Nevada
|
52-2360156
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer
|
|
incorporation
or organization)
|
Identification
No.)
|
Large
accelerated filer o
|
Accelerated
filer o
|
|
|
Non-accelerated
filer o
|
Smaller
reporting company T
|
|
Page
|
|
PART
I - FINANCIAL INFORMATION
|
|
|
|
|
|
Item
1. Financial Statements
|
1
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operation
|
26
|
|
Item
3. Quantitative and Qualitative Disclosure About Market
Risk
|
29
|
|
Item
4T. Controls and Procedures
|
29
|
|
|
||
PART
II - OTHER INFORMATION
|
||
|
||
Item
1. Legal Proceedings
|
30
|
|
Item
1A. Risk Factors
|
30
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
30
|
|
Item
3. Defaults Upon Senior Securities
|
30
|
|
Item
4. Submission of Matters to a Vote of Security Holders
|
30
|
|
Item
5. Other Information
|
30
|
|
Item
6. Exhibits
|
30
|
|
SIGNATURES
|
31
|
ASSETS
|
2008
|
2007
|
||||||
Current
assets:
|
|||||||
Cash
and cash equivalents (Note
2)
|
$
|
20,967,065
|
$
|
29,946,476
|
|||
Investments
- short-term (Note 6)
|
16,946,500
|
21,073,400
|
|||||
Accounts
receivable, net (Note 2)
|
28,811,662
|
18,398,559
|
|||||
Inventories
(Note 3)
|
17,298,377
|
14,708,136
|
|||||
Loans
receivable - current (Note 4)
|
34,680,651
|
9,247,168
|
|||||
Prepaid
and other current assets (Note
5)
|
19,159,932
|
15,236,285
|
|||||
|
|||||||
Total
current
assets
|
137,864,187
|
108,610,024
|
|||||
|
|||||||
Property,
plant
and equipment, net (Note 7)
|
113,642,019
|
100,233,981
|
|||||
Other
assets:
|
|||||||
Restricted
cash
|
-
|
4,802,288
|
|||||
Loans
receivable, net of current portion (Note 4)
|
447,112
|
1,030,291
|
|||||
Investments
in securities (Note 6)
|
40,394,439
|
37,503,147
|
|||||
Land
rights (Note 8)
|
330,848
|
335,299
|
|||||
Intangible
assets (Note 9)
|
26,271,860
|
28,193,672
|
|||||
Security
deposits
|
7,582,802
|
7,026,260
|
|||||
|
|||||||
Total
other
assets
|
75,027,061
|
78,890,957
|
|||||
|
|||||||
Total
assets
|
$
|
326,533,267
|
$
|
287,734,962
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
(DEFICIT)
|
2008
|
2007
|
||||||
Current
liabilities:
|
|||||||
Accounts
payable
|
$
|
30,822,021
|
$
|
31,589,923
|
|||
Accrued
expenses
|
6,558,122
|
3,682,780
|
|||||
Deferred
revenue
|
4,756,556
|
3,816,078
|
|||||
Notes
payable, current (Note 10)
|
90,197,049
|
61,383,334
|
|||||
Other
current liabilities
|
2,418,777
|
314,436
|
|||||
|
|||||||
Total
current
liabilities
|
134,752,525
|
100,786,551
|
|||||
|
|||||||
Long-term
liabilities:
|
|||||||
Accrued
severance benefits (Note 11)
|
3,853,187
|
5,380,222
|
|||||
Notes
payable, net of current portion
(Note 10)
|
25,853,018
|
29,350,587
|
|||||
Convertible
debentures (Note 12)
|
121,687,302
|
104,098,920
|
|||||
|
|||||||
Long-term
liabilities
|
151,393,507
|
138,829,729
|
|||||
|
|||||||
Total
liabilities
|
286,146,032
|
239,616,280
|
|||||
Commitments
and contingencies (Note 19):
|
|||||||
Non-controlling
interest
|
43,856,573
|
42,503,486
|
|||||
|
|||||||
Stockholders'
equity
(deficit): (Note 14)
|
|||||||
Common
stocks: 300,000,000 shares authorized, par value $0.001 per share,
97,824,896 shares issued and outstanding at June 30, 2008 and December
31,
2007
|
97,824
|
97,824
|
|||||
Additional
paid-in
capital
|
20,293,203
|
20,293,203
|
|||||
Cumulative
other comprehensive income (loss)
|
(1,664,640
|
)
|
3,004,141
|
||||
Accumulated
deficit
|
(22,195,725
|
)
|
(17,779,972
|
)
|
|||
|
|||||||
Total
stockholders’
equity (deficit)
|
(3,469,338
|
)
|
5,615,196
|
||||
|
|||||||
Total
liabilities
and stockholders' equity (deficit)
|
$
|
326,533,267
|
$
|
287,734,962
|
Three
Months
Ended
June
30, 2008
|
Three
Months
Ended
June
30, 2007
|
Six
Months
Ended
June
30, 2008
|
Six
Months
Ended
June
30, 2007
|
||||||||||
Revenues:
|
|||||||||||||
Finished
goods
|
$
|
50,297,931
|
$
|
30,145,254
|
$
|
100,558,906
|
$
|
46,630,171
|
|||||
Merchandise
|
1,585,805
|
325
|
1,936,619
|
211,771
|
|||||||||
Services
|
1,683,358
|
986,232
|
3,718,488
|
987,210
|
|||||||||
53,567,094
|
31,131,811
|
106,214,013
|
47,829,152
|
||||||||||
Cost
of revenue:
|
|||||||||||||
Finished
goods
|
46,815,905
|
28,642,582
|
95,912,677
|
44,803,492
|
|||||||||
Merchandise
|
1,434,083
|
316
|
1,737,765
|
207,955
|
|||||||||
Services
|
1,013,709
|
620,310
|
2,119,372
|
620,310
|
|||||||||
49,263,697
|
29,263,208
|
99,769,814
|
45,631,757
|
||||||||||
Gross
profits
|
4,303,397
|
1,868,603
|
6,444,199
|
2,197,395
|
|||||||||
|
|||||||||||||
Operating
expenses:
|
|||||||||||||
General
and administrative
expenses
|
4,113,545
|
1,703,890
|
8,262,661
|
2,119,998
|
|||||||||
Research
and development
|
-
|
5
|
-
|
10,635
|
|||||||||
Depreciation
and amortization
|
182,259
|
111,321
|
468,545
|
211,718
|
|||||||||
|
4,295,804
|
1,815,216
|
8,731,206
|
2,342,351
|
|||||||||
Income
(loss)
from operations
|
7,593
|
53,387
|
(2,287,007
|
)
|
(144,956
|
)
|
|||||||
|
|||||||||||||
Other
income (expenses):
|
|||||||||||||
Interest
income
|
1,095,329
|
132,824
|
1,855,474
|
266,173
|
|||||||||
Other
income expenses
|
(522,786
|
)
|
-
|
(383,325
|
)
|
-
|
|||||||
Net
gain
(loss) from sale of assets
|
(21,456
|
)
|
-
|
15,588
|
-
|
||||||||
Interest
expenses
|
(2,273,560
|
)
|
(651,948
|
)
|
(4,145,242
|
)
|
(905,100
|
)
|
|||||
Share
of loss from equity investment
|
(90,855
|
)
|
(433,645
|
)
|
(521,104
|
)
|
(433,645
|
)
|
|||||
Net
gain from
sale of short-term investment
|
65,165
|
-
|
65,165
|
-
|
|||||||||
Amortization
of deferred financing
fees
|
-
|
(140,273
|
)
|
-
|
(230,273
|
)
|
|||||||
Foreign
currency transaction gain
(loss)
|
112,808
|
-
|
(24,927
|
)
|
-
|
||||||||
|
(1,635,355
|
)
|
(1,093,042
|
)
|
(3,138,371
|
)
|
(1,302,845
|
)
|
|||||
Loss
before income taxes and non-controlling
interest
|
(1,627,762
|
)
|
(1,039,655
|
)
|
(5,425,378
|
)
|
(1,447,801
|
)
|
|||||
Income
tax
expense (Note 13)
|
(110,622
|
)
|
(8,313
|
)
|
(110,952
|
)
|
(8,313
|
)
|
|||||
Non-controlling
interest
|
(81,648
|
)
|
(341,163
|
)
|
1,120,577
|
(274,254
|
)
|
||||||
(192,270
|
)
|
(349,476
|
)
|
1,009,625
|
(282,567
|
)
|
|||||||
Net
loss
|
(1,820,032
|
)
|
(1,389,131
|
)
|
(4,415,753
|
)
|
(1,730,368
|
)
|
Three
Months
Ended
June
30, 2008
|
Three
Months
Ended
June
30, 2007
|
Six
Months
Ended
June
30, 2008
|
Six
Months
Ended
June
30, 2007
|
||||||||||
Other
comprehensive income (loss):
|
|||||||||||||
Foreign
currency translation
adjustments
|
(6,512,035
|
)
|
917,356
|
(7,112,133
|
)
|
869,698
|
|||||||
Unrealized
loss on investment
|
(62,482
|
)
|
-
|
(30,312
|
)
|
-
|
|||||||
(6,574,517
|
)
|
917,356
|
(7,142,445
|
)
|
869,698
|
||||||||
Other
comprehensive loss before non-controlling
interest
|
(8,394,549
|
)
|
(471,775
|
)
|
(11,558,198
|
)
|
(860,670
|
)
|
|||||
Foreign
currency translation adjustments -Non-controlling
interest
|
2,926,298
|
221,046
|
2,473,664
|
217,078
|
|||||||||
Total
comprehensive loss
|
$
|
(5,468,251
|
)
|
$
|
(250,729
|
)
|
$
|
(9,084,534
|
)
|
$
|
(643,592
|
)
|
|
Loss
per share - basic and diluted (Note 18)
|
$
|
(0.02
|
)
|
$
|
(0.02
|
)
|
$
|
(0.04
|
)
|
$
|
(0.01
|
)
|
|
|
|||||||||||||
Weighted
average number of common
shares outstanding - basic and diluted
|
97,824,896
|
88,791,563
|
97,824,896
|
88,319,063
|
Common
stock
|
Additional
paid-in
capital
|
Cumulative
other
comprehensive
income
(loss)
|
Accumulated
deficit
|
Total
|
|||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||
Balance,
January 1, 2008
|
97,824,896
|
$
|
97,824
|
$
|
20,293,203
|
$
|
3,004,141
|
$
|
(17,779,972
|
)
|
$
|
5,615,196
|
|||||||
Unrealized
loss on investment
|
-
|
-
|
-
|
(30,312
|
)
|
-
|
(30,312
|
)
|
|||||||||||
Foreign
currency translation
adjustment
|
-
|
-
|
-
|
(4,638,469
|
)
|
-
|
(4,638,469
|
)
|
|||||||||||
Net
loss for the period
|
-
|
-
|
-
|
-
|
(4,415,753
|
)
|
(4,415,753
|
)
|
|||||||||||
Balance,
June
30, 2008
|
97,824,896
|
$
|
97,824
|
$
|
20,293,203
|
$
|
(1,664,640
|
)
|
$
|
(22,195,725
|
)
|
$
|
(3,469,338
|
)
|
2008
|
2007
|
||||||
Cash
flows from operating activities:
|
|||||||
Net
loss
|
$
|
(4,415,753
|
)
|
$
|
(1,730,368
|
)
|
|
Adjustments
to reconcile net loss to net cash provided by (used in) operating
activities:
|
|||||||
Depreciation
|
468,545
|
2,360,922
|
|||||
Bad
debt expenses
|
216,293
|
-
|
|||||
Amortization
of financing fees
|
-
|
230,273
|
|||||
Non-controlling
interest’s share of loss
|
(1,120,577
|
)
|
274,254
|
||||
Common
stocks issued for consulting services
|
-
|
438,000
|
|||||
Share
of loss from investment
|
553,274
|
-
|
|||||
Net
gain on sale of property
|
(15,588
|
)
|
-
|
||||
(Increase)
decrease in assets:
|
|||||||
Accounts
receivable
|
(10,629,396
|
)
|
(2,780,030
|
)
|
|||
Other
receivable
|
(4,628,945
|
)
|
-
|
||||
Inventory
|
(2,590,241
|
)
|
(1,605,501
|
)
|
|||
Prepaid
expenses and other assets
|
705,298
|
(415,619
|
)
|
||||
Security
deposits
|
(556,542
|
)
|
-
|
||||
Increase
(decrease) in liabilities:
|
|||||||
Accounts
payable
|
1,336,439
|
5,074,131
|
|||||
Deferred
revenue
|
940,478
|
(113,795
|
)
|
||||
Accrued
expense
|
2,875,342
|
75,740
|
|||||
Accrued
severance benefits
|
510,471
|
12,547
|
|||||
Cash
provided by (used in) operating activities
|
(16,350,902
|
)
|
1,820,554
|
||||
|
|||||||
Cash
flows from investing activities:
|
|||||||
Acquisition
of investments in securities
|
-
|
(40,107,762
|
)
|
||||
Proceeds
from disposal of securities held for investment
|
705,421
|
-
|
|||||
Acquisition
of property and equipment
|
(13,715,746
|
)
|
(6,670,730
|
)
|
|||
Loan
receivable
|
(24,850,304
|
)
|
(1,325,004
|
)
|
|||
Acquisition
of intangible assets
|
1,781,014
|
(4,055,348
|
)
|
||||
Changes
in non-controlling interest
|
2,473,664
|
(217,080
|
)
|
||||
Cash
used in investing activities
|
(33,605,951
|
)
|
(52,375,924
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Proceeds
from convertible debenture
|
17,588,382
|
75,740,000
|
|||||
Proceeds
from short and long-term notes
|
37,744,581
|
4,359,103
|
|||||
Deferred
financing fees
|
-
|
(4,526,472
|
)
|
||||
Principal
payments of notes payable
|
(14,465,941
|
)
|
-
|
||||
Cash
provided by financing activities
|
40,867,022
|
75,572,631
|
|||||
|
|||||||
Net
increase (decrease) in cash
|
(9,089,831
|
)
|
25,017,261
|
2008
|
2007
|
||||||
Effect
of foreign currency translation
|
(4,700,951
|
)
|
652,620
|
||||
Cash
and cash equivalent - beginning of period
|
29,946,476
|
4,337,088
|
|||||
|
|||||||
Restricted
cash
|
4,811,371
|
-
|
|||||
Cash
and cash equivalent - end of period
|
$
|
20,967,065
|
$
|
30,006,969
|
|||
|
|||||||
Supplemental
Disclosure of Cash Flows Information:
|
|||||||
Cash
paid during the period for:
|
|||||||
Interest
|
$
|
3,175,026
|
$
|
462,910
|
|||
Income
taxes
|
$
|
110,952
|
$
|
8,313
|
Buildings
located in China
|
20
years
|
|||
Buildings
located in Korea
|
30
years
|
|||
Machinery
and equipment
|
5
- 10 years
|
|||
Measuring
equipment
|
5
years
|
|||
Furniture
and fixtures
|
5
years
|
|||
Vehicles
|
5
years
|
|||
Software
|
5
years
|
|||
Landscaping
|
5
years
|
|||
Structure
|
5
years
|
June
30, 2008
|
|
Dec.
31, 2007
|
|||||
Raw
materials
|
$
|
3,088,287
|
$
|
3,034,427
|
|||
Work-in-process
|
7,767,110
|
9,119,467
|
|||||
Finished
goods
|
5,273,294
|
1,433,773
|
|||||
Supplies
|
1,169,686
|
1,120,469
|
|||||
Total
|
$
|
17,298,377
|
$
|
14,708,136
|
June
30, 2008
|
|
Dec.
31, 2007
|
|||||
Loan
receivable from CNY, a private company in China. 7% interest, payable
interest only in quarterly installments. Guaranteed by the shareholders
of
the debtor. Matures in January 2009.
|
$
|
170,767
|
|
150,000
|
|||
Loans
receivable from NIG, a private company in Korea. 9% interest, payable
interest only in quarterly installments. Guaranteed by the shareholders
of
the debtor. Mature in April and August 2008.
|
3,476,334
|
3,846,960
|
|||||
Note
receivable from private companies in Korea including Phoenix Holdings.
Loan receivable ($13,374,088) from Phoenix Holdings matures in
September
2008.
|
31,046,925
|
-
|
|||||
Loan
receivable from Phoenix M&M, a private company in Korea. 9% interest,
payable interest only in quarterly installments. Guaranteed by
the
shareholders of the debtor. Matures in September 2008.
|
-
|
5,343,000
|
|||||
Other
short-term loans receivable
|
433,737
|
937,499
|
|||||
35,127,763
|
10,277,459
|
||||||
Less:
current portion
|
34,680,651
|
9,247,168
|
|||||
Loan
receivable, net of current
|
$
|
447,112
|
$
|
1,030,291
|
June
30, 2008
|
|
Dec.
31, 2007
|
|
||||
Prepaid
expenses
|
$
|
4,383,417
|
$
|
1,439,730
|
|||
Receivables
from sale of assets
|
327,825
|
5,289,724
|
|||||
Advance
payments to vendors
|
6,633,868
|
2,004,923
|
|||||
Other
current assets
|
7,814,822
|
6,501,908
|
|||||
Total
|
$
|
19,159,932
|
$
|
15,236,285
|
June
30, 2008
|
Dec.
31, 2007
|
||||||
Investment
in Cintel Systems Corp.
|
$
|
448,032
|
$
|
501,173
|
|||
Convertible
Debenture A (STS)
|
11,173,519
|
11,173,519
|
|||||
Pheonix
Asset Management (fka Global Assets Inc.)
|
9,814,957
|
11,051,513
|
|||||
Investment
in PluM Tech
|
191,058
|
213,720
|
|||||
We-Tech
|
1,266,359
|
1,416,563
|
|||||
East
Gate
|
1,040,044
|
1,163,405
|
|||||
Phoenix
Springs
|
2,856,876
|
3,205,800
|
|||||
Debt
securities - bonds
|
207,672
|
260,291
|
|||||
Investment
in equity securities held by subsidiaries
|
10,862,628
|
8,383,744
|
|||||
Other
miscellaneous
|
2,533,294
|
133,419
|
|||||
Total
|
$
|
40,394,439
|
$
|
37,503,147
|
|
June
30, 2008
|
Dec.
31, 2007
|
|||||
Land
|
$
|
27,072,458
|
$
|
29,508,360
|
|||
Buildings
and improvements
|
57,900,393
|
35,598,569
|
|||||
Machinery
and equipment
|
24,263,446
|
21,843,857
|
|||||
Furniture
and fixtures
|
12,742,337
|
8,736,692
|
|||||
Vehicles
|
608,134
|
740,673
|
|||||
Software
|
216,338
|
241,095
|
|||||
Small
tools
|
667,042
|
680,015
|
|||||
123,470,148
|
97,349,261
|
||||||
Less:
accumulated depreciation
|
22,030,053
|
19,832,760
|
|||||
101,440,095
|
77,516,501
|
||||||
Construction
in progress
|
12,201,924
|
22,717,480
|
|||||
Property
and equipment, net
|
$
|
113,642,019
|
$
|
100,233,981
|
June
30, 2008
|
Dec.
31, 2007
|
||||||
|
|
||||||
Land
rights at cost
|
$
|
369,224
|
$
|
369,224
|
|||
Less:
Accumulated depreciation
|
38,376
|
33,925
|
|||||
Net
carrying amount
|
$
|
330,848
|
$
|
335,299
|
June
30, 2008
|
|
Dec.
31, 2007
|
|||||
Goodwill
|
$
|
24,910,312
|
$
|
26,592,993
|
|||
Other
intangible assets
|
1,361,548
|
1,600,679
|
|||||
Net
carrying amount
|
$
|
26,271,860
|
$
|
28,193,672
|
June
30, 2008
|
|
Dec.
31, 2007
|
|||||
Note
payable to Kong-Sang Bank of China, payable monthly interest only
with
interest at LIBOR plus 0.75%. The note is secured by real estate
and
equipment and matures in September 2008.
|
$
3,400,000
|
$
3,400,000
|
|||||
Note
payable to Kong-Sang Bank of China, payable monthly interest only
with
interest at LIBOR plus 0.75%. The note is unsecured and matures
in October
2008.
|
3,908,064
|
3,027,510
|
|||||
Note
payable to Kong-Sang Bank of China, payable monthly interest only
with
interest at LIBOR plus 0.5%. The note is unsecured and matures
in July
2008.
|
2,292,970
|
||||||
Note
payable to Kong-Sang Bank of China, payable monthly interest only
with
interest at LIBOR plus 0.6%. The note is unsecured and matures
in August
2008.
|
1,090,000
|
||||||
Note
payable to Kong-Sang Bank of China, payable monthly interest only
with
interest at LIBOR plus 0.48%. The note is unsecured and matures
in
September 2008.
|
814,576
|
||||||
Note
payable to Kong-Sang Bank of China, payable monthly interest only
with
interest at LIBOR plus 0.85%. The note is unsecured and matures
in April
2008.
|
-
|
3,000,000
|
|||||
Note
payable to Min-Seng Bank of China, payable monthly interest only
with
interest at LIBOR plus 0.75%. The note is secured by real estate
and
equipment and matures in March 2008.
|
-
|
1,600,000
|
|||||
Note
payable to Kong-Sang Bank of China, payable monthly interest only
with
interest at LIBOR plus 0.75%. The note is secured by real estate
and
equipment and matures in January 2008.
|
-
|
1,000,000
|
June
30, 2008
|
Dec.
31, 2007
|
||||||
Notes
payable to Hana Bank of Korea, payable monthly interest only,
with
interest at 7.50% to 8.98%. The notes are secured by real property
in
Korea and mature on March 2009.
|
2,227,467
|
2,544,691
|
|||||
Notes
payable to Shin-Han Bank of Korea, payable monthly interest-only,
with
interest at 5.95% to 6.43%. The notes are secured by real estate
and
mature in June and October 2008.
|
5,731,752
|
6,411,600
|
|||||
Notes
payable to Nong Hyup Bank of Korea, payable monthly interest
only, with
interest at 4.1%. The notes are unsecured and mature in November
2008.
|
477,646
|
534,300
|
|||||
Notes
payable to Citi Bank of Korea, payable monthly interest only
with interest
at 4.98% to 6.04%. The notes are secured by real estate and mature
in July
2008.
|
10,607,484
|
10,797,134
|
|||||
Notes
payable to Korea Exchange Bank, payable monthly interest only,
with
interest at 5.00% to 6.55%. The notes are unsecured and mature
in October,
November, and December 2008.
|
7,642,336
|
4,274,400
|
|||||
Note
payable to Kook Min Bank of Korea, payable monthly interest only,
with
interest at 4.97%. The note is secured by a deed of trust covering
the
Company’s real property and matures in July 2008.
|
7,642,306
|
8,548,800
|
|||||
Note
payable to Citi Bank Korea, payable monthly interest-only, with
interest
at 5.56%. The note is secured by a deed of trust covering the
Company’s
real property and matures in October and November 2009.
|
15,284,672
|
10,686,000
|
|||||
Note
payable to Sam Sung Electronics, bearing no interest. The note
is secured
by a deed of trust covering the Company’s real property and matures in
December 2011.
|
609,443
|
681,767
|
|||||
Note
payable to Industrial Bank of Korea, payable monthly interest
only, with
interest at 8%. The note is unsecured and matures in 2008.
|
11,839,757
|
6,207,858
|
|||||
Notes
payable to Woori Bank, payable monthly interest only. The note
is
unsecured and matures in January 2009.
|
8,133,190
|
6,473,639
|
|||||
Notes
payable to Industrial Bank of Korea, payable monthly interest
only, with
interest at 5.84%. The note is matures in 2008.
|
955,292
|
1,068,600
|
|||||
Notes
payable to Industrial Bank of Korea, payable monthly interest
only, with
interest at 8.403%. The note is matures in February 2009.
|
4,298,814
|
-
|
|||||
Notes
payable to Woori Bank of Korea, payable monthly interest only,
with
interest at 7.12%. The note is matures in April 2009.
|
4,776,460
|
-
|
|||||
Notes
payable to Hana Bank of Korea, payable monthly interest only,
with
interest at 6.65%. The note is matures in 2008.
|
2,388,230
|
||||||
Notes
payable to Korea Exchange Bank of Korea, payable monthly interest
only,
with interest at 7.72%. The note is matures in May 2008.
|
4,776,460
|
-
|
|||||
Notes
payable to Citi Bank of Korea, payable monthly interest only,
with
interest at 1.88% to 2.29%. The note is matures in 2008.
|
2,694,441
|
5,229,769
|
|||||
Loan
payable to local government with annual interest rate at 4.75%.
The Loan
is unsecured and classified as long term debt
|
47,743
|
89,014
|
June
30, 2008
|
Dec.
31, 2007
|
||||||
Notes
payable to Hana Bank of Korea, payable monthly interest only,
with
interest at 5.18%. The loan is secured by real estate. The
note is matures
in 2015.
|
2,227,467
|
1,602,900
|
|||||
Notes
payable to Industrial Bank of Korea, payable monthly interest
only, with
interest at 4.7%. The note is matures in 2009 and 2010.
|
3,821,168
|
4,274,400
|
|||||
Notes
payable to Shin Han Bank of Korea, payable monthly interest
only, with
interest at 3.77%. The loan is secured by real estate. The
note is matures
in 2011.
|
2,213,663
|
3,714,454
|
|||||
Revolving
line of credit payable to Merrill Lynch, payable interest
and principle at
maturity, with interest at LIBOR plus 1.375%. The line is
secured by cash
deposits and matures at the withdrawal of cash balance.
|
200,000
|
-
|
|||||
Other
long-term notes payable of foreign subsidiaries.
|
5,930,884
|
3,124,499
|
|||||
Note
payable to an unrelated party, bearing no interest. The note
is unsecured
and due on demand.
|
-
|
2,423,389
|
|||||
Loan
payable to local government with annual principal payment
of $10,422,
bearing no interest. The loan is unsecured and matures in
October 2009.
|
17,782
|
19,197
|
|||||
116,050,067
|
90,733,921
|
||||||
Less:
current portion
|
90,197,049
|
61,383,334
|
|||||
Long-term
debt
|
$
|
25,853,018
|
$
|
29,350,587
|
Years
ending December 31,
|
Amount
|
|||
2008
|
$
|
69,445,696
|
||
2009
|
35,401,594
|
|||
2010
|
2,306,723
|
|||
2011
|
1,300,828
|
|||
2012
and thereafter
|
7,595,226
|
|||
Total
|
$
|
116,050,067
|
June
30, 2008
|
|
Dec.
31, 2007
|
|||||
Convertible
debenture - A (Cintel)
|
$
|
15,284,295
|
$
|
15,284,295
|
|||
Convertible
debenture - B (Cintel)
|
64,920,000
|
64,920,000
|
|||||
Convertible
debenture - C (Cintel)
|
10,820,000
|
10,820,000
|
|||||
Convertible
debenture - D (PDT)
|
30,663,007
|
13,074,625
|
|||||
$
|
121,687,302
|
$
|
104,098,920
|
2008
|
2007
|
||||||
Current
income tax provision:
|
|||||||
US
|
$
|
-
|
$
|
-
|
|||
Foreign
taxes of subsidiaries
|
110,952
|
8,313
|
|||||
110,952
|
8,313
|
||||||
Deferred
income tax provision:
|
-
|
-
|
|||||
Income
tax expense
|
$
|
110,952
|
$
|
8,313
|
June
30, 2008
|
|
Dec.
31, 2007
|
|||||
Research
and development expenses amortized over 5 years for tax purposes
|
$
|
-
|
$
|
165,207
|
|||
Other
timing differences
|
-
|
520,579
|
|||||
Net
operating loss carryforwards
|
3,096,884
|
2,540,300
|
|||||
|
3,096,884
|
3,226,086
|
|||||
Valuation
allowance
|
(3,096,884
|
)
|
(3,226,086
|
)
|
|||
$
-
|
$
|
-
|
2008
|
2007
|
||||||
Interest
rate
|
6.5
|
%
|
6.5
|
%
|
|||
Expected
volatility
|
70
|
%
|
70
|
%
|
|||
Expected
life in years
|
5
|
6
|
|||||
Expected
dividends
|
-
|
-
|
2008
|
2007
|
||||||
Outstanding,
beginning of period
|
-
|
106,000
|
|||||
Exercised
|
-
|
-
|
|||||
Cancelled
|
-
|
-
|
|||||
Expired
|
-
|
(106,000
|
)
|
||||
Outstanding,
end of period
|
-
|
-
|
|||||
Weighted
average fair value of options granted during the period
|
$
|
-
|
$
|
-
|
|||
Weighted
average exercise price of options, beginning of period
|
$
|
-
|
$
|
-
|
|||
Weighted
average exercise price of options granted during the period
|
$
|
-
|
$
|
-
|
|||
Weighted
average exercise price of options, end of period
|
$
|
-
|
$
|
-
|
|||
Weighted
average remaining contractual life of common stock options
|
-
|
-
|
As
of :
|
June
30, 2008
|
Dec.
31, 2007
|
|||||
Accounts
receivable from STS
|
$
|
1,818,480
|
$
|
2,060,745
|
|||
Accounts
receivable from BKLCD (fka We-Tech)
|
$
|
1,877,608
|
$
|
-
|
|||
Accounts
receivable from BKLS
|
$
|
-
|
$
|
5,966,257
|
|||
Accounts
payable to STS
|
$
|
-
|
$
|
1,776,307
|
|||
Accounts
payable to BKLCD (fka We-Tech)
|
$
|
-
|
$
|
1,209,509
|
|||
Six
months ended:
|
June
30, 2008
|
June
30, 2007
|
|||||
Sales
to STS
|
$
|
36,810,053
|
$
|
17,415.354
|
|||
Sales
to BKLCD (fka We-Tech)
|
$
|
1,863,326
|
$
|
2,288,143
|
|||
Purchase
from STS
|
$
|
1,689,186
|
$
|
13,819,547
|
|||
Purchase
from BKLCD (fka We-Tech)
|
$
|
-
|
$
|
2,316,130
|
2008
|
2007
|
||||||
Numerator
for basic and diluted earnings per share:
|
|||||||
Net
loss
|
$
|
(4,415,753
|
)
|
$
|
(1,730,368
|
)
|
|
Denominator:
|
|||||||
Basic
and diluted weighted average shares outstanding
|
97,824,896
|
88,316,063
|
|||||
Basic
and diluted loss per share
|
$
|
(0.04
|
)
|
$
|
(0.01
|
)
|
(a)
|
The
Company leases its premises under a non-cancellable lease agreement
which
will expire in December 2008. Future minimum annual payments (exclusive
of
taxes and insurance) under the lease are $19,163 in 2008. Rent
expenses
paid for the six months ended June
30, 2008
and 2007
were $40,764
and $26,644, respectively.
|
(b)
|
The
Company is committed to pay interest of 8% or 10% on its convertible
bonds
payable, should PSTS, the Company’s subsidiary in China, fail to achieve
the predetermined earnings threshold as disclosed in Note
12.
|
(c)
|
PSTS
is committed to pay a management fee to the government of Republic
of
China of approximately $2,400 per annum for the use of land as disclosed
in Note 8.
|
(d)
|
PSTS,
in accordance with its Articles of Incorporation, has to maintain
a
minimum capital of $20,000,000.
|
(e)
|
The
Company's subsidiary in Korea, Bluecomm, is committed to vehicle
lease
obligations which expire in June, 2010. Future minimum annual payments
(exclusive of tax and insurance) under the lease are as
follows:
|
Years
|
Amount
|
|||
2008
|
$
|
32,052
|
||
2009
|
64,103
|
|||
2010
|
32,052
|
|||
$
|
128,207
|
(f)
|
The
Company’s Korean subsidiary, PDT, has an outstanding commitment under
standby letters-of-credit totaling approximately $5,000,000. This
standby
letter-of-credit was issued on behalf of affiliated companies.
|
o
|
Phoenix
Semiconductor Telecommunication (Suzhou) located in Suzhou, China
,
provides semiconductor package products in different groups of Dual,
Quad
and BGA.
|
o
|
Phoenix
Digital Tech located in Kyungki-Do, Korea, provides manufacturing
facilities and equipments for LCD, PDP (Plasma Display Panel) and
semiconductor production. UB Precision, a subsidiary of Phoenix Digital
Tech provides testing products such as LCD/OLED probe stations for
display
and probe card for semiconductor.
|
o
|
Bluecomm
located in Daejeon, Korea, provides solutions for Customer Relationship
Management (CRM) and related total solutions for call center outsourcing
and Home Service Center hosting.
|
o
|
CinTel
Korea located in Seoul, Korea produces and distributes our traditional
base products in the Internet Traffic Management (ITM)
sector.
|
6/30/2008 (US$)
|
6/30/2007 (US$)
|
||||||
Revenue
|
106,214,013
|
47,829,152
|
|||||
Cost
of sales
|
99,769,814
|
45,631,757
|
|||||
Gross
Profit
|
6,444,199
|
2,197,395
|
|||||
Operating
Expenses
|
8,731,206
|
2,432,351
|
|||||
Operating
(Loss)
|
(2,287,007
|
)
|
(144.956
|
)
|
|||
Net
(Loss)
|
(4,415,753
|
)
|
(1,730,368
|
)
|
6/30/2008 (US$)
|
6/30/2007 (US$)
|
||||||
Revenue
|
53,567,094
|
31,131,811
|
|||||
Cost
of sales
|
49,263,697
|
29,263,208
|
|||||
Gross
Profit
|
4,303,397
|
1,868,603
|
|||||
Operating
Expenses
|
4,295,804
|
1,815,216
|
|||||
Operating
Profit
|
7,593
|
53,387
|
|||||
Net
(Loss)
|
(1,820,032
|
)
|
(1,389,131
|
)
|
|
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
|
|
|
CINTEL
CORP.
|
|||
|
|
|
|||
|
By:
|
/s/
Kwang Hee Lee
|
|
||
|
|
Name:
Kwang Hee Lee
|
|||
|
|
Title:
Chief Executive Officer
|
|||
|
|
(Principal
Executive Officer)
|
|||
|
|
|
|||
|
By:
|
/s/
Kyo
Jin Kang
|
|
||
|
|
Name:
Kyo Jin Kang
|
|||
|
|
Title:
Chief Financial Officer
(Principal
Financial Officer and Principal Accounting Officer)
|