Tongxin International Ltd. (PINKSHEETS: TXIC), a China-based
manufacturer of engineered vehicle body structures ("EVBS") and
stamped parts for the commercial automotive industry, today
announced its summary of preliminary financial results for the year
ended December 31, 2011.
Financial Results:
Revenues: Tongxin International Ltd. (the
"Company") reported total revenues for the year ended December 31,
2011 of $101.8 million, compared to $104.7 million of total
revenues which were previously reported (unaudited) for the year
ended December 31, 2010. Such decrease in total revenues reflects
the reduction of original equipment manufacturer production of mini
and light commercial vehicles. This, however, is somewhat offset by
the increase in Hunan Tongxin's (HNTX) production of cabs for
medium-duty commercial vehicles. The revenue decline was also
partially offset by increased revenue from higher value added
products, such as painted and fully-finished cabs.
The Company believes that a major factor affecting the
production of cabs was the Chinese governmental actions tightening
monetary policy. The Company also believes that the decrease in its
total revenue reflects slower economic growth in China in 2011 and
reduced credit availability for the purchase of commercial vehicles
in China.
Costs &
Expenses: For the year ended December 31, 2011, the cost of
goods sold was $92.3 million and selling, general and
administrative expenses were $14.9 million. As result, the Company
has reported an operating loss of $(5.4) million for the year ended
December 31, 2011, less than the unaudited operating loss of $(9.4)
million for the year ended December 31, 2010. The increase in
SG&A is, to a significant extent, impacted by legal and
financial expenses associated with the ongoing lawsuits and SEC
investigation in the U.S. While the Company anticipates that many
of these expenses may be covered by D&O Insurance, many of the
expenses have been paid by TXIC and the Company is awaiting
reimbursement.
Attached are the comparative balance sheets and
income statements for the years ended December 31, 2011, 2010 and
2009.
As of December 31, 2011, cash, cash equivalents, and restricted
cash (security deposit) totaled approximately $10.1 million. Total
current assets at December 31, 2011 totaled approximately $60.6
million compared to $65.3 million at December 31, 2010. Total
current liabilities totaled approximately $78.8 million at December
31, 2011 compared to $74.2 million at December 31, 2010.
The Company cautions that all of the financial results included
in this press release are unaudited and still subject to audit and,
accordingly, they are still subject to potential audit adjustments,
which could be material. As a result, such financial results could
change, and could change meaningfully, following the audit of its
financial statements for 2011. The Company also reiterates that the
unaudited financial information included in this press release does
not represent all of the information that would normally be
included in an Annual Report on Form 10-K (with respect to the
Company's financial results for the year ended December 31, 2011)
or in an Annual Report on Form 20-F (with respect to the Company's
financial results for the years ended December 31, 2010 and
2009).
2011 Year-End Conference Call:
The Company is also announcing today that a conference call has
been scheduled for Monday October 1, 2012 at 11:00 AM Eastern
Daylight Time. The purpose of the call is to discuss the Company's
unaudited financial results, as well as recent Company developments
and other business initiatives. William E. Zielke, CEO of Tongxin,
will present opening remarks and Thomas Chang, VP of Finance, will
conduct a Q & A from participants. All questions should be sent
to our investor relations representatives at info@cfsg1.com for
consideration. In addition to selected questions which will be
answered during the call, a select number of additional questions
may be responded to subject to time limitations. See below:
Most often asked questions with
answers
I. Financial Questions
Audit Questions
Q: What is the status of the past due audits?
A: We continue to work with our current auditor. While we would
like to provide a completion date, that would be inappropriate. The
audits are progressing and we continue to provide our current
auditor with relevant information needed to complete the
audits.
Q: You stated the audits for 2009 & 2010. What about
2011?
A: At this time we are directing all efforts to completing the
2009 & 2010 calendar year audits.
Q: Why is it taking so long to complete these audits?
A: The Company and its current auditor are being very diligent
in their efforts and reviews. It is no secret that there have been
many questions and allegations regarding Chinese companies in
general. Every effort is being made to provide proper and accurate
information to the shareholders of TXIC through the audit and
otherwise. As we have stated many times, including in the original
prospectus and subsequently, accounting systems in China are not
always up to western standards. As we have said many times, it will
take time and effort to improve the systems to reach the level
desired. We are disappointed that our systems have not improved
sufficiently since the original transaction in 2008. However, we
continue to improve on the systems and the understanding of
requirements and expectations. Much of the delay in completing the
audit is the time and effort required to substantiate the financial
statements.
Q: You mentioned that ERP costs were a significant expense. Yet
you state that the audit is not yet completed because of
difficulties in substantiation of financial transactions. This
seems inconsistent. Please comment.
A: While we did exert significant effort towards ERP, to date an
ERP system has not been implemented.
Q: We are speaking here of 2011. Are you saying there was no
effort put forth towards ERP or other system improvements in
2011?
A: The discussion about ERP was based on a question relating to
2009 and 2010 audits. The expenses for ERP occurred in 2010. In
2011, our system improvement efforts have been more fundamental in
that we are putting processes in place that can be more easily and
quickly automated by programs such as ERP.
Cash Flow Issues
Q: How much money has TXIC spent on these legal actions?
A: TXIC has had and continues to have D&O Insurance that is
covering a substantial amount of the costs related to the
Shareholder Lawsuits (which have been settled) and the SEC
Investigation (which is ongoing).
Q: The cash position at TXIC has declined dramatically. Where
has the cash gone? Is TXIC in a position to survive?
A: There have been significant occurrences that have required
the use of cash in TXIC. Some of these uses of funds have been for
costs related to the various legal actions for which we have not
yet received reimbursement from our D&O insurance. Others have
been for legal and outside financial services not covered by
D&O insurance. At this time we have taken significant steps to
reduce the expenditures in both TXIC corporate as well as HNTX in
China. The Company's current cash situation has impacted its
ability to invest funds in China that could improve our business.
It has also curtailed certain growth initiatives. However, HNTX is
operating and the USA cash situation is not inhibiting the ongoing
business in China. As previously announced, we have opened a new
painting facility for Heavy Duty and Medium Duty cabs. This
investment was handled solely through the cash flow within HNTX. We
did not borrow any funds for this expansion.
Q: You just mentioned that the cash situation has caused you to
curtail growth initiatives. Does this mean you are no longer
pursuing export opportunities?
A: We have pulled back significantly on our efforts to sell into
the N. American and European markets. We are still pursuing
opportunities in ASEAN and the Indian subcontinent.
2. Income Statement Questions
Q: In view of the declining revenues, profitability, and
available cash, what steps are being taken to address the
situation?
A: A number of initiatives have been implemented and are
continuing:
1. TXIC Headquarter staff has been reduced.
2. Staff in China not directly engaged in manufacturing or
engineering has been reduced.
3. Efforts to expand into more export markets have been
curtailed, as the returns on these efforts will be longer term.
4. Capital investments have been delayed wherever possible.
5. Previously planned cost reduction activities that do not
require capital have been accelerated (e.g. scrap reduction).
6. Selling of added content to products has increased (e.g.
increased numbers of painted cabs or cabs with complete interiors)
which has resulted in added revenue per unit.
Q: What does your Net Income look like for the first six months
of 2012?
A: I'm sorry, but the focus of today's news is the announcement
of 2011 results. As to 2012, that will have to wait for another
news release.
3. Legal Questions
Shareholder Lawsuits
Q: You announced that the shareholder lawsuits have been
settled. Is this now completely settled?
A: Yes. The settlement amount ($3 million USD) was recently
transferred from our D&O Insurance carrier to the attorneys
representing the "class" for distribution.
SEC Investigation
Q: What is the status of the SEC investigation?
A: The SEC investigation is ongoing, but we believe that it is
coming closer to reaching an ending. TXIC has fully cooperated and
responded to all SEC requests for information. Additionally,
several members of the TXIC Board of Directors have personally
testified before the SEC.
Q: What are the allegations that prompted the SEC
investigation?
A: The allegations that prompted the SEC investigation primarily
concerned transactions between TXIC's wholly owned subsidiary Hunan
Tongxin Enterprises and a previously related party, Meihua Bus.
Q: Did the TXIC Board of Directors look into these
allegations?
A: Yes. The Audit Committee did look into all allegations and
specifically the relationship between Meihua Bus and HNTX. The
Audit Committee then shared findings with the Board of Directors.
The AC and the BOD concluded that the transactions as recorded did
occur, were appropriate and were in the best interest of TXIC.
Q: Was this internal investigation conducted solely by the Audit
Committee?
A: No, the Audit Committee engaged outside assistance from a
major accounting firm and international legal firms to assist in
reaching our conclusions.
Q: Which firms were engaged to assist the AC and BOD?
A: KPMG was engaged to assist with the financial portion of our
evaluations. KPMG utilized personnel from their offices in Los
Angeles, Hong Kong, and Shanghai. Miller Canfield in Troy, Michigan
provided legal advice and guidance with assistance from Squire
Sanders Dempsey in San Francisco and Shanghai, China.
Q: What about Shenjiu? Is it correct that one of the reasons
that revenue has declined at HNTX is that sales have been shifted
to Shenjiu?
A: We looked into those allegations as well. The firm of Squire
Sanders Dempsey conducted an analysis from their office in
Shanghai. We did not find any basis for the allegations and no
business relationship nor competitive conflicts between HNTX and
Shenjiu.
Q: Isn't it true that there are common shareholders between TXIC
and Shenjiu?
A: It is possible that there are some individuals that own
shares in Shenjiu that may also have shares in TXIC as we have been
publically traded. However, we have not found any members of HNTX
management that own shares in Shenjiu. And, if there were, that
should not be a problem because there are not any business
transactions between the two companies and these two companies do
not compete.
4. Market - Revenue
Questions
Q: Based on the current release, business at HNTX continues to
decline. Since the acquisition, revenues in 2010, and now 2011 have
declined as has profitability. Can you please comment?
A: Revenues in 2009 were the best ever for HNTX/TXIC at
approximately $121m. Revenue declined in 2010 for several
reasons:
1. Overall truck production in China was down 9.55% in 2011
compared to 2010.
2. Government incentives on mini trucks and small trucks expired
in the 4th quarter of 2010. As these incentives were not renewed,
the markets for these vehicles subsequently declined dramatically.
Moreover, we believe that production of these particular vehicles
declined greater than the sales because inventories of these trucks
available for sale were significant. This carried over into 2011
and the Mini Truck production declined 12.1%. HNTX production in
this segment declined 11.44%.
3. Light Truck production declined 8.99% with HNTX declining
20.9%.
4. The Medium Duty sector grew in 2011 by 9.47% following the MD
0.23% decline in 2010. HNTX grew in this sector by 126.82% in 2011
as the new model gained momentum.
5. In the Heavy Duty sector, overall production declined by
22.29% with HNTX declining 65.29%. This compares to HNTX gains in
2010 of 110.2%. We believe that this decline in 2011 is largely due
to OEMs reducing purchases of cabs in order to maintain their
in-house production.
6. Production of units for export declined 31% from 2010 as the
weak global economy impacted Viet Nam, our largest export customer.
Viet Nam was severely restricted because of weaker demand but also
a lack of foreign exchange.
7. As to profitability, our Net Income in 2009 was primarily
lower due to the impact of the valuation of warrants. In 2010 we
did have a gain on warrants. However, operating income for 2010 was
disappointing. The profitability was significantly affected by
increased costs associated with TXIC efforts to improve HNTX
systems (including our efforts at ERP installation. We were also
impacted by significant costs related to legal and financial
consulting fees.
Q: What is happening in the CV market in 2012 in China?
A: During the first 6 months of 2012, Commercial Truck
production has declined 13% compared to the first 6 months of 2011.
The largest 10 manufacturers of commercial trucks are now taking
24% of the market. HNTX market Share in this time period is
estimated to be 3.38% compared to 2011 where market share was
3.89%.
5. Misc.
We intend to increase our investor relations
activities for the rest of this year and all of 2013 to include the
following:
i. Additional attendance at Broker/Dealer conferences ii.
Updated of our support/collateral documents iii. Additional
conference calls with investors iv. A new film/video of our
production facilities and an updated profile on the company v.
Attract research about our going forward prospect vi. Attract
additional market maker vii. Send out an updated CEO letter to all
shareholders
Conference Call: Domestic participants may
dial (888-567-1602) and international participants may dial
(201-604-5049). Persons unable to participate during the live
session may listen to a recorded playback of the conference call by
dialing (888) 632-8973) domestically and (585) 295-6791
internationally and entering (93341367) followed by the # sign. The
conference call in its entirety will also be available via recorded
webcast on the company's website at www.txicint.com approximately
two hours after the call has ended.
Annual Report: On March 28, 2012, Tongxin
International Ltd. filed a Form 12b-25 with the Securities and
Exchange Commission indicating that it would not be able to
complete the preparation, review and filing of its Annual Report on
Form 10-K for the fiscal year ended December 31, 2011 by the filing
deadline of March 31, 2012. The Company and its auditor are in the
process of completing the audit of the Company's financial
statements for its fiscal years ended December 31, 2009 and 2010.
In addition, and with respect to the audit of Company's financial
statements for its fiscal years ended December 31, 2009 and 2010,
the Company is in the process of preparing and completing certain
documents and financials and other information necessary to permit
the completion of the required audit of the Company's financial
statements for its fiscal years ended December 31, 2009 and 2010.
The Company is in the process of gathering such documents and in
preparing and reviewing the financial and other information
required to be included in its Annual Reports on Form 20-F for the
fiscal years ended December 31, 2009 and 2010. The Company expects
to file its Annual Reports on Form 20-F for the fiscal years ended
December 31, 2009 and 2010 and its Annual Report on Form 10-K for
the fiscal year ended December 31, 2011 as soon as reasonably
possible.
Forward-Looking Statements This press
release contains statements regarding the preparation and filing of
statements or reports, including financial statements, the
Company's expectations concerning its operating results and
financial conditions, as well as other expectations, plans, goals,
objectives, assumptions or information about future events, any and
all of which may constitute forward-looking statements or
information under applicable securities laws. Such forward-looking
statements or information are based on a number of assumptions,
which may prove to be incorrect. Although the Company believes that
the expectations reflected in such forward-looking statements or
information are reasonable, undue reliance should not be placed on
forward-looking statements because the Company can give no
assurance that such expectations will prove to be correct.
All forward-looking statements or information are based on
current expectations, estimates and projections that involve a
number of risks and uncertainties which could cause actual results
to differ materially from those anticipated by the Company and
described in the forward-looking statements or information. These
risks and uncertainties include those described in Tongxin
International Ltd.'s reports to the SEC, and, among others, the
cost and timing of implementing restructuring actions, the
Company's ability to generate cost savings or manufacturing
efficiencies to offset or exceed contractually or competitively
required price reductions or price reductions to obtain new
business, conditions in the automotive industry, certain global and
regional economic conditions, the continuing ability of the Company
to prepare and timely file statements or reports with the SEC, and
the effect of any goodwill impairment analyses that the Company may
perform in the future. If one or more of these risks or
uncertainties materialize (or the consequences of such a
development changes), or should underlying assumptions prove
incorrect, actual outcomes may vary materially from those
forecasted or expected.
The forward-looking statements or information contained in this
news release are made as of the date hereof and the Company
undertakes no obligation to update publicly or revise any
forward-looking statements or information, whether as a result of
new information, future events or otherwise, unless so required by
applicable securities laws.
TONGXIN INTERNATIONAL, LTD.
CONSOLIDATED BALANCE SHEETS
(Unaudited- US$ amounts expressed in thousands, except for share data and
par value)
December 31
2011 2010 2009
--------- --------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 6,288 $ 9,891 $ 16,493
Restricted cash - security deposit 3,861 827 4,692
Notes receivable 7,328 6,954 5,769
Accounts receivable-trade, net of allowance
for doubtful accounts 8,711 12,395 10,204
Other receivable, net of allowance for
doubtful accounts 2,310 2,669 2,076
Due (to) from related parties (1205) (1151) (1346)
Inventories 30,810 29,846 25,070
Prepaid expenses and other 140 172 421
Advance to suppliers 87 1,463 1,960
Deferred income tax assets 2,310 2,245 2,211
--------- --------- ---------
Total current assets $ 60,640 $ 65,312 $ 67,549
Investments in non-consolidated
subsidiaries and affiliates 75 209
Property, plant and equipment, net of
accumulated depreciation 53,037 49,533 46,894
Land occupancy rights, net 14,193 13,699 13,194
Goodwill 0 0 36,880
--------- --------- ---------
Total assets $ 127,871 $ 128,619 $ 164,727
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 22,826 $ 23,394 $ 14,328
Notes payable 6,142 1,654 4,692
Accrued expenses and other liabilities 3,564 6,380 6,867
Income taxes payable 18,512 17,636 17,257
Short-term loans payable 27,793 24,994 24,876
Short-term loans from shareholders
Warrant liability 0 127 11,649
--------- --------- ---------
Total current liabilities $ 78,835 $ 74,184 $ 79,669
Long-term liabilities:
Long-term loans payable 166 163
Deferred income tax liability 1,373 1,311 1,283
Other
--------- --------- ---------
Total liabilities $ 80,375 $ 75,658 $ 80,952
--------- --------- ---------
Shareholders' equity:
Preferred stock - $0.001 par value,
authorized 1,000,000 shares; none issued
Common stock - $0.001 par value,
authorized 39,000,000 shares; 15,827,079
and 15,044,875 shares issued and
14,237,657 and 13,455,453 shares
outstanding in 2010 and 2009, respectively $ 15 $ 15 $ 15
Additional paid-in-capital 99,093 99,093 97,420
Treasury stock, at cost - 1,589,422 common
shares (7,682) (7,682) (7,682)
Appropriation to reserve & Accumulated
other comprehensive income 6,899 4,808 790
Retained earnings (deficit) (50,870) (43,328) (6,769)
Non-Controlling Interests 41 55
--------- --------- ---------
Total shareholders' equity $ 47,496 $ 52,962 $ 83,774
--------- --------- ---------
Total liabilities and shareholders' equity $ 127,871 $ 128,619 $ 164,727
--------- --------- ---------
TONGXIN INTERNATIONAL, LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited-US$ amounts expressed in thousands)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2011 2010 2009
------------ ------------ ------------
Revenues $ 101,800 $ 104,717 $ 121,071
Cost of goods sold 92,275 98,126 105,421
------------ ------------ ------------
Gross profit 9,525 6,590 15,650
Selling, general and
administrative expenses 14,939 15,957 10,192
------------ ------------ ------------
Operating income -5,414 -9,366 5,458
Other income (expenses):
Government subsidy income 177 338 1173
(Loss) gain on warrants 127 11,522 (20,806)
Loss from impaired Goodwill (36,967)
Other 1100 498 15
Interest expense (3,188) (2,090) (1,753)
------------ ------------ ------------
Total other income (expenses) (1,784) (26,698) (21,372)
------------ ------------ ------------
Income (loss) before income taxes (7,198) (36,064) (15,914)
Income taxes expense 344 424 842
------------ ------------ ------------
Net (loss) income $ (7,542) $ (36,488) $ (16,756)
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Investor Relations Contact: Stanley Wunderlich Consulting
For Strategic Growth 1, Ltd. Tel: 1-800-625-2236 ext. 7770 Email:
info@cfsg1.com Website: www.cfsg1.com Tongxin Corporate
Headquarters 199 Pierce Street, Suite 202 Birmingham, MI 48009
www.txicint.com www.hntx.com
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