UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(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, 1999.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ...........to...............
TENGTU INTERNATIONAL CORP.
---------------------------
(Name of small business issuer in its charter)
Delaware 77-0407366
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
Suite 3825
First Canadian Place, 100 King Street West
Toronto, Ontario, Canada M5X 1E3
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(416) 368-8400
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: there were
20,757,607 shares outstanding as of February 23, 2000.
The Company's stock transfer agent is U.S. Stock Transfer
Corporation, 1745 Gardena Avenue, Suite 200, Glendale, California 91204.
Transitional Small Business Disclosure Format (Check one):
Yes No X
----- ---
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<PAGE>
PART 1 - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
CAUTION TO READER
- -----------------
The attached consolidated financial statements of Tengtu
International Corp. are unaudited and for discussion purposes only. They have
been prepared internally by management. The actual results could be materially
different from the unaudited consolidated financial statements.
-2-
<PAGE>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
FOR THE QUARTER ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ASSETS
AS AT AS AT
DEC. 31, 1999 SEPT. 30, 1999
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 1,629,909 561,171
Accounts receivable, net of allowance for
doubtful accounts of $209,112 305,088 497,099
Due from related parties 307,921 299,333
Prepaid expenses 37,627 47,262
Inventories 38,517 38,592
Other receivables 32,900 35,358
------------ ------------
Total Current Assets 2,351,962 1,487,815
PROPERTY AND EQUIPMENT, net 1,261,499 1,318,182
OTHER ASSETS 13,750 13,742
------------ ------------
TOTAL ASSETS $ 3,627,211 2,810,739
============ ============
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 1,934,871 2,124,270
Due to related party consultants 1,299,549 1,179,549
Other liabilities 47,732 47,732
------------ ------------
Total Current Liabilities 3,282,152 3,351,551
------------ ------------
SHAREHOLDERS' LOAN 361,455 357,935
------------ ------------
CONVERTIBLE DEBENTURE 1,500,000 0
------------ ------------
MINORITY INTEREST 316,686 551,222
------------ ------------
STOCKHOLDERS' DEFICIT
Preferred stock, par value $.01 per share;
authorized 10,000,000 shares; issued -0- shares.
Common stock, par value $.01 per share,
authorized 100,000,000 shares,
issued 20,557,607 shares 205,577 194,777
Additional paid in capital 8,925,609 8,746,659
Accumulated deficit (10,948,166) (10,349,777)
Cumulative translation adjustment (15,318) (40,844)
------------ ------------
(1,832,298) (1,449,185)
Less: Treasury stock, at cost, 78,420 common shares (784) (784)
------------ ------------
Total Stockholders' Deficit (1,833,082) (1,449,969)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,627,211 2,810,739
============ ============
</TABLE>
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<PAGE>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
YEAR TO DATE DEC 31 SEPT 30
1999 1999 1999
---- ---- ----
<S> <C> <C> <C>
SALES $ 541,504 149,500 392,004
COST OF SALES 408,097 200,629 207,468
------------ ------------ ------------
GROSS INCOME 133,407 (51,129) 184,536
------------ ------------ ------------
OPERATING EXPENSES
Research and development 0 0 0
General and administrative 1,016,485 591,776 424,709
Advertising 0 0 0
Selling 225,751 114,879 110,872
Depreciation and amortization 27,772 17,727 10,045
------------ ------------ ------------
1,270,008 724,382 545,626
------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest income 1,196 794 402
Other income 0 0 0
------------ ------------ ------------
1,196 794 402
------------ ------------ ------------
LOSS BEFORE MINORITY INTERESTS (1,135,405) (774,717) (360,688)
MINORITY INTERESTS IN
SUBSIDIARY'S EARNINGS (202,929) (176,328) (26,601)
------------ ------------ ------------
NET LOSS $ (932,476) (598,389) (334,087)
============ ============ ============
NET LOSS PER COMMON SHARE $ (0.05) (0.03) (0.02)
WEIGHTED AVERAGE NUMBER OF SHARES 19,545,922 19,614,237 19,477,607
</TABLE>
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<PAGE>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE QUARTER ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITION- CUMULATIVE TREASURY UNAMORTIZED STOCK-
COMMON STOCK AL PAID-IN ACCUMULATED TRANSLATION STOCK AT DEFERRED HOLDERS'
------------
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT COST COMPENSATION DEFICIT
------ ------ ------- ------- ---------- ---- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance-June 30, 1998 19,297,107 $ 192,972 $ 8,725,901 $ (8,352,743) $ (21,385) $ (784) $ (50,000) $ 493,961
Issuance of common stock
in exchange for services at
fair value - May 21, 1999 180,500 1,805 20,758 -- -- -- -- 22,563
Amortization of deferred
compensation related to
stock options issued in
year ended June 30, 1997 -- -- -- -- -- -- 50,000 50,000
Translation adjustment -- -- -- -- 16,235 -- -- 16,235
Net loss - year ended
June 30, 1999 -- -- -- (1,662,947) -- -- -- (1,662,947)
---------- ---------- ------------ ------------ ---------- ------- --------- ------------
Balance June 30, 1999 19,477,607 194,777 8,746,659 (10,015,690) (5,150) (784) 0 (1,080,188)
Net loss - quarter ended
September 30, 1999 -- -- -- (334,087) -- -- -- (334,087)
Foreign currency
adjustment -- -- -- -- (35,694) -- -- (35,694)
---------- ---------- ------------ ------------ ---------- ------- --------- ------------
Balance - Sept. 30, 1999 19,477,607 194,777 8,746,659 (10,349,777) (40,844) (784) 0 (1,449,969)
Issuance of common stock 1,080,000 10,800 178,950 -- -- -- -- 189,750
Net loss - quarter ended
December 31, 1999 -- -- -- (598,389) -- -- -- (598,389)
Foreign currency
adjustment -- -- -- -- 25,526 -- -- 25,526
Balance -
December 31, 1999 20,557,607 $ 205,577 $ 8,925,609 ($10,948,166) ($ 15,318) ($ 784) $ 0 ($ 1,833,082)
========== ========== ============ ============ ========= ======= ========= ============
</TABLE>
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<PAGE>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE QUARTER ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR TO DATE DEC 31 SEPT 30
1999 1999 1999
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $ (932,476) (598,389) (334,067)
Net Loss
Adjustments to reconcile net loss to net cash used
by operating activities
Depreciation and amortization 124,026 70,128 53,898
Minority interest in subsidiary (261,137) (234,536) (26,601)
Changes in operating assets and liabilities
Decrease (Increase) on operating assets:
Accounts receivable 132,704 192,011 (59,307)
Prepaid expenses (7,724) 9,635 (17,359)
Inventories (4,069) 75 (4,144)
Other receivables (159) 2,458 (2,617)
Due from related party 15,366 (8,588) 23,954
Other assets 45,690 (8) 45,698
Increase (Decrease) on operating liabilities:
Accounts payable (138,532) (189,399) 50,867
Due to related party consultants 240,000 120,000 120,000
Other liabilities (17,503) 0 (17,503)
----------- ----------- -----------
Net Cash Used by Operating Activities (803,814) (636,613) (167,201)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (13,445) (13,445) 0
----------- ----------- -----------
Net Cash Used by Investing Activities (13,445) (13,445) 0
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in shareholder's loan 361,455 3,520 357,935
Increase in convertible debenture 1,500,000 1,500,000 0
Issuance of common shares 189,750 189,750 0
----------- ----------- -----------
Net Cash Provided by Financing Activities 2,051,205 1,693,270 357,935
EFFECT OF EXCHANGE RATE CHANGES ON CASH (10,168) 25,526 (35,694)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,223,778 1,068,738 155,040
CASH AND CASH EQUIVALENTS, beginning of quarter 406,131 561,171 406,131
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of quarter $ 1,629,909 1,629,909 561,171
=========== =========== ===========
</TABLE>
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (1)
- ------- -------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
For the quarter ended December 31, 1999, net cash used by operating
activities totaled $636,613, including a net loss of $598,389 and depreciation
and amortization of $70,128. Accounts receivable, prepaid expenses, inventories
and other receivables decreased by $192,011, $9,635, $75 and $2,458,
respectively, primarily due to Tengtu United Electronics Development, Co. Ltd.'s
("Tengtu United") preparations relating to its agreement with Microsoft (China)
Co., Ltd. Due from related party increased slightly by $8,588, primarily due to
an advance of $7,500 to an officer.
Accounts payable decreased by $189,399 primarily due to catch-up
payments made to suppliers by Iconix International, Inc..
To conserve cash, Tengtu International Corp. (the "Company") has not
been paying its senior management and consultants. Accordingly, the amounts due
to related party consultants increased by $120,000 during the quarter for an
accumulated total of $1,299,549. Past due payments to consultants have been
deferred pending completion of a subsequent financing and thereafter there will
be a scheduled reduction of the amounts past due to consultants.
Net cash used by investing activities amounted to $13,445 primarily
due to the acquisition of computer equipment for Edsoft Platforms (H.K.) Limited
and Edsoft Platforms (Canada), Ltd. operations.
During the fiscal quarter ended December 31, 1999, cash flow
increased by $1,500,000 as a result of the sale of a convertible debenture
purchased with warrants attached to Top Eagle Holdings, Ltd. The full details of
that transaction were reported in a Form 8-K dated December 23, 1999, which is
incorporated herein by reference.
The Company also received $189,750 from the sale of common stock to a
private investor, outside counsel's exercise of two stock options previously
granted to it, and an outside consultant's exercise of options granted in lieu
of payment for services rendered.
- -----------
(1) The following Management's Discussion and Analysis contains certain forward
looking statements made in good faith by the Company. The Company's businesses
operate in competitive markets and are subject to changes in general economic
conditions, foreign exchange rate fluctuation, acceptance of new product
introductions, government regulation and other risks and uncertainties detailed
from time to time in the Company's filings with the Securities and Exchange
Commission. The foregoing items could cause the Company's results to differ
materially from results that have been or may be projected by or on behalf of
the Company. The Company cautions that the foregoing list of factors is not
exclusive. The Company does not undertake to update any forward looking
statement that may be made from time to time by or on behalf of the Company.
-7-
<PAGE>
REVENUES
- --------
Sales decreased by 61.9% from $392,004 for the quarter ended
September 30, 1999 to $149,500 for the quarter ended December 31, 1999. TIC
Beijing Electronics Co., Ltd. ("TIC Beijing") did not receive a number of
contracts on which it had submitted bids. Also, Iconix International, Inc.
("Iconix") did not receive anticipated orders because of delays due to school
board approval cycles.
GROSS PROFIT
- ------------
There was a loss of $51,129 for the quarter ended December 31, 1999
due to a decrease in sales without a corresponding reduction in cost of sales.
RESEARCH AND DEVELOPMENT EXPENSES
- ---------------------------------
There were no research and development costs incurred by the Company
during the quarter ended December 31, 1999. However, Tengtu United research and
development expenses were borne by Tengtu China, the Company's joint venture
partner in Tengtu United, which is owned by the four following Chinese
companies: Legend Computer Group, Taiji Computer Corporation, Great Wall
Computer Group and Beijing Oriental Lian Fa Technology & Trade Group, Co. Ltd.
Zhang Fan Qi, a Tengtu director, is the Chairman of Beijing Oriental Lian Fa
Technology & Trade Group Co., Ltd.
GENERAL AND ADMINISTRATIVE EXPENSES
- -----------------------------------
General and administrative expenses increased by 39.3% from $424,709
for the fiscal quarter ended September 30, 1999 to $591,776 for the fiscal
quarter ended December 31, 1999. This increase is primarily due to costs of
approximately $140,000 relating to the sale of a convertible debenture with
attached warrants to Top Eagle Holdings, Ltd. and the start up costs for Edsoft
(H.K.) Limited and Edsoft (Canada), Ltd. operations.
SELLING
- -------
Selling expenses increased slightly by 3.6% from $110,872 for the
fiscal quarter ended September 30, 1999 to $114,879 for the fiscal quarter ended
December 31, 1999.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization expenses increased slightly from
$10,045 for the fiscal quarter ended September 30, 1999 to $17,727 for the
fiscal quarter ended December 31, 1999 due to the purchase of computer equipment
for Edsoft Platforms (Hong Kong) Limited and Edsoft Platforms (Canada) Ltd.
operations.
-8-
<PAGE>
MINORITY INTERESTS IN SUBSIDIARY'S EARNINGS
- -------------------------------------------
The Company's total minority interests share of losses of Iconix and
Edsoft Platforms (Canada), Ltd. for the first half year ended December 31, 1999
are $136,401 and $66,528, respectively. These losses will be carried forward to
be absorbed by future earnings.
The Company's minority interest in Tengtu United's loss is limited to
the Company's capital investment. Any loss not realized by the minority will be
carried forward to be absorbed in the year(s) in which Tengtu United has net
income or in the year(s) that the minority contributes more capital. As at
December 31, 1999, the cumulative loss of Tengtu United being carried forward is
$1,625,010.
TRENDS, EVENTS OR UNCERTAINTIES
- -------------------------------
Under the terms of the strategic partnership agreement announced on
January 27, 2000, Microsoft (China) Ltd. is to license its proprietary operating
and educational software to the Company, install software, train teachers,
provide technical support, contribute funds for marketing jointly developed
educational software products and establish a demonstration center for such
products in China.
Tengtu United has begun installing information technology solutions
and curriculum software for the first group of 70,000 schools designated by the
Chinese government for such installation in the calendar year 2000. The Chinese
government is providing financing to local school systems to purchase mandated
technology infrastructure improvements from the Company. Shipments are now
scheduled to commence in the last week in February, 2000.
Tengtu China, the Company's joint venture partner in Tengtu United,
holds one of only seven electronic publishing licenses granted by the Chinese
government. Tengtu China's electronic publishing license is the only one which
covers electronic publication of educational materials. Tengtu China has
conveyed that license to Tengtu Electronic Publishing ("TEP"), which has been
formed and registered in Beijing, China. Pending a capital contribution by the
Company, either in the form of cash or the Company's common stock, it will
become a stockholder in TEP, or form a joint venture, and be entitled to certain
specific exclusive rights to the use, export and/or import of electronic
publication of educational materials. The Company is in the process of
ascertaining the estimated value of these electronic publishing rights to be in
a position to decide if this is an appropriate investment and, if so, how much
to invest.
TIC Beijing has entered into a joint venture with two leading
Canadian production companies, Crawleys, Inc. and Boomstone Entertainment, Inc.,
to co-produce prime-time entertainment programs estimated to be worth
approximately $50 million. TIC Beijing will conduct a major portion of the
animation work, utilizing 3D animation production values, for the initial
project, which is 26 half-hour segments of "Germs." The implementation of this
joint venture is subject to obtaining financing, most of which will qualify for
funding support from Canadian film agency programs under Canada-China
co-production treaties. TIC Beijing will share as a producer in the distribution
rights and merchandising rights.
-9-
<PAGE>
Iconix has formed a partnership with Novell, Inc. and Dell Computer
Corp. to provide a comprehensive set of educational networking solutions for
K-12 teachers in Canada.
Edsoft (Hong Kong) Limited and Edsoft (Canada), Ltd. were established
in July, 1999 to provide a "Total Solution" for information technology education
in Hong Kong. Edsoft initiated its marketing campaign in Hong Kong in February,
2000 and the Company anticipates that revenue will begin to be generated in
approximately April 2000.
INTERNAL AND EXTERNAL SOURCES OF LIQUIDITY
- ------------------------------------------
The Company received US $1.5 million in financing from the sale of a
convertible debenture, with warrants attached, to Top Eagle Holdings, Ltd. in
December, 1999. Proceeds will be used for the Company's marketing activities
throughout China and Hong Kong.
The Company received $250,000 from a private investor in the last
quarter of 1999. $150,000 was for the purchase of common shares and $100,000 was
a short term loan. These funds provided working capital for the Company.
The Company is seeking additional financing for working capital and
future business expansion.
MATERIAL COMMITMENTS FOR CAPITAL EXPENDITURES AND SOURCES OF FUNDS
- ------------------------------------------------------------------
No material commitments exist at this time.
SIGNIFICANT INCOME OR EXPENSE ITEMS
- -----------------------------------
1. See explanation above.
2. Tengtu United Electronics Development, Co. Ltd allocated
most of its resources to obtain (1) the approval of the
Torch projects from the Chinese government and (2) the
strategic alliance with Microsoft (China), Ltd. at the end
of calendar1999. Shipments to the Chinese schools pursuant
to the strategic alliance with Microsoft (China), Ltd. were
delayed until February, 2000.
MATERIAL CHANGES FROM LAST QUARTER
- ----------------------------------
See explanation above.
-10-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TENGTU INTERNATIONAL CORP.
By: /S/
----------------------------------
Pak Kwan Cheung
Chairman of the Board of Directors and CEO
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> Dec-31-1999
<CASH> 1,629,909
<SECURITIES> 0
<RECEIVABLES> 305,088
<ALLOWANCES> (209,112)
<INVENTORY> 38,517
<CURRENT-ASSETS> 2,351,962
<PP&E> 1,261,499
<DEPRECIATION> 114,879
<TOTAL-ASSETS> 3,627,211
<CURRENT-LIABILITIES> 3,282,152
<BONDS> 0
0
0
<COMMON> 205,577
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,627,211
<SALES> 149,500
<TOTAL-REVENUES> 149,500
<CGS> 200,629
<TOTAL-COSTS> 724,382
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (794)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (598,389)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
