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 March 31, 2005
|_| 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 |_| No |X|
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 109,678,743 shares
outstanding as of May 13, 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
Tengtu International Corp. and Subsidiaries
Consolidated Balance Sheets
(unaudited)
As of As of
ASSETS March 31 June 30
------------ ------------
CURRENT ASSETS 2005 2004
------------ ------------
Cash and cash equivalents 3,178,035 2,358,536
Accounts receivables, net 1,201,373 1,033,658
Prepaid expenses 142,675 74,778
Inventories 131,019 511,119
Other receivables 367,905 173,150
------------ ------------
Total Current Assets 5.021,007 4,151,240
------------ ------------
------------ ------------
PROPERTY AND EQUIPMENT, net 64,985 197,253
------------ ------------
OTHER ASSETS
Investment at Equity 1,123,670 1,229,660
------------ ------------
TOTAL ASSETS 6,209,662 5,578,153
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable 807,384 619,937
Accrued expenses 3,499,747 3,292,601
Prepaid revenue from customers 190,983 482,404
Due to related party consultants 1,207,714 1,207,714
Short-term loans 2,045,568 1,973,159
Deferred income taxes payable 28,292 0
Other liabilities 1,132,117 398,033
------------ ------------
Total Current Liabilities 8,911,805 7,973,847
------------ ------------
Minority interest 0 77,742
STOCKHOLDERS' DEFICIT
Preferred stock, par value $.01 per share; authorized
10,000,000 shares; issued 1,877,900 shares 18,779 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 87,985,041 85,178,486
Accumulated deficit (91,815,100) (88,777,563)
Accumulated other comprehensive income (loss):
Cumulative translation adjustment 20,133 20,140
------------ ------------
(2,701,359) (2,472,652)
Less: Treasury stock, at cost, 78,420 common shares (784) (784)
------------ ------------
Total Stockholders' Deficit (2,702,143) (2,473,436)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT 6,209,662 5,578,153
============ ============
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
Tengtu International Corp. and Subsidiaries
Consolidated Statements of Operations
(unaudited) (unaudited)
Nine Months Nine Months
Ended Ended
March, 31 March, 31
2005 2004
-------------- --------------
SALES $ 2,496,235 $ 2,110,262
COST OF SALES 1,655,632 1,163,100
-------------- --------------
840,603 947,162
-------------- --------------
OPERATING EXPENSES
Research and development 435,026 --
General and administrative 1,773,884 1,403,119
Related party consultants 487,625 308,553
Collection provision 115,214 82,556
Selling 420,088 696,208
Depreciation 29,583 45,380
-------------- --------------
3,261,420 2,535,816
-------------- --------------
Operating Loss (2,420,817) (1,588,654)
OTHER INCOME (EXPENSE)
Equity earnings (loss) in investee (105,990) (1,169,516)
Interest income 19,412 933
Interest expense (206,862) (291,108)
Other income 187,171 188,185
Other expense (547,274)
-------------- --------------
(653,543) (1,271,506)
-------------- --------------
Loss before income tax and minority interests (3,074,360) (2,860,160)
Income Tax 28,292
Minority interest in subsidiarys'-Income (Loss) (65,116)
-------------- --------------
Net Loss $ (3,037,536) $ (2,860,160)
============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic 108,978,793 74,066,341
Common stock equivalents
-------------- --------------
Diluted 108,978,793 74,066,341
============== ==============
EARNINGS (LOSS) PER COMMON SHARE:
Basic (0.03) (0.04)
Diluted (0.03) (0.04)
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
Tengtu International Corp. and Subsidiaries
Consolidated Statements of Operations
(unaudited) (unaudited)
Three Months Three Months
Ended Ended
March, 31 March, 31
2005 2004
-------------- --------------
SALES $ 178,636 $ 354,557
COST OF SALES 131,212 173,349
-------------- --------------
47,424 181,208
-------------- --------------
OPERATING EXPENSES
Research and development --
General and administrative 557,233 445,637
Related party consultants 242,286 120,004
Collection provision 8,458 12,802
Selling 85,166 160,294
Depreciation 5,359 17,945
-------------- --------------
898,502 756,682
-------------- --------------
Operating Loss (851,078) (575,474)
OTHER INCOME (EXPENSE)
Equity earnings (loss) in investee (23,932) (1,155,631)
Interest income 450
Interest expense (19,270) (94,597)
Other income 23,683 56,257
Other expense 67,994
-------------- --------------
48,475 (1,193,521)
-------------- --------------
Loss before income tax and minority interests (802,603) (1,768,995)
Income tax --
Minority interest in subsidiarys'-Income (Loss)
-------------- --------------
Net Loss $ (802,603) $ (1,768,995)
============== ==============
WEIGHTED AVERAGE NUMBER OF SHARES:
Basic 108,978,793 77,940,662
Common stock equivalents
-------------- --------------
Diluted 108,978,793 77,940,662
============== ==============
EARNINGS (LOSS) PER COMMON SHARE:
Basic (0.01) (0.02)
Diluted (0.01) (0.02)
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
Tengtu International Corp. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited) (unaudited)
Nine Months Nine Months
Ended Ended
March 31, March 31,
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($ 3,037,536) ($ 2,860,160)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization 29,583 45,380
Loss on investment at equity 105,990 1,169,516
Noncash interest expense - convertible debenture 119,582 212,013
Others (26,732)
Changes in operating assets and liabilities:
Due from related party (474,479)
Accounts receivable (167,716)
Prepaid expenses (72,745) 59,220
Inventories 49,086
Other receivables (418,342) 99,242
Accounts payable 187,447 (552,621)
Accrued expenses 326,165 24,953
Prepaid revenue from customers 21,536
Minority interest (77,742)
Other liabilities 767,906 (5,318)
------------ ------------
Net Cash Used by Operating Activities (2,166,786) (2,308,986)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Cash change from investing in CBERC (872,653)
------------ ------------
Net Cash Used by Investing Activities (872,653) --
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term loans 756,250 609,770
Cash paid on short-term loans (48,320) (300,000)
Cash received for shares and options issued 3,151,000 2,394,299
------------ ------------
Net Cash Provided by Financing Activities 3,858,930 2,704,069
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 7 2,399
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 819,498 397,482
------------ ------------
CASH AND CASH EQUIVALENTS, beginning of the period 2,358,536 283,802
CASH AND CASH EQUIVALENTS, end of the period $ 3,178,035 $ 681,284
============ ============
The accompanying notes are an integral part of the unaudited consolidated
financial statements.
Supplemental disclosures of cash flows information and noncash investing and
financing activities:
For the nine months ended March 31, 2005, the Company paid cash for interest
expenses of $87,279 (March 31, 2004-$75,056) and $0 for income taxes (March
31,2004-$0).
During the nine months ended March 31, 2005, the following non-cash 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 nine months ended
March 31, 2005 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/A 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
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 $3,037,536 for the nine months ended March 31,
2005, used cash in operations of $2,166,786 during the nine months ended March
31, 2005 and, as of that date, had a working capital deficiency of $3,890,798.
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 the next three months.
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
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 March 31, 2005 financial information for CBERC and
Shanxi LBERC, the Company's other investment accounted for under the equity
method:
CBERC LBERC
Current assets 672,464 1,158,938
Non current assets 85,194 325,797
Current liabilities 391,038 370,219
Non current liabilities 0 0
Net sales 237,569 368,134
Gross profit 146,570 102,533
Loss from continuing operation (437,891) (991)
Net Loss (328,830) (991)
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 March 31, 2005). The total interest expense for
the nine months ended March 31, 2005 was $172,840 (March 31, 2004-$284,563),
which includes amortization of the discount on the convertible debenture of
$119,583.
In April, 2005, and pursuant to an Amended and Restated Debenture dated as of
December 15, 2004, a copy of which is filed as exhibit 10.1 hereto, the Company
made a principal payment of US$500,000 to Top Eagle and Top Eagle extended 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.
On September 10, 2004 Beijing Tengtu Electronic Publishing Co., Ltd., ("TEP")
renewed a loan with an outstanding principal balance of Remmimbi ("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%. Because the loan was
not repaid after the end of the second extension. On April 20, 2005, the
Agriculture Bank of China froze one of Tengtu China's accounts which has a
balance of RMB22,000 (approximately $2,600) that was owed to Tengtu United and
one of Beijing Jiade Science and Technology Group, Ltd.'s ("Jiade") accounts
which has a balance of RMB6.12 (approximately $.75).
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.
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 $761,806 to the Company for general operating and administrative
expenses during the nine months ended March 31, 2005. On March 23, 2005, Orion
converted $755,118 into the Company's Series A Preferred Shares.
5. Related Party Transactions
During the nine months ended March 31, 2005, the Company incurred consulting
expenses of $487,625 (three months: $242,286) from officers and directors of the
Company. Consulting expenses for the nine months ended March 31, 2004 were
$308,553 (three months: $120,004).
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.
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. The tax holiday commenced at the
beginning of calendar 2002 and will continue until December, 2006.
7. Commitments and Contingencies
The Company was obligated 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. The Company's
relationship with CBERC has changed, as described Note 3 and therefore, it is
renegotiating the payments that are due. There can be no assurance that such
negotiations will be successful or that the Company will be able to maintain its
interest in CBERC. 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 March 31, 2005.
Previously, the Company and the Estate of Fan Qi Zhang had entered into an
agreement for the sale of 15 million shares bequeathed by Mr. Zhang to satisfy
the above debts. The administrator of Mr. Zhang's estate however, has recently
refused to grant consent for those shares to be conveyed to satisfy the above
debts. Therefore, the Company's Board of Directors has also authorized the use
of 15 million newly issued shares of common stock in order to satisfy the above
debts in the event that the shares bequeathed by Mr. Zhang are unavailable.
Discussions with these banks are currently ongoing.
As previously reported in our public filings, including our Current Report on
Form 8-K filed with the SEC on January 7, 2005 and April 26, 2005, the Company
was engaged in litigation with VIP Tone, Inc. ("VIP") in the Superior Court of
California for the County of Alameda ("Court") (VIP Tone, Inc. v. Tengtu
International Corp. Action No. 200262967). On December 22, 2004, a judgment was
rendered against the Company in the total amount of $615,268. On April 21,
2005, the Company finalized a Settlement Agreement with VIP (the "Settlement
Agreement"). Pursuant to the Settlement Agreement, the Company paid VIP
$450,000. The Settlement Agreement also provides for the issuance by the
Company of 500,000 shares of Company Common Stock (the "Shares") based on the
closing price of the Shares on March 23, 2005 ($.20 per share). Pursuant to the
terms of the Settlement Agreement, the Company and VIP have exchanged general
releases.
8. Stockholders' Deficit
During the nine months ended March 31, 2005, 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.
c. On March 24, 2005, the Company entered into Unit Purchase Agreements ("Unit")
pursuant to which it sold a total of 1,877,943 Units for an aggregate purchase
price of $3,906,117 before commissions. Each Unit sold consists of one share of
Series A Convertible Cumulative Preferred Stock, par value $.01 per share, of
the Company ("Series A Preferred"), redeemable warrants to purchase ten (10)
shares of the Company's Common Stock, par value $.01 per share ("Common Stock")
for an initial exercise price of $0.40 per share ("$.40 Warrants") and
redeemable warrants to purchase five shares of Common Stock for an initial
exercise price of $.60 per share ("$.60 Warrants").
9. Comprehensive Loss
Other comprehensive income for the nine and three months ended March 31, 2005 is
as follows:
Fiscal Year Ended
June 30,
---------------------------------------------------------------
2005 2004
---- ----
Nine Months Three Months Nine Months Three Months
----------- ------------ ----------- ------------
Net loss $ (3,037,537) $ (802,603) $(2,860,161) $(1,768,995)
Other comprehensive income (loss):
Cumulative translation adjustment (7) (7) 2,399 (21)
------------ ------------ ----------- -----------
Comprehensive loss $ (3,037,544) $ (802,610) $(2,857,762) $(1,769,016)
============ ============ =========== ===========
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.
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 nine months ended March 31, 2005, majority of 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 nine months ended March 31, 2005, we collected approximately RMB 11
million for the WRP and we believe we will collect an additional RMB 19.9
million within the next three months.
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 and Possible Loss of Interest in CBERC
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 we control 53% ("CBERC"). 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.
In addition to the foregoing, we are 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, 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.
We are currently seeking to renegotiate our relationship with CBERC, as well as
the payments to be made. If we do not succeed in our negotiations, the interest
in CBERC may be lost which would have an adverse impact on our current and
future business plans as CBERC is the source of much of the educational content
sold by us and we would need to enter into new negotiations to buy such content.
Liquidity and Capital Resources for the Nine Months Ended March 31, 2005 and
2004
Nine Months Ended March 31, 2005
For the nine months ended March 31, 2005, net cash used by operating activities
totaled $2,166,786. The net loss for the nine months was $3,037,536. The cash
changes in operating activities include non-cash charges for depreciation and
amortization of $29,583, and non-cash interest expense of $119,582 related to a
convertible debenture, and a loss on investment at equity of $105,990.
Cash was increased as a result of the decrease in inventory of $49,086. Cash
from operations was decreased due to the increases of $167,716, $72,745 and
$418,342 in accounts receivable, prepaid expenses and other receivables,
respectively. The increases in accounts payable of $187,447, accrued expenses of
$326,165, other liabilities of $767,906, and prepaid revenue from customers of
$21,536 result in a positive change in cash.
Cash flows from investing activities were reduced by $872,653 due to the change
of consolidation of CBERC for the nine months ended March 31, 2005.
Net cash flow from financing activities was $3,858,930, which includes proceeds
from short term loans of $756,250, $48,320 of cash payment for an outstanding
loan, and $3,151,000 cash received from a private placement.
CONTRACTUAL OBLIGATIONS
The following summarizes the Company's contractual obligations at March 31,
2005.
Payment Due by Period
---------------------------------------------------------------------
Contractual Obligation Total Less than 1 Year 1-3 Years 4-5 Years After 5 Years
- ---------------------- ---------- ---------------- --------- --------- -------------
Short-term loans $2,045,568 $2,045,568 (1)
Total Contractual Obligation $2,045,568 $2,045,568 (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 $6,688 owed to Orion
Capital Incorporated; and (d) a $60,400 loan owed to Dr. Liu, our CEO.
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.
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
Previously, the Company and the Estate of Fan Qi Zhang had entered into an
agreement for the sale of 15 million shares bequeathed by Mr. Zhang to satisfy
the above debts. The administrator of Mr. Zhang's estate however, has recently
refused to grant consent for those shares to be conveyed to satisfy the above
debts. Therefore, the Company's Board of Directors has also authorized the use
of 15 million newly issued shares of common stock in order to satisfy the above
debts in the event that the shares bequeathed by Mr. Zhang are unavailable.
Discussions with these banks are currently ongoing.
As we conduct our operations and businesses in the next 12 months, we may be
short of working capital which would require that we raise additional funds.
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 NINE MONTHS ENDED MARCH 31, 2005 AND 2004
Revenues and Gross Margin
Tengtu United sales for the nine months ended March 31, 2005 and 2004 were
$2,496,235 and $2,110,262 respectively. Please refer to the chart below for more
detailed information regarding revenues and gross margin for the nine months
ended March 31, 2005. 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.
-----------------------------------------
March 31, 2005 March 31, 2004
- --------------------------------------------------------------------------
Product Revenues GM % Revenues GM %
- --------------------------------------------------------------------------
Software products $1,590,153 55% $ 926,707 74%
- --------------------------------------------------------------------------
Satellite Equipment $ 897,855 13% $1,115,323 26%
- --------------------------------------------------------------------------
Systems Intergration Services $ 67,930 5%
- --------------------------------------------------------------------------
Other Products and Services $ 8,227 98% $ 302
- --------------------------------------------------------------------------
Total: $2,496,235 34% $2,110,262 47%
- --------------------------------------------------------------------------
* Less than 1%. GM % means the gross margin percentage in the table above.
The relatively lower gross margins for the nine months ended March 31, 2005 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
March 31, 2005 March 31, 2004
-------------- --------------
$435,026 --
For the nine months ended March 31, 2005, $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 were developed
as a proprietary technology for our 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 2004.
General and Administrative Expenses
March 31, 2005 March 31, 2004
-------------- --------------
$1,773,884 $1,403,119
For the nine months ended March 31, 2005, general and administrative expenses
were $1,773,884. The general and administrative expenses incurred by Tengtu
International Corp. amounted to $1,251,695. The major components were legal fees
of $641,199, audit fees of $159,031, public relation and investment relation
fees of $126,540, and business travel related expenses of $113,991. The expenses
increased by $370,765 compared to the same period of last year. The increase was
mainly due to the increases in legal and professional fees of $369,931.
Related Party Consultants
March 31, 2005 March 31, 2004
-------------- --------------
$487,625 $308,553
Related party consultants' expense relates to staff that manages technical
developments and financing activities in North America and China. The higher
expense for the nine months was due to the hiring of two executives in China.
Collection Provision
March 31, 2005 March 31, 2004
-------------- --------------
$115,214 $82,556
The expense represents an estimate of potential uncollectible accounts
associated with sales by Tengtu United. The higher amount in 2005 was primarily
due to the increase in sales in 2005 and changing the provision rate in 2005 to
5% from the 4% used in 2004.
Selling Expense
March 31, 2005 March 31, 2004
-------------- --------------
$420,088 $696,208
The majority of selling expenses relates to staff salary and travel expenses in
the marketing department in Tengtu China. The lower amount in 2005 was primarily
due to the costs savings in staff salaries and closing branches in china.
Depreciation and Amortization
March 31, 2005 March 31, 2004
-------------- --------------
$29,583 $45,380
We have not made any significant purchases of equipment in the past few years.
Equity Income/(Losses) in Investee,
March 31, 2005 March 31, 2004
-------------- --------------
$(105,990) $(1,169,516)
The equity loss in investee relate to our investment in the Shaanxi Local
Broadband Education Resource Center joint venture and CBERC.
Interest Expense
March 31, 2005 March 31, 2004
-------------- --------------
$206,862 $291,108
For the nine months ended March 31, 2005, interest expense represented interest
on the Top Eagle loan of $172,840,and $32,835 for the TEP short term loan in
China. Interest in 2004 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.
Other Income
March 31, 2005 March 31, 2004
-------------- --------------
$187,171 $188,185
Other income is principally the credits for value added tax paid in China.
Other Expenses
March 31, 2005 March 31, 2004
-------------- --------------
$547,274 $0
Other expense was mainly due to an accrued expense 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. The final settlement was reached on April 21, 2005 for
$550,000, as described on Form 8-K filed with SEC on April 26, 2005. Other
adjustments of ($2,726) comprise the balance of the expense.
An adjustment of $65,268 for over accrued other expense was booked for the three
months ended March 31, 2005.
OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
Revenues and Gross Margin
The total sales for the three months ended March 31, 2005 and 2004 were
$178,636, and $354,557, respectively. Please refer to the chart below for more
information about revenues and gross margin for the quarter.
-----------------------------------------
March 31, 2005 March 31, 2004
- --------------------------------------------------------------------------
Product Revenues GM % Revenues GM %
- --------------------------------------------------------------------------
Software products $ 178,636 27% $ 157,534 75%
- --------------------------------------------------------------------------
Satellite Equipment $ 129,093 47%
- --------------------------------------------------------------------------
Systems Intergration Services $ 67,930 5%
- --------------------------------------------------------------------------
Total: $ 178,636 27% $ 354,557 51%
- --------------------------------------------------------------------------
GM % means the gross margin percentage in the table above.
The relatively lower gross margins for the three months ended March 31, 2005
were the result of the lowering of prices to gain market share for WRP. It is
important to note that most of the school systems supported by the WRP 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.
General and Administrative Expenses
March 31, 2005 March 31, 2004
-------------- --------------
$557,233 $445,637
For the three months ended March 31, 2005, general and administrative expenses
were $557,233. The major components were legal fees of $261,694, audit fees of
$12,953, public relations related costs of $44,123, and business travel related
expenses of $22,859. The expenses increased by $111,596 compared to the same
period of last year. The increase was primarily due to the higher legal fees.
Related Party Consultants
March 31, 2005 March 31, 2004
-------------- --------------
$242,286 $120,004
Related party consultants' expense relates to staff that manages technical
developments and financing activities in North America and China. The higher
expense for the nine months was due to the hiring of two executives in China.
Collection Provision
March 31, 2005 March 31, 2004
-------------- --------------
$8,458 $12,802
The expense represents an estimate of potential uncollectible accounts
associated with sales by Tengtu United. The lower amount in 2005 was primarily
due to the lower sales during the quarter
Selling Expense
March 31, 2005 March 31, 2004
-------------- --------------
$85,166 $160,294
The majority of selling expenses relates to cost savings for staff salary and
closing branches in China.
Depreciation and Amortization
March 31, 2005 March 31, 2004
-------------- --------------
$5,359 $17,945
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
March 31, 2005 March 31, 2004
-------------- --------------
$(23,932) $(1,155,631)
The equity losses in investee relate to our investment in the Shaanxi LBERC.
This quarter, Shaanxi LBERC incurred a net loss of $23,932. Equity losses for
CBERC had brought the equity investment at CBERC to zero since December 31,
2004. So, there was no loss recorded for CBERC's equity investment.
Interest Expense
March 31, 2005 March 31, 2004
-------------- --------------
$19,270 $94,597
For the three months ended March 31, 2005, interest expense included the
interest on the Top Eagle loan of $17,500 and $1,099 for a TEP short term loan
in China.
Other Income
March 31, 2005 March 31, 2004
-------------- --------------
$23,683 $56,257
Other income is principally the credits for value added tax paid in China.
Other Expenses
March 31, 2005 March 31, 2004
-------------- --------------
$67,994 $ 0
For the three months ended March 31, 2005, other expenses included a reversal of
an overaccrual of $65,268 relating to VIP Tone, Inc. legal settlement and $2,206
adjustment for Tengtu United's organization expenses.
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 $115,352 at March 31, 2005.
At March 31, 2005, we had $3,178,035 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 March 31, 2005, approximately 84% of sales were
generated through Tengtu United. For the three months ended March 31, 2005, the
following customers accounted for more than 10% of total sales:
Customer Sales percent of total sales
-------- ----- ----------------------
Jiangxi Provincial
Education Bureau $ 721,827 29%
Shanxi Provincial
Education Bureau $ 995,554 40%
Total sales of Tengtu $2,117,247
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 3,178,035 3,178,035
------------ ------------
Total $ 3,178,035 $3, 178,035
============ ============
Accounts payable
United States $ 577,796 $ 577,796
Foreign $ 229,588 $ 229,588
------------ ------------
Total $ 807,384 $ 807,384
============ ============
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 the end of April, 2005, an evaluation was performed under the supervision
and with the participation of our Chief Executive Officer and Chief Operating
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 not effective in ensuring that
material information relating to us with respect to the period covered by this
report was reported. Specifically, the Company's Chief Financial Officer left
the employ of the Company in April, 2004 and no Current Report on Form 8-K was
filed. The Chief Financial Officer's departure was not the result of any
disagreement with the Company.
Since that time, the Company has taken corrective measure to improve its
disclosure controls and procedures by adopting a checklist of items to be
reviewed weekly to assure that all disclosable information are disclosed in a
timely and accurate manner.
During the nine months ended March 31 2005, 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;
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
The settlement of VIP Tone, Inc. v. Tengtu International Corp. (Action No.
200262967) was disclosed in our financial note 7 of Part I and is incorporated
by reference herein. It was also previously reported in our public filings,
including our Current Report on Form 8-K filed with the SEC on January 7, 2005
and April 26, 2005.
As previously reported in our 10-K/A dated December 7, 2004, China Machinery
Electronics Export Investment Corporation ("CME"), a Chinese state-owned company
commenced a lawsuit in July, 2004 against Beijing Jiade Science and Technology
Group, Ltd. ("Jiade") in the Beijing No. 1 Intermediate People's Court (the
"Court"), requesting Jiade to pay back the loan of approximately RMB 19 million
it borrowed in January 2003 ("Loan"). The Court issued judgment requesting Jiade
to make the repayment of the Loan to CME. CME has applied for judgment
enforcement; however, the enforcement was suspended because Jiade has appealed
to Beijing High Court, the result of which is pending.
As previously stated in our 10-K/A dated December 7, 2004, the principal asset
of Jiade is the Company's interest in Hua Xia Bo Xin Education Software Co., or
CBERC. The interest in CBERC was held by Jiade on behalf of the Company and
Tengtu United pursuant to April 17 and April 25, 2001 agreements with the Tengtu
Group companies. In addition, the September 15, 2003 Restructuring Agreement
with the Tengtu Group companies, which closed on April 5, 2004, required that
the interest in CBERC be transferred to Tengtu United or the Company. Pending
completion of the transfer, the interest in CBERC was pledged to Tengtu United
by Jiade, which pledge was registered with the Beijing Commercial Bureau. CME
filed a second lawsuit with Beijing Fengtai District Court ("District Court F")
seeking to invalidate the pledge agreement between Jiade and Tengtu United.
District Court F dismissed the suit and Beijing Second Intermediary Court
affirmed the District Court F's judgment. CME changed its cause of action as to
revoke the pledge and commenced a new lawsuit in Beijing Haidian District Court
("District Court H"). Jiade challenged the jurisdiction and lost in District
Court H. It has appealed the suit to Beijing First Intermediary Court. The
appeal is pending.
Beijing Hua Tian Li Yuan Technology Co., Ltd. ("Hua Tian") commenced an
arbitration against Tengtu United at the Beijing Arbitration Commission. The
claim in the arbitration is that Tengtu United owes RMB56,575 to Hua Tian under
a purchase agreement in Western Rural Projects dated July 5, 2004 ("Agreement").
Under the Agreement, Tengtu United purchased UPS electronic power devices from
Hua Tian for a total of RMB152,250.00; however, Tengtu United only paid
RMB50,000 on December 31, 2004. The claim is for a total of RMB96,842.62 (owed
purchase funds RMB56,575 plus damages of breach of contract RMB40,267.62 as of
April 12, 2005). The Beijing Arbitration Commission has accepted the arbitration
as of April 22, 2005. Tengtu United has not yet responded.
Yanqing Printing commenced a lawsuit against TEP for the printing costs incurred
in 2001. We have not yet been served with any papers and do not have further
details at this time.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Previously reported in our current reports on Form 8-K dated March 31, 2005 and
April 6, 2005 with the file number 000-29957 and incorporated by reference
herein.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
Simon Xia, our former Chief Financial Officer left the employ of the Company as
of April 1, 2005. Mr. Xia's departure was not the result of any disagreement or
dispute with the Company or its management. Since Mr. Xia's departure, our
former Chief Financial Officer and current Controller, Judy Ye has been serving
as our interim Chief Financial Officer.
Item 6. Exhibits
Exhibit No. Description
- ----------- -----------
10.1 Top Eagle Amendment Letter Agreement with the Amended and Restated
Debenture
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 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.
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: May 23, 2005 Dr. Penghui Liu
------------------ ----------------------------
(Name)
/s/ Dr. Penghui Liu
----------------------------
(Signature)
Chief Executive Officer
----------------------------
(Title)
Date: May 23, 2005 Judy Ye
----------------- ----------------------------
(Name)
/s/ Judy Ye
----------------------------
(Signature)
Chief Financial Officer
----------------------------
(Title)