As filed with the Securities and Exchange Commission on May 11, 2006
An Exhibit List can be found on page II-4.
Registration No. 333-__________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Cintel Corp.
(Name of small business issuer in its charter)
Nevada 3571 52-2360156
- ------------------------------ ----------------------------- -------------------
(State or jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification No.)
9900 Corporate Campus Drive, Suite 3000
Louisville, KY 40223
(502) 657-6077
(Address and telephone number of principal executive offices)
Dong Sung b/d 7floor, #158-9, Samsung-Dong
Kangnam-Gu
Seoul, Korea 135-090
(Address of principal place of business)
Sang Don Kim
9900 Corporate Campus Drive, Suite 3000
Louisville, KY 40223
(502) 657-6077
(Name, address and telephone number of agent for service)
Copies to:
Gregory Sichenzia, Esq.
David Schubauer, Esq.
Sichenzia Ross Friedman Ference LLP
1065 Avenue of the Americas, 21st Floor
New York, NY 10018
Telephone: (212) 930-9700
Facsimile: (212) 930-9725
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: |X|
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
(COVER CONTINUES ON FOLLOWING PAGE)
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If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
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CALCULATION OF REGISTRATION FEE
======================================================= ================= ==================== ===================== ==============
Proposed Maximum Proposed Maximum Amount of
Title of each class of securities Amount to be Offering Price Per Aggregate Offering Registration
to be registered Registered(1) Security(2) Price Fee
- ------------------------------------------------------- ----------------- -------------------- --------------------- --------------
Common Stock, $.001 par value 11,000,000(3) $0.18 $ 1,980,000.00 $ 211.86
Common Stock, $.001 par value 15,438,100(4) $0.18 $ 2,778,858.00 $ 297.34
Common Stock, $.001 par value 17,862,449(5) $0.18 $ 3,215,240.82 $ 344.03
- ------------------------------------------------------- ----------------- -------------------- --------------------- --------------
Total 44,300,549 $0.18 $ 7,974,098.82 $ 853.23
======================================================= ================= ==================== ===================== ==============
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(1) Pursuant to Rule 416 promulgated under the Securities Act of 1933, as
amended, there are also registered hereunder such indeterminate number of
additional shares as may be issued to the selling stockholders to prevent
dilution resulting from stock splits, stock dividends or similar
transactions.
(2) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(c) and Rule 457(g) under the Securities Act of
1933, using the average of the bid and ask price as reported on the OTC
Bulletin Board on May 8, 2006, which was $0.18 per share.
(3) Represents shares of common stock issuable upon conversion of $440,000
aggregate principal amount of convertible notes with a conversion price of
$0.04 per share.
(4) Represents shares of common stock issuable upon conversion of $2,161,334
aggregate principal amount of convertible notes with a conversion price of
$0.14 per share.
(5) Represents shares of common stock issuable upon conversion of $6,251,857
aggregate principal amount of convertible notes with a conversion price of
$0.35 per share.
The registrant amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a)
may determine.
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SECURITIES OFFERED HEREBY MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED MAY 11, 2006
Cintel Corp.
44,300,549 Shares of
Common Stock
This prospectus relates to the sale by the selling stockholders of
44,300,549 shares of our common stock, which shares are issuable upon conversion
of an aggregate of $8,853,191 principal amount of convertible notes. The selling
stockholders may sell common stock from time to time in the principal market on
which the stock is traded at the prevailing market price, in negotiated
transactions or through any other means described in the section entitled "Plan
of Distribution" beginning on page 7 of this prospectus. The selling
stockholders may be deemed underwriters of the shares of common stock which they
are offering. We will pay the expenses of registering these shares.
Our common stock is quoted on the OTC Bulletin Board under the symbol
"CNCN.OB." The closing sale price for our common stock on May 8, 2006 was $0.20
per share.
INVESTING IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISKS.
SEE "RISK FACTORS," BEGINNING ON PAGE 2.
We may amend or supplement this prospectus from time to time by filing
amendments or supplements as required. You should read the entire prospectus and
any amendments or supplements carefully before you make your investment
decision.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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Page
----
Prospectus Summary.......................................................................... 1
Risk Factors................................................................................ 2
Forward Looking Statements.................................................................. 5
Use of Proceeds............................................................................. 5
Selling Stockholders........................................................................ 5
Plan of Distribution........................................................................ 7
Market for Common Equity and Related Stockholder Matters.................................... 8
Management's Discussion and Analysis of Financial Condition and Results of Operations....... 9
Description of Business..................................................................... 13
Description of Property..................................................................... 19
Legal Proceedings........................................................................... 19
Management.................................................................................. 20
Executive Compensation...................................................................... 21
Security Ownership of Certain Beneficial Owners and Management.............................. 21
Certain Relationships and Related Transactions.............................................. 22
Description of Securities................................................................... 23
Indemnification for Securities Act Liabilities.............................................. 23
Legal Matters............................................................................... 24
Experts..................................................................................... 24
Available Information....................................................................... 24
Index to Consolidated Financial Statements.................................................. F-1
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PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "Risk
Factors" section, the financial statements and the notes to the financial
statements.
CINTEL CORP.
On September 30, 2003, we acquired 100% of the issued and outstanding
capital stock of CinTel Co., Ltd, a Korean corporation, and began to carry on
the business of developing, manufacturing and distributing Internet Traffic
Management solutions for businesses and consumers in Korea. Internet Traffic
Management solutions are used to manage, control and improve the performance of
high traffic web sites. Our principal Internet Management Solutions products
include: iCache, PacketCruz(TM) iLog, and PacketCruz(TM) i2one.
For the years ended December 31, 2005 and December 31, 2004, we incurred
net losses of $1,637,132 and $1,771,256, respectively. As of December 31, 2005
we had a working capital surplus (current assets less current liabilities) of
$3,724,152 and an accumulated deficit of $6,426,265.
Our principal executive offices are located at 9900 Corporate Campus Drive,
Suite 3000, Louisville, Kentucky 40223. Our phone number is (502) 657-6077. We
are a Nevada corporation.
THE OFFERING
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Common stock outstanding before the offering............. 42,879,654 shares.
Common stock offered by selling stockholders.............. 44,300,549 shares, which includes 11,000,000 share of
common stock issuable upon conversion of $440,000
principal amount of convertible notes with a conversion
price of $0.04 per share, 15,438,100 shares of common
stock issuable upon conversion of $2,161,334 principal
amount of convertible notes with a conversion price of
$0.14 per share, and 17,862,449 shares of common stock
issuable upon conversion of $6,251,857 principal amount
of convertible notes with a conversion price of $0.35
per share.
Common stock to be outstanding after the offering......... 87,180,203 shares.
Use of proceeds........................................... We will not receive any proceeds from the sale of the
common stock hereunder.
OTCBB Symbol.............................................. CNCN.OB
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RISK FACTORS
Any investment in our securities involves a high degree of risk. You should
carefully consider the following information about these risks, together with
the other information contained in this prospectus before you decide to buy our
common stock. Each of the following risks may materially and adversely affect
our business, results of operations and financial condition. These risks may
cause the market price of our common stock to decline, which may cause you to
lose all or a part of the money you paid to buy our common stock. We provide the
following cautionary discussion of risks, uncertainties and possible inaccurate
assumptions relevant to our business and our products. These are factors that we
think could cause our actual results to differ materially from expected results.
RISKS RELATED TO OUR BUSINESS:
WE HAVE A HISTORY OF LOSSES WHICH MAY CONTINUE AND WHICH MAY NEGATIVELY IMPACT
OUR ABILITY TO ACHIEVE OUR BUSINESS OBJECTIVES.
For the years ended December 31, 2005 and December 31, 2004, we incurred
net losses of $1,637,132 and $1,771,256, respectively. As of December 31, 2005
we had a working capital surplus (current assets less current liabilities) of
$3,724,152 and an accumulated deficit of $6,426,265. There can be no assurance
that future operations will be profitable. Our failure to increase our revenue
significantly or improve our gross margins will harm our business. Even if we do
achieve profitability, we may not be able to sustain or increase profitability
on a quarterly or annual basis in the future. If our revenue grows more slowly
than we anticipate, our gross margins fail to improve, or our operating expenses
exceed our expectations, our operating results will suffer. The prices we charge
for our products and services may decrease, which would reduce our revenues and
harm our business. If we are unable to sell our products or services at
acceptable prices relative to our costs, or if we fail to develop and introduce
on a timely basis new products and services from which we can derive additional
revenues, our financial results will suffer.
WE MAY FAIL TO ANTICIPATE AND ADAPT TO MARKET CHANGES, WHICH COULD IMPAIR OUR
ABILITY TO REMAIN COMPETITIVE AND HARM OUR MARKET SHARE.
Our success depends in part on our ability to anticipate rapidly changing
market trends, and to adapt our products to meet the changing needs of Internet
Traffic Management technology. Internet Traffic Management technology is
characterized by frequent and often dramatic changes. This environment of rapid
and continuous change presents significant challenges to our ability to develop
new products for our target markets. If we fail to develop, gain access to and
use leading technologies in a cost-effective and timely manner, maintain close
working relationships with current and potential customers and expand our
technical and design expertise in a manner that meets these changing market
needs, we may lose our customers to competitors who may better anticipate
changing market trends. If we are unable to compete effectively in the market
for Internet Traffic Management and maintain or increase our market share, our
business, financial condition and operating results could be adversely affected.
IF THE PROTECTION OF OUR INTELLECTUAL PROPERTY RIGHTS IS INADEQUATE, OUR ABILITY
TO COMPETE SUCCESSFULLY COULD BE IMPAIRED AND WE COULD LOSE CUSTOMERS.
We regard our patents, copyrights, trademarks, trade secrets and similar
intellectual property as critical to our success. We rely on a combination of
patent, trademark and copyright law and trade secret protection to protect our
proprietary rights. Nevertheless, the steps we take to protect our proprietary
rights may be inadequate. Detection and elimination of unauthorized use of our
products is difficult. We may not have the means, financial or otherwise, to
prosecute infringing uses of our intellectual property by third parties.
Further, effective patent, trademark, service mark, copyright and trade secret
protection may not be available in every country in which we will sell our
products and offer our services. We are attempting to sell our products in
countries and continents where we have not been granted patent protection. It is
possible that in those locations a third party may make an infringing use of our
technology and compete for the same market. If we are unable to protect or
preserve the value of our patents, trademarks, copyrights, trade secrets or
other proprietary rights for any reason, our business, operating results and
financial condition could be harmed.
2
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Litigation may be necessary in the future to enforce our intellectual
property rights, to protect our trade secrets, to determine the validity and
scope of the proprietary rights of others, or to defend against claims that our
products infringe upon the proprietary rights of others or that proprietary
rights that we claim are invalid. Litigation may also be necessary to enforce
the contractual arrangements which we have entered into to protect our
intellectual property rights, but, there can be no assurance that the courts
would enforce such arrangements. Litigation could result in substantial costs
and diversion of resources and could harm our business, operating results and
financial condition regardless of the outcome of the litigation.
Other parties may assert infringement or unfair competition claims against
us. We cannot predict whether third parties will assert claims of infringement
against us, or whether any future claims will prevent us from operating our
business as planned. If we are forced to defend against third-party infringement
claims, whether they are with or without merit or are determined in our favor,
we could face expensive and time-consuming litigation, which could distract
technical and management personnel. If an infringement claim is determined
against us, we may be required to pay monetary damages or ongoing royalties.
Further, as a result of infringement claims either against us or against those
who license technology to us, we may be required, or deem it advisable, to
develop non-infringing intellectual property or enter into costly royalty or
licensing agreements. Such royalty or licensing agreements, if required, may be
unavailable on terms that are acceptable to us, or at all. If a third party
successfully asserts an infringement claim against us and we are required to pay
monetary damages or royalties or we are unable to develop suitable
non-infringing alternatives or license the infringed or similar intellectual
property on reasonable terms on a timely basis, it could significantly harm our
business.
WE MAY NOT BE ABLE TO DEVELOP THE NEW PRODUCTS THAT WE NEED TO REMAIN
COMPETITIVE.
Our future success depends on our ability to successfully identify new
product opportunities, develop and bring to market new products and integrate
new products and respond effectively to technological changes and product
developments by our competitors. We are currently developing new products, as
well as new applications of our existing products. However, the complexity of
our products makes the process of internally researching, developing, launching
and gaining client acceptance of a new product or a new application to an
existing product is inherently risky and costly. We may experience difficulties
that could delay or prevent the successful development, introduction or
marketing of our products and applications. Our products may not adequately meet
the requirements of our current or prospective customers. Any failure by us to
successfully design, develop, test and introduce such new products, or the
failure of our recently introduced products to achieve market acceptance, could
prevent us from maintaining existing customer relationships, gaining new
customers or expanding our markets and could have a material adverse effect on
our business, financial condition and results of operations. Any failure by us
to accurately predict what competitors will develop and bring to market could
also have a material adverse effect on our performance results.
OUR SUCCESS DEPENDS ON THE CONTINUING SERVICE OF SANG DON KIM, OUR
PRESIDENT, CHIEF EXECUTIVE OFFICER AND SOLE DIRECTOR. IF MR. KIM WERE TO LEAVE,
THIS MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATING RESULTS AND FINANCIAL
CONDITION.
Changes in management could have an adverse effect on our business. We are
dependent upon the active participation of Mr. Sang Don Kim, our President,
Chief Executive Officer and sole director. We have not entered into an
employment agreement with Mr. Kim. While Mr. Kim does not have any plans to
retire or leave our company in the near future, the failure to retain the
service of Mr. Kim could have a material adverse effect on our operating results
and financial performance. We do not maintain key life insurance policies for
any of our executive officers or other personnel.
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RISKS RELATED TO OUR SECURITIES:
THE ISSUANCE OF SHARES UPON CONVERSION OF THE CONVERTIBLE NOTES INCLUDED IN THIS
PROSPECTUS WILL CAUSE IMMEDIATE AND SUBSTANTIAL DILUTION TO OUR EXISTING
STOCKHOLDERS AND COULD CAUSE A CHANGE IN CONTROL OF OUR COMPANY.
As of May 8, 2006, we had 42,879,654 shares of common stock issued and
outstanding and convertible notes outstanding that may be converted into
44,300,549 shares of common stock which are registered for resale pursuant to
this prospectus. The issuance of shares upon conversion of the convertible notes
will result in substantial dilution to the interests of other stockholders since
the selling stockholders may ultimately convert and sell the full amount
issuable on conversion. Based on the current number of shares of our common
stock outstanding, conversion of all of the outstanding convertible notes will
result in a change in control of our company. As a result, the holders of out
outstanding convertible notes upon conversion will have significant influence
to: elect or defeat the election of our directors, amend or prevent amendment of
our articles of incorporation or bylaws, effect or prevent a merger, sale of
assets or other corporate transaction, and control the outcome of any other
matter submitted to the shareholders for vote. Accordingly, upon conversion of
the convertible notes our outside stockholders may be unable to influence
management and exercise control over our business.
OUR HISTORIC STOCK PRICE HAS BEEN VOLATILE AND THE FUTURE MARKET PRICE FOR OUR
COMMON STOCK IS LIKELY TO CONTINUE TO BE VOLATILE. FURTHER, THE LIMITED MARKET
FOR OUR SHARES WILL MAKE OUR PRICE MORE VOLATILE. THIS MAY MAKE IT DIFFICULT FOR
YOU TO SELL OUR COMMON STOCK FOR A POSITIVE RETURN ON YOUR INVESTMENT.
The public market for our common stock has historically been very volatile.
During the past two years and subsequent interim quarterly periods the market
price for our common stock has ranged from $0.02 to $0.70 (See "Market for
Common Equity and Related Stockholder Matters" on page 9 of this prospectus).
Any future market price for our shares is likely to continue to be very
volatile. This price volatility may make it more difficult for you to sell
shares when you want at prices you find attractive. We do not know of any one
particular factor that has caused volatility in our stock price. However, the
stock market in general has experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance
of companies. Broad market factors and the investing public's negative
perception of our business may reduce our stock price, regardless of our
operating performance. Further, the market for our common stock is limited and
we cannot assure you that a larger market will ever be developed or maintained.
As of May 8, 2006 the average daily trading volume of our common stock over the
past three months was approximately 160,162 shares. The last reported sales
price for our common stock on May 8, 2006 was $0.20 per share. Market
fluctuations and volatility, as well as general economic, market and political
conditions, could reduce our market price. As a result, this may make it
difficult or impossible for you to sell our common stock for a positive return
on your investment.
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
The Securities and Exchange Commission has adopted Rule 3a51-1 which
establishes the definition of a "penny stock," for the purposes relevant to us,
as any equity security that has a market price of less than $5.00 per share or
with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, Rule
15g-9 require:
o that a broker or dealer approve a person's account for transactions in
penny stocks; and
o the broker or dealer receive from the investor a written agreement to
the transaction, setting forth the identity and quantity of the penny
stock to be purchased
In order to approve a person's account for transactions in penny stocks,
the broker or dealer must:
o obtain financial information and investment experience objectives of
the person; and
o make a reasonable determination that the transactions in penny stocks
are suitable for that person and the person has sufficient knowledge
and experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny
stock, a disclosure schedule prescribed by the SEC relating to the penny stock
market, which, in highlight form:
o sets forth the basis on which the broker or dealer made the
suitability determination; and
4
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o that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in
securities subject to the "penny stock" rules. This may make it more difficult
for investors to dispose of our common stock and cause a decline in the market
value of our stock.
Disclosure also has to be made about the risks of investing in penny stocks
in both public offerings and in secondary trading and about the commissions
payable to both the broker-dealer and the registered representative, current
quotations for the securities and the rights and remedies available to an
investor in cases of fraud in penny stock transactions. Finally, monthly
statements have to be sent disclosing recent price information for the penny
stock held in the account and information on the limited market in penny stocks.
FORWARD-LOOKING STATEMENTS
Information in this prospectus contains forward-looking statements. These
forward-looking statements can be identified by the use of words such as
"believes," "estimates," "could," "possibly," "probably," "anticipates,"
"projects," "expects," "may," or "should" or other variations or similar words.
No assurances can be given that the future results anticipated by the
forward-looking statements will be achieved. The following matters constitute
cautionary statements identifying important factors with respect to those
forward-looking statements, including certain risks and uncertainties that could
cause actual results to vary materially from the future results anticipated by
those forward-looking statements. A description of key factors that have a
direct bearing on our results of operations is provided above under "Risk
Factors" beginning on page 2 of this prospectus.
USE OF PROCEEDS
This prospectus relates to shares of our common stock that may be offered
and sold from time to time by the selling stockholders. We will not receive any
proceeds from the sale of shares of common stock in this offering.
SELLING STOCKHOLDERS
The following table sets forth the common stock ownership and other
information relating to the selling stockholders as of May 8, 2006. The selling
stockholders acquired their securities pursuant our private placement financing
transactions completed during October, November and December of 2005. The
material terms of such transactions are described under "Liquidity and Capital
Resources" beginning on page 10 of this prospectus. Other than as set forth in
the following table, the selling stockholders have not held any position or
office or had any other material relationship with us or any of our predecessors
or affiliates within the past three years.
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Number of Shares of
Number of Shares of Common Maximum Number of Shares of Common Stock Owned
Stock Owned Common Stock to be Sold After the Offering
Name of Selling Stockholder Prior to the Offering Pursuant to this Prospectus Number Percent
- --------------------------- --------------------- --------------------------- ------ -------
Equinox Partners Inc. 2,817,000 2,817,000 (1) 0 0%
Eun Suk Shin 704,000 704,000 (2) 0 0%
Jin Yong Kim 206,643 206,643 (3) 0 0%
Joo Chan Lee 3,200,000 3,200,000 (4) 0 0%
Jun Ro Kim 3,450,000 3,450,000 (5) 0 0%
Kei Wook Lee 2,254,143 2,254,143 (6) 0 0%
Meung Jun Lee 68,857 68,857 (7) 0 0%
Moon Soo Park 563,429 563,429 (8) 0 0%
Overnet Co., Ltd. 1,408,000 1,408,000 (9) 0 0%
Sang Ho Han 3,450,000 3,450,000 (5) 0 0%
Sang Yong Oh 1,803,043 1,803,043 (10) 0 0%
Se Jung Oh 345,000 345,000 (11) 0 0%
SeokKyu Hong 1,408,000 1,408,000 (12) 0 0%
Su Jung Jun 345,000 345,000 (11) 0 0%
Sun Kug Hwang 345,000 345,000 (11) 0 0%
Sung Min Chang 169,063 169,063 (13) 0 0%
Tai Bok Kim 19,400,000 19,400,000 (14) 0 0%
Woo Young Moon 1,377,600 1,377,600 (15) 0 0%
Yeun Jae Jo 281,771 281,771 (16) 0 0%
YungMi Lee 704,000 704,000 (17) 0 0%
TOTAL SHARES OFFERED 44,300,549
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(1) Represents shares of common stock issuable upon conversion of $985,950
principal amount of convertible notes with a conversion price of $0.35 per
share. Mr. Shin, Chang Ho has voting and dispositive control over the
securities held by Equinox Partners Inc.
(2) Represents shares of common stock issuable upon conversion of $246,400
principal amount of convertible notes with a conversion price of $0.35 per
share.
(3) Represents shares of common stock issuable upon conversion of $28,930
principal amount of convertible notes with a conversion price of $0.14 per
share.
(4) Represents: (a) 2,400,000 shares of common stock issuable upon conversion
of $336,000 principal amount of convertible notes with a conversion price
of $0.14 per share; and (b) 800,000 shares of common stock issuable upon
conversion of $280,000 principal amount of convertible notes with a
conversion price of $0.35 per share.
(5) Represents shares of common stock issuable upon conversion of $483,000
principal amount of convertible notes with a conversion price of $0.14 per
share.
(6) Represents shares of common stock issuable upon conversion of $788,950
principal amount of convertible notes with a conversion price of $0.35 per
share.
(7) Represents shares of common stock issuable upon conversion of $9,640
principal amount of convertible notes with a conversion price of $0.14 per
share.
(8) Represents shares of common stock issuable upon conversion of $197,200
principal amount of convertible notes with a conversion price of $0.35 per
share.
(9) Represents shares of common stock issuable upon conversion of $492,800
principal amount of convertible notes with a conversion price of $0.35 per
share. Mr. Shin, Chang Ho has voting and dispositive control over the
securities held by Overnet Co., Ltd.
(10) Represents: (a) 1,000,000 shares of common stock issuable upon conversion
of $40,000 principal amount of convertible notes with a conversion price of
$0.04 per share; and (b) 803,043 shares of common stock issuable upon
conversion of $281,065 principal amount of convertible notes with a
conversion price of $0.35 per share.
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(11) Represents shares of common stock issuable upon conversion of $48,300
principal amount of convertible notes with a conversion price of $0.14 per
share.
(12) Represents shares of common stock issuable upon conversion of $492,800
principal amount of convertible notes with a conversion price of $0.35 per
share.
(13) Represents shares of common stock issuable upon conversion of $59,172
principal amount of convertible notes with a conversion price of $0.35 per
share.
(14) Represents: (a) 10,000,000 shares of common stock issuable upon conversion
of $400,000 principal amount of convertible notes with a conversion price
of $0.04 per share; (b) 3,450,000 shares of common stock issuable upon
conversion of $483,000 principal amount of convertible notes with a
conversion price of $0.14 per share; and (c) 5,950,000 shares of common
stock issuable upon conversion of $2,082,500 principal amount of
convertible notes with a conversion price of $0.35 per share. As of May 8,
2006, Tai Bok Kim beneficially owned approximately 31.7% of our outstanding
common stock.
(15) Represents shares of common stock issuable upon conversion of $192,864
principal amount of convertible notes with a conversion price of $0.14 per
share.
(16) Represents shares of common stock issuable upon conversion of $98,620
principal amount of convertible notes with a conversion price of $0.35 per
share.
(17) Represents shares of common stock issuable upon conversion of $246,400
principal amount of convertible notes with a conversion price of $0.35 per
share.
PLAN OF DISTRIBUTION
We are registering the shares of common stock issuable upon conversion of
our outstanding convertible notes to permit the resale of these shares of common
stock by the selling stockholders named in this prospectus from time to time. We
will not receive any proceeds from the sale of shares of common stock in this
offering. We will bear all fees and expenses incident to the registration of the
shares of common stock offered hereby.
The selling stockholders may sell all or a portion of the shares of common
stock beneficially owned by them and offered hereby from time to time directly
or through one or more underwriters, broker-dealers or agents. If the shares of
common stock are sold through underwriters or broker-dealers, the selling
stockholders will be responsible for underwriting discounts or commissions or
agent's commissions. The shares of common stock may be sold in one or more
transactions at fixed prices, at prevailing market prices at the time of the
sale, at varying prices determined at the time of sale, or at negotiated prices.
These sales may be effected in transactions, which may involve crosses or block
transactions,
o on any national securities exchange or quotation service on which the
securities may be listed or quoted at the time of sale;
o in the over-the-counter market;
o in transactions otherwise than on these exchanges or systems or in the
over-the-counter market;
o through the writing of options, whether such options are listed on an
options exchange or otherwise;
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions; o short sales; o sales pursuant to
Rule 144;
o broker-dealers may agree with the selling security holders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
7
<PAGE>
If the selling stockholders effect such transactions by selling shares of
common stock to or through underwriters, broker-dealers or agents, such
underwriters, broker-dealers or agents may receive commissions in the form of
discounts, concessions or commissions from the selling stockholders or
commissions from purchasers of the shares of common stock for whom they may act
as agent or to whom they may sell as principal (which discounts, concessions or
commissions as to particular underwriters, broker-dealers or agents may be in
excess of those customary in the types of transactions involved). In connection
with sales of the shares of common stock or otherwise, the selling stockholders
may enter into hedging transactions with broker-dealers, which may in turn
engage in short sales of the shares of common stock in the course of hedging in
positions they assume. The selling stockholders may also sell shares of common
stock short and deliver shares of common stock covered by this prospectus to
close out short positions and to return borrowed shares in connection with such
short sales. The selling stockholders may also loan or pledge shares of common
stock to broker-dealers that in turn may sell such shares.
The selling stockholders may pledge or grant a security interest in some or
all of the senior convertible notes or warrants or shares of common stock owned
by them and, if they default in the performance of their secured obligations,
the pledgees or secured parties may offer and sell the shares of common stock
from time to time pursuant to this prospectus or any amendment to this
prospectus under Rule 424(b)(3) or other applicable provision of the Securities
Act of 1933, as amended, amending, if necessary, the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also may
transfer and donate the shares of common stock in other circumstances in which
case the transferees, donees, pledgees or other successors in interest will be
the selling beneficial owners for purposes of this prospectus.
The selling stockholders and any broker-dealer participating in the
distribution of the shares of common stock may be deemed to be "underwriters"
within the meaning of the Securities Act, and any commission paid, or any
discounts or concessions allowed to, any such broker-dealer may be deemed to be
underwriting commissions or discounts under the Securities Act. At the time a
particular offering of the shares of common stock is made, a prospectus
supplement, if required, will be distributed which will set forth the aggregate
amount of shares of common stock being offered and the terms of the offering,
including the name or names of any broker-dealers or agents, any discounts,
commissions and other terms constituting compensation from the selling
stockholders and any discounts, commissions or concessions allowed or reallowed
or paid to broker-dealers.
Under the securities laws of some states, the shares of common stock may be
sold in such states only through registered or licensed brokers or dealers. In
addition, in some states the shares of common stock may not be sold unless such
shares have been registered or qualified for sale in such state or an exemption
from registration or qualification is available and is complied with.
There can be no assurance that any selling stockholder will sell any or all
of the shares of common stock registered pursuant to the shelf registration
statement, of which this prospectus forms a part.
The selling stockholders and any other person participating in such
distribution will be subject to applicable provisions of the Securities Exchange
Act of 1934, as amended, and the rules and regulations thereunder, including,
without limitation, Regulation M of the Exchange Act, which may limit the timing
of purchases and sales of any of the shares of common stock by the selling
stockholders and any other participating person. Regulation M may also restrict
the ability of any person engaged in the distribution of the shares of common
stock to engage in market-making activities with respect to the shares of common
stock. All of the foregoing may affect the marketability of the shares of common
stock and the ability of any person or entity to engage in market-making
activities with respect to the shares of common stock.
Once sold under the registration statement, of which this prospectus forms
a part, the shares of common stock will be freely tradable in the hands of
persons other than our affiliates.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock is currently quoted on the OTC Bulletin Board under the
symbol CNCN. For the periods indicated, the following table sets forth the high
and low bid prices per share of common stock. The below prices represent
inter-dealer quotations without retail markup, markdown, or commission and may
not necessarily represent actual transactions.
8
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Fiscal 2006 Fiscal 2005 Fiscal 2004
------------------- ---------------------
Fiscal Quarter High Low High Low High Low
---------------------------------------- ---------- --------- --------- --------- ---------- ----------
First Quarter Ended March 31 $0.29 $0.14 $0.17 $0.02 $0.70 $0.10
Second Quarter Ended June 30 --- --- $0.08 $0.02 $0.21 $0.07
Third Quarter Ended September 30 --- --- $0.05 $0.02 $0.13 $0.06
Fourth Quarter Ended December 31 --- --- $0.37 $0.03 $0.14 $0.02
</TABLE>
HOLDERS
As of May 8, 2006, our shares of common stock were held by approximately
161 stockholders of record. The transfer agent of our common stock is Corporate
Stock Transfer, Inc.
DIVIDENDS
We have not previously declared or paid any dividends on our common stock
and we do not anticipate declaring any dividends in the foreseeable future.
There are no restrictions in our articles of incorporation or bylaws that
restrict us from declaring dividends. The Nevada Revised Statutes, however, do
prohibit us from declaring dividends where, after giving effect to the
distribution of the dividend: (1) we would not be able to pay our debts as they
become due in the usual course of business; or (2) our total assets would be
less that the sum of our total liabilities.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
The information in this registration statement contains forward-looking
statements. All statements other than statements of historical fact made in this
registration statement 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. 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.
<TABLE>
<CAPTION>
<S> <C> <C>
RESULTS OF OPERATIONS
(Unit: USD)
12/31/2005 12/31/2004
- ---------------------------------------- ------------------------------------- --------------------------------------
Revenue 2,208,460 1,525,503
- ---------------------------------------- ------------------------------------- --------------------------------------
Cost of sales 1,874,451 1,329,339
- ---------------------------------------- ------------------------------------- --------------------------------------
Gross Profit 334,009 196,164
- ---------------------------------------- ------------------------------------- --------------------------------------
Expenses 1,696,529 2,076,304
- ---------------------------------------- ------------------------------------- --------------------------------------
Operating (Loss) (1,362,520) (1,880,140)
- ---------------------------------------- ------------------------------------- --------------------------------------
Loss Before Income Taxes (1,904,932) (2,075,087)
- ---------------------------------------- ------------------------------------- --------------------------------------
</TABLE>
Fiscal Year 2005 and 2004 revenues totaled approximately $2.21 million and
approximately $1.53 million, respectively, which reflects an increase of
approximately $.68 million, a relative increase of 44.8%. The increase in
revenue for the fiscal year ended December 31, 2005 as compared to the previous
year was primarily attributable to an increase in solution based merchandise
sales, which represented an increase in revenue of approximately $ 0.74 million,
and to work with strategic alliance partners such as KT (Korea Telecom), Hyundai
HDS, which represented an increase in revenue of approximately $0.72 million.
This increased revenue is mainly achieved by Korea Museum project with KT. In
the upcoming year, the company expects significant new revenues by opening up a
new market with a strong strategic alliance with Hyundai HDS, which has
influence in the finance market and other industries.
9
<PAGE>
The cost of sales for the fiscal year 2005 and 2004 was $1.87 million and
$1.33 million, respectively, a relative increase of 41%, primarily attributable
to the relative increase in revenue. Our gross margins for the fiscal years
ended December 31, 2005 and 2004 increased from 15% to 13%, respectively,
especially due to high margin project of Korea Museum project.
Total expenses for the fiscal years ended December 31, 2005 and 2004
totaled approximately $1.7 million and approximately $2.08 million,
respectively, resulting in a decrease of $.38 million or 18.3 %. The decrease in
total expenses in absolute dollars was primarily due to a reduction of fixed
charges through restructuring that mainly applied to sales and service related
to human resources.
The operating loss from fiscal year 2005 and 2004 totaled $1.36 million and
$1.88 million respectively. Total loss before income taxes for fiscal year 2005
and 2004 totaled $1.94 million and $2.08 million respectively.
Management believes the Internet Traffic Management ("ITM") market
continues to expand globally in the near future due to an increase in Web-based
applications, server based applications and more process intensive processes in
Web-based interfaces in the market. The company can expect to show additional
revenue and profits in the coming quarters with the strong relationships it has
with its enterprise level customers. In accordance with the directive of the
board of directors, management will use the balance of fiscal year 2006 to
expand its products and markets. In the Korea, CinTel plans to leverage its
alliance with Hyundai HDS and expand the solution portfolio from the single ITM
solutions to include more enterprise IT solutions, including security products
with Hyundai HDS. We believe this partnership with HDS will continue to enable
growth for CinTel in the current IT environment. CinTel is also taking steps to
establish several business partnerships in the United States. We have not yet
entered into any agreements to provide your solutions in the United States.
Additionally, CinTel plan to study other markets to enter where we believe we
will be able to leverage our distribution channels and product strengths.
CinTel has selected "digital content with ITM" as a new target market and
plans to launch an online game business in 2006 to help boost sales and secure
growth within the company. In December 2005 we applied for a game server patent
that will be used to manage traffic of online game servers. Our strategy for
online gaming is not to develop online games but to enter the online game market
by a potential acquisition of an online Korean game company. As CinTel positions
itself as an Online game publisher CinTel plans to expand into China, Japan,
other Asian countries, Europe and North America with additional licensing of
qualified Korean online games.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2005, CinTel had cash and cash equivalents totaling
$3.49 million. Management believes it has the resources necessary to maintain
its current business operations for at least twelve months from the date this
report was filed.
As further described below, CinTel raised $8,853,191 through the sale of
convertible notes to various accredited investors during October 2005, November
2005 and December 2005, in preparation for the online gaming business with ITM.
On October 17, 2005, we sold an aggregate principal amount of $440,000 of
convertible notes to two accredited investors. These convertible notes do not
bear interest and, unless converted into shares of our common stock, are due and
payable on April 17, 2007. The convertible notes are convertible into shares
of our common stock at any time after issuance at a conversion price of $0.04
per share.
On November 17, 2005, we sold an aggregate principal amount of $2,161,334
of convertible notes to ten accredited investors. These convertible notes do not
bear interest and, unless converted into shares of our common stock, are due and
payable on May 17, 2007. The convertible notes are convertible into shares
of our common stock at any time after issuance at a conversion price of $0.14
per share.
10
<PAGE>
On December 15, 2005, we sold an aggregate principal amount of $5,759,057
of convertible notes to ten accredited investors. These convertible notes do not
bear interest and, unless converted into shares of the Company's common stock,
are due and payable on June 15, 2007. The convertible notes are convertible
into shares of our common stock at any time after issuance at a conversion price
of $0.35 per share.
On December 26, 2005, we sold an aggregate principal amount of $492,800 of
convertible notes to two accredited investors. The convertible notes do not bear
interest and, unless converted into shares of our common stock, are due and
payable on June 26, 2007. The convertible notes are convertible into shares
of our common stock at any time after issuance at a conversion price of $0.35
per share.
INVESTMENT IN GLOBAL ASSET INVESTMENT MANAGEMENT CO., LTD.
In December 2005, CinTel Corp acquired 500,000 shares of Global Asset
Investment Management Co., Ltd. ("Global Asset") for a purchase price of
$2,478,250 becoming the major shareholder with 20% of shares in Global Asset
Management. This strategic investment was made due to several factors described
below.
o Solid Industry Outlook: The asset management business in Korea is
expected to grow at an annual rate of 20% per year until 2035. Korean
households are only now beginning to discover (i) that financial
assets other than banking deposits are a good investment class as the
returns in the stock market in the last two years have demonstrated
and (ii) that professionally managed funds offer advantages over
self-managed investments.
o Expected Turnaround in Profits: Although since its founding in 1999,
Global Asset Management has generated cumulative losses due to the
small size of the assets under management, in the first three months
of 2006, Global Asset's assets under management has grown by 15%, and
it now manages approximately $300 million and expects to manage
sufficient funds in the near future to generate significant profits.
o Helpful Co-Investor: The co-investor in Global Asset is Bokwang Co.
Ltd. ("Bokwang"), one of the rising investment conglomerates in Korea
with interests in several technology manufacturing companies, a
convenience store chain with over 5,000 stores, a ski and golf resort
and an advertising firm. By establishing a firm working relationship
with Bokwang, CinTel anticipates the ability to expand and
diversification in new business areas with their support. Currently,
Bokwang is assisting CinTel with a bi-directional sales approach of
current and potential customers that has introduced CinTel to many of
Bokwang's company affiliates.
o Sales Referrals from Global Asset: With Global Asset's business
related to investments in promising new companies CinTel has gained
access to several new target potential acquisitions, mergers and
strategic alliance partners.
o Experienced Management Team: Global Asset is reconstructing the entire
investment team. The management has added several new investment teams
with proven track records. We believe these teams will bring a core of
new investments into the portfolio of the operations.
Although CinTel is one of the largest shareholders of Global Asset, it is
not involved in the day-to-day operations. We view this investment as a
long-term investment that will bear fruit in a number of different ways as
explained in the above bullet-points. The asset management business is showing a
yearly growth power from Korea. Global Asset is a private company but have the
special fund manager and investment strategy commission. It is expecting rate of
return on investment with the public stocks and a bond investment We expects to
liquidate investment from a long-term viewpoint.
BUSINESS TRENDS
The ITM market is currently undergoing rapid transformation from a pure
caching appliance environment to a convergence of more enterprise network
traffic and application management features such as SSL VPN, Application
Acceleration (Web-enabled), WAN optimization, Firewall and Content Security.
CinTel must incorporate these functions into its current product line to better
compete in the marketplace.
Wireless ISP market access penetration is rapidly increasing in North
America as wireless and broadband technologies are being deployed. As the
standards are agreed upon, and as the new business models begin to surface
broadband access penetration will become ubiquitous and will open up new
business opportunities for companies like CinTel and others in this space.
11
<PAGE>
Korean game industry is quit unique in the world market. According to our
research the market share of Korean video games, which are strong in USA and
Japan, is just 3.8% and ranked as 8th in the world. But the global market share
of Korean online games is almost 70% (including exports to oversea markets like
Japan and China) and 100 million users in over 33 countries are enjoying Korean
online games. (Source: News clipping of Daily Sports ("Ilgan Sports"),
10-25-2005)
Online gaming is strong in Asian countries like Korea, Taiwan and China,
but the online game market in the USA and Japan is expected to grow gradually as
broadband services are becoming affordable and available. Current online game
market in USA relies on business model of advertisement, sponsor and e-commerce
through casual gaming portal site. (Source: A Study On Global Digital Contents -
game by KIPA (Korea IT Industry Promotion Agency 2003). According to our
research it is expected that the USA online game market will grow to as much as
$2.6 billion by the year 2007. (Source: 10/2003: Datamonitor, `Global Online
games' 7/2002, IDC, Online game forecast 2002-2007). And the online game market
in Europe is also expected to grow gradually as broadband is becomes more
popular.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off balance sheet arrangements that are reasonably
likely to have a current or future effect on our financial condition, revenues,
results of operations, liquidity or capital expenditures.
SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation - The merger of the Company and Cintel Korea has
been recorded as the recapitalization of the Company, with the net assets of the
Company brought forward at their historical basis. The intention of the
management of Cintel Korea was to acquire the Company as a shell company listed
on NASDAQ. Management does not intend to pursue the business of the Company. As
such, accounting for the merger as the recapitalization of the Company is deemed
appropriate.
Currency Translation - The Company's functional currency is Korean won.
Adjustments to translate those statements into U.S. dollars at the balance sheet
date are recorded in other comprehensive income. Foreign currency transactions
of the Korean operation have been translated to Korean Won at the rate
prevailing at the time of the transaction. Realized foreign exchange gains and
losses have been charged to income in the year.
Investments - Investments in available-for-sale securities are being
recorded in accordance with FAS-115 "Accounting for Certain Investments in Debt
and Equity Securities". Equity securities that are not held principally for the
purpose of selling in the near term are reported at fair market value when it is
readily determinable, with unrealized holding gains and losses excluded from
earnings and reported as a separate component of stockholders' equity.
Financial Instruments - Fair values of cash equivalents, short-term and
long-term investments and short-term debt approximate cost. The estimated fair
values of other financial instruments, including debt, equity and risk
management instruments, have been determined using market information and
valuation methodologies, primarily discounted cash flow analysis. These
estimates require considerable judgment in interpreting market data, and changes
in assumptions or estimation methods could significantly affect the fair value
estimates.
Concentration of Credit Risk - SFAS No. 105, "Disclosure of Information
About Financial Instruments with Off-Balance Sheet Risk and Financial
Instruments with Concentration of Credit Risk", requires disclosure of any
significant off-balance sheet risk and credit risk concentration. The Company
does not have significant off-balance sheet risk or credit concentration. The
Company maintains cash and cash equivalents with major Korean financial
institutions. The Company's provides credit to its clients in the normal course
of its operations. It carries out, on a continuing basis, credit checks on its
clients and maintains provisions for contingent credit losses which, once they
materialize, are consistent with management's forecasts. For other debts, the
Company determines, on a continuing basis, the probable losses and sets up a
provision for losses based on the estimated realizable value. Concentration of
credit risk arises when a group of clients having a similar characteristic such
that their ability to meet their obligations is expected to be affected
similarly by changes in economic conditions. The Company does not have any
significant risk with respect to a single client.
12
<PAGE>
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.
DESCRIPTION OF BUSINESS
BACKGROUND
CinTel Corp (formerly Link2 Technologies) was incorporated in the State of
Nevada on August 16, 1996. The initial business focus was to develop a 3D
animation and digital effects studio that would provide high-end 3D animation
and digital effects to the music video industry.
On September 30, 2003, Link2 Technologies entered into a definitive Share
Exchange Agreement with CinTel Co., Ltd., a Korean corporation ("CinTel Korea")
and the shareholders of CinTel Korea. Pursuant to the Share Exchange Agreement,
we acquired 100% of the issued and outstanding capital stock of CinTel Korea in
exchange for 16,683,300 shares of our common stock. CinTel Korea was founded in
1997 and has provided various Internet Traffic Management solutions to
businesses and consumers. All of our business operations are now comprised of
developing, manufacturing and distributing Internet Traffic Management solutions
to businesses and consumers in order to manage and control large traffic.
CinTel Korea introduced Korea's first dynamic server load balancer, and has
marketed Internet Traffic Management products since its inception, such as the
PacketCruz(TM) family of products, iCache, i2one, and Proximator. The Internet
Traffic Management solutions are marketed to customers around the world, helping
them improve Internet traffic management, service levels (QOS: Quality of
Service), and the user experience (QOC: Quality of Content).
PRINCIPAL PRODUCTS
We produce three Internet traffic management products: iCache,
PacketCruz(TM) iLog, and PacketCruz(TM) i2one.
iCache
iCache is a high performance Internet caching system for accelerated
content delivery. iCache is used by businesses, Internet Service Providers,
educational institutions, and other organizations to manage and control Web
traffic growth, while accelerating the delivery of content to users. iCache is
specifically designed to improve the performance, scalability, security,
portability, security, and manageability of high-traffic Web sites. iCache has
advantages in I/O and file management, and algorithms that learn and search
better with increased usage. iCache provides technologies for massive connection
management, mass object storing, and retrieving. We build our own cache object
file systems based on these technologies. iCache can maintain up to 50,000
concurrent connections and support about 4,000 req/sec.
13
<PAGE>
iCache is our primary product and was the top performing solution in the
prestigious 3rd and 4th annual Cache-offs, a U.S. event hosted by The
Measurement-Factory, a worldwide cache benchmark (Polygraph) organization.
(http://www.measurement-factory.com/results/public/cacheoff/N04)
PacketCruz(TM) iLog
PacketCruz(TM) iLog is an automated log data management and analysis
solution. PacketCruz(TM) iLog can be used with iCache to provide features like
automatic log data gathering, management, backup, analysis report generation,
and searching for large sized log data. Some of the benefits of PacketCruz(TM)
iLog are the reduction of log data management and analysis cost. It also can be
used for user request tracing. The user request tracing based on log data is
very useful for security tracking with compliance issues. User tracking is
critical for monitoring all aspects of communications with users and often is
required or expected.
PacketCruz iLog, when combined with iCache is capable of providing all the
necessary functions needed in Web traffic forensics for government compliance
and litigation applications. It is robust and scalable for the enterprise with
the ability to handle more than 40 billion objects of log data, based on our own
(proprietary) distributed-processing algorithm. It supports OS of FreeBSD, now.
Also it enables administrator to increase performance capacity more easily by
its own dispersing architecture. PacketCruz iLog is aimed at the enterprise
internal security market for government compliance and corporate asset
protection requirements.
PacketCruz(TM) i2one
PacketCruz i2one is an automatic network management solution for small and
medium-sized networks. As high-speed Internet service becomes commonplace, there
will be needs for remote monitoring by administrators in places like cyber
apartments, small and medium-sized hotels/companies, and public places. Our
packet control technology for the control of a user's packet includes packet
capturing, real-time packet analysis, packet injection and ARP masquerading.
This packet control technology can be used in the form of gateway or
stand-alone.
We have also developed the PacketCruz iNetKeeper. In Korea, cyber
apartments have become popular. The residents of cyber apartments enjoy various
services such as home network, Internet banking, home security, news, medical
counsel, real estate information, and local community service. PacketCruz
iNetKeeper is an upgraded model of PacketCruz i2one and an exclusive Internet
gateway solution providing all features for the needs of cyber apartments. The
followings are the main features of PacketCruz iNetKeeper:
- Transparent/Directory base User Authentication Service
- Traffic Analysis/Homepage Redirection - IP Address Management
- Enhanced DHCP Server
- NAT
- Firewall
- Network Monitoring
- Integrated Management
MARKETS
As enterprise applications transform from mainframe and client/server
applications into Web-based applications, the demand for improved performance
made possible by Web caching systems increases. The explosion in multimedia
enriched content available online is also driving this need.
14
<PAGE>
Audio, images and video represent an increasingly larger share of Internet
traffic. Numerous radio and television stations broadcast live on the Internet.
Special events, such as sports games, concerts or fashion shows, are webcast
directly by the event organizers without going through the traditional
broadcasting channels. Entire movies are becoming available for download from
video-on-demand providers. In addition to the news and entertainment spaces, the
role of Internet audio and video in business and education markets is also
rapidly growing.
Web-based data on the Internet is increasing at a rate beyond the ability
of bandwidth extension to solve the performance problems created by the sheer
volume of data. Web caching technology can solve the performance problem, but
this technology must also solve the scalability, security, and manageability of
high-traffic Web sites.
Web application performance issues can be categorized into three major
bottleneck areas: bandwidth, latency, and server constraints. Web application
performance solutions typically are aimed at one or more of these constraints.
Choosing the right solution is a complicated matter, and remote unmanaged
clients introduce even more complexity. Clients on corporate owned networks or
grouped in corporate facilities can exploit a broader set of solutions than
individual clients can on their own. Centralized solutions are better at serving
broader constituencies of users, including customers and remote employees. For
enterprises worldwide, our caching solutions can fill the need for this advanced
caching functionality, performance, and management.
When caching solutions were initially developed, the target market seemed
to be limited to Internet Service Providers such as AOL and Yahoo!. Increasingly
companies are now migrating their business applications to a Web-based delivery
model via the Internet. With the growth of the Internet, the needs for Web cache
are everywhere there is a Web presence, such as business, financial
institutions, and governmental agencies. We believe that this phenomenon will be
accelerated much more through 2007, as the Internet becomes a daily life
necessity.
As the security threat to the enterprise grows, the need for tracing of
employees' network activity increases. Employees can send out confidential
information outside the network through Web mail, BBS, email, messenger, and
file sharing systems. Thus, many companies have begun to keep log data of all
network transactions to enable the tracing of employees' activities. But, the
size of network transaction log data is tremendous. To manage and trace large
amounts of log data, a special solution for multi-terra-bytes amounts of log
data is needed.
DISTRIBUTION CHANNELS
We distribute our products in two ways: direct sales and joint sales
through global and local distributors.
Our direct sales team covers the Korean market only, focusing on the
government, large service providers, and global enterprises. Our strategy to
enter the U.S. market is to start with a reseller channel and then build a
direct sales team.
Joint sales with global and Korean distributors is accomplished in
cooperation with sales partners, through which we maximize our domestic and
global sales opportunities. The sales partners are also called "distributors."
Each of them works within their professional field and helps support our
products.
We currently have five distributors in the Korean market: Seoul Commtech
Co., Ltd., NetCom Systems Inc., SNETsystems Co., Zenlink Co., Ltd., and Hyundai
HDS Co., Ltd.
OUR GLOBAL DISTRIBUTORS
<TABLE>
<CAPTION>
<S> <C> <C>
Name of Distributor URL Area of Distribution
----------------------------------------------- -------------------------------- -------------------------------
Singapore & Suntze Communications Engineering www.suntze.com.sg The Peoples Republic of China
Pte., Ltd.
----------------------------------------------- -------------------------------- -------------------------------
Canon System Solutions Co., Ltd www.canon-sol.co.jp Japan
----------------------------------------------- -------------------------------- -------------------------------
Rikei Corporation www.rikei.co.jp Japan
----------------------------------------------- -------------------------------- -------------------------------
NetSys Pte., Ltd www.netsys.com.sg Singapore
----------------------------------------------- -------------------------------- -------------------------------
InterSpace Computers www.interspacecomputers.com USA, North America
----------------------------------------------- -------------------------------- -------------------------------
</TABLE>
15
<PAGE>
On April 26, 2002, we entered into a Distribution Agreement with Suntze
Communications Engineering Pte., Ltd., whereby Suntze Communications agreed to
become a non-exclusive distributor in Singapore and the People's Republic of
China for the sale of products in the iCache Series that are manufactured by us,
excluding products manufactured on the basis of Original Equipment Manufacture
(OEM) relationships and/or Contract Manufacture (CM) relationships with third
parties for products not having the CinTel brand name. Under this Distribution
Agreement, we agreed to supply Suntze Communications with products upon orders
being placed at least three months in advance. Before the three months prior to
the end of each calendar year, Suntze Communications is required to provide us
with an annual forecast covering the next twelve month period. The prices of
products are subject to mutual agreement by both parties from time to time
during the term of the Distribution Agreement. The term of this Distribution
Agreement is from April 26, 2002 until April 26, 2004 and is automatically
extended for successive one-year periods unless either party gives at least
thirty days prior written notice of its intention not to extend the agreement.
On May 24, 2002, we entered into a Distribution Agreement with Sumitomo
Metal System Solutions Co., Ltd. (n/k/a Canon System Solutions Co., Ltd.),
whereby Canon System Solutions agreed to become a non-exclusive distributor in
Japan for the sale of products in the iCache Series that are manufactured by us,
excluding products manufactured on the basis of Original Equipment Manufacture
(OEM) relationships and/or Contract Manufacture (CM) relationships with third
parties for products not having the CinTel brand name. Under this Distribution
Agreement, we agreed to supply Canon System Solutions with products upon orders
being placed at least three months in advance. Before the three months prior to
the end of each calendar year, Canon System Solutions is required to provide us
with an annual forecast covering the next twelve month period. The term of this
Distribution Agreement is from May 24, 2002 until May 24, 2004 and is
automatically extended for another two years unless either party gives at least
thirty days prior written notice of its intention not to extend the agreement.
On May 23, 2001, we entered into a Distribution Agreement with Rikei
Corporation, whereby Rikei Corporation agreed to become a non-exclusive
distributor in Japan for the sale of products in the iCache Series that are
manufactured by us, excluding products manufactured on the basis of Original
Equipment Manufacture (OEM) relationships and/or Contract Manufacture (CM)
relationships with third parties for products not having the CinTel brand name.
Under this Distribution Agreement, we agreed to supply Rikei Corporation with
products upon orders being placed at least three months in advance. Before the
three months prior to the end of each calendar year, Rikei Corporation is
required to provide us with an annual forecast covering the next twelve month
period. The term of this Distribution Agreement is from May 23, 2001 until May
23, 2003 and is automatically extended for another two years unless either party
gives at least thirty days prior written notice of its intention not to extend
the agreement.
On July 30, 2001, we entered into a Distribution Agreement with NetSys Pte,
Ltd., whereby NetSys agreed to become a non-exclusive distributor in Singapore
and the People's Republic of China for the sale of products in the iCache Series
that are manufactured by us, excluding products manufactured on the basis of
Original Equipment Manufacture (OEM) relationships and/or Contract Manufacture
(CM) relationships with third parties for products not having the CinTel brand
name. Under this Distribution Agreement, we agreed to supply NetSys with
products upon orders being placed at least three months in advance. Before the
three months prior to the end of each calendar year, NetSys is required to
provide us with an annual forecast covering the next twelve month period. The
term of this Distribution Agreement is from July 30, 2001 until July 30, 2002
and is automatically extended for successive one-year periods unless either
party gives at least thirty days prior written notice of its intention not to
extend the agreement.
On March 15, 2006, we entered into a Distribution Agreement with InterSpace
Computers, Inc., whereby Interspace Computers agreed to become a non-exclusive
distributor in North America for the sale of products in the iCache Series that
are manufactured by us, including products manufactured on the basis of Original
Equipment Manufacture (OEM) relationships and/or Contract Manufacture (CM)
relationships with third parties for products not having the CinTel brand name.
We agreed to supply Canon System Solutions with products upon orders and to pay
Interspace Computers 5% of any sales amount. Interspace Computers is required to
provide us with an annual forecast covering the next twelve month period. The
Distribution Agreement has an initial term of one year and will automatically
renew from year to year thereafter subject to the rights of the parties to
terminate. Either party may terminate the Distribution Agreement without cause
by giving the other party not less than three months notice of termination. The
Distribution Agreement may be terminated immediately by either party upon the
happening of: (a) any attempted or successful transfer or assignment of the
Distribution Agreement or any sale, transfer, relinquishment of any interest in
ownership, control or active management of Cintel Corp. or Interspace Computers
without the prior written approval of the other; (b) the execution by either
party of an assignment for the benefit of creditors; or failure by either party
to pay, when due, any indebtedness owed to the other party, unless expressly
waived in writing by the other party. Either party also may terminate the
Distribution Agreement for failure to perform or adhere to any of its respective
obligations under the Agreement by notifying the other party of such default and
allowing 30 days to cure the default. If the default is not cured within such 30
days, the party who gave the notice may terminate the Distribution Agreement at
anytime thereafter upon notice to the defaulting party.
16
<PAGE>
RESEARCH, DEVELOPMENT AND MANUFACTURING
We also operate our own Research & Development Team and Technical Support
Team. The R&D Team develops new features in our software and hardware
architecture, and the Technical Support Team selects the most appropriate parts
for optimal performance. Research topics of R&D team are listed in the
description column of the next table. We then order mass production from KTNF
(www.ktnf.co.kr), a recognized hardware manufacturing company.
The table below shows individual products produced by CinTel, time
incorporated in improvements, costs associated with these efforts and details on
the functions addressed in these developments.
<TABLE>
<CAPTION>
<S> <C> <C>
-----------------------------------------------------------------------------------------------------------------
Product Cost Cost Description
During 2005 During 2004
-----------------------------------------------------------------------------------------------------------------
iCache $39,728 $291,361 - caching performance improvement
- development of content filtering
- development of web U/I
- development of NTLM authentication
- adding API for the processing of uploading data
- development of upload content filtering modules
-----------------------------------------------------------------------------------------------------------------
PacketCruz i2one $0 $44,825 - porting to FreeBSD
- porting to IBM AIX
- development of v2.0.0 (distributed log analysis)
- log filtering for faster search
- development of new analysis report generation
-----------------------------------------------------------------------------------------------------------------
PacketCruz iLog $9,932 $112,062 - developing a feature for network isolation
- redevelopment for 2-tier architecture
-----------------------------------------------------------------------------------------------------------------
Proxy for online game $49,660 $0 - research activities for online gam server architecture
- research activities for designing of proxy engine
for online game server
- applying for a patent
-----------------------------------------------------------------------------------------------------------------
</TABLE>
STATUS OF NEW PRODUCT DEVELOPMENT
We are developing a proxy system for online game servers. A patent for the
acceleration of an online game server was applied for in December 2005 with
Korea's national patent bureau. The proxy system is intended to dramatically
improve the performance of online game server systems and allow a significantly
larger number of simultaneous users. The proxy system will be suitable for
massively multi-player online role playing games. We believe the success of some
popular massively multi-player online role playing games is currently
constrained by the limitations of servers that restricted the total number of
simultaneous users. Korea is the largest online game market in the world with
world bestseller game like Lineage, Ragnarok from the Korea's first online mug
game "Kingdom of Wind" in 1995. (Source: A Study on Global digital Contents:
Game by KIP (Korea IT Industry Promotion Agency 2/2006). As CinTel's prospective
patent is expected to dramatically improve the performance and capacity of the
online game servers, CinTel plans to develop strategic alliances or
relationships with leading online game companies either through licensing of the
patent or sales and supply of the proxy servers that embed such new technology.
17
<PAGE>
COMPETITION
While no accurate statistical data exists for the Internet Traffic
Management market in Korea, we believe we are a leader in the industry in Korea,
as demonstrated by the various awards that our products have received. There are
two different types of content caching technologies: first, pure software
systems on general-purpose hardware; and second, dedicated appliances with
specialized software and file systems. The former group consists of products
from companies like Inktomi, Ara Tech, and Microsoft. In the appliance category,
the leaders are Network Appliance, Bluecoat, and Cisco. We have been able to
compete with these companies through our competitive product features, price,
and customer service.
INTELLECTUAL PROPERTY
We have three registered patents, three registered trademarks and one
registered service mark with the Korean Intellectual Property Office. We also
have four pending patent applications with the Korean Intellectual Property
Office.
Registered Patents:
(1) "Load Balancer and Content Routing Method by Load Balancer" (Reg. No.:
268838) valid through Nov. 7, 2018.
(2) "Apparatus and Method for video alarm using wireless telecommunication
network" (Reg. No.: 369426) valid through Mar. 11, 2022.
(3) "System and Method for high availability network" (Reg. No.: 383490)
valid through May. 17, 2020.
Pending Patent Applications:
(1) "Method and System for centralized Internet contents translation and
delivery" (Appln. No.: 10-2002-0013646).
(2) "Operating system and method for pull-typed contents delivery network"
(Appln. No.: 10-2002-0013647).
(3) "Network connection control system and method of network-connected
node at LAN" (Appln. No.: 10-2003-0066010).
(4) "Storage apparatus based on random access memory" (Appln. No.:
10-2003-0098024).
(5) "Proxy system for online game server systems" (Appln. No.:
10-2005-0113944)
Registered Trademarks:
(1) "i2one" - logo (Reg. No.: 525665) valid through Jul. 18, 2012
(2) "PacketCruz" - logo (Reg. No.: 470393) valid through May. 19, 2010
(3) "PeerTree Connect The Web" - logo (Reg. No.: 552597) valid through
Jul. 1, 2013
GOVERNMENTAL APPROVALS
We are subject to local and global government rules and regulations that
affect business generally. Neither Korea nor the governments in which we market
our products specifically regulate the Internet Traffic Management solutions
markets. Certain government approvals, however, can be helpful and/or necessary
in order to access certain government markets. We have been granted the
following governmental approvals:
(1) November 1997: Granted as a company for exemption of the military
service on the R/D researchers (Electrical/Electronics area) by
Ministry of Information and Communication.
(2) February 2000: Selected as a small and medium-sized company with
excellent technological competitive power in the field of information
communication by Small and Medium-sized Business Association.
(3) March 2000: Acquisition of the KT Mark (new business made in Korea)
with PacketCruz Redirector, network server clustering technology
through dispersion of IP level packet by Ministry of Science &
Technology.
18
<PAGE>
(4) April 2001: Registered as Korea first Public Procurement Service for
an excellent product (All models of PacketCruz iCache) by Public
Procurement Service.
(5) November 2001: Selected as an INNO-BIZ enterprise by Small and
Medium-sized Business Association.
(6) January 2002: Won the Grand Prize of the Digital Innovation Award by
Hankook Ilbo, Small and Medium-sized Business Association.
(7) December 2002: Awarded the government certification of "Promising
Small & Medium Information-Communication Enterprise by Ministry of
Information and Communication.
(8) May 2003: Registered as a member of Korea Software Industry
Association (KOSA) authorized by Ministry of Information and
Communication.
PRODUCT AND BUSINESS AWARDS
We have been granted various awards and prizes for our products and for our
business development. The following are a list of our awards to date:
(1) April 1999: Selected as a small and medium-sized company with
promising export capabilities by Small Business Corporation.
(2) December 2001: Won the Grand Prize of the Dream Venture Award by Korea
Technology Guarantee Fund, Korea management Association.
(3) December 2001: Selected as a superior technology company by Korea
Technology Credit Guarantee.
(4) April 2002: Chosen as an excellent company in technological innovation
by Seoul Economic Daily.
(5) July 2002: Received an 'A' rating from Federation of Korean Industries
Venture company by The Foundations of Korean Industries.
(6) August 2002: Certified ISO-9001 approval for Design and Services of
Information Communication Equipment, Internet Traffic Management by
International Organization for Standardization.
(7) December 2002: Awarded the Grand Prize of International Industrial
Co-operation by The Foundations of Korean Industries and Maeil
Economic Daily.
(8) February 2003: Appointed as Excellent Venture Company by Seoul
Economic Daily in Korea.
(9) July 2003: Awarded 2003 Korea High-Quality Emerging Technology Prize
by Seoul Economic Daily.
(10) November 2003: Awarded the Prime Minister Prize in 2003 Digital
Innovation Awards by Korea Times and Hankook Ilbo.
(11) June 2004: Awarded '2004 The Best Hit Product of Korean SMB-Venture
Companies' (by Seoul Economic Daily), Started up Memory Disk Solution
Business (SST-V1).
(12) July 2004: Awarded 'The 3rd Korea High-quality Emerging Technology
Prize' (by Seoul Economic Daily).
EMPLOYEES
As of May 8, 2006, we employed 20 full time employees and 9 part time
employees. None of our employees are covered by a collective bargaining
agreement. We believe that relations with our employees are good.
DESCRIPTION OF PROPERTY
We maintain two offices and have lease agreements with respect to each
office. Our U.S. office is located at 9900 Corporate Campus Drive, Suite 3000,
Louisville, Kentucky 40223. We lease the U.S. office for a term of one year,
which expires on November 31, 2006. The lease agreement for the U.S. office
requires that we pay $1,100 dollars per month, which includes use of office
equipment and staff. Our Asia Pacific office is located in Dongsung Bldg. 7FL,
#158-9, Samsung-dong, Gangnam-Gu, Seoul, Korea 135-090. The lease agreement for
the Asia-Pacific office is for a term of one year and expires in December 2006.
Our monthly lease payment for the Asia Pacific office is $7,457 (including 10%
VAT). We do not own any real property.
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.
19
<PAGE>
MANAGEMENT
The following table sets forth the names and ages of the members of our
Board of Directors and our executive officers and the positions held by each.
<TABLE>
<CAPTION>
<S> <C>
Name Age Position
- ---- --- --------
Sang Don Kim 39 President, Chief Executive Officer and Director
Kyo Jin Kang 40 Chief Financial Officer and Principal Accounting
Officer
Jong Kook Moon 44 Secretary and Treasurer
</TABLE>
Below is a brief description of the above persons' business experience
during the past five years based on information supplied by each of them.
SANG DON KIM, PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR. Mr. Kim has
been President, Chief Executive Officer and the sole Director of CinTel Korea
since July 1997 and has held the same positions with Cintel Corp. since
September 30, 2003. From July 1994 through July 1996, Mr. Kim was the manager of
strategic accounts and sales OEM of Hyundai SemiConductor. Mr. Kim is also the
administrative director of Dosan Academy, the director of alumni association of
IT College, Korea University, and an organizing member of Korea Digital Contents
Leaders Forum by Korea IT Industry Promotion Agency.
KYO JIN KANG, CHIEF FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING OFFICER. Mr.
Kang has been Chief Financial Officer, Chief Operating Officer and Principal
Accounting Officer of CinTel Korea since June 2002 and has held the same
positions with Cintel Corp. since September 30, 2003. From March 2001 to June
2002, Mr. Kang was the Chief Financial Officer of Barun Electronics Company.
From November 1992 to March 2001, he worked for Korea Development Leasing
Corporation (KDLC), the largest leasing company in Korea and a joint venture
partner with Korea Long-term Credit Bank (currently, Kookmin Bank), ORIX in
Japan, and IFC. During his employment KDLC, his positions included, senior
manager of the CRC Task Force Team, assistant manager over the non-performing
loan management team, assistant manager over the futures task force team, and
officer in the small and medium size firm lease marketing team and an officer in
the treasury department.
JONG KOOK MOON, SECRETARY AND TREASURER. Mr. Moon has been Secretary and
Treasurer of Cintel Corp. since October 10, 2003. From April 2000 to the present
Mr. Moon has been and is an attorney at law with the IBC Law Group, Seoul,
Korea. From March 1999 to the present, Jong Kook Moon has also worked for
Sookmyung Woman's University in Seoul, Korea as a Special Professor of
International Trade Law. From September 1999 through June 2000, Mr. Moon worked
for SK Global Co., Ltd., Seoul, Korea; from July 1998 through September 1999,
with KOTRA (Korea Investment Service Center), Seoul, Korea; and from September
1996 through February 1998, with Kaye, Scholer, Fierman, Hays & Handler, in New
York and Washington, D.C.
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. There are no
agreements with respect to the election of directors. We do not compensate our
directors. Officers are appointed annually by the Board of Directors and each
executive officer serves at the discretion of the Board of Directors. The
Company does not have any standing committees at this time. There are no family
relationships among any of our directors and executive officers.
No director, officer, affiliate or promoter of our company has, within the
past five years, filed any bankruptcy petition, been convicted in or been the
subject of any pending criminal proceedings, or is any such person the subject
or any order, judgment or decree involving the violation of any state or federal
securities laws.
Audit Committee
We do not have a separately designated standing audit committee, or a
committee performing similar functions. We also do not have an audit committee
financial expert, as that term is defined in Item 401 of Regulation S-B.
20
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning the total
compensation that we have paid or that has accrued on behalf of our chief
executive officer and other executive officers with annual compensation
exceeding $100,000 during the years ended December 31, 2005, 2004 and 2003 (the
"named executive officers").
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
--------------------------------------
Annual Compensation Awards Payouts
------------------------------------ -------------------------- -----------
Other Securities All
Annual Restricted Underlying LTIP Other
Name and Compen- Stock Options/ Payouts Comp-
Principal Position Year Salary ($) Bonus ($) sation ($) Award(s) ($) SARs (#) ($) ensation ($)
- --------------------------- -------- ------------ ---------- ------------ ------------- ------------ ----------- -------------
Sang Don Kim, President 2005 $72,000 0 0 0 0 0 0
Chief Executive
Officer 2004 $50,000 0 0 0 0 0 0
and Director 2003 $50,000 0 0 0 0 0 0
</TABLE>
Compensation of Directors and Executive Officers
To date, we have not adopted a bonus, profit sharing, or deferred
compensation plan for the benefit of our employees, officers or directors. We
have not paid any salaries or other compensation above $100,000 to our officers,
directors or employees since inception. We also have not entered into any
employment agreements with our executive officers.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of May 8, 2006 with
respect to the beneficial ownership of the outstanding common stock by (i) any
holder of more than five (5%) percent; (ii) each of the named executive officers
and directors; and (iii) our directors and named executive officers as a group.
Except as otherwise indicated, each of the stockholders listed below has sole
voting and investment power over the shares beneficially owned.
<TABLE>
<CAPTION>
<S> <C> <C>
Common Stock Percentage of
Name of Beneficial Owners Beneficially Owned (1) Common Stock (1)
- ------------------------------------------------------- ------------------------ ----------------------
Sang Don Kim
Dongbu CentryVill, Apt. 101-2302
Ichon 1-dong
Yongsan-gu, Seoul, Korea 5,088,617 11.9%
Equinox Partners Inc.
12FL., Anje Tower, 718-2
Yeoksam-Dong, Kangnam-Gu
Seoul, Korea 2,817,000 (2) 6.2 %
Joo Chan Lee
Mokdong Apt. 1109Dong 1405Ho
Shinjeong-Dong, Yangcheon-Gu
Seoul, Korea 3,200,000 (3) 6.9 %
Jun Ro Kim
#1609-1, Chambord APT 202 ho
Seocho dong, Seocho-Gu
Seoul, Korea 3,450,000 (4) 7.5 %
KTB Network Co., Ltd.
KTB Networks B/D
826-14, Yeoksam-dong
Kangnam-gu, Seoul, Korea 4,305,570 (5) 9.1 %
Sang Ho Han
13 Quediey Ct.
Eastern Beach Auckland, New Zealand 3,450,000 (4) 7.5 %
Tai Bok Kim
Lotte Castle Forest 905 ho, #844-27
Bangbae 4 dong, Seocho-Gu
Seoul, Korea 19,400,000 (6) 31.2 %
- ------------------------------------------------------- ------------------------ ----------------------
All named executive officers 5,088,617 11.9%
and directors as a group (1 person)
</TABLE>
21
<PAGE>
(1) Applicable percentage ownership is based on 42,879,654 shares of common
stock outstanding as of May 8, 2006, together with securities exercisable
or convertible into shares of common stock within 60 days of May 8, 2006
for each stockholder. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Shares of common
stock that a person has the right to acquire beneficial ownership of upon
the exercise or conversion of options, convertible stock, warrants or other
securities that are currently exercisable or convertible or that will
become exercisable or convertible within 60 days of May 8, 2006 are deemed
to be beneficially owned by the person holding such securities for the
purpose of computing the percentage of ownership of such person, but are
not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Represents shares of common stock issuable upon conversion of $985,950
principal amount of convertible notes with a conversion price of $0.35 per
share. Mr. Shin, Chang Ho has voting and dispositive control over the
securities held by Equinox Partners Inc.
(3) Represents: (a) 2,400,000 shares of common stock issuable upon conversion
of $336,000 principal amount of convertible notes with a conversion price
of $0.14 per share; and (b) 800,000 shares of common stock issuable upon
conversion of $280,000 principal amount of convertible notes with a
conversion price of $0.35 per share.
(4) Represents shares of common stock issuable upon conversion of $483,000
principal amount of convertible notes with a conversion price of $0.14 per
share.
(5) KTB Network Co., Ltd. is a publicly listed company on the KOSDAQ. Mr. Kwon,
Sung Moon, the President and Chief Executive Officer of KTB Network Co.,
Ltd., has investment and voting control over the securities beneficially
owned by KTB Network Co., Ltd.
(6) Represents: (a) 10,000,000 shares of common stock issuable upon conversion
of $400,000 principal amount of convertible notes with a conversion price
of $0.04 per share; (b) 3,450,000 shares of common stock issuable upon
conversion of $483,000 principal amount of convertible notes with a
conversion price of $0.14 per share; and (c) 5,950,000 shares of common
stock issuable upon conversion of $2,082,500 principal amount of
convertible notes with a conversion price of $0.35 per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On October 17, 2005, November 17, 2005 and December 15, 2005 we sold a
total principal amount of $8,853,191 of convertible notes to various accredited
investors. We sold $2,965,500 of convertible notes to one investor, Tai Bok Kim,
that are convertible into a total of 19,400,000 shares of our common stock at
conversion rates ranging from $0.04 to $0.35 per share. With the proceeds from
the sale of the convertible notes, we invested Korean Won 2,500,000,000 (USD
2,478,250) in Global Assets Investment Corp., a Korean company. Subsequent to
the investment in Global Assets Investment Corp., Tai Bok Kim was appointed
chief executive officer of Global Assets Investment Corp.
22
<PAGE>
DESCRIPTION OF SECURITIES
The following description of our capital stock is a summary and is
qualified in its entirety by the provisions of our Articles of Incorporation,
with amendments, all of which have been filed as exhibits to our registration
statement of which this prospectus is a part.
Capital Structure
Our authorized capital consists of 300,000,000 shares of common stock, par
value $.001 per share and no shares of preferred stock. As of May 8, 2006, we
had 42,879,654 shares of common stock outstanding. Stockholders: (i) have
general ratable rights to dividends from funds legally available therefor, when,
as and if declared by the Board of Directors; (ii) are entitled to share ratably
in all our assets available for distribution to stockholders upon liquidation,
dissolution or winding up of our business; (iii) do not have preemptive,
subscription or conversion rights, nor are there any redemption or sinking fund
provisions applicable thereto; and (iv) are entitled to one vote per share on
all matters on which stockholders may vote at all shareholder meetings. The
common stock does not have cumulative voting rights, which means that the
holders of more than fifty percent of the common stock voting for election of
directors can elect one hundred percent of our directors if they choose to do
so.
Dividend Policy
We have not previously declared or paid any dividends on our common stock
and we do not anticipate declaring any dividends in the foreseeable future.
There are no restrictions in our articles of incorporation or bylaws that
restrict us from declaring dividends. The Nevada Revised Statutes, however, do
prohibit us from declaring dividends where, after giving effect to the
distribution of the dividend:
(1) we would not be able to pay our debts as they become due in the usual
course of business; or
(2) our total assets would be less that the sum of our total liabilities.
Our Board of Directors has no present intention of declaring any cash
dividends, as we expect to re-invest all profits in the business for additional
working capital for continuity and growth. The future declaration and payment of
dividends will be determined by our Board of Directors after considering the
conditions then existing, including the our earnings, financial condition,
capital requirements, and other factors.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Bylaws require that we indemnify and hold harmless our officers and
directors who are made a party to or threatened to be made a party to or is
involved in any action, suit, or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director of officer of Cintel Corp. to the fullest extent permitted under
Chapter 78 of the Nevada Revised Statutes, as amended.
The State of Nevada permits a corporation to indemnify such persons for
reasonable expenses in defending against liability incurred in any legal
proceeding if:
(1) The person conducted himself or herself in good faith;
(2) The person reasonably believed:
(a) In the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's
best interests; and
(b) In all other cases, that his or her conduct was at least not
opposed to the corporation's best interests.
(3) In the case of any criminal proceeding, the person had no reasonable
cause to believe that his or her conduct was unlawful.
23
<PAGE>
The indemnification discussed herein is not exclusive of any other rights
to which those indemnified may be entitled under the Articles of Incorporation,
any Bylaws, agreement, vote of stockholders, or otherwise, and any procedure
provided for by any of the foregoing, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of heirs, executors, and administrators of
such a person.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, or otherwise, we have been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Cintel Corp. by Sichenzia Ross Friedman Ference LLP, New York, New York.
EXPERTS
SF Partnership, LLP, independent registered public accounting firm, has
audited, as set forth in their report thereon appearing elsewhere herein, our
financial statements at December 31, 2005 and 2004 and for each of the two years
then ended that appear in this prospectus. The financial statements referred to
above are included in this prospectus with reliance upon the independent
registered public accounting firm's opinion based on their expertise in
accounting and auditing.
AVAILABLE INFORMATION
We have filed a registration statement on Form SB-2 under the Securities
Act of 1933, as amended, relating to the shares of common stock being offered by
this prospectus, and reference is hereby made to such registration statement.
This prospectus constitutes the prospectus of Cintel Corp., filed as part of the
registration statement, and it does not contain all information in the
registration statement, as certain portions have been omitted in accordance with
the rules and regulations of the Securities and Exchange Commission.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, which requires us to file reports with the Securities
and Exchange Commission. Such reports may be inspected by public reference
facilities of the SEC located at 100 F Street, N.E., Washington, D.C. 20549 at
prescribed rates. Because we file documents electronically with the Securities
and Exchange Commission, you may obtain this information by visiting the
Securities and Exchange Commission's Internet website located at
http://www.sec.gov.
24
<PAGE>
CINTEL CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
Independent Auditors' Report........................................... F-2
Consolidated Balance Sheets............................................ F-3
Consolidated Statements of Operations...................................F-4
Consolidated Statements of Stockholders' Equity........................ F-5
Consolidated Statements of Cash Flows.................................. F-6
Notes to Consolidated Financial Statements.......................F-7 - F-18
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Cintel Corp.
We have audited the consolidated balance sheets of Cintel Corp. and subsidiary
(the "Company") as at December 31, 2005 and 2004 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the years
then ended. The consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2005 and 2004, and the results of its operation, changes in its
accumulated deficit and its cash flows for the years ended, in conformity with
accounting principles generally accepted in the United States of America.
/s/ SF Partnership, LLP
"SF Partnership, LLP"
Toronto, Canada
CHARTERED ACCOUNTANTS
March 27, 2006
F-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CINTEL CORP.
Consolidated Balance Sheets
December 31, 2005 and 2004
2005 2004
ASSETS
Current
Cash and cash equivalents (note 3) $ 3,489,449 $ 281,387
Accounts receivable (net of allowance for doubtful accounts of
$1,048,068; 2004 - $970,421) 1,023,460 595,291
Inventory (note 4) 448,575 296,857
Prepaid and sundry assets 364,113 165,521
Deferred taxes (note 10) 10,453 216,976
----------------------------------
5,336,050 1,556,032
Deferred Taxes (note 10) 1,211,693 717,781
Equipment (note 5) 580,559 567,494
Investments (note 6) 2,528,078 49,013
----------------------------------
$ 9,656,380 $ 2,890,320
----------------------------------
LIABILITIES
Current
Accounts payable $ 959,904 $ 827,237
Shareholder loan - 33,153
Loans payable - current (note 7) 651,994 1,705,027
Convertible debentures (note 8) - 340,000
----------------------------------
1,611,898 2,905,417
Accrued Severance 69,356 122,777
Loans Payable (note 7) 38,654 30,488
Convertible Debentures (note 8) 8,853,191 -
----------------------------------
10,573,099 3,058,682
----------------------------------
STOCKHOLDERS' EQUITY
Capital Stock (note 9)
Authorized 300,000,000 common shares, par value $0.001 per share
Issued 42,379,354 common shares (23,409,800 in 2004) 42,379 23,409
Paid-in Capital 5,351,058 4,573,535
Treasury Stock (5,630) -
Accumulated Other Comprehensive Loss 121,739 23,826
Accumulated Deficit (6,426,265) (4,789,132)
----------------------------------
(916,719) (168,362)
----------------------------------
$ 9,656,380 $ 2,890,320
----------------------------------
(The accompanied notes of the financial statements are an integral part of these statements.)
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
CINTEL CORP.
Consolidated Statements of Operations
Years Ended December 31, 2005 and 2004
2005 2004
Revenue
Merchandise $ 1,594,311 $ 854,926
Finished goods 546,942 625,202
Services 67,207 45,375
----------------------------------
2,208,460 1,525,503
----------------------------------
Cost of Sales
Merchandise 1,459,216 832,336
Finished goods 415,235 497,003
----------------------------------
1,874,451 1,329,339
----------------------------------
Gross Profit 334,009 196,164
----------------------------------
Expenses
Office and general 442,322 665,064
Salaries and employee benefits 374,866 454,766
Professional fees 329,889 270,556
Travel 206,878 70,244
Depreciation 198,375 154,392
Taxes and dues 44,879 13,034
Research and development 99,320 448,248
----------------------------------
1,696,529 2,076,304
----------------------------------
Operating Loss (1,362,520) (1,880,140)
----------------------------------
Other
Interest and other income (18,133) (21,790)
Foreign exchange 3,978 1,122
Interest expense 309,279 215,615
Amortization of deferred financing fees 150,000 -
Employee benefit on repurchase of common stock 97,288 -
----------------------------------
542,412 194,947
----------------------------------
Loss Before Income Taxes (1,904,932) (2,075,087)
Deferred income taxes (267,800) (303,831)
----------------------------------
Net Loss $ (1,637,132) $ (1,771,256)
----------------------------------
Basic Loss per Share $ (0.04) $ (0.08)
----------------------------------
Fully Diluted Loss per Share $ (0.04) $ (0.08)
----------------------------------
Weighted Average Number of Shares (note 9) 37,029,588 20,882,600
----------------------------------
(The accompanied notes of the financial statements are an integral part of these statements.)
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
CINTEL CORP.
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 2005 and 2004
Paid in Accumulated
Capital in Other Total
Number of Capital Excess of Treasury Comprehensive Accumulated Stockholders'
Shares Stock Par value Stock Loss Deficit Equity
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2004 20,314,300 $ 20,314 $ 4,427,330 $ - (38,627) $ (3,017,876) $ 1,391,141
Common shares issued for
consulting services 920,000 920 88,380 - - - 89,300
Conversion of convertible
debentures into common stock 2,175,500 2,175 57,825 - - - 60,000
Foreign exchange on translation - - - - 62,453 - 62,453
Net loss - - - - - (1,771,256) (1,771,256)
-----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2004 23,409,800 $ 23,409 $ 4,573,535 $ - 23,826 $ (4,789,132) $ (168,362)
-----------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 2005 23,409,800 $ 23,409 $ 4,573,535 $ - 23,826 $ (4,789,132) $ (168,362)
Common shares issued for
consulting services -quarter
ended March 31, 2005 640,000 640 63,860 - - - 64,500
Common shares issued for
consulting services -quarter
ended June 30, 2005 1,350,000 1,350 51,151 - - - 52,501
Common shares issued for
consulting services -quarter
ended September 30, 2005 500,000 500 14,500 - - - 15,000
Common shares issued for
consulting services -quarter
ended December 31, 2005 400,000 400 35,600 - - - 36,000
Conversion of convertible
debenture into common stock 4,092,234 4,092 244,400 - - - 248,492
Repurchase of employee's stocks - - - (5,630) - - (5,630)
Conversion of convertible
debenture into common stock
(note 8) 11,987,320 11,988 368,012 - - - 380,000
Foreign exchange on translation - - - - 97,913 - 97,913
Net loss - - - - - (1,637,132) (1,637,132)
-----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2005 42,379,354 $ 42,379 $ 5,351,058 $ (5,630) 121,739 $ (6,426,265) $ (916,719)
-----------------------------------------------------------------------------------------------------------------------------
(The accompanied notes of the financial statements are an integral part of these statements.)
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
CINTEL CORP.
Consolidated Statements of Cash Flows
Years Ended December 31, 2005 and 2004
2005 2004
Cash Flows from Operating Activities
Net loss $ (1,637,132) $ (1,771,256)
Adjustments required to reconcile net loss to net cash used in operating
activities:
Depreciation 233,612 257,298
Amortization of deferred financing fees 190,868 7,078
Common shares issued for consulting services 168,001 88,380
Net Changes in Assets & Liabilities
Accounts receivable (356,361) 1,937,334
Inventory (144,594) (112,468)
Prepaid and sundry assets (194,648) 1,445
Deferred taxes (267,800) (303,701)
Accounts payable 130,350 (855,711)
Accrued severance (54,632) (12,520)
----------------------------------
(1,932,336) (764,121)
----------------------------------
Cash Flows from Investing Activities
Acquisition of investments (2,441,250) -
Acquisition of equipment (221,450) (18,988)
----------------------------------
(2,662,700) (18,988)
----------------------------------
Cash Flows from Financing Activities
Repurchase of employee's stocks (5,630) -
Loans payable (1,057,032) 144,250
Proceeds from convertible debentures 9,053,191 300,988
Repayment of convertible debentures (160,000) -
Shareholder loan (33,201) 29,920
----------------------------------
7,797,328 475,158
----------------------------------
Foreign Exchange on Cash and Cash Equivalents 5,770 54,771
----------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 3,208,062 (253,180)
Cash and Cash Equivalents - beginning of year 281,387 534,567
----------------------------------
Cash and Cash Equivalents - end of year $ 3,489,449 $ 281,387
----------------------------------
Interest and Income Taxes Paid:
Interest paid $ 268,411 $ 252,444
----------------------------------
Income taxes paid $ - $ -
----------------------------------
Supplemental schedule of noncash financing activities
Conversion of convertible debenture to common stock $ 628,492 $ 60,000
----------------------------------
(The accompanied notes of the financial statements are an integral part of these statements.)
</TABLE>
F-6
<PAGE>
CINTEL CORP.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
1. Operations and Business
Cintel Corp., formerly Link2 Technologies, Inc. ("the Company"), was
incorporated in the State of Nevada on August 16, 1996 and on April 24, 2001
changed its name from "Great Energy Corporation International" to Link2
Technologies, Inc. On September 30, 2003 the Company changed its name to Cintel
Corp.
On September 30, 2003, the Company entered into a definitive Share Exchange
Agreement (the "Agreement") with Cintel Co., Ltd., ("Cintel Korea") a Korean
corporation and its shareholders. The Agreement provided for the acquisition by
the Company from the shareholders of 100% of the issued and outstanding capital
stock of Cintel Korea. In exchange, the shareholders of Cintel Korea received
16,683,300 shares of the Company. As a result, the shareholders of Cintel Korea
controlled 82% of the Company. While the Company is the legal parent, as a
result of the reverse-takeover, Cintel Korea became the parent company for
accounting purposes.
Upon completion of the share exchange, the business operations of Cintel Korea
constituted virtually all of the business operations of the Company. Cintel
Korea develops network solutions to address technical limitations to the
Internet. Cintel Korea has developed what it believes is the first Korean server
load balancing technology. Cintel Korea is now focused on the development of
advanced solutions for Internet traffic management. The business operations of
Cintel Korea are located in Seoul, Korea.
2. Summary of Significant Accounting Policies
The accounting policies of the Company are in accordance with generally accepted
accounting principles of the United States of America, and their basis of
application is consistent. Outlined below are those policies considered
particularly significant:
a) Basis of Financial Statement Presentation
These financial statements have been prepared in conformity with accounting
principles generally accepted in the United States of America with the
assumption that the Company will be able to realize its assets and discharge its
liabilities in the normal course of business.
b) Basis of Consolidation
The merger of the Company and Cintel Korea has been recorded as the
recapitalization of the Company, with the net assets of the Company brought
forward at their historical basis. The intention of the management of Cintel
Korea was to acquire the Company as a shell company listed on NASDAQ. Management
does not intend to pursue the business of the Company. As such, accounting for
the merger as the recapitalization of the Company is deemed appropriate.
c) Unit of Measurement
The US Dollar has been used as the unit of measurement in these financial
statements.
F-7
<PAGE>
CINTEL CORP.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
2. Summary of Significant Accounting Policies (cont'd)
d) Use of Estimates
Preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and related notes to financial statements. These estimates are based
on management's best knowledge of current events and actions the Company may
undertake in the future. Actual results may ultimately differ from estimates,
although management does not believe such changes will materially affect the
financial statements in any individual year.
e) Revenue Recognition
The Company recognizes revenues upon delivery of merchandise sold, and when
services are rendered for maintenance contracts.
f) Cash and Cash Equivalents
Cash includes currency, cheques issued by others, other currency equivalents,
current deposits and passbook deposits. Cash equivalents include securities and
short-term money market instruments that can be easily converted into cash. The
investments that mature within three months from the investment date, are also
included as cash equivalents.
g) Investments
Investments in available-for-sale securities are being recorded in accordance
with FAS-115 "Accounting for Certain Investments in Debt and Equity Securities".
Equity securities that are not held principally for the purpose of selling in
the near term are reported at fair market value when it is readily determinable,
with unrealized holding gains and losses excluded from earnings and reported as
a separate component of stockholders' equity.
h) Inventories
Inventories are stated at the lower of cost or net realizable value. Net
realizable value is determined by deducting selling expenses from selling price.
The cost of inventories is determined on the first-in first-out method, except
for materials-in-transit for which the specific identification method is used.
i) Equipment
Equipment is stated at cost. Major renewals and betterments are capitalized and
expenditures for repairs and maintenance are charged to expense as incurred.
Depreciation is computed using the straight-line method over a period of 5
years.
F-8
<PAGE>
CINTEL CORP.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
2. Summary of Significant Accounting Policies (cont'd)
j) Government Grants
Government grants are recognized as income over the periods necessary to match
them with the related costs that they are intended to compensate.
k) Currency Translation
The Company's functional currency is Korean won. Adjustments to translate those
statements into U.S. dollars at the balance sheet date are recorded in other
comprehensive income. Foreign currency transactions of the Korean operation have
been translated to Korean Won at the rate prevailing at the time of the
transaction. Realized foreign exchange gains and losses have been charged to
income in the year.
l) Financial Instruments
Fair values of cash equivalents, short-term and long-term investments and
short-term debt approximate cost. The estimated fair values of other financial
instruments, including debt, equity and risk management instruments, have been
determined using market information and valuation methodologies, primarily
discounted cash flow analysis. These estimates require considerable judgment in
interpreting market data, and changes in assumptions or estimation methods could
significantly affect the fair value estimates.
m) Income Tax
The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting for
Income Taxes". Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible temporary differences, and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Deferred tax assets and liabilities are adjusted for the effects of changes in
tax laws and rates on the date of enactment.
n) Earnings or Loss per Share
The Company adopted FAS No.128, "Earnings per Share" which requires disclosure
on the financial statements of "basic" and "diluted" earnings (loss) per share.
Basic earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding for the year. Diluted
earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of common shares outstanding plus common stock
equivalents (if dilutive) related to stock options and warrants for each year.
F-9
<PAGE>
CINTEL CORP.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
2. Summary of Significant Accounting Policies (cont'd)
o) Concentration of Credit Risk
SFAS No. 105, "Disclosure of Information About Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit
Risk", requires disclosure of any significant off-balance sheet risk and credit
risk concentration. The Company does not have significant off-balance sheet risk
or credit concentration. The Company maintains cash and cash equivalents with
major Korean financial institutions.
The Company's provides credit to its clients in the normal course of its
operations. It carries out, on a continuing basis, credit checks on its clients
and maintains provisions for contingent credit losses which, once they
materialize, are consistent with management's forecasts.
For other debts, the Company determines, on a continuing basis, the probable
losses and sets up a provision for losses based on the estimated realizable
value.
Concentration of credit risk arises when a group of clients having a similar
characteristic such that their ability to meet their obligations is expected to
be affected similarly by changes in economic conditions. The Company does not
have any significant risk with respect to a single client.
p) Recent Accounting Pronouncements
In December 2004, the FASB issued a revision to SFAS No. 123, "Share-Based
Payment" (Statement 123). This Statement requires a public entity to measure the
cost of employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award (with limited
exceptions). That cost will be recognized over the period during which the
employee is required to provide service in exchange for the award requisite
service period (usually the vesting period). No compensation cost is recognized
for equity instruments for which employees do not render the requisite service.
Employee share purchase plans will not result in recognition of compensation
cost if certain conditions are met; those conditions are much the same as the
related conditions in Statement 123. This Statement is effective for public
entities that do not file as a small business issuers as of the beginning of the
first interim or annual reporting period that begins after June 15, 2005. This
Statement applies to all awards granted after the required effective date and to
awards modified, repurchased, or cancelled after that date. The cumulative
effect of initially applying this Statement, if any, is recognized as of the
required effective date and is not expected to have a material impact on the
Company's consolidated financial statements.
In May 2005, the FASB issued Statement No. 154, Accounting Changes and
Error Corrections - A Replacement of APB Opinion No. 20 and FASB Statement No. 3
(Statement No. 154). Statement No. 154 changes the requirements for the
accounting for and reporting of a change in accounting principle. Statement No.
154 requires retrospective application of any change in accounting principle to
prior periods' financial statements. Statement No. 154 is effective for the
first fiscal period beginning after December 15, 2005. We do not expect the
implementation of Statement No. 154 to have a significant impact on our
consolidated financial statements.
F-10
<PAGE>
CINTEL CORP.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
3. Cash and cash equivalents
The following amounts included in cash and cash equivalents are restricted for
use by the Company:
a) In 2004, the company provided $132,107 as security for bank loans to
employees to purchase the Company's common shares. The loans outstanding
amounted to approximately $110,000. In 2005, the loans were repaid.
b) In 2004, the company provided $136,514 as security for one of the bank loans
as described in note 7. As at December 31, 2004, the amount outstanding was
$614,313. In 2005, the bank loan was repaid.
4. Inventory
Inventory includes $292,687 (2004 - $18,423) of merchandise and $155,888 (2004 -
$278,434) of raw materials.
5. Equipment
Equipment is comprised as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
2005 2004
Accumulated Accumulated
Cost Depreciation Cost Depreciation
------------------------------------------------------------
Furniture and fixtures $ 67,168 $ 30,295 $ 38,421 $ 24,224
Equipment 848,147 601,952 638,797 502,174
Vehicle 16,647 - 15,093 15,091
Software 690,498 409,654 679,214 262,542
------------------------------------------------------------
$ 1,622,460 $ 1,041,901 $1,371,525 $ 804,031
------------------------------------------------------------
Net carrying amount $ 580,559 $ 567,494
------------ ------------
</TABLE>
Depreciation expenses included in general and administrative expense, costs of
sales, and research and development expenses are $173,513 (2004 - $132,444),
$35,237 (2004 - $25,543), and $Nil (2004 - $47,796) respectively.
F-11
<PAGE>
CINTEL CORP.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
6. Investments Available for Sale
<TABLE>
<CAPTION>
<S> <C> <C> <C>
2005 2004
Stock #1 $ 2,478,250 $ -
Stock #2 49,565 48,755
Other miscellaneous 263 258
-------------------------------
$ 2,528,078 $ 49,013
-------------------------------
</TABLE>
Stock #1 represents 500,000 shares, 20% ownership and major shareholder of a
private Korean company which is carried at cost.
Stock #2 represents a minority interest in a private Korean company which is
carried at cost.
7. Loans Payable
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
2005 2004
Current Long-term Total Total
---------------------------------------------------
Bank loan $ 594,780 $ - $ 594,780 $ 1,296,883
Promissory Note 39,000 - 39,000 39,000
Note payable 14,374 - 14,374 308,229
Government loans - 39,100 39,100 100,726
Discount of interest-free
government loans - (8,106) (8,106) (9,323)
Vehicle Loan 3,840 7,660 11,500 -
---------------------------------------------------
$ 651,994 $ 38,654 $ 690,648 $ 1,735,515
---------------------------------------------------
</TABLE>
Bank Loan
The bank loan bear interest at 7.5% and matures in December 2006. The loans are
repayable upon maturity and guaranteed by the Korea Credit Guaranteed Fund for
$505,563.
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
$9,775 and matures in October 2009.
F-12
<PAGE>
CINTEL CORP.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
7. Loans Payable (cont'd)
Vehicle Loan
The loan is interest bearing, secured by the vehicle as disclosed in note 5, and
is repayable in 36 monthly installments of $320. The loan matures in December
2008.
8. Convertible Debentures
Pursuant to SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" the Company accounts for the
convertible debentures as a liability at face value and no formal accounting
recognition is assigned to the value inherent in the conversion feature.
The convertible debentures outstanding as at December 31, 2005 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).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Conversion Conversion
Price Date Maturity date Amount
------------------------------------------------------------------
Convertible note #1 $ 0.35 6/15/2007 12/15/2008 $ 492,800
Convertible notes #2 0.04 4/17/2007 10/17/2008 440,000
Convertible notes #3 0.14 4/17/2007 10/17/2008 2,161,334
Convertible notes #4 0.35 5/17/2007 11/17/2008 5,759,057
------------------------------------------------------------------
Total $ 8,853,191
------------------------------------------------------------------
</TABLE>
The convertible debenture outstanding at December 31, 2004 had an annual coupon
rate of 5%. The convertible debenture was repaid in 2005. Under the debenture
agreement, the debenture holder has committed to provide financing of up to
$5,000,000 over a two year period. The maximum amount of financing per month is
$100,000. This agreement is still in effect. As security for meeting debenture
conversions, 10,837,180 shares are held in escrow by a lawyer who shall provide
the shares for repayment of the debt. The conversion price of said shares issued
will be equal to 98% of the lowest closing bid price of the common stock on the
listed market for the five days immediately following the notice date for the
advance. As at December 31, 2005, no funds have been advanced under this
agreement.
F-13
<PAGE>
CINTEL CORP.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
9. Capital Stock
Authorized
300,000,000 common shares, par value $0.001 per share
2005 2004
Issued
42,379,354 common shares (2004 - 23,409,800) $42,378 $23,409
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 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. During 2004, 2,175,500 common shares
were issued on conversion as described below. The balance of shares held in
escrow at December 31, 2004 was 22,824,500.
F-14
<PAGE>
CINTEL CORP.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
9. Capital Stock (cont'd)
In November 2004, the Company issued 412,286 common shares from escrow upon the
conversion of $20,000 of the convertible debentures.
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.
F-15
<PAGE>
CINTEL CORP.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
9. Capital Stock (cont'd)
In June 2005, 150,000 common shares were issued for consulting services at the
value of $4,500.
In June 2005, the Company issued 3,268,031 common shares from escrow upon the
repayment of $80,000 of the convertible debenture.
In July 2005, the Company issued 704,225 common shares from escrow upon the
repayment of $20,000 of the convertible debenture.
In September 2005, 500,000 common shares were issued for consulting services at
the value of $15,000.
In October 2005, 400,000 common shares were issued for consulting services at
the value of $36,000.
In December 2005, the Company issued 145,252 common shares for the repayment of
$38,492 of the convertible debenture including interest.
The balance of shares held in escrow at December 31, 2005 was 10,837,180.
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:
<TABLE>
<CAPTION>
<S> <C> <C>
2005 2004
Interest rate 6.5% 6.5%
Expected volatility 70% 70%
Expected life in years 6 6
</TABLE>
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.
F-16
<PAGE>
CINTEL CORP.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
9. Capital Stock (cont'd)
In February 2001, 30,000 stock options were granted having a $0.425 nominal par
value each and an exercise price of $0.72. In 2003, all of these stock options
were cancelled.
In March 2003, 65,000 stock options were granted having a $0.425 nominal par
value each and an exercise price of $0.71. In the same year, 15,000 of these
stock options were cancelled.
The options vest gradually over a period of 3 years from the date of grant. The
term of each option shall not be more than 8 years from the date of grant. No
options have vested during the year ended December 31, 2005 and 2004. The stock
options have not been included in the calculation of the diluted earnings per
share as their inclusion would be antidilutive.
The following table summarizes the stock option activity during 2005 and 2004:
<TABLE>
<CAPTION>
2005 2004
<S> <C> <C>
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 2 years 3 years
------------------------------
</TABLE>
F-17
<PAGE>
CINTEL CORP.
Notes to Consolidated Financial Statements
December 31, 2005 and 2004
10. Income Taxes
The Company accounts for income taxes pursuant to SFAS No. 109, "Accounting
for Income Taxes". This Standard prescribes the use of the liability method
whereby deferred tax asset and liability account balances are determined based
on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates. The effects of future
changes in tax laws or rates are not anticipated. Corporate income tax rates
applicable to the Korean subsidiary in 2005 and 2004 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 likely
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 $ 6,797,082 of taxable losses, which can
be used to offset future taxable income. The utilization of the losses expires
in years 2008 to 2010. Under SFAS No. 109 income taxes are recognized for the
following: a) amount of tax payable for the current year, and b) deferred tax
liabilities and assets for future tax consequences of events that have been
recognized differently in the financial statements than for tax purposes. The
Company has deferred income tax assets arising from research and development
expenses. For accounting purposes, these amounts are expenses when incurred.
Under Korean tax laws, these amounts are deferred and amortized on a
straight-line basis over 5 years. The Company has deferred income tax assets as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
2005 2004
Deferred income tax assets
Research and development
expenses amortized over 5
years for tax purposes $ 249,157 246,836
Other timing differences (51,836) 155,267
Net operating loss carryforwards 1,681,864 649,665
-------------------------------
1,879,185 1,051,768
Valuation Allowance 657,039 117,011
-------------------------------
$ 1,222,146 934,757
-------------------------------
</TABLE>
11. Major Customers
For the year ended December 31, 2005, the Company had three major customers
which accounted for 69% of the total revenue. In 2004, the company had two major
customers which accounted for 34% of the total revenue.
* * * * * *
F-18
<PAGE>
44,300,549
Shares of
Common Stock
of
Cintel Corp.
PROSPECTUS
The date of this prospectus is __________, 2006
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Bylaws require that we indemnify and hold harmless our officers and
directors who are made a party to or threatened to be made a party to or is
involved in any action, suit, or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
a director of officer of Cintel Corp. to the fullest extent permitted under
Chapter 78 of the Nevada Revised Statutes, as amended.
The State of Nevada permits a corporation to indemnify such persons for
reasonable expenses in defending against liability incurred in any legal
proceeding if:
(1) The person conducted himself or herself in good faith;
(2) The person reasonably believed:
(a) In the case of conduct in an official capacity with the
corporation, that his or her conduct was in the corporation's
best interests; and
(b) In all other cases, that his or her conduct was at least not
opposed to the corporation's best interests.
(3) In the case of any criminal proceeding, the person had no reasonable
cause to believe that his or her conduct was unlawful.
The indemnification discussed herein is not exclusive of any other rights
to which those indemnified may be entitled under the Articles of Incorporation,
any Bylaws, agreement, vote of stockholders, or otherwise, and any procedure
provided for by any of the foregoing, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of heirs, executors, and administrators of
such a person.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers or persons controlling us pursuant
to the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth an itemization of all estimated
expenses, all of which we will pay, in connection with the issuance and
distribution of the securities being registered:
<TABLE>
<CAPTION>
<S> <C>
Nature of Expense Amount
----------------- ------
SEC Registration fee $ 841.38
Accounting fees and expenses 15,000.00*
Legal fees and expenses 50,000.00*
----------
TOTAL $65,841.38*
==========
* Estimated
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the pat three years we issued the below securities without
registration under the Securities Act of 1933, as amended (the "Securities
Act"). Unless noted otherwise, securities issued in each of such transaction
were offered and sold in reliance upon the exemption from registration under
Section 4(2) of the Securities Act, relating to sales by an issuer not involving
a public offering. The recipients of the securities in each such transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
restrictive legends were affixed to the share certificates and other instruments
issued in such transactions.
II-1
<PAGE>
On September 30, 2003, pursuant to a Share Exchange Agreement with Cintel
Co., Ltd., a Korean corporation ("CinTel Korea") and the shareholders of CinTel
Korea, we issued 16,683,300 shares of common stock in exchange for 100% of the
issued and outstanding capital stock of CinTel Korea. The shares were issued
pursuant to Section 4(2) of the Securities Act and/or Regulation S promulgated
thereunder.
In June 2004, we issued 300,000 shares of common stock as consideration for
consulting services valued at $33,000.
In July 2004, we issued 160,000 shares of common stock as consideration for
consulting services valued at $12,800.
In August 2004, we issued 50,000 shares of common stock as consideration
for consulting services valued at $4,500.
In September 2004, we issued 120,000 shares of common stock as
consideration for consulting services valued at $9,600.
In October 2004, we issued 120,000 shares of common stock as consideration
for consulting services valued at $14,400.
In November 2004, we issued 170,000 shares of common stock as consideration
for consulting services valued at $15,000.
During the fiscal quarter ended December 31, 2004, we issued 2,175,500
shares of common stock upon the conversion of convertible debentures in the face
amount of $60,000.
In January 2005, we issued 240,000 shares of common stock as consideration
for consulting services with a value of $20,500.
In January 2005, we issued 2,262,424 shares of common stock from escrow
upon the conversion of $40,000 of a convertible debenture. The conversion price
was calculated as 98% of the lowest closing bid price of our common stock on the
OTC Bulletin Board for the five days immediately following the conversion
notice.
In February 2005, we issued 622,200 shares of common stock from escrow upon
the conversion of $50,000 of a convertible debenture. The conversion price was
calculated as 98% of the lowest closing bid price of our common stock on the OTC
Bulletin Board for the five days immediately following the conversion notice.
In February 2005, we issued 400,000 shares of common stock as consideration
for consulting services with a value of $44,000.
In March 2005, we issued 1,485,120 shares of common stock from escrow upon
the conversion of $80,000 of a convertible debenture. The conversion price was
calculated as 98% of the lowest closing bid price of our common stock on the OTC
Bulletin Board for the five days immediately following the conversion notice.
In March 2005, we repurchased 93,830 common shares for $105,259. The access
of repurchase price over fair market value was recorded as an employee benefit.
In March 2005, we issued 1,905,136 shares of common stock upon the
conversion of $140,000 of a convertible debenture. The conversion price was
$0.0735 per share.
In April 2005, we issued 1,311,769 shares of common stock from escrow upon
the repayment of $40,000 of the convertible debenture. The price per share of
was calculated as 98% of the lowest closing bid price of our common stock on the
OTC Bulletin Board for the five days immediately following the notice of
repayment date.
II-2
<PAGE>
In April 2005, we issued 1,200,000 shares of common stock as consideration
for consulting services with a value of $48,000.
In April 2005, we issued 712,500 shares of common stock upon the conversion
of $20,000 of a convertible debenture. The conversion price was $0.028 per
share.
In May 2005, we issued 1,329,346 shares of common stock upon the conversion
of $50,000 of a convertible debenture. The conversion price was $0.038 per
share.
In May 2005, we issued 2,333,551 shares of common stock from escrow upon
the repayment of $70,000 of the convertible debenture. The price per share of
was calculated as 98% of the lowest closing bid price of our common stock on the
OTC Bulletin Board for the five days immediately following the notice of
repayment date.
In June 2005, we issued 150,000 shares of common stock as consideration for
consulting services with a value of $4,500.
In June 2005, we issued 3,268,031 shares of common stock from escrow upon
the repayment of $80,000 of the convertible debenture. The price per share of
was calculated as 98% of the lowest closing bid price of our common stock on the
OTC Bulletin Board for the five days immediately following the notice of
repayment date.
In July 2005, we issued 704,225 shares of common stock from escrow upon the
repayment of $20,000 of the convertible debenture. The price per share of was
calculated as 98% of the lowest closing bid price of our common stock on the OTC
Bulletin Board for the five days immediately following the notice of repayment
date. This transaction was exempt from registration requirements pursuant to
Section 4(2) of the Securities Act, Section 3(a)(9) of the Securities Act and/or
Regulation S promulgated pursuant to the Securities Act.
In September 2005, we issued 500,000 shares of common stock as
consideration for consulting services with a value of $15,000.
In October 2005, we issued 400,000 shares of common stock as consideration
for consulting services with a value of $36,000.
On October 17, 2005, we sold an aggregate of $440,000 principal amount
convertible notes to two accredited investors. The convertible notes do not bear
interest and, unless converted into shares of our common stock, are due and
payable on April 17, 2007. The convertible notes are convertible into shares
of our common stock at any time after issuance at a conversion price of $0.04
per share. This transaction was exempt from registration requirements pursuant
to Rule 506 promulgated pursuant to the Securities Act.
On November 17, 2005, we sold an aggregate of $2,161,334 principal amount
convertible notes to ten accredited investors. The convertible notes do not bear
interest and, unless converted into shares of our common stock, are due and
payable on May 17, 2007. The convertible notes are convertible into shares
of our common stock at any time after issuance at a conversion price of $0.14
per share. This transaction was exempt from registration requirements pursuant
to Rule 506 promulgated pursuant to the Securities Act.
On December 15, 2005, we sold an aggregate of $5,797,057 principal amount
convertible notes to ten accredited investors. The convertible notes do not bear
interest and, unless converted into shares of our common stock, are due and
payable on June 15, 2007. The convertible notes are convertible into shares
of our common stock at any time after issuance at a conversion price of $0.35
per share. This transaction was exempt from registration requirements pursuant
to Rule 506 promulgated pursuant to the Securities Act.
On December 26, 2005, sold an aggregate of $492,800 principal amount
convertible notes to two accredited investors. The convertible notes do not bear
interest and, unless converted into shares of our common stock, are due and
payable on June 26, 2007. The convertible notes are convertible into shares
of our common stock at any time after issuance at a conversion price of $0.35
per share. This transaction was exempt from registration requirements pursuant
to Rule 506 promulgated pursuant to the Securities Act.
In December 2005, the Company issued 145,252 common shares for the
repayment of $38,492 of the convertible debenture including interest. This
transaction was exempt from registration requirements pursuant to Section
3(a)(9) of the Securities Act.
II-3
<PAGE>
ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2. References
to the "Company" in this Exhibit List mean Cintel Corp., a Nevada corporation.
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit Number Description
- ----------------------------------------------------------------------------------------------------------------------
2.1 Share Exchange Agreement, dated September 30, 2003, by and among the Company, Cintel Co., Ltd,
and the shareholders of Cintel Co., Ltd. (Incorporated by reference to the Company's Form 8-K
filed with the Securities and Exchange Commission on September 30, 2003)
3.1 Articles of Incorporation (Incorporated by reference to the Company's registration statement
on Form SB-2 (File No. 333-100046), filed with the Securities and Exchange Commission on
September 24, 2002)
3.2 Certificate of Amendment to Articles of Incorporation dated April 27, 2001 (Incorporated by
reference to the Company's registration statement on Form SB-2 (File No. 333-119002), filed with
the Securities and Exchange Commission on September 15, 2004)
3.3 Certificate of Amendment to Articles of Incorporation dated October 21, 2003 (Incorporated by
reference to the Company's annual report on Form 10-KSB for the fiscal year ended December 31,
2003, filed with the Securities and Exchange Commission on April 14, 2004)
3.4 Certificate of Amendment to Articles of Incorporation dated September 13, 2004 (Incorporated
by reference to the Company's registration statement on Form SB-2 (File No. 333-119002), filed
with the Securities and Exchange Commission on September 15, 2004)
3.5 Bylaws (Incorporated by reference to the Company's registration statement on Form SB-2 (File
No. 333-100046), filed with the Securities and Exchange Commission on September 24, 2002)
4.1 Standby Equity Distribution Agreement, dated August 4, 2004, between Cornell Capital Partners,
L.P. and the Company (Incorporated by reference to the Company's registration statement on
Form SB-2 (File No. 333-119002), filed with the Securities and Exchange Commission on
September 15, 2004)
4.2 $240,000 principal amount Compensation Debenture, due August 4, 2007, issued to Cornell
Capital Partners, L.P., in connection with the Standby Equity Distribution Agreement
(Incorporated by reference to the Company's registration statement on Form SB-2 (File No.
333-119002), filed with the Securities and Exchange Commission on September 15, 2004)
4.3 Convertible Note in the principal amount of $40,000 issued to Sang Yong Oh (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
October 21, 2005)
4.4 Convertible Note in the principal amount of $400,000 issued to Tai Bok Kim (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
October 21, 2005)
4.5 Convertible Note in the principal amount of $9,640 issued to Meung Jun Lee (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
November 21, 2005)
4.6 Convertible Note in the principal amount of $28,930 issued to Jin Yong Kim (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
November 21, 2005)
4.7 Convertible Note in the principal amount of $48,300 issued to Su Jung Jun (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
November 21, 2005)
4.8 Convertible Note in the principal amount of $48,300 issued to Se Jung Oh (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
November 21, 2005)
4.9 Convertible Note in the principal amount of $48,300 issued to Sun Kug Hwang (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
November 21, 2005)
4.10 Convertible Note in the principal amount of $192,864 issued to Woo Young Moon (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
November 21, 2005)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.11 Convertible Note in the principal amount of $336,000 issued to Joo Chan Lee (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
November 21, 2005)
4.12 Convertible Note in the principal amount of $483,000 issued to Sang Ho Han (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
November 21, 2005)
4.13 Convertible Note in the principal amount of $483,000 issued to Jun Ro Kim (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
November 21, 2005)
4.14 Convertible Note in the principal amount of $483,000 issued to Tai Bok Kim (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
November 21, 2005)
4.15 Convertible Note in the principal amount of $2,082,500 issued to Tai Bok Kim (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
December 20, 2005)
4.16 Convertible Note in the principal amount of $280,000 issued to Joo Chan Lee (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
December 20, 2005)
4.17 Convertible Note in the principal amount of $281,065 issued to Sang Yong Oh (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
December 20, 2005)
4.18 Convertible Note in the principal amount of $246,400 issued to JungMi Lee (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
December 20, 2005)
4.19 Convertible Note in the principal amount of $59,172 issued to Sung Min Chang (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
December 20, 2005)
4.20 Convertible Note in the principal amount of $246,400 issued to Eun Suk Shin (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
December 20, 2005)
4.21 Convertible Note in the principal amount of $492,800 issued to Overnet Co., Ltd. (Incorporated
by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
December 20, 2005)
4.22 Convertible Note in the principal amount of $98,620 issued to Yeun Jae Jo (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
December 20, 2005)
4.23 Convertible Note in the principal amount of $985,950 issued to Equinox Partners Inc.
(Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange
Commission on December 20, 2005)
4.24 Convertible Note in the principal amount of $788,950 issued to Kei Wook Lee (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
December 20, 2005)
4.25 Convertible Note in the principal amount of $492,800 issued to SeokKyu Hong (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
December 30, 2005)
4.26 Convertible Note in the principal amount of $197,200 issued to Moon Soo Park (Incorporated by
reference to the Company's Form 8-K filed with the Securities and Exchange Commission on
December 30, 2005)
5.1* Opinion and Consent of Sichenzia Ross Friedman Ference LLP
10.1* License Agreement for the use of Louisville, Kentucky Office
10.2 Lease Agreement for Korea office (Incorporated by reference to the Company's registration
statement on Form SB-2 (File No. 333-119002), filed with the Securities and Exchange
Commission on September 15, 2004)
10.3 Product Resale Agreement dated May 11, 2004 between Curtis, Inc. and the Company (Incorporated
by reference to the Company's registration statement on Form SB-2 (File No. 333-119002), filed
with the Securities and Exchange Commission on September 15, 2004)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.4 Distribution Agreement dated April 26, 2002 by and between the Company and Suntze
Communications Engineering Pte. Ltd. (Incorporated by reference to the Company's registration
statement on Form SB-2 (File No. 333-119002), filed with the Securities and Exchange
Commission on September 15, 2004)
10.5 Distribution Agreement, dated May 24, 2002, by and between the Company and Sumitomo Metal
System Solutions Co., Ltd. (n/k/a Canon System Solutions Co., Ltd.) (Incorporated by reference
to the Company's registration statement on Form SB-2 (File No. 333-119002), filed with the
Securities and Exchange Commission on September 15, 2004)
10.6 Distribution Agreement dated May 23, 2001 by and between the Company and Rikei Corporation
(Incorporated by reference to the Company's registration statement on Form SB-2
(File No. 333-119002), filed with the Securities and Exchange Commission on September 15, 2004)
10.7 Distribution Agreement dated July 30, 2001 by and between the Company and NetSys Pte. Ltd.
(Incorporated by reference to the Company's registration statement on Form SB-2 (File No. 333-119002),
filed with the Securities and Exchange Commission on September 15, 2004)
10.8 Reseller Agreement dated January 1, 2004 between the Company and NEOframe Inc. (Incorporated
by reference to the Company's registration statement on Form SB-2 (File No. 333-119002), filed
with the Securities and Exchange Commission on September 15, 2004)
10.9 Distribution Agreement dated January 5, 2004 between the Company and Seoul Electrons Corp.
(Incorporated by reference to the Company's registration statement on Form SB-2 (File No.
333-119002), filed with the Securities and Exchange Commission on September 15, 2004)
10.10 Agency Agreement dated December 1, 2000 between the Company and Gigalink Co., Ltd.
(Incorporated by reference to the Company's registration statement on Form SB-2 (File No.
333-119002), filed with the Securities and Exchange Commission on September 15, 2004)
10.11 Distributorship Agreement dated August 1, 2001 between the Company and Locus Co., Ltd.
(Incorporated by reference to the Company's registration statement on Form SB-2 (File No.
333-119002), filed with the Securities and Exchange Commission on September 15, 2004)
10.12 Distributorship Agreement dated October 30, 2001 between the Company and SNET Systems Co.
(Incorporated by reference to the Company's registration statement on Form SB-2 (File No.
333-119002), filed with the Securities and Exchange Commission on September 15, 2004)
10.13 Distributorship Agreement dated November 1, 2001 between the Company and i-Craft Co., Ltd.
(Incorporated by reference to the Company's registration statement on Form SB-2 (File No.
333-119002), filed with the Securities and Exchange Commission on September 15, 2004)
10.14 Distribution Agreement dated March 15, 2006 among Cintel Corp. and InterSpace Computers, Inc.
(Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange
Commission on May 3, 2006)
10.15 Securities Purchase Agreement dated October 17, 2005 by and among Cintel Corp. and Sang Yon Oh
(Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange
Commission on October 21, 2005)
10.16 Securities Purchase Agreement dated October 17, 2005 by and among Cintel Corp. and Tai Bok Kim
(Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange
Commission on October 21, 2005)
10.17 Securities Purchase Agreement dated November 17, 2005 by and among Cintel Corp. and Meung Jun
Lee (Incorporated by reference to the Company's Form 8-K filed with the Securities and
Exchange Commission on November 21, 2005)
10.18 Securities Purchase Agreement dated November 17, 2005 by and among Cintel Corp. and Jin Yong
Kim (Incorporated by reference to the Company's Form 8-K filed with the Securities and
Exchange Commission on November 21, 2005)
10.19 Securities Purchase Agreement dated November 17, 2005 by and among Cintel Corp. and Su Jung
Jun (Incorporated by reference to the Company's Form 8-K filed with the Securities and
Exchange Commission on November 21, 2005)
10.20 Securities Purchase Agreement dated November 17, 2005 by and among Cintel Corp. and Se Jung Oh
(Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange
Commission on November 21, 2005)
10.21 Securities Purchase Agreement dated November 17, 2005 by and among Cintel Corp. and Sun Kug
Hwang (Incorporated by reference to the Company's Form 8-K filed with the Securities and
Exchange Commission on November 21, 2005)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10.22 Securities Purchase Agreement dated November 17, 2005 by and among Cintel Corp. and Woo Young Moon
(Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange
Commission on November 21, 2005)
10.23 Securities Purchase Agreement dated November 17, 2005 by and among Cintel Corp. and Joo Chan
Lee (Incorporated by reference to the Company's Form 8-K filed with the Securities and
Exchange Commission on November 21, 2005)
10.24 Securities Purchase Agreement dated November 17, 2005 by and among Cintel Corp. and Sang Ho
Han (Incorporated by reference to the Company's Form 8-K filed with the Securities and
Exchange Commission on November 21, 2005)
10.25 Securities Purchase Agreement dated November 17, 2005 by and among Cintel Corp. and Jun Ro Kim
(Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange
Commission on November 21, 2005)
10.26 Securities Purchase Agreement dated November 17, 2005 by and among Cintel Corp. and Tai Bok
Kim (Incorporated by reference to the Company's Form 8-K filed with the Securities and
Exchange Commission on November 21, 2005)
10.27 Securities Purchase Agreement dated December 15, 2005 by and among Cintel Corp. and Tai Bok
Kim (Incorporated by reference to the Company's Form 8-K filed with the Securities and
Exchange Commission on December 20, 2005)
10.28 Securities Purchase Agreement dated December 15, 2005 by and among Cintel Corp. and Joo Chan
Lee (Incorporated by reference to the Company's Form 8-K filed with the Securities and
Exchange Commission on December 20, 2005)
10.29 Securities Purchase Agreement dated December 15, 2005 by and among Cintel Corp. and Sang Yong
Oh (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange
Commission on December 20, 2005)
10.30 Securities Purchase Agreement dated December 15, 2005 by and among Cintel Corp. and JungMi Lee
(Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange
Commission on December 20, 2005)
10.31 Securities Purchase Agreement dated December 15, 2005 by and among Cintel Corp. and Sung Min
Chang (Incorporated by reference to the Company's Form 8-K filed with the Securities and
Exchange Commission on December 20, 2005)
10.32 Securities Purchase Agreement dated December 15, 2005 by and among Cintel Corp. and Eun Suk
Shin (Incorporated by reference to the Company's Form 8-K filed with the Securities and
Exchange Commission on December 20, 2005)
10.33 Securities Purchase Agreement dated December 15, 2005 by and among Cintel Corp. and Overnet
Co., Ltd. (Incorporated by reference to the Company's Form 8-K filed with the Securities and
Exchange Commission on December 20, 2005)
10.34 Securities Purchase Agreement dated December 15, 2005 by and among Cintel Corp. and Yeun Jae
Jo (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange
Commission on December 20, 2005)
10.35 Securities Purchase Agreement dated December 15, 2005 by and among Cintel Corp. and Equinox
Partners Inc. (Incorporated by reference to the Company's Form 8-K filed with the Securities
and Exchange Commission on December 20, 2005)
10.36 Securities Purchase Agreement dated December 16, 2005 by and among Cintel Corp. and Kei Wook
Lee (Incorporated by reference to the Company's Form 8-K filed with the Securities and
Exchange Commission on December 20, 2005)
10.37 Securities Purchase Agreement December 26, 2005 by and among Cintel Corp. and SeokKyu Hong
(Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange
Commission on December 30, 2005)
10.38 Securities Purchase Agreement dated December 26, 2005, 2005 by and among Cintel Corp. and Moon
Soo Park (Incorporated by reference to the Company's Form 8-K filed with the Securities and
Exchange Commission on December 30, 2005)
21.1 Subsidiaries (Incorporated by reference to the Company's annual report on Form 10-KSB for the
fiscal year ended December 31, 2005, filed with the Securities and Exchange Commission on
April 17, 2006)
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
23.1* Consent of SF Partnership, LLP
23.2* Consent of Sichenzia Ross Friedman Ference LLP (included in Exhibit 5.1)
- ----------------
* Filed herewith.
</TABLE>
ITEM 28. UNDERTAKINGS.
The undersigned registrant hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of the securities offered would
not exceed that which was registered) and any deviation from the low or high end
of the estimated maximum offering range may be reflected in the form of a
prospectus filed with the Commission pursuant to Rule 424(b) under the
Securities Act if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement, and
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For determining liability of the undersigned small business issuer
under the Securities Act to any purchaser in the initial distribution of the
securities, the undersigned undertakes that in a primary offering of securities
of the undersigned small business issuer pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to
the purchaser, if the securities are offered or sold to such purchaser by means
of any of the following communications, the undersigned small business issuer
will be a seller to the purchaser and will be considered to offer or sell such
securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned small
business issuer relating to the offering required to be filed pursuant to Rule
424;
(ii) Any free writing prospectus relating to the offering prepared by or on
behalf of the undersigned small business issuer or used or referred to by the
undersigned small business issuer;
(iii) The portion of any other free writing prospectus relating to the
offering containing material information about the undersigned small business
issuer or its securities provided by or on behalf of the undersigned small
business issuer; and
(iv) Any other communication that is an offer in the offering made by the
undersigned small business issuer to the purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
II-8
<PAGE>
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-9
<PAGE>
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorizes this registration
statement to be signed on its behalf by the undersigned, in Seoul, Korea, on May
11, 2006.
CINTEL CORP.
Date: May 11, 2006 By: /s/ Sang Don Kim
-------------------------------------
Sang Don Kim
President, Chief Executive Officer
and Director
Date: May 11, 2006 By: /s/ Kyo Jin Kang
-------------------------------------
Kyo Jin Kang
Chief Financial Officer and
Principal Accounting Officer
In accordance with the requirements of the Securities Act, this
registration statement has been signed below by the following persons on behalf
of the Company in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
/s/ Sang Don Kim President, Chief Executive May 11, 2006
- ------------------------------------------ Officer and Director
Sang Don Kim
/s/ Kyo Jin Kang
- ----------------------------------------- Chief Financial Officer and May 11, 2006
Kyo Jin Kang Principal Accounting Officer
</TABLE>
II-10
