financials........
Tengtu Reports Second Quarter of Fiscal 2003 Financial Results; Company Uses Q1 and Q2 to Realign & Expand Market Role in China
Company Restates First Quarter Of Fiscal 2003 Financials
TORONTO & BEIJING, China, Feb 20, 2003 (BUSINESS WIRE) -- Tengtu International Corp. (TNTU), a developer, marketer, distributor and integrator of distance learning solutions and e-education software, announced today fiscal 2003 second quarter financial results and the restatement of fiscal 2003 first quarter financial results.
Overview of Business for the Six Months Ended December 31, 2002
When Tengtu China was awarded the co-operative agreements to be the Chinese Ministry of Education's operating and development partner for the national e-education portal and distance learning network (CBERC), and the key strategic provincial portals (LBERCs), it required the Company to undergo major readjustments in how it would engage the marketplace on a system-wide basis versus school-by-school. Accordingly, instead of selling products to individual schools, the focus is now on selling products to entire school districts as a captive market. These readjustments were required to address potentially significant new revenue streams represented by the greater opportunities going forward.
In keeping with the advice of PricewaterhouseCoopers of China (Pu Hua Yong Dao) who advised Tengtu China in the restructuring of its business to address the new opportunities, the Company undertook a major restructuring effort for its operations, product lines and strategies.
Tengtu's distribution channels for its products and services will now encompass a nation-wide satellite system, an education portal ("e-portal") infrastructure at the provincial, local and city/district levels. Previously, the sales channels were through local branch offices and on a school-by-school basis. The Company believes that these new distribution channels will enable Tengtu to rapidly increase the number of client schools for its software and services more efficiently district by district, province by province and create captive markets for its products and services under a system-wide marketing approach.
The Company has also had to undertake aggressive development of its product lines and portal infrastructure for the expanded role it will be playing across new distribution channels in China's K-12 marketplace.
While Tengtu will still be selling its software application platform, its "Total Solution" has now evolved to include a greater product mix of not only platforms, but e-portals, satellite connectivity, system integration services, e-publishing content, training centers and "campus-end" software and products for administration and e-learning in WAN and LAN systems.
This has required Tengtu to undertake a major effort and commitment of resources in the first and second quarters of fiscal 2003 to re-engineer its product lines and to develop the portal infrastructure to support the new business opportunities going forward. At the same time, previous policies and strategies with regard to marketing and payment of accounts have been re-adjusted to the requirements of supporting the growth of the business ahead. Specifically, Tengtu has focused on the collection of past due receivables and e-portal design and development. This has required a slow-down of platform installations and the implementation of new marketing and distribution channels. This work is being completed to ensure that platform sales and new streams of revenue will be available to the Company as it engages the market at significant new levels in the latter quarters of fiscal year 2003.
As a result of the foregoing activities, which constituted a restructuring of Tengtu's business in China and because schools were closed during the quarter ended September 30, 2002, only 6 Total Solution platforms were installed, 1,181 sets of satellite equipment, and 58 packages of educational CD-ROM's were sold to in the first quarter of fiscal 2003. Since ShaanXi LBERC joint venture started its business at the end of June 2002, it has been purchasing and selling Tengtu products. Of the 1,181 sets of satellite equipment sold in the first quarter of fiscal 2003, 66 of them were sold to ShaanXi LBERC joint venture. The restructuring activities continued in the second quarter of fiscal 2003 (three months ended December 31, 2002), only 22 Total Solution platforms were installed, 460 sets of satellite equipment, and 730 packages of educational CD-ROM's were sold to schools. Of the 460 sets of satellite equipment sold in the second quarter, 440 of them were sold to ShaanXi LBERC joint venture.
With respect to the Company's focus on the collection of receivables, in October 2002, Tengtu China and the Agricultural Bank of China ("the Bank") entered into an agreement for the provision of an $18.5 million buyer's credit line to be made available to the Company's customers (K-12 and vocational schools) for the purchase of the Company's products and services. Tengtu China provides the guarantee for each loan that schools withdraw from the credit line. Use of the Agriculture Bank credit facility also required Tengtu to adjust its marketing strategy from school by school to district by district to efficiently use the Bank's authority in each area. This strategy is in alignment with Tengtu's overall system wide marketing strategy.
The Company believes that this credit facility will reduce its receivable balances going forward and allow for a 'pay as you go' client payment policy giving the Company access to greater cash flow to sustain its operations and growth in the market.
Fiscal 2003 Second Quarter and Six Months Performance
As discussed above, during the six months ended December 31, 2002, the Company underwent a major restructuring of its marketing strategy and product mix in China. These major restructuring steps required Tengtu to undertake a significant effort and commitment of resources in the first and second quarter of fiscal 2003, therefore contributing to a slow-down of platform installations. Sales for the second quarter of fiscal 2003 were $534,187 compared with $4,061,008 for the same period in fiscal 2002. Tengtu reported a quarterly net loss of $(714,875) compared with a net loss of $(7,237) a year ago. Sales for the six months ended December 31, 2002 were $1,172,833 compared with $7,302,323 for the same period in fiscal 2002. The net loss for the six months increased to $(1,840,522) compared with net income of $856,796 a year ago.
"The Company was able to use the summer months while schools were closed and the period of the fall season to undertake a major re-tooling of its product lines and reformulation of its business strategies. Essentially this required the Company to put restraints on its marketing and sales approaches resulting in lower revenues in this transition period. This effort will pay significant rewards going forward and start to be evident in Q3 and Q4," stated John D. Watt, President of Tengtu International Corp. "The Company has had to prepare for its expanded opportunities and increased market scope while maintaining its position as the market leader in solutions for the K-12 school system in China. We are very confident about the Company's future as it now engages the marketplace at greater levels of opportunity than previously," he concluded.
See President's Statement (www.tengtu.com).
"The Company has undertaken a considerable and focused effort to prepare for its expanded role in China's K-12 market," stated Fan Qi Zhang, CEO and Chairman of Tengtu China. "This effort is now enabling us to aggressively penetrate the market on a system-wide approach and maintain our leadership in solutions for the e-education market in China and the quality of customer service. Our 'pay as you go' strategy will ensure the Company has access to cash flow to sustain and manage the growth these opportunities will represent," concluded Mr. Zhang.
Restatement of Fiscal 2003 First Quarter Results
Due to a computer input error in the quarter ended September 30, 2002, the units of satellite equipment sold during the quarter was erroneously recorded as the units of platforms sold, and vice versa. Because the platform has a higher average unit sales price and a higher average gross margin than the satellite equipment, the error resulted in higher sales and higher net losses for the quarter ended September 30, 2002. The Company has also accrued a quarterly interest income for the restricted cash deposited in Min Sheng Bank (of China). The impact of the restatement is summarized below:
(i) a decrease in sales of $1,270 thousand, from $1,908 thousand to $638 thousand; (ii) a decrease in gross profit of $1,189 thousand, from $1,365 thousand to $176 thousand; (iii) a decrease in operating expenses associated with sales of $87 thousand, from $1,367 thousand to $1,280 thousand; (iv) an increase in interest income of $63 thousand; (v) a decrease in other income associated with sales of $200 thousand, from $279 thousand to $79 thousand; (vi) income tax decreased from $131 thousand to $0; (vii) minority interest in subsidiary's income decreased from $291 thousand to $0; (viii) net loss increased by $816 thousand from ($309) thousand to ($1,125) thousand; (ix) an increase in loss per common share of $0.016 basic to ($0.022) basic. For additional detail of the transactions involved in the restatement and their impact on the Consolidated Financial Statements, See Note 12 of the Notes to Consolidated Financial Statements.
TENGTU-INTERNATIONAL CORP. Consolidated Statement of Operations
Three Months Ended Six Months Ended
December 31, 2002 December 31, 2002
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2002 2001 2002 2001
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Revenue $534,187 $4,061,008 $1,172,833 $7,302,323
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Net Income (Loss) (714,875) (7,237) (1,840,522) 856,796
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Net Income (Loss) per
Share: Basic (0.014) (0.000) (0.036) 0.018
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Weighted Average
Number of Shares:
Basic 52,253,857 49,472,296 51,478,634 48,232,491
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About Tengtu International Corp.
Tengtu International Corp. (www.tengtu.com) is a developer, marketer, distributor, and integrator of distance learning solutions and e-education software. Tengtu International Corp controls 57% of a joint venture with its China partner, Tengtu China. The JV (Tengtu) has been chosen by China's Ministry of Education to be the operating partner in the deployment of China's national education portal and distance learning network. Tengtu is a key player in "Operation Morning Sun," China's national initiative to make computerized education available to 250 million students in the country's 800,000 kindergarten through 12th grade (K-12) schools.
To be added to Tengtu's email list for Company news, please send your email address to info@tengtu.com.
Note: Portions of this press release include forward-looking statements made pursuant to the safe harbour provisions of the Securities Litigation Reform Act of 1995. Actual results could differ materially from the results discussed in this release and in the forward-looking statements contained herein for many reasons. Investors are cautioned that all forward-looking statements involve numerous risks and uncertainties, including but not limited to product development, product acceptance, licensing opportunities and general economic conditions. For more information concerning Tengtu International Corp., and risk factors that may affect its future results and may cause actual results to vary from results anticipated in forward-looking statements, investors should review the Company's public filings with the U.S. Securities and Exchange Commission.
Tengtu International Corp.
John Watt, 416/963-3999
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