for manufacturing purposes. The Company has the right to apply for renewal
by notifying the government no later than six months prior to the expiry of
the
agreement. The government has no obligation to approve the renewal application.
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
The
cost
of the land right is capitalized and amortized over the life of the land right
(50 years) on the straight-line method. The carrying value of land rights at
March
31,
2008
and
2007
are
summarized as follows:
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Land
rights at cost
|
|
$
|
369,224
|
|
$
|
369,224
|
|
|
Less:
Accumulated depreciation
|
|
|
37,672
|
|
|
12,449
|
|
|
|
|
|
|
|
|
|
|
|
Net
carrying amount
|
|
$
|
331,552
|
|
$
|
356,775
|
|
Note
9 - Intangible Assets
Intangible
assets consist of the following at March 31:
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$
|
26,592,993
|
|
$
|
7,740,271
|
|
|
Other
intangible assets
|
|
|
1,471,934
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Net
carrying amount
|
|
$
|
28,064,927
|
|
$
|
7,740,271
|
|
Goodwill
was recorded in connection with the Company’s acquisitions of foreign
subsidiaries (PSTS, Bluecomm, and PDT, as described in Note 1) and represents
the intangible benefits that the acquired businesses are 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. Goodwill is not amortized for financial reporting
purposes.
Other
intangible assets include patents, technology rights and in-process research
and
development costs and are amortized over its estimated useful life of five
years. Amortization expense on these intangible assets for the period ended
March
31,
2008
was
$
56,058
.
Note
10 - Notes Payable
Notes
payable consist of the following at March 31:
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Note
payable to Kong-Sang Bank of China, payable monthly interest only
with
interest at LIBOR plus 0.85%. The note is unsecured and matures in
April
2008.
|
|
$
|
3,000,000
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable to Kong-Sang Bank of China, payable monthly interest only
with
interest at LIBOR plus 0.75%. The note is secured by real estate
and
equipment and matures in September 2008.
|
|
|
3,400,000
|
|
|
-
|
|
(Continued)
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable to Kong-Sang Bank of China, payable monthly interest only
with
interest at LIBOR plus 0.75%. The note is unsecured and matures in
October
2008.
|
|
|
3,903,367
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable to Min-Seng Bank of China, payable monthly interest only
with
interest at LIBOR plus 1.80%. The note is unsecured and matures in
April
2009.
|
|
|
1,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable to Kong-Sang Bank of China, payable monthly interest only
with
interest at 6.14%. The note is unsecured and matured in April
2007.
|
|
|
-
|
|
|
3,234,893
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable to Kong-Sang Bank of China, payable monthly interest only
with
interest at 6.44%. The note is unsecured and matured in June
2007.
|
|
|
-
|
|
|
1,940,250
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable to Kong-Sang Bank of China, payable monthly interest only
with
interest at 5.68%. The note is secured by cash deposit of $2,836,087
and
matured in April 2007.
|
|
|
-
|
|
|
2,730,811
|
|
|
|
|
|
|
|
|
|
|
|
Construction
loan payable to China Construction Bank, payable quarterly installment
of
$447,551 with interest at bank prime. The note is secured by real
estate
and matures in July 2009.
|
|
|
-
|
|
|
4,479,144
|
|
|
|
|
|
|
|
|
|
|
|
Construction
loan payable to China Construction Bank, payable quarterly installment
of
$250,000 with interest at LIBOR plus 1.18%. The note is secured by
real
estate and matures in July 2009.
|
|
|
-
|
|
|
2,500,000
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to Hana Bank of Korea, payable monthly interest only, with
interest at 6.93% to 7.81%. The notes are secured by real property
in
Korea and mature on March 2008.
|
|
|
2,066,473
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to Shin-Han Bank of Korea, payable monthly interest-only,
with
interest at 5.95% to 6.43%. The notes are secured by real estate
and
mature in June and October 2008.
|
|
|
6,411,600
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to Nong Hyup Bank of Korea, payable monthly interest only,
with
interest at 4.1%. The notes are unsecured and mature in November
2008.
|
|
|
534,300
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to Citi Bank of Korea, payable monthly interest only with
interest
at 4.98% to 6.04%. The notes are secured by real estate and mature
in July
2008.
|
|
|
9,445,554
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to Korea Exchange Bank, payable monthly interest only, with
interest at 5.00% to 6.55%. The notes are unsecured and mature in
October,
November, and December 2008.
|
|
|
6,297,460
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable to Kook Min Bank of Korea, payable monthly interest only,
with
interest at 4.97%. The note is secured by a deed of trust covering
the
Company’s real property and matures in July 2008.
|
|
|
8,548,800
|
|
|
-
|
|
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable to Citi Bank Korea, payable monthly interest-only, with interest
at 5.56%. The note is secured by a deed of trust covering the Company’s
real property and matures in October and November 2009.
|
|
|
14,732,120
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable to Citi Bank Korea, payable monthly interest-only. The note
is
classified as a long term debt due to its maturity.
|
|
|
6,069,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable to Sam Sung Electronics, bearing no interest. The note is
secured
by a deed of trust covering the Company’s real property and matures in
December 2011.
|
|
|
681,767
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable to Industrial Bank of Korea, payable monthly interest only,
with
interest at 8%. The note is unsecured and matures in 2008.
|
|
|
11,265,508
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to Woori Bank, payable monthly interest only. The note is
unsecured and matures in January 2009.
|
|
|
4,982,994
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to Industrial Bank of Korea, payable monthly interest only,
with
interest at 5.84%. The note is matures in 2008.
|
|
|
1,068,600
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to Industrial Bank of Korea, payable monthly interest only,
with
interest at 8.403%. The note is matures in February 2009.
|
|
|
4,551,885
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to Worri Bank of Korea, payable monthly interest only, with
interest at 7.12%. The note is matures in April 2009.
|
|
|
5,057,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to Hana Bank of Korea, payable monthly interest only, with
interest at 6.65%. The note is matures in 2008.
|
|
|
2,528,825
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to Korea Exchange Bank of Korea, payable monthly interest
only,
with interest at 7.72%. The note is matures in May 2008.
|
|
|
5,057,650
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to City Bank of Korea, payable monthly interest only, with
interest at 1.88 to 2.29%. The note is matures in 2008.
|
|
|
2,906,563
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Loan
payable to local government with annual interest rate at 4.75%. The
Loan
is unsecured and classified as long term debt
|
|
|
67,408
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to Hana Bank of Korea, payable monthly interest only, with
interest at 5.18%. The loan is secured by real estate. The note is
matures
in 2015.
|
|
|
1,517,295
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to Industrial Bank of Korea, payable monthly interest only,
with
interest at 4.7%. The note is matures in 2009 and 2010.
|
|
|
4,046,120
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Notes
payable to Shin Han Bank of Korea, payable monthly interest only,
with
interest at 3.77%. The loan is secured by real estate. The note is
matures
in 2011.
|
|
|
3,516,078
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Loan
payable to local government with annual principal payment of $10,422,
bearing no interest. The loan is unsecured and matures in October
2009
|
|
|
18,500
|
|
|
|
|
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Other
Long term notes payable of subsidiaries
|
|
|
4,775,710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note
payable to an unrelated party, bearing no interest. The note is unsecured
and due on demand.
|
|
|
-
|
|
|
39,000
|
|
|
|
|
|
|
|
|
|
|
|
Loan
payable to local government with annual principal payment of $10,422,
bearing no interest. The loan is unsecured and matures in October
2009
|
|
|
|
|
|
28,179
|
|
|
|
|
|
117,951,407
|
|
|
14,952,277
|
|
|
|
|
|
|
|
|
|
|
|
Less:
current portion
|
|
|
84,408,671
|
|
|
10,746,058
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
$
|
33,542,736
|
|
$
|
4,206,219
|
|
Following
is a summary of principal maturities of notes payable over the next five
years:
|
Years
ending December 31,
|
|
Amount
|
|
|
|
|
|
|
|
2008
|
|
$
|
84,465,660
|
|
|
2009
|
|
|
26,293,056
|
|
|
2010
|
|
|
2,306,723
|
|
|
2011
|
|
|
1,300,828
|
|
|
2012
and thereafter
|
|
|
3,585,140
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
117,951,407
|
|
Note
11 - 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
March
31,
2008
and
2007
,
were
$
4,114,597
and
$88,449, respectively.
Note
12 - Convertible Debentures
Pursuant
to SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity," the Company accounts for the
convertible debentures as liability at face values and no formal accounting
recognition is assigned to the values inherent in the conversion
features.
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Convertible
debenture - A (Cintel)
|
|
$
|
15,284,295
|
|
$
|
15,284,295
|
|
|
Convertible
debenture - B (Cintel)
|
|
|
64,920,000
|
|
|
-
|
|
|
Convertible
debenture - C (Cintel)
|
|
|
10,820,000
|
|
|
-
|
|
|
Convertible
debenture - D (PDT)
|
|
|
21,511,950
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
112,536,245
|
|
$
|
15,284,295
|
|
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
Convertible
Debenture -A
The
convertible debentures issued on October 30, 2006 are non-interest bearing,
unsecured, and mature on October 30, 2011. The bonds are convertible to common
stock of the Company at $0.50 per share. The holders have a right to adjust
the
conversion price at any time between April 1, 2008 and September 30, 2011.
The
adjustments discount will be made in a formula of 100% x ($0.50 - previous
3
months average share price)/$0.50, and are limited to a maximum of 30%. The
holders can exercise their conversion rights any time from October 25, 2006
to
September 30, 2011. As of
March
31,
2008
,
no
bonds have been converted.
For
any
unconverted amount as of October 30, 2011, interest accrues at the rate of
8%
per annum provided that PSTS generates total revenues of $65,800,000 and an
operating profit of $6,800,000 in 2007, and total revenue of $95,400,000 and
an
operating profit of $10,600,000 in 2008. If the conditions are not achieved,
interest accrues at 10% per annum. Interest is due and payable in cash on the
maturity date of October 30, 2011.
Convertible
Debenture - B
The
convertible debenture issued on April 12, 2007 will mature on April 12, 2012
and
are convertible into shares of common stock of the Company, at the option of
the
holder, at a rate of $0.70 per share. The coupon rate of the bond is at the
compounded interest rate of 2.3% per annum. If the bond is not converted during
the period commencing on the issuance date through one month prior to the
maturity date, interest accrues at 8% per annum.
The
debenture agreement requires the Company to pursue to list its common stock
on
either NASDAQ, London Stock Exchange, Hong Kong Stock Exchange or Singapore
Exchange Securities Trading Limited and use its best efforts to obtain such
listing by October 31, 2009.
In
the
event that the Company does not secure such listing by October 31, 2009 for
any
reason not solely attributable to the holder of the debenture is entitled to
exercise its put option to redeem the debenture at the face values and is also
be entitled to receive interest on the outstanding principal balance of the
debenture calculated at the compounded rate of 10% per annum.
In
the
case of the Company completes the listing process prior to the end of October
of
2009, the holder is entitled, on or after the fourth anniversary of the issuance
of the debenture, to exercise its put option to redeem the debenture at the
face
value plus interest at 8% per annum.
In
case
of the occurrence of default by the Company and if such default is not cured
within 60 days, the holder is entitled to exercise its put option to redeem
the
debenture at the face value plus interest at 19% per annum.
The
Company agreed to pledge as security all convertible bonds subscribed by the
Company using the proceeds from the debenture. As of
March
31,
2008
,
proceeds from the bond $
11,173,519
is
invested in convertible debenture issued by STS and these debentures have been
pledged as security for this Convertible Debenture-B as stated in Note 6.
Convertible
Debenture - C
The
debenture was issued on April 12, 2007, with maturity on April 12, 2012, is
convertible into shares of common stock of the Company, at the option of the
holder at a rate of $0.70 per share. The coupon rate of the bond is at the
rate
of 2.3% per annum. If the bond is not converted during the period commencing
on
the issuance date through one month prior to the maturity date, interest accrues
at the rate of 8% per annum.
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
At
any
time during the period from November 1, 2009 to March 12, 2012, the holder
is
entitled to exercise its put option to redeem the debentures at the face value
thereof, in which case the holder is entitled to interest at 8% per annum.
Upon
the occurrence of any event of default by the Company, the holder is entitled
to
exercise its put option to redeem the debentures at the face value if the
default is not cured within 60 days, in which case the holder is entitled to
receive interest at 19 % per annum.
Convertible
Debenture - D
The
debentures were issued by PDT in August, November, and December 2007,
respectively, with maturities in December 2010 thru September 2012. These
debentures are convertible into shares of common stock of PDT, at the option
of
the holders at a range of $80.15 to $96.17 per share. The coupon rate of the
bonds ranges 0.0% to 2.4% per annum. If the bond is not converted during the
period commencing on the issuance date through one month prior to the maturity
date, interest accrues at the rate of 8% per annum.
At
any
time during the period from September 2007 to August 2012, the holders are
entitled to exercise its put option to redeem the debentures at the face value
thereof, in which case the holder is entitled to interest at 8% per annum.
Upon
the occurrence of any event of default by the Company, the holders are entitled
to exercise its put options to redeem the debentures at the face value if the
default is not cured within 60 days, in which case the holders are entitled
to
receive interest at 19 % to 20% per annum.
The
convertible debentures have not been included in the calculation of the diluted
(loss) per share as their inclusion would be anti-dilutive.
Note
13 - Income Taxes
The
Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for
Income Taxes.” This Standard prescribes the use of the liability method whereby
deferred tax asset and liability account balances are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates. The effects of future changes in
tax laws or rates are not anticipated. Corporate income tax rates applicable
to
the Korean subsidiaries in 2008 and 2007 are 16.5% of the first 100 million
Korean Won ($105,700) of taxable income and 29.7% on the excess. For the United
States operation, the corporate tax rates range from 10% to 34%. The company
provided a valuation allowance equal to the deferred tax amounts resulting
from
the tax losses in the United States, as it is not likely that they will be
realized. Tax losses from the Korean subsidiaries can be carried forward for
five years to offset future taxable income. The U.S. tax losses can be carried
forward for 15 to 20 years to offset future taxable income. The company has
accumulated about $11,770,000 and $8,617,000 of taxable losses in its Korea
and
US operations, respectively. The utilization of the Korean losses expires in
years 2008 to 2012 and the US losses in years 2019 to 2027.
Under
SFAS No. 109 income taxes are recognized for the following: a) amount of tax
payable for the current year, and b) deferred tax liabilities and assets for
future tax consequences of events that have been recognized differently in
the
financial statements than for tax purposes. The Company has deferred income
tax
assets arising from research and development expenses and taxable losses carried
forward. For accounting purposes, these amounts are expenses when incurred.
Under Korean tax laws, these amounts are deferred and amortized on a
straight-line basis over 5 years.
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
For
the
first two profitable taxation years, taxable income of PSTS, a subsidiary in
China, is exempt from income taxes. Taxable income in the third to fifth
profitable tax years will be taxed at 5% and subsequently the applicable tax
rate will be 10%.
The
provision for income taxes for the periods ended
March
31,
2008
and
2007
are
summarized as follows:
|
|
|
2008
|
|
2007
|
|
|
Current
income tax provision:
|
|
|
|
|
|
|
US
|
|
$
|
-
|
|
$
|
-
|
|
|
Foreign
taxes of subsidiaries
|
|
|
330
|
|
|
-
|
|
|
|
|
|
330
|
|
|
-
|
|
|
Deferred
income tax benefit:
|
|
|
|
|
|
|
|
|
US
|
|
|
-
|
|
|
-
|
|
|
Foreign
taxes of subsidiaries
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
$
|
330
|
|
$
|
-
|
|
The
Company has deferred tax assets (liabilities) at
March
31,
2008
and
2007
as
follows:
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Research
and development expenses
amortized
over 5 years for tax purposes
|
|
$
|
-
|
|
$
|
267,000
|
|
|
Other
timing differences
|
|
|
488,043
|
|
|
253,000
|
|
|
Net
operating loss carryforwards
|
|
|
2,803,750
|
|
|
2,287,000
|
|
|
|
|
|
3,291,793
|
|
|
2,807,000
|
|
|
Valuation
allowance
|
|
|
(3,291,793
|
)
|
|
(2,807,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
$
|
-
|
|
Note
14 - Capital
In
January 2005, the Company issued 240,000 common shares for consulting service
at
the value of $20,500.
In
January 2005, 2,262,424 common shares were issued upon the conversion of $40,000
of convertible debentures.
In
February 2005, 622,200 common shares were issued upon the conversion of $50,000
of convertible debentures.
In
February 2005, 400,000 common shares were issued for consulting services at
the
value of $44,000.
In
March
2005, 1,485,120 common shares were issued upon the conversion of $80,000 of
convertible debentures.
In
March
2005, the Company repurchased 93,830 common shares for $105,259. The excess
of
repurchase price over fair market value was recorded as an employee benefit.
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
In
March
2005, 1,905,136 common shares were issued upon the conversion of $140,000 of
convertible debentures.
In
April
2005, 1,311,769 common shares were issued upon the conversion of $40,000 of
convertible debentures.
In
April
2005, 1,200,000 common shares were issued for consulting services at the value
of $48,000.
In
April
2005, 712,500 common shares were issued upon the conversion of $20,000 of
convertible debentures.
In
May
2005, 1,329,346 common shares were issued upon the conversion of $50,000 of
convertible debentures.
In
May
2005, 2,333,551 common shares were issued upon the conversion of $70,000 of
convertible debentures.
In
June
2005, 150,000 common shares were issued for consulting services at the value
of
$4,500.
In
June
2005, 3,268,031 common shares were issued upon the conversion of $80,000 of
convertible debentures.
In
July
2005, 704,225 common shares were issued upon the conversion of $20,000 of
convertible debentures.
In
September 2005, 500,000 common shares were issued for consulting services at
the
value of $15,000.
In
October 2005, 400,000 common shares were issued for consulting services at
the
value of $36,000.
In
December 2005, 145,252 common shares were issued upon the conversion of $38,492
of convertible debentures including interest.
In
April
2006, 500,000 common shares were issued for consulting services at the value
of
$90,000.
In
May
2006, 44,300,542 common shares were issued upon the conversion of $8,853,191
of
convertible debentures including interest.
In
July
2006, 440,000 common shares were issued for consulting services at the value
of
$70,400.
In
February 2007, 580,000 common shares were issued for consulting services at
the
value of $98,600.
In
March
2007, 100,000 common shares were issued as employee remuneration at the value
of
$20,000.
In
June
2007, 825,000 common shares were issued for consulting services at the value
of
$319,400.
In
July
2007, 1,200,000 common shares were issued for consulting services at the value
of $486,000.
In
October 2007, 7,000,000 shares of common stock to eight investors for a total
of
$4,900,000 at a price of $0.70 per share.
In
December 2007, 500,000 common shares were issued for consulting services at
the
value of $160,000.
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
Stock
Warrants and Options
The
Company has accounted for its stock options and warrants in accordance with
SFAS
123 "Accounting for Stock - Based Compensation" and SFAS 148 "Accounting for
Stock - Based compensation - Transition and Disclosure." Value of options
granted has been estimated by the Black Scholes option pricing model. The
assumptions are evaluated annually and revised as necessary to reflect market
conditions and additional experience. The following assumptions were
used:
|
|
|
2008
|
|
2007
|
|
|
Interest
rate
|
|
|
6.5
|
%
|
|
6.5
|
%
|
|
Expected
volatility
|
|
|
70
|
%
|
|
70
|
%
|
|
Expected
life in years
|
|
|
5
|
|
|
6
|
|
|
Expected
dividends
|
|
|
-
|
|
|
-
|
|
In
1999,
the Board of Directors of Cintel Korea adopted a stock option plan to allow
employees to purchase ordinary shares of the Cintel Korea.
The
stock
option plan granted 96,000 options for the common stock of Cintel Korea having
a
$0.425 nominal par value each and an exercise price of $0.425. In 2002, 53,000
stock options were cancelled. In 2003, an additional 30,000 stock options were
cancelled.
In
March
2000, 225,000 stock options were granted having a $0.425 nominal par value
each
and an exercise price of $0.68. In 2002, 135,000 and in 2003, an additional
47,000 of these stock options were cancelled.
In
February 2001, 30,000 stock options were granted having a $0.425 nominal par
value each and an exercise price of $0.72. In 2003, all of these stock options
were cancelled.
In
March
2003, 65,000 stock options were granted having a $0.425 nominal par value each
and an exercise price of $0.71. In the same year, 15,000 of these stock options
were cancelled.
The
options vest gradually over a period of 3 years from the date of grant. The
term
of each option shall not be more than 8 years from the date of grant. No options
have vested during the periods ended
March
31,
2008
and
2007
and no
option is outstanding at
March
31,
2008
.
The
stock
options have not been included in the calculation of the diluted earnings per
share as their inclusion would be anti-dilutive.
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
The
following table summarizes the stock option activity during the periods ended
March 31,:
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Outstanding,
beginning of period
|
|
|
-
|
|
|
106,000
|
|
|
Exercised
|
|
|
-
|
|
|
-
|
|
|
Cancelled
|
|
|
-
|
|
|
-
|
|
|
Expired
|
|
|
-
|
|
|
(106,000
|
)
|
|
Outstanding,
end of period
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average fair value of options granted during the period
|
|
$
|
-
|
|
$
|
-
|
|
|
Weighted
average exercise price of options, beginning of period
|
|
$
|
-
|
|
$
|
-
|
|
|
Weighted
average exercise price of options granted during the period
|
|
$
|
-
|
|
$
|
-
|
|
|
Weighted
average exercise price of options, end of period
|
|
$
|
-
|
|
$
|
-
|
|
|
Weighted
average remaining contractual life of common stock options
|
|
|
-
|
|
|
-
|
|
Note
15 - Related Party Transactions
Significant
transactions with companies affiliated by common control for the period ended
and as of
March
31,
2008
and
2007
are
summarized as follows:
|
|
|
2008
|
|
2007
|
|
|
|
|
|
|
|
|
|
Accounts
receivable from STS
|
|
$
|
7,080,366
|
|
$
|
2,210,384
|
|
|
Accounts
receivable from BKLCD (fka We-Tech)
|
|
$
|
1,197,970
|
|
$
|
1,266,875
|
|
|
Accounts
receivable from BKLS
|
|
$
|
-
|
|
$
|
-
|
|
|
Accounts
payable to STS
|
|
$
|
-
|
|
$
|
9,669,402
|
|
|
Accounts
payable to BKLCD (fka We-Tech)
|
|
$
|
-
|
|
$
|
2,475,410
|
|
|
Sales
to STS
|
|
$
|
18,565,787
|
|
$
|
9,918.606
|
|
|
Sales
to BKLCD (fka We-Tech)
|
|
$
|
323,579
|
|
$
|
2,298,188
|
|
|
Purchase
from STS
|
|
$
|
1,689,186
|
|
$
|
13,338,851
|
|
|
Purchase
from BKLCD (fka We-Tech)
|
|
$
|
-
|
|
$
|
1,821,825
|
|
These
transactions were in the normal course of business and recorded at an exchange
value established and agreed upon by the above mentioned parties.
The
advances from the chief executive officer, who is also a 15% shareholder of
the
Company, are non-interest bearing and unsecured. The advances were repaid on
maturity on May 3, 2007.
Note
16 - Significant Concentration of Sales
For
the
period ended
March
31,
2008
,
the
Company’s subsidiary in China, PSTS, had a major customer which accounted for
about 91% of the PSTS’s total revenue.
For
the
same period, PDT, a subsidiary in Korea, had three major customers which
accounted for about 70% of the PDT’s total revenue.
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
Note
17 - Appropriated Retained Earnings
The
Company’s subsidiary in Korea, PDT, is required under the regulation of
Restriction of Tax Reduction and Exemption Act in Korea, to appropriate a part
of their net profits for statutory surplus reserve and reserve for technological
development and business investment. 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 PDT. The
reserve is not distributable as cash dividends but can be converted into capital
upon approval of the Company.
Note
18 - Earnings per Share
The
following reconciles the numerators and denominators of the basic and diluted
per share computation for the periods ended
March
31,
2008
and
2007
:
|
|
|
2008
|
|
2007
|
|
|
Numerator
for basic and diluted earnings per share:
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,608,136
|
)
|
$
|
(341,237
|
)
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic
and diluted weighted average
shares
outstanding
|
|
|
97,824,896
|
|
|
87,846,563
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
(0.03
|
)
|
$
|
(0.00
|
)
|
Note
19- Commitments and Contingencies
|
(a)
|
The
Company leases its premises under a non-cancellable lease agreement
which
will expire in December 2008. Future minimum annual payments (exclusive
of
taxes and insurance) under the lease are $29,647 in 2008. Rent expenses
paid during the periods ended
March
31, 2008
and 2007
were $23,699 and $39,828,
respectively.
|
|
(b)
|
The
Company is committed to pay interest of 8% or 10% on its convertible
bonds
payable, should PSTS, the Company’s subsidiary in China, fail to achieve
the predetermined earnings threshold as disclosed in Note
12.
|
|
(c)
|
PSTS
is committed to pay a management fee to the government of Republic
of
China of approximately $2,400 per annum for the use of land as disclosed
in Note 8.
|
|
(d)
|
PSTS,
in accordance with its Articles of Incorporation, has to maintain
a
minimum capital of $20,000,000.
|
C
INTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH
31, 2008
AND
2007
(UNAUDITED)
|
(e)
|
The
Company's subsidiary in Korea, Bluecomm, is committed to vehicle
lease
obligations which expire in June, 2010. Future minimum annual payments
(exclusive of tax and insurance) under the lease are as
follows:
|
|
Years
|
|
Amount
|
|
|
2008
|
|
$
|
48,077
|
|
|
2009
|
|
|
64,103
|
|
|
2010
|
|
|
32,052
|
|
|
|
|
$
|
144,232
|
|
|
(f)
|
The
Company’s Korean subsidiary, PDT, has an outstanding commitment under
standby letters-of-credit totaling approximately $5,000,000. This
standby
letter-of-credit was issued on behalf of affiliated companies.
|
Note
20 -
Restatement
of the 2007 Comparative Interim Financial Statements
Restatement
dated June7, 2007
On
further consideration, the Company decided to defer recognition of revenue
for
all sale arrangements that include the credit terms "condition of clearing
from
original buyer", when distributors who used the Company's products in network
installation projects were allowed to pay when their final end users paid them,
until such time as the underlying payment condition has been met.
The
effects of this restatement on the consolidated financial statements for the
period ended
March
31,
2007
with
accountants’ review report dated May 11, 2007 were an increase in revenue from
merchandise from $207,801 to $211,446, from finished goods from $16,298,317
to
$16,484,917, an increase in cost of sales for merchandise from $204,100 to
$207,639, and an increase in cost of sales for finished goods from $16,087,999
to $16,087,999 on the consolidated statements of operations and comprehensive
loss.
ITEM
2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
CinTel
Corp and its subsidiaries (“we,” “us,” or “our”) are a global provider of
semiconductor packaging, display/semiconductor/factory automation related
manufacturing equipments and facilities, and CRM/DBM services. Founded in 1997,
we evolved from being an internet traffic management (“ITM”) solution provider
to a semiconductor-focused company in 2006. We manufacture and supply a broad
range of semiconductor packaging products that address the needs of advanced
electronic devices and products. We also produce standardized equipments that
are utilized for display and semiconductor industries. Our factory automation
related manufacturing facilities provide customized in-line distribution
systems. Our CRM/DBM operation services provide solutions and consulting service
for customer relationship management.
We
have
established relationships with our customers worldwide such as Samsung
Electronics, Hynix Semiconductor, and Fairchild Semiconductor in the
semiconductor industry. Our customers in factory automation and display industry
include Samsung Electronics, Samsung SDI, Samsung Techwin, and Samsung Corning
Precision Glass. Our major customer in the CRM sector includes Pizza Hut
Korea.
We
currently have major operations in China and Korea with a production capacity
increase planned with several expansions of current operations. In the first
half of 2008, we will commence a major production expansion project in China
to
become a more rounded total semiconductor solution provider through the transfer
of new high-end products and product diversification. In addition, we are
currently building a new expanded manufacturing plant in Korea due to the
current expansion of the semiconductor/display equipment and facility industry,
especially in the automated in-line distribution facility sector.
Our
subsidiaries include:
|
|
Phoenix
Semiconductor Telecommunication (Suzhou) located in Suzhou, China
,
provides semiconductor package products in different groups of
Dual, Quad
and BGA.
|
|
|
Phoenix
Digital Tech located in Kyungki-Do, Korea, provides manufacturing
facilities and equipments for LCD, PDP (Plasma Display Panel) and
semiconductor production. UB Precision, a subsidiary of Phoenix
Digital
Tech provides testing products such as LCD/OLED probe stations
for display
and probe card for semiconductor.
|
|
|
Bluecomm
located in Daejeon, Korea, provides solutions for Customer Relationship
Management (CRM) and related total solutions for call center outsourcing
and Home Service Center hosting.
|
|
|
CinTel
Korea located in Seoul, Korea produces and distributes our traditional
base products in the Internet Traffic Management (ITM)
sector.
|
Results
of Operations
(Unit:
USD)
|
|
3/31/2008
|
3/31/2007
|
|
Revenue
|
52,646,919
|
16,697,341
|
|
Cost
of sales
|
50,506,117
|
16,368,549
|
|
Gross
Profit
|
2,140,802
|
328,792
|
|
Expenses
|
4,435,402
|
527,135
|
|
Operating
(Loss)
|
(2,294,600)
|
(198,343)
|
|
Net
(Loss)
|
(2,595,721)
|
(341,237)
|
The
company is in the early stage of operations with its subsidiaries, as a result,
much of the cost of revenue and operating expenses reflected in its consolidated
financial statements are costs based on the integration of the acquired
companies and assets that comprise its operations. Accordingly, the Company
believes that, at the Company’s current stage of operations, period-to-period
comparisons of results of operations are not meaningful.
The
company generated revenues of approximately $52.6 million and approximately
$16.7 million for the first quarter of 2008 and 2007, respectively, which
reflect an increase of approximately $35.9 million, an increase of 215.3%.
The
majority of this increase, as compared to the previous year, resulted from
the
consolidating of the revenue of Bluecomm Co., Ltd (“Bluecomm”), Phoenix Digital
Tech Co., Ltd (“PDT”) our new subsidiaries acquired in May and August 2007,
respectively.
The
gross
revenue of PSTS for the first quarter of 2008 is $20.1 million. PSTS’ revenue is
comprised of its two business divisions: Semiconductor Packaging (“PKG”) $6.4
million and Wafer $13.7 million. PSTS's main products are semiconductor
packaging, NAND flash memory and printed board assembly.
The
gross
revenue of PDT for the first quarter of 2008 including its two subsidiaries
is
$30.8 million. PDT’s revenue is $13.9 million, which is comprised of its four
business divisions: Factory Automation (“FA”) $11.7 million, Scriber (“SR”) $0.2
million, Screen Printer (“SP”) $1.7 million and Automated Optical Inspection
(“AOI”) $0.3 million. The revenue of PDT’s two subsidiaries is $16.9 million,
which is comprised of UB Precision $11.0 million and D-Networks $5.9 million.
PDT’s main customer is Samsung Electronics Corporation, one the largest display
product manufacturers in the world. It specializes in manufacturing facilities,
such as automated facilities for LCD module assembly line, scriber and break
in-line system and automated distribution line facilities.
Bluecomm’s
gross revenue for the first quarter of 2008 is $1.7 million. Bluecomm provides
customer relationship management services for Pizza Hut Korea, which includes
call center operation for customer support.
The
cost
of sales for the first quarter of 2008 and 2007 was $50.5 million and $16.4
million, respectively, an increase of 208.56%, which is primarily attributable
to the increase in revenues. Our gross margins for the first quarter of 2008
and
2007 increased from 2.0% to 4.1%.
Total
expenses for the first quarter of 2008 and 2007 totaled approximately $4.4
million and approximately $0.5 million, respectively, resulting in an increase
of $3.9 million or 741.4 %. The increase in the total expenses was primarily
attributable to the consolidating of each subsidiary’s expenses.
The
operating loss for the first quarter of 2008 and 2007 totaled $2.3 million
and
$0.2 million, respectively. The operating loss for the first quarter of 2008
was
due to the increase in sales of low margin products of PDT and PSTS, which
contribute to the majority of sales and the delayed sales of high margin
products, which are planned after the second quarter of 2008.
The
net
loss for the first quarter of 2008 and 2007 totaled $2.6 million and
$0.3million, respectively. The main reason for the increase in the net loss
for
the first quarter of 2008 is due to the interest expense borne by CinTel for
its
convertible debenture issuance, the interest expense borne by PDT for its bank
loan regarding its plant expansion and the impairment loss on
investment.
In
summary, the company incurred the net loss due to a low operating result from
its subsidiaries. However, the company expects to see the operating profit
in
2008 based on the increased production driven by the plant expansion and the
production line extension of subsidiaries.
LIQUIDITY
AND CAPITAL RESOURCES
As
of
March 31, 2008 our cash balance was $32.8 million compared to $4.9 million
at
March 31, 2007. Total current assets at March 31, 2008 were $143.9 million
compared to $19.0 million at March 31, 2007. We currently plan to use the cash
balance and cash generated from operations for our growth through the
acquisitions of semiconductor manufacturing company and for the investment
of
our subsidiaries on their operation and facility expansion.
For
the
three months ended March 31, 2008, net cash used in operating activities was
$(20.9 million) as compared to $7.0 million for the three months ended March
31,
2007. The decrease in cash used in operating activities can be attributed to
the
increase in the account receivable, inventories and other
receivable.
For
the
three months ended March 31, 2008, net cash used in investing activities was
$(13.9 million), compared to net cash used in investing activities of $(5.6
million) for the three months ended March 31, 2007. The main reason for the
decrease in cash used in investing activities was primarily attributed to the
company’s subsidiaries’ purchasing of property and equipment.
For
the
three months ended March 31, 2008, net cash provided by Financing Activities
was
$33.6 million compared to $(0.8 million) for the three months ended March 31,
2007. The main reason for the increase in cash used in financing activities
was
primarily attributed to the increase of the company’s subsidiaries’ bank loan.
We are growing as a semiconductor group by investing the funds into the
acquisition of semiconductor manufacturing companies. In addition, our
subsidiaries are planning to expand their facilities and plants for their future
growth.
Off-Balance
Sheet Arrangements
We
do not
have any off balance sheet arrangements that are reasonably likely to have
a
current or future effect on our financial condition, revenues, results of
operations, liquidity or capital expenditures.
Significant
Accounting Policies
Basis
of
Consolidation - The merger of the Company and CinTel Korea has been recorded
as
the recapitalization of the Company, with the net assets of the Company brought
forward at their historical basis. The intention of the management of CinTel
Korea was to acquire the Company as a shell company listed on NASDAQ. Management
does not intend to pursue the business of the Company. As such, accounting
for
the merger as the recapitalization of the Company is deemed
appropriate.
Currency
Translation - The Company's functional currency is Korean won. Adjustments
to
translate those statements into U.S. dollars at the balance sheet date are
recorded in other comprehensive income. Foreign currency transactions of the
Korean operation have been translated to Korean Won at the rate prevailing
at
the time of the transaction. Realized foreign exchange gains and losses have
been charged to income in the year.
Investments
- Investments in available-for-sale securities are being recorded in accordance
with FAS-115 "Accounting for Certain Investments in Debt and Equity Securities".
Equity securities that are not held principally for the purpose of selling
in
the near term are reported at fair market value when it is readily determinable,
with unrealized holding gains and losses excluded from earnings and reported
as
a separate component of stockholders' equity.
Allowance
for credit loss
The
allowance for credit losses is management’s estimate of incurred losses in our
customer and commercial accounts receivables. Management performs detailed
review of individual portfolios to determine if impairment has occurred and
to
assess the adequacy of the allowance for credit losses, based on historical
and
current trends and other factors affecting credit losses. When receivables
are
past due for a period exceeding 2 years, a 100% allowance for credit losses
is
established without an individual analysis of the customer. A 100% allowance
for
credit losses is established, in an amount determined to be uncollectible,
for
the customer whom is not discontinuing operations or is facing financial issues
that could result in discontinuance of business based on the assumptions
management believes are reasonably likely to occur in future.
On
December 31, 2007, the allowance for credit losses was $1.9 million of $20.3
million in accounts receivables and on December 31, 2005, the allowance for
credit losses was $1.1 million of $6.8 million of accounts receivables. The
allowance for credit losses in 2007 saw an increase of $0.7 million (66%)
compared to 2006. However, the allowance ratio for credit losses dropped from
16.9% to 9.3% since PDT and PSTS supplied products for large-sized corporations
such as Samsung Electronics and Hynix Semiconductor satisfying their accounts
is
fairly certain. The company expects that the allowance for credit losses will
continually decrease.
Financial
Instruments - Fair values of cash equivalents, short-term and long-term
investments and short-term debt approximate cost. The estimated fair values
of
other financial instruments, including debt, equity and risk management
instruments, have been determined using market information and valuation
methodologies, primarily discounted cash flow analysis. These estimates require
considerable judgment in interpreting market data, and changes in assumptions
or
estimation methods could significantly affect the fair value
estimates.
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 or credit concentration. The Company
maintains cash and cash equivalents with major Korean financial institutions.
The Company's provides credit to its clients in the normal course of its
operations. It carries out, on a continuing basis, credit checks on its clients
and maintains provisions for contingent credit losses which, once they
materialize, are consistent with management's forecasts. For other debts, the
Company determines, on a continuing basis, the probable losses and sets up
a
provision for losses based on the estimated realizable value. Concentration
of
credit risk arises when a group of clients having a similar characteristic
such
that their ability to meet their obligations is expected to be affected
similarly by changes in economic conditions. The Company does not have any
significant risk with respect to a single client.
Recent
Accounting Pronouncements
In
December 2004, the FASB issued a revision to SFAS No. 123, "Share-Based Payment"
(Statement 123). This Statement requires a public entity to measure the cost
of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award (with limited exceptions). That cost
will be recognized over the period during which the employee is required to
provide service in exchange for the award requisite service period (usually
the
vesting period). No compensation cost is recognized for equity instruments
for
which employees do not render the requisite service. Employee share purchase
plans will not result in recognition of compensation cost if certain conditions
are met; those conditions are much the same as the related conditions in
Statement 123. This Statement is effective for public entities that do not
file
as a small business issuers as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005. This Statement applies to
all
awards granted after the required effective date and to awards modified,
repurchased, or cancelled after that date. The cumulative effect of initially
applying this Statement, if any, is recognized as of the required effective
date
and is not expected to have a material impact on the Company's consolidated
financial statements.
In
May
2005, the FASB issued Statement No. 154, Accounting Changes and Error
Corrections - A Replacement of APB Opinion No. 20 and FASB Statement No.
3
(Statement No. 154). Statement No. 154 changes the requirements for the
accounting for and reporting of a change in accounting principle. Statement
No.
154 requires retrospective application of any change in accounting principle
to
prior periods' financial statements. Statement No. 154 is effective for
the
first fiscal period beginning after December 15, 2005. We do not expect
the
implementation of Statement No. 154 to have a significant impact on our
consolidated financial statements.
ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
n/a
ITEM
4T. CONTROLS AND PROCEDURES
As
of the
end of the period covered by this report, we conducted an evaluation, under
the
supervision and with the participation of our chief executive officer and chief
financial officer of our disclosure controls and procedures (as defined in
Rule
13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation,
our chief executive officer and chief financial officer concluded that our
disclosure controls and procedures are effective to ensure that information
required to be disclosed by us in the reports that we file or submit under
the
Exchange Act is: (1) accumulated and communicated to our management, including
our chief executive officer and chief financial officer, as appropriate to
allow
timely decisions regarding required disclosure; and (2) recorded, processed,
summarized and reported, within the time periods specified in the Commission's
rules and forms. There was no change to our internal controls or in other
factors that could affect these controls during our 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.
There
are
no material changes from the risk factors previously disclosed in the
Registrant’s Form 10-K filed on March 31, 2008.
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
|
Exhibit
Number
|
|
Description
|
|
2.1
|
|
Share
Exchange Agreement, dated September 30, 2003, by and among the
Company,
CinTel Co., Ltd, and the shareholders of CinTel Co., Ltd. (Incorporated
by
reference to the Company’s Form 8-K filed with the Securities and Exchange
Commission on September 30, 2003)
|
|
3.1
|
|
Articles
of Incorporation (Incorporated by reference to the Company’s registration
statement on Form SB-2 (File No. 333-100046), filed with the Securities
and Exchange Commission on September 24, 2002)
|
|
3.2
|
|
Certificate
of Amendment to Articles of Incorporation dated April 27, 2001
(Incorporated by reference to the Company’s registration statement on Form
SB-2 (File No. 333-119002), filed with the Securities and Exchange
Commission on September 15, 2004)
|
|
3.3
|
|
Certificate
of Amendment to Articles of Incorporation dated October 21, 2003
(Incorporated by reference to the Company’s annual report on Form 10-KSB
for the fiscal year ended December 31, 2003, filed with the Securities
and
Exchange Commission on April 14, 2004)
|
|
3.4
|
|
Certificate
of Amendment to Articles of Incorporation dated September 13, 2004
(Incorporated by reference to the Company’s registration statement on Form
SB-2 (File No. 333-119002), filed with the Securities and Exchange
Commission on September 15, 2004)
|
|
3.5
|
|
Bylaws
(Incorporated by reference to the Company’s registration statement on Form
SB-2 (File No. 333-100046), filed with the Securities and Exchange
Commission on September 24, 2002)
|
|
4.1
|
|
Standby
Equity Distribution Agreement, dated August 4, 2004, between Cornell
Capital Partners, L.P. and the Company (Incorporated by reference
to the
Company’s registration statement on Form SB-2 (File No. 333-119002), filed
with the Securities and Exchange Commission on September 15,
2004)
|
|
4.2
|
|
$240,000
principal amount Compensation Debenture, due August 4, 2007, issued
to
Cornell Capital Partners, L.P., in connection with the Standby
Equity
Distribution Agreement (Incorporated by reference to the Company’s
registration statement on Form SB-2 (File No. 333-119002), filed
with the
Securities and Exchange Commission on September 15,
2004)
|
|
4.3
|
|
Convertible
Note in the principal amount of $40,000 issued to Sang Yong Oh
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on October 21, 2005)
|
|
4.4
|
|
Convertible
Note in the principal amount of $400,000 issued to Tai Bok Kim
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on October 21, 2005)
|
|
4.5
|
|
Convertible
Note in the principal amount of $9,640 issued to Meung Jun Lee
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on November 21,
2005)
|
|
4.6
|
|
Convertible
Note in the principal amount of $28,930 issued to Jin Yong Kim
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on November 21,
2005)
|
|
4.7
|
|
Convertible
Note in the principal amount of $48,300 issued to Su Jung Jun
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on November 21,
2005)
|
|
4.8
|
|
Convertible
Note in the principal amount of $48,300 issued to Se Jung Oh (Incorporated
by reference to the Company’s Form 8-K filed with the Securities and
Exchange Commission on November 21, 2005)
|
|
4.9
|
|
Convertible
Note in the principal amount of $48,300 issued to Sun Kug Hwang
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on November 21,
2005)
|
|
4.10
|
|
Convertible
Note in the principal amount of $192,864 issued to Woo Young Moon
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on November 21,
2005)
|
|
4.11
|
|
Convertible
Note in the principal amount of $336,000 issued to Joo Chan Lee
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on November 21,
2005)
|
|
4.12
|
|
Convertible
Note in the principal amount of $483,000 issued to Sang Ho Han
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on November 21,
2005)
|
|
4.13
|
|
Convertible
Note in the principal amount of $483,000 issued to Jun Ro Kim
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on November 21,
2005)
|
|
4.14
|
|
Convertible
Note in the principal amount of $483,000 issued to Tai Bok Kim
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on November 21,
2005)
|
|
4.15
|
|
Convertible
Note in the principal amount of $2,082,500 issued to Tai Bok Kim
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on December 20,
2005)
|
|
4.16
|
|
Convertible
Note in the principal amount of $280,000 issued to Joo Chan Lee
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on December 20,
2005)
|
|
4.17
|
|
Convertible
Note in the principal amount of $281,065 issued to Sang Yong Oh
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on December 20,
2005)
|
|
4.18
|
|
Convertible
Note in the principal amount of $246,400 issued to JungMi Lee
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on December 20,
2005)
|
|
4.19
|
|
Convertible
Note in the principal amount of $59,172 issued to Sung Min Chang
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on December 20,
2005)
|
|
4.20
|
|
Convertible
Note in the principal amount of $246,400 issued to Eun Suk Shin
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on December 20,
2005)
|
|
4.21
|
|
Convertible
Note in the principal amount of $492,800 issued to Overnet Co.,
Ltd.
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on December 20,
2005)
|
|
4.22
|
|
Convertible
Note in the principal amount of $98,620 issued to Yeun Jae Jo
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on December 20,
2005)
|
|
4.23
|
|
Convertible
Note in the principal amount of $985,950 issued to Equinox Partners
Inc.
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on December 20,
2005)
|
|
4.24
|
|
Convertible
Note in the principal amount of $788,950 issued to Kei Wook Lee
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on December 20,
2005)
|
|
4.25
|
|
Convertible
Note in the principal amount of $492,800 issued to SeokKyu Hong
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on December 30,
2005)
|
|
4.26
|
|
Convertible
Note in the principal amount of $197,200 issued to Moon Soo Park
(Incorporated by reference to the Company’s Form 8-K filed with the
Securities and Exchange Commission on December 30,
2005)
|
|
10.1
|
|
Securities
Purchase Agreement dated October 17, 2005 by and among CinTel Corp.
and
Sang Yon Oh (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on October 21,
2005)
|
|
10.2
|
|
Securities
Purchase Agreement dated October 17, 2005 by and among CinTel Corp.
and
Tai Bok Kim (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on October 21,
2005)
|
|
10.3
|
|
Securities
Purchase Agreement dated November 17, 2005 by and among CinTel
Corp. and
Meung Jun Lee (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on November 21,
2005)
|
|
10.4
|
|
Securities
Purchase Agreement dated November 17, 2005 by and among CinTel
Corp. and
Jin Yong Kim (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on November 21,
2005)
|
|
10.5
|
|
Securities
Purchase Agreement dated November 17, 2005 by and among CinTel
Corp. and
Su Jung Jun (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on November 21,
2005)
|
|
10.6
|
|
Securities
Purchase Agreement dated November 17, 2005 by and among CinTel
Corp. and
Se Jung Oh (Incorporated by reference to the Company’s Form 8-K filed with
the Securities and Exchange Commission on November 21,
2005)
|
|
10.7
|
|
Securities
Purchase Agreement dated November 17, 2005 by and among CinTel
Corp. and
Sun Kug Hwang (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on November 21,
2005)
|
|
10.8
|
|
Securities
Purchase Agreement dated November 17, 2005 by and among CinTel
Corp. and
Woo Young Moon (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on November 21,
2005)
|
|
10.9
|
|
Securities
Purchase Agreement dated November 17, 2005 by and among CinTel
Corp. and
Joo Chan Lee (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on November 21,
2005)
|
|
10.10
|
|
Securities
Purchase Agreement dated November 17, 2005 by and among CinTel
Corp. and
Sang Ho Han (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on November 21,
2005)
|
|
10.11
|
|
Securities
Purchase Agreement dated November 17, 2005 by and among CinTel
Corp. and
Jun Ro Kim (Incorporated by reference to the Company’s Form 8-K filed with
the Securities and Exchange Commission on November 21,
2005)
|
|
10.12
|
|
Securities
Purchase Agreement dated November 17, 2005 by and among CinTel
Corp. and
Tai Bok Kim (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on November 21,
2005)
|
|
10.13
|
|
Securities
Purchase Agreement dated December 15, 2005 by and among CinTel
Corp. and
Tai Bok Kim (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on December 20,
2005)
|
|
10.14
|
|
Securities
Purchase Agreement dated December 15, 2005 by and among CinTel
Corp. and
Joo Chan Lee (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on December 20,
2005)
|
|
10.15
|
|
Securities
Purchase Agreement dated December 15, 2005 by and among CinTel
Corp. and
Sang Yong Oh (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on December 20,
2005)
|
|
10.16
|
|
Securities
Purchase Agreement dated December 15, 2005 by and among CinTel
Corp. and
JungMi Lee (Incorporated by reference to the Company’s Form 8-K filed with
the Securities and Exchange Commission on December 20,
2005)
|
|
10.17
|
|
Securities
Purchase Agreement dated December 15, 2005 by and among CinTel
Corp. and
Sung Min Chang (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on December 20,
2005)
|
|
10.18
|
|
Securities
Purchase Agreement dated December 15, 2005 by and among CinTel
Corp. and
Eun Suk Shin (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on December 20,
2005)
|
|
10.19
|
|
Securities
Purchase Agreement dated December 15, 2005 by and among CinTel
Corp. and
Overnet Co., Ltd. (Incorporated by reference to the Company’s Form 8-K
filed with the Securities and Exchange Commission on December 20,
2005)
|
|
10.20
|
|
Securities
Purchase Agreement dated December 15, 2005 by and among CinTel
Corp. and
Yeun Jae Jo (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on December 20,
2005)
|
|
10.21
|
|
Securities
Purchase Agreement dated December 15, 2005 by and among CinTel
Corp. and
Equinox Partners Inc. (Incorporated by reference to the Company’s Form 8-K
filed with the Securities and Exchange Commission on December 20,
2005)
|
|
10.22
|
|
Securities
Purchase Agreement dated December 16, 2005 by and among CinTel
Corp. and
Kei Wook Lee (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on December 20,
2005)
|
|
10.23
|
|
Securities
Purchase Agreement dated December 26, 2005 by and among CinTel
Corp. and
SeokKyu Hong (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on December 30,
2005)
|
|
10.24
|
|
Securities
Purchase Agreement dated December 26, 2005 by and among CinTel
Corp. and
Moon Soo Park (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on December 30,
2005)
Distribution
Agreement dated March 15, 2006 among CinTel Corp. and InterSpace
Computers, Inc. (Incorporated by reference to the Company’s Form 8-K filed
with the Securities and Exchange Commission on May 3,
2006)
|
|
10.25
|
|
Convertible
Bonds Subscription Agreement between the Company and Axlon Corporation
dated October 24, 2006 (Incorporated by reference to the Company’s Form
8-K filed with the Securities and Exchange Commission on October
31,
2006)
|
|
10.26
|
|
Convertible
Bonds Subscription Agreement between the Company and Emerging Memory
&
Logic Solutions, Inc. dated October 24, 2006 (Incorporated by reference
to
the Company’s Form 8-K filed with the Securities and Exchange Commission
on October 31, 2006)
|
|
10.27
|
|
Convertible
Bonds Subscription Agreement between the Company and KTB China
Optimum
Fund dated October 24, 2006 (Incorporated by reference to the Company’s
Form 8-K filed with the Securities and Exchange Commission on October
31,
2006)
|
|
10.28
|
|
Convertible
Bonds Subscription Agreement between the Company and STS Semiconductor
& Telecommunications Co. Ltd. dated October 24, 2006 (Incorporated
by
reference to the Company’s Form 8-K filed with the Securities and Exchange
Commission on October 31, 2006)
|
|
10.29
|
|
Stock
Purchase Agreement by and between CinTel Corp and STS Semiconductor
&
Telecommunications Co., Ltd. (Incorporated by reference to the
Company’s
Form 8-K filed with the Securities and Exchange Commission on November
3,
2006)
|
|
10.30
|
|
Stock
Purchase Agreement by and between CinTel Corp. and STS Semiconductor
&
Telecommunications Co. Ltd. (Incorporated by reference to the Company’s
Form 8-K filed with the Securities and Exchange Commission on November
3,
2007)
|
|
10.31
|
|
Convertible
Bonds Subscription Agreement entered into as of March 15, 2007
with
Woori
Private Equity Fund
(Incorporated
by reference to the Company’s Form 8-K filed with the Securities and
Exchange Commission on March 15, 2007)
|
|
10.32
|
|
Share
Subscription Agreement dated August 27, 2007 by and between Phoenix
Digital Tech Co. Ltd. (Incorporated by reference to the Company’s Form 8-K
filed with the Securities and Exchange Commission on August 31,
2007)
|
|
10.33
|
|
Share
Subscription Agreement dated as of October 30, 2007 (Incorporated
by
reference to the Company’s Form 8-K filed with the Securities and Exchange
Commission on November 5, 2007)
|
|
14.1
|
|
Code
of Ethics (Incorporated by reference to the Company’s Form 10-K filed with
the Securities and Exchange Commission on April 17,
2006)
|
|
16.1
|
|
Letter
on change in certifying accountant (Incorporated by reference to
the
Company’s Form 8-K filed with the Securities and Exchange Commission
October 11, 2007)
|
|
21.1
|
|
Subsidiaries
(Incorporated by reference to the Company’s Form 10-K filed with the
Securities and Exchange Commission on March 31, 2008)
|
|
31.1*
|
|
Certification
by Chief Executive Officer, required by Rule 13a-14(a) or Rule
15d-14(a)
of the Exchange Act
|
|
31.2*
|
|
Certification
by Chief Financial Officer, required by Rule 13a-14(a) or Rule
15d-14(a)
of the Exchange Act
|
|
32.1*
|
|
Certification
by Chief Executive Officer, required by Rule 13a-14(b) or Rule
15d-14(b)
of the Exchange Act and Section 1350 of Chapter 63 of Title 18
of the
United States Code
|
|
32.2*
|
|
Certification
by Chief Financial Officer, required by Rule 13a-14(b) or Rule
15d-14(b)
of the Exchange Act and Section 1350 of Chapter 63 of Title 18
of the
United States Code
|
*
Filed
herewith.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date:
May
15, 2008
|
|
|
|
CINTEL
CORP.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Sang Don Kim
|
|
|
|
|
|
Name:
Sang Don Kim
|
|
|
|
|
Title:
Chief Executive Officer
|
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/
Kyo Jin Kang
|
|
|
|
|
|
Name:
Kyo Jin Kang
|
|
|
|
|
Title:
Chief Financial Officer
(Principal
Financial Officer and Principal Accounting Officer)
|
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