CHUN CAN CAPITAL GROUP - Annual Report: 2007 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
One) x
| x |
ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
FOR
THE
FISCAL YEAR ENDED DECEMBER 31, 2007
| ¨ |
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
Securities
registered under Section 12(b) of the Exchange Act: None.
Securities
registered under Section 12(g) of the Exchange Act: Common Stock:
None
Indicate
by check mark whether the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act. Yes o No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange
Act. Yes o No x
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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” 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
aggregate market value of the common stock held by non-affiliates of the
registrant, based upon the last sale price of the common stock reported on
the
OTC-Bulletin Board on December 31, 2007 was $9,393,250.
The
number of shares of registrant’s common stock outstanding, as of March 28, 2008
was 97,824,896.
DOCUMENTS
INCORPORATED BY REFERENCE
None.
TABLE
OF CONTENTS
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Page
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PART
I
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||||
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Item
1. Description of Business
|
1 | |||
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Item
1A. Risk Factors
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11 | |||
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Item
2. Properties
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10 | |||
|
Item
3. Legal Proceedings
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10 | |||
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Item
4. Submission of Matters to a Vote of Security Holders
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10 | |||
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PART
II
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||||
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Item
5. Market for Common Equity and Related Stockholder
Matters
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15 | |||
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Item
6. Selected Financial Data
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16 | |||
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Item
7. Management’s Discussion and Analysis or Plan of
Operation
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17 | |||
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Item
7A. Quantitative and Qualitative Disclosures about Market
Risks
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||||
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Item
8. Financial Statements and Supplementary Data
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20 | |||
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Item
9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
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20 | |||
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Item
9A. Controls and Procedures
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20 | |||
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Item
9B. Other Information
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21 | |||
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PART
III
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||||
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Item
10. Directors, Executive Officers, Promoters and Control Persons;
Compliance
With Section 16(a) of the Exchange Act
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21 | |||
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Item
11. Executive Compensation
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23 | |||
|
Item
12. Security Ownership of Certain Beneficial Owners and Management
and
Related Stockholder Matters
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25 | |||
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Item
13. Certain Relationship and Related Transactions
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27 | |||
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Item
14. Principal Accountant Fees and Services
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27 | |||
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Item
15. Exhibits
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27 | |||
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SIGNATURES
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32 | |||
PART
I
ITEM
1. DESCRIPTION OF BUSINESS.
General
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.
Background
CinTel
Corp (formerly Link2 Technologies) was incorporated in the State of Nevada
on
August 16, 1996. The initial business focus was to develop a 3D animation and
digital effects studio that would provide high-end 3D animation and digital
effects to the music video industry.
On
September 30, 2003, Link2 Technologies entered into a definitive Share Exchange
Agreement with CinTel Co., Ltd., a Korean corporation ("CinTel Korea") and
the
shareholders of CinTel Korea. Pursuant to the Share Exchange Agreement, we
acquired 100% of the issued and outstanding capital stock of CinTel Korea in
exchange for 16,683,300 shares of our common stock. CinTel Korea was founded
in
1997 and has provided various Internet Traffic Management solutions to
businesses and consumers. All of the business operations were comprised of
developing, manufacturing and distributing Internet Traffic Management solutions
to businesses and consumers in order to manage and control large
traffic.
CinTel
Korea introduced Korea's first dynamic server load balancer, and has marketed
Internet Traffic Management products since its inception, such as the PacketCruz
(TM) family of products, iCache, i2one, and Proximator. The Internet Traffic
Management solutions are marketed to customers around the world, helping them
improve Internet traffic management, service levels (QOS: Quality of Service),
and the user experience (QOC: Quality of Content).
In
the
last two years CinTel we have shifted our focus from Internet Traffic Management
to becoming a semiconductor and LCD assembly holding company. The company’s
focus has included investments in several high growth subsidiaries and divesting
some non-performing subsidiaries. CinTel now has holdings that directly
manufacture semiconductor packaging, NAND flash memory packaging, LCD assembly,
and testing specialists, as well as provide a solution for memory applications
for home appliances, semiconductor, TFT-LCD application products and Factory
Automation Design.
1
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.
|
Products
We
produce multiple products lines throughout our separate subsidiaries. These
product lines focus mainly on the semiconductor and LCD assembly core product
lines. Our product line includes a number of related and unrelated products
and
services.
Phoenix
Semiconductor Telecommunication Suzhou (“PSTS”)
PSTS
provides products in three main functional divisions. These include all aspects
of semiconductor packaging (“PKG”) including packaging types in these
categories: DIP, SOP, TSSOP, QFP and ETQFP products. Printed Board Assembly
(“PBA”) and Wafer. PSTS's main products also include NAND flash memory
production.
Phoenix
Digital Tech (“PDT”)
Factory
Automation Design (FAD) is a service that allows PDT to create cost effective
production lines for their customer base. PDT designs and implements Automated
Distribution Facilities (ADF) for our customers. These facilities allow reduced
labor costs and quality production of high tech products. Computerized
automation allows for the systems to be produced in a highly controlled and
consistent manner.
PDT
produces Scriber & Break in-line systems, Screen Printer and AOI scanning
systems for enterprise level customers. In a never-ending effort to improve
yield and optimize the wafer manufacturing process, automated optical inspection
(AOI) has become an integral part of semiconductor fabrication. The ability
to
provide both high performance point-to-point motion and extremely smooth
constant velocity scanning moves has enabled PDT to become a leading provider
of
critical motion systems for AOI applications.
PDT’s
subsidiary, UB Precision provides testing products such as LCD/OLED probe
stations for display and probe card for semiconductor.
Bluecomm
Bluecomm
provides customer relationship management services. These services include
running of call centers for full service customer support. Bluecomm also
provides database management and marketing services for customers that allows
customers to outsource all management of these systems. This allows them to
provide detailed marketing and database services to their customers with little
or no internal staffing.
CinTel
Korea
CinTel
Korea produces PacketCruz (TM) iLog which is an automated log data management
and analysis solution. PacketCruz (TM) iLog can be used with iCache to provide
features like automatic log data gathering, management, backup, analysis report
generation, and searching for large sized log data.
PacketCruz
i2one is an automatic network management solution for small and medium-sized
networks. Our packet control technology for the control of a user's packet
includes packet capturing, real-time packet analysis, packet injection and
ARP
masquerading. This packet control technology can be used in the form of gateway
or stand-alone.
CinTel
Korea has additional products and R&D operations that have also been
delegated to our partner firm for everyday operations.
2
Marketing
The
main
driver in marketing of our products is to maintain strong relationships with
our
key customers and channel partners. This allows us to continuously design new
product lines, maintain current product standards and address new industry
concerns in conjunction with their stated goals. At this time a number of our
staff members and executives are former long term employees of our customers.
This allows them to bring to our company the ‘culture’ of our customers and
satisfy their concerns related to management styles.
Our
current customer base is the enterprise level customer with multiple production
lines and long standing production histories. We market directly to them by
being a recognized source of skill sets they need and expect. As many of our
production lines were formerly held by our customers or their competitors it
is
a natural solution for these customers to not only use our services, but to
seek
them out.
Management
is currently reviewing and proposing an effort to market our name brand on
the
outside of finished products for some or all of our key customers. While this
is
in the preliminary stages management believes it will add a strong name brand
recognition factor to our product lines. Management’s goal is to create a brand
name where customers feel more confident with their products when they see
the
CinTel name on their products.
While
we
maintain these strong relationships we are also engaged in promoting our product
lines and services to a wider range of customers. With this in mind, some of
our
subsidiaries, such as PDT, have begun to expand their sales drives towards
new
production lines, expanded capacity, expanded flexibility in production and
extended efforts for industry recognition and inclusion in industry
organizations and conferences. With this in mind, our staff is applying for
multiple recognitions for our product lines and are generating technical
articles for industry publications.
With
regard to our ITM product lines, marketing operations with our distributors
are
handled through our partner firm.
Bluecomm
and our CRM program for Pizza Hut Korea allow us to have an everyday presence
and association with an internationally recognized brand name.
Further,
CinTel and our subsidiaries are currently reviewing an effort to re-brand our
entire holdings. Management believes this will allow us to gain larger name
brand recognition and serve as a marketing tool to create a value-added place
in
the market when our name is attached.
Markets
Semiconductors
serve as the foundation of most complex electronic products. The semiconductor
manufacturing industry has benefited from the proliferation of electronic
products in a variety of applications, ranging from consumer products, such
as
cellular telephones, to high-end commercial electronic products, such as
communications and computer networking equipment. Semiconductors are packaged
from larger wafers produced by third parties of silicon base material purchased
from various suppliers. Each wafer typically consists of multiple
semiconductors, while each wafer contains its own identity consisting of
electrical circuitry etched from core designs to provide an electrical
connection between the components mounted to it.
Products
that utilize semiconductors have high levels of complexity and short life cycles
as original equipment manufacturers continually develop new and increasingly
sophisticated products. We believe these characteristics benefit semiconductor
manufacturers that can assist original equipment manufacturers in bringing
a
product to market faster by providing the engineering expertise, process
controls and execution capabilities to accelerate product development and
quickly proceed to volume production. Manufacturers of complex electronics
products in high-growth markets, including consumer electronics, the computer
and networking industry, medical devices, military contracts, automobiles,
aviation and the telecommunications industry are continually under pressure
to
bring their products to market faster. Management believes the success of these
industries is dependent on, among other things, technological advancements,
demand for a wider variety of product applications, and increasingly powerful
electronic components. CinTel believes that the time-critical and highly complex
nature of the new and emerging markets will further increase the demand for
rapid production of complex semiconductor packaging.
3
CinTel
sees several trends in the semiconductor manufacturing industry and the Factory
Automation Design. These include:
Shorter
Electronic Product Life Cycles.
Rapid
changes in technology are shortening the life cycles of complex electronic
products and reducing the period during which products are profitable, placing
greater pressure on original equipment manufacturers to bring new products
to
market faster. The rapid adoption of innovative electronic products is
heightening the need for original equipment manufacturers to minimize the time
required to advance products from prototype design to product introduction.
We
believe these time-to-market requirements are causing original equipment
manufacturers to increasingly rely on semiconductor manufacturers who have
the
capability to meet the technology demands of compressed product life cycles.
With CinTel’s Factory Automation Design services in house, we are able to
provide that time sensitive and cost effect results to our internal and external
customers.
Increasing
Complexity of Electronic Products. The
increasing complexity of electronic products is driving technological
advancements in semiconductor packaging. Original equipment manufacturers are
continually designing more complex and higher performance electronic products,
which require semiconductors that can accommodate higher speeds and component
densities. We believe that original equipment manufacturers are increasingly
relying upon highly flexible manufacturers who invest in advanced manufacturing
process technologies and sophisticated engineering staff to accelerate product
development.
Poised
for Growth,
With
package being a critical element of the electronics component, the semiconductor
packaging and assembly market is poised for tremendous growth in the future.
The
market is drifting towards array and leading-edge packaging solutions while
continuing to grow more complex and sophisticated. The increase in outsourcing
has further bolstered the growth of the industry. CinTel is investing in
advanced technology and infrastructure to keep abreast of customer’s varying
requirements, thus manufacturing a wide variety of miniaturized packages for
use
in high-speed and high-performance applications.
The
market for CRM services is growing, according to Forrester Research. The market
for CRM software and services will continue to grow, but at a slower pace,
particularly spending on new CRM licenses, according to the Cambridge,
Massachusetts based firm. Total CRM revenues in 2006 will reach $8.4 billion,
up
7% from the year before, and growth will hang steady, averaging 7% per year
and
reaching $10.9 billion by 2010 [cite source]. In contrast, AMR Research, which
included all customer management applications in its study, not just the
historical trio of sales, marketing and service, predicts that the market will
reach $18 billion by 2010 [Forrester Research,
http://searchcrm.techtarget.com/news/article/0,289142,sid11_gci1229901,00.html].
Management
believes much of the new growth will come from the midmarket. Another study
by
New York-based Access Markets International (AMI) found that businesses with
between 100 and 999 employees will spend more than $1 billion on CRM
applications this year. Just 35% of the midmarket is currently using CRM
applications, and spending will grow at a compound annual growth rate of 9%,
according to AMI [Access markets International,
http://www.crmindustry.com/newsletter/102506.htm].
Management
believes that changes
in markets and consumer lifestyle are having a powerful impact on customer
behavior. The overarching result is that consumer are putting greater demands
on
firms in terms of high value products and services provided at the right place
at the right time. As the changes drive the marketplace to become
relationship-based, management believes the only way to maintain market share
is
to realign the companies’ business strategy and become customer centric. Thus,
customer relationship management has become strategically important in
positioning a company in today’s market. CRM solutions, Data Base Management and
telemarketing are all fast-growing businesses in Korean market. Bluecomm has
special expertise in DBM, HSC hosting, and telemarketing business.
The
Market for Internet Traffic Management (ITM) remains stable as enterprise
applications transform from mainframe and client/server applications into
Web-based applications, the demand for improved performance made possible by
Web
caching systems increases. The explosion in multimedia enriched content
available online is also driving this need.
4
Web-based
data on the Internet is increasing at a rate beyond the ability of bandwidth
extension to solve the performance problems created by the sheer volume of
data.
Web caching technology can solve the performance problem, but this technology
must also solve the scalability, security, and manageability of high-traffic
Web
sites.
Distribution
Channels
Our
subsidiary, PSTS, distributes its products directly to its customers who in
turn
distribute the end products to both consumers and enterprise customers through
multiple sources. Order placing and product delivery from distribution center
to
customer are typically completed within the same month.
PDT
distributes their services directly to their enterprise customer base by
creating new production lines for those customers. PDT does not actually produce
traditional products by mass production but instead create custom facilities
for
their customers. Delivery to their customers is usually associated with onsite
creation, but in the cases where the machining is created off base they are
then
delivered directly to the end customer.
Bluecomm
delivers their services to both retail customers for their clients and services
to their client in the form of marketing and research.
CinTel
Korea uses the direct sales team of our partner to cover the Korean market
only,
focusing on the government, large service providers, and global enterprises.
Joint
sales with global and Korean distributors are accomplished in cooperation with
sales partners, through which we maximize our domestic and global sales
opportunities. The sales partners are also called "distributors." Each of them
works within their professional field and helps support our
products.
We
currently have six distributors, for our CinTel Korea ITM products, in the
Korean and US markets: Seoul Commtech Co., Ltd., NetCom Systems Inc.,
SNETsystems Co., Zenlink Co., Ltd., and Hyundai HDS Co., Ltd.
|
Name
of Distributor
|
|
URL
|
|
Area
of Distribution
|
|
Singapore
& Suntze Communications Engineering Pte., Ltd.
|
|
www.suntze.com.sg
|
|
The
Peoples Republic of China
|
|
Canon
System Solutions Co., Ltd
|
|
www.canon-sol.co.jp
|
|
Japan
|
|
Rikei
Corporation
|
|
www.rikei.co.jp
|
|
Japan
|
|
NetSys
Pte., Ltd
|
|
www.netsys.com.sg
|
|
Singapore
|
|
InterSpace
Computers
|
www.interspaceisclou.com
|
USA
|
On
December 5, 2005, we entered into a Distribution Agreement with InterSpace
Computers LLC, whereby interSpace agreed to become a non-exclusive distributor
in the United States for the sale of products in the iCache Series that are
manufactured by us, excluding products manufactured on the basis of Original
Equipment Manufacture (OEM) relationships and/or Contract Manufacture (CM)
relationships with third parties for products not having the CinTel brand name.
Under this Distribution Agreement, we agreed to supply InterSpace with products
upon orders being placed at least three months in advance. Before the three
months prior to the end of each calendar year, Interspace is required to provide
us with an annual forecast covering the next twelve month period. The prices
of
products are subject to mutual agreement by both parties from time to time
during the term of the Distribution Agreement. The term of this Distribution
Agreement is from December 5, 2005 to December 5, 2006 and is automatically
extended for successive one-year periods unless either party gives at least
thirty days prior written notice of its intention not to extend the
agreement.
On
April
26, 2002, we entered into a Distribution Agreement with Suntze Communications
Engineering Pte., Ltd., whereby Suntze Communications agreed to become a
non-exclusive distributor in Singapore and the People's Republic of China for
the sale of products in the iCache Series that are manufactured by us, excluding
products manufactured on the basis of Original Equipment Manufacture (OEM)
relationships and/or Contract Manufacture (CM) relationships with third parties
for products not having the CinTel brand name. Under this Distribution
Agreement, we agreed to supply Suntze Communications with products upon orders
being placed at least three months in advance. Before the three months prior
to
the end of each calendar year, Suntze Communications is required to provide
us
with an annual forecast covering the next twelve month period. The prices of
products are subject to mutual agreement by both parties from time to time
during the term of the Distribution Agreement. The term of this Distribution
Agreement is from April 26, 2002 until April 26, 2004 and is automatically
extended for successive one-year periods unless either party gives at least
thirty days prior written notice of its intention not to extend the
agreement.
5
On
May
24, 2002, we entered into a Distribution Agreement with Sumitomo Metal System
Solutions Co., Ltd. (n/k/a Canon System Solutions Co., Ltd.), whereby Canon
System Solutions agreed to become a non-exclusive distributor in Japan for
the
sale of products in the iCache Series that are manufactured by us, excluding
products manufactured on the basis of Original Equipment Manufacture (OEM)
relationships and/or Contract Manufacture (CM) relationships with third parties
for products not having the CinTel brand name. Under this Distribution
Agreement, we agreed to supply Canon System Solutions with products upon orders
being placed at least three months in advance. Before the three months prior
to
the end of each calendar year, Canon System Solutions is required to provide
us
with an annual forecast covering the next twelve month period. The term of
this
Distribution Agreement is from May 24, 2002 until May 24, 2004 and is
automatically extended for another two years unless either party gives at least
thirty days prior written notice of its intention not to extend the
agreement.
On
May
23, 2001, we entered into a Distribution Agreement with Rikei Corporation,
whereby Rikei Corporation agreed to become a non-exclusive distributor in Japan
for the sale of products in the iCache Series that are manufactured by us,
excluding products manufactured on the basis of Original Equipment Manufacture
(OEM) relationships and/or Contract Manufacture (CM) relationships with third
parties for products not having the CinTel brand name. Under this Distribution
Agreement, we agreed to supply Rikei Corporation with products upon orders
being
placed at least three months in advance. Before the three months prior to the
end of each calendar year, Rikei Corporation is required to provide us with
an
annual forecast covering the next twelve month period. The term of this
Distribution Agreement is from May 23, 2001 until May 23, 2003 and is
automatically extended for another two years unless either party gives at least
thirty days prior written notice of its intention not to extend the
agreement.
On
July
30, 2001, we entered into a Distribution Agreement with NetSys Pte, Ltd.,
whereby NetSys agreed to become a non-exclusive distributor in Singapore and
the
People's Republic of China for the sale of products in the iCache Series that
are manufactured by us, excluding products manufactured on the basis of Original
Equipment Manufacture (OEM) relationships and/or Contract Manufacture (CM)
relationships with third parties for products not having the CinTel brand name.
Under this Distribution Agreement, we agreed to supply NetSys with products
upon
orders being placed at least three months in advance. Before the three months
prior to the end of each calendar year, NetSys is required to provide us with
an
annual forecast covering the next twelve month period. The term of this
Distribution Agreement is from July 30, 2001 until July 30, 2002 and is
automatically extended for successive one-year periods unless either party
gives
at least thirty days prior written notice of its intention not to extend the
agreement.
Research
and Development
We
operate our own Research & Development Team and Technical Support Team. The
R&D Team develops new features in our hardware architecture and cooperates
with major customers in developing facilities or products.
|
Company
|
R&D
Product Description
|
|
|
|
|
|
|
|
|
Bluecomm
|
|
-
Call center system
-
DBM related development and maintenance
|
|
|
|
|
|
|
|
PSTS
|
|
None
at this time
|
|
|
|
|
|
|
|
PDT
|
|
-
Develops new product lines with customers
-
Semiconductor packaging
-
Automated Optical Inspection
|
|
|
CinTel
Korea
|
-
Develops Internet Traffic Management Solutions
-
Logging applications
|
||
6
New
Product Development
We
are
developing new product lines for PSTS. Patents have been applied for on 46
products. Multiple other patents are pending, have been registered with Korea's
national patent bureau. Management believes that the continued research and
development into new and more productive semiconductor and semiconductor
packaging lines will allow our subsidiaries to keep ahead of the curve in the
industry.
Competition
Competition
exists in terms of market penetration rather than in price of technology. With
the high cost of entry into the market few competitors are ready to move into
our sector on a large scale production capacity. PDT has a recognizable
competitive advantage in their ability to design automated lines and fine tune
current lines with factory automation design division. Their ability to act
in
such an aggressive manner to update or create new lines allows them to source
out new capacity needs without the bottleneck of a third party designer for
their lines.
PDT
continues to maintain a competitive advantage with their long term relationship
with Samsung. Their efforts to partner with Samsung in designing new lines
for
the enterprise keep them at the cutting edge of the industry. PDT maintains
an
exclusive contract with Samsung for LCD production that management believes
is a
highly profitable opportunity. Some of their competitors in the Korean market
are Ever Techno, SFA Engineering Corp, K.C. Tech and Jusung
Engineering.
PSTS
as a
former Samsung spinoff has the competitive advantage of maintaining the Samsung
philosophy at their core. They are now in a high growth stage and recognize
the
efforts of competitors to undercut them. However, management believes that
they
have long term relationships that will not be compromised by minimal price
competition. Some of their competitors in the Chinese market are Nantong
Fujitsu, Changjian and Huatian.
Bluecomm’s
CRM services for Pizza Hut Korea might have competitors for Pizza Hut’s business
however, they do not directly have any competition within the CRM services
sector to compete with their contracts for Pizza Hut Korea. This being said,
the
company’s management believes that they will continue to grow in the current
market in relation to Pizza Hut’s corporate results. This will facilitate
expansion opportunities for Bluecomm with our continued expansion of services
for Pizza Hut Korea. Additionally, management believes that there are many
direct and in-direct opportunities to leverage the skill-sets of Bluecomm and
create new revenues and services in the CRM sector.
CinTel
Korea believes that it is a leader in the industry in Korea, as demonstrated
by
the various awards that its products have received. There are two different
types of content caching technologies: first, pure software systems on
general-purpose hardware; and second, dedicated appliances with specialized
software and file systems. The former group consists of products from companies
like Inktomi, Ara Tech, and Microsoft. In the appliance category, the leaders
are Network Appliance, Bluecoat, and Cisco according to industry statistics.
We
have been able to compete with these companies through our competitive product
features, price, and customer service.
Intellectual
Property
We
have
registered patents, registered trademarks and registered service mark with
the
Korean Intellectual Property Office. We also have multiple pending
patent applications with the Korean Intellectual Property Office.
Registered
Patents:
(1)
"Load
Balancer and Content Routing Method by Load Balancer" (Reg. No.:268838) valid
through Nov. 7, 2018.
(2)
"Apparatus and Method for video alarm using wireless telecommunication network"
(Reg. No.: 369426) valid through Mar. 11, 2022.
7
(3)
"System and Method for high availability network" (Reg. No.: 383490) valid
through May. 17, 2020.
(4)
"Palette tilting apparatus for the inspection of backlight unit" (Reg. No.:
10-2007-0135163)
(5)
"Palette for setting up backlight unit" (Reg. No.: 10-2006-0029303)
(6)
"Automated assembly process for backlight unit" (Reg. No.:
10-2006-0029304)
(7)
"Removal apparatus for top and bottom protection film of panel" (Reg. No.:
10-2007-0008975)
(8)
"Apparatus and method for stick detachment" (Reg. No.:
10-2007-0060696)
(9)
"Module and method for tag detachment" (Reg. No.: 10-2007-0060699)
(10)
"Adhesion apparatus for LCD panel protection film" (Reg. No.:
10-2006-0080317)
(11)
"Removal apparatus for panel cover sheet" (Reg. No.:
10-2007-0008773)
Pending
Patent Applications:
(1)
"Method and System for centralized Internet contents translation and delivery"
(Appln. No.: 10-2002-0013646).
(2)
"Operating system and method for pull-typed contents delivery network" (Appln.
No.: 10-2002-0013647).
(3)
"Network connection control system and method of network-connected node at
LAN"
(Appln. No.: 10-2003-0066010).
(4)
"Storage apparatus based on random access memory" (Appln. No.:
10-2003-0098024).
(5)
"Proxy system for online game server systems" (Appln. No.:
10-2005-0113944)
(13)
Removal apparatus for panel cover sheet (Reg. No.: 10-2007-0008773)
Registered
Trademarks:
(1)
"i2one" - logo (Reg. No.: 525665) valid through Jul. 18, 2012
(2)
"PacketCruz" - logo (Reg. No.: 470393) valid through May. 19, 2010
(3)
"PeerTree Connect The Web" - logo (Reg. No.: 552597) valid through Jul. 1,
2013
Governmental
Approvals
We
are
subject to local and global government rules and regulations that affect
business generally. Neither Korea nor the governments in which we market our
products specifically regulate the Internet Traffic Management solutions
markets. Certain government approvals and recognitions, however, can be helpful
and/or necessary in order to access certain government markets.
We
have
been granted the following governmental approvals:
8
(1)
November 1997: Granted as a company for exemption of the military service on
the
R/D researchers (Electrical/Electronics area) by Ministry of Information and
Communication.
(2)
March
2000: Acquisition of the KT Mark (new business made in Korea) with PacketCruz
Redirector, network server clustering technology through dispersion of IP level
packet by Ministry of Science & Technology.
(3)
April
2001: Registered as Korea first Public Procurement Service for an excellent
product (All models of PacketCruz iCache) by Public Procurement
Service.
(4)
December 2002: Awarded the government certification of "Promising Small &
Medium Information-Communication Enterprise by Ministry of Information and
Communication.
(5)
May
2003: Registered as a member of Korea Software Industry Association (KOSA)
authorized by Ministry of Information and Communication.
Product
and Business Awards and Recognitions
We
have
been granted various awards and prizes for our products and for our business
development. The following are a list of our awards to date:
(1)
April
1999: Selected as a small and medium-sized company with promising export
capabilities by Small Business Corporation.
(2)
February 2000: Selected as a small and medium-sized company with excellent
technological competitive power in the field of information communication by
Small and Medium-sized Business Association.
(3)
November 2001: Selected as an INNO-BIZ enterprise by Small and Medium-sized
Business Association.
(4)
December 2001: Won the Grand Prize of the Dream Venture Award by Korea
Technology Guarantee Fund, Korea management Association.
(5)
December 2001: Selected as a superior technology company by Korea Technology
Credit Guarantee.
(6)
January 2002: Won the Grand Prize of the Digital Innovation Award by Hankook
Ilbo, Small and Medium-sized Business Association.
(7)
April
2002: Chosen as an excellent company in technological innovation by Seoul
Economic Daily.
(8)
July
2002: Received an 'A' rating from Federation of Korean Industries Venture
company by The Foundations of Korean Industries.
(9)
August 2002: Certified ISO-9001 approval for Design and Services of Information
Communication Equipment, Internet Traffic Management by International
Organization for Standardization.
(10)
December 2002: Awarded the Grand Prize of International Industrial Co-operation
by The Foundations of Korean Industries and Maeil Economic Daily.
(11)
February 2003: Appointed as Excellent Venture Company by Seoul Economic Daily
in
Korea.
(12)
July
2003: Awarded 2003 Korea High-Quality Emerging Technology Prize by Seoul
Economic Daily.
(13)
November 2003: Awarded the Prime Minister Prize in 2003 Digital Innovation
Awards by Korea Times and Hankook Ilbo.
(14)
June
2004: Awarded "2004 The Best Hit Product of Korean SMB-Venture Companies" (by
Seoul Economic Daily), Started up Memory Disk Solution Business
(SST-V1).
9
(15)
July
2004: Awarded "The 3rd Korea High-quality Emerging Technology Prize" (by Seoul
Economic Daily).
(16)
May
24, 2006: Awarded recognition as “Incredible best small company” by Inc.tank and
Greater Louisville Inc along with Stoll Keenon Ogden.
(17)
August 3, 2007 recognized as “Best Technology Company by TeN (The Greater
Louisville Technology Network).
(18)
March 13, 2008 recognized as “High Impact” growth company by Mayor of Louisville
and High Impact program.
Employees
Set
forth
below are the employees of our various subsidiaries as of December 31, 2007:
PDT
employed 150 full time employees in production, 15 in R&D, 10 in Sales and
50 in administration.
PSTS
employed 648 full time employees in production and 41 in administration.
Bluecomm
employed 73 full time employees and 203 part time employees in the service
section, 3 in R&D/Technical, 6 in marketing and 10 in administration.
CinTel
Korea employed 7 full time employees and 4 part time employees.
At
the
parent level, we employ 8 full time employees and 9 part time employees.
None
of our employees are covered by a collective bargaining agreement. We believe
that relations with our employees are good.
Item
2. Description of Property
We
maintain two corporate offices with the Parent Company. We have lease agreements
with respect to each office. Our U.S. office is located at 9900 Corporate Campus
Drive, Suite 3000, Louisville, Kentucky 40223. We lease the U.S. office for
a
term of one year, which expires on March 31, 2008. The lease agreement for
the
U.S. office requires that we pay $975.00 dollars per month, which includes
use
of office equipment and staff.
Our
Asia
Pacific office is located in Daedong Bldg, 9FL #587-21 Sinsa-dong, Kangnam-gu,
Seoul, Korea 135-892. The lease agreement for the Asia-Pacific office is for
a
term of one year and expires in December 31, 2008. Our monthly lease payment
for
the Asia Pacific office is $4,625 (including 10% VAT).
We
maintain two production facilities. We own the property at each of these
facilities. Our PSTS plant is located in Suzhou, China. The plant is owned
by
the corporation and is considered a manufacturing facility and office. The
building is 226,379 sqft. The land consists of 16.4 acres.
Our
PDT
plant is located in Kyungki-Do, Korea. The plant is owned by the corporation
and
is considered a manufacturing facility and office. The building is 92,514 sqft.
The land consists of 3.76 acres.
We
maintain a corporate call center. This is our Bluecomm building located in
Daejeon, Korea. The building is owned by the corporation and is consider a
service center and office. The building is 28,879 sqft. The land consists of
approximately 0.1 acres.
Item
3. 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.
10
Item
4. Submission of Matters to a Vote of Security Holders.
No
matter
was submitted to a vote of security holders during the fourth quarter of the
fiscal year covered by this report.
ITEM
1A.
RISK FACTORS
This
investment has a high degree of risk. Before you invest you should carefully
consider the risks and uncertainties described below and the other information
in this prospectus. Each of the following risks may materially and adversely
affect our business, results of operations and financial condition. These risks
may cause the market price of our common stock to decline, which may cause
you
to lose all or a part of the money you paid to buy our common stock
RISKS
RELATED TO OUR BUSINESS:
WE
HAVE A HISTORY OF LOSSES WHICH MAY CONTINUE AND WHICH MAY NEGATIVELY IMPACT
OUR
ABILITY TO ACHIEVE OUR BUSINESS OBJECTIVES.
For
the
years ended December 31, 2007 and December 31, 2006, we incurred net losses
of
$8,436,224 and $1,785,861, respectively. As of December 31, 2007 we had a
working capital surplus (current assets less current liabilities) of $7, 823,
473 and an accumulated deficit of $17, 779, 972. There can be no assurance
that
future operations will be profitable. Our failure to increase our revenue
significantly or improve our gross margins will harm our business. Even if
we do
achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis in the future. If our revenue grows more slowly
than we anticipate, our gross margins fail to improve, or our operating expenses
exceed our expectations, our operating results will suffer. The prices we charge
for our products and services may decrease, which would reduce our revenues
and
harm our business. If we are unable to sell our products or services at
acceptable prices relative to our costs, or if we fail to develop and introduce
on a timely basis new products and services from which we can derive additional
revenues, our financial results will suffer.
WE
MAY FAIL TO ANTICIPATE AND ADAPT TO MARKET CHANGES, WHICH COULD IMPAIR OUR
ABILITY TO REMAIN COMPETITIVE AND HARM OUR MARKET SHARE.
Our
success depends in part on our ability to anticipate rapidly changing market
trends, and to adapt our products to meet the changing needs of Internet Traffic
Management technology. Internet Traffic Management technology is characterized
by frequent and often dramatic changes. This environment of rapid and continuous
change presents significant challenges to our ability to develop new products
for our target markets. If we fail to develop, gain access to and use leading
technologies in a cost-effective and timely manner, maintain close working
relationships with current and potential customers and expand our technical
and
design expertise in a manner that meets these changing market needs, we may
lose
our customers to competitors who may better anticipate changing market trends.
If we are unable to compete effectively in the market for Internet Traffic
Management and maintain or increase our market share, our business, financial
condition and operating results could be adversely affected.
11
IF
THE PROTECTION OF OUR INTELLECTUAL PROPERTY RIGHTS IS INADEQUATE, OUR ABILITY
TO
COMPETE SUCCESSFULLY COULD BE IMPAIRED AND WE COULD LOSE CUSTOMERS.
We
regard
our patents, copyrights, trademarks, trade secrets and similar intellectual
property as critical to our success. We rely on a combination of patent,
trademark and copyright law and trade secret protection to protect our
proprietary rights. Nevertheless, the steps we take to protect our proprietary
rights may be inadequate. Detection and elimination of unauthorized use of
our
products is difficult. We may not have the means, financial or otherwise, to
prosecute infringing uses of our intellectual property by third parties.
Further, effective patent, trademark, service mark, copyright and trade secret
protection may not be available in every country in which we will sell our
products and offer our services. We are attempting to sell our products in
countries and continents where we have not been granted patent protection.
It is
possible that in those locations a third party may make an infringing use of
our
technology and compete for the same market. If we are unable to protect or
preserve the value of our patents, trademarks, copyrights, trade secrets or
other proprietary rights for any reason, our business, operating results and
financial condition could be harmed.
Other
parties may assert infringement or unfair competition claims against us. We
cannot predict whether third parties will assert claims of infringement against
us, or whether any future claims will prevent us from operating our business
as
planned. If we are forced to defend against third-party infringement claims,
whether they are with or without merit or are determined in our favor, we could
face expensive and time-consuming litigation, which could distract technical
and
management personnel. If an infringement claim is determined against us, we
may
be required to pay monetary damages or ongoing royalties. Further, as a result
of infringement claims either against us or against those who license technology
to us, we may be required, or deem it advisable, to develop non-infringing
intellectual property or enter into costly royalty or licensing agreements.
Such
royalty or licensing agreements, if required, may be unavailable on terms that
are acceptable to us, or at all. If a third party successfully asserts an
infringement claim against us and we are required to pay monetary damages or
royalties or we are unable to develop suitable non-infringing alternatives
or
license the infringed or similar intellectual property on reasonable terms
on a
timely basis, it could significantly harm our business.
WE
MAY NOT BE ABLE TO DEVELOP THE NEW PRODUCTS THAT WE NEED TO REMAIN COMPETITIVE.
Our
future success depends on our ability to successfully identify new product
opportunities, develop and bring to market new products and integrate new
products and respond effectively to technological changes and product
developments by our competitors. We are currently developing new products,
as
well as new applications of our existing products. However, the complexity
of
our products makes the process of internally researching, developing, launching
and gaining client acceptance of a new product or a new application to an
existing product is inherently risky and costly. We may experience difficulties
that could delay or prevent the successful development, introduction or
marketing of our products and applications. Our products may not adequately
meet
the requirements of our current or prospective customers. Any failure by us
to
successfully design, develop, test and introduce such new products, or the
failure of our recently introduced products to achieve market acceptance, could
prevent us from maintaining existing customer relationships, gaining new
customers or expanding our markets and could have a material adverse effect
on
our business, financial condition and results of operations. Any failure by
us
to accurately predict what competitors will develop and bring to market could
also have a material adverse effect on our performance results.
12
OUR
SUCCESS DEPENDS ON THE CONTINUING SERVICE OF SANG DON KIM, OUR PRESIDENT, CHIEF
EXECUTIVE OFFICER AND SOLE DIRECTOR. IF MR. KIM WERE TO LEAVE, THIS MAY HAVE
A
MATERIAL ADVERSE EFFECT ON OUR OPERATING RESULTS AND FINANCIAL CONDITION.
Changes
in management could have an adverse effect on our business. We are dependent
upon the active participation of Mr. Sang Don Kim, our President, Chief
Executive Officer and sole director. We have not entered into an employment
agreement with Mr. Kim. While Mr. Kim does not have any plans to retire or
leave
our company in the near future, the failure to retain the service of Mr. Kim
could have a material adverse effect on our operating results and financial
performance. We do not maintain key life insurance policies for any of our
executive officers or other personnel.
RISKS
RELATED TO OUR SECURITIES:
THE
ISSUANCE OF SHARES UPON CONVERSION OF THE CONVERTIBLE NOTES INCLUDED IN THIS
PROSPECTUS WILL CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR EXISTING
STOCKHOLDERS AND COULD CAUSE A CHANGE IN CONTROL OF OUR
COMPANY.
OUR
HISTORIC STOCK PRICE HAS BEEN VOLATILE AND THE FUTURE MARKET PRICE FOR OUR
COMMON STOCK IS LIKELY TO CONTINUE TO BE VOLATILE. FURTHER, THE LIMITED MARKET
FOR OUR SHARES WILL MAKE OUR PRICE MORE VOLATILE. THIS MAY MAKE IT DIFFICULT
FOR
YOU TO SELL OUR COMMON STOCK FOR A POSITIVE RETURN ON YOUR INVESTMENT.
The
public market for our common stock has historically been very volatile. During
the past two years and subsequent interim quarterly periods the market price
for
our common stock has ranged from $0.12 to $0.53. Any future market price for
our
shares is likely to continue to be very volatile. This price volatility may
make
it more difficult for you to sell shares when you want at prices you find
attractive. We do not know of any one particular factor that has caused
volatility in our stock price. However, the stock market in general has
experienced extreme price and volume fluctuations that have often been unrelated
or disproportionate to the operating performance of companies. Broad market
factors and the investing public's negative perception of our business may
reduce our stock price, regardless of our operating performance. Further, the
market for our common stock is limited and we cannot assure you that a larger
market will ever be developed or maintained. Market fluctuations and volatility,
as well as general economic, market and political conditions, could reduce
our
market price. As a result, this may make it difficult or impossible for you
to
sell our common stock for a positive return on your investment.
13
OUR
COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE TRADING
MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR STOCK
CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
The
Securities and Exchange Commission has adopted Rule 3a51-1 which establishes
the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions.
For
any transaction involving a penny stock, unless exempt, Rule 15g-9 require:
· that
a
broker or dealer approve a person's account for transactions in penny stocks;
and
· the
broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be
purchased
· in
order
to approve a person's account for transactions in penny stocks, the broker
or
dealer must:
· obtain
financial information and investment experience objectives of the person; and
· make
a
reasonable determination that the transactions in penny stocks are suitable
for
that person and the person has sufficient knowledge and experience in financial
matters to be capable of evaluating the risks of transactions in penny stocks.
The
broker or dealer must also deliver, prior to any transaction in a penny stock,
a
disclosure schedule prescribed by the SEC relating to the penny stock market,
which, in highlight form:
· that
the
broker or dealer received a signed, written agreement from the investor prior
to
the transaction.
Generally,
brokers may be less willing to execute transactions in securities subject to
the
"penny stock" rules. This may make it more difficult for investors to dispose
of
our common stock and cause a decline in the market value of our stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both
the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account
and
information on the limited market in penny stocks.
14
PART
II
ITEM
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Our
common stock is currently quoted on the OTC Bulletin Board under the symbol
CNCN.OB. For the periods indicated, the following table sets forth the high
and
low bid prices per share of common stock. The below prices represent
inter-dealer quotations without retail markup, markdown, or commission and
may
not necessarily represent actual transactions.
|
Fiscal
2007
|
Fiscal
2006
|
Fiscal
2005
|
|||||||||||||||||
|
Quarter
Ended
|
High
|
|
Low
|
|
High
|
|
Low
|
|
High
|
|
Low
|
||||||||
|
March
31
|
$
|
0.46
|
$
|
0.38
|
$
|
0.29
|
$
|
0.14
|
$
|
0.17
|
$
|
0.02
|
|||||||
|
June
30
|
$
|
0.53
|
$
|
0.35
|
$
|
0.18
|
$
|
0.17
|
$
|
0.08
|
$
|
0.02
|
|||||||
|
September
30
|
$
|
0.49
|
$
|
0.24
|
$
|
0.12
|
$
|
0.10
|
$
|
0.05
|
$
|
0.02
|
|||||||
|
December
31
|
$
|
0.40
|
$
|
0.20
|
$
|
0.18
|
$
|
0.16
|
$
|
0.37
|
$
|
0.03
|
|||||||
At
March
28, 2008, the closing price for our common stock was $0.21.
At
March
28, 2008, there were 97,824,896 shares of our common stock issued and
outstanding. There are approximately 417 stockholders of record at March 28,
2008.
The
transfer agent of our common stock is Corporate Stock Transfer, whose address
is
3200 Cherry Creek Drive South, Suite 430, Denver CO 80209. The phone
number of the transfer agent is (303) 282-4800.
We
have
not declared any dividends to date. We have no present intention of paying
any
cash dividends on our common stock in the foreseeable future, as we intend
to
use our assets, if any, to generate growth. The payment by us of dividends,
if
any, in the future, rests within the discretion of our Board of Directors and
will depend, among other things, upon our earnings, our capital requirements
and
our financial condition, as well as other relevant factors. There are no
restrictions in our articles of incorporation or bylaws that restrict us from
declaring dividends
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
EQUITY
COMPENSATION PLAN INFORMATION
The
following table shows information with respect to each equity compensation
plan
under which our common stock is authorized for issuance at December 31, 2007:
|
Plan
category
|
Number
of securities
to
be issued upon
exercise
of
outstanding
options,
warrants
and rights
|
Weighted
average
exercise
price of
outstanding
options,
warrants
and rights
|
Number
of securities
remaining
available for future issuance under equity compensation plans (excluding
securities reflected in column (a)
|
|||||||
|
|
(a)
|
(b)
|
(c)
|
|||||||
|
Equity
compensation plans approved by security holders
|
0
|
0
|
0
|
|||||||
|
|
||||||||||
|
Equity
compensation plans not approved by security
holders
|
0
|
0
|
0
|
|||||||
|
|
||||||||||
|
Total
|
0
|
0
|
0
|
|||||||
15
2004
COMPENSATION PLAN FOR EMPLOYEES AND OUTSIDE CONSULTANTS INCENTIVE STOCK
PLAN
The
2004
Compensation Plan for Employees and Outside Consultants Incentive Stock Plan,
as
amended, (the “Compensation Plan”) has reserved 9,000,000 shares of common Stock
for issuance. The primary purpose of the Compensation Plan is to provide
employees and consultants with compensation for bona fide services rendered
to
the Company. The Compensation Plan is administered by a compensation committee
or such other committee appointed by the Board which shall be designated by
our
Board of Directors to administer the Compensation Plan. If no committees have
been established the Board will administer the Compensation Plan and designate
one member of the Board as the Plan Administrator. All common stock shall be
issued only pursuant to a Common Stock Agreement which shall be executed by
the
Board or Committee and shall contain such terms and conditions as the Board
of
Committee shall determine consistent with the Compensation Plan.
RECENT
SALES OF UNREGISTERED SECURITIES
We
issued
the following equity securities during 2007 that were not registered under
the
Securities Act of 1933, as amended (the "Securities Act").
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, the Company issued 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.
All
of
the above securities were issued pursuant to the exemption from registration
afforded by Section 4(2) of the Securities Act of 1933, as amended.
ITEM
6. SELECTED FINANCIAL DATA
N/A
16
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION.
Forward-Looking
Statements
The
information in this annual report contains forward-looking statements. 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 included herewith. 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.
Results
of Operations
(Unit:
USD)
|
|
12/31/2007
|
|
12/31/2006
|
||||
|
Revenue
|
218,234,855
|
21,134,797
|
|||||
|
Cost
of sales
|
198,779,459
|
20,263,862
|
|||||
|
Gross
Profit
|
19,455,396
|
870,935
|
|||||
|
Expenses
|
24,745,257
|
2,859,145
|
|||||
|
Operating
(Loss)
|
(5,289,861
|
)
|
(1,988,210
|
)
|
|||
|
Net
(Loss)
|
(8,436,224
|
)
|
(1,785,861
|
)
|
|||
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 $218.2 million and approximately
$21.1 million for the fiscal year ended December 31, 2007 and 2006,
respectively, which reflects an increase of approximately $197.1 million, an
increase of 932.6%. The majority of this increase, as compared to the previous
year, resulted from the consolidating of the revenue of Phoenix Digital Tech
Co., Ltd (“PDT”), Bluecomm Co., Ltd (“Bluecomm”) our newly acquired subsidiaries
in 2007, respectively.
The
gross
revenue of PSTS for the fiscal year ended 2007 are $113.6 million in 2007.
PSTS’
revenue is comprised of its three business divisions: Printed Board Assembly
(“PBA”) $31.2 million, Semiconductor Packaging (“PKG”) $30.1 million and Wafer
$51.3 million. PSTS's main products are semiconductor packaging, NAND flash
memory and printed board assembly.
The
gross
revenue of PDT for the fiscal year ended 2007 including its two subsidiaries
are
$97.4 million. PDT’s revenue is $53.9 million, which is comprised of its four
business divisions: Factory Automation (“FA”) $29.8 million, Scriber (“SR”) $7.9
million, Screen Printer (“SP”) $10.2 million and Automated Optical Inspection
(“AOI”) $6.0 million. The revenue of PDT’s two subsidiaries is $43.5 million,
which is comprised of UB Precision $36.2 million and D-Networks $7.3 million.
PDT’s main customer is Samsung Electronics Corporation, one of 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 fiscal year ended 2007 is $6.3 million. Bluecomm provides
customer relationship management services for Pizza Hut Korea, which includes
call center operation for customer support. The gross revenue of CinTel Korea
for the fiscal year ended 2007 is 0.9 million.
17
The
cost
of sales for the fiscal years 2007 and 2006 was $198.7 million and $20.3
million, respectively, an increase of 880.96%, which is primarily attributable
to the increase in revenues. Our gross margins for the fiscal years ended
December 31, 2007 and 2006 increased from 4.1% to 8.9%, since PDT’s gross margin
ratio is relatively high. The gross margin and ratio of PDT, including its
subsidiaries, for the fiscal year 2007 are 13.6 million and 14%, respectively.
The gross margin and ratio of PSTS for the fiscal year 2007 are 3.7 million
and
3.29%, respectively; however, its gross margins for PBA and PKG divisions,
excluding its wafer division with a low gross margin ratio, is
9.4%.
Total
expenses for the fiscal years ended December 31, 2007 and 2006 totaled
approximately $24.7 million and approximately $2.8 million, respectively,
resulting in an increase of $21.8 million or 765.4 %. The increase in the total
expenses was primarily attributable to the consolidating of each subsidiary’s
expenses. In addition, CinTel incurred large expense on the consulting service
with regard to its financing from Woori Private Equity Fund and Korea Culture
Promotion together with Phoenix M&M Corporation. Likewise, PDT incurred its
own expense with regard to its acquisition of subsidiaries.
The
operating loss from fiscal year 2007 and 2006 totaled $5.3 million and $1.9
million, respectively. The operating loss increased in fiscal 2007 as compared
to fiscal 2006 for reasons including a low operating profit of subsidiary,
PDT,
which could have recorded a higher operating profit in 2007 and CinTel’s expense
on the consulting service explained above. PDT’s low operating profit was due to
the operating loss of its subsidiaries and the planned production of its FA
division for 2007 carried forward to the next year. However, the company expects
to see operating profit starting from 2008 since its financing related expense
in 2007 will not incur in 2008, and PDT’s operating profit will move up as the
production of FA division will increase by manufacturing in the expanded
plant.
The
net
loss for fiscal year 2007 and 2006 totaled $8.4 million and $1.8 million,
respectively. The main reason for the increase in the net loss for the fiscal
year ended 2007 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 the expense of financing
and
low operating results from its subsidiaries and their 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
our subsidiaries.
Liquidity
and Capital Resources
As
of
December 31, 2007 our cash balance was $29.9 million compared to $4.3 million
at
December 31, 2006. Total current assets at December 31, 2007 were $113.4 million
compared to $17.1 million at December 31, 2006. 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
fiscal year ended December 31, 2007, net cash used in operating activities
was
$22.5 million as compared to $3.7 million for the fiscal year ended December
31,
2006. The decrease in cash used in operating activities can be attributed to
the
increase in the account receivable, inventories and other
receivable.
For
fiscal year ended December 31, 2007, net cash used in investing activities
was
$120.7 million, compared to net cash used in investing activities of $26.6
million for the fiscal year ended December 31, 2006. The main reason for the
decrease in cash used in investing activities was primarily attributed to the
purchasing of the convertible bond of Kosdaq listed semiconductor manufacturer
in Korea, STS Semiconductor & Telecommunications Co., Ltd., the acquisition
of Bluecomm specializing in CRM and the acquisition of PDT, a semiconductor
/
display manufacturing equipment producer in Korea.
For
the
fiscal year ended December 31, 2007, net cash provided by Financing Activities
was $170.5 million compared to $30.6 million for the fiscal year ended December
31, 2006. The main reason for the increase in cash used in operating activities
was primarily attributed to the issuing of convertible bond to Woori PEF in
the
amount of $65 million and BoKwang Group in the amount of $11 million for
financing. 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.
18
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.
19
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
8. FINANCIAL STATEMENTS.
All
financial information required by this Item is attached hereto at the end of
this report beginning on page F-1 and is hereby incorporated by reference.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
None
ITEM
9A (T). CONTROLS
AND PROCEDURES.
Evaluation
of Disclosure Controls and Procedures
As
of
December 31, 2007, our management our President and our Chief Financial
Officer, evaluated the effectiveness of our disclosure controls and procedures
pursuant to Rule 13a-15(b) promulgated under the Securities Exchange Act of
1934, as amended (the “Exchange Act”). Based upon that evaluation, our President
and our Chief Financial Officer concluded that, as of December 31, 2007,
our disclosure controls and procedures were effective in ensuring that material
information required to be disclosed in the reports that we file or submit
under
the Exchange Act is recorded, processed, summarized and reported within the
time
periods specified in the Securities and Exchange Commission’s rules and forms,
including ensuring that such material information is accumulated and
communicated to our President and our Chief Financial Officer, as appropriate
to
allow timely decisions regarding required disclosure.
20
Changes
in Internal Control Over Financial Reporting
During
the quarter ended December 31, 2007, there were no changes in our internal
control over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
Management’s
Annual Report on Internal Control Over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as such term is defined in Exchange Act Rule
13a - 15(f). Our internal control system was designed to provide reasonable
assurance to our management and the Board of Directors regarding the preparation
and fair presentation of published financial statements. All internal control
systems, no matter how well designed have inherent limitations. Therefore,
even
those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and presentation. Our management
assessed the effectiveness of our internal control over financial reporting
as
of December 31, 2007. In making this assessment, our management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in Internal Control - Integrated Framework - Guidance for
Smaller Public Companies (the COSO criteria). Based on our assessment we believe
that, as of December 31, 2007, our internal control over financial
reporting is effective based on those criteria.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting. Our
management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management's report in this annual
report.
ITEM
9B. OTHER
INFORMATION.
None.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
The
following table sets forth information about our executive officers, key
employees and directors as of March 28, 2008.
|
Name
|
Age
|
Position
|
Date
of Election
Or
Appointment
As
Director
|
|||
|
Sang
Don Kim
|
40
|
President,
Chief Executive Officer and Director
|
7/1997
|
|||
|
JD
Sparks
|
40
|
Executive
Vice President
|
n/a
|
|||
|
Kyo
Jin Kang
|
41
|
Chief
Financial Officer and Principal Accounting Officer
|
n/a
|
|||
|
Sang
Yong Oh
|
45
|
Director
|
7/2006
|
|||
|
Kang
Hee Lee
|
42
|
Director
|
7/2006
|
|||
|
Jung
Ho Kim
|
38
|
Director
|
12/2007
|
Sang
Don
Kim,
President, Chief Executive Officer and Director - Mr. Kim has been President,
Chief Executive Officer and the sole Director of CinTel Korea since July 1997
and has held the same positions with CinTel Corp. since September 30, 2003.
From
July 1994 through July 1996, Mr. Kim was the manager of strategic accounts
and
sales OEM of Hyundai Semiconductor. Mr. Kim is also the administrative director
of Dosan Academy, the director of alumni association of IT College, Korea
University, and an organizing member of Korea Digital Contents Leaders Forum
by
Korea IT Industry Promotion Agency.
21
JD
Sparks,
Executive Vice President - Mr. Sparks has been Executive Vice President of
CinTel Corp since April 2005. He has over 15 years in the IT sector with
positions in multiple roles. As regional supervisor for Microsoft’s marketing
programs in the mid-west and the Atlantic regions, he coordinated the retail
relationships between Microsoft and its partners and built the marketing team
for regional demonstrations through Microsoft’s third party vendor. He has
degrees in marketing, information systems, and Asian/Asian-American studies
from
Loyola University Chicago, as well as a degree in Commercial
Photography.
Kyo
Jin Kang,
Chief
Financial Officer and Principal Accounting Officer - Mr. Kang has been Chief
Financial Officer, Chief Operating Officer and Principal Accounting Officer
of
CinTel Korea since June 2002 and has held the same positions with CinTel Corp.
since September 30, 2003. From March 2001 to June 2002, Mr. Kang was the Chief
Financial Officer of Barun Electronics Company. From November 1992 to March
2001, he worked for Korea Development Leasing Corporation (KDLC), the largest
leasing company in Korea and a joint venture partner with Korea Long-term Credit
Bank (currently, Kookmin Bank), ORIX in Japan, and IFC. During his employment
KDLC, his positions included, senior manager of the CRC Task Force Team,
assistant manager over the non-performing loan management team, assistant
manager over the futures task force team, and officer in the small and medium
size firm lease marketing team and an officer in the treasury
department.
Sang
Yong Oh,
Director - Mr. Oh has served as one of our directors since July 2006. Mr. Oh
currently serves as Vice President of Phoenix Asset Management, an alternative
investment company based in Seoul Korea. From July 2005 through December 2006,
Mr. Oh served as the Director of the Real Estate department of Daetoo Security,
based in Seoul Korea. Mr. Oh served as Senior Manager at Korea Investment
Security, a project financing company, from December 2001 through June 2005.
Mr.
Oh received a Bachelor of Arts degree in Economics and MA in International
Trade
from Sogang University in Seoul Korea. Mr. OH has also completed the PH.D course
in International Trade at Sogang University.
Kwang
Hee Lee,
Director - Mr. Lee has served as one of our directors since July 2006.Mr. Lee
is
the Team Head of the Life Science Investment Team of KTB Network Corp. Me.
Lee
has served in this capacity since 1994. Mr. Lee graduated from the Sogang
University in 1993 with a major in Business Administration. Mr. Lee also holds
a
MA in Finance from the Sogang University.
Jung
Ho Kim,
Director - Mr Kim has served as one of our directors since 2006. Mr Lee is
a
member of Woori PEF and has served in this capacity since 2006. Mr Kim graduated
from Yeonsei University in 1995 with a major in Business Administration. He
is a
certified public accountant in Korea.
22
All
directors hold office until the next annual meeting of stockholders and until
their successors have been duly elected and qualified. There are no agreements
with respect to the election of directors. We do not compensate our directors.
Officers are appointed annually by the Board of Directors and each executive
officer serves at the discretion of the Board of Directors. The Company does not
have any standing committees at this time. There are no family relationships
among any of our directors and executive officers.
No
director, officer, affiliate or promoter of our company has, within the past
five years, filed any bankruptcy petition, been convicted in or been the subject
of any pending criminal proceedings, or is any such person the subject or any
order, judgment or decree involving the violation of any state or federal
securities laws.
Committees
of the Board of Directors
We
do not
have an audit committee or a compensation committee. We intend to form such
committees once we have selected directors who shall meet the audit committee
financial expert requirements under applicable Securities and Exchange
Commission rules and regulations.
Family
Relationships
There
are
no family relationships among our executive officers and directors.
ITEM
11. EXECUTIVE
COMPENSATION.
The
following table summarizes all compensation recorded by us in each of the last
two completed fiscal years for our principal executive officer, each other
executive officer serving as such whose annual compensation exceeded $100,000
and up to two additional individuals for whom disclosure would have been made
in
this table but for the fact that the individual was not serving as an executive
officer of our company at December 31, 2007.
|
Name
and
Principal
Position
|
Year
|
Compensation
($)
|
Bonus
($)
|
Stock
Awards ($)
|
Option
Awards ($)
|
Non-Equity
Incentive Plan Compensation ($)
|
Change
in Pension Value and Non-Qualified Deferred Compensation Earnings
($)
|
All
Other Compensation ($)
|
Total
($)
|
|||||||||||||||||||
|
Sang
Don Kim,
President,
Chief Executive Officer and Director
|
2006
2007
|
120,000
170,000
|
0
0
|
0
0
|
0
0
|
0
0
|
0
0
|
0
0
|
120,000
170,000
|
|||||||||||||||||||
Outstanding
Equity Awards at Fiscal Year-End Table.
The
following table sets forth information with respect to grants of options to
purchase our common stock to the named executive officers at December 31,
2007.
23
|
Option
Awards
|
Stock
Awards
|
|||||||||||||||||||||||||||
|
Name
|
Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable
|
Number of
Securities
Underlying
Unexercised
Options
(#) Unexercisable
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number of Shares or Units of Stock That Have Not
Vested
(#)
|
Market Value of Shares or Units of Stock That Have Not
Vested
($)
|
Equity
Incentive
Plan
Awards: Number of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
(#)
|
Equity Incentive
Plan
Awards:
Market
or Payout
Value
of
Unearned
Shares,
Units or
Other
Rights
That
Have
Not
Vested
($)
|
|||||||||||||||||||
|
Sang
Don Kim,
President,
Chief Executive Officer and Director
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||||||||||||
Director
Compensation
The
following table sets forth with respect to the named directors, compensation
information inclusive of equity awards and payments made for the fiscal year
ended December 31, 2007.
|
Name
|
Fees
Earned or Paid in Cash ($) (b)
|
|
Stock
Awards ($)
(c)
|
|
Option
Awards
($) (d)
|
|
Non-Equity
Incentive Plan Compensation ($) (e)
|
|
Change
in Pension Value and Nonqualified Deferred Compensation Earnings
(f)
|
|
All
Other Compensation ($) (g)
|
|
Total
($) (h)
|
|||||||||
|
Sang
Don Kim
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||||||||
|
Sang
Yong Oh
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||||||||
|
Kang
Hee Lee
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||||||||
|
Jung
Ho Kim
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|||||||||||||||
24
Code
of Business Conduct and Ethics
We
have
adopted a Code of Ethics and Business Conduct that applies to our executive
officers, directors and employees, which is filed as Exhibit 14.1 to this Form
10-K. Upon request, we will provide to any person without charge a copy of
our
Code of Ethics. Any such request should be made to Attn: Secretary, CinTel
Corp., 9900 Corporate Campus Drive, Suite 3000, Louisville, KY 40223. We are
in
the process of building a section of our Web site at www.cintelcorp.com where
our Code of Ethics will be available to investors.
Item
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth certain information, as of March 28, 2008 with
respect to the beneficial ownership of the outstanding common stock by (i)
any
holder of more than five (5%) percent; (ii) each of the named executive
officers, directors and director nominees; and (iii) our directors, director
nominees and named executive officers as a group. Except as otherwise indicated,
each of the stockholders listed below has sole voting and investment power
over
the shares beneficially owned.
|
Name
of Beneficial Owners
|
Common
Stock
Beneficially
Owned (1)
|
|
Percentage
of
Common
Stock (1)
|
|
|||
|
Sang
Don Kim
|
5,444,280
|
5.57
|
%
|
||||
|
3-105
Sampung Apt
|
|||||||
|
1685,
Seocho-dong,
Seocho-gu
|
|||||||
|
Seoul,
Korea
|
|||||||
|
Kyo
Jin Kang
|
-
|
0.00
|
%
|
||||
|
5-301
Daelim Apt
695
Sanggae-dong, Noweon-gu
|
|||||||
|
Seoul,
Korea
|
|||||||
|
Sang
Yong Oh
|
1,803,043
|
1.84
|
%
|
||||
|
8-906
Hannam Height Apt
|
|||||||
|
Oksu-dong
Sungdong-gu
|
|||||||
|
Seoul,
Korea
|
|||||||
|
Kang
Hee Lee
|
-
|
0.00
|
%
|
||||
|
113-102
Samsung Apt
843,
Shindang-dong, Jung-gu
Seoul,
Korea
|
|||||||
|
Jung
Ho Kim
|
-
|
0.00
|
%
|
||||
|
203-1702
Samsung Apt
Shinkongduk-dong
Mapo-gu
Seoul,
Korea
|
|||||||
|
Joung
Min Han.
|
6,900,000
|
7.05
|
%
|
||||
|
709-2,
Mokdong 2nd Sungwon Apt. 101-1604,
|
|||||||
|
Mok3-dong,
Yangchon-gu,
|
|||||||
|
Seoul,
Korea
|
|||||||
|
Tai
Bok Kim
|
19,400,000
|
19.83
|
%
|
||||
|
Lotte
Castle Forest 905 ho, #844-27
|
|||||||
|
Bangbae
4 dong, Seocho-Gu
|
|||||||
|
Seoul,
Korea
|
|||||||
25
|
KTB
Network Co., Ltd.
|
4,305,570
(2
|
)
|
4.4
|
%
|
|||
|
KTB
Networks B/D
|
|||||||
|
826-14,
Yeoksam-dong
|
|||||||
|
Kangnam-gu,
Seoul, Korea
|
|||||||
|
KTB
China Optimum Fund
|
10,000,000
(3
|
)
|
9.27
|
%
|
|||
|
6th
Floor KTB B/D
|
|||||||
|
826-14
Yeoksam-dong, Kangnam-gu
|
|||||||
|
Seoul,
Korea
|
|||||||
|
STS
Semiconductor & Telecommunication Co.,Ltd
|
10,000,000
(4
|
)
|
9.27
|
%
|
|||
|
Baek-suk-dong,
Cheonan-City
|
|||||||
|
Chungnam-do,
Korea
|
|||||||
|
EMERGING
MEMORY & LOGIC Solution Inc.,
|
6,341,154
(5
|
)
|
6.09
|
%
|
|||
|
#844-274th
Floor, Jeju Construction and Financial Cooperative, 301-1
|
|||||||
|
Yeon-dong,
Jeju-si,
|
|||||||
|
Jeju-do,
Korea
|
|||||||
|
Woori
PEF
|
92,742,857
(6
|
)
|
48.67
|
%
|
|||
|
20Floor,
Youngpoong Bldg.
33
Seorin-dong, Chongno-gu
Seoul,
Korea
|
|||||||
|
Korea
Culture Promotion
|
7,728,571
(7
|
)
|
7.32
|
%
|
|||
|
2Floor,
Duwon Bldg.
503-5,
Sinsa-dong, Gangnam-gu
Seoul,
Korea
|
|||||||
|
Phoenix
M&M
|
7,728,571(8
|
)
|
7.32
|
%
|
|||
|
180
Unyong-ri, Dunpo-myun
Asan,
Chungchoengnam-do, Korea
|
|||||||
|
All
named executive officers and directors as a group (5
persons)
|
7,247,323
|
7.4
|
%
|
|
(1)
|
Applicable
percentage ownership is based on 97,824,896 shares of common stock
outstanding as of March 24, 2008, together with securities exercisable
or
convertible into shares of common stock within 60 days of March 24,
2008
for each stockholder. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission and generally
includes voting or investment power with respect to securities. Shares
of
common stock that a person has the right to acquire beneficial ownership
of upon the exercise or conversion of options, convertible stock,
warrants
or other securities that are currently exercisable or convertible
or that
will become exercisable or convertible within 60 days of March 24,
2008
are deemed to be beneficially owned by the person holding such securities
for the purpose of computing the percentage of ownership of such
person,
but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.
|
|
(2)
|
KTB
Network Co., Ltd. is a publicly listed company on the KOSDAQ. Mr.
Kwon,
Sung Moon, the President and Chief Executive Officer of KTB Network
Co.,
Ltd., has investment and voting control over the securities beneficially
owned by KTB Network Co., Ltd.
|
|
(3)
|
Represents
shares of common stock issuable upon conversion of $5,000,000 principal
amount of convertible notes with a conversion price of $0.50 per
share.
|
|
(4)
|
Represents
shares of common stock issuable upon conversion of $5,000,000 principal
amount of convertible notes with a conversion price of $0.50 per
share.
|
26
|
(5)
|
Represents
shares of common stock issuable upon conversion of $3,170,577 principal
amount of convertible notes with a conversion price of $0.50 per
share.
|
|
(6)
|
Represents
shares of common stock issuable upon conversion of $64,920,000 principal
amount of convertible notes with a conversion price of $0.70 per
share.
|
|
(7)
|
Represents
shares of common stock issuable upon conversion of $5,410,000 principal
amount of convertible notes with a conversion price of $0.70 per
share.
|
|
(8)
|
Represents
shares of common stock issuable upon conversion of $5,410,000 principal
amount of convertible notes with a conversion price of $0.70 per
share.
|
ITEM
13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS.
The
company does not have any transactions since the beginning of the Company’s last
fiscal year or any currently proposed transaction in which the Company was
or is
a participant and the amount involved exceeds the lesser of $120,000 or one
percent of the average of the Company’s total assets at year end for the last
two completed fiscal year.
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES.
AUDIT
FEES
The
aggregate fees billed for professional services rendered by our principal
accountants for the audit of our financial statements, for the reviews of the
financial statements included in our annual report on Form 10-KSB, and for
other
services normally provided in connection with statutory filings were $104,800
and $54,223 for the years ended December 31, 2007 and December 31, 2006,
respectively.
AUDIT-RELATED
FEES
We
did
not incur fees for professional services rendered by our principal accountants
that are reasonably related to the performance of the audit or review of our
financial statements and not included in "Audit Fees" during 2007 and
2006.
ALL
OTHER FEES
We
did
not incur any fees for other professional services rendered by our principal
accountants during 2007 and 2006.
AUDIT
COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
The
board
of directors acts as the audit committee, and consults with respect to audit
policy, choice of auditors, and approval of out of the ordinary financial
transactions.
ITEM
15. EXHIBITS.
|
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)
|
|
27
|
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)
|
|
28
|
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)
|
29
|
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) | |
| 10.25 | 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) |
30
| 10.26 | 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) | |
| 10.27 | 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) | |
| 10.28 | 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) | |
|
10.29
|
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)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
|
|
|
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.
31
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 on March 31, 2008.
|
|
|
|
CinTel
Corp.
|
||
|
|
|
|
|
||
|
|
|
|
|
||
|
|
By:
|
/s/
Sang Don Kim
|
|||
|
|
|
Sang
Don Kim
|
|||
|
|
|
President,
Chief Executive Officer
|
|||
|
|
|
and
Director (Principal Executive Officer)
|
|||
|
|
|
|
|||
|
|
By:
|
/s/
Kyo Jin Kang
|
|||
|
|
|
|
Kyo
Jin Kang
|
||
|
|
|
|
Chief
Financial Officer
(Principal
Financial and Accounting Officer)
|
||
Pursuant
to the requirements of the Securities Act of 1933, this registration statement
has been signed by the following persons in the capacities and on the date
indicated:
|
Signature
|
Title
|
Date
|
||
|
/s/
Sang Don Kim
|
President,
Chief Executive Officer and Director
|
March
31, 2008
|
||
|
Sang
Don Kim
|
||||
|
/s/
Kyo Jin Kang
|
Chief
Financial Officer
|
March
31, 2008
|
||
|
Kyo
Jin Kang
|
||||
|
/s/
Sang Yong Oh
|
Director
|
March
31, 2008
|
||
|
Sang
Yong Oh
|
||||
|
/s/
Kang Hee Lee
|
Director
|
March
31, 2008
|
||
|
Kang
Hee Lee
|
32
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
|
CONTENTS
|
PAGE
|
|||
|
Report
of Independent Registered Public Accounting Firm - 2007
|
F-2
|
|||
|
Report
of Independent Registered Public Accounting Firm - 2006
|
F-3
|
|||
|
Financial
Statements:
|
||||
|
Consolidated
Balance Sheets
|
F-4
|
|||
|
Consolidated
Statements of Operations and Comprehensive Loss
|
F-6
|
|||
|
Consolidated
Statements of Stockholders’ Equity
|
F-8
|
|||
|
Consolidated
Statements of Cash Flows
|
F-9
|
|||
|
Notes
to Consolidated Financial Statements
|
F-11
- F-32
|
|||
F-1
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders of
Cintel
Corp. and Subsidiaries
We
have
audited the accompanying consolidated balance sheet of Cintel
Corp. and Subsidiaries (a
Nevada
corporation, the "Company") as of December 31, 2007, and the related
consolidated statements of operations and comprehensive loss, stockholders'
equity, and cash flows for the year ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The Company is
not
required to have, nor were engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control
over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
as
of December 31, 2007, and the results of its operations and its cash flows
for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America.
Los
Angeles, California
March
14,
2008
F-2
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the
Board of Directors and Stockholders of
of
Cintel
Corp.:
We
have
audited the accompanying consolidated balance sheet of Cintel
Corp. and Subsidiaries as
of
December 31, 2006, and the related consolidated statements of operations and
comprehensive income, stockholders' equity, and cash flows for the year ended.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company
as
of December 31, 2006, and the results of its operations and its cash flows
for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America.
Toronto,
Canada
March
28,
2007 except as to Note 20
which
is
as of June 7, 2007
F-3
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2007 AND 2006
ASSETS
|
Restated
(Note
20)
|
|||||||
|
2007
|
2006
|
||||||
|
Current
assets:
|
|||||||
|
Cash
and cash equivalents (Note 2)
|
$
|
29,946,476
|
$
|
4,337,088
|
|||
|
Investments
- short-term (Note 6)
|
21,073,400
|
-
|
|||||
|
Accounts
receivable, net (Note 2)
|
18,398,559
|
5,620,693
|
|||||
|
Inventories
(Note 3)
|
14,708,136
|
5,654,590
|
|||||
|
Loans
receivable - current (Note 4)
|
9,247,168
|
430,000
|
|||||
|
Prepaid
and other current assets (Note 5)
|
15,236,285
|
1,068,624
|
|||||
|
|
|||||||
|
Total
current assets
|
108,610,024
|
17,110,995
|
|||||
|
|
|||||||
|
Property,
plant and equipment, net (Note 7)
|
100,233,981
|
25,977,243
|
|||||
|
Other
assets:
|
|||||||
|
Restricted
cash
|
4,802,288
|
-
|
|||||
|
Loans
receivable, net of current portion (Note 4)
|
1,030,291
|
-
|
|||||
|
Investments
in securities (Note 6)
|
37,503,147
|
1,964,466
|
|||||
|
Intangible
assets (Note 9)
|
28,193,672
|
7,740,271
|
|||||
|
Security
deposits
|
7,026,260
|
-
|
|||||
|
Land
rights (Note 8)
|
335,299
|
356,172
|
|||||
|
|
|||||||
|
Total
other assets
|
78,890,957
|
10,060,909
|
|||||
|
|
|||||||
|
Total
assets
|
$
|
287,734,962
|
$
|
53,149,147
|
|||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-4
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
DECEMBER
31, 2007 AND 2006
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
Restated
(Note
20)
|
|||||||
|
2007
|
2006
|
||||||
|
Current
liabilities:
|
|||||||
|
Accounts
payable
|
$
|
31,589,923
|
$
|
8,164,357
|
|||
|
Accrued
expenses
|
3,682,780
|
-
|
|||||
|
Deferred
revenue
|
3,816,078
|
113,793
|
|||||
|
Notes
payable, current (Note 10)
|
61,383,334
|
11,112,570
|
|||||
|
Other
current liabilities
|
314,436
|
-
|
|||||
|
|
|||||||
|
Total
current liabilities
|
100,786,551
|
19,390,720
|
|||||
|
|
|||||||
|
Long-term
liabilities:
|
|||||||
|
Accrued
severance benefits (Note 11)
|
5,380,222
|
97,404
|
|||||
|
Notes
payable, net of current portion (Note 10)
|
29,350,587
|
4,877,188
|
|||||
|
Convertible
debentures (Note 12)
|
104,098,920
|
15,284,295
|
|||||
|
|
|||||||
|
Long-term
liabilities
|
138,829,729
|
20,258,887
|
|||||
|
|
|||||||
|
Total
liabilities
|
239,616,280
|
39,649,607
|
|||||
|
Non-controlling
interest
|
42,503,486
|
8,726,492
|
|||||
|
|
|||||||
|
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 87,619,896 shares issued and outstanding,
respectively
|
97,824
|
87,619
|
|||||
|
Additional
paid-in capital
|
20,293,203
|
14,319,408
|
|||||
|
Treasury
stock
|
-
|
(5,630
|
)
|
||||
|
Accumulated
other comprehensive income (loss)
|
3,004,141
|
(170,806
|
)
|
||||
|
Accumulated
deficit
|
(17,779,972
|
)
|
(9,457,543
|
)
|
|||
|
|
|||||||
|
Total
stockholders' equity
|
5,615,196
|
4,773,048
|
|||||
|
|
|||||||
|
Total
liabilities and stockholders' equity
|
$
|
287,734,962
|
$
|
53,149,147
|
|||
The
accompanying notes are an integral part of these
consolidated financial statements.
F-5
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATION AND COMPREHENSIVE LOSS
YEARS
ENDED
DECEMBER
31, 2007
AND 2006
|
2007
|
Restated
(Note
20)
2006
|
||||||
|
Revenues:
|
|||||||
|
Finished
goods
|
$
|
208,142,199
|
$
|
16,210,675
|
|||
|
Merchandise
|
2,747,652
|
4,785,720
|
|||||
|
Services
|
7,345,004
|
138,402
|
|||||
|
218,234,855
|
21,134,797
|
||||||
|
Cost
of revenue:
|
|||||||
|
Finished
goods
|
191,819,888
|
15,936,096
|
|||||
|
Merchandise
|
2,641,869
|
4,327,766
|
|||||
|
Services
|
4,317,702
|
-
|
|||||
|
198,779,459
|
20,263,862
|
||||||
|
Gross
profits
|
19,455,396
|
870,935
|
|||||
|
|
|||||||
|
Operating
expenses:
|
|||||||
|
General
and administrative expenses
|
23,519,649
|
2,568,989
|
|||||
|
Research
and development
|
-
|
19,045
|
|||||
|
Depreciation
and amortization
|
1,225,608
|
271,111
|
|||||
|
|
24,745,257
|
2,859,145
|
|||||
|
Loss
from operations
|
(5,289,861
|
)
|
(1,988,210
|
)
|
|||
|
|
|||||||
|
Other
income (expenses):
|
|||||||
|
Interest
income
|
1,949,846
|
786,677
|
|||||
|
Rental
and other income
|
341,991
|
-
|
|||||
|
Net
loss from sale of assets
|
(531,003
|
)
|
(117,496
|
)
|
|||
|
Interest
expenses
|
(4,419,567
|
)
|
(372,177
|
)
|
|||
|
Impairment
loss on investment
|
(5,074,539
|
)
|
-
|
||||
|
Share
of income (loss) from equity investment
|
(2,695,028
|
)
|
16,393
|
||||
|
Amortization
of deferred financing fees
|
-
|
(90,000
|
)
|
||||
|
Foreign
currency transaction gain (loss)
|
(83,015
|
)
|
58,836
|
||||
|
|
(10,511,315
|
)
|
282,233
|
||||
|
Loss
before income taxes and
non-controlling
interest
|
(15,801,176
|
)
|
(1,705,977
|
)
|
|||
|
Income
tax benefit (expense) (Note 13)
|
1,382,769
|
(52,664
|
)
|
||||
|
Non-controlling
interest
|
5,982,183
|
(27,220
|
)
|
||||
|
7,364,952
|
(79,884
|
)
|
|||||
|
Net
loss
|
(8,436,224
|
)
|
(1,785,861
|
)
|
|||
|
Other
comprehensive income (loss):
|
|||||||
|
Foreign
currency translation adjustments
|
3,638,757
|
591,604
|
|||||
|
Unrealized
loss on investment
|
(61,667
|
)
|
(722,409
|
)
|
|||
|
3,577,090
|
(130,805
|
)
|
|||||
|
Other
comprehensive loss before non-controlling interest
|
(4,859,134
|
)
|
(1,916,666
|
)
|
|||
(Continued)
The
accompanying notes are an integral part of these
consolidated financial statements.
F-6
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATION AND COMPREHENSIVE LOSS
YEARS
ENDED
DECEMBER
31, 2007
AND 2006
|
2007
|
Restated
(Note
20)
2006
|
||||||
|
Foreign
currency translation adjustments - Non-controlling
interest
|
(396,513
|
)
|
(48,958
|
)
|
|||
|
Total
comprehensive loss
|
$
|
(5,255,647
|
)
|
$
|
(1,965,624
|
)
|
|
|
Loss
per share - basic and diluted (Note 18)
|
$
|
(0.06
|
)
|
$
|
(0.03
|
)
|
|
|
|
|||||||
|
Weighted
average number of common
shares outstanding - basic and diluted
|
90,024,479
|
68,753,837
|
|||||
The
accompanying notes are an integral part of these
consolidated financial statements.
F-7
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS
OF STOCKHOLDERS’ EQUITY
YEARS
ENDED
DECEMBER
31, 2007
AND 2006
|
Common
stock
|
Additional
paid-in
|
Treasury
|
Cumulative
other
comprehensive
|
Retained
earnings
(Accumulated
|
|
|||||||||||||||||
|
|
Shares
|
Amount
|
capital
|
stock
|
income
(loss)
|
deficit)
|
Total
|
|||||||||||||||
|
Balance,
January 1, 2006
|
42,379,354
|
$
|
42,379
|
$
|
5,351,058
|
$
|
(5,630
|
)
|
$
|
121,739
|
$
|
(7,269,855
|
)
|
$
|
(1,760,309
|
)
|
||||||
|
Restatement
adjustments (Note
20)
|
-
|
-
|
-
|
-
|
(110,750
|
)
|
(267,801
|
)
|
(378,551
|
)
|
||||||||||||
|
Restatement
adjustments (Note
20)
|
-
|
-
|
-
|
-
|
(2,032
|
)
|
(134,026
|
)
|
(136,058
|
)
|
||||||||||||
|
Restated
Balance,January
1, 2006
|
42,379,354
|
42,379
|
5,351,058
|
(5,630
|
)
|
8,957
|
(7,671,682
|
)
|
(2,274,918
|
)
|
||||||||||||
|
Unrealized
loss on investment
|
-
|
-
|
-
|
-
|
(722,409
|
)
|
-
|
(722,409
|
)
|
|||||||||||||
|
Issuance
of shares for consulting services (Note 14)
|
500,000
|
500
|
89,500
|
-
|
-
|
-
|
90,000
|
|||||||||||||||
|
Conversion
of convertible debentures (Note 14)
|
44,300,542
|
44,300
|
8,808,890
|
-
|
-
|
-
|
8,853,190
|
|||||||||||||||
|
Issuance
of shares for consulting services (Note 14)
|
440,000
|
440
|
69,960
|
-
|
-
|
-
|
70,400
|
|||||||||||||||
|
Foreign
currency translation
adjustment
|
-
|
-
|
-
|
-
|
542,646
|
-
|
542,646
|
|||||||||||||||
|
Net
loss for the year
|
-
|
-
|
-
|
-
|
-
|
(1,806,092
|
)
|
(1,806,092
|
)
|
|||||||||||||
|
Restatement
adjustment (Note
20)
|
-
|
-
|
-
|
-
|
-
|
20,231
|
20,231
|
|||||||||||||||
|
Balance,
December 31, 2006
|
87,619,896
|
$
|
87,619
|
$
|
14,319,408
|
$
|
(5,630
|
)
|
$
|
(170,806
|
)
|
$
|
(9,457,543
|
)
|
$
|
4,773,048
|
||||||
|
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)
|
-
|
-
|
-
|
5,630
|
(5,630
|
)
|
113,795
|
113,795
|
||||||||||||||
|
Issuance
of shares for consulting services (Note 14)
|
825,000
|
825
|
318,575
|
-
|
-
|
-
|
319,400
|
|||||||||||||||
|
Issuance
of shares for consulting services (Note 14)
|
1,200,000
|
1,200
|
484,800
|
-
|
-
|
-
|
486,000
|
|||||||||||||||
|
Issuance
of shares for consulting services (Note 14)
|
500,000
|
500
|
159,500
|
-
|
-
|
-
|
160,000
|
|||||||||||||||
|
Issuance
of shares (Note 14)
|
7,000,000
|
7,000
|
4,893,000
|
-
|
-
|
-
|
4,900,000
|
|||||||||||||||
|
Unrealized
loss on investment
|
-
|
-
|
-
|
-
|
(61,667
|
)
|
-
|
(61,667
|
)
|
|||||||||||||
|
Foreign
currency translation
adjustment
|
-
|
-
|
-
|
-
|
3,242,244
|
-
|
3,242,244
|
|||||||||||||||
|
Net
loss for the year
|
-
|
-
|
-
|
-
|
-
|
(8,436,224
|
)
|
(8,436,224
|
)
|
|||||||||||||
|
Balance,
December 31, 2007
|
97,824,896
|
$
|
97,824
|
$
|
20,293,203
|
$
|
-
|
$
|
3,004,141
|
$
|
(17,779,972
|
)
|
$
|
5,615,196
|
||||||||
The
accompanying notes are an integral part of these
consolidated financial statements.
F-8
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
YEARS
ENDED DECEMBER
31, 2007
AND 2006
|
2007
|
Restated
(Note
20)
2006
|
||||||
|
Cash
flows from operating activities:
|
|||||||
|
Net
loss
|
$
|
(8,436,224
|
)
|
$
|
(1,785,861
|
)
|
|
|
Adjustments
to reconcile net loss to net cash
|
|||||||
|
provided
by operating activities:
|
|||||||
|
Depreciation
|
520,818
|
963,409
|
|||||
|
Amortization
of financing fees
|
-
|
90,000
|
|||||
|
Non-controlling
interest’s share of gain (loss)
|
(5,982,183
|
)
|
27,220
|
||||
|
Common
stocks issued for consulting services and
employee
remuneration
|
1,084,000
|
160,400
|
|||||
|
Bad
debt expense
|
74,657
|
-
|
|||||
|
Share
of (gain) loss from equity investment
|
(506,011
|
)
|
16,393
|
||||
|
Net
(gain) loss on sale of property
|
(657,239
|
)
|
117,496
|
||||
|
Increase
in assets:
|
|||||||
|
Accounts
receivable
|
(12,852,523
|
)
|
(4,597,233
|
)
|
|||
|
Other
receivable
|
(2,004,923
|
)
|
-
|
||||
|
Inventory
|
(9,053,546
|
)
|
(5,206,015
|
)
|
|||
|
Prepaid
expenses and other assets
|
(12,162,738
|
)
|
(704,511
|
)
|
|||
|
Security
deposits
|
(7,026,260
|
)
|
-
|
||||
|
Increase
(decrease) in liabilities:
|
|||||||
|
Accounts
payable and accrued expenses
|
23,740,002
|
7,204,452
|
|||||
|
Deferred
revenue
|
3,816,082
|
(
22,264
|
)
|
||||
|
Accrued
expense
|
3,682,780
|
-
|
|||||
|
Accrued
severance benefits
|
3,245,312
|
28,048
|
|||||
|
Cash
used in operating activities
|
(22,517,996
|
)
|
(3,708,466
|
)
|
|||
|
|
|||||||
|
Cash
flows from investing activities:
|
|||||||
|
Acquisition
of investments in securities
|
(56,096,987
|
)
|
-
|
||||
|
Proceeds
from disposal of securities held for investment
|
-
|
99,071
|
|||||
|
Acquisition
of property and equipment
|
(74,099,444
|
)
|
(26,869,066
|
)
|
|||
|
Loan
receivable
|
(9,847,459
|
)
|
(430,000
|
)
|
|||
|
Acquisition
of intangible assets
|
(20,453,401
|
)
|
(8,096,443
|
)
|
|||
|
Changes
in non-controlling interest
|
39,759,177
|
8,726,492
|
|||||
|
Cash
used in investing activities
|
(120,738,114
|
)
|
(26,569,946
|
)
|
|||
|
Cash
flows from financing activities:
|
|||||||
|
Proceeds
from convertible debenture
|
88,814,625
|
15,284,295
|
|||||
|
Common
stocks issued
|
4,900,000
|
-
|
|||||
|
Proceeds
from short and long-term notes
|
78,934,689
|
15,299,110
|
|||||
|
Principal
payments of notes payable
|
(2,153,020
|
)
|
-
|
||||
|
Cash
provided by financing activities
|
170,496,294
|
30,583,405
|
|||||
|
|
|||||||
|
Net
increase in cash
|
27,240,184
|
304,993
|
|||||
(Continued)
The
accompanying notes are an integral part of these
consolidated financial statements.
F-9
CINTEL
CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
YEARS
ENDED DECEMBER
31, 2007
AND 2006
|
2007
|
Restated
(Note
20)
2006
|
||||||
|
Effect
of foreign currency translation
|
3,180,575
|
542,646
|
|||||
|
Cash
and cash equivalent - beginning of year
|
4,337,088
|
3,489,449
|
|||||
|
|
|||||||
|
Restricted
cash
|
(4,811,371
|
)
|
-
|
||||
|
Cash
and cash equivalent - end of year
|
$
|
29,946,476
|
$
|
4,337,088
|
|||
|
|
|||||||
|
Supplemental
Disclosure of Cash Flows Information:
|
|||||||
|
Cash
paid during the year for:
|
|||||||
|
Interest
|
$
|
1,026,665
|
$
|
357,798
|
|||
|
Income
taxes
|
$
|
61,374
|
$
|
52,664
|
|||
The
accompanying notes are an integral part of these
consolidated financial statements.
F-10
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 develops network solutions to address technical limitations to the
Internet. Cintel Korea has developed server load balancing technology and
advanced solutions for internet traffic management. The business operations
of
Cintel Korea are located in Seoul, Korea.
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.
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.
F-11
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 year. 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.
F-12
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 year. The gains and losses
resulting from translation of financial statements are recorded as a separate
component of accumulated other comprehensive income within stockholders’ equity.
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 December 31, 2006, cash and cash equivalents include
restricted cash of $78,275 pledged as collateral on performance bonds and a
deposit of $2,840,249 was 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 $1,893,126 and $1,143,169 as of
December 31, 2007 and 2006, 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.
F-13
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 2007 represents
capitalized interest expense and other accumulated costs for the new
manufacturing facilities under construction.
F-14
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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
years ended December 31, 2007 and 2006, 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.
F-15
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 year. Diluted earning (loss) per share
is
determined using the weighted average number of common shares outstanding during
the year, 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.
F-16
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 Company does not
expect that the adoption of FIN 48 will 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,
adoption of SFAS No. 159 will have on its financial statements.
F-17
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
3 - Inventories
Inventories
consist of the following as of December 31, 2007 and 2006:
|
2007
|
2006
|
||||||
|
Raw
materials
|
$
|
3,034,427
|
$
|
3,964,276
|
|||
|
Work-in-process
|
9,119,467
|
314,445
|
|||||
|
Finished
goods
|
1,433,773
|
428,727
|
|||||
|
Merchandise
and supplies
|
1,120,469
|
947,142
|
|||||
|
Total
|
$
|
14,708,136
|
$
|
5,654,590
|
|||
Note
4 - Loans Receivable
Loans
receivable from unrelated companies were as follows as of December
31:
|
2007
|
|
2006
|
|||||
|
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.
|
$
|
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.
|
3,846,960
|
-
|
|||||
|
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
|
-
|
|||||
|
Loan
receivable from unrelated private companies in Korea, unsecured,
bears
interest at 17% payable with principal upon maturity. The loan matured
in
June 2007.
|
-
|
215,000
|
|||||
|
Loan
receivable from unrelated private companies in Korea, unsecured,
bears
interest at 8% payable with principal upon maturity. The loan matured
in
December 2007 and was collected in January 2007.
|
-
|
215,000
|
|||||
|
Other
short-term loans receivable
|
937,499
|
-
|
|||||
|
10,277,459
|
430,000
|
||||||
|
Less:
current portion
|
9,247,168
|
430,000
|
|||||
|
Loan
receivable, net of current
|
$
|
1,030,291
|
$
|
-
|
|||
F-18
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Note
5 - Prepaid Expenses and Other Assets
Prepaid
expenses and other current assets consist of the following as of December 31,
2007 and 2006:
|
2007
|
2006
|
||||||
|
Prepaid
expenses
|
$
|
1,439,730
|
$
|
1,068,624
|
|||
|
Receivables
from sale of assets
|
5,289,724
|
-
|
|||||
|
Advance
payments to vendors
|
2,004,923
|
-
|
|||||
|
Other
current assets
|
6,501,908
|
-
|
|||||
|
Total
|
$
|
15,236,285
|
$
|
1,068,624
|
|||
Note
6 - Investments
Short-Term
Investments
The
Company holds various time deposits and financial instruments with maturity
less
than one year and recorded as short-term investments. The Company’s investment
in the short-term instruments at December 31, 2007 was $21,073,400.
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 December 31, 2007 and 2006
were as follows:
|
2007
|
2006
|
||||||
|
Investment
in Cintel Systems Corp.
|
$
|
501,173
|
$
|
-
|
|||
|
Convertible
Debenture A (STS)
|
11,173,519
|
-
|
|||||
|
Phoenix
Asset Management (fka Global Assets Inc.)
|
11,051,513
|
1,959,209
|
|||||
|
Investment
in PluM Tech
|
213,720
|
-
|
|||||
|
We-Tech
|
1,416,563
|
-
|
|||||
|
East
Gate
|
1,163,405
|
-
|
|||||
|
Phoenix
Springs
|
3,205,800
|
-
|
|||||
|
Debt
securities - bonds
|
260,291
|
-
|
|||||
|
Investment
in equity securities held by subsidiaries
|
8,383,744
|
-
|
|||||
|
Other
miscellaneous
|
133,419
|
5,257
|
|||||
|
Total
|
$
|
37,503,147
|
$
|
1,964,466
|
|||
F-19
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 31:
|
|
2007
|
2006
|
|||||
|
Land
|
$
|
29,508,360
|
$
|
-
|
|||
|
Buildings
and improvements
|
35,598,569
|
11,181,632
|
|||||
|
Machinery
and equipment
|
21,843,857
|
19,068,569
|
|||||
|
Furniture
and fixtures
|
8,736,692
|
816,058
|
|||||
|
Vehicles
|
740,673
|
183,546
|
|||||
|
Software
|
241,095
|
767,209
|
|||||
|
Small
tools
|
680,015
|
-
|
|||||
|
|
97,349,261
|
32,017,014
|
|||||
|
|
|||||||
|
Less:
Accumulated depreciation
|
19,832,760
|
6,039,771
|
|||||
|
|
77,516,501
|
25,977,243
|
|||||
|
|
|||||||
|
Construction
in progress
|
22,717,480
|
-
|
|||||
|
|
|||||||
|
Property
and equipment, net
|
$
|
100,233,981
|
$
|
25,977,243
|
|||
Depreciation
expenses for the years ended December 31, 2007 and 2006 were $924,369 and
$271,111, 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. 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.
F-20
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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
December 31, 2007 and 2006 are summarized as follows:
|
|
2007
|
2006
|
|||||
|
Land
rights at cost
|
$
|
369,224
|
$
|
369,224
|
|||
|
Less:
Accumulated depreciation
|
33,925
|
13,052
|
|||||
|
Net
carrying amount
|
$
|
335,299
|
$
|
356,172
|
|||
Note
9 - Intangible Assets
Intangible
assets consist of the following at December 31:
|
2007
|
2006
|
||||||
|
Goodwill
|
$
|
26,592,993
|
$
|
7,740,271
|
|||
|
Other
intangible assets
|
1,600,679
|
-
|
|||||
|
Net
carrying amount
|
$
|
28,193,672
|
$
|
7,740,271
|
|||
Goodwill
is 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 year ended
December 31, 2007 was $301,239.
Note
10 - Notes Payable
Notes
payable consist of the following at December 31:
|
|
2007
|
2006
|
|||||
|
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)
F-21
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
2007
|
2006
|
|||||
|
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
equipments and matures in March 2008.
|
1,600,000
|
-
|
|||||
|
Note
payable to Kong-Sang Bank of China, payable monthly interest only
with
interest at 5.86%. The note is unsecured and matures in October
2008.
|
3,027,510
|
-
|
|||||
|
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
equipments and matures in January 2008.
|
1,000,000
|
-
|
|||||
|
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.
|
-
|
3,202,500
|
|||||
|
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.
|
-
|
1,922,305
|
|||||
|
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 $2,840,249
and
matured in April 2007.
|
-
|
2,730,811
|
|||||
|
Construction
loan payable to China Construction Bank, payable quarterly installment
of
$443,226 with interest at bank prime. The note is secured by real
estate
and matures in July 2009.
|
-
|
4,878,048
|
|||||
|
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.
|
-
|
2,750,000
|
|||||
|
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.
|
2,544,691
|
-
|
|||||
|
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.
|
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.
|
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.
|
4,274,400
|
-
|
|||||
F-22
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
|
|
2007
|
2006
|
|||||
|
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
|
-
|
|||||
|
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.
|
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.
|
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.
|
6,207,858
|
-
|
|||||
|
Notes
payable to Woori Bank, payable monthly interest only. The note
is
unsecured and matures in January 2009.
|
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.
|
1,068,600
|
-
|
|||||
|
Notes
payable to Citi Bank Korea, payable monthly interest only with
interest at
2.5% to 5.8%. The note matures in 2008.
|
5,229,769
|
-
|
|||||
|
Loan
payable to local government with annual interest rate at 4.75%.
The loan
is unsecured and classified as a long term debt.
|
89,014
|
-
|
|||||
|
Notes
payable to Shin-Han Bank of Korea, payable monthly interest only,
with
interest at 3.77 %.
|
3,714,454
|
-
|
|||||
|
Notes
payable to Hana Bank of Korea, payable monthly interest only, with
interest at 5.18%.
|
1,602,900
|
-
|
|||||
|
Notes
payable to Industrial Bank of Korea, payable monthly interest-only,
with
interest at 4.7%.
|
4,274,400
|
-
|
|||||
|
Other
short term notes payable of subsidiaries, unsecured, due on demand
|
2,423,389
|
430,000
|
|||||
|
Other
long term notes payable of subsidiaries
|
3,124,499
|
-
|
|||||
|
Auto
loan payable with monthly payment of $340, bearing no interest.
The loan
is secured by the vehicle and matures in December 2008.
|
-
|
10,165
|
|||||
|
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
|
19,197
|
26,859
|
|||||
|
|
90,733,921
|
15,989,688
|
|||||
|
Less:
current portion
|
61,383,334
|
11,112,570
|
|||||
|
Long-term
debt
|
$
|
29,350,587
|
$
|
4,877,118
|
|||
F-23
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Following
is a summary of principal maturities of notes payable over the next five
years:
|
Years
ending December 31,
|
Amount
|
|||
|
2008
|
$
|
61,383,334
|
||
|
2009
|
20,950,204
|
|||
|
2010
|
2,306,723
|
|||
|
2011
|
1,300,828
|
|||
|
2012
and thereafter
|
4,792,832
|
|||
|
Total
|
$
|
90,733,921
|
||
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 December 31, 2007 and 2006, were $5,380,222 and
$97,404, 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.
|
2007
|
2006
|
||||||
|
Face
value
|
$
|
-
|
$
|
-
|
|||
|
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)
|
13,074,625
|
-
|
|||||
|
$
|
104,098,920
|
$
|
15,284,295
|
||||
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 December 31, 2007, no bonds have been
converted.
F-24
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 December 31, 2007, 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.
F-25
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 2007 and 2006 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 $10,460,000 and $8,144,000 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.
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%.
F-26
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
provision for income taxes for the years ended December 31, 2007 and 2006 are
summarized as follows:
|
2007
|
2006
|
||||||
|
Current
income tax provision:
|
|||||||
|
US
|
$
|
-
|
$
|
-
|
|||
|
Foreign
taxes of subsidiaries
|
61,374
|
52,664
|
|||||
|
61,374
|
52,664
|
||||||
|
Deferred
income tax benefit:
|
|||||||
|
US
|
-
|
-
|
|||||
|
Foreign
taxes of subsidiaries
|
(1,444,143
|
)
|
-
|
||||
|
Income
tax benefit
|
$
|
(1,382,769
|
)
|
$
|
52,664
|
||
The
Company has deferred tax assets (liabilities) at December 31, 2007 and 2006
as
follows:
|
2007
|
2006
|
||||||
|
Research
and development expenses
amortized
over 5 years for tax purposes
|
$
|
165,207
|
$
|
270,195
|
|||
|
Other
timing differences
|
520,579
|
255,953
|
|||||
|
Net
operating loss carryforwards
|
2,540,300
|
2,155,532
|
|||||
|
|
3,226,086
|
2,681,680
|
|||||
|
Valuation
allowance
|
(3,226,086
|
)
|
(2,681,680
|
)
|
|||
|
|
$ | - |
$
|
-
|
|||
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.
F-27
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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.
F-28
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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:
|
2007
|
2006
|
||||||
|
Interest
rate
|
6.5
|
%
|
6.5
|
%
|
|||
|
Expected
volatility
|
70
|
%
|
70
|
%
|
|||
|
Expected
life in years
|
6
|
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 years ended December 31, 2007 and 2006 and no option
is
outstanding at December 31, 2007.
The
stock
options have not been included in the calculation of the diluted earnings per
share as their inclusion would be anti-dilutive.
F-29
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following table summarizes the stock option activity during the years in 2007
and 2006:
|
2007
|
2006
|
||||||
|
Outstanding,
beginning of year
|
-
|
106,000
|
|||||
|
Exercised
|
-
|
-
|
|||||
|
Cancelled
|
-
|
-
|
|||||
|
Expired
|
-
|
106,000
|
|||||
|
Outstanding,
end of year
|
-
|
-
|
|||||
|
Weighted
average fair value of options granted during the year
|
$
|
-
|
$
|
-
|
|||
|
Weighted
average exercise price of options, beginning of year
|
$
|
-
|
$
|
-
|
|||
|
Weighted
average exercise price of options granted during the year
|
$
|
-
|
$
|
-
|
|||
|
Weighted
average exercise price of options, end of year
|
$
|
-
|
$
|
-
|
|||
|
Weighted
average remaining contractual life of common stock options
|
-
|
-
|
|||||
Note
15 - Related Party Transactions
Significant
transactions with companies affiliated by common control for the year ended
and
as of December 31, 2007 are summarized as follows:
|
2007
|
2006
|
||||||
|
Accounts
receivable from STS
|
$
|
2,060,745
|
$
|
1,749,945
|
|||
|
Accounts
receivable from BKLCD (fka We-Tech)
|
$
|
-
|
$
|
1,882,528
|
|||
|
Accounts
receivable from BKLS
|
$
|
5,966,257
|
$
|
-
|
|||
|
Accounts
payable to STS
|
$
|
1,776,307
|
$
|
1,428,234
|
|||
|
Accounts
payable to BKLCD (fka We-Tech)
|
$
|
1,029,509
|
$
|
2,631,573
|
|||
|
Sales
to STS
|
$
|
70,667,505
|
$
|
7,972.281
|
|||
|
Sales
to BKLCD (fka We-Tech)
|
$
|
4,868,916
|
$
|
5,113,353
|
|||
|
Purchase
from STS
|
$
|
10,363,356
|
$
|
4,780,074
|
|||
|
Purchase
from BKLCD (fka We-Tech)
|
$
|
5,266,035
|
$
|
3,299,765
|
|||
These
transactions were in the normal course of business and recorded at an exchange
value established and agreed upon by the above mentioned
parties.
Note
16 - Significant Concentration of Sales
For
the
year ended December 31, 2007, the Company’s subsidiary in China, PSTS, had a
major customer which accounted for about 62% of the PSTS’s total revenue.
For
the
same period, PDT, a subsidiary in Korea, had three major customers which
accounted for about 73% of the PDT’s total revenue.
F-30
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 years ended December 31, 2007 and
2006:
|
2007
|
2006
|
||||||
|
Numerator
for basic and diluted earnings per share:
|
|||||||
|
Net
loss
|
$
|
(8,436,224
|
)
|
$
|
(1,965,624
|
)
|
|
|
Denominator:
|
|||||||
|
Basic
and diluted weighted average
shares
outstanding
|
90,765,938
|
68,753,837
|
|||||
|
Basic
and diluted loss per share
|
$
|
(0.09
|
)
|
$
|
(0.03
|
)
|
|
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 $40,640 in 2008. Rent expenses
paid during the years ended December 31, 2007 and 2006 were $77,867
and
$149,387, 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.
|
F-31
CINTEL
CORP. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
(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
|
$
|
64,103
|
||
|
2009
|
64,103
|
|||
|
2010
|
32,052
|
|||
|
$
|
160,258
|
|||
|
(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 2006 Comparative Consolidated 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
affects of this restatement for December 31, 2006 are to increase the deferred
revenue from the consolidated financial statements dated March 28, 2007 from
$nil to $113,793 on the consolidated balance sheet; and to increase revenue
from
merchandise from $4,394,60 to $4,785,720, to increase revenue from finished
goods from $16,187,493 to $16,210,675 and to increase cost of sales for
merchandise from $3,948,569 to $4,327,766 and to increase cost of sales for
finished goods from $15,921,242 to $15,936,096 on the consolidated statements
of
operations and comprehensive loss.
F-32