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Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ...........to...............
Commission File Number 000-29957
TENGTU INTERNATIONAL CORP.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 77-0407366
- --------------------------------- -----------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
236 Avenue Road, Toronto, Ontario Canada M5R 2J4
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(Address of Principal Executive Offices)
(Zip Code)
(416) 963-3999
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(Registrant's telephone number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-------- --------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act.
Yes No X
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APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: there were 77,453,739 shares
outstanding as of February 13, 2004.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" STATEMENT UNDER THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements in this report which are not historical facts or
information are forward-looking statements, including, but not limited to, the
information set forth in the Management's Discussion and Analysis section. Such
forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause our actual results, levels of activity,
performance or achievement, or industry results, to be materially different from
any future results, levels of activity, performance or achievement expressed or
implied by such forward-looking statements. Such factors include, among others,
the following: general economic and business conditions in the United States,
China and Canada; our ability to implement our business strategy; our access to
financing; our ability to successfully identify new business opportunities; our
ability to attract and retain key executives; our ability to achieve anticipated
cost savings and profitability targets; changes in the industry; competition;
the effect of regulatory and legal restrictions imposed by the Chinese
government; the effect of regulatory and legal proceedings and other factors
discussed in our Forms 10, 10-K, 10-Q, 8-K, and amendments thereto, and
registration statement filings. As a result of the foregoing and other factors,
no assurance can be given as to our future results and achievements. Neither we
nor any other person assumes responsibility for the accuracy and completeness of
these statements.
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
AS OF AS OF
DECEMBER 31, JUNE 30,
2003 2003
----- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 927,456 $ 283,802
Due from related party net 5,644,656 3,593,607
Prepaid expenses 766,795 811,269
Other receivables 78,733 154,011
------------ ------------
Total Current Assets 7,417,640 4,842,689
------------ ------------
------------ ------------
PROPERTY AND EQUIPMENT, net 64,954 82,688
------------ ------------
OTHER ASSETS
Due from related party 14,497,209 14,497,209
Notes receivable 11,881 11,881
Long-term investment 3,774,908 4,392,793
------------ ------------
Total Other Assets 18,283,998 18,901,883
------------ ------------
------------ ------------
TOTAL ASSETS $ 25,766,592 $ 23,827,260
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 322,380 $ 752,647
Accrued expenses 1,016 1,446
Due to related party consultants 1,207,714 1,207,714
Short-term loans, including convertible debenture 964,242 1,454,404
Deferred tax payable 85,478
Other liabilities 644,090 650,310
------------ ------------
Total Current Liabilities 3,224,920 4,066,520
------------ ------------
COMMITMENTS
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share; authorized -- --
10,000,000 shares; issued -0- shares
Common stock, par value $.01 per share; authorized
100,000,000 shares; issued 77,532,159 shares
(June 30, 2003- 66,736,223); outstanding 77,453,739
(June 30,2003-66,657,803) 774,537 666,578
Additional paid in capital 37,732,368 34,872,453
Accumulated deficit (15,951,207) (15,761,845)
Cumulative translation adjustment (13,242) (15,662)
------------ ------------
22,542,456 19,761,524
Less: Treasury stock, at cost, 78,420 common shares (784) (784)
------------ ------------
Total Stockholders' Equity 22,541,672 19,760,740
------------ ------------
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,766,592 $ 23,827,260
============ ============
-1-
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (UNAUDITED)
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2003 2002
----- ----
SALES $ 4,194,973 $ 1,172,833
COST OF SALES 2,360,739 784,221
------------ ------------
1,834,234 388,612
------------ ------------
OPERATING EXPENSES
Research and development -- 2,968
General and administrative 957,482 1,179,024
Related party consultants 188,549 203,271
Collection provision 160,323 22,001
Selling 535,914 808,267
Depreciation 27,435 31,162
------------ ------------
1,869,703 2,246,693
------------ ------------
Operating Loss (35,469) (1,858,081)
OTHER INCOME (EXPENSE)
Equity earnings (loss) in investee (13,885) (16,478)
Interest income 484 125,909
Interest expense (196,511) (267,304)
Other income 594,815 175,434
------------ ------------
384,903 17,561
------------ ------------
Income before income tax and minority interests 349,434 (1,840,520)
Income tax (85,478) --
Minority interest in subsidiary's'-Income (Loss) (453,318) --
------------ ------------
Net Loss $ (189,362) $ (1,840,520)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic 72,218,330 51,478,634
Common stock equivalents
------------ ------------
Diluted 72,218,330 51,478,634
============ ============
EARNINGS (LOSS) PER COMMON SHARE:
Basic (0.003) (0.036)
Diluted (0.003) (0.036)
-2-
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2003 2002
----- ----
SALES $ 2,286,516 $ 534,187
COST OF SALES 1,541,049 321,319
------------ ------------
745,467 212,868
------------ ------------
OPERATING EXPENSES
General and administrative 482,207 432,877
Related party consultants 104,228 100,993
Collection provision 89,839 3,898
Selling 213,015 410,396
Depreciation 20,139 18,696
------------ ------------
909,428 966,860
------------ ------------
Operating Loss (163,961) (753,992)
OTHER INCOME (EXPENSE)
Equity earnings (loss) in investee 9,106 2,367
Interest income 113 62,964
Interest expense (160,780) (122,731)
Other income 321,055 96,517
------------ ------------
169,494 39,117
------------ ------------
Income before income tax and minority interests 5,533 (714,875)
Income tax (29,509) --
Minority interest in subsidiary's'-Income (Loss) (156,498) --
------------ ------------
Net Loss $ (180,474) $ (714,875)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic 73,769,282 52,253,857
Common stock equivalents
------------ ------------
Diluted 73,769,282 52,253,857
============ ============
EARNINGS (LOSS) PER COMMON SHARE:
Basic (0.002) (0.014)
Diluted (0.002) (0.014)
-3-
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (UNAUDITED)
SIX MONTHS SIX MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss: ($ 189,362) ($1,840,520)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization 27,435 72,477
Changes on investment at equity 617,885 16,478
Noncash compensation expense on shares issued for services 50,835
Noncash interest expense - convertible debenture 152,013 46,301
Impaired assets write off: (9,701) 2,662
Changes in operating assets:
Due from related party (2,051,049) (121,962)
Prepaid expenses 44,474 27,298
Other receivables 75,280 (13,002)
Accounts payable (430,267) (142,049)
Accrued expenses (430) 44,617
Due to related party consultants (6,430)
Deferred income tax payable 85,478 --
Other liabilities (6,221) (11,015)
----------- -----------
Net Cash Used by Operating Activities (1,684,465) (1,874,310)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term loans 603,825 723,304
Cash paid on short-term loans (300,000) (1,749,200)
Cash received for shares,warrants, and options issued 2,021,874 2,115,770
----------- -----------
Net Cash Provided by Financing Activities 2,325,699 1,089,874
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 2,420 290
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 643,654 (784,146)
----------- -----------
CASH AND CASH EQUIVALENTS, beginning of the period 283,802 914,838
CASH AND CASH EQUIVALENTS, end of the period $ 927,456 $ 130,692
=========== ===========
-4-
Supplemental disclosures of cash flows information and non-cash investing and
financing activities:
For the six months ended December 31, 2003, the Company paid cash for interest
expenses of $53,823 (December 31, 2002-$167,516).
On December 15, 2003 the Company entered into an agreement with Top Eagle
Holdings, Ltd. ("Top Eagle") pursuant to which it paid Top Eagle $300,000 and
issued to Top Eagle a new convertible debenture in the principal amount of $1.2
million due December 15, 2004 in exchange for an outstanding convertible
debenture in the principal amount of $1.5 million held by Top Eagle. During the
six months ended December 31, 2003 $152,013 of non-cash interest expenses was
recorded. Please refer to note 4 for more information.
During the six months ended December 31, 2003, Orion Capital Inc. ("Orion"), a
significant shareholder of the Company, which is owned beneficially by the
Chairman of the Company's Board of Directors,advanced $603,825 to the Company
for the general operating and administrative expenses. On December 16, 2003,
Orion converted $600,000 of the short-term loan into the Company's common stock
at $0.50 per share.
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
-5-
NOTES
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary in order to fairly present
the interim financial information have been included. Results for the six months
ended December 31, 2003 are not necessarily indicative of the results that may
be expected for the fiscal year ending June 30, 2004. For further information,
please refer to the consolidated financial statements and notes thereto included
in Tengtu International Corp. and Subsidiary's annual report on Form 10-K/A for
the fiscal year ended June 30, 2003.
1. The Company
Tengtu International Corp. (the "Company") is a provider of distance
learning and e-education solutions, training and methodologies, in support of
China's goals to modernize its K-12 education system. Substantially all these
activities are carried out through the Company's subsidiary, Beijing Tengtu
United Electronics Development Co., Ltd. ("TUC" or "Tengtu United"), a joint
venture. The Company has an equity interest in TUC of 57%, and its joint venture
partner, Tengtu China, owns the remaining 43%.
On September 15, 2003, the Company signed an agreement with the
beneficial owner of Tengtu China that allows the Company to purchase the 43%
interest of Tengtu China in TUC for 30 million common shares of the Company. The
agreement would also give proxy control to the Company of a number of other
entities in China owned by Tengtu China's beneficial owner. The agreement has
been approved by the Company's shareholders at the Company's annual shareholders
meeting held on January 20, 2004, but has not yet closed as of February 17,
2004.
Tengtu China entered into a joint venture with a division of the
Chinese Ministry of Education, on behalf of TUC, for the creation of the China
Broadband Education Resource Center ("CBERC"). CBERC was established in January
2003 for the transmission of various educational content and tools to schools
for an annual fee.
Tengtu China has sought to form joint ventures with various Chinese
provinces on behalf of TUC. One of these has already been formed in Shaanxi
province and three others were in the process of being organized. Each of these
joint ventures is a Local Broadband Education Resource Center ("LBERC"). The
original plan was for each Provincial LBERC to connect to CBERC and to contain
its own educational and other materials mandated by the Provinces. This content
would also be transmitted to individual schools for an annual fee.
Subsequent to entering into letters of intent to form
provincial LBERCs the Company concluded an arrangement with the Agricultural
Bank of China establishing a line of credit for client users of Tengtu products
and services including its turn-key portals. This enabled Tengtu to change its
business strategy to more quickly penetrate its market on a district-by-district
basis versus school-by-school. This strategy has led to the installation of
twenty-two turn-key portals to date and has shifted the Company's near term
business priorities from establishing capital-intensive Provincial LBERC joint
ventures to district and county-level LBERCs using turn-key portals. Therefore,
the current Provincial LBERC projects have been abandoned, except for the
Shaanxi LBERC which had already been operating. 5 million RMB (approximately
$604,000) invested in Shandong provincial LBERC has been returned to the
Company. As at the date of report, the Company was in the process of taking the
necessary steps for the return of the remaining 5 million RMB from Shandong. A
strategy for incorporating provincial level LBERCs may be determined as the
market matures.
Although TUC's equity interest in each of the joint ventures is
over 50%, it does not control the joint ventures due to participating rights
exercised by the minority interest holders in the management of the joint
ventures. The investments, therefore, are accounted for using the equity method
of accounting as TUC has the ability to exercise significant influence, but not
control, over the investees.
-6-
The Company, through Tengtu United, originally advanced $4,469,000
for the formation of CBERC and the LBERCs. We adjusted the long term investment
account by $604,000 during the quarter ended December 31, 2003 since we received
the refund of $604,000 (5 million RMB) from Shandong provincial LBERC discussed
above. For the six months ended December 31, 2003, both CBERC and Shaanxi LBERC
had limited operations which resulted in an equity loss of $13,885. This loss
reduced the investment at December 31, 2003 to $3,774,908.
2. Due from Related Party
The Company has engaged Tengtu China, as its agent, to conduct all of
Tengtu United's business. As agent, Tengtu China administers the daily
operations of Tengtu United: paying operating expenses, collecting receivables
and remitting net operating profits to the Company. The Company has recorded the
following amount as due from Tengtu China at December 31, 2003:
Current Assets
Balance at June 30, 2003 $ 3,593,607
Money returned by Shandong LBERC
retained in Tengtu China: 604,000
Profits from operations,
net of minority interest 1,447,049
------------
Due from Related Party $ 5,644,656
============
Payment processes slower than those experienced in North America are
not unusual in China, especially when dealing with a number of levels of
government. In recognizing the different environment in which it is operating in
China, the Company has classified $14,497,209 of due from Tengtu China as a
long-term asset as of December 31, 2003.
The totals of both current and long-term due from related party are
net of a reserve for collection of $887,375.
3. SHORT-TERM DEBT
At December 31, 2003, short-term debt consists of $1,200,000
convertible debenture issued to Top Eagle Holdings, Ltd. ("Top Eagle") on
December 15, 2003 as described in Note 4. Orion, a significant shareholder of
the Company, which is owned beneficially by the Chairman of the Company's Board
of Directors, advanced $603,825 to the Company for the general operating and
administrative expenses during the six months ended December 31, 2003. On
December 16, 2003, Orion converted $600,000 of such short-term loan into the
Company's common stock at $0.50 per share.
-7-
4. Convertible Debenture
On December 15, 2003 the Company entered into an agreement with Top
Eagle Holdings, Ltd. ("Top Eagle") pursuant to which it paid Top Eagle $300,000
and issued to Top Eagle a new convertible debenture in the principal amount of
$1.2 million, due December 15, 2004, in exchange for an outstanding convertible
debenture in the principal amount of $1.5 million held by Top Eagle. The
principal and accrued interest on the new convertible debenture are convertible
into the Company's common stock at the rate of $1.50 per share, provided that
the entire unpaid principal of, and accrued interest on, the debenture at
December 15, 2004 may at the option of the holder, be converted into common
stock at a conversion price which is 80% of the then market price of the
Company's common stock. The debenture further provides that up to $200,000 of
the principal was convertible into common stock at the rate of $.50 per share if
such conversion right was elected on or prior to January 31, 2004. However, no
such election was made.
The convertible debenture includes a "beneficial conversion feature",
which means that the loan can be converted into the Company's common stock at a
price lower than market price of the stock on the date the debenture was
issued. The Company recorded a discount of $346,417 against the face amount of
the debt to recognize the beneficial conversion feature. Of this amount, $96,000
was amortized to interest expense in this period for the portion of the debt
that was immediately convertible. The remaining $250,000 of the discount will be
amortized over the one year life of the debt, with $10,417 charged to operations
this period.
5. Related Party Transactions
During the six months ended December 31, 2003, the Company incurred
consulting expenses of $188,549 from officers and directors of the Company.
Consulting expenses for the six months ended December 31, 2002 were $203,271.
6. Taxes
None of the Company's subsidiaries are eligible to be consolidated
into the Company's U.S income tax return, therefore, separate income tax
provisions are calculated for the Company and each of its subsidiaries. For U.S.
income tax purposes, the Company has recorded a deferred tax asset due to net
operating loss carry forwards. The asset has been offset by a full valuation
allowance, as the Company believes it is more likely than not that the losses
will not be utilized.
Tengtu Uinted has an income tax "holiday" for its first profitable and four
subsequent years as computed on a Chinese Tax basis, which is a hybridized cash
basis of accounting. This holiday reduces income taxes by 100% for years one and
two, and by 50% for years three through five. The Company accrued $85,478 of
deferred tax payable for the six months ended December 31,2003, because Tengtu
United generated $1,139,706 in net income before income tax and minority
interest and it is in its third profitable tax year.
7. Litigation
The Company is party to litigation in the normal course of business.
In management's opinion, the litigation will not materially affect the Company's
financial position, results of operation or cash flow.
8. Commitments and Contingencies
The Company has contracted with Agricultural Bank of China
("ABC") to have ABC provide financing to eligible customers of the Company. ABC
will provide up to 80% of the contracted selling price of the Company to the
customer. The Company provides a guaranty to the bank for any financing
provided. As of December 31, 2003, ABC has made loan commitments of $18,000,000,
but has not yet funded them.
-8-
In January, 2004, the Company's joint venture partner, Tengtu China,
defaulted on the repayment of a loan with a principal balance of approximately
RMB 17 million (approximately $2,054,000) with the Hua Xia Bank of China,
Chaoyang Branch. The bank agreed to extend the term for repayment of the loan
for six months in exchange for a payment of RMB 1 million (approximately
$121,000), which was loaned to Tengtu China by the Company, and a guarantee of
the loan from Tengtu United. Tengtu United provided the necessary guarantee.
9. Presentation
Certain amounts in the December 31, 2002 financial statements have been
reclassified to conform to the December 31, 2003 presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
We are currently engaged, indirectly through Tengtu United and our agent,
Tengtu China, in the following lines of business:
o sales of educational content software to Chinese K-12 schools;
o sales of special software products for learning applications, resources
management, distance learning and web/internet applications contained in
the "Total Solution" software package;
o development of the the Central Broadband Education Resource Center
("CBERC") with a division of the Chinese Ministry of Education, the
National Center for Audio/Video Education. CBERC is an electronic
resource center and portal containing educational materials that are
transmitted to schools that download them daily via satellite and that
are to be accessible by Internet;
o development of Local Broadband Education Resource Centers ("LBERCs")
through the sales of turn-key portals and electronic resource centers.
It is anticipated that the LBERCs will connect with CBERC and contain
their own educational and other materials as mandated by the provincial
branches of the Chinese Ministry of Education.;
o sales of computer hardware and systems integration services to Chinese
schools; and
o the provision of information technology training to teachers.
We have instructed Tengtu China to conduct all of Tengtu United's
business with all Chinese government entities. Tengtu China, as Tengtu United's
agent, administers the daily operations of Tengtu United, such as paying
operating expenses, collecting receivables and remitting net operating profits
to Tengtu United.
-9-
RECENT BUSINESS DEVELOPMENTS
RESTRUCTURING
On January 20, 2004, our proposed Restructuring whereby we are to
acquire 100% of Tengtu United and all of the net profits generated by its
business in exchange for 30 million shares or our common stock was approved by
our shareholders. We are currently working to close the transaction by ensuring
that all necessary conditions to closing have been fulfilled properly and in
accordance with Chinese law. The Restructuring is more fully described in our
Definitive Proxy Materials filed with the SEC on December 19, 2003.
On December 17, 2003, we announced that Tengtu United has signed a
cooperation agreement with China Hewlett-Packard to jointly market computer
software and hardware products in the Chinese K-12 education market. Pursuant to
the agreement, Tengtu United and China Hewlett-Packard will jointly market and
promote three products: the Rural Area Satellite Solution, the Rural Area LAN
and the Urban Area Portal for Local Education Bureau. Each product combines a
Hewlett Packard server and its storage devices with our educational resources
and software.
The agreement calls for co-operative advertising and promotion
activities, cross training of sales representatives and technical support
personnel as well as the creation of a solution demonstration center featuring
China Hewlett-Packard servers and related hardware configured with Tengtu's
application software. In January, 2004, we completed the first installations
under the China Hewlett-Packard agreement with portals installed in Changsha
County in the Hunan province, Siming District of Xiamen City in the Fujian
province and Wuzhou City in the Guanxi province.
On October 24, 2003, Tengtu announced the untimely death of Mr. Zhang
Fan Qi, CEO and Chairman of Tengtu China and a director of Tengtu International
Corp.
LIQUIDITY AND CAPITAL RESOURCES FOR THE SIX MONTHS ENDED
DECEMBER 31, 2003 AND 2002
Six Months Ended December 31, 2003
For the six months ended December 31, 2003, net cash used by operating
activities totalled $1,684,465. The net loss for the six months was $189,362.
Other cash changes by operating activities include non-cash changes for
depreciation of $27,435, impaired assets write off $9,701, equity changes on
investment of $617,885, and non-cash interest expense of $152,013 related to the
convertible debenture.
Cash decreased as a result of the increase of $2,051,049 in due from
Tengtu China which represents 57% of the profit earned by Tengtu United for the
six months ended December 31, 2003 and a $604,000 refund from Shandong LBERC.
The Company used cash received from a private placement to pay down $430,267 of
its accounts payable. Cash reduced by the decrease in accrued expenses of $430
and other liabilities of $6,221. The decrease in prepaid expenses of $44,474,
$75,280 of other receivable, and increase of deferred income tax payable of
$85,478 resulted in a favourable change to operating cash flow.
We did not make any investments during the six months ended
December 31, 2003.
Net cash flow from financing activities was $2,325,699. It includes
the Orion short term loan of $603,825, a principal payment of $300,000 for Top
Eagle convertible debenture, and $2,021,874 of cash received from a private
placement of units of common stock and common stock purchase warrants and the
exercise of stock warrants.
-10-
Cash on hand is not sufficient to meet our capital investment plans and
operating requirements for the next 12 months. We are planning to raise
additional funds to meet the cash requirements for the CBERC project and the
needs of our operations. There can be no assurance that such financing will be
available, or if available, that it will be on acceptable terms.
Six Months Ended December 31, 2002
For the six months ended December 31, 2002, net cash used by
operating activities was $1,874,310. The net loss for the six months,
$1,840,520, includes non-cash charges for depreciation and amortization of
$72,477, equity loss on investment of $16,478, non-cash compensation expenses
associated with the issuance of common shares for services of $50,835, non-cash
interest expense of $46,301 related to convertible debenture, and an impaired
assets write-off of $2,662.
Cash was further decreased by the increase of $121,962 in due from
Tengtu China for working capital advances and net profits from operations. The
decrease in prepaid expenses resulted in a favourable change of $27,298 to
operating cash flow. In addition, a small increase of $13,002 in other
receivables was primarily due to the increase of a tax refund.
The Company used the cash raised in private placements, primarily in
the second quarter of fiscal 2003, to reduce its outstanding accounts payables.
For the six months ended December 31, 2002, the accounts payable decreased
$142,049. An increase of $44,617 in accrued expenses was primarily due to
accrued legal expenses. Cash was further reduced by the decrease of due to
related party consultants of $6,430, and other liabilities of $11,015.
The Company did not make any investments for the six months ended December
31, 2002.
Net cash flow from financing activities was $1,089,874. It includes the
Orion short term loan of $723,304, $1,749,200 for payment of principal and
interest on another loan, and $2,115,770 of cash received from a private
placement of common shares.
CONTRACTUAL OBLIGATIONS
The Company's contractual obligations at December 31, 2003 include a
$1,200,000 convertible debenture held by Top Eagle Holdings, Ltd. due December
15, 2004.
We are also committed to fund CBERC as follows: RMB 30 million
(approximately $3,624,000) within twelve months after the establishment of CBERC
and RMB 20 million (approximately $2,416,000) within eighteen months after the
establishment of CBERC. CBERC was established in January 2003. In January 2004,
a new agreement was reached between Tengtu Untied and CBERC, pursuant to which
the payment due in January, 2004 was extended by six months.
-11-
In January, 2004, our joint venture partner, Tengtu China, defaulted
on the repayment of a loan with a principal balance of approximately RMB 17
million (approximately $2,054,000) with the Hua Xia Bank of China, Chaoyang
Branch. The bank agreed to extend the term for repayment of the loan for six
months in exchange for a payment of RMB 1 million (approximately $121,000)
which was loaned to Tengtu China by the Company, and a guarantee of the loan
from Tengtu United. Tengtu United provided the necessary guarantee. The loan
guarantee was made for the following reasons: the monies borrowed by Tengtu
China had been used for Tengtu United operations, Tengtu China's operations
consist solely of acting as agent in conducting Tengtu United's operations and a
lawsuit by the bank might result in Tengtu China's accounts being frozen up to
the amount of the loan, thereby impairing Tengtu China's ability to effectively
act as Tengtu United's agent.
We are planning to raise additional funds to meet the cash requirements
for CBERC project and the needs of our operations for the next 12 months. There
can be no assurance that such financing will be available, or if available, that
it will be on acceptable terms.
OPERATING RESULTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2003 AND 2002
Revenues and Gross Margin
During the quarter ended December 31, 2003, we continued the restructuring of
our marketing strategy and product mix in China engaging the marketplace on a
district-by-district basis. Tengtu United sales for the six months ended
December 31, 2003 and 2002 were $4,194,973 and $1,172,833 respectively. Please
refer to the chart below for more information about revenues and gross margin
for the six months ended December 31, 2003.
----------------------------- -------------------------------
December 31, 2003 December 31, 2002
----------------------------- -------------------------------
- ----------------------------------
Product Revenues GM% Revenues GM%
- ---------------------------------- ---------------------- ------ ----------------------- -------
Software products $ 2,131,386 66% $ 107,300 41%
- ---------------------------------- ---------------------- ------ ----------------------- -------
Satellite Equipment $ 1,306,181 28% $ 634,555 26%
- ---------------------------------- ---------------------- ------ ----------------------- -------
Systems Integration Services $ 757,104 8% $ -
- ---------------------------------- ---------------------- ------ ----------------------- -------
Other Products and Services $ 302 $ 430,978 51%
- ---------------------------------- ---------------------- ------ ----------------------- -------
Total: $ 4,194,973 44% $ 1,172,833 36%
- ---------------------------------- ---------------------- ------ ----------------------- -------
GM % means the gross margin percentage in the table above.
General and Administrative Expenses
- ------------------------------------
December 31, 2003 December 31, 2002
----------------- -----------------
$957,482 $1,179,024
For the six months ended December 31, 2003, general and
administrative expenses were $957,482. The general and administrative expenses
incurred by Tengtu United amounted to $568,688. The major components of the
remaining balance were legal and professional fees of $276,000, public relations
related costs of $42,000, and $26,000 of expenses incurred by TIC Beijing. The
expenses were reduced by $221,542 compared to the same period of last year. The
decrease was primarily due to a reduction in legal fees of $111,000, accounting
fees of $23,000, and TIC costs saving of $87,000.
-12-
Related Party Consultants
- -------------------------
December 31, 2003 December 31, 2002
----------------- -----------------
$188,549 $203,271
Related party consultants' expense relates to staff that manages
technical developments and financing activities in North America and China.
Collection Provision
- --------------------
December 31, 2003 December 31, 2002
----------------- -----------------
$160,323 $22,001
The collection provision represents an estimate of potential
uncollectible accounts associated with sales by Tengtu United. The lower amount
in 2002 was primarily due to the lower sales. This provision is included in due
from related party.
Selling Expense
- ---------------
December 31, 2003 December 31, 2002
----------------- -----------------
$535,914 $808,267
The majority of selling expenses relate to staff salary and travel
expenses in the marketing department in Tengtu China. The expense was $260,575
lower than the same period of last year. The cost saving is due to the closing
of several branch offices of Tengtu China.
Interest Income
- ---------------
December 31, 2003 December 31, 2002
----------------- -----------------
$ 484 $125,909
Interest income decreased by $125,425 compared with same period last
year due to the termination of a loan agreement with Ming Shen Bank of China
("Ming Shen"). The loan was for approximately $3,745,000 and was collateralized
by a $4 million restricted U.S. dollar denominated deposit that earned interest
at 6.15% annually. We used the deposit to repay the loan.
-13-
Interest Expense
- ----------------
December 31, 2003 December 31, 2002
----------------- -----------------
$196,511 $267,304
For the six months ended December 31, 2003, interest expense
principally was the interest on the convertible debenture held by Top Eagle
Holdings, Ltd. net of a reversal of approximately $15,500 for over-accrual of
interest expense for a short-term loan. The interest expense for the six months
ended December 31, 2002 consisted of interest on the Top Eagle debenture, a loan
from Quest Ventures, Ltd. and the Ming Shen Bank loan in China.
The decrease in interest expense for the six months ended
December 31, 2003 is due to the repayment of the Ming
Shen and Quest Ventures loans in the year ended June 30, 2003.
Other Income
- ------------
December 31, 2003 December 31, 2002
----------------- -----------------
$594,815 $175,434
Other income is principally the credits for value added tax paid
in China for Tengtu United's sales. The Chinese government has tax incentive
policies for high technology enterprises. Tengtu is entitled to the credit of
value added tax and the company applies for the tax credit from the Chinese
government on a monthly basis. The lower amount in 2002 was primarily due to the
lower sales.
Income tax expense
- -----------------
December 31, 2003 December 31, 2002
------------------ -----------------
$85,478 0
Tengtu United has an income tax "holiday" for its first profitable and four
subsequent years as computed on a Chinese Tax basis, which is a hybridized cash
basis of accounting. This holiday reduces income taxes by 100% for years one and
two, and by 50% for years three through five. We accrued $85,478 of deferred tax
payable for the six months ended December 31, 2003, because Tengtu United
generated $1,139,706 of net income before income tax and minority interest and
it is in its third profitable tax year.
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Minority interest
- -----------------
December 31, 2003 December 31, 2002
------------------ -----------------
$453,318 0
Minority interest represents Tengtu China's 43% interest in the
operating profits of the joint venture company, Tengtu United.
OPERATING RESULTS FOR THREE MONTHS ENDED DECEMBER 31, 2003 AND 2002
Revenues and Gross Margin
Tengtu United sales for the three months ended December 31, 2003 and
2002 were $2,286,516, and $534,186 respectively. Please refer to the chart below
for more information about revenues and gross margin for the quarter.
-------------------------- ---------------------------
December 31, 2003 December 31, 2002
-------------------------- ---------------------------
- -----------------------------
Product Revenues GM% Revenues GM%
- ----------------------------- ------------------- ------ -------------------- -------
Software products $ 646,442 72% $ 94,317 40%
- ----------------------------- ------------------- ------ -------------------- -------
Satellite Equipment $ 882,969 25% $ 58,947 26%
- ----------------------------- ------------------- ------ -------------------- -------
Systems Integration Services $ 757,104 8% $ -
- ----------------------------- ------------------- ------ -------------------- -------
Other Products and Services $ - $ 380,922 49%
- ----------------------------- ------------------- ------ -------------------- -------
Total: $ 2,286,515 33% $ 534,186 41%
- ----------------------------- ------------------- ------ -------------------- -------
GM % means the gross margin percentage in the table above.
General and Administrative Expenses
- ------------------------------------
December 31, 2003 December 31, 2002
----------------- -----------------
$482,207 $432,877
For the three months ended December 31, 2003, general and
administrative expenses were $482,207. The general and administrative expenses
incurred by Tengtu United amounted to $345,867. The major components of the
remaining balance were legal and professional fees of $136,000. The expenses
increased by $50,000 compared to the same period of last year. The increase was
mainly due to the one-time restructure related travel expenses.
Related Party Consultants
- -------------------------
December 31, 2003 December 31, 2002
----------------- -----------------
$104,228 $100,993
Related party consultants' expense relates to staff that manages
technical developments and financing activities in North America and China.
Tengtu United hired two more executives during the quarter ended December 31,
2003.
-15-
Collection Provision
- --------------------
December 31, 2003 December 31, 2002
----------------- -----------------
$89,839 $3,898
The expense represents an estimate of potential uncollectible
accounts associated with sales by Tengtu United. The lower amount in 2002 was
primarily due to the lower sales. This provision is included in due from related
party.
Selling Expense
- ---------------
December 31, 2003 December 31, 2002
----------------- -----------------
$213,015 $410,396
The majority of selling expenses relates to staff salary and travel
expenses in the marketing department in Tengtu China. The expense was $185,905
lower than the same period of last year. The cost saving is due to the closing
of several branch offices in Tengtu United.
Interest Income
- ---------------
December 31, 2003 December 31, 2002
----------------- -----------------
$ 113 $62,964
Interest income decreased by $62,851 compared with the same period last
year due to the termination of a loan agreement with Ming Shen Bank of China
("Ming Shen"). The loan was for approximately $3,745,000 and was collateralized
by a $4 million restricted U.S. dollar denominated deposit that earned interest
at 6.15% annually. We used the deposit to repay the loan.
Interest Expense
- ----------------
December 31, 2003 December 31, 2002
----------------- -----------------
$160,780 $122,731
For the three months ended December 31, 2003, interest expense
principally consisted of the interest on the debenture held by Top Eagle
Holdings, Ltd. of $152,807. The interest expense for the three months ended
December 31, 2002 consisted of interest on the Top Eagle debenture, a loan from
Quest Ventures, Ltd. and the Ming Shen Bank loan in China.
-16-
Other Income
- ------------
December 31, 2003 December 31, 2002
----------------- -----------------
$321,055 $96,517
Other income is principally the credits for value added tax paid in
China for Tengtu United's sales. Chinese government has a tax incentive policy
for high technology enterprises. Tengtu United is entitled to the credit for
value added tax and the company applies for the tax credit on a monthly basis
from Chinese government. The lower amount in 2002 was primarily due to the lower
sales.
Income tax expense
- -----------------
December 31, 2003 December 31, 2002
------------------ -----------------
$29,509 0
We accrued $29,509 of deferred tax payable for the quarter ended December
31, 2003, because Tengtu United generated $393,459 of net income before income
tax and minority interest and it is in its third profitable tax year.
Minority interest
- -----------------
December 31, 2003 December 31, 2002
------------------ -----------------
$156,498 0
Minority interest represents Tengtu China's 43% interest in the
operating profits of the joint venture company, Tengtu United.
CRITICAL ACCOUNTING POLICIES
- ----------------------------
The discussion and analysis of our financial condition and results of
operations is based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles or GAAP in
the United States. The preparation of those financial statements requires us to
make estimates and judgments that affect the reported amount of assets and
liabilities at the date of our financial statements. Actual results may differ
from these estimates under different assumptions or conditions.
-17-
Critical accounting policies are those that reflect significant
judgments or uncertainties, and potentially result in materially different
results under different assumptions and conditions. Our critical accounting
policies are described in our Form 10K/A filed for the fiscal year ended June
30, 2003.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ---------------------------------------------------------------------
We operate through subsidiaries located in Beijing, China and our
administrative offices are located in Toronto, Canada. We grant credit to our
customers principally in China.
We perform certain credit evaluation procedures and do not require
collateral. We believe that credit risk is limited because we routinely assess
the financial strength of our customers, and based upon factors surrounding the
credit risk of our customers, establish an allowance for uncollectible accounts.
As a consequence, we believe that our accounts receivable credit risk exposure
beyond such allowances is limited.
We established an allowance for doubtful accounts of $887,375 at
December 31, 2003. We believe any credit risk beyond this amount would be
negligible.
At December 31, 2003, we had $927,456 of cash in banks which were
uninsured.
We do not require collateral or other securities to support
financial instruments that are subject to credit risk.
For the six months ended December 31, 2003, more than 99% of sales
were generated through Tengtu United. Receivables related to these sales
transactions are grouped together with amounts due from a related party, Tengtu
China, in our financial statements. For the six months ended December 31, 2003
and 2002, no customer accounted for more than 10% of total sales.
MARKET RISK SENSITIVE INSTRUMENTS
FINANCIAL INSTRUMENT CARRYING VALUE FAIR VALUE
Instruments entered into for trading purposes
NONE
Instruments entered into for other than trading purposes
Cash and Cash equivalents
United States $ - $ -
Foreign 927,456 927,456
--------- ---------
Total $ 927,456 $ 927,456
========= =========
Accounts payable
United States $ 65,514 $ 65,514
Foreign 256,866 256,866
--------- ----------
Total $ 322,380 $ 322,380
========= ==========
-18-
Cash and cash equivalents and accounts payable are short-term financial
instruments, and as such are not subject to significant market risk.
Substantially all financial instruments are settled in the local
currency of each subsidiary, and therefore, we have no substantial exposure to
foreign currency exchange risk. Cash is maintained by each subsidiary in its
local currency.
Item 4. Controls and Procedures
During December 2003, an evaluation was performed under the supervision
and with the participation of our management for the effectiveness of the design
and operation of our disclosure controls and procedures. Based on that
evaluation, we concluded that our disclosure controls and procedures were
effective in ensuring that material information relating to us with respect to
the period covered by this report was reported.
During the quarter ended December 31, 2003, our management began working
to establish a more effective financial reporting system with Tengtu United. The
new format for financial reports to TIC from our joint venture partner in China
has been implemented and put into place since December 11, 2003. Beginning in
January 2004, we started to provide additional training to the staff in the
accounting department Tengtu United with respect to U.S. Generally Accepted
Accounting Principles ("GAAP") and the necessary steps to convert financial
information into a format compatible with U.S. GAAP. The Company plans to take
further steps with its joint venture partner to improve the financial reporting
system to prevent reporting errors and delays in the receipt of information.
There have been no other significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to December 31, 2003.
-19-
PART II - OTHER INFORMATION
---------------------------
Item 2. Changes in Securities and Use of Proceeds
- ------- ------------------------------------------
During the period from October 24, 2003 to November 21, 2003 we sold an
aggregate of 5,000,000 shares of common stock and warrants to purchase for $.75
per share an aggregate of 2,500,000 shares of our common stock for an aggregate
purchase price of $2,500,000. The issuance of the shares and warrants was
conducted pursuant to either Regulation S under the Securities Act on the basis
that the purchaser is a non-U.S. person as defined in Regulation S or in
reliance upon Regulation D under the Securities Act based upon the investors
being "accredited" within the meaning of Regulation D under the Securities Act.
The warrants may be exercised for a term of one year from the date of
re-sale registration of the common stock into which they are exercisable.
On December 15, 2003 we entered into an agreement with Top Eagle
Holdings, Ltd. ("Top Eagle") pursuant to which we paid Top Eagle $300,000 and
issued to Top Eagle a new convertible debenture in the principal amount of $1.2
million due December 15, 2004 in exchange for an outstanding convertible
debenture in the principal amount of $1.5 million held by Top Eagle. The
principal and accrued interest on the new convertible debenture are convertible
into our common stock at the rate of $1.50 per share, provided that the entire
unpaid principal of, and accrued interest on, the debenture at December 31, 2004
may at the option of the holder, be converted into our common stock at a
conversion price which is 80% of the then market price of our common stock. The
debenture further provides that up to $200,000 of the principal was convertible
into our common stock at the rate of $.50 per share if such conversion right was
elected on or prior to January 31, 2004. However, no such election was made.
The new debenture was issued to Top Eagle pursuant to Regulation S
under the Securities Act on the basis that Top Eagle is a non-U.S. Person as
defined under Regulation S.
-20-
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
Index of Exhibits required by Item 601 of regulation S-K:
3.1 Articles of Incorporation (filed as part of our Form 10 filed on May
25, 2000 and incorporated herein by reference);
3.2 By-Laws (filed as part of our Form 10 filed on May 25, 2000 and
Incorporated herein by reference);
4.3 Form of Special Warrant issued to investors in a private placements
which closed in June, 2002 through May, 2003 (filed as part of our Form
10-K filed on October 15, 2002 and incorporated herein by reference);
10.1 English Translation of Agreement between National Center for Audio
Visual Education and Tengtu Culture and Education Electronics
Development Co., Ltd. Dated September 20, 2000 - referred to as
"Operation Morning Sun" (filed as part of our Form 10-Q filed on
November 14, 2000 and incorporated herein by reference);
10.2 English Translation of Cooperation Agreement among the Chinese National
Center for Audio/Visual Education of the Ministry of Education, Tengtu
China and Legend Group (filed as part of our Form 10-Q filed on
November 14, 2000 and incorporated herein by reference);
10.10 Tengtu United Joint Venture Agreement and the amendment thereto (filed
as part of our Form 10 filed on May 25, 2000 and incorporated herein by
reference);
-21-
10.12 Consulting agreement between Comadex Industries, Ltd. and Tengtu (filed
as part of our Form 10 filed on May 25, 2000 and incorporated herein by
reference);
10.13 Top Eagle Holdings, Ltd. Convertible Debenture and Warrant Purchase
Agreement (filed as part of our Form 8-K dated December 23, 1999 and
incorporated herein by reference);
10.14 Top Eagle Holdings, Ltd. Investor Rights Agreement (filed as part of
our Form 8-K dated December 23, 1999 and incorporated herein by
reference);
10.15 Top Eagle Holdings, Ltd. Convertible Debenture (filed as part of our
Form 8-K dated December 23, 1999 and incorporated herein by reference);
10.16 Top Eagle Holdings, Ltd. Common Stock Warrant (filed as part of our
Form 8-K dated December 23, 1999 and Incorporated herein by reference);
10.17 English translation of February 13, 2001 Cooperation Agreement between
National Center for Audio/Visual Education and Tengtu Culture and
Education Electronics Development Co., Ltd. on Carrying out "Operation
Morning Sun - Phase II" (filed as part of our Form 10-Q filed on May
15, 2001 and incorporated herein by reference);
10.19 English translations of April 9, 2001 Cooperation Agreement on
Establishment of "Morning Sun Resources Center under National Center
for Audio/Visual Education of Ministry of Education" and supplemental
memorandum between Tengtu China and us (filed as part of our Form 10-Q
filed on May 15, 2001 and incorporated herein by reference);
10.20 English translation of Extension to Operation Morning Sun (filed as
part of our Form 10-Q filed on May 15, 2001 and incorporated herein by
reference);
10.21 Additional Supplemental Agreement between Tengtu China and us dated
April 25, 2001 (filed as part of our Form S-1/A filed on August 7, 2001
and incorporated herein by reference);
10.22 ShanDong Province Cooperation Agreement dated August 17, 2001 (English
translation) (filed as part of our Form 10-K on September 28, 2001 and
incorporated herein by reference);
10.24 December 21, 2001 Agreement between Tengtu International Corp. and
Lifelong.com, Inc. (filed as part of our Form 10-Q filed on May 20,
2002 and incorporated herein by reference);
10.25 English Translation of Cooperation Agreement effective September 1,
2001 between the Ministry of Education of the ShanDong Province and
Beijing Tengtu Tian Di Network Co., Ltd. (filed as part of our Form
10-Q filed on May 20, 2002 and incorporated herein by reference);
10.26 English Translation of September 18, 2001 Memorandum of Cooperation,
Establishment of Shaanxi Provincial Education Resources Center by and
among Li Gen Juan, Director of Shaanxi Provincial Center for
Audio/Visual Education, Suan Pai Yau, Tin Pang and Wu Oi Juan, Deputy
Directors of Shaanxi Provincial Center for Audio/Visual Education, and
Lin Xiao Feng, President of Tengtu Culture & Education Electronics
Development Co., Ltd. (filed as part of our Form 10-Q filed on February
19, 2002 and incorporated herein by reference);
-22-
10.27 English Translation of Cooperation Agreement between the Center for
Audio/Visual Education, Department of Education, Fujian Province and
Tengtu TianDi Network Co., Ltd. (filed as part of our Form 10-Q filed
on May 20, 2002 and incorporated herein by reference);
10.29 July 22, 2002 Supplemental Agreement between Tengtu International Corp.
and Lifelong.com, Inc. (filed as part of our registration statement on
Form S-1 filed on August 14, 2002 and incorporated herein by
reference);
10.30 English Translation of July 22, 2002 Cooperation Agreement between the
National Center for Audio and Visual Education and Beijing Jiade Tengtu
Science and Technology Group Companies (filed as part of our
registration statement on Form S-1 filed on August 14, 2002 and
incorporated herein by reference);
10.31 English translation of December 18, 2002 Framework Agreement between
Shaanxi Provincial Center for Audio Visual Education and Beijing Tengtu
TianDi Network Co., Ltd. (filed as part of our registration statement
on Form S-1 filed on August 14, 2002 and incorporated herein by
reference);
10.32 Amended understanding between Tengtu China and Tengtu International
Corp. Governing Activities in China Relating to Operation Morning Sun
National Center For Audio/Visual Education and the Ministry of
Education, dated as of April 25, 2001 (filed as part of our
registration statement on Form S-1 filed on August 14, 2002 and
incorporated herein by reference);
10.33 English translation of Cooperation Agreement between the Agriculture
Bank of China and Beijing Jiade Tengtu Scientific and Technology Group
entered into in September, 2002 (filed as part of our Form 10-K/A filed
on February 20, 2003 and incorporated herein by reference);
10.34 English translation of Strategic Cooperation Agreement dated July 16,
2002 between Lan Chao (Beijing Electronics Information Industry Co.,
Ltd.) and Beijing Tengtu Science & Technology Group Co., Ltd. (filed as
part of our Form 10-K/A filed on February 20, 2003 and incorporated
herein by reference);
10.35 English version of January 1, 2003 Amendment to Joint Venture Agreement
between Tengtu International Corp. and Tengtu China. (filed as part of
our Form 10-Q filed on March 19, 2003 and incorporated herein by
reference).
10.36 September 15, 2003 Restructuring Agreement (filed as exhibit 10.1 to
our Form 8-K/A filed on September 18, 2003 and incorporated herein by
reference);
10.37 English translation of November, 2003 Agreement between Tengtu United
and Hewlett Packard (China) Company, Ltd.
-23-
11.1 Statement re: Computation of Per Share Earnings for the Six Months and
Three Months ended December 31, 2003;
21.1 List of Subsidiaries;
31.1 Certification of John D. Watt pursuant to Exchange Act Rules 13a-14(a)
and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002;
31.2 Certification of Judy Ye pursuant to Exchange Act Rules 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002;
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports Filed on Form 8-K
On October 24, 2003, we filed a Form 8-K attaching a press release from
the same day announcing the death of Fan Qi Zhang, one of our Directors and the
CEO and Beneficial owner of our joint venture partner and its affiliated
companies.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TENGTU INTERNATIONAL CORP.
--------------------------------
(Registrant)
Date: February 17, 2004 John Watt
----------------- --------------------------------
(Name)
/s/ John Watt
--------------------------------
(Signature)
President
--------------------------------
(Title)
Date: February 17, 2004 Judy Ye
------------------ --------------------------------
(Name)
/s/ Judy Ye
--------------------------------
(Signature)
Chief Financial Officer
--------------------------------
(Title)
-24-