-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O5iFxiW6TAzsjZyQ69PxCLFwDWrCopd7fT73EZVnN6hvAPNOpAbGw2W2FWmAWNUq /G/1g9Swn+X+t0b+Mow+uQ== 0001157523-06-011831.txt : 20061201 0001157523-06-011831.hdr.sgml : 20061201 20061201101539 ACCESSION NUMBER: 0001157523-06-011831 CONFORMED SUBMISSION TYPE: 10QSB/A PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20061201 DATE AS OF CHANGE: 20061201 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CINTEL CORP CENTRAL INDEX KEY: 0001191334 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPUTERS [3571] IRS NUMBER: 522360156 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 333-100046 FILM NUMBER: 061249801 BUSINESS ADDRESS: STREET 1: 9900 CORPORATE CAMPUS DRIVE STREET 2: SUITE 3000 CITY: LOUISVILLE STATE: KY ZIP: 40223 BUSINESS PHONE: 502-657-6077 MAIL ADDRESS: STREET 1: 9900 CORPORATE CAMPUS DRIVE STREET 2: SUITE 3000 CITY: LOUISVILLE STATE: KY ZIP: 40223 FORMER COMPANY: FORMER CONFORMED NAME: LINK2 TECHNOLOGIES INC DATE OF NAME CHANGE: 20020920 10QSB/A 1 a5281300.txt CINTEL CORP. 10-QSB/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB/A (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006 [_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT FOR THE TRANSITION PERIOD FROM __________ TO __________ COMMISSION FILE NUMBER : 333-100046 CINTEL CORP. ------------ (Exact name of small business issuer in its charter) NEVADA 52-236015 ------ --------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9900 Corporate Campus Drive, Suite 3000, Louisville, KY 40223 ------------------------------------------------------------- (Address of principal executive offices) Issuer's telephone number: (502) 657-6077 WITH COPIES TO: Gregory Sichenzia, Esq. Sichenzia Ross Friedman Ference LLP 1065 Avenue of the Americas New York, New York 10018 (212) 930-9700 Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X| APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: As of August 15, 2006, the issuer had 87,620,196 outstanding shares of Common Stock, $.001 par value. Transitional Small Business Disclosure Format (check one): Yes [_] No [X] EXPLANATORY NOTE This quarterly report on Form 10-QSB/A ("Form 10-QSB/A") is being filed to amend our quarterly report on Form 10-QSB for the fiscal quarter ended June 30, 2006 (the "Original Form 10-QSB"), which was originally filed with the Securities and Exchange Commission ("SEC") on August 18, 2006. Accordingly, pursuant to Rule 12b-15 under the Securities Exchange Act of 1934, as amended, the Form 10-QSB/A contains current dated certifications from the Principal Executive Officer and the Principal Financial Officer. The Form 10-QSB/A is being amended because upon further consideration, the Company determined that it was not, more likely than not, that deferred tax losses would be realized. The Company is revising the valuation allowance for the deferred tax asset accordingly. We have not updated the information contained herein for events occurring subsequent to August 18, 2006, the filing date of the Original Form 10-QSB. 2 TABLE OF CONTENTS Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements............................................ 2 Item 2. Management's Discussion and Analysis or Plan of Operation....... 21 Item 3. Controls and Procedures......................................... 25 PART II - OTHER INFORMATION Item 1. Legal Proceedings............................................... 25 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds..... 25 Item 3. Defaults Upon Senior Securities................................. 25 Item 4. Submission of Matters to a Vote of Security Holders............. 25 Item 5. Other Information............................................... 25 Item 6. Exhibits........................................................ 25 SIGNATURES................................................................. 28 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements CINTEL CORP. CONSOLIDATED FINANCIAL STATEMENTS SIX MONTHS ENDED JUNE 30, 2006 AND 2005 Unaudited CONTENTS Report of Independent Registered Public Accounting Firm 1 Consolidated Balance Sheets 2 Consolidated Statement of Operations 3 - 4 Consolidated Statement of Stockholders' Equity 5 Consolidated Statement of Cash Flows 6 Notes to Consolidated Financial Statements 7 - 19 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders of Cintel Corp. We have reviewed the accompanying consolidated balance sheets of Cintel Corp. and subsidiaries (the "Company") as of June 30, 2006 and 2005 and the related consolidated statements of operations, stockholders' equity and cash flows for the six-month periods ended June 30, 2006 and 2005. These interim financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to such consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America. "SF PARTNERSHIP, LLP" Toronto, Canada CHARTERED ACCOUNTANTS August 1, 2006 except as to note 14 which is as of November 13, 2006. 1
CINTEL CORP. Consolidated Balance Sheets June 30, 2006 and 2005 Unaudited Restated 2006 2005 ---- ---- ASSETS Current Cash and cash equivalents (note 3) $ 1,395,406 $ 373,982 Investments in trading securities (fair market value $192,812) 175,051 - Accounts receivable (net of allowance for doubtful accounts of $1,114,358; 2005 - $965,246) 1,636,762 290,083 Inventory (note 4) 557,326 267,433 Prepaid and sundry assets 813,401 225,429 Loans receivable (note 5) 158,100 - Deferred taxes (note 6,14) - 208,146 ------------------------------ 4,736,046 1,365,073 Deferred Financing Fees - 30,000 Deferred Taxes (note 6,14) - 888,050 Investments (note 7) 1,920,936 - Investments in available for sale securities (note 8) 16,977 48,752 Equipment (note 9) 509,893 466,422 ------------------------------ $ 7,183,852 $ 2,798,297 ============================== LIABILITIES Current Accounts payable $ 1,368,722 $ 781,087 Shareholder loan - 161,779 Loans payable - current (note 10) 43,076 1,493,511 Convertible debenture (note 11) - 210,000 ------------------------------ 1,411,798 2,646,377 Accrued Severance 83,314 104,469 Loans Payable (note 10) 39,051 515,274 ------------------------------ 1,534,163 3,266,120 ------------------------------ STOCKHOLDERS' EQUITY Capital Stock (note 12) 87,180 40,630 Paid in Capital 14,249,448 5,243,316 Treasury Stock (5,630) (105,185) Accumulated Other Comprehensive (Loss) Income (219,324) 34,383 Accumulated Deficit (8,461,985) (5,680,967) ------------------------------ 5,649,689 (467,823) ------------------------------ $ 7,183,852 $ 2,798,297 ============================== APPROVED ON BEHALF OF THE BOARD - --------------------------------------------------- --------------------------------------------------- Director Director (The accompanying notes to the financial statements are an integral part of these statements)
2
CINTEL CORP. Consolidated Statement of Operations Six Months Ended June 30, 2006 and 2005 Unaudited Restated 2006 2005 ---- ---- Revenue Merchandise $ 3,455,083 $ 326,626 Finished goods 76,481 197,703 Services 49,150 21,644 ------------------------------ 3,580,714 545,973 ------------------------------ Cost of Sales Merchandise 3,311,900 277,399 Finished goods 51,404 76,369 ------------------------------ 3,363,304 353,768 ------------------------------ Gross Profit 217,410 192,205 ------------------------------ Expenses Salaries and employee benefits 342,662 285,360 Professional fees 313,027 195,376 Office and general 187,579 208,150 Depreciation 108,916 112,637 Travel 100,282 152,270 Research and development 18,891 - Taxes and dues 273 49,595 ------------------------------ 1,071,630 1,003,388 ------------------------------ Operating Loss (854,220) (811,183) ------------------------------ Other Expense (Income) Interest and other income (143,215) (6,258) Foreign exchange 10,532 - Interest expense 22,487 166,783 Amortization of deferred financing fees 60,000 90,000 Share of income from equity investment (16,260) - ------------------------------ (66,456) 250,525 ------------------------------ Loss Before Income Taxes (787,764) (1,061,708) ------------------------------ Current 44,057 - Deferred income taxes recoverable (note 14) - (169,873) ------------------------------ 44,057 (169,873) ------------------------------ Net Loss $ (831,821) $ (891,835) ============================== Basic Loss per Share $ (0.02) $ (0.03) ============================== Fully Diluted Loss per Share $ (0.02) $ (0.03) ============================== Weighted Average Number of Shares (note 12) 49,971,111 32,364,447 ============================== Fully Diluted Weighted Average Number of Shares (note 12) 49,971,111 32,364,447 ============================== (The accompanying notes to the financial statements are an integral part of these statements)
3
CINTEL CORP. Consolidated Statement of Operations Three Months Ended June 30, 2006 and 2005 Unaudited Restated 2006 2005 ---- ---- Revenue Merchandise $ 1,236,885 $ 214,622 Finished goods 1,012 197,703 Services 21,118 7,130 ------------------------------ 1,259,015 419,455 ------------------------------ Cost of Sales Merchandise 1,174,595 165,721 Finished goods 680 76,369 ------------------------------ 1,175,275 242,090 ------------------------------ Gross Profit 83,740 177,365 ------------------------------ Expenses Salaries and employee benefits 159,751 137,108 Professional fees 212,360 71,025 Office and general 91,665 109,500 Depreciation 57,502 56,887 Travel 68,857 106,876 Research and development 250 - Taxes and dues 152 16,813 ------------------------------ 590,537 498,209 ------------------------------ Operating Loss (506,797) (320,844) ------------------------------ Other Expense (Income) Interest and other income (33,799) (4,799) Foreign exchange 13,876 - Interest expense 10,414 91,934 Amortization of deferred financing fees 30,000 30,000 Share of income from equity investment (16,260) - ------------------------------ 4,231 117,135 ------------------------------ Loss Before Income Taxes (511,028) (437,979) ------------------------------ Current 20,625 - Deferred income taxes recoverable (note 14) - (92,559) ------------------------------ 20,625 (92,559) ------------------------------ Net Loss $ (531,653) $ (345,420) ============================== Basic Loss per Share $ (0.01) $ (0.01) ============================== Fully Diluted Loss per Share $ (0.01) $ (0.01) ============================== Weighted Average Number of Shares (note 12) 57,562,868 37,036,394 ============================== Fully Diluted Weighted Average Number of Shares (note 12) 57,562,868 37,036,394 ============================== (The accompanying notes to the financial statements are an integral part of these statements)
4
CINTEL CORP. Consolidated Statement of Stockholders' Equity Six Months Ended June 30, 2006 and 2005 Unaudited Paid in Accumulated Capital in Other Restated Total Number of Capital Excess of Treasury Comprehensive Accumulated Stockholders' Shares Stock Par value Stock Loss Deficit Equity ----------------------------------------------------------------------------------------------------- Balance, January 1, 2005 23,409,800 $ 23,410 $ 4,573,535 $ - $ 23,826 $(4,789,132) $ (168,361) Common shares issued for consulting services 1,990,000 1,990 115,011 - - - 117,001 Common shares issued as repayment of promissory note 11,283,095 11,283 348,717 - - - 360,000 Conversion of convertible debentures into common stock 3,946,982 3,947 206,053 - - - 210,000 Repurchase of employees' stock - - - (105,185) - - (105,185) Foreign exchange on translation - - - - 10,557 - 10,557 Net loss - - - - - (891,835) (891,835) ----------------------------------------------------------------------------------------------------- Balance, June 30, 2005 40,629,877 $ 40,630 $ 5,243,316 $ (105,185) $ 34,383 $(5,680,967) $ (467,823) ===================================================================================================== Balance, January 1, 2006 42,379,354 $ 42,379 $ 5,351,058 $ (5,630) $ 121,739 $(6,426,265) $ (916,719) Adjustment due to restatement (note 14) - - - - (18,247) (1,203,899) (1,222,146) ----------------------------------------------------------------------------------------------------- Restated balance, January 1, 2006 42,379,354 42,379 5,351,058 (5,630) 103,492 (7,630,164) (2,138,865) Unrealized loss on investment (note 7) - - - - (720,536) - (720,536) Common shares issued for consulting services (note 12) 500,000 500 89,500 - - - 90,000 Conversion of convertible debenture into common stock (note 12) 44,300,542 44,301 8,808,890 - - - 8,853,191 Foreign exchange on translation - - - - 397,720 - 397,720 Net loss - - - - - (831,821) (831,821) ----------------------------------------------------------------------------------------------------- Balance, June 30, 2006 87,179,896 $ 87,180 $14,249,448 $ (5,630) $ (219,324) $(8,461,985) $ 5,649,689 ===================================================================================================== (The accompanying notes to the financial statements are an integral part of these statements)
5
CINTEL CORP. Consolidated Statement of Cash Flows Six Months Ended June 30, 2006 and 2005 Unaudited 2006 2005 ---- ---- Cash Flows from Operating Activities Net loss $ (831,821) $ (891,835) Adjustments for working capital and non-cash items: Depreciation 108,916 112,637 Amortization of financing fees 60,000 90,000 Common stock issued for consulting services 45,000 117,001 Share of income from equity investment (16,260) - Net Changes in Assets & Liabilities Accounts receivable (502,992) 311,060 Inventory (81,026) 28,418 Prepaid and sundry assets (384,841) 60,092 Deferred taxes - (169,873) Accounts payable 353,173 (43,259) Accrued severance 9,645 (18,019) ------------------------------ (1,240,206) (403,778) ------------------------------ Cash Flows from Investing Activities Investments in trading securities (184,367) - Loans receivable (159,375) - Acquisition of equipment, net (2,428) (356) Proceeds from disposal of securities held for investment 36,000 - ------------------------------ (310,170) (356) ------------------------------ Cash Flows from Financing Activities Payments of deferred financing fees - (240,000) Proceeds from loans payable - 273,270 Proceeds from convertible debenture - net - 30,000 Repayment of promissory note - net - (160,000) Advances from shareholder loan - 131,472 Proceeds from common shares issued for repayment of convertible debenture 8,853,191 210,000 Repayment of convertible debt (8,853,191) - Proceeds from common shares issued for repayment of promissory note - 360,000 Repurchase of employees' stocks - (105,185) Loans payable (650,516) - ------------------------------ (650,516) 499,557 ------------------------------ Foreign Exchange on Cash and Cash Equivalents 106,849 (2,828) ------------------------------ Net (Decrease) Increase in Cash and Cash Equivalents (2,094,043) 92,595 Cash and Cash Equivalents - beginning of year 3,489,449 281,387 ------------------------------ Cash and Cash Equivalents - end of year $ 1,395,406 $ 373,982 ============================== During the year, the company had cash flows arising from interest and income taxes paid as follows: Interest paid $ 22,487 $ 107,084 ============================== Income taxes paid $ 42,403 $ - ============================== (The accompanying notes to the financial statements are an integral part of these statements)
6 CINTEL CORP. Notes to Consolidated Financial Statements June 30, 2006 and 2005 Unaudited 1. Operations and Business Cintel Corp., formerly Link2 Technologies, Inc. ("the Company"), was incorporated in the State of Nevada on August 16, 1996 and on April 24, 2001 changed its name from "Great Energy Corporation International" to Link2 Technologies, Inc. On September 30, 2003 the Company changed its name to Cintel Corp. 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. The Agreement provided for the acquisition by the Company from the shareholders of 100% of the issued and outstanding capital stock of Cintel Korea. In exchange, the shareholders of Cintel Korea received 16,683,300 shares of the Company. As a result, the shareholders of Cintel Korea controlled 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. Upon completion of the share exchange, the business operations of Cintel Korea constituted virtually all of the business operations of the Company. Cintel Korea develops network solutions to address technical limitations to the Internet. Cintel Korea has developed what it believes is the first Korean server load balancing technology. Cintel Korea is now focused on the development of advanced solutions for Internet traffic management. The business operations of Cintel Korea are located in Seoul, Korea. 2. Summary of Significant Accounting Policies The accounting policies of the Company are in accordance with generally accepted accounting principles of the United States of America, and their basis of application is consistent. Outlined below are those policies considered particularly significant: a) Basis of Financial Statement Presentation These 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 be able to realize its assets and discharge its liabilities in the normal course of business. b) 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. c) Unit of Measurement The US Dollar has been used as the unit of measurement in these financial statements. 7 CINTEL CORP. Notes to Consolidated Financial Statements June 30, 2006 and 2005 Unaudited 2. Summary of Significant Accounting Policies (cont'd) d) Use of Estimates Preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and related notes to financial statements. These estimates are based on management's best knowledge of current events and actions the Company may undertake in the future. Actual results may ultimately differ from estimates, although management does not believe such changes will materially affect the financial statements in any individual year. e) Revenue Recognition The Company recognizes revenues upon delivery of merchandise sold, and when services are rendered for maintenance contracts. f) Cash and Cash Equivalents Cash includes currency, cheques issued by others, other currency equivalents, current deposits and passbook deposits. 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. g) Investments Investments in securities are recorded in accordance with FAS-115 "Accounting for Certain Investments in Debt and Equity Securities". Investments in available for sale 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. Investments in trading securities are recorded at fair value. Unrealized holding gains and losses from investments are excluded from earnings and reported as a separate component of stockholders' equity. Investments subject to significant influence have been recorded using the equity method. h) Inventories Inventories are stated at the lower of cost or net realizable value. Net realizable value is determined by deducting selling expenses from selling price. The cost of inventories is determined on the first-in first-out method, except for materials-in-transit for which the specific identification method is used. i) Equipment Equipment is stated at cost. Major renewals and betterments are capitalized and expenditures for repairs and maintenance are charged to expense as incurred. Depreciation is computed using the straight-line method over a period of 5 years. 8 CINTEL CORP. Notes to Consolidated Financial Statements June 30, 2006 and 2005 Unaudited 2. Summary of Significant Accounting Policies (cont'd) j) Government Grants Government grants are recognized as income over the periods necessary to match them with the related costs that they are intended to compensate. k) 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. l) 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. m) Income Tax The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes". Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. 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. n) Earnings or Loss per Share The Company adopted FAS No.128, "Earnings per Share" which requires disclosure on the financial statements of "basic" and "diluted" earnings (loss) per share. Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options and warrants for each year. 9 CINTEL CORP. Notes to Consolidated Financial Statements June 30, 2006 and 2005 Unaudited 2. Summary of Significant Accounting Policies (cont'd) o) 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. p) 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. 10 CINTEL CORP. Notes to Consolidated Financial Statements June 30, 2006 and 2005 Unaudited 3. Cash and Cash Equivalents In 2005, the company provided $135,786 as security for one of the bank loans as described in note 10. As at June 30, 2005, the amount of loan outstanding was $543,144. In 2006, the bank loan was repaid. 4. Inventory Inventory includes $399,272 (2005 - $10,419) of merchandise and $158,054 (2005 - $257,014) of raw materials. 5. Loans Receivable Loans receivable are comprised of the following; 2006 2005 ---- ---- Loan receivable #1 $ 52,700 $ - Loan receivable #2 105,400 - ------------------------------ $ 158,100 $ - ============================== Loan receivable #1 to a private Korean company is non-interest bearing and the maturity date has been extended to August of 2006. The loan is due on demand and secured by a personal guarantee and the shares of the chief executive officer of the indebted company. Loan receivable #2 to the chief executive officer of the indebted company per loan receivable #1 bears interest at 6% per annum, and is due on demand. The loan is secured by 100% of the shares of a new private company incorporated in March 2006. 11 CINTEL CORP. Notes to Consolidated Financial Statements June 30, 2006 and 2005 Unaudited 6. 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 subsidiary in 2006 and 2005 are 16.5 percent of the first 100 million Korean Won ($84,000) of taxable income and 29.7 percent on the excess. For the United States operation, the corporate tax rate is approximately 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 more likely than not that they will be realized. Tax losses from the Korean subsidiary can be carried forward for five years to offset future taxable income. The U.S. tax losses can be carried forward for fifteen years to offset future taxable income. The company has accumulated approximately $7,366,728 of taxable losses, which can be used to offset future taxable income. The utilization of the losses expires in years 2008 to 2010. 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. 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. The Company has deferred income tax assets as follows: Restated 2006 2005 ---- ---- Deferred income tax assets Research and development expenses amortized over 5 years for tax purposes $ 258,646 214,829 Other timing differences (53,810) 154,439 Net operating loss carryforwards 1,999,849 726,928 ------------------------------ 2,204,685 1,096,196 Valuation Allowance (note 14) 2,204,685 - ------------------------------ $ - 1,096,196 ============================== 12 CINTEL CORP. Notes to Consolidated Financial Statements June 30, 2006 and 2005 Unaudited 7. Investments Investments represent 500,000 shares, 20% ownership in a private Korean company. The investment has been accounted for by the equity method. Carrying cost of the investment has been written off to the net equity balance of the investee. Unrealized holding loss in investment has been excluded from earnings and reported as a separate component of stockholders' equity. 8. Investments in Available for Sale Securities 2006 2005 ---- ---- Stock #1 15,843 48,495 Other miscellaneous 1,134 257 ------------------------------ $ 16,977 $ 48,752 ============================== Stock #1 represents a minority interest in a private Korean company which is carried at cost. 9. Equipment Equipment is comprised as follows: 2006 2005 ---- ---- Accumulated Accumulated Cost Depreciation Cost Depreciation --------------------------------------------------- Furniture and fixtures 71,416 36,941 44,768 26,538 Equipment 906,424 680,337 637,418 538,891 Vehicles 17,700 1,770 15,012 15,010 Software 732,205 498,804 710,830 361,167 --------------------------------------------------- $ 1,727,745 $ 1,217,852 $ 1,408,028 $ 941,606 --------------------------------------------------- Net carrying amount $ 509,893 $ 466,422 ------------ ------------ 13 CINTEL CORP. Notes to Consolidated Financial Statements June 30, 2006 and 2005 Unaudited 10. Loans Payable 2006 2005 ---- ---- Current Long-term Total Total --------------------------------------------------- Bank loan $ - $ - $ - $ 1,878,870 Promissory Note 39,000 - 39,000 39,000 Government loans - 38,019 38,019 100,188 Discount of interest-free government loans - (8,619) (8,619) (9,273) Vehicle Loan 4,076 9,651 13,727 - --------------------------------------------------- $ 43,076 $ 39,051 $ 82,127 $ 2,008,785 =================================================== Promissory Note The promissory note is non-interest bearing, unsecured, and due on demand. Government Loan The loan is non-interest bearing, unsecured, repayable in annual payments of $10,143 and matures in October 2009. Vehicle Loan The loan is interest bearing, secured by the vehicle as disclosed in note 7, and is repayable in 36 monthly installments of $331. The loan matures in December 2008. 14 CINTEL CORP. Notes to Consolidated Financial Statements June 30, 2006 and 2005 Unaudited 11. 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 a liability at face value and no formal accounting recognition is assigned to the value inherent in the conversion feature. The convertible debentures outstanding during the year were unsecured and non-interest bearing. The debenture holders had sixteen months from the date of their agreements (the conversion date) to convert their debentures into common stock of the company. Any balances outstanding after the conversion date are repayable twenty months after the conversion date (or thirty six months after the date of the agreements). Conversion Conversion Price Date Maturity date Amount -------------------------------------------------- Convertible note #1 $ 0.35 6/15/2007 12/15/2008 $ 492,800 Convertible notes #2 0.04 4/17/2007 10/17/2008 440,000 Convertible notes #3 0.14 4/17/2007 10/17/2008 2,161,334 Convertible note #4 0.35 5/17/2007 11/17/2008 5,759,057 --------------------------------------------------- 8,853,191 Less: conversions as at June 30, 2006 8,853,191 ------------ Total outstanding at June 30, 2006 $ - ============ The two convertible debentures outstanding at June 30, 2005 had an annual coupon rate of 12% and 5%. The convertible debentures were repaid in 2005. 15 CINTEL CORP. Notes to Consolidated Financial Statements June 30, 2006 and 2005 Unaudited 12. Capital Stock Authorized 300,000,000 common shares, par value $0.001 per share 2006 2005 ---- ---- Issued 87,179,896 common shares (2005 - 40,629,877) $ 87,180 $ 40,630 ======================= In January 2005, the Company issued 240,000 common shares for consulting service at the value of $20,500. In January 2005, the Company issued 2,262,424 common shares from escrow upon the repayment of $40,000 of the convertible debenture. In February 2005, the Company issued 622,200 common shares from escrow upon the repayment of $50,000 of the convertible debentures. In February 2005, 400,000 common shares were issued for consulting services at the value of $44,000. In March 2005, the Company issued 1,485,120 common shares from escrow upon the repayment of $80,000 of the convertible debenture. 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 debenture. In April 2005, the Company issued 1,311,769 common shares from escrow upon the repayment of $40,000 of the convertible debenture. 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 debenture. In May 2005, 1,329,346 common shares were issued upon the conversion of $50,000 of convertible debenture. In May 2005, the Company issued 2,333,551 common shares from escrow upon the repayment of $70,000 of the convertible debenture. 16 CINTEL CORP. Notes to Consolidated Financial Statements June 30, 2006 and 2005 Unaudited 12. Capital Stock (cont'd) In June 2005, 150,000 common shares were issued for consulting services at the value of $4,500. In June 2005, the Company issued 3,268,031 common shares from escrow upon the repayment of $80,000 of the convertible debenture. In July 2005, the Company issued 704,225 common shares from escrow upon the repayment of $20,000 of the convertible debenture. 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, the Company issued 145,252 common shares for the repayment of $38,492 of the convertible debenture including interest. In April 2006, 500,000 common shares were issued for consulting services at the value of $90,000. In May 2006, the Company issued 44,300,542 common shares for the repayment of $8,853,191 of the convertible debenture including interest. The balance of shares held in escrow in March 2006 of 10,837,180 was returned to the company. 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: 2006 2005 ---- ---- Interest rate 6.5% 6.5% Expected volatility 70% 70% Expected life in years 6 6 In 1999 the Board of Directors of Cintel Korea adopted an option plan to allow employees to purchase ordinary shares of the Cintel Korea. 17 CINTEL CORP. Notes to Consolidated Financial Statements June 30, 2006 and 2005 Unaudited 12. Capital Stock (cont'd) In August 1999, the share option plan granted 96,000 stock 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 year ended December 31, 2005 and 2004. The stock options have not been included in the calculation of the diluted earnings per share as their inclusion would be antidilutive. The following table summarizes the stock option activity during 2006 and 2005: 2006 2005 ---- ---- Outstanding, beginning of year 106,000 106,000 Exercised - - Cancelled - - ------------------------------ Outstanding, end of year 106,000 106,000 ============================== Weighted average fair value of options granted during the year $ - $ - ============================== Weighted average exercise price of common stock options, beginning of year $ 0.62 $ 0.62 ============================== Weighted average exercise price of common stock options granted in the year $ - $ - ============================== Weighted average exercise price of common stock options, end of year $ 0.67 $ 0.67 ============================== Weighted average remaining contractual life of common stock options 1 years 2 years ============================== 18 CINTEL CORP. Notes to Consolidated Financial Statements June 30, 2006 and 2005 Unaudited 13. Contingent Liabilities and Commitments a) The Company has entered into a contract with iMimic Networking, Inc. for the use of the iMimic solution within Korea starting November 17, 2000. For the use of this solution, the Company paid $70,000 as an upfront payment and pays a $640 royalty for each product sold that uses the iMimic solution. The Company is also required to pay an annual royalty fee of $10,000. The contract has no fixed termination date. b) The Company is committed to office spaces' leases obligations which expires in December 2006 and February 2007. Future minimum annual payments (exclusive of taxes and insurance) under the leases are as follows: 2006 $ 48,628 2007 2,000 ------------- $ 50,628 ============= Rent expenses paid in 2006 and 2005 were $73,367 and $47,560 respectively. c) On September 14, 2004, the Company entered into a Standby Equity Distribution Agreement with US-based investment fund Cornell Capital Partners LP. Under the terms of the agreement, Cornell has committed to provide up to $5 million of funding to the Company over a 24 month period, to be drawn down at the Company's discretion through the sale of the Company's common stock to Cornell. No amount was outstanding as at June 30, 2006 ($550,000-2005). 14. Restatement of the Previously Issued Consolidated Financial Statements On further consideration, the Company determined that at June 30, 2006 it was not more likely than not that deferred tax losses would be realized, therefore, the Company provided a 100% valuation allowance against the deferred tax losses. The effects of this restatement are to increase the valuation allowance to $2,204,685 from $657,039 (note 6); to decrease the deferred tax assets on the consolidated balance sheets to nil from $1,547,646 (comprised of $11,114 current and $1,536,532 long term); and to decrease the deferred income taxes recoverable to nil from $244,667 on the consolidated income statements. 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION. FORWARD-LOOKING STATEMENTS The information in this quarterly report on Form 10-QSB 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 consolidated financial statements of Cintel Corp. (referred to herein as the "Company," "we," "us," and "our") 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. OVERVIEW Management believes the Internet Traffic Management ("ITM") market continues to expand globally in the near future due to an increase in Web-based applications, server based applications and more process intensive applications in Web-based interfaces in the market. The Company can expect to show additional revenue in the coming quarters with the strong relationships it has established with its enterprise level customers. In accordance with the directive of the Company's Board of Directors, management will use the balance of fiscal year 2006 to expand its products and markets. In the Korean market, the Company plans to leverage its alliance with Hyundai HDS and expand the solution portfolio from the single ITM solutions to include more enterprise IT solutions, including security products with Hyundai HDS. We believe this partnership with HDS will continue to enable growth for the Company in the current IT environment. The Company is also taking steps to establish several business partnerships in the United States. Additionally, the Company plans to study other markets to enter where management believes the Company will be able to leverage its distribution channels and product strengths. The Company has selected "digital content with ITM" as a new target market and plans to launch an online game business in 2006 to help boost sales and secure growth within the Company. In December 2005 we applied for a game server patent that will be used to manage traffic of online game servers. Our strategy for online gaming is not to develop online games but to enter the online game market by a potential acquisition of an online Korean game company. As CinTel positions itself as an online game publisher CinTel plans to expand into China, Japan, other Asian countries, Europe and North America with additional licensing of qualified Korean online games. RESULTS OF OPERATIONS - --------------------- Six months period ended June 30, 2006 compared to the six months ended June 30, 2005 (Unit: USD) - -------------------------- -------------------------- -------------------------- 6/30/2006 6/30/2005 - -------------------------- -------------------------- -------------------------- Revenue 3,580,714 545,973 - -------------------------- -------------------------- -------------------------- Cost of sales 3,363,304 353,768 - -------------------------- -------------------------- -------------------------- Gross Profit 217,410 192,205 - -------------------------- -------------------------- -------------------------- Expenses 1,071,630 1,003,388 - -------------------------- -------------------------- -------------------------- Operating (Loss) (854,220) (811,183) - -------------------------- -------------------------- -------------------------- Loss Before Income Taxes (787,764) (1,061,708) - -------------------------- -------------------------- -------------------------- The first six months of 2006 and 2005 revenues totaled approximately $3.58 million and approximately $0.55 million, respectively, which reflects an increase of approximately of $3.03 million. The main reason for the increase in revenue for the first six months of 2006, as compared to the six months of 2005, was primarily attributed to the work with the Republic of Korea Air Force for the supply of network equipment. The company generated revenue of approximately $1.95 million from such work with the Republic of Korea Air Force during the first six months of 2006. In addition approximately $0.25 million of the revenue generated during the first six months of 2006 is derived from the global system integration project in Hyundai Heavy Industries plants located in Kuwait, in consortium with KT Corp. Another primary generator of revenue of approximately $ 0.70 million during the second quarter of 2006 is derived from Shinhan Bank for the supply of a Proxy Server solution. In the future, the company expects significant new revenues by opening up new markets with a strong strategic alliance with Hyundai HDS and KT Corp. The increase in cost of sales and gross margins for the first six months of 2006 compared to the same period in 2005 was primarily attributable to the relative increase in revenue. 5 Total expenses for the first six months of 2006 and 2005 totaled approximately $1.07 million and approximately $1 million, respectively, resulting in an increase of 6.8%. The increase in expenses was primarily due to the increasing costs of consulting service in order to establish company's new vision and strategies and find a new business model for the most profitable future business model such as digital contents, component material, semiconductor industries and other business opportunities. The operating loss for the first six months of 2006 and 2005 totaled $0.85 million and $0.81 million respectively. Total loss before income taxes the first six months of 2006 and 2005 totaled $0.78 million and $1.06 million respectively. Three months period ended June 30, 2006 compared to the three months ended June 30, 2005 (Unit: USD) - -------------------------- -------------------------- -------------------------- 6/30/2006 6/30/2005 - -------------------------- -------------------------- -------------------------- Revenue 1,259,015 419,455 - -------------------------- -------------------------- -------------------------- Cost of sales 1,175,595 242,090 - -------------------------- -------------------------- -------------------------- Gross Profit 83,740 177,365 - -------------------------- -------------------------- -------------------------- Expenses 590,537 498,209 - -------------------------- -------------------------- -------------------------- Operating (Loss) (506,797) (320,844) - -------------------------- -------------------------- -------------------------- Loss Before Income Taxes (511,028) (437,979) - -------------------------- -------------------------- -------------------------- For the three months period ended June 30, 2006 and 2005 revenues totaled approximately $1.26 million and approximately $0.42 million, respectively, which reflects an increase of approximately of $0.84 million. The main reason for the increase in revenue was primarily attributed to the work with the Shinhan Bank for the supply of a Proxy Server solution. The increase in cost of sales for the three months period ended June 30 of 2006 compared to the same period in 2005 was primarily attributable to the relative increase in merchandise sales. Total expenses for the three months period ended June 30, 2006 and 2005 totaled approximately $0.59 million and approximately $0.49 million, respectively, resulting in an increase of 18.5%. The increase in expenses was primarily due to the increasing costs of consulting service in order to establish the company's new vision and strategies and find a new business model. The operating loss for the three months period ended June 30, 2006 and 2005 totaled $0.51 million and $0.32 million respectively. Total loss before income taxes for the three months period ended June 30, 2006 and 2005 totaled $0.51 million and $0.43 million respectively. Management believes the Internet Traffic Management ("ITM") market continues to expand globally in the near future due to an increase in Web-based applications, server based applications and more process intensive processes in Web-based interfaces in the market. The company can expect to show additional revenue and profits in the coming quarters with the strong relationships it has with its enterprise level customers. In accordance with the directive of the board of directors, management will use the balance of fiscal year 2006 to expand its products and markets. In the Korea, CinTel plans to leverage its alliance with Hyundai HDS and expand the solution portfolio from the single ITM solutions to include more enterprise IT solutions, including security products with Hyundai HDS. We believe this partnership with HDS will continue to enable growth for CinTel in the current IT environment. CinTel is also taking steps to establish several business partnerships in the United States. We have not yet entered into any agreements to provide your solutions in the United States. Additionally, CinTel plan to study other markets to enter where we believe we will be able to leverage our distribution channels and product strengths. CinTel has selected "digital content with ITM" as a new target market and plans to launch an online game business in 2006 to help boost sales and secure growth within the company. In December 2005 we applied for a game server patent that will be used to manage traffic of online game servers. Our strategy for online gaming is not to develop online games but to enter the online game market by a potential acquisition of an online Korean game company. As CinTel positions itself as an Online game publisher CinTel plans to expand into China, Japan, other Asian countries, Europe and North America with additional licensing of qualified Korean online games. 6 LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2006, CinTel had cash and cash equivalents including short term investment totaling $1.39 million. Management believes it has the resources necessary to maintain its current business operations for at least twelve months from the date this report was filed. BUSINESS TRENDS The ITM market is currently undergoing rapid transformation from a pure caching appliance environment to a convergence of more enterprise network traffic and application management features such as SSL VPN, Application Acceleration (Web-enabled), WAN optimization, Firewall and Content Security. CinTel must incorporate these functions into its current product line to better compete in the marketplace. Wireless ISP market access penetration is rapidly increasing in North America as wireless and broadband technologies are being deployed. As the standards are agreed upon, and as the new business models begin to surface broadband access penetration will become ubiquitous and will open up new business opportunities for companies like CinTel and others in this space. The Korean game industry is quit unique in the world market. According to our research the market share of Korean video games, which are strong in USA and Japan, is just 3.8% and ranked as 8th in the world. But the global market share of Korean online games is almost 70% (including exports to oversea markets like Japan and China) and 100 million users in over 33 countries are enjoying Korean online games. (Source: News clipping of Daily Sports ("Ilgan Sports"), 10-25-2005) Online gaming is strong in Asian countries like Korea, Taiwan and China, but the online game market in the USA and Japan is expected to grow gradually as broadband services are becoming affordable and available. Current online game market in USA relies on business model of advertisement, sponsor and e-commerce through casual gaming portal site. (Source: A Study On Global Digital Contents - game by KIPA (Korea IT Industry Promotion Agency 2003). According to our research it is expected that the USA online game market will grow to as much as $2.6 billion by the year 2007. (Source: 10/2003: Datamonitor, `Global Online games' 7/2002, IDC, Online game forecast 2002-2007). And the online game market in Europe is also expected to grow gradually as broadband is becomes more popular. Component material or Semiconductor along with digital contents such as online game might be new business item. Semiconductors are the basic blocks used to create an increasing variety of electronic products and system Improvements in semiconductor process and design technologies continue to result in ever smaller, more complex and more reliable devices at a lower cost per function. As performance has increased and size and costs have decreased, semiconductors have become common components in products used in everyday life, including personal computers, telecommunications systems, wireless handheld devices, automotive products, industrial automation and control systems and security applications. According to IC Insights, the percentage of semiconductor content in electronic equipment increased from approximately 11 percent in 1989 to approximately 21 percent in 2004. Nevertheless, the market for semiconductors has historically been volatile. Supply and demand have fluctuated cyclically and have caused pronounced fluctuations in prices and margins. Following a severe downturn in 2001, the industry experienced a further period of low demand and ongoing worldwide overcapacity during 2002. In 2003 and in particular in 2004, the semiconductor market showed stronger performance. During our 2005 financial year, global semiconductor market growth slowed significantly. 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 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. 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. 7 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. 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 an 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, 2005, the allowance for credit losses was $1,048,068 of $2,071,528 in accounts receivables and on December 31, 2004, the allowance for credit losses was $970,421 of $1,565,712 of accounts receivables. The allowance for credit losses in 2005 saw an increase of $77,647 (8%) compared to 2004. The $970.421 allowance was established for credit losses as of December 31, 2004, for 100% credit losses of more than 2 years. The increasing of allowances for credit losses as of December 31, 2005 was primarily due to receivables which occurred in 2003. We established a 100% allowance for credit losses for the receivables of more than 2 years and for customers who have an impairment of capital assets, are discontinuing business operations or are suffering from bad cash flow and liquidity issues. The accounts receivables older than 2 years were incurred because of national economic issues in the Korean market with changing many management situations, with bankrupt companies and bad cash flow of many companies in Korea beginning in 2000. Our credit losses ratio is moderately high but we expect a decrease of credit losses ratio in future as most Korean companies have restructured to establish more stable organizations. 8 In May 2005, the FASB issued Statement No. 154, Accounting Changes and Error Corrections - A Replacement of APB Opinion No. 20 and FASB Statement No. 3 (Statement No. 154). Statement No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Statement No. 154 requires retrospective application of any change in accounting principle to prior periods' financial statements. Statement No. 154 is effective for the first fiscal period beginning after December 15, 2005. We do not expect the implementation of Statement No. 154 to have a significant impact on our consolidated financial statements. ITEM 3. CONTROLS AND PROCEDURES. As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (1) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure; and (2) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. There was no change to our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II Item 1. Legal Proceedings. We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Not applicable. Item 3. Defaults Upon Senior Securities. Not applicable. Item 4. Submission of Matters to a Vote of Security Holders. Not applicable. Item 5. Other Information. Not applicable. Item 6. Exhibits. Exhibit Number Description ------------------------------------------------------------------------- 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) 9 4.6 Convertible Note in the principal amount of $28,930 issued to Jin Yong Kim (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on November 21, 2005) 4.7 Convertible Note in the principal amount of $48,300 issued to Su Jung Jun (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on November 21, 2005) 4.8 Convertible Note in the principal amount of $48,300 issued to Se Jung Oh (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on November 21, 2005) 4.9 Convertible Note in the principal amount of $48,300 issued to Sun Kug Hwang (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on November 21, 2005) 4.10 Convertible Note in the principal amount of $192,864 issued to Woo Young Moon (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on November 21, 2005) 4.11 Convertible Note in the principal amount of $336,000 issued to Joo Chan Lee (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on November 21, 2005) 4.12 Convertible Note in the principal amount of $483,000 issued to Sang Ho Han (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on November 21, 2005) 4.13 Convertible Note in the principal amount of $483,000 issued to Jun Ro Kim (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on November 21, 2005) 4.14 Convertible Note in the principal amount of $483,000 issued to Tai Bok Kim (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on November 21, 2005) 4.15 Convertible Note in the principal amount of $2,082,500 issued to Tai Bok Kim (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on December 20, 2005) 4.16 Convertible Note in the principal amount of $280,000 issued to Joo Chan Lee (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on December 20, 2005) 4.17 Convertible Note in the principal amount of $281,065 issued to Sang Yong Oh (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on December 20, 2005) 4.18 Convertible Note in the principal amount of $246,400 issued to JungMi Lee (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on December 20, 2005) 4.19 Convertible Note in the principal amount of $59,172 issued to Sung Min Chang (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on December 20, 2005) 4.20 Convertible Note in the principal amount of $246,400 issued to Eun Suk Shin (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on December 20, 2005) 4.21 Convertible Note in the principal amount of $492,800 issued to Overnet Co., Ltd. (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on December 20, 2005) 4.22 Convertible Note in the principal amount of $98,620 issued to Yeun Jae Jo (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on December 20, 2005) 4.23 Convertible Note in the principal amount of $985,950 issued to Equinox Partners Inc. (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on December 20, 2005) 4.24 Convertible Note in the principal amount of $788,950 issued to Kei Wook Lee (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on December 20, 2005) 4.25 Convertible Note in the principal amount of $492,800 issued to Seok Kyu Hong (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on December 30, 2005) 10 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 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) 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 11 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CINTEL CORP. Dated: November __, 2006 By: /s/ Sang Don Kim ------------------------------- Sang Don Kim Chief Executive Officer Dated: November __, 2006 By: /s/ Kyo Jin Kang ------------------------------- Kyo Jin Kang Principal Financial Officer and Principal Accounting Officer 12 EX-31.1 2 a5281300ex31-1.txt EXHIBIT 31.1 EXHIBIT 31.1 CERTIFICATION I, Sang Don Kim, certify that: 1. I have reviewed this quarterly report on Form 10-QSB/A of Cintel Corp. for the fiscal quarter ended June 30, 2006; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer is made known to us by others, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the small business issuer's disclosure controls and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions); (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. November __, 2006 /s/ Sang Don Kim - --------------------------------- Sang Don Kim Chief Executive Officer 13 EX-31.2 3 a5281300ex31-2.txt EXHIBIT 31.2 EXHIBIT 31.2 CERTIFICATION I, Kyo Jin Kang, certify that: 1. I have reviewed this quarterly report on Form 10-QSB/A of Cintel Corp. for the fiscal quarter ended June 30, 2006; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer is made known to us by others, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the small business issuer's disclosure controls and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions); (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. November __, 2006 /s/ Kyo Jin Kang - --------------------------------- Kyo Jin Kang Principal Financial Officer 14 EX-32.1 4 a5281300ex32-1.txt EXHIBIT 32.1 EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Cintel Corp. (the "Company") on Form 10-QSB/A for the fiscal quarter ended June 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sang Don Kim, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. November __, 2006 /s/ Sang Don Kim ---------------------------------- Sang Don Kim Chief Executive Officer 15 EX-32.2 5 a5281300ex32-2.txt EXHIBIT 32.2 EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the quarterly report of Cintel Corp. (the "Company") on Form 10-QSB/A for the fiscal quarter ended June 30, 2006 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Kyo Jin Kang, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request. November __, 2006 /s/ Kyo Jin Kang ---------------------------------- Kyo Jin Kang Principal Financial Officer 16 -----END PRIVACY-ENHANCED MESSAGE-----