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, 2004
|_| 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
--------------------------------------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(416) 963-3999
--------------------------------------------------------------
(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|
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 109,178,743 shares
outstanding as of February 07,2005.
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 foreign governments;
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
2
Tengtu International Corp. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
As of As of
ASSETS December 31 June 30
2004 2004
------------ ------------
CURRENT ASSETS
Cash and cash equivalents 327,694 2,358,536
Accounts receivable, net 1,460,904 1,033,658
Prepaid expenses 247,894 74,778
Inventories 121,760 511,119
Other receivables 537,276 173,150
------------ ------------
Total Current Assets 2,695,528 4,151,240
------------ ------------
------------ ------------
PROPERTY AND EQUIPMENT, net 70,344 197,253
------------ ------------
OTHER ASSETS
Long-term Investment 1,147,602 1,229,660
------------ ------------
TOTAL ASSETS 3,913,474 5,578,153
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable 747,393 619,937
Accrued expenses 3,662,830 3,292,601
Prepaid revenue from customers 191,070 482,404
Due to related party consultants 1,207,714 1,207,714
Short-term loans 2,718,582 1,973,159
Deferred income taxes payable 28,292 0
Other liabilities 1,163,241 398,033
------------ ------------
Total Current Liabilities 9,719,122 7,973,847
------------ ------------
Minority interest 0 77,742
STOCKHOLDERS' DEFICIT
Preferred stock, par value $.01 per share; authorized
10,000,000 shares; issued -0- shares 0 0
Common stock par value $.01 per share; authorized
150,000,000 shares; issued 109,057,213 shares
(June 30,2004-110,706,914); outstanding 108,978,793 shares
(June 30,2004-110,628,494) 1,089,788 1,106,285
Additional paid in capital 84,097,703 85,178,486
Accumulated deficit (91,012,495) (88,777,563)
Accumulated other comprehensive income
Cumulative translation adjustment 20,140 20,140
------------ ------------
(5,804,864) (2,472,652)
Less: Treasury stock, at cost, 78,420 common shares (784) (784)
------------ ------------
Total Stockholders' Deficit (5,805,648) (2,473,436)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 3,913,474 5,578,153
============ ============
0 (0)
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
3
Tengtu International Corp. and Subsidiaries
Consolidated Statements of Operations
(unaudited) (unaudited)
Three Months Three Months
Ended Ended
December, 31 December 31,
2004 2003
-------------- --------------
SALES $ 2,117,247 $ 1,329,861
COST OF SALES $ 1,477,261 796,527
-------------- --------------
639,986 533,334
-------------- --------------
OPERATING EXPENSES
Research and development 271,022 --
General and administrative 666,677 482,207
Related party consultants 81,308 104,228
Collection provision 102,933 52,732
Selling 85,990 213,015
Depreciation 7,639 20,139
-------------- --------------
1,215,569 872,321
-------------- --------------
Operating Loss (575,583) (338,987)
OTHER INCOME (EXPENSE)
Equity earnings (loss) in investee (46,509) 9,106
Interest income 282 113
Interest expense (92,874) (160,780)
Other income 136,336 65,733
Other expense (615,269)
-------------- --------------
(618,034) (85,828)
-------------- --------------
Loss before income tax (1,193,617) (424,815)
Income Tax 28,292 --
-------------- --------------
Net Loss $ (1,221,909) $ (424,815)
============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic 108,978,793 73,769,282
Common stock equivalents -------------- --------------
Diluted 108,978,793 73,769,282
============== ==============
EARNINGS (LOSS) PER COMMON SHARE:
Basic (0.01) (0.01)
Diluted (0.01) (0.01)
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
4
Tengtu International Corp. and Subsidiaries
Consolidated Statements of Operations
(unaudited) (unaudited)
Six Months Six Months
Ended Ended
December, 31 December, 31
2004 2003
-------------- --------------
SALES $ 2,317,599 $ 1,755,704
COST OF SALES $ 1,524,420 989,750
-------------- --------------
793,179 765,954
-------------- --------------
OPERATING EXPENSES
Research and development 435,026 --
General and administrative 1,216,651 957,482
Related party consultants 245,339 188,549
Collection provision 106,756 69,754
Selling 334,922 535,914
Depreciation 24,223 27,435
-------------- --------------
2,362,917 1,779,134
-------------- --------------
Operating Loss (1,569,738) (1,013,180)
OTHER INCOME (EXPENSE)
Equity loss in investee (82,058) (13,885)
Interest income 19,412 484
Interest expense (187,591) (196,511)
Other income 163,488 131,928
Other expense (615,269)
-------------- --------------
(702,018) (77,985)
-------------- --------------
Loss before income tax and minority interests (2,271,756) (1,091,165)
Income Tax 28,292
Minority interest in subsidiarys'-Income (Loss) (65,116)
-------------- --------------
Net Loss $ (2,234,932) $ (1,091,165)
============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic 109,346,028 72,218,330
Common stock equivalents
-------------- --------------
Diluted 109,346,028 72,218,330
============== ==============
EARNINGS (LOSS) PER COMMON SHARE:
Basic (0.02) (0.02)
Diluted (0.02) (0.02)
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
5
Tengtu International Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited) (unaudited)
Six Months Six Months
Ended Ended
December 31, December 31,
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss: ($2,234,932) ($1,091,165)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization 24,223 27,435
Loss on investment at equity 82,058 13,885
Noncash compensation expense on shares issued for services
Noncash interest expense - convertible debenture 119,583 152,013
Others (9,701)
Changes in operating assets and liabilities:
Due from related party (459,768)
Accounts receivable (427,247)
Prepaid expenses (177,964) 44,474
Inventories 58,345
Other receivables (587,712) 75,280
Accounts payable 127,456 (430,267)
Accrued expenses 489,248 (430)
Prepaid revenue from customers 21,623
Minority interest (77,743)
Other liabilities 799,029 (6,221)
----------- -----------
Net Cash Used by Operating Activities (1,784,033) (1,684,465)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash change from investing in CBERC (872,653)
Long-term Investment
Compensating deposit on bank loan
Purchase of property and equipment
----------- -----------
Net Cash Used by Investing Activities (872,653) --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term loans 674,160 603,825
Cash paid on short-term loans (48,320) (300,000)
Cash received for shares and options issued 2,021,874
----------- -----------
Net Cash Provided by Financing Activities 625,840 2,325,699
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 4 2,420
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,030,842) 643,654
----------- -----------
CASH AND CASH EQUIVALENTS, beginning of the period 2,358,536 283,802
CASH AND CASH EQUIVALENTS, end of the period $ 327,694 $ 927,456
=========== ===========
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
6
Supplemental disclosures of cash flows information and noncash investing and
financing activities:
For the six months ended December 31, 2004, the Company paid cash for interest
expenses of $68,008 (December 31, 2003-$53,823) and $0 for income taxes
(December 31,2003-$0).
During the six months ended December 31, 2004, the following noncash financing
transactions occurred:
1. 1,838,679 common shares that had been issued as security against a liability
of the Company and held in escrow, were released from escrow and cancelled.
2. 188,978 common shares were issued upon a cashless exercise of options.
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 three and
six months ended December 31, 2004 are not necessarily indicative of the results
that may be expected for the fiscal year ending June 30, 2005. 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 for the fiscal year ended June 30,2004.
1. The Company
Tengtu International Corp. ("we," "us," or the "Company"), through our
wholly owned subsidiary, Beijing Tengtu United Electronics Development Co., Ltd.
("Tengtu United"), our agent, Beijing Tengtu China Culture and Education
Electronics Development Co., Ltd. ("Tengtu China"), and Tengtu Electronic
Publishing Co., Ltd., ("TEP"), a company we control through proxy voting rights,
is engaged in the sale of software and educational materials to schools in the
People's Republic of China ("PRC"). Currently, these products and materials
consist principally of the Education Resource for Microsoft(R) Office software
which incorporates educational and teaching resources contained in our Total
Solution software with Microsoft's(R) Office 2003.
Our current business consists principally of the following:
i. Providing our products, educational materials and systems
integration services to schools as part of the PRC "Western Rural School
Projects," and
7
ii. Developing educational resources and negotiating with potential
strategic partners for the creation of a commercial "National Education Portal"
("NEP"), which is to be an internet and fee-based educational portal where
students and parents can purchase additional and supplemental educational
resources.
2. Going Concern
The Company incurred a net loss of $73,015,718 for the year ended June 30, 2004
and during the fiscal year ended June 30, 2004 used cash in operations of
$3,690,102. In addition, as shown in the accompanying financial statements, the
Company incurred a net loss of $2,234,932 for the six months ended December 31,
2004, used cash in operations of $1,784,031 during the six months ended December
31, 2004 and, as of that date, had a working capital deficiency of $7,023,594.
Those factors create substantial doubt about the Company's ability to continue
as a going concern.
Management has developed a plan to alleviate these factors to enable the Company
to continue as a going concern. The Company believes its cash flow needs are
short term as sales contracts have been entered into which management believes
can provide adequate operating cash flow when the sales collections are realized
over the course of next three to four months. The Company is in negotiation with
investors to provide additional funding for operations. There can be no
assurance, however, that adequate capital will be available to the Company or if
available, that it will be available on acceptable terms.
The ability of the Company to continue as a going concern is dependent on the
success of its plan. The financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
3. Equity Investments
On October 22, 2004 the Company filed a Current Report on Form 8-K
relating a change in government policy which affected the ability of Hua Xia Bo
Xin Education Software Co., a joint venture with the PRC Ministry of Education,
of which the Company currently owns 53% ("CBERC"), to charge annual license fees
for satellite connectivity of schools covered by the PRC Government's Western
Rural Projects ("WRP's"). This policy change came as a result of the
government's introduction of the five-year WRP direct funding program to support
modernization of schools in the less developed regions of China. Other policy
8
changes have followed including the transfer of responsibility for the Basic
Education Department's role in e-education and IT to CBERC's minority partner,
the National Center for Education Technology ("NCET"), a division of the PRC
Ministry of Education. This has broadened NCET's authority, including with
respect to CBERC operations. Accordingly, during the quarter ended December 31,
2004, NCET advised the Company that as part of its expanded role, it would
assume control of the management of CBERC's budget and expenditures. Previously,
the budget and expenditures of CBERC were decided by the CBERC Board, a majority
of which was appointed by the Company.
Without the ability to manage and determine the budget and expenditures,
the Company does not have effective control to account for its investment in
CBERC on a consolidated basis. Therefore the investment in CBERC is accounted
for using the equity method of accounting starting from the quarter ended
December 31,2004 despite the fact that the Company's equity interest in CBERC
exceeds 50%.
The following is summarized December 31, 2004 financial information for CBERC
and Shanxi LBERC, the Company's other investment accounted for under the equity
method:
CBERC LBERC
Current assets 1,432,102 1,274,576
Non current assets 102,686 297,059
Current liabilities 437,505 410,562
Non current liabilities 0 0
Net sales 119,780 342,434
Gross profit 95,084 90,889
Income (loss) from continuing operations (148,552) 38,896
Net Income (loss) (63,862) 38,171
4. SHORT-TERM DEBT
In December 1999, the Company issued a $1,500,000 convertible debenture to
Top Eagle Holdings, Ltd. ("Top Eagle"), which was due on December 15, 2003. On
that date, the Company entered into an agreement with 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 the outstanding convertible debenture in the principal amount of
$1.5 million. The Company made another principal payment of $200,000 on June 1,
2004 and reduced the principal amount to $1 million. Interest on the debenture
is equal to the best lending rate of The Hong Kong and Shanghai Banking
Corporation plus two percent (approximately 7% at September 30, 2004). The total
interest expense for the six months ended December 31, 2004 was $187,591
(December 31, 2003-$196,511), which includes amortization of the discount on the
convertible debenture of $119,583.
The Company is currently in default in its payment of the Top Eagle
Debenture which was due on December 15, 2004. Top Eagle has not, to date, sought
the remedies to which it is entitled upon default and the Company is currently
negotiating with Top Eagle for an agreement under which the Company shall make a
principal payment of US$500,000 to Top Eagle and Top Eagle would extend the due
date for the remaining US$500,000 to July 31, 2005, subject to substantially the
same terms as those governing the previous Debenture.
Top Eagle has informed the Company that it is prepared to sign the
agreement as soon as the US$500,000 principal payment is made. The Company is in
the process of obtaining financing, a portion of which would be used for the
payment. No assurance can be given that such financing will be obtained.
On September 10, 2004 Beijing Tengtu Electronic Publishing Co., Ltd.,
("TEP") renewed a loan with an outstanding principal balance of RMB 8.5 million
(approximately $1,027,000) with Agriculture Bank of China. TEP repaid principal
of RMB 350,000(approximately $42,800) and the loan had been extended for three
months with the maturity date of December 10, 2004. On December 10, 2004, the
loan was extended another three months by repaying principal of RMB50,000. The
annual interest rate for the loan is 6.372%.
On September 14, 2004, Dr. Liu Penghui, the Company's CEO, advanced RMB
500,000 (approximately $60,400) to the Company for general operating and
administrative expenses. The advance has no stated repayment terms and is
noninterest-bearing.
Orion Capital Incorporated ("Orion"), a significant shareholder of the
Company, which is owned beneficially by the Chairman of the Company's Board of
Directors, advanced $613,760 to the Company for general operating and
administrative expenses during the quarter ended December 31, 2004. The
Company's Board of Directors has authorized the Company to issue a convertible
note to Orion in the amount of the advances. No note has yet been issued.
5. Related Party Transactions
During the six months ended December 31, 2004, the Company incurred
consulting expenses of $245,339 (three months: $81,308) from officers and
directors of the Company. Consulting expenses for the six months ended December
31, 2003 were $188,549 (three months: $104,228).
6. Taxes
None of the Company's subsidiaries is 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.
TUC 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 tax holiday commenced at the
beginning of calendar 2002 and will continue until December, 2006
9
7. Commitments and Contingencies
The Company was obligated to fund CBERC as follows: 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. The Company's
relationship with CBERC has changed, as described Note 2 and therefore, it is
renegotiating the payments that are due.
Because the Tengtu China Culture and Education Electronics Development
Co., Ltd. ("Tengtu China") and its related entities (collectively the "Tengtu
China Group") conducted some of the business of Tengtu United as its agent,
Tengtu United has determined that it was necessary for it to guarantee repayment
of certain outstanding loans to the Tengtu China Group. The guarantees currently
outstanding, and their amounts, in Chinese renminbi, are set forth below:
Bank Loan Amount
---- -----------
Hua Xia Bank RMB 16 million
($1,932,800)
Agricultural Bank of China RMB 14.1 million
($1,703,280)
As the result of the loan guarantees Tengtu United provided, the Company
accrued $3.15 million as a liability for the loans as of June 30, 2004, which is
still outstanding at December 31, 2004.
Also, the Estate of Fan Qi Zhang, which controlled the Tengtu China Group
companies, has given authorization to Tengtu United to use the 15 million shares
bequeathed by Mr. Zhang to pledge to the banks holding guarantees from Tengtu
United in substitution for the Tengtu United guarantees. Discussions with these
banks are currently ongoing.
As previously reported in our public filings, the Company was engaged in
litigation with VIP Tone, Inc. ("VIP") in the Superior Court of California for
the County of Alameda. On November 29, 2004, the court granted the Company's
motion for a new trial, substantially reducing the jury's verdict, on the
grounds that there was insufficient evidence to support an award of punitive
damages and two of VIP's claims were duplicative. The granting of the motion was
subject to the condition, however, that if VIP consented to a reduction of its
judgment from $1,272,878 to $419,190, a judgment in that amount would be
entered, eliminating the need for a new trial. VIP agreed to the condition. As a
result, on December 22, 2004, a reduced and Amended Judgment was entered in the
total amount of $615,268.70, which amount is the total of $419,190 plus the
attorneys' fees and costs incurred by VIP. The Company received the Amended
Judgment on January 3, 2005. $615,269 had been accrued for the quarter ended
December 31, 2004.
8. Stockholders' Deficit
During the six months ended December 31, 2004, the following transactions
occurred:
a. 1,838,679 common shares that had been issued and held in escrow
as security against a liability, were released from escrow and cancelled.
b. 188,978 common shares were issued upon a cashless exercise of
options.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OVERVIEW
Tengtu International Corp. ("we," "us" or the "Company"), through our
wholly owned subsidiary in the Peoples Republic of China, Beijing Tengtu United
Electronics Development Company, Ltd. ("Tengtu United"), our agent, Beijing
Tengtu China Culture and Education Electronics Development Company ("Tengtu
China"), and Tengtu Electronic Publishing Co., Ltd. ("TEP"), a company we
control through proxy voting rights, is currently in the business of sales of
educational content and software to Chinese K-12 schools. Our principal product
is currently the Education Resource for Microsoft(R) Office ("ERM"). The ERM is
a product that combines our education resource tools for construction,
formatting and manipulation of educational content which were developed as part
of our Total Solution software, with Microsoft's(r) popular office software
allowing teachers to create their own customized lesson plans and coursework
using our educational content and that of other companies.
10
The ERM is sold along with a limited amount of educational content and
schools wishing to purchase additional content can purchase it from us at an
additional charge. The content that we sell is based on China's required K-12
curriculum and was developed in partnership with China's Ministry of Education.
During the quarter and six months ended December 31, 2004, almost of all
our revenues and new contract signings were part of the Western Rural School
Projects ("WRPs"). In September 2003, the PRC government approved and announced
an initiative to fund the development of education in the Western Rural areas of
the China. This initiative, known as the "Western Rural School Projects" is to
last for five years and is being funded with RMB 10 billion from the PRC central
and local governments. The goal of the WRPs is to implement modern distance
learning and high quality education resources for primary and secondary schools.
During the quarter ended December 31, 2004, we entered into and
implemented the following contracts, among others, as part of the WRPs: (i) the
installation of e-classroom systems, class preparation systems, and supplemental
resource libraries in each of 517 schools in Anhui Province; (ii) the
installation of 160 units of satellite station management software, 70 units of
education resource libraries, 70 units of teacher class preparation systems, 230
units of ERM, and 14,680 teaching resource CD's in 720 schools in Ningxia
autonomous region; (iii) the installation of 3,030 ERM, 405 units of education
resource libraries, and 70,900 teaching program CD's in 3,564 schools in Gansu
Province; and (iv) 670 each of satellite reception components, computers, DVD
players, ERM and education resource libraries in 670 schools in Jiangxi
Province. These contracts added 5,471 schools to our growing client school base
in China, where approximately 60,000 schools now use Tengtu products and
resources.
The contracts available as part of the WRPs are subject to a bid and
tender process where the contract is usually awarded to the lowest qualified
bidder. Our bidding for most contracts is conducted through Tengtu China because
it has all of the tax and other licenses necessary to qualify as a bidder. We
are in the process of obtaining those qualifications ourselves so that we will
no longer need to operate with Tengtu China as our agent.
We intend to use the advantages we have gained through the WRPs to grow
our business by offering our products and resources in urban schools which have
sufficient budgets to pay for our products on their own.
In addition to proceeding with the WRPs, we are also continuing
negotiations with potential strategic partners for the creation of a National
Education Portal ("NEP"). The NEP would be a subscription based service
providing educational and other content to K-12 students for a monthly fee.
Recent Developments
On January 13, 2005, we appointed Dr. Penghui Liu as Tengtu International
Corp.'s new Chief Executive Officer and Zhenlin (Simon) Xia as its new Chief
Financial Officer. Both Dr. Liu and Mr. Xia had served as consultants for us
over the previous three months, and have been advising our Board of Directors in
regard to its review and restructuring of the Company.
11
Dr. Liu and Mr. Xia, in addition to focusing on new business and
opportunities, have been, and continue to assist the our Board of Directors and
Audit Committee in restructuring our operations and improving our controls and
procedures. To that end, Dr. Liu and Mr. Xia have reduced the number of
employees in China to 51 as of the end of January, 2005, when all employee
contracts expired, and implemented a new salary and commission structure. In
addition, they have reduced the number of branch offices to two with the
remaining branches in Anhui and Jiangxi. These actions, along with moving into
new and smaller office space in Beijing, will result in more efficient
operations and cost savings for our China operations.
In addition, we have continued to assess and improve our internal control
and management structure by (i) implementing a clearly defined organizational
structure and clearly defined roles and responsibilities for all officers and
management and (ii) implementing more operational controls.
Dr. Liu and Mr. Xia have continued negotiations with banks with respect to
guarantees of loans by Tengtu United. It is anticipated that shares bequeathed
by the Estate of Fan Qi Zhang will be used to settle most of these outstanding
guarantees, as well as any outstanding issues relating to the recently dismissed
litigation against Tengtu United by China Machinery Electronics Export
Investment Corporation relating to ownership of our interest in the China
Broadband Education Resource Center.
During the quarter ended December 31, 2004, and hereafter, Dr. Liu and Mr.
Xia have undertaken the project of simplifying our structure in China. To that
end, as set forth above, they are decreasing our dependence on Tengtu China by
obtaining all necessary licenses and permits for us so that we can conduct our
business directly in all instances.
During the quarter ended December 31, 2004, our relationship with the
National Center for Education Technology ("NCET") changed with NCET taking more
control over Hua Xia Bo Xin Education Software Co., a joint venture with the PRC
Ministry of Education of which the Company currently owns 53% ("CBERC"). We do
not believe that this change will adversely affect the Company's relationship
with NCET and continue to believe that NCET will be an important partner with
the Company for delivery of educational products and services to the PRC
schools.
On October 22, 2004 the company filed a Current Report on Form 8-K
relating a change in government policy which affected the ability of CBERC to
charge annual license fees for satellite connectivity of schools covered by the
WRPs. This policy change came as a result of the government's introduction of
the five-year WRP direct funding program to support modernization of schools in
the less developed regions of China. Other policy changes have followed
including the transfer of responsibility for the Basic Education Department's
role in e-education and IT to NCET. This has broadened NCET's responsibility and
its scope, including within its operations CBERC. Accordingly, during the
quarter ended December 31, 2004, NCET advised the Company that as part of its
expanded role, it would assume control of the management of CBERC's budget and
expenditures. Previously, the budget and expenditures of CBERC were decided by
the CBERC Board, a majority of which was appointed by the Company.
We believe that these changes reflect an evolving policy process in the
PRC Ministry of Education and government in China as it continues to refine its
approach to implementing programs, policies and resources to support
modernization of the K-12 school system. Without the ability to manage and
determine expenditure controls in CBERC, we do not have effective control to
account for our investment in CBERC on a consolidated basis. Therefore the
investment in CBERC is accounted for using the equity method of accounting
starting from the quarter ended December 31, 2004 even though Tengtu United's
equity interest in CBERC is over 50%.
12
We do not believe the above changes have affected the mutually beneficial
role and relationship CBERC and the joint-venture partners have including the
development, marketing and distribution of curriculum -based education resources
and servicing WRP contracts.
Liquidity and Capital Resources for the Six Months Ended December 31, 2004 and
2003
Six Months Ended December 31, 2004
For the six months ended December 31, 2004, net cash used by operating
activities totaled $1,784,033. The net loss for the six months was $2,234,932.
The cash changes in operating activities include non-cash charges for
depreciation and amortization of $24,223, and non-cash interest expense of
$119,583 related to convertible debenture, and changes on investment at
equity of $82,058
Cash was increased as a result of the decrease in inventory of $58,345.
Cash from operations was decreased due to the increases of $427,247, $177,964
and $587,712 in accounts receivable, prepaid expenses and other receivables,
respectively. The increases in accounts payable of $127,456, accrued expenses of
$489,248, other liabilities of $799,029, and prepaid revenue from customers of
$21,623 result in a positive change in cash.
Cash flows from investing activities was reduced by $872,653 due to the
change of consolidation of CBERC for the six months ended December 31, 2004.
Net cash flow from financing activities was $625,840, which includes
proceeds from short term loans of $674,160 and $48,320 of cash payment for an
outstanding loan.
CONTRACTUAL OBLIGATIONS
The following summarizes the Company's contractual obligations at December
31, 2004.
Payment Due by Period
----------------------------------------------------------
Contractual Obligation Total Less than 1 Year 1-3 Years 4-5 Years After 5 Years
- ---------------------- ----- ---------------- --------- --------- -------------
Short-term loans $2,718,582 $2,718,582 (1)
Total Contractual Obligation $2,718,582 $2,718,582 (1)
Notes:
(1) The short-term loan includes (a) a $1,000,000 convertible debenture owed
to Top Eagle Holdings, Ltd. ("Top Eagle"); (b) a short-term loan of
$978,480 owed by Beijing Tengtu Electronic Publishing Co., Ltd., ("TEP")
to Agricultural Bank of China which we have guaranteed; (c) a short term
loan of $679,702 owed to Orion Capital Incorporated; and (d) a $60,400
loan owed to Dr. Liu, the CEO. The loan from Top Eagle was due December
15, 2004. We are in discussions with Top Eagle concerning the refinancing
of all or a portion of its loan to us.
13
In addition to the foregoing, we are committed to fund CBERC as follows,
however, we are in the process of renegotiating our relationship with the PRC
Ministry of Education for CBERC, as well as the capital contributions to be
made, as a result of changes in policy by the Ministry: 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,
an agreement was reached between Tengtu United and CBERC, pursuant to which the
payment due in January, 2004 was extended by six months. This payment has not
been made.
Originally, our relationship with CBERC contemplated the creation of a
fully user supported internet-based portal which could also be used for
commercial purposes. The PRC Government, has, however, decided not to pursue
such a portal, and instead focuses on providing satellite based resources and
content and hard disk drives pre-loaded with resources and content. Therefore,
while we are currently committed to fund CBERC with approximately RMB 30
million, we believe that we will be able to renegotiate our CBERC relationship
to continue our cooperation with respect to content and resources, with a lower
capital contribution. However, there can be no assurance that the PRC government
will cooperate in such renegotiations, and, even if they do, that sufficient
capital will be available to contribute to CBERC to fulfill our obligations. The
loss of our interest in CBERC would materially and adversely affect our business
and operations.
Because Tengtu China and its related entities still conduct some of the
business of Tengtu United, Tengtu United has determined that it was necessary
for it to guarantee repayment of certain outstanding loans to such entities. The
guarantees currently outstanding, and their amounts, in RMB, are set forth
below:
Bank Loan Amount
---- -----------
Hua Xia Bank RMB 16 million
($1,932,800)
Agricultural Bank of China RMB 14.1 million
($1,703,280)
As previously reported by the Company, when Fan Qi Zhang died on October
24, 2003, he bequeathed 15 million of the 30 million shares of our common stock
that he was to receive upon the closing of the Restructuring to "solve the
funding difficulties" of the companies in the Tengtu China Group. The "funding
difficulties" of the Tengtu China Group are principally the above loans
guaranteed by Tengtu United, as well as an additional RMB 37.8 million in debts
which have not been guaranteed by Tengtu United as set forth below:
Bank/Lender Loan Amount Obligor(s)
----------- ----------- ----------
Agricultural Bank of China RMB3.8 million Beijing Jiade Science and
($459,040) Technology Group, Ltd.
("Jiade")
Bank of China RMB 15 million Jiade and Tengtu Electronic
($1,812,000) Publishing House
The Estate of Fan Qi Zhang, which controlled the Tengtu China Group
companies, has given authorization to Tengtu United to use the 15 million shares
bequeathed by Mr. Zhang to pledge to the banks holding guarantees from Tengtu
United in substitution for the Tengtu United guarantees. Discussions with these
banks are currently ongoing.
14
As we expand our operations and businesses in the next 12 months, we are
short of working capital. We are planning to raise additional funds to meet the
cash requirements NEP projects and the needs of our operations expansion. 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, 2004 AND 2003,
Revenues and Gross Margin
Tengtu United sales for the six months ended December 31, 2004 and 2003
were $2,317,599 and $1,755,704 respectively. Please refer to the chart below for
more detailed information regarding revenues and gross margin for the six-months
ended December 31, 2004. Because we recently started bidding on WRPs, as a
marketing strategy, we decided to lower our prices which resulted in a 70%
market share for software in the WRPs, but also contributed to decreased gross
margins, which are explained below.
-------------------------------------------------
December 31, 2004 December 31, 2003
-------------------------------------------------
Product Revenues GM % Revenues GM%
- -------------------------------------------------------------------------------
Software products $1,411,517 47% $769,173 70%
- -------------------------------------------------------------------------------
Satellite Equipment $897,855 13% $986,230 23%
- -------------------------------------------------------------------------------
Other Products and Services $ 8,227 98% $302 *
- -------------------------------------------------------------------------------
Total: $ 2,317,599 34% $1,755,704 44%
- -------------------------------------------------------------------------------
* Less than 1%.
GM % means the gross margin percentage in the table above.
The relatively lower gross margins for the six-months ended December 31,
2004 were the result of the following, in addition to the lowering of prices to
gain market share. Some of the larger contracts awarded under the WRP required
systems integration and satellite equipment components which have lower margins.
In these instances we were able to negotiate vendor financing with hardware
suppliers defraying up-front capital costs. While our overall strategy is to
focus on higher margin software products, there is often a benefit to also
providing systems integration services and components in order to enable more
software sales and increase the number of potential software purchasers.
We believe that our strategy of charging initially lower prices and
performing systems integration sales and service are important to ensure
continued growth of higher margin Tengtu software sales. It is also important to
note that most of the school systems supported by the WRPs program in the first
year will be allocated continued support in subsequent years of the program. By
winning the initial contracts, we believe we position ourselves to be the
winning bidder for these subsequent contracts.
15
Research and development
December 31, 2004 December 31, 2003
------------------ ------------------
$435,026 --
For the six months ended December 31, 2004, $435,026 research and
development expenses were incurred. This amount includes $164,004 of CBERC's
research and development expenses for the quarter ended September 30, 2004, and
a one time expense of $248,464 related to the development of a Learning
Management System(LMS) and Content Management System (CMS). The LMS and CMS was
developed as a proprietary technology for Tengtu's education resource system and
portal system. Orion Capital Incorporated, which is wholly owned by our
Chairman, William O.S. Ballard, paid this amount for Tengtu and we booked this
amount as short term loans in the quarter ended December 31, 2004. We recorded
no research and development expenses for the same period of 2003.
General and Administrative Expenses
December 31, 2004 December 31, 2003
------------------ ------------------
$1,216,651 $957,482
For the six months ended December 31, 2004, general and administrative
expenses were $1,216,651. The general and administrative expenses incurred by
Tengtu International Corp.-amounted to $835,389. The major components were legal
fees of $379,505, audit fees of $146,078, public relation and investment
relation fees of $82,416, and business travel related expenses of $91,132. The
expenses increased by $259,169 compared to the same period of last year. The
increase was mainly due to the increases in legal and professional fees of
$188,707, and public relations and investor relations consulting fees of
$61,574.
Related Party Consultants
December 31, 2004 December 31, 2003
----------------- -----------------
$245,339 $188,549
Related party consultants' expense relates to staff that manages technical
developments and financing activities in North America and China. The higher
expense for the six-months was due to the hiring of two consultants for
financing and restructuring related activities in North America and China.
Collection Provision
December 31, 2004 December 31, 2003
------------------ ------------------
$106,756 $69,754
The expense represents an estimate of potential uncollectible accounts
associated with sales by Tengtu United. The higher amount in 2004 was primarily
due to the increase in sales in 2004 and changing the provision rate in 2004 to
5% from the 4% used in 2003.
16
Selling Expense
December 31, 2004 December 31, 2003
------------------ ------------------
$334,922 $535,914
The majority of selling expenses relates to staff salary and travel
expenses in the marketing department in Tengtu China. The lower amount in 2004
was primarily due to the costs savings in staff salaries and traveling expenses.
Depreciation and Amortization
December 31, 2004 December 31, 2003
------------------ ------------------
$24,223 $27,435
We have not made any significant purchases of equipment in the past few
years.
Equity Income/(Losses) in Investee,
December 31, 2004 December 31, 2003
----------------- ------------------
$(82,058) $(13,885)
The equity loss in investee relate to our investment in the Shaanxi Local
Broadband Education Resource Center joint venture and CBERC.
Interest Expense
December 31, 2004 December 31, 2003
------------------ ------------------
$187,591 $196,511
For the six months ended December 31, 2004, interest expense represented
interest on the Top Eagle loan of $155,340,and $32,835 for the TEP short term
loan in China. Interest in 2003 was incurred on the Top Eagle loan, and this was
offset by a reversal of an over accrual of interest in the year ended June 30,
2003 of approximately $15,500.
We have entered into negotiations to defer the principal payment of the
Top Eagle debenture which was due December 15, 2004. Although the debenture is
currently in default, Top Eagle has not taken any of the actions to which it is
entitled upon a default.
Other Income
December 31, 2004 December 31, 2003
------------------ -----------------
$163,488 $131,928
Other income is principally the credits for value added tax paid in China.
Other Expenses
December 31, 2004 December 31, 2003
------------------ -----------------
$615,269 $0
17
Other expense was accrued for a judgment rendered against the Company in a
litigation with VIP Tone, Inc. on December 22, 2004, as described in the
Company's Current Report on Form 8-K filed with the SEC on January 4, 2005.
OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
Revenues and Gross Margin
The total sales for the three months ended December 31, 2004 and 2003 were
$2,117,247, and $1,329,861, respectively. Please refer to the chart below for
more information about revenues and gross margin for the quarter.
-------------------------------------------------
December 31, 2004 December 31, 2003
-------------------------------------------------
Product Revenues GM% Revenues GM%
- -------------------------------------------------------------------------------
Software products $1,215,279 43% $ 422,239 70%
- -------------------------------------------------------------------------------
Satellite Equipment $ 897,855 13% $ 907,263 26%
- -------------------------------------------------------------------------------
Other Products and Services $ 4,114 96% -- --
- -------------------------------------------------------------------------------
Total: $2,117,247 30% $1,329,861 40%
- -------------------------------------------------------------------------------
GM % means the gross margin percentage in the table above.
The relatively lower gross margins for the three months ended December
31, 2004 were the result of the following, in addition to the lowering of prices
to gain market share. Some of the larger contracts awarded under the WRP
required systems integration and satellite equipment components which have lower
margins. In these instances we were able to negotiate vendor financing with
hardware suppliers defraying up-front capital costs. While our overall strategy
is to focus on higher margin software products, there is often a benefit to also
providing systems integration services and components in order to enable more
software sales and increase the number of potential software purchasers.
We believe that our strategy of charging initially lower prices and
performing systems integration sales and service are important to ensure
continued growth of higher margin Tengtu software sales. It is also important to
note that most of the school systems supported by the WRPs program in the first
year will be allocated continued support in subsequent years of the program. By
winning the initial contracts, we believe we position ourselves to be the
winning bidder for these subsequent contracts.
Research and development
December 31, 2004 December 31, 2003
------------------ ------------------
$271,022 --
18
For the three months ended December 31, 2004, $271,022 research and
development expenses were incurred. This amount includes a one time expense of
$248,464 related to the development of a Learning Management System(LMS) and
Content Management System (CMS). The LMS and CMS was developed as a proprietary
technology for Tengtu's education resource system and portal system. Orion
Capital Incorporated, which is wholly owned by our Chairman, William O.S.
Ballard, paid this amount for Tengtu and we booked this amount as short term
loans in the quarter ended December 31, 2004. We recorded no research and
development in expenses in the same period in 2003.
General and Administrative Expenses
December 31, 2004 December 31, 2003
------------------ ------------------
$666,677 $482,207
As a result of 1)the Company's acquisition of controlling interest in
Tengtu United, 2) estate related issues associated with the death of Tengtu
China's former CEO and 3) restatements of earnings and reports for the first
three quarters of the fiscal year ended June 30, 2004, higher legal, auditing,
and consulting expenses were incurred by the Company.
The higher legal expenses related to legal fees incurred with respect to a
lawsuits with VIP Tone, Inc., Comadex Industries, Ltd. and Pak Cheung and B.D.
Clark & Associates,
The Company also incurred $167,687 of legal expenses relating to the
restructuring of its operations.
Auditing fees for the quarter ended December 31, 2004 were $118,960
compared with $53,402 for the same quarter ended December 31, 2003. Investor
relations expenses for the quarter ended December 31, 2004 were $102,842
compared to $7,408 for the quarter ended December 31, 2003.
The Company anticipates that its legal expenses, fees to outside auditors
and investor relations expenses will not be as high in future quarters.
Related Party Consultants
December 31, 2004 December 31, 2003
------------------ ------------------
$81,308 $104,228
Related party consultants' expense relates to staff that manages technical
developments and financing activities in North America and China. The lower
expense in the quarter was due to the elimination of 3 consultants in North
America and China.
Collection Provision
December 31, 2004 December 31, 2003
------------------ ------------------
$102,933 $52,732
19
The expense represents an estimate of potential uncollectible accounts
associated with sales by Tengtu United. The higher amount in 2004 was primarily
due to the increase to 5% from 4% in the provision rate and higher sales in
2004.
Selling Expense
December 31, 2004 December 31, 2003
------------------ ------------------
$85,990 $213,015
The majority of selling expenses relates to cost savings for staff salary
and travel expenses in the marketing department in Tengtu China.
Depreciation and Amortization
December 31, 2004 December 31, 2003
------------------ -----------------
$7,639 $20,139
As Tengtu China manages the joint venture in China, we have not made any
significant purchases of equipment in the past few years.
Equity Income(Loss) in Investee
December 31, 2004 December 31, 2003
----------------- -----------------
$(46,509) $9,106
The equity losses in investee relate to our investment in the Shaanxi
LBERC and CBERC. This quarter, Shaanxi LBERC incurred a net income of $54,324,
and CBERC had a loss of $100,833 which has reduced the total investment in CBERC
to zero.
Interest Expense
December 31, 2004 December 31, 2003
----------------- -----------------
$92,874 $160,780
For the three months ended December 31, 2004, interest expense included
the interest on the Top Eagle loan of $77,451.05 and $16,199 for a TEP short
term loan in China. Interest in 2003 was incurred on the Top Eagle loan, and
this was offset by a reversal of an over accrual of interest in the year ended
June 30, 2003 of approximately $15,500.
The Company has entered into negotiations with Top Eagle to settle a
portion of the $1 million principal balance debenture which is currently in
default, subject to the Company having access to the finances required to retire
it.
Other Income
December 31, 2004 December 31, 2003
------------------ ------------------
$136,336 $65,733
20
Other income is principally the credits for value added tax paid in China.
Other Expenses
December 31, 2004 December 31, 2003
----------------- ------------------
$615,269 $0
Other expense was accrued for a judgment rendered against the Company in a
litigation with VIP Tone, Inc. on December 22, 2004, as described in the
Company's Current Report on Form 8-K filed with the SEC on January 4, 2005.
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.
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, 2004.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We operate through subsidiaries located in Beijing, China and the
administrative offices are located in Toronto, Canada. We grant credit to its
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
and, as a consequence, believe that our accounts receivable credit risk exposure
beyond such allowances is limited.
We established an allowance for doubtful accounts of $106,756 at December
31, 2004.
At December 31, 2004, we had $327,694 of cash in banks uninsured.
We do not require collateral or other securities to support financial
instruments that are subject to credit risk.
For the three months ended December 31, 2004, approximately 84% of sales
were generated through Tengtu United. For the three months ended December 31,
2004, the following customers accounted for more than 10% of total sales:
Customer Sales percent of total sales
- -------- ----- ----------------------
Jiangxi Provincial
Education Bureau $ 721,827 34%
Shanxi Provincial
Education Bureau $ 995,554 47%
Total sales of Tengtu $2,117,247
21
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 327,694 327,694
-------- --------
Total $327,694 $327,694
======== ========
Accounts payable
United States $326,293 $326,293
Foreign $421,100 $421,100
-------- --------
Total $747,393 $747,393
======== ========
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, the Company has no substantial exposure to
foreign currency exchange risk. Cash is maintained by each subsidiary in its
local currency.
Item 4. Controls and Procedures
As of February 21, 2005, an evaluation was performed under the supervision
and with the participation of our Chief Executive Officer and Chief Financial
Officer for the effectiveness of the design and operation of our disclosure
controls and procedures. Based on that evaluation, we concluded at that time
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 2004, we have continued to assess and
improve our internal controls by:
1. implementing a clearly defined organizational structure and clearly defined
roles and responsibilities for all officers and management;
2. further reorganizing the finance and accounting departments, including
appointing a new Chief Financial Officer, hiring a accounting manager in China,
and replacing some accounting staff in the accounting department with more
qualified employees;
22
3. implementing cost controls for each project, including preapproval by an
officer of certain expenses and contracts for products or services.
4. performance of credit worthiness reviews of all customers; and
5. performance of an analysis of the profitability and capital requirements of
individual contracts as well as a legal analysis by PRC counsel
We have also changed our accounts receivable policies. We have a
collection team involved with accounting staff, sales staff, and operation
management personnel. The new policies hold sales employees accountable for the
profitability and collectibility of sales made.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
On December 15, 2004, pursuant to the terms of a Floating Convertible
Debenture (the "2004 Debenture") entered into between Company and Top Eagle
Holdings Limited (the "Top Eagle") on December 15, 2003, payment from the
Company of the entire outstanding principal of US$1,000,000 was due to Top
Eagle, but unpaid. The Company and Top Eagle have been negotiating the terms of
an agreement under which the Company shall make a principal payment of
US$500,000 to Top Eagle and Top Eagle would extend the due date for the
remaining US$500,000 to July 31, 2005, subject to substantially the same terms
as those governing the 2004 Debenture.
Top Eagle has informed the Company that it is prepared to sign the
agreement as soon as the US$500,000 principal payment is made. The Company is in
the process of obtaining financing, a portion of which would be used for the
payment. No assurance can be given that such financing will be obtained.
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
23
Item 6. Exhibits
Exhibit No. Description
- ----------- -----------
11.1 Statement of computation of Per Share Earnings.
21.1 List of Subsidiaries.
31.1 Certification of Dr. Penghui Liu 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 Zhenlin Xia 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.
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 22, 2005 Dr. Penghui Liu
------------------ ----------------------------
(Name)
/s/ Dr. Penghui
----------------------------
(Signature)
Chief Executive Officer
----------------------------
(Title)
Date: February 22, 2005 Zhenlin Xia
----------------- ----------------------------
(Name)
/s/ Zhenlin Xia
----------------------------
(Signature)
Chief Financial Officer
----------------------------
(Title)
24