UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2004
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to ___________
Commission File Number: 333-100046
CINTEL CORP
-----------
(Exact name of small business issuer as specified in its charter)
Nevada 52-2360156
------ ----------
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
1001 W. Cheltenham Ave., Melrose Park, PA 19027
------------------------------------------------
(Address of principal executive offices)
(215)782-8201
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(Issuer's telephone number)
__________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding twelve months or for such shorter period that the
Registrant was required to file such reports, and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of Registrant's common stock as of May 22, 2004
was: 20,314,300.
-1-
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
CINTEL CORP.
CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED MARCH 31, 2004 AND 2003
CONTENTS
Consolidated Balance Sheets F-1
Consolidated Statement of Operations F-2
Consolidated Statement of Changes in Stockholders' Equity F-3
Consolidated Schedule of Expenses F-4
Consolidated Statement of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-13
-2-
CINTEL CORP.
Consolidated Balance Sheets
March 31, 2004 and 2003
2004 2003
ASSETS
CURRENT
Cash and cash equivalents (note 3). . . . . . $ 345,759 $ 535,163
Accounts receivable . . . . . . . . . . . . . 1,082,307 2,610,544
Inventory . . . . . . . . . . . . . . . . . . 226,594 287,667
Prepaid and sundry assets . . . . . . . . . . 156,464 330,340
Loans receivable. . . . . . . . . . . . . . . - 280,726
Deferred taxes. . . . . . . . . . . . . . . . 121,050 58,869
-------------------------
1,932,174 4,103,309
DEFERRED TAXES. . . . . . . . . . . . . . . . 478,614 258,797
EQUIPMENT (note 4). . . . . . . . . . . . . . 651,760 433,976
INVESTMENTS . . . . . . . . . . . . . . . . . 43,570 40,106
-------------------------
$ 3,106,118 $ 4,836,188
=========================
LIABILITIES
CURRENT
Accounts payable. . . . . . . . . . . . . . . $ 652,571 $ 1,215,357
Income taxes. . . . . . . . . . . . . . . . . - 671
Loans payable - current (note 5). . . . . . . 1,321,239 1,133,269
-------------------------
1,973,810 2,349,297
LOANS PAYABLE (note 5). . . . . . . . . . . . 50,896 44,515
-------------------------
2,024,706 2,393,812
-------------------------
STOCKHOLDERS' EQUITY
CAPITAL STOCK (note 6). . . . . . . . . . . . 20,314 8,431
PAID IN CAPITAL . . . . . . . . . . . . . . . 4,427,330 4,511,117
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) 9,949 (166,650)
ACCUMULATED DEFICIT . . . . . . . . . . . . . (3,376,181) (1,910,522)
-------------------------
1,081,412 2,442,376
-------------------------
$ 3,106,118 $ 4,836,188
=========================
APPROVED ON BEHALF OF THE BOARD
/s/SANG DON KIM /s/KYO JIN KANG
------------------ ------------------
DIRECTOR DIRECTOR
F-1
CINTEL CORP.
Consolidated Statement of Operations
Periods Ended March 31, 2004 and 2003
2004 2003
REVENUE. . . . . . . . . . . . . . . . . . $ 306,796 $ 1,003,310
COST OF SALES. . . . . . . . . . . . . . . 298,958 984,277
-------------------------
GROSS PROFIT . . . . . . . . . . . . . . . 7,838 19,033
EXPENSES (page 4). . . . . . . . . . . . . 416,442 503,351
-------------------------
OPERATING LOSS . . . . . . . . . . . . . . (408,604) (484,318)
-------------------------
OTHER
Interest and other income. . . . . . . . . (7,002) (5,300)
Foreign exchange . . . . . . . . . . . . . 813 (81)
Interest expense . . . . . . . . . . . . . 23,890 31,649
-------------------------
17,701 26,268
-------------------------
LOSS BEFORE INCOME TAXES . . . . . . . . . (426,305) (510,586)
Deferred income taxes. . . . . . . . . . . (68,000) (82,000)
-------------------------
NET LOSS . . . . . . . . . . . . . . . . . $ (358,305) $ (428,586)
=========================
BASIC LOSS PER SHARE . . . . . . . . . . . $ (0.02) $ (0.03)
=========================
FULLY DILUTED LOSS PER SHARE . . . . . . . $ (0.02) $ (0.03)
=========================
WEIGHTED AVERAGE NUMBER OF SHARES (note 6) 20,314,300 16,683,300
=========================
F-2
CINTEL CORP.
Consolidated Statement of Stockholders' Equity
Periods Ended March 31, 2004 and 2003
PAID IN ACCUMULATED
CAPITAL IN OTHER TOTAL
NUMBER OF CAPITAL EXCESS OF COMPREHENSIVE ACCUMULATED STOCKHOLDERS'
SHARES STOCK PAR VALUE INCOME (LOSS) DEFICIT EQUITY
-------------------------------------------------------------------------
Balance, January 1, 2003. . . . 8,431,000 $ 8,431 $4,465,439 $ (47,125) $(1,481,936) $2,944,809
Employee stock options vested . - - 45,678 - - 45,678
Foreign exchange on translation - - - (119,525) - (119,525)
Net Loss. . . . . . . . . . . . - - - - (428,586) (428,586)
Balance, March 31, 2003 . . . . 8,431,000 $ 8,431 $4,511,117 $ (166,650) $(1,910,522) $2,442,376
Balance, January 1, 2004. . . . 20,314,300 $20,314 $4,427,330 $ (38,627) $(3,017,876) $1,391,141
Foreign exchange on translation - - - 48,576 - 48,576
Net Loss. . . . . . . . . . . . - - - - (358,305) (358,305)
-------------------------------------------------------------------------
Balance, March 31, 2004 . . . . 20,314,300 $20,314 $4,427,330 $ 9,949 $(3,376,181) $1,081,412
=========================================================================
Balance, January 1,
2004 . . . . . . . . . . . . . 20,314,300 $20,314 $4,427,330 $ (38,627) $(3,017,876) $1,391,141
Foreign exchange
on translation . . . . . . . - - - 48,576 - 48,576
Net Loss. . . . . . . . . . . . - - - - (358,305) (358,305)
-------------------------------------------------------------------------
Balance, March 31, 2004 . . . . 20,314,300 $20,314 $4,427,330 $ 9,949 $(3,376,181) $1,081,412
=========================================================================
F-3
CINTEL CORP.
Consolidated Schedule of Expenses
Periods Ended March 31, 2004 and 2003
2004 2003
EXPENSES
Research and development $133,395 $ 70,015
Salaries . . . . . . . . 100,229 266,266
Professional fees. . . . 51,219 38,650
Depreciation . . . . . . 50,908 31,184
Employee benefits. . . . 20,434 30,369
Travel . . . . . . . . . 14,525 7,111
Rent . . . . . . . . . . 13,689 16,110
Office and general . . . 8,879 10,928
Advertising. . . . . . . 8,601 1,686
Communications . . . . . 5,568 6,078
Taxes and dues . . . . . 5,236 8,505
Royalties. . . . . . . . 2,480 2,559
Insurance. . . . . . . . 1,279 9,452
Entertainment. . . . . . - 4,438
------------------
$416,442 $503,351
==================
F-4
CINTEL CORP.
Consolidated Statement of Cash Flows
Periods Ended March 31, 2004 and 2003
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss. . . . . . . . . . . . . . . . . . . . . . $ (358,305) $(428,586)
Adjustments for working capital and non-cash items:
Depreciation. . . . . . . . . . . . . . . . . . . . 50,908 31,184
Employee stock options vested . . . . . . . . . . . - 45,678
Accounts receivable . . . . . . . . . . . . . . . . 1,316,102 753,432
Inventory . . . . . . . . . . . . . . . . . . . . . (72,912) (82,776)
Prepaid and sundry assets . . . . . . . . . . . . . 80 59,679
Loans receivable. . . . . . . . . . . . . . . . . . - (8,534)
Deferred taxes. . . . . . . . . . . . . . . . . . . (59,120) (56,257)
Accounts payable. . . . . . . . . . . . . . . . . . (1,047,011) (294,529)
Income taxes. . . . . . . . . . . . . . . . . . . . - (4,445)
-----------------------
(170,258) 14,846
-----------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of equipment. . . . . . . . . . . . . . 5,670 (167,047)
-----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans payable . . . . . . . . . . . . . . . . . . . (32,612) (41,060)
-----------------------
FOREIGN EXCHANGE ON CASH AND CASH EQUIVALENTS . . . 17,272 (24,791)
-----------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . (179,928) (218,052)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR. . . 534,567 778,891
-----------------------
CASH AND CASH EQUIVALENTS - END OF YEAR . . . . . . $ 354,639 $ 560,839
=======================
F-5
CINTEL CORP.
Notes to Consolidated Financial Statements
March 31, 2004 and 2003
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.
F-6
CINTEL CORP.
Notes to Consolidated Financial Statements
March 31, 2004 and 2003
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
c) Unit of Measurement
The US Dollar has been used as the unit of measurement in these financial
statements.
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 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.
F-7
CINTEL CORP.
Notes to Consolidated Financial Statements
March 31, 2004 and 2003
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
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.
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.
F-8
CINTEL CORP.
Notes to Consolidated Financial Statements
March 31, 2004 and 2003
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
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.
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.
3. CASH AND CASH EQUIVALENTS
The following amounts included in cash and cash equivalents are restricted for
use by the Company:
a) The company has provided $150,696 as security for bank loans to employees
to purchase the Company's shares. The restriction will be revised on May 30,
2004 based on the amount of outstanding loans on that date.
b) The company has provided $117,208 as security for one of the bank loans
described in note 5. The loan will mature on November 12, 2004.
F-9
CINTEL CORP.
Notes to Consolidated Financial Statements
March 31, 2004 and 2003
4. EQUIPMENT
Equipment is comprised as follows:
2004 2003
ACCUMULATED Accumulated
COST DEPRECIATION Cost Depreciation
--------------------------------------------------
Furniture and fixtures $ 23,752 $ 17,445 $ 21,864 $ 12,005
Equipment. . . . . . . 559,419 377,052 635,234 260,319
Vehicles . . . . . . . 13,416 11,404 12,350 8,028
Software . . . . . . . 616,444 155,370 81,405 36,525
--------------------------------------------------
$1,213,031 $ 561,271 $750,853 $ 316,877
--------------------------------------------------
Net carrying amount. . $ 651,760 $ 433,976
------------- -------------
5. LOANS PAYABLE
2004 2003
CURRENT LONG-TERM TOTAL TOTAL
-------------------------------------------------
Bank loans. . . . . . . . . . . . . . . . . $1,256,860 $ - $1,256,860 $1,110,829
Promissory Note . . . . . . . . . . . . . . 39,000 - 39,000 -
Government loans (1, 2, 3, & 4) . . . . . . 27,674 61,864 89,538 76,424
Discount of interest-free government loans. (2,295) (10,968) (13,263) (9,469)
-------------------------------------------------
$1,321,239 $ 50,896 $1,372,135 $1,177,784
=================================================
Bank Loans
Bank loans bear interest at 6.9% to 7.97% and mature between June and December
2004. The loans are repayable upon maturity.
Promissory Note
The promissory note is non-interest bearing, unsecured and due on demand.
Government Loan #1
The loan is non-interest bearing, repayable in annual payments of $15,582 and
matures July 2005.
F-10
CINTEL CORP.
Notes to Consolidated Financial Statements
March 31, 2004 and 2003
5. LOANS PAYABLE (cont'd)
Government Loan #2
The loan is non-interest bearing, repayable in annual payments of $11,236 and
matures July 2005.
Government Loan #3
The loan is non-interest bearing, repayable in annual payments of $5,000
starting 2006 and matures October 2009.
Government Loan #4
The loan is non-interest bearing, repayable in annual payments of $3,419
starting 2006 and matures October 2009.
6. CAPITAL STOCK
Authorized
50,000,000 common shares, par value
$0.001 per share 2004 2003
Issued
20,314,300 common shares (2002 - 8,431,000) $ - $8,431
==============
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 and the calculation of earnings per share.
Finally, the Company issued 16,683,300 common shares in exchange for 100% of the
outstanding shares of Cintel Co., Ltd.
Stock Warrants and Options
The Company 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." The value of options
granted has been estimated using 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:
2004 2003
Interest rate 6.5% 6.5%
Expected volatility 70% 70%
Expected life in years 6 6
F-11
CINTEL CORP.
Notes to Consolidated Financial Statements
March 31, 2004 and 2003
6. CAPITAL STOCK (cont'd)
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 and in 2003, an additional 30,000 of
these stock options were cancelled.
In March 2000, 225,000 stock options were granted having a $0.425 nominal par
value each and an exercise price of $0.68. In 2002, 135,000 and in 2003, an
additional 47,000 of these stock options were cancelled.
In February 2001, 30,000 stock options were granted having a $0.425 nominal par
value each and an exercise price of $0.72. In 2003, all of these stock options
were cancelled.
In March 2003, 65,000 stock options were granted having a $0.425 nominal par
value each and an exercise price of $0.71. In the same year, 15,000 of these
stock options were cancelled.
The options vest gradually over a period of 3 years from the date of grant. The
term of each option shall not be more than 8 years from the date of grant.
Outstanding options of $45,678 have vested in 2003 (2002, nil) and have been
expensed in the statements of operations.
The stock options have not been included in the calculation of the diluted
earnings per share as their inclusion would be antidilutive.
7. 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 Company in 2004 and 2003 are 16.5 percent of the first 100
million Korean Won ($84,000) of taxable income and 29.7 percent of the excess.
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.
F-12
CINTEL CORP.
Notes to Consolidated Financial Statements
March 31, 2004 and 2003
7. INCOME TAXES (cont'd)
The Company has deferred income tax assets as follows:
2004 2003
Deferred income tax assets
Research and development expenses amortized over 5 years for tax purposes $235,827 230,666
Other timing differences. . . . . . . . . . . . . . . . . . . . . . . . . . 63,594 -
Loss carry-forwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,243 87,000
-----------------
$599,664 317,666
=================
8. CONTINGENT LIABILITIES AND COMMITMENTS
a) The Company has entered into a contract with iMimic Networking, Inc. for
the use of the iMimic solution within Korea starting November 17, 2000. For the
use of this solution, the Company paid $70,000 as an upfront payment and pays a
$640 royalty for each product sold that uses the iMimic solution. The Company
is also required to pay an annual royalty fee of $10,000. The contract has no
fixed termination date.
b) The Company is committed to lease obligations, with various expiry dates
to May 2004. Future minimum annual payments (exclusive of taxes, insurance and
maintenance costs) under these leases are as follows:
2004 $ 18,770
------------
9. SUBSEQUENT EVENTS
a) In May 2004, the Company established a 2004 stock option compensation
plan to issue up to 4,000,000 shares of common stock to employees and various
outside consultants. Upon formal registration of the proposed plan, each
outstanding common stock option of Cintel Korea as described in note 6 will be
converted into three common stock options of the Company.
F-13
Item 2. Management's Discussion and Analysis
Cautionary Statement Regarding Forward-looking Statements
This report may contain "forward-looking" statements. Examples of
forward-looking statements include, but are not limited to: (a) projections of
our revenues, capital expenditures, growth, prospects, dividends, capital
structure and other financial matters; (b) statements of our plans and
objectives; (c) statements of our future economic performance; (d) statements of
assumptions underlying other statements and statements about us and our business
relating to the future; and (e) any statements using the words "anticipate,"
"expect," "may," "project," "intend" or similar expressions.
Overview
Founded in 1997, CinTel Co., Ltd. ("CinTel" or the "Company"), a cutting edge
technology company, introduced Korea's first dynamic server load balancer, which
we believe is now proven as a world-class product. CinTel's award winning
Internet Traffic Management (ITM) solutions are marketed to customers around the
world, helping them to improve Internet traffic management, service levels (QOS:
Quality of Service), and the user experience (QOC: Quality of Content). Today,
CinTel is a public company listed on the OTCBB (Symbol: CNCN). CinTel is also a
network integration provider and value-added reseller for various network
solutions.
CinTel provides a comprehensive line of advanced ITM solutions that help network
operators meet the growing need to manage Web access, secure content, improve
users' experiences, and reduce server loads and bandwidth demands.
Results of Operations for the fiscal years ended December 31, 2003 and 2002.
Net sales for the fiscal year ended December 31, 2003, compared to the fiscal
year ended December 31, 2002, decreased from approximately 3% from $5,476,702 to
$5,300,370. Cost of sales, however, rose is a dramatic fashion from $3,901,035
in 2002 to $5,276,542 in 2003. This constitutes an increase of approximately
35%. This increase resulted in an operating loss for 2003 of ($1,735,167)
compared to an operating loss of ($257,764) in 2002. The increase in cost of
sales was a result of more product being sold into the market place during 2003.
However, there was not a corresponding increase in gross sales because of a poor
performing economy in Korea during 2003. The poor economy forced purchasers
into lower end products on which CinTel does not have a good markup. This
accounted for the strong volume without commensurate revenue. These dynamics
also effected our competition within the industry in a similar manner and
competition became very strong during the year driving bid prices further down.
Expenses for the same time periods decreased slightly from $1,833,431 to
$1,758,995.
-3-
Results of Operations for the quarters ended March 31, 2004 and 2003.
Our sales revenue for the quarter ended March 31, 2004 was $306,796, compared to
$1,003,310 for the comparable period ended March 31, 2003. Our operating loss
for the quarter ended March 31, 2004 was ($408,604), compared to ($484,318) for
the quarter ended March 31, 2003. Although total revenues for the quarter ended
March 31, 2004 were lower than for the quarter ended March 31, 2003, our
operating loss decreased and we were able to improve our financial status
comparatively speaking.
We believe we can continue to grow our gross profit as a percentage of revenue
through the remainder of this fiscal year as our cost of sales as a percent of
revenues continues to be reduced as a result of recently introduced marketing
and developing activities such as (a) efforts to expand our market to the US and
Europe, and (b) developing new products (e.g., DVS solution and iLog).
Recent Developments
On May 3, 2004, the Company provided to Samsung Electronics Co., Ltd. (SEC)
Korea, at the R3 Center in its Suwon Branch, CinTel's iCache server and log
analysis solution (PacketCruz(TM) iLog). The R3 Center of SEC performs research
& development of electric home appliances made in Korea. This first installment
contract with Samsung Electronics Co., Ltd. is for approximately $180,000.
Additionally, CinTel expects to provide traffic management solutions this year
to Samsung Electronics Co., Ltd. totaling USD$1.5M.
On May 10, 2004, the Company launched a 'Log Analysis Solution' specifically for
massive log-data management and analysis by integrating its PacketCruz(tm) iLog
with IBM's hardware and software, in cooperation with IBM Korea. This product
was originally part of the log-analysis solution of CinTel's iCache (cache
sever) and has been marketed to public or private enterprises and government
since its development in 2003.
The Company is completing the development of its new product, a data
management/analysis solution, and plans to market it to large enterprises (e.g.,
Samsung, Hyundai and LG), KEPCO and other public entities (e.g., Korea Post)
starting in the third quarter of 2004. It anticipates that revenues from this
product may reach approximately USD $7 million by the latter half of 2005.
Projections
Management believes that its current business development plans will increase
the business of CinTel significantly over the next twelve months. Management
believes that it can achieve operating income of $1,500,000 during that time on
revenues of $13,000,000 against cost of sales of $8,700,000 and operating
expenses of $2,800,000. It should be noted that these projections are in stark
departure from the operating results CinTel experienced in 2003 and are premised
upon management's belief that it can significantly grow its business during the
next twelve months and that the growth will lead to profitable operations. The
projections anticipate an increase in sales of approximate 145% with
corresponding increases in cost of sales and operating expenses of only 65% and
58% respectively. These projections are further premised
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upon the following
assumptions of management.
- - We assume a slow-growth economy without major recession.
- - We assume of course that there are no unforeseen changes in technology to
make products immediately obsolete.
- - Nature and Limitation of Projections -This financial projection is based on
sales volume at the levels described in the projections of this paragraph and
presents, to the best of management's knowledge and belief, the company's
expected assets, liabilities, capital, revenues, and expenses. The projections
reflect management's judgement of the expected conditions and its expected
course of action, given the hypothetical assumptions.
- - Revenues - The Company's revenue is derived primarily from subscriptions.
Revenue projections are based on the 1999 sales in the comparable market
nationwide, based on industry average.
- - Expenses - The Company's expenses are primarily those of salaries, sales
commissions, development costs, operating costs, and administrative costs.
Other expenses are based on management's estimates and industry averages.
Trends
We expect that there will be no negative impact on our business in the future.
The popularity of the Internet has resulted in an ever-increasing number of
users transmitting rapidly increasing volumes of data, and the data getting more
complex. The number of web users is expected to increase, as the broadband
becomes much more common and widely spread. Increasingly, content providers are
incorporating audio and video into their sites. Consumers are steadily
increasing the duration of online sessions with the broadband connections. The
end result of such a mass scale usage is congestion. The Internet has also
evolved into the platform for many mission-critical applications, such as
e-commerce/e-learning, and financial business. In other words, wherever we find
the Internet and web, there will be a market for the ITM solutions and
importance of it will increase more and more. The upside potential for the ITM
industry, specially caching field, over the next two years is significant and
expansion by acquisition is a must in order to survive this industry, reflecting
the current trend of networking technology, that is a merging of technologies
into one.
Liquidity
As of March 31, 2004, CinTel had cash and cash equivalents totaling $345,779.
Management believes it has the resources necessary to maintain its current
business operations in the short term. However, during the next twelve months,
CinTel plans to focus on new business enterprises and expanding its global
market through mergers with alliance partners in the United States. In order to
pursue these plans aggressively, we will need additional investment capital. We
have not decided at this time how this money is to be raised. We anticipate,
however, that it will be through the issuance of capital stock or bonds.
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Item 3. Controls and Procedures.
As of the end of the period covered by this report, Management carried out an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures, pursuant to Exchange Act Rule 13a-15(c) and
15d-15(c) which includes inquiries made to certain other of our employees. Based
on the foregoing, the Principal Executive Officer and Principal Financial
Officer concluded that the Company's disclosure controls and procedures are
effective to timely alert them to any material information relating to the
Company that must be included in the Company's' periodic SEC filings. In
addition, there have been no significant changes in the Company'' internal
controls over financial reporting that occurred during the fiscal quarter
covered by this quarterly report that has materially affected, or is reasonably
likely to materially affect, the Company's internal control over financial
reporting.
PART II - OTHER INFORMATION
Item 5. Other Information.
On April 28, 2004, Mr. Doo-Kwon Baik, Ph.D has joined the Company as technical
advisor. Currently he is a Professor at the Computer Science and Engineering
Department at Korea University. He was the former Dean of the College of
Information and Communications at the University. Previous noteworthy positions
he has held include, Director of the University Computing Center at Korea
University, the President of the Korea Simulation Society, the Vice President of
the Korea Information Processing Society, and the President of Dosan Academy. He
is expected to bring the company over 30 years' of his experience in information
technology.
On May 5, 2004, Mr. Tong Soo Chung joined the Company as corporate counsel. As
part of his consultancy, he will also be assisting the Company as a member of
its advisory board. Most recently, Mr. Chung served as President Clinton's
appointee as acting Deputy Assistant Secretary for Service Industries and
Finance for the International Trade Administration of the United States
Department of Commerce. He was responsible for the management of the Office of
Finance, the Office of Service Industries and the Office of Export Trading
Company Affairs. Prior to his appointment as the Deputy Assistant Secretary, Mr.
Chung served as the Director of the Advocacy Center, also within the
International Trade Administration, where he coordinated U.S. companies
competing for infrastructure-related projects overseas. While with the
International Trade Administration, Mr. Chung worked with more than 750
companies on more than 1,600 projects. Mr. Chung received his J.D. from the
UCLA School of Law in 1984, an M.A. in Public Affairs from Woodrow Wilson School
of Public and International Affairs at Princeton University in 1980 and a B.A.
from Harvard University in 1977 (magna cum laude).
It is expected that his experience will fit perfectly with the Company's
strategic expansion in this industry.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
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3.1 Articles of Incorporation (1)
3.2 Amendment to Articles of Incorporation (2)
3.3 By-laws (1)
10.1 Lease Agreement for Pennsylvania Office (2)
10.2 IBM Technical Services Agreement (2)
31.1 Certification of CEO pursuant to Securities Exchange Act rules 13a-15 and 15d-
15(c) as adopted pursuant to section 302 of the Sarbanes-Oxley act of 2002.
31.2 Certification of CFO pursuant to Securities Exchange Act rules 13a-15 and 15d-
15(c) as adopted pursuant to section 302 of the Sarbanes-Oxley act of 2002.
32.1 Certification of CEO pursuant to 18 U.S.C. section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley act of 2002.
32.2 Certification of CFO pursuant to 18 U.S.C. section 1350, as adopted pursuant to
section 906 of the Sarbanes-Oxley act of 2002.
99.1 News Articles (2)
(1) Previously filed as an exhibit to Form SB-2 on September 24, 2002.
(2) Previously filed as an exhibit to Form 10-KSB on April 14, 2004.
(b) Reports on Form 8-K
On January 26, 2004, the Company filed a current report on Form 8-K announcing
the change in the fiscal year end of its operating subsidiary to December 31 in
order to match the fiscal year end of the Company.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CINTEL CORP.
By: /s/ Sang Don Kim
--------------------------------------
Sang Don Kim
CEO and Sole Director
(Principal Executive Officer)
(Director)
Date: May 22, 2004
By: /s/ Kyo Jin Kang
--------------------------------------
Kyo Jin Kang, CFO and COO
(Principal Financial Officer)
(Principal Accounting Officer)
Date: May 22, 2004
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