form10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
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T
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010
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¨
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TRANSITION REPORT UNDER SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER: 333-100046
CINTEL CORP.
(Name of registrant in its charter)
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Nevada
(State or other jurisdiction of incorporation or organization)
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52-2360156
(I.R.S. Employer Identification No.)
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433 N. Camden Drive, Suite 400, Beverly Hills, CA 90210
(Address of principal executive offices) (Zip Code)
Issuer’s telephone Number: (310)-887-1407
WITH COPIES TO:
Gregory Sichenzia, Esq.
Marcelle S. Balcombe, Esq.
Sichenzia Ross Friedman Ference LLP
61 Broadway, 32 nd Flr.
New York, New York 10006
(212) 930-9700
Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o
Non-accelerated filer o Smaller reporting company x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of registrant’s common stock outstanding, as of August 18, 2010 was 95,300,196.
CINTEL CORP.
INDEX
PART I: FINANCIAL INFORMATION
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ITEM 1:
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FINANCIAL STATEMENTS (Unaudited)
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3
|
| |
Condensed Consolidated Balance Sheets
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4
|
| |
Condensed Consolidated Statements of Operations
|
5
|
| |
Condensed Consolidated Statements of Cash Flows
|
6
|
| |
Notes to Unaudited Condensed Consolidated Financial Statements
|
7
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|
ITEM 2:
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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15
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|
ITEM 3 :
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
19
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|
ITEM 4:
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CONTROLS AND PROCEDURES
|
19
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|
PART II: OTHER INFORMATION
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|
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Item 1
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LEGAL PROCEEDINGS
|
20
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|
ITEM 1A :
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RISK FACTORS
|
20
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|
ITEM 2
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
20
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|
ITEM 3
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DEFAULTS UPON SENIOR SECURITIES
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20
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ITEM 4
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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20
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ITEM 5
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OTHER INFORMATION
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20
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EXHIBITS
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20
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21
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PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CINTEL CORP. AND SUBSIDIARIES
______________________________________________________
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2010
(UNAUDITED)
CINTEL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
|
ASSETS
|
|
June 30, 2010 (Unaudited)
|
|
|
December 31,
2009 (1)
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|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
123 |
|
|
$ |
320 |
|
|
Loans receivable – affiliates
|
|
|
217 |
|
|
|
158 |
|
|
Prepaid and other current assets
|
|
|
173 |
|
|
|
361 |
|
|
Total current assets
|
|
|
513 |
|
|
|
839 |
|
|
Property, plant and equipment, net
|
|
|
41 |
|
|
|
3 |
|
|
Restricted cash
|
|
|
33 |
|
|
|
35 |
|
|
Equity method investments
|
|
|
6,778 |
|
|
|
7,912 |
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|
Long-term investments
|
|
|
7,162 |
|
|
|
7,188 |
|
|
Goodwill
|
|
|
2,559 |
|
|
|
2,559 |
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|
Security deposits
|
|
|
31 |
|
|
|
48 |
|
|
Total assets
|
|
$ |
17,117 |
|
|
$ |
18,584 |
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|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
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Current liabilities:
|
|
|
|
|
|
|
|
|
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Accounts payable
|
|
$ |
11,478 |
|
|
$ |
12,032 |
|
|
Accrued liabilities
|
|
|
276 |
|
|
|
138 |
|
|
Total current liabilities
|
|
|
11,754 |
|
|
|
12,170 |
|
|
Convertible debts
|
|
|
26,104 |
|
|
|
26,104 |
|
|
Total liabilities
|
|
|
37,858 |
|
|
|
38,274 |
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| |
|
|
|
|
|
|
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Commitments (Note 13)
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|
|
|
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|
|
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| |
|
|
|
|
|
|
|
|
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Stockholders’ equity (deficit):
|
|
|
|
|
|
|
|
|
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Common stocks
|
|
|
98 |
|
|
|
98 |
|
|
Additional paid-in capital
|
|
|
20,293 |
|
|
|
20,293 |
|
|
Accumulated other comprehensive loss
|
|
|
(2,865 |
) |
|
|
(3,668 |
) |
|
Accumulated deficit
|
|
|
(38,267 |
) |
|
|
(36,413 |
) |
|
Total stockholders’ deficit
|
|
|
(20,741 |
) |
|
|
(19,690 |
) |
|
Total liabilities and stockholders' equity
|
|
$ |
17,117 |
|
|
$ |
18,584 |
|
|
(1)
|
Derived from audited financial statements included in the Form 10-K for the year ended December 31, 2009 filed with the Securities and Exchange Commission.
|
See accompanying notes to unaudited condensed consolidated financial statements.
CINTEL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
| |
|
Three Months Ended June 30, 2010
|
|
|
(Restated-Note 2)
Three Months Ended
June 30, 2009
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|
|
Six Months Ended June 30, 2010
|
|
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(Restated-Note 2) Six Months
Ended
June 30, 2009
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
Cost of revenue
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Gross profits
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
131 |
|
|
|
225 |
|
|
|
404 |
|
|
|
400 |
|
|
Depreciation and amortization
|
|
|
1 |
|
|
|
- |
|
|
|
2 |
|
|
|
1 |
|
| |
|
|
132 |
|
|
|
225 |
|
|
|
406 |
|
|
|
401 |
|
|
Loss from operations
|
|
|
(132 |
) |
|
|
(225 |
) |
|
|
(406 |
) |
|
|
(401 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
- |
|
|
|
546 |
|
|
|
- |
|
|
|
550 |
|
|
Interest expenses
|
|
|
(48 |
) |
|
|
(332 |
) |
|
|
(98 |
) |
|
|
(692 |
) |
|
Impairment loss on investment
|
|
|
(185 |
) |
|
|
(200 |
) |
|
|
(375 |
) |
|
|
(322 |
) |
|
Share of loss from equity method investment
|
|
|
(78 |
) |
|
|
(52 |
) |
|
|
(380 |
) |
|
|
(83 |
) |
|
Foreign currency transaction, net
|
|
|
(857 |
) |
|
|
(3,015 |
) |
|
|
(595 |
) |
|
|
(2,972 |
) |
|
|
|
|
(1,168 |
) |
|
|
(3,053 |
) |
|
|
(1,448 |
) |
|
|
(3,519 |
) |
|
Loss before income taxes
|
|
|
(1,300 |
) |
|
|
(3,278 |
) |
|
|
(1,854 |
) |
|
|
(3,920 |
) |
|
Income tax provision
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Loss from continuing operations
|
|
|
(1,300 |
) |
|
|
(3,278 |
) |
|
|
(1,854 |
) |
|
|
(3,920 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax
|
|
|
- |
|
|
|
(2,490 |
) |
|
|
- |
|
|
|
(3,769 |
) |
|
Net loss
|
|
$ |
(1,300 |
) |
|
$ |
(5,768 |
) |
|
$ |
(1,854 |
) |
|
$ |
(7,689 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share – basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$ |
(0.01 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.04 |
) |
|
Loss form discontinued operations
|
|
|
- |
|
|
|
(0.03 |
) |
|
|
- |
|
|
|
(0.04 |
) |
|
Net loss
|
|
$ |
(0.01 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.08 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted
|
|
|
95,300 |
|
|
|
95,314 |
|
|
|
95,300 |
|
|
|
95,314 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
CINTEL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
| |
|
Six Months Ended
|
|
| |
|
June 30, 2010
|
|
|
(Restated-Note 2)
June 30, 2009
|
|
| |
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(1,854 |
) |
|
$ |
(7,689 |
) |
|
Adjustments to reconcile net loss to net cash
|
|
|
|
|
|
|
|
|
|
used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
2 |
|
|
|
1 |
|
|
Loss from discontinued operations
|
|
|
- |
|
|
|
3,770 |
|
|
Severance benefit
|
|
|
- |
|
|
|
31 |
|
|
Investment impairment
|
|
|
380 |
|
|
|
322 |
|
|
Share of loss from equity investment
|
|
|
375 |
|
|
|
83 |
|
|
Foreign currency transaction, net
|
|
|
595 |
|
|
|
2,972 |
|
|
(Increase) decrease in assets:
|
|
|
|
|
|
|
|
|
|
Prepaid expenses and other assets
|
|
|
7 |
|
|
|
(8,719 |
) |
|
Security deposits
|
|
|
16 |
|
|
|
- |
|
|
Increase (decrease) in liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
89 |
|
|
|
(13 |
) |
|
Accrued liabilities
|
|
|
141 |
|
|
|
67 |
|
|
Cash used in operating activities
|
|
|
(249 |
) |
|
|
(9,175 |
) |
| |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Acquisition of investments in securities
|
|
|
- |
|
|
|
(897 |
) |
|
Acquisition of property and equipment
|
|
|
(42 |
) |
|
|
- |
|
|
Proceeds from sale of investment
|
|
|
- |
|
|
|
7,529 |
|
|
Payments on loan receivable
|
|
|
(106 |
) |
|
|
(1 |
) |
|
Proceeds from loan receivable
|
|
|
204 |
|
|
|
6 |
|
|
Cash provided by investing activities
|
|
|
56 |
|
|
|
6,637 |
|
| |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Principal payments of notes payable
|
|
|
- |
|
|
|
(2,500 |
) |
|
Cash used in financing activities
|
|
|
- |
|
|
|
(2,500 |
) |
| |
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalent
|
|
|
(193 |
) |
|
|
(5,038 |
) |
|
Effect of foreign currency translation
|
|
|
(4 |
) |
|
|
24 |
|
|
Cash and cash equivalent - beginning of period
|
|
|
320 |
|
|
|
5,648 |
|
| |
|
|
|
|
|
|
|
|
|
Cash and cash equivalent - end of period
|
|
$ |
123 |
|
|
$ |
634 |
|
| |
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flows information:
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$ |
- |
|
|
$ |
697 |
|
| |
|
|
|
|
|
|
|
|
|
Non-cash activity
|
|
|
|
|
|
|
|
|
|
Common stocks provided for professional service
|
|
$ |
- |
|
|
$ |
11 |
|
See accompanying notes to unaudited condensed consolidated financial statements.
CINTEL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of CinTel Corp. (“Cintel” or the “Company”) have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In management’s opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments), necessary to state fairly the financial information included herein.
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make judgments, estimates and assumptions that affect the reported in the financial statements and accompanying notes. Actual results may differ materially from these estimates. In addition, any changes in these estimates or their related assumptions could have a materially adverse effect on the Company's operating results.
Where the functional currency of the Company's foreign subsidiaries is the local currency, all assets and liabilities are translated into U.S. dollars, using the exchange rate on the consolidated balance sheet date, and revenues and expenses are translated at average rates prevailing during the period. Accounts and transactions denominated in foreign currencies have been re-measured into functional currencies before translated into U.S. dollars. Foreign currency transaction gains and losses are included as a component of other income and expense. Gains and losses from foreign currency translation are included as a separate component of comprehensive income.
These unaudited condensed consolidated financial statements include the accounts of Cintel Corp. and its wholly-owned subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. While the Company believes that the disclosures are adequate to make the information not misleading, these condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009.
Reclassifications
Certain reclassifications have been made to the prior year consolidated financial statement presentation to correspond to the current period’s format. Total equity (deficit) and net income (loss) are unchanged due to these reclassifications.
Recent Accounting pronouncements
In January 2010, the FASB issued guidance that expands the interim and annual disclosure requirements of fair value measurements, including the information about movement of assets between level 1 and 2 of the three-tier fair value hierarchy established under its fair value measurement guidance. This guidance also requires separate disclosure for each of purchases, sales, issuance, and settlements in the reconciliation for fair value measurements using significant unobservable inputs, level 3. Except for the detailed disclosure in the level 3 reconciliation, which is effective for the fiscal years beginning after December 15, 2010, all the other disclosures under this guidance are effective for the fiscal years beginning after December 15, 2009. The adoption of this guidance is not expected to a significant impact on the Company’s results of operations of financial position.
CINTEL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 2 – Discontinued Operations from Disposal of Subsidiaries
In October 2009, the convertible debts issued to Woori PEF were called, and in December 2009, to satisfy the debts, the Company transferred to the creditor (1) 100% ownership in Bluecomm, (2) 48% ownership in PDT and (3) 32% ownership interest in PSTS. As a result, the Company now has only Cintel Korea remaining as a wholly-owned subsidiary. For comparative presentation purposes, the consolidated statements of operations and cash flows for the three and six months ended June 30, 2009 have been restated to reflect the result of discontinued operations of the subsidiaries disposed.
Note 3 – Balance Sheet Details
Loans Receivable – Affiliates
Loans receivable from affiliates consist of the following as of June 30, 2010 and December 31, 2009:
| |
|
June 30, 2010
|
|
|
December 31, 2009
|
|
| |
|
(in thousands)
|
|
|
Due from officers
|
|
$ |
98 |
|
|
$ |
117 |
|
|
Other loan receivable
|
|
|
119 |
|
|
|
41 |
|
| |
|
$ |
217 |
|
|
$ |
158 |
|
In the ordinary course of business, the Company is expected to continue its operation, including borrowings, with companies that are affiliated by direct interest or through common ownership. In the opinion of management, such transactions were on similar terms, including interest rates and collateral, as those prevailing at the time of comparable transactions with other persons and did not involve more than a normal risk of collectability or present any other unfavorable features to the Company.
Prepaid Expenses and Other Assets
Prepaid expenses and other current assets consist of the following as of June 30, 2010 and December 31, 2009:
| |
|
June 30, 2010
|
|
|
December 31, 2009
|
|
| |
|
(in thousands)
|
|
| |
|
|
|
|
|
|
|
Prepaid expenses
|
|
$ |
4 |
|
|
$ |
180 |
|
|
Advance payments to vendors
|
|
|
164 |
|
|
|
173 |
|
|
Other current assets
|
|
|
5 |
|
|
|
8 |
|
|
Total
|
|
$ |
173 |
|
|
$ |
361 |
|
Property, Plant and Equipment
Property, plant and equipment consist of the following at June 30, 2010 and December 31, 2009:
| |
|
June 30, 2010
|
|
|
December 31, 2009
|
|
| |
|
(in thousands)
|
|
| |
|
|
|
|
|
|
|
Furniture and fixtures
|
|
$ |
8 |
|
|
$ |
9 |
|
|
Vehicles
|
|
|
40 |
|
|
|
- |
|
| |
|
|
48 |
|
|
|
9 |
|
|
Accumulated depreciation
|
|
|
(7 |
) |
|
|
(6 |
) |
|
Property and equipment, net
|
|
$ |
41 |
|
|
$ |
3 |
|
Depreciation expenses for the six months ended June 30, 2010 and 2009 were $2,247 and $737, respectively.
CINTEL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Investments Securities
The carrying amount, gross unrealized holding gains, gross unrealized holding losses, and fair value of investment securities by major security type and class of security at June 30, 2010 and December 31, 2009 were as follows:
| |
|
Aggregate
cost basis
|
|
|
Gross
unrealized holding
gains
|
|
|
Gross
unrealized holding
(losses)
|
|
|
Estimated fair values
|
|
| |
|
(In thousands)
|
|
|
June 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities - nonmarketable
|
|
$ |
6,068 |
|
|
$ |
2,085 |
|
|
$ |
(991 |
) |
|
$ |
7,162 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in long-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,162 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities - nonmarketable
|
|
$ |
6,068 |
|
|
$ |
2,111 |
|
|
$ |
(991 |
) |
|
$ |
7,188 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in long-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,188 |
|
Equity securities: The investments in equity securities with unrealized gain or loss are consisted of marketable and non-marketable equity securities. The Company evaluated the near-term prospects of the issuers in relation to the severity and duration of the impairment. For nonmarketable equity securities, the Company does not estimate the fair values unless there are identified events or changes in circumstances that may have a significant adverse effect on the investment. If management determines that these nonmarketable equity investments are impaired, losses are generally measured by using pricing reflected in current rounds of financing.
Note 5 – Equity Method Investments
The Company accounts investment under equity method when the it has the ability to exercise significant influence, but not control, over an investee. Significant influence is generally deemed to exist if the investing company has an ownership interest in the voting stock of an investee of between 20% and 50%.
Investments accounted for under the equity method consist of as follows at June 30, 2010 and December 31, 2009:
|
June 30, 2010
|
|
Ownership
|
|
|
Carrying
Value
|
|
| |
|
|
|
|
(in thousands)
|
|
| |
|
|
|
|
|
|
|
Phoenix Asset Investment
|
|
|
27.4 |
% |
|
$ |
6,778 |
|
|
December 31, 2009
|
|
Ownership
|
|
|
Carrying
Value
|
|
| |
|
|
|
|
(in thousands)
|
|
| |
|
|
|
|
|
|
|
Phoenix Asset Investment
|
|
|
27.4 |
% |
|
$ |
7,912 |
|
The Company’s share of losses from the equity method investment for the six months ended June 30, 2010 and 2009 were approximately $380,000 and $83,000, respectively.
CINTEL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6 – Fair Value Measurements
Effective January 1, 2008, the Company adopted ASC 820, Fair Value Measurements and Disclosures, for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. ASC 820 also establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurements).
The three levels of the fair value hierarchy under ASC 820 are described below:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets.
Level 2 - Significant other observable inputs other than Level 1 prices such as quoted prices in markets that are not active, quoted prices for similar assets, or other inputs that are observable, either directly or indirectly, for substantially the full term of the asset.
Level 3 - Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The fair values of securities available for sale are generally determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs).
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis at June 30, 2010 and December 31, 2009:
| |
|
|
|
|
Fair value measurements at
reporting date using
|
|
| |
|
June 30, 2010
|
|
|
Quoted prices
in active markets for identical assets
(Level 1)
|
|
|
Significant
other
observable
inputs
(Level 2)
|
|
|
Significant unobservable inputs
(Level 3)
|
|
| |
|
(In thousands)
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonmarketable equity securities
|
|
$ |
7,162 |
|
|
$ |
- |
|
|
$ |
7,162 |
|
|
$ |
- |
|
| |
|
|
|
|
Fair value measurements at
reporting date using
|
|
| |
|
December 31, 2009
|
|
|
Quoted prices
in active
markets for identical assets
(Level 1)
|
|
|
Significant
other
observable
inputs
(Level 2)
|
|
|
Significant unobservable inputs
(Level 3)
|
|
| |
|
(In thousands)
|
|
|
Available-for-sale securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonmarketable equity securities
|
|
$ |
7,188 |
|
|
$ |
- |
|
|
$ |
7,188 |
|
|
$ |
- |
|
CINTEL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The fair values of the financial instruments shown in the above table as of June 30, 2010 and December 31, 2009 represent the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Company based on the best information available in the circumstances, including expected cash flows and appropriately risk-adjusted discount rates, available observable and unobservable inputs.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments:
Investment securities: Marketable securities classified as available for sale are measured using quoted market prices at the reporting date multiplied by the quantity held. The fair values of equity securities accounted for under the cost method (non-marketable equity securities) are determined using market multiples derived from comparable companies. Under that approach, the identification of comparable companies requires significant judgment. Additionally, multiples might lie in ranges with a different multiple for each comparable company. The selection of where the appropriate multiple falls within that range also requires significant judgment, considering both qualitative and quantitative factors. Debt securities classified as available for sale are measured using quoted market prices multiplied by the quantity held when quoted market prices are available. If quoted market prices for those debt securities are not available, the fair value is determined using an income approach valuation technique (present value using the discount rate adjustment technique) that considers, among other things, rates currently observed in publicly traded debt markets for debt of similar terms to companies with comparable credit risk, the issuer’s credit spread, and illiquidity by sector and maturity.
Note 7 – Goodwill
The following table sets forth changes in the carrying of goodwill at June 30, 2010 and December 31, 2009:
|
Balance as of December 31, 2009 (in thousands)
|
|
$ |
2,559 |
|
|
Fair value adjustments
|
|
|
- |
|
|
Balance as of June 30, 2010
|
|
$ |
2,559 |
|
Note 8 – Convertible Debts
The carrying value of convertible debts outstanding at June 30, 2010 and December 31, 2009, are summarized as follows:
| |
Maturity
|
|
Interest Rate
|
|
|
Conversion Price
|
|
|
June 30,
2010
|
|
|
December 31, 2009
|
|
| |
|
|
|
|
|
|
|
|
(in thousands)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debenture - A
|
2011
|
|
|
8.00 |
% |
|
$ |
0.50 |
|
|
$ |
15,284 |
|
|
$ |
15,284 |
|
|
Convertible debenture - C
|
2012
|
|
|
2.30 |
% |
|
$ |
0.70 |
|
|
|
10,820 |
|
|
|
10,820 |
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
$ |
26,104 |
|
|
$ |
26,104 |
|
The convertible debentures have not been included in the calculation of the diluted (loss) per share as their inclusion would be anti-dilutive.
CINTEL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 9 – Income Taxes
The Company adopted the provisions of FIN No. 48 on January 1, 2008, and there was no material effect on the financial statements at the date of adoption. There was no cumulative effect related to adopting FIN No. 48.
Corporate income tax rates applicable to the Korean subsidiaries in 2009 and 2008 were 16.5% of the first 100 million Korean Won ($105,700) of taxable income and 29.7% on the excess. For the United States operations, 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 $12.1 taxable loss in US and $16.9 million of taxable loss in Korea and China operations. The utilization of the Korean losses expires in years 2008 to 2012 and the US losses in years 2019 to 2027. PSTS is exempt from income taxes under the Chinese tax law for the first two profitable tax years. Taxable income in the third to fifth profitable tax years will be taxed at 5% and subsequently the applicable tax rate will be 10%.
The provision for income taxes for the periods ended June 30, 2010 and 2009 are summarized as follows:
| |
|
Six Months Ended
|
|
| |
|
June 30, 2010
|
|
|
June 30, 2009
|
|
| |
|
(in thousands)
|
|
| |
|
|
|
|
|
|
|
Current income tax - US and foreign
|
|
$ |
- |
|
|
$ |
- |
|
|
Deferred income tax - US and foreign
|
|
|
- |
|
|
|
- |
|
|
Income tax expense
|
|
$ |
- |
|
|
$ |
- |
|
The Company has deferred tax assets (liabilities) at June 30, 2010 and December 31, 2009 as follows:
| |
|
June 30, 2010
|
|
|
December 31, 2009
|
|
| |
|
(in thousands)
|
|
|
Net operating loss carryforwards
|
|
$ |
5,439 |
|
|
$ |
5,353 |
|
|
Valuation allowance
|
|
|
(5,439 |
) |
|
|
(5,353 |
) |
| |
|
$ |
- |
|
|
$ |
- |
|
Note 10 – Comprehensive Income (Loss)
Comprehensive income or loss is defined as a changes in equity of a company during a period from transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners. Comprehensive loss, net of taxes, for the periods ended June 30, 2010 and 2009 is as follows:
| |
|
Three Months Ended
|
|
|
Six Months Ended
|
|
| |
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
| |
|
(in thousands)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$ |
(1,300 |
) |
|
$ |
(5,768 |
) |
|
$ |
(1,854 |
) |
|
$ |
(7,689 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
1,139 |
|
|
|
(967 |
) |
|
|
804 |
|
|
|
(129 |
) |
|
Total comprehensive loss
|
|
$ |
(161 |
) |
|
$ |
(6,735 |
) |
|
$ |
(1,050 |
) |
|
$ |
(7,818 |
) |
CINTEL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 11 – Loss per Share
The following reconciles the numerators and denominators of the basic and diluted per share computation for the periods ended June 30, 2010 and 2009:
| |
|
Three Months Ended
|
|
|
Six Months Ended
|
|
| |
|
June 30, 2010
|
|
|
June 30, 2009
|
|
|
June 30, 2010
|
|
|
June 30, 2009
|
|
| |
|
(in thousand except for loss per share)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator for basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations
|
|
$ |
(1,300 |
) |
|
$ |
(3,278 |
) |
|
$ |
(1,854 |
) |
|
$ |
(3,920 |
) |
|
Net loss from discontinued operations
|
|
|
- |
|
|
|
(2,490 |
) |
|
|
- |
|
|
|
(3,769 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares outstanding
|
|
|
95,300 |
|
|
|
95,314 |
|
|
|
95,300 |
|
|
|
95,314 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share – continuing operations
|
|
$ |
(0.01 |
) |
|
$ |
(0.03 |
) |
|
$ |
(0.02 |
) |
|
$ |
(0.04 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per share – discontinued operations
|
|
$ |
- |
|
|
$ |
(0.03 |
) |
|
$ |
- |
|
|
$ |
(0.04 |
) |
Note 12 – Capital
The Company had no significant capital transactions for the three months ended June 30, 2010.
Stock Warrants and Options
The Company has accounted for its stock options and warrants in accordance with ASC 718 "Stock Based Compensation". 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:
| |
|
June 30, 2010
|
|
|
December 31, 2009
|
|
|
Interest rate
|
|
|
6.5 |
% |
|
|
6.5 |
% |
|
Expected volatility
|
|
|
70 |
% |
|
|
70 |
% |
|
Expected life in years
|
|
|
5 |
|
|
|
6 |
|
|
Expected dividends
|
|
|
- |
|
|
|
- |
|
In 1999, the Board of Directors of Cintel Korea adopted a stock option plan to allow employees to purchase ordinary shares of the Cintel Korea.
The stock option plan granted 96,000 options for the common stock of Cintel Korea having a $0.425 nominal par value each and an exercise price of $0.425. In 2002, 53,000 stock options were cancelled. In 2003, an additional 30,000 stock options were cancelled.
In March 2000, 225,000 stock options were granted having a $0.425 nominal par value each and an exercise price of $0.68. From this grant, 135,000 options were cancelled in 2002, and an additional 47,000 options were cancelled in 2003.
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.
CINTEL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In March 2003, 65,000 stock options were granted having a $0.425 nominal par value each and an exercise price of $0.71. In the same year, 15,000 of these stock options were cancelled.
The options vest gradually over a period of 3 years from the date of grant. The term of each option shall not be more than 8 years from the date of grant. No options have vested during the periods ended June 30, 2010 and 2009 and no option is outstanding at June 30, 2010.
The stock options have not been included in the calculation of the diluted earnings per share as their inclusion would be anti-dilutive.
Note 13 – Commitments
Operating Lease Obligations
The Company is committed to a lease obligation for its office expiring in August, 2010. Future minimum annual payments (exclusive of tax and insurance) under the lease are $4,160 for the year ended December 31, 2010.
ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Note on Forward-Looking Statements.
Certain statements in “Management’s Discussion and Analysis or Plan of Operation” below, and elsewhere in this report, are not related to historical results, and are forward-looking statements. Forward-looking statements present our expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements frequently are accompanied by such words such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” or the negative of such terms or other words and terms of similar meaning. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, achievements, or timeliness of such results. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of such forward-looking statements. We are under no duty to update any of the forward-looking statements after the date of this quarterly report. Subsequent written and oral forward looking statements attributable to us or to persons acting in our behalf are expressly qualified in their entirety by the cautionary statements and risk factors set forth below and elsewhere in this quarterly report, and in other reports filed by us with the SEC.
You should read the following description of our financial condition and results of operations in conjunction with the financial statements and accompanying notes included in this report.
Recent Development
On December 31, 2009, CinTel Corp entered into an agreement (the “Agreement”) with Woori Private Equity Fund (“Woori”), and Cintel Co. Ltd., (“Cintel Korea”), a wholly owned subsidiary of the Company. The Agreement provides for the transfer by the Company of certain collateral to Woori in accordance with the Convertible Bonds Subscription Agreement dated as March 15, 2007 (the “Woori Subscription Agreement”). At the closing of the Woori Subscription Agreement, the Company issued a convertible bond (the “Convertible Bond”) in the amount of Korean Won 60,000,000,000 (USD$63,000,000). The Convertible Bond is secured by the all shares subscribed for by the Company using the proceeds from the Convertible Bond.
Pursuant to the terms of the Agreement, the Company acknowledged that it is in default of the terms of the Woori Subscription Agreement and agreed to the following in full satisfaction of all amounts owed under the Convertible Bond:
(A) The pledged deposit established pursuant to the Woori Subscription Agreement in the amount of Korean Won 10,718,080,000 (USD$9,292,602) shall be transferred to Woori; and
(B) The Company shall sell and transfer to Woori all of its interest in 501,000 shares of Phoenix Digital Tech (“PDT”), 10,200,000 shares of Phoenix Semiconductor Telecommunication Suzhou, 1,202,520 shares of Bluecomm (the “Pledged Shares”).
In addition, Cintel Korea shall transfer to Woori 2,644,426 shares of BKLCD (together with the Pledged Shares, collectively the “Pledged Securities”). The purchase price of the Pledged Securities shall be paid by offset against the amounts owed under the Convertible Bond.
The closing of the transactions contemplated by the Agreement occurred on December 31, 2009. Upon the closing of the transaction, the Company had no remaining active operations.
The Company’s principal business objective for the next 12 months and beyond such time will be to achieve long-term growth potential through a combination with a business. The Company will not restrict its potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business.
The analysis of new business opportunities will be undertaken by or under the supervision of the officers and directors of the Company. The Company has unrestricted flexibility in seeking, analyzing and participating in potential business opportunities. In its efforts to analyze potential acquisition targets, the Company will consider the following kinds of factors:
(a) Potential for growth, indicated by new technology, anticipated market expansion or new products;
(b) Competitive position as compared to other firms of similar size and experience within the industry segment as well as within the industry as a whole;
(c) Strength and diversity of management, either in place or scheduled for recruitment;
(d) Capital requirements and anticipated availability of required funds, to be provided by the Company or from operations, through the sale of additional securities, through joint ventures or similar arrangements or from other sources;
(e) The cost of participation by the Company as compared to the perceived tangible and intangible values and potentials;
(f) The extent to which the business opportunity can be advanced;
(g) The accessibility of required management expertise, personnel, raw materials, services, professional assistance and other required items; and
(h) Other relevant factors.
In applying the foregoing criteria, no one of which will be controlling, management will attempt to analyze all factors and circumstances and make a determination based upon reasonable investigative measures and available data. Potentially available business opportunities may occur in many different industries, and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. Due to the Company's limited capital available for investigation, the Company may not discover or adequately evaluate potential acquisition targets.
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 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 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 were 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 three years, 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. Until December 31, 2009, the Company had holdings that directly manufactured semiconductor packaging, NAND flash memory packaging, LCD assembly, and testing specialists, as well as provided a solution for memory applications for home appliances, semiconductor, TFT-LCD application products and Factory Automation Design. The Company’s operations were conducted through its subsidiaries, Phoenix Digital Tech, Phoenix Semiconductor Telecommunication Suzhou, and Bluecomm and its indirect subsidiary BKLCD. Upon transfer of the shares of its operating subsidiaries pursuant to the Agreement with its largest creditor, Woori, in December 2009, the company has no current operations. The Company maintains a 19% interest in PSTS and 2.1% interest in PDT.
Results of Operations
Three months period ended June 30, 2010 compared to the three months ended June 30, 2009.
(in thousands, USD)
|
|
|
6/30/2010
|
|
|
(Restated)
6/30/2009
|
|
|
Revenue
|
|
$ |
- |
|
|
$ |
- |
|
|
Cost of sales
|
|
|
- |
|
|
|
- |
|
|
Gross profit
|
|
|
- |
|
|
|
- |
|
|
Operating expenses
|
|
|
132 |
|
|
|
225 |
|
|
Loss from continuing operations
|
|
|
(1,300 |
) |
|
|
(3,278 |
) |
|
Loss from discontinued operations
|
|
|
- |
|
|
|
(2,490 |
) |
|
Net loss
|
|
|
(1,300 |
) |
|
|
(5,768 |
) |
The company generated no revenues for the three months ended June 30, 2010 and 2009, as the result of disposal of operating subsidiaries during the 4th quarter of 2009.
Total operating expenses for the three months ended June 30, 2010 and 2009 totaled approximately $132,000 and $225,000, respectively, resulting in a decrease of $93,000 or 41.3%.
For the three months ended June 30, 2010 and 2009, the company had loss from continuing operations of $1.30 million and $3.28 million, respectively. Loss from discontinued operations totaled about $2.49 million for the three months ended June 30, 2009. The net loss for the three months ended June 30, 2010 and 2009 totaled $1.30 million and $5.77 million, respectively.
Six months period ended June 30, 2010 compared to the Six months ended June 30, 2009.
(in thousands, USD)
|
|
|
6/30/2010
|
|
|
(Restated)
6/30/2009
|
|
|
Revenue
|
|
$ |
- |
|
|
$ |
- |
|
|
Cost of sales
|
|
|
- |
|
|
|
- |
|
|
Gross profit
|
|
|
- |
|
|
|
- |
|
|
Operating expenses
|
|
|
406 |
|
|
|
401 |
|
|
Loss from continuing operations
|
|
|
(1,854 |
) |
|
|
(3,920 |
) |
|
Loss from discontinued operations
|
|
|
- |
|
|
|
(3,769 |
) |
|
Net loss
|
|
|
(1,854 |
) |
|
|
(7,689 |
) |
The company generated no revenues for the six months ended June 30, 2010 and 2009, as the result of disposal of operating subsidiaries during the 4th quarter of 2009.
Total operating expenses for the six months ended June 30, 2010 and 2009 totaled approximately $406,000 and $401,000, respectively, resulting in an increase of $5,000 or 1.2%.
For the six months ended June 30, 2010 and 2009, the company had loss from continuing operations of $1.85 million and $3.92 million, respectively. Loss from discontinued operations totaled about $3.77 million for the six months ended June 30, 2009. The net loss for the six months ended June 30, 2010 and 2009 totaled $1.85 million and $7.69 million, respectively.
In summary, the company incurred net loss for the current period ending June 30, 2010 and the management anticipates that the company’s operating results will remain in the similar trend for the next few more quarters until the company engages in more viable business.
Liquidity and Capital Resources
As of June 30, 2010 our cash balance without restriction was about $123,000 compared to $320,000 at December 31, 2009. Total current assets at June 30, 2010 was $513,000 compared to $839,000 at December 31, 2009. We currently plan to use the cash balance for ordinary business operations.
For the six months ended June 30, 2010, net cash used in operating activities was $249,000, compared to $9.18 million for the six months ended June 30, 2009. No material fluctuation was noted and the net cash used in operating activities was mainly attributed to continued operating loss.
For the six months ended June 30, 2010, net cash provided by investing activities was $56,000, compared to $6.64 million for the six months ended June 30, 2009. The decrease in cash provided by from investing activities can be largely attributed to no additional investments or sales occurred in 2010.
For the six months ended June 30, 2010, no cash transactions occurred in financing activities, compared to net cash used of $2.5 million for the six months ended June 30, 2009.
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
Cash and Cash Equivalents
Cash includes currency, checks issued by others, other currency equivalents, current deposits and passbook deposits held by financial institutions. For financial statement purposes, we consider all highly liquid debt instruments with insignificant interest rate risk and maturity of three months or less when purchased to be cash equivalent. Cash equivalents consist primarily of cash deposits in money market funds that are available for withdrawal without restriction. The investments that mature within three months from the investment date are also included as cash equivalents.
Cash deposits that are restricted as to usage, withdrawal or pledged as security are disclosed separately and not included in the cash total for the purpose of the statements of cash flow. At March 31, 2010 and December 31, 2009, such restricted cash aggregated $35,000$1,242,582.
Long-Lived Assets Impairment
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.
The determination of recoverability is based on an estimate of undiscounted cash flows expected to result from the use and eventual disposition of the asset. In the event such cash flows are not expected to be sufficient to recover the recorded value of the assets, the assets are written down to their estimated fair values. When assets are removed from operations and held for sale, the impairment loss is estimated as the excess of the carrying value of the assets over their fair value.
Goodwill
Goodwill is tested for impairment annually or more frequently if certain events or changes in circumstances indicate that the carrying amount of goodwill exceeds its implied fair value.
The two-step impairment test identifies potential goodwill impairment and measures the amount of impairment loss to be recognized. The first step of the impairment test, used to indentify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. The Company uses management estimates of future cash flows to perform the first step of the impairment test. Management's estimates include assumptions about future conditions such as future revenues, gross margins, operating expenses and industry trends. The second step is performed only if impairment is indicated from the first step test and measures the impairment by comparing the carrying value of the goodwill with its fair value.
Fair Value of Financial Instruments
The Company determines the estimated fair value of financial instruments using available market information and valuation methodologies considered to be appropriate. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the estimates are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methodologies could have a significant effect on the estimated fair value amounts. The fair value of investments, derivative instruments and convertible debt are based on market data. Carrying amounts of cash equivalents, accounts receivable and accounts payable approximate fair value due to the short maturity of these financial instruments.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk consist of cash equivalents, short-term investments, accounts receivable and loan receivables. Cash equivalents and short-term investments are maintained with high quality institutions, the composition and maturities of which are regularly monitored by management. The Company diversifies its investments to reduce the exposure to loss from any single issuer, sector or bank.
Comprehensive Income
Comprehensive income or loss is defined as a change in equity of a company during a period from transactions and other events and circumstances, excluding transactions resulting from investments by owners and distributions to owners. The components of total comprehensive income or loss for the periods were consist of unrealized gain or loss on available-for-sale marketable securities and foreign currency translation adjustments.
Recent Accounting pronouncements
In January 2010, the FASB issued guidance that expands the interim and annual disclosure requirements of fair value measurements, including the information about movement of assets between level 1 and 2 of the three-tier fair value hierarchy established under its fair value measurement guidance. This guidance also requires separate disclosure for each of purchases, sales, issuance, and settlements in the reconciliation for fair value measurements using significant unobservable inputs, level 3. Except for the detailed disclosure in the level 3 reconciliation, which is effective for the fiscal years beginning after December 15, 2010, all the other disclosures under this guidance are effective for the fiscal years beginning after December 15, 2009. The adoption of this guidance will not have material impact to the net result of operations of financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
n/a
ITEM 4T. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (1) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure; and (2) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms.
There was no change to our internal controls or in other factors that could affect these controls during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
There are no material changes from the risk factors previously disclosed in the Registrant’s Form 10-K filed on April 15, 2010.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. Removed and Reserved
None
|
Exhibit Number
|
|
Description
|
| |
|
|
|
31.1*
|
|
Certification by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act
|
| |
|
|
|
31.2*
|
|
Certification by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act
|
| |
|
|
|
32.1*
|
|
Certification by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code
|
| |
|
|
|
32.2*
|
|
Certification by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code
|
* Filed herewith.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
|
CinTel Corp.
|
| |
|
|
| |
|
|
|
Date: August 23, 2010
|
|
By:
|
/s/ Dave Kyung Han
|
| |
|
Dave Kyung Han
|
| |
|
President, Chief Executive Officer
|
| |
|
and Director (Principal Executive Officer)
|
| |
|
|
| |
|
|
|
Date: August 23, 2010
|
|
By:
|
/s/ Joo Chan Lee
|
| |
|
Joo Chan Lee
|
| |
|
Chief Financial Officer
(Principal Financial and Accounting Officer)
|
21