Tongxin International Ltd. (PINKSHEETS: TXIC), ("the Company"), a
China-based manufacturer of engineered vehicle body structures
("EVBS") and stamped parts for the commercial automotive industry,
today announced its summary of unaudited, preliminary financial
results for the year ended December 31, 2012.
Financial Results:
Revenues: Tongxin reported total revenue
for the year ended December 31, 2012 of $78.2 million, compared to
$101.8 million of total revenue, which was previously reported
(unaudited) for the year ended December 31, 2011. The decrease in
total revenue reflects the reduction of original equipment
manufacturers production. The revenue decline was also partially
offset by increased revenue from higher value added products, such
as painted and fully-finished cabs. 2012 was an especially
difficult year in China for the production of trucks. In addition
to the constrained domestic market, TXIC exports were also reduced
due to economic constraints in those markets as well. While
production schedules increased near the end of 2012, that increase
was not sufficient to recover from the earlier months of 2012.
Costs &
Expenses: For the year ended December 31, 2012, the cost of
goods sold was $73.7 million and selling, general and
administrative (SG&A) expenses were $11.6 million. As a result,
the Company has reported an operating loss of $(7.2) million for
the year ended December 31, 2012, more than the unaudited operating
loss of $(5.4) million for the year ended December 31, 2011. The
increase in operating loss for 2012 was mainly due to a gross
profit decrease as a result of a decrease in unit selling prices in
order to maintain market share. The decrease in SG&A for 2012
is, to a significant extent, impacted by decreased spending on
legal and financial expenses.
As of December 31, 2012, cash, cash equivalents, and restricted
cash (security deposit) totaled approximately $7.8 million. Total
current assets at December 31, 2012 totaled approximately $49.1
million compared to $60.6 million at December 31, 2011. Total
current liabilities totaled approximately $74.5 million at December
31, 2012 compared to $78.8 million at December 31, 2011.
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 2012. 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, 2012)
or in an Annual Report on Form 20-F (with respect to the Company's
financial results for the years ended December 31, 2011 and
2010).
Attached are the unaudited comparative balance
sheets and income statements for the years ended December 31, 2012,
2011 and 2010.
2012 Year-End Conference Call:
The Company is also announcing today that a conference call has
been scheduled for February 25, 2013 at 10:00 A.M. Eastern Standard
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 to complete the audits. While we would
like to provide a completion date, that would be inappropriate.
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.
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.
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.
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 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, 2011 and now 2012
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 2012 for several
reasons:
1. Overall truck production in China was down 5.32% in 2012
compared to 2011.
2. We have lowered unit selling prices for our major product
line on Light & Mini Truck in order to maintain market
share.
3. The Medium Duty sector declined 2%.
4. In the Heavy Duty sector, overall production declined, for
the second consecutive year, by 28%. This compares to HNTX gains in
2010 of 110.2%. Production of units for export declined 31% from
2010 as the weak global economy impacted Viet Nam, our largest
export customer. Vietnam was severely restricted because of weaker
demand but also a lack of foreign exchange.
Q: What is happening in the CV market in 2013 in China?
A: While it is too early in 2013 to make projections, production
schedules for January and February have picked up from 2012. We are
monitoring the situation through our contacts at the OEM's;
published independent projections; and what actions the new
government is taking to resume road construction programs and
support the construction industry.
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 (35294319) 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.
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.
UNAUDITED
CONSOLIDATED BALANCE SHEETS
(US$ amounts expressed in thousands, except for share data and par value)
ASSETS December 31
Current assets: 2012 2011 2010
------------ ------------ ------------
Cash and cash equivalents $ 2,659 $ 6,288 $ 9,891
Restricted cash - security deposit 5,224 3,861 827
Notes receivable 4,330 7,328 6,954
accounts 8,244 8,711 12,395
Other receivable, net of allowance
for doubtful accounts 1 ,946 2,310 2,669
Due (to) from related parties (1229) (1205) (1151)
Inventories 25,586 30,810 29,846
Prepaid expenses and other (41) 140 172
Advance to suppliers 52 87 1,463
Deferred income tax assets 2,337 2,310 2,245
------------ ------------ ------------
Total current assets $ 49,109 $ 60,640 $ 65,312
Investments in non-consolidated
subsidiaries and affiliates 75
Property, plant and equipment, net
of accumulated depreciation 54,603 53,037 49,533
Land occupancy rights, net 13,990 14,193 13,699
Goodwill 0 0 0
------------ ------------ ------------
Total assets $ 117,702 $ 127,871 $ 128,619
============ ============ ============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities:
Accounts payable $ 22,935 $ 22,826 $ 23,394
Notes payable 8,828 6,142 1,654
Accrued expenses and other
liabilities 1,010 3,564 6,380
Income taxes payable 18,638 18,512 17,636
Short-term loans payable 23,111 27,793 24,994
Short-term loans from shareholders
Warrant liability 0 0 127
------------ ------------ ------------
Total current liabilities $ 74,521 $ 78,835 $ 74,184
Long-term liabilities:
Long-term loans payable 3,378 166 163
Deferred income tax liability 1,400 1,373 1,311
Other
------------ ------------ ------------
Total liabilities $ 79,299 $ 80,375 $ 75,658
------------ ------------ ------------
Shareholders' equity:
none issued
Common stock - $0.001 par value,
authorized 39,000,000 shares;
15,937,361, 15,937,361, and
15,827,079 shares issued and
14,347,939, 14,347,939, and
14,237,657 shares outstanding in
2012, 2011 and 2009,
respectively. $ 15 $ 15 $ 15
Additional paid-in-capital 99,093 99,093 99,093
Treasury stock, at cost -
1,589,422 common shares (7,682) (7,682) (7,682)
Appropriation to reserve &
Accumulated other comprehensive
income 7,425 6,899 4,808
Retained earnings (deficit) (60,473) (50,870) (43,328)
Minority Interests 24 41 55
------------ ------------ ------------
Total shareholders equity $ 38,402 $ 47,496 $ 52,962
------------ ------------ ------------
Total liabilities and shareholders
equity $ 117,702 $ 127,871 $ 128,619
------------ ------------ ------------
The accompanying notes are an integral part of these consolidated financial
statements.
TONGXIN INTERNATIONAL, LTD.
UNAUDITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(US$ amounts expressed in thousands)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2012 2011 2010
------------ ------------ ------------
Revenues $ 78,162 $ 101,800 $ 104,717
Cost of goods sold 73,725 92,275 98,126
------------ ------------ ------------
Gross profit 4,437 9,525 6,590
Selling, general and
administrative expenses 11,638 14,939 15,957
------------ ------------ ------------
Operating income (7,201) (5,414) (9,366)
Other income (expenses):
Government subsidy income 152 177 338
(Loss) gain on warrants Equity
earnings from eq 127 11,522
Loss from impaired Goodwill (36,967)
Other 270 1,100 498
Interest expense (2,737) (3,188) (2,090)
------------ ------------ ------------
Total other income (expenses) (2,315) (1,784) (26,698)
------------ ------------ ------------
Income (loss) before income taxes (9,516) (7,198) (36,064)
Income taxes expense 84 344 424
------------ ------------ ------------
Net (loss) income $ (9,601) $ (7,542) $ (36,488)
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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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