Chun Can Capital (CNCN) 10QSB/A 2006 Q1 Quarterly report (small business) (amended)

Consolidated Balance Sheets

	Restated (note 13)			Restated (note 14)
	2006			2005
ASSETS
Current
Cash and cash equivalents (note 3)	$	1,793,396		$	141,789
Short term investment		291,427			-
Accounts receivable (net of allowance for doubtful accounts of $1,087,980; 2003 - $972,014)		3,340,302			326,192
Inventory (note 4)		489,017			290,032
Prepaid and sundry assets		728,995			257,842
Loans receivable (note 5)		154,358			-

		6,797,495			1,015,855
Deferred Financing Fees		-			60,000
Investments (note 7)		2,624,350			49,094
Equipment (note 8)		552,312			513,218

	$	9,974,157		$	1,638,167

LIABILITIES
Current
Accounts payable	$	2,532,854		$	873,358
Convertible Debenture		-			320,000
Loans payable - current (note 9)		666,789			1,630,679
Shareholder loan		-			114,079

		3,199,643			2,938,116
Accrued Severance		74,788			125,315
Loans Payable (note 9)		39,121			30,538
Convertible Debenture (note 10)		8,853,191			-

		12,166,743			3,093,969

STOCKHOLDERS’ DEFICIENCY
Capital Stock (note 11)		42,379			30,324
Paid in Capital		5,351,058			4,941,120
Treasury Stock		(5,630	)		(105,185	)
Accumulated Other Comprehensive Income		257,430			(65,609	)
Accumulated Deficit		(7,837,823	)		(6,256,452	)

		(2,192,586	)		(1,455,802	)

	$	9,974,157		$	1,638,167

Consolidated Statement of Operations

Three Months Ended March 31, 2006 and 2005

	Restated (note 13)			Restated (note 14)
	2006			2005
Revenue
Merchandise	$	2,218,198		$	112,004
Finished goods		75,469			-
Services		28,032			14,514

		2,321,699			126,518

Cost of Sales
Merchandise		2,137,305			111,678
Finished goods		50,724			-

		2,188,029			111,678

Gross Profit		133,670			14,840

Expenses
Salaries and employee benefits		182,911			148,252
Professional fees		100,667			124,351
Office and general		95,914			98,650
Depreciation		51,414			55,750
Travel		31,425			45,394
Research and development		18,641			-
Taxes and dues		121			32,782

		481,093			505,179

Operating Loss		(347,423	)		(490,339	)

Other Expense (Income)
Interest and other income		(109,416	)		(1,459	)
Foreign exchange		(3,344	)		-
Interest expense		12,073			74,849
Amortization of deferred financing fees		30,000			60,000

		(70,687	)		133,390

Loss Before Income Taxes		(276,736	)		(623,729	)

Current		23,432			-

Net Loss	$	(300,168	)	$	(623,729	)

Basic Loss per Share	$	(0.01	)	$	(0.02	)

Fully Diluted Loss per Share	$	(0.01	)	$	(0.02	)

Weighted Average Number of Shares (note 11)		42,379,354			27,692,499

Fully Diluted Weighted Average Number of Shares (note 11)		42,379,354			27,692,499

Consolidated Statement of Stockholders’ Equity

Three Months Ended March 31, 2006 and 2005

					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	$	23,409	$	4,573,535	$	-		$	23,826		$	(4,789,132	)	$	(168,362	)
Adjustment due to restatement (note 14)		-		-		-		-			(91,166	)		(843,591	)		(934,757	)

		23,409,800		23,409		4,573,535		-			(67,340	)		(5,632,723	)		(1,103,119	)
Common shares issued for consulting services		640,000		640		63,860		-			-			-			64,500
Conversion of convertible debentures into common stock		4,369,744		4,370		165,630		-			-			-			170,000
Conversion of convertible debentures into common stock		1,905,136		1,905		138,095		-			-			-			140,000
Repurchase of employees’ stock		-		-		-		(105,185	)		-			-			(105,185	)
Foreign exchange on translation		-		-		-		-			1,731			-			1,731
Net loss		-		-		-		-			-			(623,729	)		(623,729	)

Balance, March 31, 2005
- restated (note 14)		30,324,680	$	30,324	$	4,941,120	$	(105,185	)	$	(65,609	)	$	(6,256,452	)	$	(1,455,802	)

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 13)		-		-		-		-			(110,755	)		(1,111,390	)		(1,222,145	)

		42,379,354		42,379		5,351,058		(5,630	)		10,984			(7,537,655	)		(2,138,864	)
Foreign exchange on translation		-		-		-		-			246,446			-			246,446
Net loss		-		-		-		-			-			(300,168	)		(300,168	)

Balance, March 31, 2006
- restated (note 13)		42,379,354	$	42,379	$	5,351,058	$	(5,630	)	$	257,430		$	(7,837,823	)	$	(2,192,586	)

Consolidated Statement of Cash Flows

Three Months Ended March 31, 2006 and 2005

	Restated (note 13)			Restated (note 14)
	2006			2005
Cash Flows from Operating Activities
Net loss	$	(300,168	)	$	(623,729	)
Adjustments for working capital and non-cash items:
Depreciation		51,414			55,750
Amortization of financing fees		30,000			75,380
Common stock issued for consulting services		-			64,500
Net Changes in Assets & Liabilities
Accounts receivable		(2,269,479	)		272,019
Inventory		(23,273	)		7,337
Prepaid and sundry assets		(353,849	)		12,605
Accounts payable		1,682,146			45,000
Accrued severance		2,781			2,345

		(1,180,428	)		(88,793	)

Cash Flows from Investing Activities
Short term investments		(290,354	)		-
Loans receivable		(153,789	)		-
Acquisition of equipment, net		(1,244	)		(356	)

		(445,387	)		(356	)

Cash Flows from Financing Activities
Payments of deferred financing fees		-			(240,000	)
Proceeds from loans payable		-			(77,342	)
Proceeds from convertible debenture - net		-			(20,000	)
Advances from shareholder loan		-			81,144
Proceeds from common shares issued for repayment of convertible debenture		-			310,000
Repurchase of employees’ stocks		-			(105,185	)
Loans payable		(9,517	)		-

		(9,517	)		(51,383	)

Foreign Exchange on Cash and Cash Equivalents		(60,721	)		934

Net Decrease in Cash and Cash Equivalents		(1,696,053	)		(139,598	)

Cash and Cash Equivalents - beginning of year		3,489,449		281,387

Cash and Cash Equivalents - end of year	$	1,793,396	$	141,789

During the year, the company had cash flows arising from interest and income taxes paid as follows:
Interest paid	$	12,073	$	51,469

Income taxes paid	$	23,432	$	-

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.

1.	Operations and Business

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:

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.

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.

Unit of Measurement

The US Dollar has been used as the unit of measurement in these financial statements.

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.

2.	Summary of Significant Accounting Policies (cont’d)

Use of Estimates

Revenue Recognition

The Company recognizes revenues upon delivery of merchandise sold, and when services are rendered for maintenance contracts.

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.

Investments

Investments in available-for-sale securities are recorded in accordance with FAS-115 “Accounting for Certain Investments in Debt and Equity Securities”. Equity securities that are not held principally for the purpose of selling in the near term are reported at fair market value when it is readily determinable, with unrealized holding gains and losses excluded from earnings and reported as a separate component of stockholders’ equity.

Investments subject to significant influence have been recorded using the equity method.

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.

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.

Government grants are recognized as income over the periods necessary to match them with the related costs that they are intended to compensate.

2.	Summary of Significant Accounting Policies (cont’d)

Government Grants

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.

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.

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.

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.

2. Summary of Significant Accounting Policies (cont’d)

Concentration of Credit Risk

SFAS No. 105, “Disclosure of Information About Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit Risk”, requires disclosure of any significant off-balance sheet risk and credit risk concentration. The Company does not have significant off-balance sheet risk or credit concentration. The Company maintains cash and cash equivalents with major Korean financial institutions.

The Company’s provides credit to its clients in the normal course of its operations. It carries out, on a continuing basis, credit checks on its clients and maintains provisions for contingent credit losses which, once they materialize, are consistent with management’s forecasts.

For other debts, the Company determines, on a continuing basis, the probable losses and sets up a provision for losses based on the estimated realizable value.

Concentration of credit risk arises when a group of clients having a similar characteristic such that their ability to meet their obligations is expected to be affected similarly by changes in economic conditions. The Company does not have any significant risk with respect to a single client.

Recent Accounting Pronouncements

In December 2004, the FASB issued a revision to SFAS No. 123, “Share-Based Payment” (Statement 123). This Statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). That cost will be recognized over the period during which the employee is required to provide service in exchange for the award requisite service period (usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service. Employee share purchase plans will not result in recognition of compensation cost if certain conditions are met; those conditions are much the same as the related conditions in Statement 123. This Statement is effective for public entities that do not file as a small business issuers as of the beginning of the first interim or annual reporting period that begins after June 15, 2005. This Statement applies to all awards granted after the required effective date and to awards modified, repurchased, or cancelled after that date. The cumulative effect of initially applying this Statement, if any, is recognized as of the required effective date and is not expected to have a material impact on the Company’s consolidated financial statements.

In May 2005, the FASB issued Statement No. 154, Accounting Changes and Error Corrections - A Replacement of APB Opinion No. 20 and FASB Statement No. 3 (Statement No. 154). Statement No. 154 changes the requirements for the accounting for and reporting of a change in accounting principle. Statement No. 154 requires retrospective application of any change in accounting principle to prior periods’ financial statements. Statement No. 154 is effective for the first fiscal period beginning after December 15, 2005. We do not expect the implementation of Statement No. 154 to have a significant impact on our consolidated financial statements.

In 2005, the company provided $136,738 as security for one of the bank loans as described in note 9. As at March 31, 2005, the amount of loan outstanding was $615,321. In 2006, the bank loan was repaid.

3.	Cash and Cash Equivalents

4.	Inventory

Inventory includes $334,705 (2005 - $18,752) of merchandise and $154,312 (2005 - $271,280) of raw materials.

5.	Loans Receivable

Loans receivable are comprised of the following;

	2006		2005
Loan receivable #1	$	51,450	$	-
Loan receivable #2		102,908		-

	$	154,358	$	-

Loan receivable #1 to a private Korean company is non-interest bearing and matures on May 12, 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.

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 $7,054,794 of taxable losses, which can be used to offset future taxable income. The utilization of the losses expires in years 2008 to 2010.

6.	Income Taxes

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			Restated
	2006			2005
Deferred income tax assets
Research and development expenses amortized over 5 years for tax purposes	$	258,646			231,788
Other timing differences		(53,810	)		155,522
Net operating loss carryforwards		1,799,654			626,035

		2,004,490			1,013,345
Valuation Allowance (note 13 and note 14)		(2,004,490	)		(1,013,345	)

	$	-			-

Stock #1 represents 500,000 shares, 20% ownership in a private Korean company. As the financial statement of the investee are not readily available, income from the investment has not been recorded.

7.	Investments Available for Sale

	2006		2005
Stock #1	$	2,572,624	$	-
Stock #2		51,453		48,835
Other miscellaneous		273		259

	$	2,624,350	$	49,094

Stock #2 represents a minority interest in a private Korean company which is carried at cost.

8.	Equipment

Equipment is comprised as follows:

			2006				2005
			Accumulated				Accumulated
	Cost		Depreciation		Cost		Depreciation

Furniture and fixtures		69,725		33,757		38,484		25,494
Equipment		882,442		642,223		640,866		522,833
Vehicles		17,281		864		15,117		15,115
Software		715,833		456,125		674,467		292,274

	$	1,685,281	$	1,132,969	$	1,368,934	$	855,716

Net carrying amount			$	552,312			$	513,218

The bank loan bears interest at 7.5% and matures in December 2006. The loan is repayable upon maturity and guaranteed by the Korea Credit Guaranteed Fund for $524,816.

9.	Loans Payable

						2006			2005
	Current		Long-term			Total			Total

Bank loan	$	617,430	$	-		$	617,430		$	1,220,875
Promissory Note		39,000		-			39,000			39,000
Note payable		6,380		-			6,380			309,790
Government loans		-		40,589			40,589			100,891
Discount of interest-free government loans		-		(8,415	)		(8,415	)		(9,339	)
Vehicle Loan		3,979		6,947			10,926			-

	$	666,789	$	39,121		$	705,910		$	1,661,217

Bank Loan

Promissory Note

The promissory note is non-interest bearing, unsecured, and due on demand.

Note Payable

The note payable is non-interest bearing and due on August 24, 2006.

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 8, and is repayable in 36 monthly installments of $331. The loan matures in December 2008.

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.

10.

Convertible Debentures

The convertible debentures outstanding as at March 31, 2006 are unsecured and non-interest bearing. The debenture holders have sixteen months from the date of their agreements (the conversion date) to convert their debentures into common stock of the company. 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

Price

Date

Maturity date

Amount

8,853,191

The two convertible debentures outstanding at March 31, 2005 had an annual coupon rate of 12% and 5%. The convertible debentures were repaid in 2005.

300,000,000 common shares, par value $0.001 per share

11.

Capital Stock

Authorized

	2006		2005
Issued
42,379,354 common shares (2005 - 30,324,680)	$	42,378	$	30,324

On September 30, 2003, the Company cancelled 4,800,000 shares of common stock for no consideration. As well, the Company granted a 2 to 5 reverse stock split. The reverse split has retroactively been taken into consideration in the consolidated financial statements an the calculation of earnings per share. Subsequently, the Company issued 16,683,300 common shares in exchange for 100% of the outstanding shares of Cintel Co., Ltd.

In June 2004, 300,000 common shares were issued for consulting services at the value of $33,000.

In July 2004, 160,000 common shares were issued for consulting services at the value of $12,800.

In August 2004, 50,000 common shares were issued for consulting services at the value of $4,500.

In September 2004, 120,000 common shares were issued for consulting services at the value of $9,600.

In September 2004, the Company increased its authorized capital from 50,000,000 common shares to 300,000,000 common shares.

In October 2004, 120,000 common shares were issued for consulting services at the value of $14,400.

In November 2004, 170,000 common shares were issued for consulting services at the value of $15,000.

In November 2004, 25,000,000 common shares were placed in escrow for future conversion to repay the convertible debt.

In November 2004, the Company issued 412,286 common shares from escrow upon the conversion of $20,000 of the convertible debentures.

11.

Capital Stock (cont’d)

In December 2004, the Company issued 1,763,214 common shares from escrow upon the conversion of $40,000 of the convertible debentures.

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.

In June 2005, 150,000 common shares were issued for consulting services at the value of $4,500.

11. Capital Stock (cont’d)

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.

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.

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.

11.

Capital Stock (cont’d)

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

Contingent Liabilities and Commitments

12.

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.

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	$	72,097
2007		2,000
	$	74,097

Rent expenses paid in 2006 and 2005 were $ 36,731 and $28,288 respectively.

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 March 31, 2006 ($240,000-2005).

13.

Restatement of the Previously Issued Consolidated Financial Statements

On further consideration, the Company determined that at March 31, 2006 it was not more likely than not that deferred tax benefits would be realized, therefore, the Company provided a 100% valuation allowance against the deferred tax assets.

The effects of this restatement are to increase the valuation allowance to $2,004,490 from $657,039 (note 6); to decrease the deferred tax assets on the consolidated balance sheets to nil from $1,347,451 (comprised of $10,851 current and $1,336,599 long term); and to decrease the deferred income taxes recoverable to nil from $78,473 on the consolidated income statements.

On further consideration, the Company determined that at March 31, 2005 it was not more likely than not that deferred tax benefits would be realized, therefore, the Company provided a 100% valuation allowance against the deferred tax assets.

March 31, 2006 and 2005.

14.

Restatement of Comparative Figures

The effects of this restatement are to increase the valuation allowance to $1,013,345 from nil (note 6); to decrease the deferred tax assets on the 2005 comparative consolidated balance sheets to nil from $1,013,345 (comprised of $213,470 current and $799,875 long term); and to decrease the deferred income taxes recoverable from $77,314 to an expense of nil on the 2005 comparative consolidated income statements.

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

				(Unit: USD)
	3/31/2006			3/31/2005
Revenue		2,321,699			126,518
Cost of sales		2,188,029			111,678
Gross Profit		133,670			14,840
Expenses		481,093			505,179
Operating (Loss)		(347,423	)		(490,339	)
Loss Before Income Taxes		(276,736	)		(623,729	)

In the first quarter of 2006 and 2005 revenues totaled approximately $2.32 million and approximately $0.13 million, respectively, which reflects an increase of approximately $2.19 million, or an increase of 1,735%. The main reason for this increase of revenue is attributable 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 quarter of 2006. In addition, approximately $0.25 million of the revenue generated during the first quarter of 2006 is derived from the global system integration project in Hyundai Heavy Industries plants located in Kuwait, in consortium with KT Corp. In the future, the Company expects significant new revenues to be generated by opening up a new market with the products distributed by Hyundai HDS and KT Corp. Strong strategic alliances with groups such as Hyundai HDS and KT Corp will allow us to diversify our product offerings with a more well rounded total IT solutions.

Cost of sales also increased significantly from $111,678 in the first quarter of 2005 to $2,188,029 in the first quarter of 2006, and gross profit increased from $14,840 in the first quarter of 2005 to $133,670 in the first quarter of 2006. The increase in cost of sales and gross margins for the first quarter of 2006 compared to the previous year was primarily attributable to the relative increase in revenue. While revenue increased 1,735% the actual gross profit only increased by 801%. This was due to the fact that some items in the transactions were third party equipment with less gross margin that our product line and thus there was less profit on their sale.

Despite our increase in revenues, our operating expenses decreased. Total expenses for the first quarter of 2006 and 2005 totaled approximately $0.48 million and approximately $0.51 million, respectively, resulting in a decrease of 5%. The decrease in total expenses was primarily due to a reduction of fixed charges through restructuring that mainly applied to sales and services related to human resources within the Company. These changes included reduction in staff, reductions in entertainment fees, reductions in travel expenses and reductions in office equipment purchases.

The operating loss for the first quarter of 2006 and 2005 totaled $0.35 million and $0.49 million respectively due primarily to the increase of gross profit and decrease of expenses discussed above. Total loss before income taxes the first quarter of 2006 and 2005 totaled $0.28 million and $0.62 million respectively due to the increase of interest and other income and decrease of interest expense.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2006, CinTel had cash and cash equivalents totaling $1.79 million. At March 31, 2006, the Company had a working capital surplus of $3,608,697 and an accumulated deficit of $6,647,960. 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.

CASH FLOWS FROM OPERATING ACTIVITIES

During the first quarter of 2006, cash flow from operating activities had a net reduction of approximately $1.18 million. The main reason for this reduction of cash is attributable to the increase of accounts receivable, inventory, advance payments in spite of the decrease net loss. Almost all the accounts receivable occurred in the first quarter and will be collected to the next quarter. So, the company expects that cash flow will improve in the next quarter. Inventory and Advanced payments were increased by more “just in time” ordering of technology parts for equipment.

CASH FLOWS FROM INVESTING ACTIVITIES

During the first quarter of 2006, cash flow from investing operating activities had a net reduction approximately $0.45 million where we had no numbers in 2005. The main reason for this reduction of cash is attributable to the increase of the Short term investments and Loans receivable. The Short term investments could be disposed at any time in marketing aspect and the Loans the receivable collected sooner or later.

CASH FLOWS FROM FINANCING ACTIVITIES

During the first quarter of 2006, cash flow from financing activities had a net reduction approximately $9,517. During the first quarter of 2006 we had limited cash flows from financing activities.

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. The Company 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 the Company 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 the 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.

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.

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.

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.

RECENT ACCOUNTING PRONOUNCEMENTS

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.

Item 3. Defaults Upon Senior Securities.

Item 4. Submission of Matters to a Vote of Security Holders.

Item 5. Other Information.