UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
  WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2008.
 
OR
 
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION FROM _______ TO ________.
 
COMMISSION FILE NUMBER 000-32427
 
CINTEL CORP.
 
(Exact Name of Registrant as Specified in its Charter)

Nevada
 
52-2360156
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
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 to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No 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 the 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 T
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No T
 
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
 
Indicate by check mark whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes o  No o
 
APPLICABLE ONLY TO CORPORATE ISSUERS
 
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of August 14, 2008, there were 95,300,196 outstanding shares of the Registrant's Common Stock, $0.001 par value.
 
 
CINTEL CORP.
JUNE 30, 2008 QUARTERLY REPORT ON FORM 10-Q
 
TABLE OF CONTENTS
 
 
 
Page
PART I - FINANCIAL INFORMATION
 
 
 
 
 
Item 1. Financial Statements
 
1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation
 
26
Item 3. Quantitative and Qualitative Disclosure About Market Risk
 
29
Item 4T. Controls and Procedures
 
29
 
   
PART II - OTHER INFORMATION
   
 
   
Item 1. Legal Proceedings
 
30
Item 1A. Risk Factors
 
30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
30
Item 3. Defaults Upon Senior Securities
 
30
Item 4. Submission of Matters to a Vote of Security Holders
 
30
Item 5. Other Information
 
30
Item 6. Exhibits
 
30
     
SIGNATURES
 
31
 

PART I
FINANCIAL INFORMATION
 
ITEM 1. FINANCIAL STATEMENTS
 
CINTEL CORP. AND SUBSIDIARIES
CONSOLIDATED INTERIM BALANCE SHEETS
JUNE 30, 2008 AND DECEMBER 31, 2007
(UNAUDITED)
 
ASSETS

           
   
2008
 
2007
 
Current assets:
         
Cash and cash equivalents (Note 2)
 
$
20,967,065
 
$
29,946,476
 
Investments - short-term (Note 6)
   
16,946,500
   
21,073,400
 
Accounts receivable, net (Note 2)
   
28,811,662
   
18,398,559
 
Inventor ies (Note 3)
   
17,298,377
   
14,708,136
 
Loans receivable - current (Note 4)
   
34,680,651
   
9,247,168
 
Prepaid and other current assets   (Note 5)
   
19,159,932
   
15,236,285
 
 
             
Total current assets
   
137,864,187
   
108,610,024
 
 
             
Property, p lant and equipment, net (Note 7)
   
113,642,019
   
100,233,981
 
               
Other assets:
             
Restricted cash
   
-
   
4,802,288
 
Loans receivable, net of current portion (Note 4)
   
447,112
   
1,030,291
 
Investments in securities (Note 6)
   
40,394,439
   
37,503,147
 
Land rights (Note 8)
   
330,848
   
335,299
 
Intangible assets (Note 9)
   
26,271,860
   
28,193,672
 
Security deposits
   
7,582,802
   
7,026,260
 
 
             
Total other assets
   
75,027,061
   
78,890,957
 
 
             
Total assets
 
$
326,533,267
 
$
287,734,962
 
 

The accompanying notes are an integral part of these consolidated financial statements.
 
1
 
CINTEL CORP. AND SUBSIDIARIES
CONSOLIDATED INTERIM BALANCE SHEETS
JUNE 30, 2008 AND DECEMBER 31, 2007
(UNAUDITED)

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
           
   
2008
 
2007
 
Current liabilities:
         
Accounts payable
 
$
30,822,021
 
$
31,589,923
 
Accrued expenses
   
6,558,122
   
3,682,780
 
D eferred revenue
   
4,756,556
   
3,816,078
 
N otes payable, current (Note 10)
   
90,197,049
   
61,383,334
 
Other current liabilities
   
2,418,777
   
314,436
 
 
             
Total current liabilities
   
134,752,525
   
100,786,551
 
 
             
Long- term liabilities:
             
Accrued severance benefits (Note 11)
   
3,853,187
   
5,380,222
 
Notes payable, net of current portion (Note 10)
   
25,853,018
   
29,350,587
 
Convertible debentures (Note 12)
   
121,687,302
   
104,098,920
 
 
             
L ong-term liabilities
   
151,393,507
   
138,829,729
 
 
             
Total liabilities
   
286,146,032
   
239,616,280
 
               
Commitments and contingencies (Note 19):
             
               
Non-controlling interest
   
43,856,573
   
42,503,486
 
 
             
Stockholders' equity (deficit): (Note 14)
             
Common stocks: 300,000,000 shares authorized, par value $0.001 per share, 97,824,896 shares issued and outstanding at June 30, 2008 and December 31, 2007
   
97,824
   
97,824
 
Additional paid -in capital
   
20,293,203
   
20,293,203
 
Cumulative other comprehensive income (loss)
   
(1,664,640
)
 
3,004,141
 
Accumulated deficit
   
(22,195,725
)
 
(17,779,972
)
 
             
Total stockholders’ equity (deficit)
   
(3,469,338
)
 
5,615,196
 
 
             
Total liabilities and stockholders' equity (deficit)
 
$
326,533,267
 
$
287,734,962
 

The accompanying notes are an integral part of these consolidated financial statements.
 
2
 
CINTEL CORP. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF OPERATION S AND COMPREHENSIVE LOSS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(UNAUDITED)
 
   
Three Months
Ended
June 30, 2008
 
Three Months
Ended
June 30, 2007
 
Six Months
Ended
June 30, 2008
 
Six Months
Ended
June 30, 2007
 
Revenues:
                 
Finished goods
 
$
50,297,931
 
$
30,145,254
 
$
100,558,906
 
$
46,630,171
 
Merchandise
   
1,585,805
   
325
   
1,936,619
   
211,771
 
Services
   
1,683,358
   
986,232
   
3,718,488
   
987,210
 
     
53,567,094
   
31,131,811
   
106,214,013
   
47,829,152
 
Cost of revenue:
                         
Finished goods
   
46,815,905
   
28,642,582
   
95,912,677
   
44,803,492
 
Merchandise
   
1,434,083
   
316
   
1,737,765
   
207,955
 
Services 
   
1,013,709
   
620,310
   
2,119,372
   
620,310
 
     
49,263,697
   
29,263,208
   
99,769,814
   
45,631,757
 
                           
Gross profit s
   
4,303,397
   
1,868,603
   
6,444,199
   
2,197,395
 
 
                         
Operating expenses:
                         
General and administrative
expenses
   
4,113,545
   
1,703,890
   
8,262,661
   
2,119,998
 
Research and development
   
-
   
5
   
-
   
10,635
 
Depreciation and amortization
   
182,259
   
111,321
   
468,545
   
211,718
 
 
   
4,295,804
   
1,815,216
   
8,731,206
   
2,342,351
 
                           
Income (l oss) from operations
   
7,593
   
53,387
   
(2,287,007
)
 
(144,956
)
 
                         
Other income (expenses):
                         
Interest income
   
1,095,329
   
132,824
   
1,855,474
   
266,173
 
  Other income expenses
   
(522,786
)
 
-
   
(383,325
)
 
-
 
Net gain (loss) from sale of assets
   
(21,456
)
 
-
   
15,588
   
-
 
Interest expenses  
   
(2,273,560
)
 
(651,948
)
 
(4,145,242
)
 
(905,100
)
Share of loss from equity investment
   
(90,855
)
 
(433,645
)
 
(521,104
)
 
(433,645
)
Net gain from sale of short-term investment
   
65,165
   
-
   
65,165
   
-
 
Amortization of deferred financing fees
   
-
   
(140,273
)
 
-
   
(230,273
)
Foreign currency transaction gain (loss)
   
112,808
   
-
   
(24,927
)
 
-
 
 
   
(1,635,355
)
 
(1,093,042
)
 
(3,138,371
)
 
(1,302,845
)
Los s before income taxes and non-controlling interest
   
(1,627,762
)
 
(1,039,655
)
 
(5,425,378
)
 
(1,447,801
)
                           
Income tax expense (Note 13)
   
(110,622
)
 
(8,313
)
 
(110,952
)
 
(8,313
)
Non-controlling interest
   
(81,648
)
 
(341,163
)
 
1,120,577
   
(274,254
)
     
(192,270
)
 
(349,476
)
 
1,009,625
   
(282,567
)
Net loss
   
(1,820,032
)
 
(1,389,131
)
 
(4,415,753
)
 
(1,730,368
)

(Continued)

The accompanying notes are an integral part of these consolidated financial statements.

3
 
CINTEL CORP. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF OPERATION S AND COMPREHENSIVE LOSS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(UNAUDITED)

(Continued)
 
   
Three Months
Ended
June 30, 2008
 
Three Months
Ended
June 30, 2007
 
Six Months
Ended
June 30, 2008
 
Six Months
Ended
June 30, 2007
 
Other comprehensive income (loss):
                 
Foreign currency trans lation adjustments
   
(6,512,035
)
 
917,356
   
(7,112,133
)
 
869,698
 
  Unrealized loss on investment
   
(62,482
)
 
-
   
(30,312
)
 
-
 
     
(6,574,517
)
 
917,356
   
(7,142,445
)
 
869,698
 
                           
Other comprehensive loss before non-controlling interest
   
(8,394,549
)
 
(471,775
)
 
(11,558,198
)
 
(860,670
)
                           
Foreign currency translation adjustments - Non-controlling interest
   
2,926,298
   
221,046
   
2,473,664
   
217,078
 
                           
Total comprehensive loss
 
$
(5,468,251
)
$
(250,729
)
$
(9,084,534
)
$
(643,592
)
                           
L oss per share - basic and diluted (Note 18)
 
$
(0.02
)
$
(0.02
)
$
(0.04
)
$
(0.01
)
 
                         
Weighted average number of common shares outstanding - basic and diluted
   
97,824,896
   
88,791,563
   
97,824,896
   
88,319,063
 

The accompanying notes are an integral part of these consolidated financial statements.

4
 
CINTEL CORP. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
SIX MONTHS ENDED JUNE 30, 2008  
(UNAUDITED)
 
   
 
 
Common stock
 
 
Additional
paid-in
capital
 
Cumulative
other
comprehensive
income (loss)
 
 
Accumulated
deficit
 
Total
 
 
 
Shares
 
Amount
 
Balance, January 1, 2008
   
97,824,896
 
$
97,824
 
$
20,293,203
 
$
3,004,141
 
$
(17,779,972
)
$
5,615,196
 
                                       
Unrealized loss on investment
   
-
   
-
   
-
   
(30,312
)
 
-
   
(30,312
)
                                       
Foreign currency translation adjustment
   
-
   
-
   
-
   
(4,638,469
)
 
-
   
(4,638,469
)
                                       
Net loss for the period
   
-
   
-
   
-
   
-
   
(4,415,753
)
 
(4,415,753
)
                                       
Balance, June 30, 2008
   
97,824,896
 
$
97,824
 
$
20,293,203
 
$
(1,664,640
)
$
(22,195,725
)
$
(3,469,338
)
 
The accompanying notes are an integral part of these consolidated financial statements.

5
 
CINTEL CORP. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(UNAUDITED)
 

   
2008
 
2007
 
Cash flows from operating activities:
         
Net loss
 
$
(4,415,753
)
$
(1,730,368
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
             
Depreciation
   
468,545
   
2,360,922
 
Bad debt expenses
   
216,293
   
-
 
Amortization of financing fees
   
-
   
230,273
 
Non-controlling interest’s share of loss
   
(1,120,577
)
 
274,254
 
Common stocks issued for consulting services
   
-
   
438,000
 
Share of loss from investment
   
553,274
   
-
 
Net gain on sale of property
   
(15,588
)
 
-
 
(Increase) decrease in assets:
             
Accounts receivable
   
(10,629,396
)
 
(2,780,030
)
Other receivable
   
(4,628,945
)
 
-
 
Inventory
   
(2,590,241
)
 
(1,605,501
)
Prepaid expenses and other assets
   
705,298
   
(415,619
)
Security deposits
   
(556,542
)
 
-
 
Increase (decrease) in liabilities:
             
Accounts payable
   
1,336,439
   
5,074,131
 
Deferred revenue
   
940,478
   
(113,795
)
Accrued expense
   
2,875,342
   
75,740
 
Accrued severance benefits
   
510,471
   
12,547
 
               
Cash provided by (used in) operating activities
   
(16,350,902
)
 
1,820,554
 
 
             
Cash flows from investing activities:
             
Acquisition of investments in securities
   
-
   
(40,107,762
)
Proceeds from disposal of securities held for investment
   
705,421
   
-
 
Acquisition of property and equipment
   
(13,715,746
)
 
(6,670,730
)
Loan receivable
   
(24,850,304
)
 
(1,325,004
)
Acquisition of intangible assets
   
1,781,014
   
(4,055,348
)
Changes in non-controlling interest
   
2,473,664
   
(217,080
)
               
Cash used in investing activities
   
(33,605,951
)
 
(52,375,924
)
               
Cash flows from financing activities:
             
Proceeds from convertible debenture
   
17,588,382
   
75,740,000
 
Proceeds from short and long-term notes
   
37,744,581
   
4,359,103
 
Deferred financing fees
   
-
   
(4,526,472
)
Principal payments of notes payable
   
(14,465,941
)
 
-
 
               
Cash provided by financing activities
   
40,867,022
   
75,572,631
 
 
             
Net increase (decrease) in cash
   
(9,089,831
)
 
25,017,261
 
 
(Continued)

The accompanying notes are an integral part of these consolidated financial statements.
 
6
 
CINTEL CORP. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2008 AND 2007
(UNAUDITED)
 
(Continued)
 
   
2008
 
2007
 
           
Effect of foreign currency translation
   
(4,700,951
)
 
652,620
 
               
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
 
$
20,967,065
 
$
30,006,969
 
 
             
Supplemental Disclosure of Cash Flows Information:
             
Cash paid during the period for:
             
               
Interest
 
$
3,175,026
 
$
462,910
 
               
Income taxes
 
$
110,952
 
$
8,313
 

The accompanying notes are an integral part of these consolidated financial statements.

7
 
C INTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)

Note 1 – Nature of Business

Description of Business

Cintel Corp., formerly 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 acquired Cintel Co. Ltd. (“Cintel Korea”) under a Share Exchange Agreement. In this transaction, the Company obtained 100% of the outstanding voting stock of Cintel Korea, and in return, the shareholders of Cintel Korea received 16,683,300 shares (constituting 82%) of the Company’s common stock. This transaction was a reverse-takeover by Cintel Korea whereby Cintel Korea’s shareholders acquired the control of the Company. Therefore, Cintel Korea in effect has become the parent company for accounting purposes while the Company remains as the nominal parent for Cintel Korea.
 
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 acquired, under an equity purchase agreement, 51% of the equity of Phoenix Semiconductor Telecommunication (Suzhou) Co., Ltd. ("PSTS") for $16,500,000 form STS Semiconductor & Telecommunications Co., Ltd. ("STS"), a Korean company. The purchase was financed by issuing and selling Cintel’s convertible bonds in an aggregating $15,284,295. In the first quarter ended March 2008, the Company contributed additional capital of $4,896,000 to PSTS to proportionately match the additional investment made by the minority shareholders of PSTS.
 
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 electrical components.
 
On May 18, 2007, the Company acquired, under a Share Sale and Purchase Agreement, 220,000 shares (constituting 100%) of the outstanding common stocks of Bluecomm Korea, Co. Ltd. (“Bluecomm”) at the price of 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 acquired, under a Share Purchase Agreement, 50% of the equity of Phoenix Digital Tech Co. Ltd. (“PDT”) for Korean Won 32,500,000,000 (approximately $34,700,000). The purchase was financed by issuing 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.

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.
 
8
 
C INTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)
 
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 of Cintel Korea 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.

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.
 
9
 
C INTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)
 

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 June 30, 2008 , cash and cash equivalents include restricted cash of $670,495 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 $1,518,454 and $1,893,126 as of June 30, 2008 and December 31, 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.

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
 
 
10
 
C INTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)
 
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 June 30, 2008 represents capitalized interest expense and other accumulated costs for the new manufacturing facilities under construction.

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 June 30, 2008 , 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.
 
11
 
CINTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(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.

Reclassifications

Certain reclassifications have been made to the 2007 financial statement presentation to correspond to the current year’s format. Total equity and net income are unchanged due to these reclassifications.

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.
 
12
 
C INTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)
 
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.

Note 3 - Inventories
 
Inventories consist of the following as of:
 
   
June 30, 2008
 
Dec. 31, 2007
 
           
Raw materials
 
$
3,088,287
 
$
3,034,427
 
Work-in-process
   
7,767,110
   
9,119,467
 
Finished goods
   
5,273,294
   
1,433,773
 
Supplies
   
1,169,686
   
1,120,469
 
               
Total
 
$
17,298,377
 
$
14,708,136
 

 
13
 
C INTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)

Note 4 – Loans Receivable
 
Loans receivable from unrelated companies were as follows as of:
 
   
June 30, 2008
 
Dec. 31, 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.
 
$
170,767
 
$
150,000
 
               
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.
   
3,476,334
   
3,846,960
 
               
Note receivable from private companies in Korea including Phoenix Holdings. Loan receivable ($13,374,088) from Phoenix Holdings matures in September 2008.
   
31,046,925
   
-
 
               
Loan receivable from Phoenix M&M, a private company in Korea. 9% interest, payable interest only in quarterly installments. Guaranteed by the shareholders of the debtor. Matures in September 2008.  
   
-
   
5,343,000
 
               
Other short-term loans receivable
   
433,737
   
937,499
 
               
     
35,127,763
   
10,277,459
 
Less: current portion
   
34,680,651
   
9,247,168
 
               
Loan receivable, net of current
 
$
447,112
 
$
1,030,291
 
 
Note 5 – Prepaid Expenses and Other Assets
 
Prepaid expenses and other current assets consist of the following as of:
 
   
June 30, 2008
 
Dec. 31, 2007
 
           
Prepaid expenses
 
$
4,383,417
 
$
1,439,730
 
Receivables from sale of assets
   
327,825
   
5,289,724
 
Advance payments to vendors
   
6,633,868
   
2,004,923
 
Other current assets
   
7,814,822
   
6,501,908
 
               
Total
 
$
19,159,932
 
$
15,236,285
 

 
14
 
C INTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)

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 June 30, 2008 and December 31, 2007 were $ 16,946,500 and $21,073,400, respectively.
 
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 investments in debt and equity securities consist of the following as of June 30:
 
   
June 30, 2008
 
Dec. 31, 2007
 
           
Investment in Cintel Systems Corp.
 
$
448,032
 
$
501,173
 
Convertible Debenture A (STS)
   
11,173,519
   
11,173,519
 
Pheonix Asset Management (fka Global Assets Inc.)
   
9,814,957
   
11,051,513
 
Investment in PluM Tech
   
191,058
   
213,720
 
We-Tech
   
1,266,359
   
1,416,563
 
East Gate
   
1,040,044
   
1,163,405
 
Phoenix Springs
   
2,856,876
   
3,205,800
 
Debt securities - bonds
   
207,672
   
260,291
 
Investment in equity securities held by subsidiaries
   
10,862,628
   
8,383,744
 
Other miscellaneous
   
2,533,294
   
133,419
 
               
Total
 
$
40,394,439
 
$
37,503,147
 
 
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.
 
15
 
C INTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)

Note 7 – Property, Plant and Equipment
 
Property, plant and equipment consist of the following as of:

 
   
June 30, 2008  
   
Dec. 31, 2007
 
               
Land
 
$
27,072,458
 
$
29,508,360
 
Buildings and improvements
   
57,900,393
   
35,598,569
 
Machinery and equipment
   
24,263,446
   
21,843,857
 
Furniture and fixtures
   
12,742,337
   
8,736,692
 
Vehicles
   
608,134
   
740,673
 
Software
   
216,338
   
241,095
 
Small tools
   
667,042
   
680,015
 
     
123,470,148
   
97,349,261
 
               
Less: accumulated depreciation
   
22,030,053
   
19,832,760
 
     
101,440,095
   
77,516,501
 
               
Construction in progress
   
12,201,924
   
22,717,480
 
               
Property and equipment, net
 
$
113,642,019
 
$
100,233,981
 
 
Depreciation expenses for the periods ended June 30, 2008 and 2007 were $ 327,756 and $211,718, 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.
 
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 are summarized as follows as of:

 
   
June 30, 2008
 
Dec. 31, 2007
 
 
 
 
     
Land rights at cost
 
$
369,224
 
$
369,224
 
Less: Accumulated depreciation
   
38,376
   
33,925
 
               
Net carrying amount
 
$
330,848
 
$
335,299
 
 
16
 
C INTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)

Note 9 – Intangible Assets
 
Intangible assets consist of the following as of:
 
   
June 30, 2008
 
Dec. 31, 2007
 
           
Goodwill
 
$
24,910,312
 
$
26,592,993
 
Other intangible assets
   
1,361,548
   
1,600,679
 
               
Net carrying amount
 
$
26,271,860
 
$
28,193,672
 
 
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, and the management determines no significant impairment incurred as of June 30, 2008.

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 June 30, 2008 was $ 140,789 .

Note 10 – Notes Payable
 
Notes payable consist of the following as of:
 

   
June 30, 2008
 
Dec. 31, 2007
 
           
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
 
$ 3,400,000
 
               
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.
   
3,908,064
   
3,027,510
 
               
Note payable to Kong-Sang Bank of China, payable monthly interest only with interest at LIBOR plus 0.5%. The note is unsecured and matures in July 2008.
   
2,292,970
       
               
Note payable to Kong-Sang Bank of China, payable monthly interest only with interest at LIBOR plus 0.6%. The note is unsecured and matures in August 2008.
   
1,090,000
       
               
Note payable to Kong-Sang Bank of China, payable monthly interest only with interest at LIBOR plus 0.48%. The note is unsecured and matures in September 2008.
   
814,576
       
               
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 Min-Seng 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 March 2008.
   
-
   
1,600,000
 
               
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 January 2008.
   
-
   
1,000,000
 
 
17
 
C INTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)
 
     
June 30, 2008  
   
Dec. 31, 2007  
 
               
Notes payable to Hana Bank of Korea, payable monthly interest only, with interest at 7.50% to 8.98%. The notes are secured by real property in Korea and mature on March 2009.
   
2,227,467
   
2,544,691
 
               
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.
   
5,731,752
   
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.
   
477,646
   
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.
   
10,607,484
   
10,797,134
 
               
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.
   
7,642,336
   
4,274,400
 
               
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.
   
7,642,306
   
8,548,800
 
               
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.
   
15,284,672
   
10,686,000
 
               
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.
   
609,443
   
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.
   
11,839,757
   
6,207,858
 
               
Notes payable to Woori Bank, payable monthly interest only. The note is unsecured and matures in January 2009.
   
8,133,190
   
6,473,639
 
               
Notes payable to Industrial Bank of Korea, payable monthly interest only, with interest at 5.84%. The note is matures in 2008.
   
955,292
   
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.
   
4,298,814
   
-
 
               
Notes payable to Woori Bank of Korea, payable monthly interest only, with interest at 7.12%. The note is matures in April 2009.
   
4,776,460
   
-
 
               
Notes payable to Hana Bank of Korea, payable monthly interest only, with interest at 6.65%. The note is matures in 2008.
   
2,388,230
       
               
Notes payable to Korea Exchange Bank of Korea, payable monthly interest only, with interest at 7.72%. The note is matures in May 2008.
   
4,776,460
   
-
 
               
Notes payable to Citi Bank of Korea, payable monthly interest only, with interest at 1.88% to 2.29%. The note is matures in 2008.
   
2,694,441
   
5,229,769
 
               
Loan payable to local government with annual interest rate at 4.75%. The Loan is unsecured and classified as long term debt
   
47,743
   
89,014
 
 
18
 
C INTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)

 
     
June 30, 2008   
   
Dec. 31, 2007  
 
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.
   
2,227,467
   
1,602,900
 
               
Notes payable to Industrial Bank of Korea, payable monthly interest only, with interest at 4.7%. The note is matures in 2009 and 2010.
   
3,821,168
   
4,274,400
 
               
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.
   
2,213,663
   
3,714,454
 
               
Revolving line of credit payable to Merrill Lynch, payable interest and principle at maturity, with interest at LIBOR plus 1.375%. The line is secured by cash deposits and matures at the withdrawal of cash balance.
   
200,000
   
-
 
               
Other long-term notes payable of foreign subsidiaries.
   
5,930,884
   
3,124,499
 
               
Note payable to an unrelated party, bearing no interest. The note is unsecured and due on demand.
   
-
   
2,423,389
 
               
Loan payable to local government with annual principal payment of $10,422, bearing no interest. The loan is unsecured and matures in October 2009.
   
17,782
   
19,197
 
               
     
116,050,067
   
90,733,921
 
Less: current portion
   
90,197,049
   
61,383,334
 
Long-term debt
 
$
25,853,018
 
$
29,350,587
 
 
Following is a summary of principal maturities of notes payable over the next five years:

Years ending December 31,
 
Amount
 
2008
 
$
69,445,696
 
2009
   
35,401,594
 
2010
   
2,306,723
 
2011
   
1,300,828
 
2012 and thereafter
   
7,595,226
 
         
Total
 
$
116,050,067
 
 
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 June 30, 2008 and December 31, 2007 were $ 3,853,187 and $5,380,222, respectively.
 
19
 
C INTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)
 
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.
 
   
June 30, 2008
 
Dec. 31, 2007
 
           
Convertible debenture - A (Cintel)
 
$
15,284,295
 
$
15,284,295
 
Convertible debenture - B (Cintel)
   
64,920,000
   
64,920,000
 
Convertible debenture - C (Cintel)
   
10,820,000
   
10,820,000
 
Convertible debenture - D (PDT)
   
30,663,007
   
13,074,625
 
               
   
$
121,687,302
 
$
104,098,920
 
 
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 June 30, 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.
 
20
 
C INTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)
 
The Company agreed to pledge as security all convertible bonds subscribed by the Company using the proceeds from the debenture. As of June 30, 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.

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.   
21
 
C INTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)

PSTS is exempt from income taxes under the Chinese tax law for the first two profitable tax years. 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 six month ended June 30, 2008 and 2007 are summarized as follows:
 
   
2008
 
2007
 
Current income tax provision:
             
US
 
$
-
 
$
-
 
Foreign taxes of subsidiaries
   
110,952
   
8,313
 
     
110,952
   
8,313
 
               
Deferred income tax provision:
   
-
   
-
 
               
Income tax expense
 
$
110,952
 
$
8,313
 
 

The Company has deferred tax assets (liabilities) as follows as of:


   
June 30, 2008
 
Dec. 31, 2007
 
Research and development expenses amortized over 5 years for tax purposes
 
$
-
 
$
165,207
 
Other timing differences
   
-
   
520,579
 
Net operating loss carryforwards
   
3,096,884
   
2,540,300
 
 
   
3,096,884
   
3,226,086
 
Valuation allowance
   
(3,096,884
)
 
(3,226,086
)
               
$ -
       
$
-
 
 
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.
 
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.
 
22
 
C INTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)
 
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.

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.
 
23
 
C INTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)
 
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 option is outstanding at June 30, 2008 .   

The stock options have not been included in the calculation of the diluted earnings per share as their inclusion would be anti-dilutive.

The following table summarizes the stock option activity during the periods ended June 30:

   
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 June 30, 2008 and 2007 are summarized as follows:


As of :
 
June 30, 2008
 
Dec. 31, 2007
 
Accounts receivable from STS
 
$
1,818,480
 
$
2,060,745
 
Accounts receivable from BKLCD (fka We-Tech)
 
$
1,877,608
 
$
-
 
Accounts receivable from BKLS
 
$
-
 
$
5,966,257
 
Accounts payable to STS
 
$
-
 
$
1,776,307
 
Accounts payable to BKLCD (fka We-Tech)
 
$
-
 
$
1,209,509
 
               
 
Six months ended:
 
June 30, 2008
 
June 30, 2007
 
Sales to STS
 
$
36,810,053
 
$
17,415.354
 
Sales to BKLCD (fka We-Tech)
 
$
1,863,326
 
$
2,288,143
 
Purchase from STS
 
$
1,689,186
 
$
13,819,547
 
Purchase from BKLCD (fka We-Tech)
 
$
-
 
$
2,316,130
 

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.

24
 
C INTEL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2008
(UNAUDITED)
 
Note 16 – Significant Concentration of Sales

For the period ended June 30, 2008 , the Company’s subsidiary in China, PSTS, had a major customer which accounted for about 90% of the PSTS’s total revenue.

For the same period, PDT, a subsidiary in Korea, had three major customers which accounted for about 80% of the PDT’s total revenue.
 
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 six month ended June 30, 2008 and 2007 :

   
2008
 
2007
 
Numerator for basic and diluted earnings per share:
             
Net loss
 
$
(4,415,753
)
$
(1,730,368
)
               
Denominator:
             
Basic and diluted weighted average shares outstanding
   
97,824,896
   
88,316,063
 
               
Basic and diluted loss per share
 
$
(0.04
)
$
(0.01
)

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 $19,163 in 2008. Rent expenses paid for the six months ended June 30, 2008 and 2007 were $40,764 and $26,644, 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.

(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
 
$
32,052
 
2009
   
64,103
 
2010
   
32,052
 
   
$
128,207
 

(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.
 
25
 
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The information in this report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. This Act provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information about themselves so long as they identify these statements as forward looking and provide meaningful cautionary statements identifying important factors that could cause actual results to differ from the projected results. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. Forward-looking statements reflect management's current expectations and are inherently uncertain. Our actual results may differ significantly from management's expectations.

The following discussion and analysis should be read in conjunction with the financial statements and notes thereto included elsewhere in this report and with our annual report on Form 10-K for the fiscal year ended December 31, 2007. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.

OVERVIEW
 
CinTel Corp and its subsidiaries (“we,” “us,” or “our”) are global providers 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 commenced with 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:

o  
Phoenix Semiconductor Telecommunication (Suzhou) located in Suzhou, China , provides semiconductor package products in different groups of Dual, Quad and BGA.
 
o
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.
 
o
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.
 
o
CinTel Korea located in Seoul, Korea produces and distributes our traditional base products in the Internet Traffic Management (ITM) sector.
 
26

Results of Operations

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.

Six months period ended June 30, 2008 compared to the six months ended June 30, 2007.

   
6/30/2008 (US$)
 
6/30/2007 (US$)
 
Revenue
   
106,214,013
   
47,829,152
 
Cost of sales
   
99,769,814
   
45,631,757
 
Gross Profit
   
6,444,199
   
2,197,395
 
Operating Expenses
   
8,731,206
   
2,432,351
 
Operating (Loss)
   
(2,287,007
)
 
(144.956
)
Net (Loss)
   
(4,415,753
)
 
(1,730,368
)
 
The Company generated revenues of approximately $106.2 million and approximately $47.8 million for the first six months of 2008 and 2007, respectively, which reflects an increase of approximately $58.4 million, an increase of 122.1%. The majority of this increase, as compared to the previous year, resulted from the acquisition and consolidation of the revenue of Phoenix Digital Tech Co., Ltd (“PDT”) our newly acquired subsidiary in Aug 2007.

The gross revenue of PSTS for the first six months of 2008 is $38.9 million. PSTS’ revenue is comprised of its two business divisions: Semiconductor Packaging (“PKG”) $12.1 million and Wafer $26.8 million. PSTS's main products are semiconductor packaging, NAND flash memory and printed board assembly.

The gross revenue of PDT for the first six months of 2008 including its two subsidiaries is $64.2 million. PDT’s revenue is $37.2 million, which is comprised of its four business divisions: Factory Automation (“FA”) $30.9 million, Scriber (“SR”) and Semiconductor $6.3 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 six months of 2008 is $3.1 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 six months of 2008 and 2007 was $99.8 million and $45.6 million, respectively, an increase of 218.6%, which is primarily attributable to the acquisition and consolidation of PDT. Our gross margins for the first six months of 2008 and 2007 increased from 4.6% to 6.1%.

Total operating expenses for the first six months of 2008 and 2007 totaled approximately $8.7 million and approximately $2.4 million, respectively, resulting in an increase of $6.4 million or 372.8 %. The increase in the total expenses was primarily attributable to the consolidating of each subsidiary’s expenses.

The operating loss for the first six months of 2008 and 2007 totaled $2.3 million and $0.1 million, respectively.

The net loss for the first six months of 2008 and 2007 totaled $4.4 million and $1.7 million, 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.

Three months period ended June 30, 2008 compared to the three months ended June 30, 2007.

   
6/30/2008 (US$)
 
6/30/2007 (US$)
 
Revenue
   
53,567,094
   
31,131,811
 
Cost of sales
   
49,263,697
   
29,263,208
 
Gross Profit
   
4,303,397
   
1,868,603
 
Operating Expenses
   
4,295,804
   
1,815,216
 
Operating Profit
   
7,593
   
53,387
 
Net (Loss)
   
(1,820,032
)
 
(1,389,131
)
 
27
 
For the three months period ended June 30, 2008 and 2007 revenues totaled approximately $53.6 million and approximately $31.1 million, respectively, which reflects an increase of approximately of $22.4 million. The main reason for the increase in revenue was primarily attributed to the acquisition and consolidation of PDT.

The cost of sales for the three months period ended June 30, 2008 and 2007 was $49.3 million and $29.3 million, respectively, an increase of 168.4%, which is primarily attributable to the acquisition and consolidation of PDT. Our gross margins for the three months period ended June 30, 2008 and 2007 increased from 6.0% to 8.0%.

Total operating expenses for the three months period ended June 30, 2008 and 2007 totaled approximately $4.3 million and approximately $1.8 million, respectively, resulting in an increase of $2.5 million or 236.7 %.

The operating profit with a small amount for the three months period ended June 30, 2008 and 2007 was generated. The net loss for the three months period ended June 30, 2008 and 2007 totaled $1.8 million and $1.4 million, respectively.

LIQUIDITY AND CAPITAL RESOURCES
 
As of June 30, 2008 our cash balance was $20,967,065 compared to $29,946,476 at December 31, 2007. Total current assets at June 30, 2008 were $137,864,187 compared to $108,610,024 at December 31, 2007.

For the six months ended June 30, 2008, net cash used in operating activities was $(16,350,902) as compared to $1,820,554 for the six months ended June 30, 2007. The decrease in cash used in operating activities can be attributed to the increase in the accounts receivable and inventories, and the increase of net loss.
 
For the six months ended June 30, 2008, net cash used in investing activities was $(33,605,951), compared to net cash of $(52,375,924) used in investing activities for the six months ended June 30, 2007. Higher net cash used in investing activities in 2007 was a result of the acquisition of $40,107,062 of investments in securities. Among the investments owned by the Company are $5,000,000 in highly-rated auction rate securities which currently have limited liquidity. The Company is taking steps to monetize such auction rate securities to reduce any effects on short-term liquidity.
 
For the six months ended June 30, 2008, net cash provided by Financing Activities was $40,867,022 compared to $75,572,631 for the six months ended June 30, 2007 as a result of lower net issuances of debt securities in 2008.

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 Losses - 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.
 
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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
 
We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.   
 
ITEM 1A. RISK FACTORS
 
There are no material changes from the risk factors previously disclosed in the Registrant’s Form 10-K filed on December 31, 2007.  
 
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 VOTE OF SECURITY HOLDERS
 
None.
 
ITEM 5 - OTHER INFORMATION
 
None.
 
ITEM 6 - EXHIBITS

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
 
30
 
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: August 14, 2008
 
 
 
CINTEL CORP.
 
 
 
 
By:
/s/ Kwang Hee Lee
 
 
 
Name: Kwang Hee Lee
 
 
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)
 
31
 
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