SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-K/A

(Mark One)

     [X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
          EXCHANGE ACT OF 1934 For the fiscal year ended June 30, 2001.

                    OR

     [ ]  TRANSITION REPORT PURSUANT TO 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)

                                206-5050 Kingsway
                    Burnaby, British Columbia, Canada V5H 4H2
--------------------------------------------------------------------------------
               (Address of Principal Executive Offices) (Zip Code)


Registrant's Telephone Number, Including Area Code       (604) 438-9827
                                                    ----------------------------

Securities registered pursuant to Section 12(b) of the Act:

         Not applicable.

Securities registered pursuant to Section 12(g) of the Act:

                      $.01 par value per share common stock
              -----------------------------------------------------
                                (Title of class)

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 past 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    X    No
    ------     ------

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K/A or any amendment to this Form 10-K/A. [ X ]

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates of the registrant - as of June 30, 2001 - $33,121,066.

          APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
                         DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

Yes         No
    ------     ------

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS




Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date: 47,162,603 shares outstanding
as of September 27, 2001.

<PAGE>


                                Explanatory Note

Tengtu International Corp. (the "Company") is filing this amendment to its
Annual Report on Form 10-K/A for the fiscal year ended June 30, 2001 in order to
restate the Consolidated Financial Statements and make the appropriate
conforming revisions to "Management's Discussion and Analysis of Financial
Condition and Results of Operations." In conjunction with a separate audit of
the Company for the fiscal year ended June 30, 2002, the Company and its Audit
Committee determined that this restatement was appropriate. The net effect of
this restatement for the fiscal year ended June 30, 2001 is as follows:
(i) a decrease in sales of $647 thousand, from $6,213 thousand to $5,566
thousand; (ii) a decrease in gross profit of $712 thousand, from $3,122 thousand
to $2,410 thousand; (iii) an increase in other income of $315 thousand, from
$633 thousand to $948 thousand; (iv) a decrease in net income (loss) of $397
thousand, from $104 thousand to ($293) thousand; and (v) a decrease in earnings
(loss) per common share of $0.016 basic and diluted to ($0.011) basic and
diluted. For additional detail of the transactions involved in the restatement
and their impact on the Consolidated Financial Statements, See Note 21 of the
Notes to Consolidated Financial Statements.






<PAGE>




                       DOCUMENTS INCORPORATED BY REFERENCE

List hereunder, the following documents if incorporated by reference and the
Part of the Form 10-K/A (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) Any annual report to security holders; (2) Any proxy or
information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or
(c) of the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security holders
for fiscal year ended December 24, 1980).

None of the above documents is incorporated by reference.

                                     PART I


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 below.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, levels of activity,
performance or achievement of the Company, 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; the ability of the Company to
implement its business strategy; the Company's access to financing; the
Company's ability to successfully identify new business opportunities; the
Company's ability to attract and retain key executives; the Company's 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 the Company's Form 10 and 10-Q filings. As a result of the
foregoing and other factors, no assurance can be given as to the future results
and achievements of the Company. Neither the Company nor any other person
assumes responsibility for the accuracy and completeness of these statements.

ITEM 1.  BUSINESS
-------  --------

         The business of Tengtu International Corp. (the "Company") is carried
out through Tengtu United Electronics Development, Co. Ltd. ("Tengtu United") a
57% owned joint venture company, and three subsidiaries, TIC Beijing Electronics
Co., Ltd. ("TIC Beijing") (wholly owned), Edsoft Platforms (Canada) Ltd.
("Edsoft Canada") (60.2% owned) and Edsoft Platforms (H.K.) Ltd. ("Edsoft H.K.")
(wholly owned by Edsoft Canada and therefore, 60.2% owned by the Company). These
companies engage in the following lines of business in China:

         -     development and marketing of e-educational system software; -
               systems integration; - sourcing and distribution of e-education
               course content; and
         -     participation in the development of a central educational portal
               and repository.

         On October 6, 2000, the assets of Iconix International, Inc. ("Iconix")
(32% owned by the Company) were sold for $5,000,000 (Canadian). The Company is
to receive a cash distribution of approximately $580,000 from the proceeds of
the sale of the assets; to date the Company has received $219,488 of these
proceeds. Collection of the balance is doubtful due to financial difficulties
experienced by the purchaser of the assets.

TENGTU UNITED
-------------

         Tengtu United is a Chinese joint venture based company in Beijing,
China, and is 57% owned by the Company. The remaining 43% is owned by Beijing
Tengtu Culture & Education Development Co., Ltd. ("Tengtu China"), the Company's
joint venture partner which is owned by the following four Chinese companies:
Legend Computer Group ("Legend Group"), Taiji Computer Corporation, Great Wall
Computer Group and Beijing Oriental Lian Fa Technology & Trade Group, Co. Ltd.
("Lian Fa"). Zhang Fan Qi, one of the Company's Directors, is the Chairman of
Lian Fa. The other three companies are controlled by either the Chinese Academy
of Science or the Chinese Ministry of Electronics. Tengtu United had three full
time employees as of June 30, 2001.

         Current Chinese government policy requires that all government
contracts involving educational software for use in Chinese schools be with
other Chinese governmental entities or Chinese-owned entities. Therefore, all of
Tengtu United's business with any government entity is conducted through Tengtu
China. Tengtu China operates the joint venture. As of June 30, 2001, Tengtu
China has approximately 180 employees working on behalf of the joint venture: 60
employees in thirteen field offices, 50 employees engaged in content development
and approximately 70 employees in administrative and other duties.





                                      -2-



         Tengtu United is the leading provider of distance learning and
e-education solutions, training and methodologies, in support of China's goals
to modernize it's kindergarten to grade 12 ("K-12") education system. The
potential market for such products and services consists of almost 800,000
Chinese schools with over 250 million students.

         Tengtu United commenced operations in the first quarter of 1997 and
developed over 100 CD- ROM titles. The majority of the software titles developed
by Tengtu United are designed to assist students to prepare for Chinese high
school and university entrance examinations. These software titles are available
by subject matter such as physics, mathematics and chemistry. The remainder of
Tengtu United's software titles are animated entertainment games for children.

         In 1998, pursuant to the Company's joint venture agreement with Tengtu
China, the Company committed to provide an additional $6,000,000 in funding to
Tengtu United to develop the application platforms needed by the K-12 market.
The Company has not yet met this funding commitment as the Company still must
provide $1,010,000 of the $6,000,000.

         In 1998, Tengtu United realized that the software titles developed by
it could not be sold in sufficient volume because an application software
platform to enable the Chinese teachers and students to utilize these programs
was not widely available and also because of the existence of software piracy.
Accordingly, Tengtu United's marketing focus changed from sales of individual
titles through Chinese retail channels to direct marketing of a "Total Solution"
platform to the school systems, including the necessary application software
platform, and the development and implementation of governmental audit and other
programs to ensure that the schools only use authorized software.

         The "Total Solution" platform now sold and marketed by the Company
pursuant to the August, 1999 "Cooperation Agreement" among Microsoft (China),
Ltd. ("Microsoft China"), Tengtu United and Tengtu China, is a bundled package
of software marketed under the name of "Tengtu-Microsoft "Total Solution"" to
K-12 schools. Tengtu United and Tengtu China continue to be Microsoft China's
exclusive selling representative for the K-12 market in mainland China. The
"Total Solution" platform now makes available, via intranet and Internet, a
comprehensive set of tools not only for computerized class instruction, but also
for school office administration and the management of educational and
multimedia resources. Designed specifically to accommodate broadband Internet
connections via satellite and cable, the "Total Solution" software is a vehicle
for distance learning.

         The Company's current principal products, other than the "Total
Solution" platform, are the Network Classroom, the Web School and the Distance
Learning Project. The Network Classroom is a multimedia electronic classroom
that permits the teacher to utilize computers at each student's and the
teacher's desks as the principal teaching and learning medium. The application
software platform includes audio broadcasting, classroom discussion,
rush-answering, electronic hand raising, video broadcasting, dialogue between
the teacher and individual students or the entire class, distance coaching,
electronic examinations and screen monitoring.

         The Web School is an Internet classroom whose main functions are free
forum, free home page making, question answering and chat rooms, the use of a
distance learning platform to search for information and to use virtual Internet
access. The Distance Learning Project is designed to permit Chinese
rural/disadvantaged areas that do not have access to the Internet or where the
access cost is too expensive to utilize satellite dishes and other non-Internet
devices to download and export information and teaching resources. The project
includes the development of the required software and installation of the
required hardware. The two principal functions are classroom teaching via live
broadcasting and the digital broadcasting of digitized teaching materials. Also,
the Company's technical and engineering personnel are focusing on the continued
development of programs and products to enhance the application software program
such as the necessary technology to permit the downloading of content from
satellites for use by the Network Classroom, as well as providing content for
the China Broadband Education Resource Centre ("CBERC") which is discussed
below.

         From 1998 through 2000, the Company had to re-adjust its business
strategy in alignment with broadening objectives of the Ministry of Education in
China. Technology and architecture was maturing to the point where an
e-education/distance learning delivery system was attainable. During this
transitional p eriod from a traditional retail business model to a model based
on newly available technologies, the Company was unable to promptly fulfill its
funding commitment to Tengtu United. As a result the Company downsized its
operations and research and development activities in 1998, 1999 and 2000. This
lack of funding combined with the low sales for non-pirated educational software
in China sold through traditional retail channels led to most of the operating
losses reflected in the Company's historical financial statements.

         From August 1999 to November 2000, Tengtu China provided substantially
all of the operating and research funds for Tengtu United. Despite its
downsizing, Tengtu United, with the assistance of Tengtu China, has continued to
work with the Chinese Ministries of Education and Ministry of Information
Technology to find ways to enable Chinese schools to incorporate information
technology into teaching.



                                      -3-



         The Company has also taken steps to improve software sales performance.
Tengtu United has worked to develop programs with the National Center for
Audio/Visual Education of the Chinese Ministry of Education ("NCAVE"), the
division of the Chinese government responsible for ensuring that every Chinese
elementary, middle and high school has at least one computerized classroom by
December 31, 2006. In particular, these programs address three concerns: (1) the
need for a mechanism to ensure the development and maintenance of educational
computer software by eliminating software piracy, (2) the unbalanced and very
scattered educational framework in China and (3) enabling the many Chinese
schools which do not have the necessary infrastructure to finance the
acquisition of the necessary hardware and software without raising taxes.

         Tengtu United expects to generate most of its future revenues from
e-education application software ("Total Solution" platforms); connectivity fees
for K-12 schools with e-education application software; user fees for students
studying outside of normal high school classes; and educational portal and
repository (CBERC) fees as an application service provider ("ASP").

         Tengtu China is one of only eight companies that has been granted an
electronic publishing license in China and believes that it is the only
privately owned company in China with a license to publish educational software.
The license, which was granted by the Chinese Bureau of News on December 1,
1998, is for one year, and is renewable each year thereafter upon approval from
the Chinese government. A renewal application has been filed and is still
pending as of July, 2001.

                   CURRENT TENGTU UNITED BUSINESS DEVELOPMENTS

         In the fiscal year ended June 30, 2001, Tengtu United completed the
first and second Torch Projects awarded by the Chinese Ministries of Education
and Information Technology. Torch Projects are national initiatives aimed at
improving the quality of education designated by the Chinese government. The
first Torch Project was the development of a Digital Library System and the
second Torch Project was the development of a General School Computer Networking
System, which includes the Network Classroom. The Digital Library System is a
computerized database and catalog of educational books and reference materials.
The purpose of the General School Computer Networking System is to introduce
computer networking to Chinese schools to enable them to realize greater
computer efficiency and sharing of computer software, including such programs as
the Web School and Digital Library.

         On September 20, 2000, Tengtu United entered into an agreement with the
Chinese Ministry of Education under the auspices of NCAVE called "Operation
Morning Sun." Under Operation Morning Sun, NCAVE made a commitment to direct the
purchase by the end of the year of 3,000 "Total Solution" platforms. The second
Torch Project was completed as part of Phase I of Operation Morning Sun.

         Tengtu United's and Microsoft China's software is now integrated on
four CDs, each containing a serial number, and with each company's name on the
appropriate CD. Microsoft China produces the CD with its programming and ships
these CDs to Tengtu United on a COD basis. The programs that are visible to the
end users developed by Tengtu United and Microsoft China have been converted to
Chinese characters. Each party pays its own translation costs.

         Certain of the Microsoft China programs, which are not visible and
commonly known as "back room" programs, may not be translated. Tengtu United
ships the CDs received from Microsoft China, along with the CDs it produces, to
either the school districts directly, or, where applicable, to its local
marketing partners, which install the CDs and any related hardware. Tengtu
United is available at no charge to consult on the installation of the programs.
The Company trains the designee for each school.

         Tengtu China has also developed software that enables the schools in
disadvantaged Chinese regions to use a satellite dish to download content for
use in the Network Classroom.

         Currently, the Company averages approximately $1,550 in gross revenue
from each school installation of the "Total Solution" platform, $629 in gross
profit and $600 in profit.

         Tengtu China, acting for the benefit of Tengtu United, has established
a close working relationship with NCAVE. NCAVE now recommends the "Total
Solution" platform as the multimedia electronic classroom to be installed as
part of the Chinese government directive that every Chinese elementary, middle
and high school has at least one computerized classroom by December 31, 2006.
However, the Chinese provincial and local educational agencies are not required
to buy the "Total Solution" platform.

         During the fiscal year ended June 30, 2001, NCAVE directed Chinese
schools to purchase 3,000 units of the "Total Solution" platform as part of
Phase I of "Operation Morning Sun,"; 3,017 units were installed by June 30,
2001. Under the Relief for Disadvantaged Regions Project, NCAVE is obligated to
direct the purchase of an additional 5,000 units of the "Total Solution"
platform. On June 19, 2001, NCAVE entered into a contract awarding Tengtu Untied
Phase II of Operation Morning Sun project to install another 15,000 "Total
Solution" platforms by December 31, 2001.



                                      -4-



         The Ministry of Education, as well as the provincial education
departments, have the right to audit the school districts and individual
schools. The Ministry of Education has advised the Company that if it finds that
a school is utilizing an unauthorized version of a designated software program,
such as an unauthorized copy of the Company's Network Classroom or the Microsoft
China components to the "Total Solution" platform, it will cease funding
information technology at that school.

         In addition to receiving Tengtu United products and services through
the Operation Morning Sun initiative or other programs that may be introduced by
the Ministry of Education or Ministry of Information and Technology, certain
economically advantaged provinces whose schools have the hardware installation
that can support the "Total Solution" platform can immediately purchase Tengtu
United's products and services directly from the Tengtu United.

         As part of its "Total Solution" project, Tengtu United has also entered
into agreements with two Chinese hardware manufacturers to supply their products
to the Chinese K-12 schools. The first is with Legend Group, a minority owner of
Tengtu China, and also the largest hardware manufacturer in China. The second is
with Taigu Computer Company ("Taigu"), which manufactures inexpensive desktop
computers specifically for use in schools. Under these agreements, Legend Group,
Taigu and Tengtu United are marketing partners recommending each other's
products and if Tengtu United's software is sold as part of a package, the
marketing partner is charged a wholesale price. If the end user school buys
software directly from Tengtu United, it is invoiced the retail price. However,
Tengtu United has found it is more cost effective and logistically more
efficient to market to governmental agencies and distributors that are invoiced
at a wholesale price.

         While most orders received have been shipped, installation has not been
completed for many schools because the schools and distributors do not have
adequate technical personnel. The Company believes that this installation
bottleneck has now been solved by the establishment of provincial branch offices
to provide the necessary technical and training support. Each branch office has
start-up costs of approximately $40,000, plus a monthly operating budget of
$10,000 to $12,000. The Company currently has thirteen branch offices and, by
December 31, 2001, it intends to have a total of twenty branch offices, which
should further increase the rate of installation, as well as facilitate the sale
of the Company's other services and products.

         On April 9, 2001, Tengtu China and Beijing Tengtu Tian Di Network Co.,
Ltd., a company owned by Zhang Fan Qi, one of the Company's Directors, which
holds a necessary network license, entered into a Memorandum of Intent with the
Chinese Ministry of Education on behalf of Tengtu United for the establishment
of the China Broadband Education Resource Center ("CBERC") under NCAVE and to
establish the CBERC educational portal and repository as an ASP for the
distribution of distance learning, educational information and e-business
products to individual schools for an annual base fee. There will be additional
charges for special programs and additional services, if requested by the
subscribing school. Non-subscribers will be charged a usage fee for each
instance it uses any of the materials distributed by or through the CBERC. For
those schools that already have the "Total Solution" platform, the Company will
furnish one free upgrade if it becomes a subscriber to the CBERC. The upgrade
package was completed in May, 2001. For those schools which have not yet
purchased the "Total Solution" platform as part of Phases I and II of Operation
Morning Sun, the Company will provide the required satellite equipment free of
charge if they sign-up and pay for the first year's annual base subscription fee
to permit usage of the CBERC distributed materials and products.

         Tengtu United is required to invest RMB 80 million (approximately $10
million), and furnish the required hardware and certain software. The Ministry
of Education is required to obtain the required licenses for the education
portal and satellite broadcasting and other necessary coordination and
facilitation services. Upon obtaining profitability this project will be set up
as an independent entity, with Tengtu United to receive 70% of the profits and
NCAVE to receive 30% of the profits. The Company anticipates completion of the
construction of the education portal for the CBERC by the end of 2001.
$1,000,000 was advanced in April, 2001 pursuant to Tengtu United's commitment to
the CBERC project.

         The Company believes that this will set the stage for the schools to
become purchasers of the "Total Solution" platform and other Company products to
be used on that platform. For schools in disadvantaged regions that cannot
afford any computer networking equipment (e.g., schools that have only a
television or one computer), the Company will donate the satellite reception
equipment and sell them 100 CD ROM titles at a reduced cost. The Company's
long-range goal is to build up the necessary relationship so that eventually
many of these schools will become purchasers of the "Total Solution" platform
and subscribers to the CBERC.

         The Company is currently seeking strategic partners from North America
to provide content to the CBERC educational portal and repository. In January,
2001, the Company entered into an agreement with the Centre for Education and
Training ("CET"). CET is an entrepreneurial not-for- profit corporation based in
Mississauga, Canada which is associated with the Peel Board of Education, one of
Canada's largest provincial school boards. CET will identify, source, evaluate
and acquire education and training materials from a variety of educational
sources including school boards, colleges, universities, professional
associations, private sector publishing and multimedia companies. CET will be
able to assess the pedagogical approach of proposed course content for target
learners, the applicability of the online environment and degree to which
programs meet standards set by certification bodies. In addition, a key
component is the Centre's ability to develop or convert course content into an
online and/or digital format through its Innovations Media division. CET
involvement will greatly assist the goal of the Ministry of Education to move
its school system to a more student-centered learning environment.



                                      -5-




         On April 2, 2001, the Company entered into a Letter of Intent with the
American Education Corporation ("AEC") to supply it with untranslated content
for its educational portals in China, Hong Kong, Taiwan and Canada. The Company
will be responsible for all content localization costs. The Company anticipates
completion of the construction of the educational portal for the CBERC by the
end of 2001.

         In August, 2001, Tengtu United, through Beijing Tengtu Tian Di Network
Co., Ltd, entered into a "Cooperation Agreement", with the Chinese Ministry of
Education and the ShanDong Province to establish a regional e-education network
referred to as the "School to School Connection." The Cooperation Agreement
states that all elementary and secondary schools in the ShanDong Province, of
which there are approximately 40,000, are to become part of the CBERC and that
the parties are to cooperate in the establishment of a "Main-Trunk Network"

         Utilization fees under the Cooperation Agreement are to be collected
every six months. The fees to be charged for content transmitted by satellite
and distance learning programs and are as follows (based upon the exchange rate
of September 12, 2001 of 0.120818 U.S. dollars per RMB): RMB 500 (U.S.$60) per
month for senior high schools; RMB 300 (U.S.$36) per month for junior high
schools; and RMB 200 (U.S.$24) per month for elementary schools.

         Required satellite equipment and software is to be provided free of
charge. In addition, Tengtu United is to provide 100 CD titles free of charge.
The Cooperation Agreement requires the Ministry of Education to obtain the
required licenses for the educational portal and repository and satellite
broadcasting and other necessary coordination and facilitation services.

         Initially, 65% of the utilization fees are to be paid to Tengtu United.
Once Tengtu United has redeemed its total investment in the project through the
receipt of utilization fees, the distribution of such fees may be reviewed and
revised.

         The Cooperation Agreement is for a 14-year term. Pursuant to the
Cooperation Agreement, Tengtu United is to invest capital in the following
phases: RMB 10 million (U.S.$1,208,180) by the end of September, 2001; RMB 20
million (U.S.$2,416,360) before December 31, 2001; and RMB 20 million
(U.S.$2,416,360) plus a 20% increase each year after 2001.

         Tengtu United has already contributed $1,500,000 in capital and will be
required to contribute an additional U.S.$2,124,540. The Company currently does
not have the $2,124,540 necessary to fund this project and is seeking this
financing from several potential investors. However, there is no guarantee that
such financing will be available. If the Company fails to obtain the necessary
financing by December 31, 2001, the Company may lose its investment in the
project.

         The Company is currently negotiating the three additional Chinese
provinces, Sichuan, Shaanxi and Jiangsu to enter into Cooperation Agreement
similar to the agreement with the ShanDong Province.

EDSOFT PLATFORMS (CANADA) LTD. AND EDSOFT PLATFORMS (H.K.) LTD.
---------------------------------------------------------------

         In July, 1999, the Company formed a joint venture company, Edsoft
Canada, in which the Company has a 60.2% interest, to market and sell
educational software tailored to the educational market in Hong Kong (including
software developed in China by Tengtu United) through Edsoft H.K., a Hong Kong
company wholly owned by Edsoft Canada. Edsoft Canada has no employees. Edsoft
H.K. has 5 employees.

         During July 2000, Edsoft H.K. underwent a restructuring in order to
focus on sales of its multimedia Digital Classroom software in Hong Kong, which
it recently completed as a modification of Tengtu China's Network Classroom
software and which is sold as "Digital Classroom" under an exclusive agreement
with Tengtu China.

         Edsoft H.K. has also begun execution of its long-term e-education
business strategy. This strategy facilitates a change in Edsoft H.K.'s business
direction from a systems integrator to an ASP and Internet content provider. The
Edsoft H.K. "Digital Classroom" is now installed in 160 schools in Hong Kong
that represents approximately 13% of the Hong Kong K-12 market.

         "Web Schools," the brand name for Edsoft H.K.'s e-education line of
products and services, was developed in co-operation with Netopia Inc. Web
Schools offers an integrated information management, teaching and service
support solution to schools in Hong Kong and other Chinese and English speaking
areas of Southeast Asia, exclusive of mainland China. This system is designed to
enable Edsoft H.K. to charge a monthly fee, rather than selling the individual
hardware and software components.

TIC Beijing Digital Pictures Co., Ltd.
--------------------------------------

         TIC Beijing is the Company's wholly owned subsidiary that commenced
operations in July 1997. TIC Beijing's primary business is to provide
information technology services to the education and entertainment industries in
China, focusing on animation and multimedia.




                                      -6-




Specifically, TIC Beijing has the capability to produce two and three
dimensional animation, digital integration for television post-production and
digital visual effects for movies. Recently, relatively inexpensive hardware and
software for animation became available, making it very difficult for TIC
Beijing, with its expensive equipment and larger and more expensive staff, to
compete for most of the post-production work now available in China.

ebiztengtu.com, Inc.
--------------------

         On March 6, 2000, the Company formed ebiztengtu.com, Inc. in Delaware
as a wholly owned subsidiary to focus on Internet related businesses but to date
that subsidiary has been inactive.

COMPETITION

         With respect to the development and sale of application software
platforms to the K-12 market in mainland China, the Company is aware of the
following competitors: IBM China, Novell China and companies marketing Linux
based platforms. The Company has no information as to the nature and extent of
their sales of application software platforms to the K-12 market. There are a
number of domestic Chinese companies, as well as foreign companies, which
produce individual software programs that can be utilized by teachers and
students. The Company has no knowledge of their sales into the K-12 market at
the school and school district level. Certain of these programs are marketed by
other companies directly to the students and their parents, but this is not the
market in which the Company is currently focusing.

         Tengtu United's competition, with respect to educational software
programs for use in China, consists of numerous Chinese and foreign software
manufacturers. Edsoft H.K.'s competition consists of local dealers that sell
products similar to the Digital Classroom and a number of Internet based web
initiatives in Hong Kong that are similar to portions of Web Schools. None of
the web initiatives however, offer all segments offered by Web Schools.

         TIC Beijing's competition consists of five local Beijing studios and a
number of newly formed independent post-production entities.

EMPLOYEES

         Exclusive of subsidiaries and the Company's joint venture, the Company
has seven employees or contractors. None of the Company's revenues are derived
from operations in the United States.

FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
--------------------------------------------

         The Company operates principally in three geographic areas: China,
Canada and Hong Kong. The following is a summary of the information by area for
the fiscal year ended June 30, 2001 (rounded to the nearest $000). For the
fiscal years ended June 30, 2000 and 1999, the Company had minimal sales and
incurred principally administrative expenses.

Net Sales to Unaffiliated Customers:

         China                                             $5,347,000
         Canada                                                     0
         Hong Kong                                            219,000
                                                           ----------
                                                           $5,566,000

Income (Loss) From Operations

         China                                             $1,356,000
         Canada                                                     0
         Hong Kong                                           (108,000)
Other income                                                  865,000
General corporate expenses                                 (2,406,000)
Net Loss                                                   $ (293,000)

Identifiable Assets

         China                                             $7,508,000
         Hong Kong                                             27,000
General corporate assets                                    1,298,000
Total Assets                                               $8,833,000

         There were no interarea sales in the fiscal year ended June 30, 2001.
Identifiable assets are those that are identifiable with operations in each
geographical area. General corporate assets consist primarily of cash, cash
equivalents, fixed assets and prepayment. Sales are attributed to areas based on
location of customers.



                                      -7-





ITEM 2.   PROPERTIES
-------   ----------

         The Company does not own any significant physical properties.

         The Company has entered into operating leases for office space. The
minimum rental payments on these leases for the fiscal year ending June 30, 2002
is $52,000.

         Rent expense for the years ended June 30, 2001, 2000 and 1999 has been
charged as follows:

                                                       YEAR ENDED JUNE 30,
                                                       -------------------
                                               2001         2000        1999
                                               ----         ----        ----

        General and administrative expense    $94,207       $62,671    $54,551
        Selling Expense                       $69,747         6,281      8,900
        Cost of sales                         $35,433        33,945     52,114
                                             --------     ----------  --------
        Total rent expense                   $199,387      $102,897   $115,565
                                             ========     ==========  ========

ITEM 3.  LEGAL PROCEEDINGS
-------  -----------------

         On September 12, 2001, Swartz Private Equity, LLC ("Swartz") served the
Company with a complaint which was filed in state court in Fulton County,
Georgia. The complaint was filed in response to the Company's August 28, 2001
letter advising Swartz that it viewed the October 25, 2000 Investment Agreement
between the Company and Swartz, along with the accompanying commitment warrants,
to be void and unenforceable.

         The complaint alleges that the Company breached the Investment
Agreement and commitment warrants by failing to deliver 250,000 shares upon
Swartz's partial exercise of the commitment warrant and seeks the following
damages: (1) a $200,000 termination fee under the Investment Agreement, (2) a
cash amount equal to the value of the Company's common stock on the date of
partial exercise of the commitment warrant, (3) damages for late delivery of
shares under the commitment warrant, (4) monetary damages for lost market
opportunity equal to the highest value of the Company's common stock during the
term of the breach, (5) a replacement warrant for 850,000 shares of the
Company's common stock, (6) attorney's fees, (7) additional warrants under a
Warrant Anti-Dilution Agreement, and (8) such other and further relief as the
court deems just and proper.

         Swartz has advised the Company's counsel that it intends to amend the
complaint to add a claim based on a failure to permit Swartz's cashless exercise
of the balance of the commitment warrant, for 670,556 shares of the Company's
common stock, and seek damages based on the highest value of the Company's
common stock during the term of the breach.

         The Company plans to deny each of Swartz' substantive allegations. The
Company also believes that it has meritorious defenses and intends to vigorously
defend this action. The damages alleged by Swartz, should Swartz prevail, could
exceed 10% of the Company's current assets as of June 30, 2001.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------  ---------------------------------------------------

         No matters were submitted to the vote of the security holders during
the fourth quarter of the fiscal year ended June 30, 2001.

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS
-------  -----------------------------------------------------------------

         The principal market where the Company's common equity is traded is the
over-the-counter Bulletin Board. The high and low bid prices of the Company's
common stock for each quarter within the last two fiscal years were:

CALENDAR QUARTER                    HIGH/ASK                 LOW/BID
----------------                    --------                 -------

3rd Quarter 1999           -            .25                    .125

4th Quarter 1999           -         4.1875                     .25

1st Quarter 2000           -          4.875                    1.875

2nd Quarter 2000           -         2.6875                      .95

3rd Quarter 2000           -         1.7969                     .875

4th Quarter 2000           -          .9688                    .2188

1st Quarter 2001           -          .5312                    .2188

2nd Quarter 2001           -           1.36                      .25



                                      -8-



         The above over-the-counter market high and low bid quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not necessarily represent actual transactions. These high and low bid quotations
were obtained from America Online.

         As of June 30, 2001 there was one class of common equity held by
approximately 2600 holders of record. No dividends have been declared during the
last two fiscal years. There are no restrictions which affect or are likely to
affect the Company's ability to pay dividends in the future. However, the
Company does not expect to pay dividends in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES
---------------------------------------

         On November 17, 2000, the Company entered into a loan agreement,
subsequently amended on December 21, 2000, with Orion Capital Incorporated
("Orion") under which Orion loaned the Company $1,000,000 until December 31,
2001, with an interest rate of 10% (the "First Orion Loan"). In connection with
the loan, the Company granted Orion a warrant to purchase 670,000 shares of the
Company's common stock with an exercise price of $.30. The issuance of the
warrants was accomplished in reliance upon Section 4(2) of the Securities Act.
The facts relied upon for the exemption are that Orion is an accredited
investor.

         On March 2, 2001, the Company entered into a loan agreement with Orion
pursuant under which Orion loaned the Company $1,000,000 in exchange for a 15
month, 10% convertible promissory note (the "Second Orion Loan"). The note is
convertible into common stock at the rate of $.30 per share, or an aggregate of
3,333,333 shares. The issuance of the convertible note was accomplished in
reliance upon Section 4(2) of the Securities Act. The facts relied upon for the
exemption are that Orion is an accredited investor.

         On April 20, 2001, in exchange for documented advances of funds of no
less than $107,671 from William Ballard to or for the Company's benefit between
October 1, 2000 and April 1, 2001, the Company issued 333,333 shares of common
stock at Mr. Ballard's direction to Orion. The issuance of the shares was
accomplished in reliance upon Section 4(2) of the Securities Act. The facts
relied upon for the exemption are that Mr. Ballard and Orion are accredited
investors.

         On June 14, 2001, the Company sold 13,260,669 shares of common stock in
a private placement (the "Private Placement") to certain qualified investors for
an aggregate purchase price of $3,978,200. The issuance of the Private Placement
shares was accomplished in reliance upon Regulation S promulgated under the
Securities Act. The facts relied upon for the exemption are that each of the
private placement investors are non-U.S. persons as defined under the Securities
Act.

         Concurrently with the closing of the Private Placement, the First Orion
Loan and Second Orion Loan were converted into an aggregate of 6,666,666 shares
of the Company's common stock, all warrants issued or issuable in connection
with the loans were cancelled, and $61,259 in interest on the loans was
converted, at Orion's option under the loan agreements, into 204,197 shares of
the Company's common stock in lieu of the cash payment of interest to Orion. The
issuance of the shares was accomplished in reliance upon Section 4(2) of the
Securities Act. The facts relied upon for the exemption are that Orion is an
accredited investor.

         On April 1, 2000, the Company issued 25,000 shares to Gregory Mavroudis
pursuant to a consulting contract dated April 1, 2000, which shares were accrued
as an expense at the cost of $24,200. The issuance of the shares was
accomplished in reliance upon Section 4(2) of the Securities Act. The facts
relied upon for the exemption are that Gregory Mavroudis is an accredited
investor.

         Pursuant to a contract with the Company's former Controller, Simon Hui,
Mr. Hui was issued 150,000 shares of the Company's common stock on June 15, 2001
for which a charge to compensation expense of $79,650 and a retroactive bonus of
$39,404 were accrued at the quarter ended December 31, 2000. The sale was
accomplished in reliance upon Section 4(2) of the Securities Act. The facts
relied upon for exemption are that Simon Hui was an accredited investor by
virtue of his position as an Executive Officer of the Company.

         Subsequent to March 31, 2001, the Company became obligated to issue
50,000 shares to Goodwill Technologies, Ltd. ("Goodwill") pursuant to an
agreement dated October 1, 2000. The shares were valued at $48,400 and are to be
expensed over one year. The charge to operations for the year ended June 30,
2001 was $36,300. The sale was accomplished in reliance upon Section 4(2) of
the Securities Act. The facts relied upon for exemption are that Goodwill was an
accredited investor.



                                      -9-



         On August 10, 2001, the Company closed the sale of 502,601 shares of
common stock to investors who participated in the Private Placement for
$618,200. The additional investors executed Extension Agreements granting
registration rights for the new shares consistent with the registration rights
granted for the Private Placement shares. The issuance of the additional Private
Placement shares was accomplished in reliance upon Regulation S promulgated
under the Securities Act. The facts relied upon for the exemption are that each
of the Private Placement investors are non-U.S. persons as defined under the
Securities Act.

         On August 2, 2001, the Company closed the sale of 1,219,512 shares of
common stock to Bestler International Limited for the benefit of an accredited
investor, for $1,500,000. Bestler International Limited was granted registration
rights. The issuance of the shares to Bestler International Limited was
accomplished in reliance upon Regulation S promulgated under the Securities Act.
The facts relied upon for the exemption are that the beneficial owner is a non-
U.S. person as defined under the Securities Act.

ITEM 6.  SELECTED FINANCIAL DATA
-------  -----------------------

         The following is selected summary financial information for the past
five years of the Company's operations presented on a consolidated basis.

<TABLE>
<CAPTION>


                                            FOR THE FISCAL YEAR ENDED JUNE 30,

                            2001            2000              1999              1998          1997
                            ----            ----              ----              ----          ----


<S>                        <C>              <C>               <C>               <C>             <C>
Total Assets               $8,833,335       $2,407,842        $1,911,912        $2,871,926      $5,763,961

Total Sales                 5,566,039          358,026           624,121         3,223,170       2,135,066

Income (Loss) From           (293,169)      (4,701,285)       (1,886,399)       (4,402,014)     (3,929,390)
Continuing Operations

Income (Loss) From Continui     (.012)           (.225)           (0.097)            (.234)          (.220)
Operations per Common Share

Dividends Declared per              0                0                 0                 0               0
Common Share

</TABLE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATION
-------  -----------------------------------------------------------------------

OVERVIEW

         The Company, through its 57% owned Chinese joint-venture company Tengtu
United, is the leading provider of distance learning and e-education solutions,
training and methodologies, in support of China's goals to modernize it's K-12
education system.

         China is a large country with a large population; 800,000 K-12 schools
serve an estimated 250 million students. However, due to the relative size of
China's economy compared to its population, China's annual government
expenditures on education only reach approximately $15 per capita. China has set
a number of priorities to modernize its educational system, to develop a
position and capability for its domestic needs and for the competitive
international marketplace. China's government has declared that one of its major
initiatives is to provide students and teachers with access to education
databases and course instruction through the use of computers and the Internet.

         Effective June 2000, Tengtu United's application software known as the
"Total Solution" platform, became the only education software solution
officially endorsed by the Ministry of Education for use in China's K-12
schools. Tengtu United's "Total Solution" platform makes available via Intranet
or Internet a comprehensive set of tools for computerized class instruction,
on-line learning, school office administration, and management of educational
and multimedia resources. The "Total Solution" platform is designed to
accommodate broadband Internet connections via satellite and cable and is an
ideal tool to support distance learning. Partners in this platform include
companies such as Microsoft China.

         The "Total Solution" platforms are being installed under Operation
Morning Sun, a project awarded to Tengtu United by the Chinese Ministry of
Education and through contracts with provincial education ministries.



                                      -10-



         In April 2001 Tengtu China, on behalf of Tengtu United, entered into an
agreement with the Ministry of Education for the establishment of the CBERC
education portal and repository as an ASP for the distribution of distance
learning, educational information and e-business products to individual schools
for an annual base fee.

         In the final quarter of the Company's fiscal year, Tengtu United fully
launched Operation Morning Sun in over 20 provinces, installing 3,017 "Total
Solution" platforms in Phase I of the project.

         In fiscal 2001, sales were derived primarily from the sale of "Total
Solution" platforms. Other sales consisted of ancillary products, consulting
services and sales of Edsoft e-education products in Hong Kong.

         As Operation Morning Sun is expanded, provincial education ministry
contracts are signed and the CBERC project is launched, Tengtu United hopes to
benefit from a number of revenue sources, including:

         1. E-education application software. Each K-12 school in China requires
e-education application software such as Tengtu United's "Total Solution"
platform.

         2. Connectivity fees for K-12 schools with e-education application
software.

         3. User fees for students studying outside of the K-12 school system.
The Chinese government has identified a market of over 40 million students for
the delivery of on-line secondary school courses.

         4. CBERC fees as an Application Service Provider.  CBERC annual fees
will be between $125 and $604 per school.

         In August 2001, Tengtu United, through Beijing Tengtu Tian Di Network
Co., Ltd., entered into a "Corporation Agreement," with the Chinese Ministry of
Education and the ShanDong Province to establish a regional e-education network
referred to as the "School to School Connection." The Cooperation Agreement
states that all elementary and secondary schools in the ShanDong Province, of
which there are approximately 40,000, are to become part of the CBERC and that
the parties are to cooperate in the establishment of a "Main-Trunk Network."

         Utilization fees under the Cooperation Agreement are to be collected
every six months as follows: RMB 500 (U.S. $60) per month for senior high
schools; RMB 300 (U.S. $36) per month for junior high schools; and RMB 200 (U.S.
$24) per month for elementary schools.

         Initially, 65% of the utilization fees are to be paid to Tengtu United.
Once Tengtu United has recouped its total investment in the project, the
distribution of such fees may be reviewed and revised.

         The Cooperation Agreement is for a 14-year term. Pursuant to the
Cooperation Agreement, Tengtu United is to invest capital in the following
phases: RMB 10 million (U.S. $1,208,180) by the end of September, 2001; RMB 20
million (U.S. $2,416,360) before December 31, 2001; and RMB 20 million (U.S.
$2,416,360) plus a 20% increase each year after 2001.

         Tengtu United has already contributed $1,500,000 in capital and will be
required to contribute an additional $2,124,540. The Company currently does not
have the $2,124,540 necessary to fund this project and is seeking this financing
from several potential investors. However, there is no guarantee that such
financing will be available. If the Company fails to obtain the necessary
financing by December 31, 2001, the Company may lose its investment in the
project.

LIQUIDITY AND CAPITAL RESOURCES FOR THE FISCAL YEARS ENDED JUNE 30, 2001, 2000
AND 1999

Fiscal Year Ended June 30, 2001
-------------------------------

         For the fiscal year ended June 30, 2001, net cash used by operating
activities totaled $5,967,658.

         The net loss for the year, $293,169, included such non-cash items as
depreciation and amortization ($286,468), non-cash compensation expenses
associated with the issue of common shares for services ($987,846), and non-cash
interest expense related to convertible debentures ($79,695), resulting in a net
cash increase of $1,060,840.

         This increase in cash was offset by increases in operating assets
associated with the completion of Phase I and start of Phase II of Operation
Morning Sun. Operation Morning Sun required $5,160,338 in working capital to
complete the installation of the 3,017 "Total Solution" platforms and prepare
for the start of Phase II of the project. The accounts receivable balance
related to the installation of the Phase I platforms was the most significant
component of this working capital requirement at $3,895,063. Collection of these
balances under Operation Morning Sun is longer than under normal business terms
due to the funding process inherent in the Chinese education system. The Company
is working with its joint venture partner, Tengtu China, and the Chinese
Ministry of Education to ensure the balances are collected in a timely manner.
In addition to the working capital required for Operation Morning Sun, the
Company advanced $1,000,000 to start work on the CBERC project.

         Prepaid expenses increased due to the recording of a prepaid financing
expense. The decrease in accounts payable is related to a $632,974 reversal of
accrued balances in the past years including a lawsuit with a former landlord in
China that has been resolved with minimum liability.

         Net cash used in investing activities was minimal; $5,013 was used to
purchase various office equipment.

         Net cash flow from investing activities was $6,085,200. The funds were
used primarily to fund the start of Operation Morning Sun and the CBERC project.

         In November 2000 under the First Orion Loan agreement the Company
borrowed $1,000,000 from Orion, until December 31, 2001, with an interest rate
of 10%. In connection with the loan, the Company granted Orion a warrant to
purchase 670,000 shares of the Company's common stock with an exercise price of
$.30. In March 2001, the Company borrowed an additional $1,000,000 from Orion,
pursuant to the Second Orion Loan agreement under which Orion loaned the Company
$1,000,000 in exchange for a 15 month, 10% convertible promissory note. The note
was convertible into common stock at the rate of $.30 per share.



                                      -11-



         On June 14, 2001, the Company sold 13,260,669 shares of common stock in
a private placement for an aggregate purchase price of $3,978,200 or $0.30 per
common share. Concurrently, the First and Second Orion Loans were converted at a
conversion price of $0.30 per common share into an aggregate of 6,666,666 shares
of the Company's common stock and all warrants issued or issuable in connection
with the loans were cancelled.

         Other transactions involving issuing common shares included the
conversion of $61,259 in interest on the First Orion Loan and Second Orion Loan
at $0.30 per common share, at Orion's option under the loan agreements, into
204,917 shares of the Company's common stock in lieu of the cash payment of
interest to Orion. 188,384 of their shares were issued on July 2, 2001. In
addition, in exchange for advances of funds of $107,671 from William Ballard to
the Company between October 2000 and April 2001, the Company issued 333,333
shares of common stock to Orion, at Mr. Ballard's direction.

         Pursuant to a contract between the Company and Orion, William Ballard
will provide consulting services to the Company for a twenty-four month period
that commenced in December 2000. As compensation for the services, the Company
agreed to issue Orion 20,834 shares of the Company's common stock each month.
During the fiscal year ended June 30, 2001, 145,838 shares were issued to Orion
and a charge to compensation expense of $84,669 recorded.

         Pursuant to a contract with the Company's former Controller, Simon Hui,
Mr. Hui was issued 491,033 shares of the Company's common stock on June 15, 2001
for which a charge to compensation expense of $61,844 was recorded.

         The net cash flows from financing activities exceeded the funds used to
launch the Operation Morning Sun, start the CBERC project and support other
corporate activities by $112,529. After taking into consideration a negative
foreign exchange effect of $5,220, cash increased by $107,309 to $1,026,400.

         Subsequent to year-end, the Company sold a total of 1,722,113 shares of
common stock for $2,118,200 or $1.23 per common share. $1,500,000 of these funds
were used to fund the start of Tengtu United's new contract in China with the
ShangDong province, and the remainder is being used for general corporate
purposes.


Fiscal Year Ended June 30, 2000
-------------------------------

         For the fiscal year ended June 30, 2000, net cash used by operating
activities totaled $1,185,677, including a net loss of $4,701,285, and
depreciation and amortization of $266,614. Accounts receivable, prepaid
expenses, inventories, and other assets decreased by $22,398, $26,188, $16,377
and $28,390 respectively, primarily due to a write down of obsolete inventory,
scaling down and the product refocusing of Tengtu United operations during the
year. Accounts payable, accrued expenses, due to related party consultants and
other liabilities increased by $90,249, $14,384, $355,477 and $366,267,
respectively. To conserve cash, the Company deferred payment to consultants and
senior management until a major financing.

         During the year, the Company issued common stock for services totaling
$947,813 and recorded an interest expense due to a beneficial conversion feature
of $1,194,334 on the convertible debenture issued during the year.

         Net cash used by investing activities amounted to $42,535 primarily due
to acquisitions of equipment for the start-up operations of Edsoft H.K. Funds
generated by financing activities during the year included the $1,500,000
convertible debenture, $258,064 from an Edsoft H.K. shareholder and $100,000
from a Director. During the year, the Company issued shares for $175,725.

         The Company incurred a net loss of $4,701,285 for the year ended June
30, 2000, and, as of that date, had a working capital deficiency of $2,886,444.
During the fiscal year ended June 30, 2000, the Company continued a
restructuring and reduction of operating expenses to a minimum and deferred
payments of consulting and management fees.

         The Company issued a convertible debenture of $1,500,000 and received
$250,000 ($150,000 for the Company's shares and a $100,000 short term loan) from
a shareholder/Director. On October 6, 2000, Iconix sold all of its assets.

         During the fiscal year ended June 30, 2000, Tengtu China continued to
provide funding for Tengtu United's operations and the "Total Solution" platform
was being shipped and installed in China.




                                      -12-



Fiscal Year Ended June 30, 1999
-------------------------------


         For the fiscal year ended June 30, 1999, net cash used by operating
activities totaled $232,878, including net loss of $1,886,399, and depreciation
and amortization of $292,808. Prepaid expenses, inventories, advances to
suppliers and other receivables decreased by $5,307, $191,164, $122,415,
$13,382, respectively, primarily due to a write down of obsolete inventory and
scaling down and product refocusing of Tengtu United operations during the year.
Accounts receivable, other assets, and advance to Director increased by $76,644,
$44,307 and $30,000, respectively, primarily due to longer terms extended to
customers and an advance of $30,000 to an Officer. Due from investee (Iconix)
decreased by $50,000 due to a loan repayment from the investee. Accounts
payable, accrued expenses and due to related party consultants increased by
$87,615, $53,019 and $481,124, slightly offset by other liabilities by $1,768.

         To conserve cash, the Company deferred payments to consultants and
senior management. At the end of the fiscal year ended June 30, 1999, the
Company set up a provision for bad debt of another $143,081 for overdue
receivables. During the fiscal year ended June 30, 1999, the Company issued
common stock for services of $303,813 and recorded the decrease of investment at
equity of $65,274 due to the losses of the investee (Iconix).

         Net cash used by investing activities amounted to $63,959 primarily due
to acquisitions of machinery and equipment for the animation center at TIC
Beijing. There were no funds generated by financing activities during the fiscal
year ended June 30, 1999.

FISCAL YEAR 2001, 2000 AND 1999 COMPARATIVE OPERATING RESULTS

Revenues
--------

                     2001                    2000                    1999
                    ------                  ------                  ------
                  $5,566,039               $358,026               $624,121

         The Company's sales increased in 2001, due to the start of Operation
Morning Sun, under which 3,017 "Total Solution" platforms were sold at an
average price of $1,547 for total revenue of $4,667,123 or 83.8% of sales. Sales
of other e-education products and services through Tengtu United were $539,437
or 9.7% of sales. Tengtu United's operations accounted for 93.5% of sales.
Sales of educational software and services by Edsoft H.K. were $218,643 or 3.9%
of sales. Other miscellaneous revenue from TIC Beijing accounted for the
remaining $140,805 in revenue.

         Revenue in both 2000 and 1999 was depressed due to the downsizing and
product refocusing of Tengtu United's operations and the delay of "Total
Solution" platform shipments and installations caused by the Company's inability
to attract financing to the projects. In 2000 and 1999 the Company derived its
revenues from systems integration, educational and entertainment software, and
animation businesses. Revenue in 2000 from Tengtu United was $232,668 and
miscellaneous revenue from TIC Beijing was $125,358.

Gross Profit (Loss)
-------------------

                    2001                      2000                    1999
                   ------                    ------                  ------
                  $2,410,196               $(148,838)             $(145,487)

         The gross profit in 2001 was attributable primarily to the 3,017 "Total
Solution" platforms sold. The gross margin for these items, at 40.7%, was
$1,897,487 or $629 per platform. Gross margins on the other e-education products
and services was $512,709 or 57%.

Research and Development Expenses
---------------------------------

                   2001                      2000                  1999
                  ------                    ------                ------
                  $   0                     $   0                 $1,440


         No research and development expenses were undertaken by the Company in
2001 as the Company focused its activities on launching of Operation Morning
Sun. No or minimal research and development expenses were recorded by the
Company in 2000 and 1999 because such activities were funded by Tengtu China,
the Company's joint venture partner.

General and Administrative Expenses
-----------------------------------

                     2001                      2000                  1999
                    ------                    ------                ------
                  $2,014,899                $1,537,833            $699,582




                                      -13-



         General and administrative expenses increased in 2001 from fiscal 2000
due to increased activities in Tengtu United associated with the launch of
Operation Morning Sun. General and administrative expenses increased in 2000
from fiscal 1999 primarily due to approximately $300,000 in financing costs
incurred for the $1,500,000 convertible debenture sold in 2000, Edsoft H.K.'s
start-up expenses and the introduction of the "Total Solution" platform.


Related Party Consultants
-------------------------


                     2001                      2000                  1999
                    ------                    ------                ------
                  $ 829,772                 $1,492,813            $ 774,870

         Related party consultants' expense decreased in 2001 from fiscal 2000
primarily due to the reversal of certain expenses accrued in 2000 in the amount
of $300,000. Related party consultants' expenses increased in 2000 from
fiscal 1999 primarily due to non-cash compensation expense of $750,000 and
accrued consultant fees of $80,000 for an Officer.


Bad Debt
--------

                    2001                      2000                   1999
                   ------                    ------                 ------
                  $163,684                  $ (8,984)              $143,347

         Bad debt expenses in 2001 relate to products and services sold earlier
in the year by Tengtu United as Operation Morning Sun was launched. There was a
bad debt recovery of $8,984 in fiscal 2000 from an over-provision of $143,347 in
fiscal 1999.


Advertising Expense
-------------------

                    2001                      2000                   1999
                   ------                    ------                 ------
                  $ 39,406                  $ 28,991               $   19

         Limited amounts were spent in 2001 and 2000 on advertising to promote
the "Total Solution" platform in China. Advertising expenses were minimal in
fiscal 1999 due to the downsizing and product refocusing of Tengtu United's
operations.

Selling Expense
---------------

                    2001                      2000                  1999
                   ------                    ------                ------
                  $602,132                  $ 74,819              $ 52,671

         In each fiscal year selling expenses related almost entirely to the
launch of Operation Morning Sun by Tengtu United and in 2001 is also
attributable to setting up offices in various provinces and providing training
to purchasers. Limited amounts were spent in 2000 and 1999 due to downsizing and
product refocusing of Tengtu United's operations on the "Total Solution"
platform. As the "Total Solution" platform was made available and Phase I of
Operation Morning Sun was launched in 2001, selling costs increased accordingly.


Depreciation and amortization
-----------------------------

                    2001                      2000                  1999
                   ------                    ------                ------
                  $ 55,910                  $ 58,698              $ 43,217

         During the downsizing and product refocusing of Tengtu United's
operations in 1999 and 2000, joint venture partner Tengtu China took over
management of Operation Morning Sun on behalf of the joint venture. Accordingly,
the Company has not made any significant purchases of equipment in the past
three years and depreciation and amortization expenses have remained at
consistent, low levels.


Equity earnings in investee
---------------------------

                    2001                      2000                  1999
                  ------                    ------                ------
                $ 219,488                  $(80,147)            $(65,274)

         The equity earnings in investee relate to the Company's investment in
Iconix. The 2001 balance reflects a distribution received from Iconix on the
sale of its assets of $219,488.



                                      -14-



Interest expense
----------------

                   2001                      2000                   1999
                  ------                    ------                 ------
                $(176,111)                $(1,311,372)              $  0

         Interest expense of $(1,311,372) in fiscal 2000 was due to a non-cash
interest expense on the convertible debenture issued during that year.

Other income
------------


                   2001                      2000                   1999
                  ------                    ------                 ------
                $ 947,692                 $ 2,240               $  35,585

         Other income in 2001 relates to a reversal of accrued amounts in the
past years including a lawsuit with a former landlord that has been resolved
with minimum liability. In addition, $314,718 of tax credit in China was
recorded as other income.

Minority interest in subsidiary's loss
---------------------------------------


                   2001                      2000                       1999
                  ------                    ------                     ------
                  $   0                    $ (28,200)                 $   0


         The minority interest in subsidiary's loss of $28,200 in fiscal 2000
was due to the start- up loss of Edsoft H.K.. No minority interest in Tengtu
United's operating profit or Edsoft H.K.'s losses was recorded as these two
subsidiaries have deficits.


ITEM 7A.  QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
--------  ----------------------------------------------------------

         The Company operates through subsidiaries located in Beijing and Hong
Kong, China; the administrative offices are located in Vancouver and Toronto,
Canada. The Company grants credit to its customers in these geographic regions.

         The Company performs certain credit evaluation procedures and does not
require collateral. The Company believes that credit risk is limited because the
Company routinely assesses the financial strength of its customers, and based
upon factors surrounding the credit risk of its customers, establishes an
allowance for uncollectible accounts and, as a consequence, believes that its
accounts receivable credit risk exposure beyond such allowances is limited.

         The Company established an allowance for doubtful accounts at June 30,
2001 and 2000 of $200,097. The Company believes any credit risk beyond this
amount would be negligible.

         At June 30, 2001, the Company had approximately $1,017,700 of cash in
banks uninsured.

         The Company does not require collateral or other securities to support
financial instruments that are subject to credit risk.

         For the fiscal year ended June 30, 2001, approximately 93.5% of sales
were generated through Tengtu United. Receivables related to these sales
transactions are grouped together with amounts due from a related party, Tengtu
China, in the Company's financial statements. For the fiscal years ended June
30, 2000 and 1999, no customer accounted for more than 10% of total sales.



                                      -15-



MARKET RISK SENSITIVE INSTRUMENTS

         The following information is provided as of June 30, 2001.

FINANCIAL INSTRUMENTS                    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                $     8,681             $     8,681
              Foreign                        1,017,719               1,017,719
                                           -----------             -----------
                       Total               $ 1,026,400             $ 1,026,400
                                           ===========             ===========

     Accounts and other Receivables, Net
              United States `              $         0             $         0
              Foreign                        6,421,076               6,421,076
                                           -----------             -----------
                       Total               $ 6,421,076             $ 6,421,076
                                           ===========             ===========

     Accounts Payable
              United States                $         0            $         0
              Foreign                        3,510,181              3,510,181
                                           -----------            -----------
                       Total               $ 3,510,181            $ 3,510,181
                                           ===========            ===========

         These financial instruments are short-term and 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 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------  -------------------------------------------

         The Company's financial statements described below and the reports of
independent auditors thereon are set forth following the Index to Financial
Statements on page F-1 of this report:

         Report of independent auditors                                     F-1

         Consolidated balance sheets at June 30, 2001 and 2000              F-2

         Consolidated statements of operations and comprehensive
         income (loss) for each of the three years in the
         period ended June 30, 2001                                         F-3

         Consolidated statements of shareholders' equity for each of
         the three years in the period ended June 30, 2001                  F-4

         Consolidated statements of cash flows for each of the three
         years in the period ended June 30, 2001                            F-5

         Notes to consolidated financial statements                   F-6 - F-22

SUPPLEMENTARY FINANCIAL INFORMATION
-----------------------------------

Selected Quarterly Financial Data

         The following supplementary financial information is provided for the
periods since the Company has been required to report on Form 10-Q.


<TABLE>
<CAPTION>



                  June 30,   March 31,   Dec. 31,    Sept. 30,  June 30,    March 31,   Dec. 31,   Sept. 30,
                   2001        2001        2000        2000       2000        2000        1999       1999
                  --------   --------   ---------    ---------  --------    --------   ---------   ---------

<S>               <C>        <C>        <C>          <C>        <C>         <C>         <C>         <C>
Revenues          $2,612,335 $1,450,879 $ 359,379    $1,143,446 $ (207,977) $   24,498  $ 149,500   $392,004

Gross
Profit            $1,437,678 $  818,748 $  46,291    $  107,479 $  (41,141) $ (115,410) $ (51,129)  $184,536

Gross
Profit
Margin                 55%         56%       13%           9%         80%       -471%       -34%        47%

Operating
Income
(Loss)            $  887,078 $ (143,496) $(1,496,927) $(542,262) $(1,377,306) $ (828,086) $(775,551) $(361,090)

Net
Income
(Loss)            $2,110,188 $ (238,776) $(1,566,746) $(597,835) $(2,756,009) $(838,073) $(598,389) $(334,087)

Earnings
Per Share
 Basic                $0.08       $(.01)      $(.07)   $(.03)       $(.13)     $(.04)     $(.03)      $(.02)
 Diluted              $0.08       $(.01)      $(.07)   $(.03)       $(.13)     $(.04)     $(.03)      $(.02)

<FN>
* earnings per share is based on weighted average number of common shares
outstanding. However, the number of common shares outstanding changed
significantly during the fourth quarter of 2001. Earnings per share for the
quarter ended June 30, 2001, based on the 45,089,673 shares outstanding at June
30, 2001, is $0.05 per share.
</FN>

</TABLE>



                                      -16-



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
-------- -----------------------------------------------------------------------

         The Company's accountants have not resigned or declined to stand for
re-election and have not been dismissed in the past two fiscal years or during
the subsequent period.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------  --------------------------------------------------

         The following are the names, ages and current principal position(s) and
office(s), if any, with the Company of each of its current Directors. Each of
the Directors set forth below was nominated for re-election at the annual
shareholders meeting on November 27, 2000, and was elected on that date.


                                      CURRENT PRINCIPAL POSITION(S)
NAME                     AGE          AND OFFICE(S)
--------------------------------------------------------
Pak Kwan Cheung          51           Chairman of the Board of Directors and
                                      Chief Executive Officer

Jing Lian                49           Vice President and Director

John D. Watt             55           Director and Executive Vice President

Michael Nikiforuk        47           Director

Gordon Reid              59           Director

Zhang Fan Qi             43           Director

Barry Clark              60           Director

         The following is a description of the qualifications and experience of
each of the Company's current Directors:

PAK KWAN CHEUNG is the Chairman of the Board of Directors and Chief Executive
Officer. During the past five years, Mr. Cheung has served and continues to
serve as President of Bluelake Industries, Ltd., Seattle, Washington, and
Comadex Industries, Ltd., Vancouver, Canada ("Comadex"). Both companies are
computer technology and software firms. Mr. Cheung has served as the Company's
Chairman of the Board and Chief Executive Officer since June, 1996. Mr. Cheung
received an M.B.A. degree from University of British Colombia and was the
founder of Comadex and Bluelake Industries, Ltd. Mr. Cheung has 25 years
experience in computer hardware, software and systems integration, principally
in China.


JING LIAN is a member of the Company's Board of Directors and a Vice-President.
During the past five years, Mr. Lian has been Vice-President of Bluelake
Industries, Ltd., Seattle, Washington. Mr. Lian has served as a Director and
Vice President since June 1996. Mr. Lian is also the President of TIC Beijing
and is the founder and Secretary of the Chinese Educational Software Council.
Mr. Lian received an M.S. degree in Computer Science from Tsing Hua University,
Beijing, China. Mr. Lian was a also visiting scholar at the University of
Washington, Seattle, Washington.

JOHN D. WATT is a member of the Company's Board of Directors and Executive Vice
President. Since July 1, 2001, Mr. Watt has been the Company's acting President.
Mr. Watt has been President of John D. Watt & Associates, Ottawa, Canada, from
1995 to July 1, 2001. Mr. Watt has served as a Director since June, 1996 and was
elected Executive Vice President on September 15, 2000 by the Company's Board of
Directors.

MICHAEL NIKIFORUK, is a member of the Company's Board of Directors. Since May 1,
2001, Mr. Nikiforuk has acted as a consultant to Intravest Capital Group. From
October 2000 to April 30, 2001, Mr. Nikiforuk served as a consultant to Visual
Bible International, Inc. From September 1, 2000 to October 2000, Mr. Nikiforuk
served without salary as the Company's Executive Vice President. From January 1,
2000 to August 31, 2000, he was a consultant to Capital Markets. From December
1998 through December 1999, Mr. Nikiforuk was Vice President, Investor
Relations, of Ivynet, Inc., a publicly traded communications company. During the
two and one-half years prior thereto, Mr. Nikiforuk was the Executive Vice
President of Banro Explorations in Toronto, Canada and has been responsible for
equity financing and investor relations at Transarctic Petroleum Corporation.
Mr. Nikiforuk has served as a Director since, April, 1997.



                                      -17-



GORDON REID is a member of the Company's Board of Directors. During the past
five years, Mr. Reid has served as President of Gencon Investments, Ltd. Mr.
Reid has served as a Director since June, 1996 and is also a Director of Systech
Retail Systems, Inc. and Lariat Property Corp.

ZHANG FAN QI is a member of the Company's Board of Directors. During the past
five years, Zhang Fan Qi has served as Chairman of Beijing Oriental Lian Fa
Technology & Trade Group, Co. Ltd., an owner of 51% of Tengtu China, the
Company's joint venture partner. Zhang Fan Qi is also the owner of Beijing
Tengtu Tian Di Network Co., Ltd. Zhang Fan Qi has served as a Director since
August, 1999.

BARRY CLARK is a member of the Company's Board of Directors and was the
Company's President from August 1997 through March 2000. For the five years
prior thereto, Mr. Clark was an Executive Vice President of ISB, Canada's
largest outsourcing Company, a Vice President of three divisions of Unisys,
Canada and President of B.D. Clark & Associates. Mr. Clark has 30 years of
experience in the information technology business with IBM Canada where he was a
Vice President for 15 years. Mr. Clark has been a Director since April, 1997.

         The following are the names, ages and current principal position of the
Company's executive and significant Officers who do not also serve as Directors
and therefore, are not listed above:

                                                   CURRENT PRINCIPAL
NAME                           AGE                 POSITION(S) AND OFFICE(S)
----------------------------------------------------------------------------
Thomas Pladsen                 41                  Chief Financial Officer

James Zhang                    37                  Controller

THOMAS PLADSEN was appointed as the Chief Financial Officer on July 31, 2001.
Since March 2001, Mr. Pladsen has also served as the Chief Financial Officer of
Cimatec Environmental Engineering Inc., a public manufacturing company. From
August 1999 to February 2001 Mr. Pladsen was a consultant to several publicly
traded companies. From January 1999 to July 1999 Mr. Pladsen was the Chief
Financial Officer of Online Direct Inc., a public software development company.
Prior thereto Mr. Pladsen served as the Chief Financial Officer of Great Lakes
Minerals Inc., Newmex Mining Company and Santa Cruz Gold Inc., a group of public
mining and exploration companies.

JAMES ZHANG, the Company's Controller, joined the company on June 25, 2001.
Since March 1998, Mr. Zhang has also served as the Corporate Controller for
Cornel Trading (Canada) Corp. Prior thereto, Mr. Zhang held the position of
General Manager of the Accounting Division of The Winroc Corporation. Mr. Zhang
is a member of Certified General Accountants in Canada and has a Executive MBA
degree in International Trade and Finance.

FAMILY RELATIONSHIPS

         There are no family relationships among the Directors or Executive
Officers.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

         During the past five years, none of the Company's Directors or
Executive Officers has:

         (1) had a petition under the Federal bankruptcy laws or any state
insolvency law filed by or against him, nor had a receiver, fiscal agent or
similar officer appointed by a court for his business or property;

         (2) been general partner or executive officer of a business at the time
a bankruptcy petition was filed by, or against it, or a receiver, fiscal agent
or similar officer was appointed by a court for it or its property;

         (3) been convicted in a criminal proceeding and are not currently a
named subject of a pending criminal proceeding (excluding traffic violations and
other minor offenses);

         (4) been subject to an order, judgment or decree, permanently or
temporarily enjoining, barring, suspending or otherwise limiting his involvement
in any type of business, securities or banking activities;



                                      -18-



         (5) been subject of any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any Federal or State authority barring,
suspending or otherwise limiting for more than 60 days the right to engage in,
or be associated with persons engaging in the following activities: acting as a
futures commission merchant, introducing broker, commodity trading advisor,
commodity pool operator, floor broker, leverage transaction merchant, any other
person regulated by the Commodity Futures Trading Commission, or an associated
person of any of the foregoing, or as an investment adviser, underwriter, broker
or dealer in securities, or as an affiliated person, director or employee of any
investment company, bank, savings and loan association or insurance company, or
engaging in or continuing any conduct or practice in connection with such
activity; or

         (6) been found by a court of competent jurisdiction (in a civil
action), the Securities and Exchange Commission, or the Commodity Futures
Trading Commission, to have violated a federal of state securities or
commodities law.

Section 16(a) Beneficial Ownership Reporting Compliance
-------------------------------------------------------

         The Company is not aware of any failure to file beneficial ownership
reports required by Section 16(a).

ITEM 11.  EXECUTIVE COMPENSATION
--------  ----------------------

COMPENSATION OF DIRECTORS

         No cash compensation was paid to any of the Company's Directors during
the fiscal year ended June 30, 2001 in their role as Directors of the Company.

         Pursuant to a resolution passed by the Company's Board of Directors on
April 27, 1997, each outside Director, who is not an employee or consultant, is
entitled to the following compensation:

         Annual Fee: $6,000
         Each Board of Directors meeting attended: $500
         Each Board of Directors Committee meeting attended: $250

         No cash compensation pursuant to the April 27, 1997 resolution has been
paid to any Director.

STOCK OPTIONS

         Under the Company's Stock Option Incentive Plan, Directors may receive
options to purchase common stock. No options may be granted at less than fair
market value on the date of the grant. No options were granted to Directors for
the fiscal year ended June 30, 2001.

EXECUTIVE COMPENSATION

         Cash compensation of $210,000 was paid to the Company's Executive
Officers during the fiscal year ended June 30, 2001. On March 29, 1999, the
Company adopted a deferred compensation plan for future payment of past due
amounts. Pursuant to the deferred compensation plan, all compensation to
Executive Officers is to be deferred until the Company receives certain amounts
of financing. At that time, the Company will begin paying salaries or consulting
fees at the agreed-upon rate and 90% of the payments will be applied to current
obligations and 10% to past due compensation and fees which have been deferred.
In the interim, the Company has advanced $90,000 to Jack Lian, a Director and
Vice President of the Company. The total compensation deferred as of June 30,
2001 was $1,909,794.

SUMMARY COMPENSATION TABLE

         The following table provides information relating to compensation for
the fiscal years ended June 30, 1999, 2000 and 2001 for the Chief Executive
Officer and compensation payable to another highly compensated executive officer
whose total salary and bonus (as determined pursuant to SEC rules) exceeded
$100,000 (determined by reference to fiscal 2001) (collectively, the "Named
Executive Officers"). The amounts shown include compensation for services in all
capacities provided to the Company. With respect to the Chief Executive Officer,
the salary listed represents an amount he is entitled to receive as his
compensation has been deferred. With respect to Mr. Watt, his compensation was
deferred in 1999 and 2000; $90,000 was paid in 2001 and $30,000 was deferred.
With respect to Mr. Mavroudis, it should be noted that the salary listed has
been annualized and that the Company began paying compensation to him in April,
2000.


<TABLE>
<CAPTION>


                  ANNUAL COMPENSATION                                                       LONG-TERM COMPENSATION AWARDS
                                                                                                                       All
Name                                                       Other                      Securities                      Other
and                                                        Annual   Restricted        Underlying          LTIP       Compens
Principal                                                  Compen-     Stock           Options/         Payouts      -ation
Position          Year     Salary              Bonus       sation     Awards ($)        SARs(#)           ($)          ($)
------------------------------------------------------------------------------------------------------------------------------


<S>                 <C>    <C>                <C>           <C>            <C>             <C>             <C>          <C>
Pak Kwan Cheung     2001   $  128,400         $  0          $ 0            0               0               0            0
Chief Executive     2000      128,400            0            0      750,000(2)            0               0            0
Officer (1)         1999            0(2)         0            0            0         300,000(3)            0            0

John Watt           2001   $  120,000         $  0          $ 0            0               0               0            0
Executive Vice      2000      120,000            0            0            0               0               0            0
President           1999      120,000            0            0            0          75,000(4)            0            0

Gregory Mavroudis   2001   $  120,000         $  0          $ 0            0(6)       75,000(7)            0            0
Executive Vice      2000      120,000            0            0            0(6)            0               0            0
President (5)       1999            0            0            0            0               0               0            0

<FN>

(1) Pak Kwan Cheung's services are retained by the Company through a consulting
contract with Comadex entered into in October 1999. Comadex has not been paid
any monies during the fiscal years ended June 30, 2000 and 2001 under the
contract. The amount listed represents compensation it is entitled to under the
agreement.

(2) Pursuant to the contract between the Company and Comadex, all past due
compensation to Pak Kwan Cheung was discharged in exchange for 3,000,000 shares
of Company common stock with a value of $.25 per share on the date of the grant.

(3) 300,000 options to purchase the Company's common stock were granted to Pak
Kwan Cheung during the fiscal year ended June 30, 1999 with an exercise price
equal to the fair market value at the time of $.218 per share.

(4) 75,000 options to purchase the Company's common stock were granted to John
Watt during the fiscal year ended June 30, 1999 with an exercise price equal to
the fair market value at the time of $.218 per share.

(5) Gregory Mavroudis' services have been retained by the Company through a
consulting agreement with 1334945 Ontario Limited dated April 1, 2000.

(6) The consulting agreement with 1334945 Ontario Limited calls for the issuance
of 350,000 shares of common stock over the term of the agreement, 237,500 of
which have vested.

(7) 75,000 options to purchase the Company's common stock were granted to
Gregory Mavroudis pursuant to the 1334945 Ontario Limited contract with an
exercise price equal to the fair market value at the time of the grant of $0.218
per share.
</FN>
</TABLE>


         No stock options, SARs or Long Term Incentive Plan grants were made to
or exercised by the Named Executive Officers during the fiscal year ended June
30, 2001.








EMPLOYMENT OR CONSULTING CONTRACTS WITH EXECUTIVE OFFICERS AND DIRECTORS

COMADEX INDUSTRIES LTD.

         Effective October 1999, the Company entered into a consulting agreement
with Comadex to retain the services of Pak Kwan Cheung as the Company's Chairman
of the Board of Directors and Chief Executive Officer. The agreement may be
summarized as follows: (1) Comadex will receive a base salary of $10,700 per
month, commencing November 30, 1999, inclusive of the Canadian General Services
Tax; (2) Beginning October 15, 2000, the Compensation Committee of the Board of
Directors can increase the base salary up to a maximum of $10,000 per year; (3)
For past due services of Mr. Cheung, the principal of Comadex, from July 1996
through October 15, 1999, and the seven weeks thereafter, Comadex shall be paid
the rate of $10,000 per month, and is to receive 3,000,000 shares of restricted
stock, which was the amount determined by the Compensation Committee. The
Company's common stock was trading at approximately $.10 per share in October
1999; (4) Comadex shall receive an incentive of 1% of the capital raised in
excess of $3,000,000 by Mr. Cheung for the Company or any company subsidiary
that is 50% or more owned by the Company. The Board of Directors has made no
award to Mr. Cheung for capital raised in the year ending June 30, 2001; (5)
Comadex shall receive 1% of the Company's net profits if the Company exceeds
pre-set profit targets and its audited pre-tax profits exceed that target(s). No
such targets have been set as of June 30, 2001 by the Board of Directors; (6)
Comadex shall receive certain payments in the event the agreement is terminated
without cause or if the Company is merged into or acquired by another company.

JING LIAN

         The Company entered into an agreement with Jing Lian, effective January
1, 1996, for Mr. Lian to serve as a Vice President at an annual salary of
$80,000. The agreement also provides for the possibility of performance and
incentive bonuses.


1334945 ONTARIO LIMITED

         On April 1, 2000, the Company entered into a consulting agreement with
1334945 Ontario Limited ("Ontario") to retain the services of Gregory Mavroudis,
Ontario's principal, as the Company's Executive Vice President of Business
Development. The agreement may be summarized as follows: (1) The agreement has a
term of two years with a probationary period ending on September 30, 2000. The
Company had the option to terminate the agreement at the end of the probationary
period with notice provided by September 1, 2000. The Company elected not to
terminate the agreement; (2) Ontario is to receive $10,000 per month for the
term of the agreement; (3) Ontario is to receive 250,000 shares of Company stock
of which 25,000 shares is to vest at the six month anniversary of the agreement,
112,500 at the twelve-month anniversary and an additional 112,500 at the twenty
four month anniversary; (4) Ontario is to receive options to purchase 37,500



                                      -19-



Company shares within 90 days of the six month anniversary of the agreement and
an additional 37,500 options between 90 and 180 days after the six month
anniversary of the agreement. The agreement also provides for additional options
once a new stock option plan is adopted by the Company's Board of Directors; (5)
the Company may terminate the agreement at any time for cause and with a penalty
without cause; and (6) Both Ontario and Mavroudis are subject to non-
competition, non-solicitation and confidentiality obligations. The agreement was
amended to increase the number of shares of the Company stock Ontario is to
receive by 100,000; to increase the number of options to purchase shares by
100,000 and to increase the termination penalty with cause to $120,000 if the
Company's share price is below $3.00.


SIMON HUI

         The Company's former Controller's employment contract was approved by
the Board of Directors on October 30, 2000. Pursuant to that contract, the Mr.
Hui was granted 150,000 shares of the company's common stock for which a charge
to compensation expense of $79,650 and a retroactive bonus of $39,404 were
accrued at the quarter ended December 31, 2000 and remain unpaid as at June 30,
2001. Mr. Hui resigned effective June 30, 2001.

ADDITIONAL INFORMATION WITH RESPECT TO COMPENSATION COMMITTEE INTERLOCKS AND
INSIDER PARTICIPATION IN COMPENSATION DECISIONS
-----------------------------------------------------------------------------

         The following members of the Compensation Committee of the Company's
Board of Directors served as officers or employees during the fiscal year ended
June 30, 2001:

Name                                        Position
--------------------                ------------------------------
Jing Lian                           Vice President of the Company;
                                    President of TIC Beijing Digital
                                    Pictures Co., Ltd.

Barry Clark                         Director

BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
-------------------------------------------------------------

           REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF
TENGTU INTERNATIONAL CORP.

         The primary purpose of this Committee is to develop executive
compensation policies and practices which coincide with and enhance the business
plans and strategies which the Company undertakes in connection with the pursuit
of its business objectives.

         During the past several years, this Committee has almost exclusively
followed a policy of rewarding its senior executives with compensation packages
consisting of salaries, stock and options which are determined upon the basis of
the following factors: ability to assist in growing the Company's business,
ability to assist in fundraising activities, ability to effectively manage
aspects of the Company's business and the Company's current and future earnings
prospects. In determining the salary to be paid to the Company's Chief Executive
Officer and its other senior executives, this Committee also considers, in
addition to the foregoing factors, the comparative salaries paid to other Chief
Executives and senior executives in similar companies.

         Because of the developing nature of the Company's business, the
Committee has not yet used corporate performance as a measure of the Chief
Executive Officer's, or other executive officer's compensation.

         In summary, it is this Committee's belief that the compensation
policies that we have described in this report have served the best interests of
the shareholders and the Company. Such policies have been designed to provide
appropriate levels of compensation to the Company's senior executives based upon
the particular combination of factors which apply to this Company. As and when
those factors change, this Committee will make every effort to make adjustments
to its policies in a manner which will provide fair and reasonable levels of
compensation and appropriate incentives to its executives, while continuing to
be in the best interests of the shareholders and the Company.

Respectfully submitted,

The Compensation Committee

/s/ BARRY CLARK

/s/ MICHAEL NIKIFORUK

/s/ JING LIAN

/s/ GORDON REID




                                      -20-







COMPARISON OF TOTAL SHAREHOLDER RETURNS
---------------------------------------

         The following charts show the cumulative performance for the Company's
Common Stock over the last five years compared with the performance of the
Nasdaq Composite and Technology Industry Group Performance Composite. The first
chart assumes $100 invested as of September 3, 1996 in the Company's common
stock and in each of the named indices. The performance shown is not necessarily
indicative of future performance.





                  Tengtu                    Nasdaq                     Industry
Date              Return                    Index                      Index
----              -------                   -------                    --------

                    100                       100                        100
06/30/97             16                       126                        141
06/30/98              4                       166                        183
06/30/99              3                       235                        289
06/30/00             23                       347                        156
06/30/01             26                       187                         99


<TABLE>
<CAPTION>

                  Tengtu                    Change
                  Stock                     from prior                                   Calculated
Date              Price                     period                     % chg.              Return
----              ------                    ----------                 ------           -----------
<C>               <C>                        <C>                       <C>                 <C>
9/3/96              5                                                   Base                 100
6/30/97           0.82                        -4.18                    -83.60%                16
6/30/98           0.19                        -0.63                    -76.83%                 4
6/30/99           0.13                        -0.06                    -31.58%                 3
6/30/00           1.01                         0.88                    676.92%                23
6/30/01           1.32                         0.31                     30.69%                26


                  Nasdaq                    Change
                  Composite                 from prior                                           Calculated
Date              Index                     period                     % chg.                      Return
----              ---------                 ----------                 ------                    ----------
9/3/96            1142                                                 Base                      100
6/30/97           1442                      300                        26.27%                    126
6/30/98           1895                      453                        31.41%                    166
6/30/99           2686                      791                        41.74%                    235
6/30/00           3967                      1281                       47.69%                    347
6/30/01           2130                      1837                       46.31%                    187


                  Industry
                  Group                      Change
                  Performance               from prior                                           Calculated
Date              Technology                period                     % chg.                    Return
----              -----------               ----------                 ------                    -----------
9/3/96            614                                                  Base                      100
6/30/97           865                       251                        40.90%                    141
6/30/98           1,123                     259                        29.96%                    183
6/30/99           1,773                     650                        59.82%                    289
6/30/00           959                       814                        -45.92%                   156
6/30/01           608                       351                        -36.61                    99
</TABLE>


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------  --------------------------------------------------------------

         The following table sets forth information furnished to the Company
with respect to the beneficial ownership of the Company's common stock by each
executive officer and Director named below as of June 30, 2001. Unless otherwise
indicated, each of the persons listed has sole voting and dispositive power with
respect to the shares shown as beneficially owned.



                                      -21-




<TABLE>
<CAPTION>


TITLE                                           AMOUNT AND NATURE OF         PERCENT OF
OF CLASS          NAME OF BENEFICIAL OWNER      BENEFICIAL OWNERSHIP            CLASS
--------          ------------------------      --------------------         ----------

<C>               <C>                               <C>                           <C>
$.01 par          Pak Cheung (1)                     4,170,750                     9.2%
common

$.01 par          Jing Lian (2)                      1,170,750                     2.6%
common

$.01 par          John D. Watt (3)                   112,000                       0.2%
common

$.01 par          Michael Nikiforuk (4)              99,000                        0.2%
common

$.01 par          Zhang Fan Qi                       1,035,714                     2.3%
common

$.01 par          Gordon Reid (5)                    393,224                       0.9%
common

$.01 par          B.D. Clark & Associates,           797,500                       1.8%
common            Inc. (6)
</TABLE>


(1) Includes 300,000 shares of common stock issuable upon exercise of stock
options at $.218 per share granted on March 29, 1999 under the Company's
Incentive Stock Option Plan.

(2) Includes 300,000 shares of common stock issuable upon exercise of stock
options at $.218 per share granted on March 29, 1999 under the Company's
Incentive Stock Option Plan.

(3) Includes 75,000 shares of common stock issuable upon exercise of stock
options at $.218 per share granted on March 29, 1999 under the Company's
Incentive Stock Option Plan.

(4) Includes 75,000 shares of common stock issuable upon exercise of stock
options at $.218 per share granted on March 29, 1999 under the Company's
Incentive Stock Option Plan, but excludes 350,000 shares transferred to a trust
administered by a third party and in which he disclaims any beneficial interest.

(5) Includes 75,000 shares of common stock issuable upon exercise of stock
options at $.218 per share granted on March 29, 1999 under the Company's
Incentive Stock Option Plan.

(6) B.D. Clark & Associates is owned equally by Barry Clark, and his wife.
Includes 300,000 shares of common stock subject to options that are exercisable
within 60 days.

         The following table shows certain information with respect to all
persons who are not Executive Officers, Directors or nominees, known by the
Company to beneficially own more than five percent of the Company's outstanding
common stock as of June 30, 2001.


<TABLE>
<CAPTION>


TITLE             NAME AND ADDRESS OF                    AMOUNT AND NATURE OF      PERCENT OF
OF CLASS          BENEFICIAL OWNER                       BENEFICIAL OWNERSHIP         CLASS
--------          ------------------------               --------------------      ----------

<S>                  <C>                                     <C>                      <C>
Debenture         Top Eagle Holdings, Ltd. - c/o (1)        3,000,000                6.7%
and warrant       Yugang Int'l Ltd., Room 3301-4,
                  26 Harbour Rd., Hong Kong

Common Stock      Orion Capital Inc.                       10,756,067 (2)             23.9%
                  Sherway Executive Center
                  310 North Queen Street
                  Suite 103N
                  Etobicoke, Ontario M9C 5K4
                  Canada
</TABLE>


(1) Top Eagle currently holds a debenture convertible into the Company's common
stock and warrants to purchase 1,500,000 shares of the Company's common stock.
If Top Eagle were to convert its debenture and exercise all of its warrants
prior to December 15, 2001, it would own approximately 3,000,000 shares of the
Company's common stock. If it were to do so after December 15, 2001, but before
December 15, 2002, Top Eagle would own approximately 2,250,000 shares of the
Company's common stock.

(2) Does not include 70,000 shares owned by John D. Watt, the Company's
Executive Vice President and a Director, which are pledged as collateral for a
mortgage Orion has on a residence recently purchased by John Watt. Orion has
advised us that Mr. Watt is current on his mortgage payments and disclaims any
beneficial interest in those shares.



                                      -22-



ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
--------  ----------------------------------------------------

         Due to the downsizing of the staff of Tengtu United in prior years, the
operations of the venture during the years ended June 30, 2001 and 2000 were
carried out by Tengtu China, which is partially owned by Zhang Fan Qi, one of
the Company's Directors. At June 30, 2001 and 2000, Tengtu United has a balance
due from the Tengtu China of approximately $6,462,900 and $170,100,
respectively.

         During fiscal 2001, 2000 and 1999, respectively, the Company incurred
consulting and related expenses of approximately $829,800, $1,493,000 and
$775,000 from Officers and Directors of the Company or its subsidiaries or
companies controlled by these Officers and Directors.

         In October, 1999, the Company and Comadex Industries, Ltd. entered into
a consulting agreement for the employment of Pak Cheung as the Company's
Chairman and CEO. Pursuant to that agreement Comadex received 3,000,000 common
shares for past services rendered, resulting in a charge to related party
consultants expense of $750,000. If Pak Cheung is able to raise $3,000,000 or
more in capital for the Company or a 50% or more owned joint venture or
subsidiary, Comadex shall receive an incentive of 1% of the capital raised in
excess of $3,000,000. The Board of Directors has made no award to Mr. Cheung
for capital raised in the year ending June 30, 2001.

         On September 9, 1999 a Company Director loaned $100,000 to the Company.
The loan bore interest at 6% per annum and was due in twelve months. The loan
was convertible at the option of the Company Director at the rate of $.35 per
share, or into an aggregate of 285,714 shares of the Company's common stock. The
loan was guaranteed by another Director of the Company. At the date of the loan,
the Company's common stock was trading at $.25 per share, therefore the loan did
not contain a beneficial conversion feature. This loan was converted to 285,714
shares in October 2000.

         On October 6, 2000, Iconix (which is 32% owned by the Company) was sold
for $5,000,000 (Canadian). Barry Clark, who is a Director and who was the
President of Iconix, and former employees of Iconix owned approximately 8% of
the stock in the acquiring company.

         On October 1, 2000, the Company entered into a one-year agreement with
Goodwill (a company which owns approximately 18% of Edsoft Canada). Goodwill
agreed to use its best efforts to oversee, enhance and improve the business and
profile of Edsoft Canada in exchange for 50,000 shares of the Company. The
shares were valued at $48,400 and are to be expensed over one year. The charge
to operations for the fiscal year ended June 30, 2001 was $36,300.


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
--------  ----------------------------------------------------------------

         The following documents are filed as part of this report:

         (a)      Financial Statements

                  (1) The consolidated financial statements and schedules filed
as part of this report are listed under Part II, Item 8 of this Form 10-K.

                  (2) Financial statement schedule: The financial statement
schedule filed as part of this report is listed under Part II, Item 8 of this
Form 10-K.

                  (3) Exhibits: The exhibits listed in the accompanying index
are filed as part of this report.





                                      -23-



Exhibit
Number   Description
------   -----------
3.1       Articles of Incorporation (filed as part of The Company's Form 10
          filed on May 25, 2000 and incorporated herein by reference);

3.2       By-Laws (filed as part of The Company's Form 10 filed on May 25, 2000
          and incorporated herein by reference);

10.1      Tengtu International Corp. Investment Agreement with Swartz Private
          Equity, L.L.C. dated October 25, 2000 (filed as part of The Company's
          Form 10-Q filed on November 14, 2000 and incorporated herein by
          reference);

10.2      English Translation of Agreement between National Center for Audio
          Visual Education and Tengtu Culture and Education Electronics
          Development Co., Ltd. dated September 20, 2000 - referred to as
          "Operation Morning Sun" (filed as part of The Company's Form 10-Q
          filed on November 14, 2000 and incorporated herein by reference);

10.3      English Translation of Cooperation Agreement among the Chinese
          National Center for Audio/Visual Education of the Ministry of
          Education, Tengtu China and Legend Group (filed as part of The
          Company's Form 10-Q filed on November 14, 2000 and incorporated herein
          by reference);

10.4      English Translation of Qwai Zhou Normal University Attached High
          School Thousand Mega Campus Network System Agreement with Tengtu China
          and Qwai Zhou Qin Hwa Yuen Information Technology Development Co.,
          Ltd. dated July 28, 2000 (filed as part of The Company's Form 10-Q
          filed on November 14, 2000 and incorporated herein by reference);

10.5      English Translation of Zhong Yau Normal College Campus Network
          Contract with Tengtu China dated September 10, 2000 (filed as part of
          The Company's Form 10-Q filed on November 14, 2000 and incorporated
          herein by reference);

10.6      English Translation of Inner Mongolia 1st High School Campus Network
          Contract with Tengtu China dated August 25, 2000 (filed as part of The
          Company's Form 10-Q filed on November 14, 2000 and incorporated herein
          by reference);

10.7      English Translation of Equipment Lease contract between TIC Beijing
          Digital Pictures Co., Ltd and Beijing Hwa Yue Advertisement Co., Ltd.
          dated August 8, 2000 (filed as part of The Company's Form 10-Q filed
          on November 14, 2000 and incorporated herein by reference);

10.8      1999 Non-Qualified Stock Option Incentive Plan (filed as part of The
          Company's Form 10 filed on May 25, 2000 and incorporated herein by
          reference);

10.9      English Translation of Microsoft Cooperation Agreement(filed as part
          of The Company's Form 10 filed on May 25, 2000 and incorporated herein
          by reference);

10.10     Consulting Agreement between The Company and B.D. Clark and
          Associates, Ltd. (filed as part of The Company's Form 10 filed on May
          25, 2000 and incorporated herein by reference);

10.11     Tengtu United Joint Venture Agreement and the amendment thereto (filed
          as part of The Company's Form 10 filed on May 25, 2000 and
          incorporated herein by reference);

10.12     Employment agreement between The Company and Jing Lian (filed as part
          of The Company's Form 10 filed on May 25, 2000 and incorporated herein
          by reference);

10.13     Consulting agreement between Comadex Industries, Ltd. and The Company
          (filed as part of The Company's Form 10 filed on May 25, 2000 and
          incorporated herein by reference);

10.14     Top Eagle Holdings, Ltd. Convertible Debenture and Warrant Purchase
          Agreement (filed as part of The Company's Form 8-K dated December 23,
          1999 and incorporated herein by reference);

10.15     Top Eagle Holdings, Ltd. Investor Rights Agreement (filed as part of
          The Company's Form 8- K dated December 23, 1999 and incorporated
          herein by reference);

10.16     Top Eagle Holdings, Ltd. Convertible Debenture (filed as part of The
          Company's Form 8-K dated December 23, 1999 and incorporated herein by
          reference);

10.17     Top Eagle Holdings, Ltd. Common Stock Warrant (filed as part of The
          Company's Form 8-K dated December 23, 1999 and incorporated herein by
          reference);

10.18     Independent Contractor Agreement among us, 1334945 Ontario Limited and
          Gregory Mavroudis dated April 1, 2000 (filed as part of The Company's
          Form 10-K dated September 28, 2000 and incorporated herein by
          reference);

10.19     Letter of Intent for Cooperation between Guandong Southern Natural
          Museum Co., Ltd. and TIC Beijing (filed as part of The Company's Form
          10-K dated September 28, 2000 and incorporated herein by reference);

10.20     License Agreement between us and Netopia, Inc. dated June 21, 2000
          (filed as part of The Company's Form 10-K dated September 28, 2000 and
          incorporated herein by reference);

10.21     Common Stock Warrant for 46,800 shares of common stock issued to
          Swartz Private Equity, L.L.C, dated January 9, 2001 (filed as part of
          The Company's Form 10-Q filed on May 15, 2001 and incorporated herein
          by reference);

10.22     English translation of February 13, 2001 Cooperation Agreement between
          National Center for Audio/Visual Education and Tengtu Culture and
          Education Electronics Development Co., Ltd. on Carrying out "Operation
          Morning Sun - Phase II" (filed as part of The Company's Form 10-Q
          filed on May 15, 2001 and incorporated herein by reference);

10.23     January 17, 2001 Letter of Agreement between the Company and the
          Centre for Education and Training (filed as part of The Company's Form
          10-Q filed on May 15, 2001 and incorporated herein by reference);

10.24     Schedule of Exceptions (filed as part of The Company's Form 10-Q filed
          on May 15, 2001 and incorporated herein by reference);




                                      -24-



10.25     English translations of April 9, 2001 Cooperation Agreement on
          Establishment of "Morning Sun Resources Center under National Center
          for Audio/Visual Education of Ministry of Education" and supplemental
          memorandum between Tengtu China and the Company (filed as part of The
          Company's Form 10-Q filed on May 15, 2001 and incorporated herein by
          reference);

10.26    English translation of Extension to Operation Morning Sun (filed as
         part of The Company's Form 10-Q filed on May 15, 2001 and incorporated
         herein by reference);

10.27    Letter of Intent between American Education Corporation("AEC") and the
         Company for the provision of content by AEC to be translated and used
         in the Company's Web portals dated April 2, 2001 (filed as part of The
         Company's Form 10-Q filed on May 15, 2001 and incorporated herein by
         reference);

10.28    Form of Registration Rights Agreement between The Company and investors
         in the private placement of June 14, 2001 (filed as part of The
         Company's Form S-1A filed on August 7, 2001 and incorporated herein by
         reference);

10.29    Registration Rights Agreement granted to Orion Capital Incorporated
         dated March 2, 2001 (filed as part of The Company's Form 10-Q filed on
         May 15, 2001 and incorporated herein by reference);

10.30    Additional Supplemental Agreement between Tengtu China and the Company
         dated April 25, 2001 relating to Exhibit 10.25 (filed as part of The
         Company's Form S-1A filed on August 7, 2001 and incorporated herein by
         reference);

10.31    Stock Purchase Agreement granting registration rights to Shen Anxin
         dated July 30, 2001 (filed as part of the Company's Form S-1 filed on
         August 13, 2001 and incorporated herein by reference);

10.32    Form of Extension Agreement between The Company and the additional
         Private Placement investors (filed as part of the Company's Form S-1
         filed on August 13, 2001 and incorporated herein by reference);

10.33    ShanDong Province Cooperation Agreement dated August 17, 2001.
         (English Translation).

11.1     Statement re: Computation of Per Share Earnings

12.1     Statement re: Computation of Ratios

21.1     List of Subsidiaries

27.1     Financial Data Schedules

         (b) Reports on Form 8-K: The Company did not file any Current Reports
on Form 8-K during the fourth quarter of its fiscal year ended June 30, 2001.

                                   SIGNATURES

         In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
                                                TENGTU INTERNATIONAL CORP.



Date: October 11, 2002                          By: /s/ John Watt
                                                    --------------------------
                                                    John Watt, President


         In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.


                                           Principal Executive Officer


Date: October 11, 2002                      By: /s/ John Watt
                                              ----------------------------
                                              John Watt, President and Director

                                           Principal Financial and Accounting
                                              Officer


Date: October 11, 2002                      By: /s/ Peng Lin
                                              -----------------------------
                                              Peng Lin, Chief Financial
                                                 Officer


Date: October 11, 2002                      By: /s/ Zhang Fan Qi
                                              -----------------------------
                                              Zhang Fan Qi, Director


Date: October 11, 2002                      By: /s/ Jing Lian
                                              -----------------------------
                                              Jing Lian, Vice President and
                                              Director


Date: October 11, 2002                      By: /s/ William O.S. Ballard
                                              -----------------------------
                                              William O.S. Ballard, Director


Date: October 11, 2002                      By: /s/ Bin Huang
                                              -----------------------------
                                              Bin Huang, Director


Date: October 11, 2002                      By: /s/ Karl Dai
                                              -----------------------------
                                              Karl Kai, Director


Date: October 11, 2002                      By: /s/ John McBride
                                              -----------------------------
                                              John McBride, Director







                                      -25-






                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors and Shareholders
Tengtu International Corp.

We have audited the accompanying consolidated balance sheets of Tengtu
International Corp. and its subsidiaries as of June 30, 2001and 2000 and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three fiscal years in the period ended June 30,
2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tengtu International
Corp. and its subsidiaries as of June 30, 2001 and 2000, and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended June 30, 2001 in conformity with accounting principles generally
accepted in the United States of America.

As described in Note 21, the June 30, 2001 consolidated financial statements
have been restated for certain sales and VAT tax items.

                                                    Moore Stephens, P.C.
                                                    Certified Public Accountants

New York, New York
August 21, 2001,
except for Note 17,
as to which the date is
August 31, 2001,
and Note 21, as to
which the date is
August 16, 2002


                                       F-1






<TABLE>
<CAPTION>





                   TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                                                       June 30,
                                                                       --------
                                     ASSETS
CURRENT ASSETS                                              2001          2000
                                                            ----          ----
                                                          RESTATED

<S>                                                    <C>             <C>
    Cash and cash equivalents                          $  1,026,400    $    919,091
    Accounts receivable, net of
     allowance for doubtful accounts
     of $200,997 ($200,997 in 2000)                          16,578          36,009
    Due from related party                                6,330,461         170,123
    Prepaid expenses                                        500,082           3,715
    Inventories                                               2,452          18,071
    Other receivables                                        74,037           5,588
                                                       ------------    ------------
                   Total Current Assets                   7,950,010       1,152,597
                                                       ------------    ------------
    PROPERTY AND EQUIPMENT, net                             711,385         967,840
                                                       ------------    ------------
    OTHER ASSETS
     Notes receivable                                        71,940          71,940
     Advance to Director                                       --            60,011
     License fees                                           100,000         125,000
     Other assets                                              --            30,454
                                                       ------------    ------------
                                                            171,940         287,405
                                                       ------------    ------------
    TOTAL ASSETS                                       $  8,833,335    $  2,407,842
                                                       ============    ============

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES
    Accounts payable                                   $    959,022    $  1,690,658
    Accrued expenses                                        380,684         419,160
    Related party loan payable                                 --           100,000
    Due to related party consultants                      1,625,026       1,415,026
    Short-term loan                                          94,150            --
    Other liabilities                                       451,299         414,197
                                                       ------------    ------------
                  Total Current Liabilities               3,510,181       4,039,041
                                                       ------------    ------------
OTHER LIABILITIES
     Related party loans payable                            255,297         255,490
     Convertible debenture, net of discount               1,274,030       1,194,334
                                                       ------------    ------------
                                                          1,529,327       1,449,824
                                                       ------------    ------------
COMMITMENTS [Note 8]

STOCKHOLDERS' EQUITY (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 45,089,673 shares                       450,897         238,907
    Additional paid in capital                           18,832,469      11,871,444
    Accumulated deficit                                 (15,477,541)    (15,184,374)
    Accumulated Other Comprehensive Income (Loss):
      Cumulative translation adjustment                     (11,214)         (6,216)
                                                       ------------    ------------
                                                          3,794,611      (3,080,239)
    Less: Treasury stock, at cost,
      78,420 common shares                                     (784)           (784)
                                                       ------------    ------------
          Total Stockholders' Equity (Deficit)            3,793,827      (3,081,023)
                                                       ------------    ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)   $  8,833,335    $  2,407,842
                                                       ============    ============
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.


                                       F-2




<TABLE>
<CAPTION>



                   TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                          FOR THE YEARS ENDED JUNE 30,


                                                   2001              2000          1999
                                                -----------       ----------       ----------
                                                  RESTATED

<S>                                             <C>               <C>              <C>
SALES                                           $ 5,566,039       $  358,026       $  624,121
COST OF SALES                                     3,155,843          506,864          769,608
                                                -----------       -----------      -----------
                                                  2,410,196         (148,838)        (145,487)
                                                -----------       -----------      -----------

OPERATING EXPENSES
  Research and development                           -                 -                1,440
  General and administrative                      2,014,899       1,537,833           699,582
  Related party consultants                         829,772       1,492,813           774,870
  Bad Debts (recovery)/expense                      163,684          (8,984)          143,347
  Advertising                                        39,406           28,991               19
  Selling                                           602,132           74,819           52,671
  Depreciation                                       55,910           58,698           43,217
                                                -----------       -----------      -----------
                                                  3,705,803         3,184,170       1,715,146
                                                -----------       -----------      -----------
OTHER INCOME (EXPENSE)
  Equity earnings (loss) in investee                219,488           (80,147)        (65,274)
  Interest income                                    13,100            22,641           3,923
  Interest expense                                 (176,111)       (1,311,372)              -
  Other income                                      947,692             2,240          35,585
  Other expense                                      (1,731)          (29,839)              -
                                                -----------       -----------      -----------
                                                  1,002,438        (1,396,477)        (25,766)
                                                -----------       -----------      -----------
LOSS BEFORE MINORITY INTERESTS                     (293,169)       (4,729,485)     (1,886,399)
MINORITY INTERESTS IN SUBSIDIARY'S
LOSS                                                 -                (28,200)             -
                                                -----------       -----------      -----------
NET LOSS                                        $   293,169       $(4,701,285)     $(1,886,399)
                                                ===========       ============     ===========

WEIGHTED AVERAGE NUMBER OF SHARES:
Basic                                            24,977,353        20,863,271       19,317,382
Common stock equivalents                          1,637,441             -                -
                                                -----------       -----------      -----------
Diluted                                          26,614,794        20,863,271       19,317,382

LOSS PER COMMON SHARE:
Basic                                           $    (0.012)       $    (0.225)     $    (0.097)
Diluted                                         $    (0.012)       $    (0.225)     $    (0.097)
</TABLE>


              The accompanying notes are an integral part of these
                       consolidated financial statements.

                                       F-3






<TABLE>
<CAPTION>



                   TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
           FOR THE YEARS ENDED JUNE 30, 2001 (RESTATED), 2000 and 1999
                                                                                                          Accumulated
                                                        Additional                                           Other
                                    Common Stock         Paid-in      Comprehensive      Accumulated      Comprehensive
                             Shares         Amount       Capital       Income(Loss)        Deficit         Income(Loss)
                           --------------------------------------------------------------------------------------------


<S>                       <C>           <C>          <C>              <C>              <C>               <C>
Balance-June 30, 1998      19,297,107    $ 192,972    $  9,394,651                      $ (8,596,690)     $     (9,335)
Issuance of common stock
 related to deferred
 compensation                180,500         1,805           8,258               0                 0                 0
Amortization of deferred
 compensation related to
 stock options and common
 stock for services                0             0               0               0                 0                0
Other Comprehensive Income:
 Foreign currency adjustment       0             0               0    $      2,583                              2,583
Comprehensive Income:
 Net loss                          0             0               0      (1,886,399)       (1,886,399)               0
                                                                      ------------
Comprehensive Income                                                  $ (1,883,816)
                         -----------  ------------    ------------    ============      ------------     ------------
Balance-June 30, 1999     19,477,607       194,777       9,402,909                       (10,483,089)          (6,752)

Issuance of common stock     963,000         9,630         166,095               0                 0                0
  for cash
Issuance of common stock
 for promissory notes        330,000         3,300          68,640               0                 0                0
Issuance of common stock
 for services              3,120,000        31,200         733,800               0                 0                0
Amortization of deferred
 compensation related to
 stock options and common
 stock for services                0             0               0               0                 0                0
Paid-in capital related to
 convertible
 debenture                         0             0       1,153,846               0                 0                0
Paid-in capital related to
 detachable warrant-
 debenture                         0             0         346,154               0                 0                0
Other Comprehensive Income:
 Foreign currency adjustment       0             0               0    $        536                 0              536
Comprehensive Income:
 Net loss                          0             0               0      (4,701,285)       (4,701,285)               0
                                                                      ------------
Comprehensive Income                                                  $ (4,700,749)
                        ------------    ----------    ------------    ============      ------------     ------------
Balance-June 30, 2000     23,890,607       238,907      11,871,444                      $(15,184,374)    $     (6,216)


Issuance of common stock     636,871         6,369         140,144               0                 0                0
 for services
Loan conversion            7,301,526        73,015       2,139,400               0                 0                0
Issuance of common stock  13,260,669       132,606       3,845,592               0                 0                0
  for cash
Paid-in capital related to
 granted options and service       0             0         214,908               0                 0                0
Common shares
 to be issued for interest
 expense                           0             0          56,515
Paid-in capital related to
 warrants issued                   0             0         564,466               0                 0                0
Other Comprehensive Income:
Foreign currency adjustment        0             0               0    $     (4,998)                0     $     (4,998)

Comprehensive Income:
 Net loss                          0             0               0        (293,169)         (293,169)               0
                                                                      ------------
Comprehensive Income                                                  $   (298,167)
                        ------------  ------------    ------------    ============      ------------     ------------
Balance - June 30, 2001   45,089,673  $    450,897    $ 18,832,469                      $ 15,477,541     $    (11,214)
                        ============  ============    ============                      ============     ============





                           Treasury                      Unamortized
                           Stock            Deferred    Stockholders'
                           At Cost      Compensation    Equity (Deficit)
                           --------------------------------------------
Balance-June 30, 1998   $       (784) $   (476,563)   $    504,251
Issuance of common stock
 related to deferred
 compensation                      0             0          10,063
Amortization of deferred
 compensation related to
 stock options and common
 stock for services                0       293,750         293,750
Other Comprehensive Income:
 Foreign currency adjustment       0             0           2,583
Comprehensive Income:
 Net loss                          0             0      (1,886,399)

Comprehensive Income
                        ------------  ------------    ------------
Balance-June 30, 1999           (784)     (182,813)     (1,075,752)
Issuance of common stock           0             0         175,725
  for cash
Issuance of common stock
 for promissory notes              0             0          71,940
Issuance of common stock
 for services                      0             0         765,000
Amortization of deferred
 compensation related to
 stock options and common
 stock for services                0       182,813         182,813
Paid-in capital related to
 convertible
 debenture                         0             0       1,153,846
Paid-in capital related to
 detachable warrant-
 debenture                         0             0         346,154
Other Comprehensive Income:
 Foreign currency adjustment       0             0             536
Comprehensive Income:
 Net loss                          0             0      (4,701,285)

Comprehensive Income
                        ------------  ------------    ------------
Balance-June 30, 2000           (784) $          0    $ (3,081,023)

Issuance of common stock
 for services                      0             0         146,513
Loan conversion                    0             0       2,211,416
Issuance of common stock           0             0       3,979,197
  for cash
Paid-in capital related to
 granted options and services      0             0         214,908
Common shares
 to be issued for interest
 expense                           0             0          56,515
Paid-in capital related to
 detachable warrant -
 debenture                         0             0         564,466
Other Comprehensive Income:
Foreign currency adjustment        0             0          (4,998)

Comprehensive Income:
 Net loss                          0             0        (293,169)

Comprehensive Income
                        ------------  ------------    ------------
Balance - June 30, 2001 $       (784) $          0    $ (3,793,825)
                        ============  ============    ============
</TABLE>



        The accompanying notes are an integral part of these consolidated
                             financial statements.


                                       F-4





<TABLE>
<CAPTION>




                   TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                          FOR THE YEARS ENDED JUNE 30,


                                                         2001           2000          1999
                                                      ----------      ---------     ----------
                                                       RESTATED
CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                 <C>            <C>            <C>
Net Loss                                            $  (293,169)   $(4,701,285)   $(1,886,399)
Adjustments to reconcile net income (loss) to
 net cash used by operating activities:
   Depreciation and amortization                        286,468        266,614        292,808
   Provision for (recovery of) bad debt                    --           (8,984)       143,081
   Loss on investment at equity                          61,259        80,147         65,274
   Noncash compensation expense on
     shares issued for services                         926,587        947,813        303,813
   Noncash interest expense-
     convertible debenture                               79,695      1,194,334           --
   Changes in operating assets
   and liabilities
     Decrease(Increase)on operating assets:
       Accounts receivable                               19,431         22,398        (76,644)
       Due from related party                        (6,160,338)       138,208         (2,762)
       Prepaid expenses                                (496,368)        26,188          5,307
       Inventories                                       15,619         16,377        191,164
       Advances to suppliers                               --             --          122,415
       Other receivables                                (68,449)         7,757         13,382
       Due from investee                                   --             --           50,000
       Advance to Director                                 --          (30,011)       (30,000)
       Other assets                                      30,454         28,390        (44,307)
     Increase (Decrease)in operating liabilities:
       Accounts payable                                (731,636)        90,249         87,615
       Accrued expenses                                 (38,476)        14,384         53,019
       Due to related party consultants                 270,011        355,477        481,124
       Other liabilities                                131,253        366,267         (1,768)
                                                    -----------    -----------    -----------
   Net Cash Used by Operating Activities             (5,967,658)    (1,185,677)      (232,878)
                                                    -----------    -----------    -----------
CASH FLOWS FROM INVESTING ACTIVITIES
 Purchase of property and equipment                      (5,013)       (42,535)       (63,959)
                                                    -----------    -----------    -----------
  Net Cash Used by Investing Activities                  (5,013)       (42,535)       (63,959)
                                                    -----------    -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
 Proceeds from loans                                  2,107,000      1,858,064           --
 Cash received for shares issued                      3,978,200        175,725           --
                                                    -----------    -----------    -----------
  Net Cash Provided by Financing Activities           6,085,200      2,033,789           --
                                                    -----------    -----------    -----------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                  (5,220)        (2,038)         2,583
                                                    -----------    -----------    -----------
INCREASE(DECREASE) IN CASH
  AND CASH EQUIVALENTS                                  107,309        803,539       (294,254)

CASH AND CASH EQUIVALENTS,
beginning of year                                       919,091        115,552        409,806
                                                    -----------    -----------    -----------
CASH AND CASH EQUIVALENTS, end of year              $ 1,026,400    $   919,091    $   115,552
                                                    ===========    ===========    ===========

</TABLE>


        The accompanying notes are an integral part of these consolidated
                             financial statements.

                                       F-5







                   Tengtu International Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements

1.       The Company

Tengtu International Corp. (the "Company") was incorporated in Delaware on May
6, 1988 as Galway Capital Corporation for the purpose of seeking potential
ventures. On May 24, 1996 the Company changed its name to Tengtu International
Corp. The Company's main activities, which are carried out through its
subsidiaries and investee, are the development and marketing of e-educational
system software, system integration and sourcing and distribution of educational
course content in China, Hong Kong and Canada.

2.       Significant Accounting Policies

         a)       Principles of Consolidation

The consolidated financial statements include the accounts of the Company and
subsidiaries over which it owns more than a 50% equity interest. Significant
inter-company balances and transactions have been eliminated on consolidation.

The Company contributed capital of $10,990,000 to a Chinese subsidiary in which
the minority Chinese partner has a 43% interest. No portion of the $10,990,000
has been allocated to the minority as the joint venture agreement that concerns
the subsidiary assigns all rights to that contribution to the Company. In
accordance with Accounting Research Bulletin 51, the Company has charged to
income the loss applicable to the minority interests that is in excess of the
minorities' interests in the equity capital of the subsidiaries, including any
guarantees or commitments from minority shareholders for further capital
contributions.

In the case of its joint venture subsidiary, the Company and the minority
interest holder agreed that the contribution of software and hardware by the
minority interest to the joint venture had no fair market value at the time of
the contribution. The joint venture, therefore, assigned a $0 value to these
assets. The minority also contributed a contract to the joint venture that gives
the joint venture the right to provide the Chinese public school system with
certain educational materials, including software and textbooks. A value of $0
was assigned to the contract by the joint venture, as it could not create a
reliable model of revenue streams or cash flows associated with the contract at
the time of the contribution.

         b)       Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at June 30, 2001, and
reported amounts of revenues and expenses during each of the three fiscal years
then ended. Actual results could differ from those estimates.



                                      F-6



                  Tengtu International Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements
                                   (Continued)

         c)       Revenue Recognition

Revenue from the sale of hardware is recognized when the products are delivered
to the customer. Revenue from the sale of software products, which do not
require any significant production, modification or customization for the
Company's targeted customers and do not have multiple elements, is recognized in
accordance with paragraphs 7 and 8 of SOP 97-2. These paragraphs require four
conditions to be present in order to recognize revenue: (1) persuasive evidence
of an arrangement exists, (2) delivery has occurred, (3) the Company's fee is
fixed and determinable and (4) collectibility is probable.

Revenue from software license fees is recognized on a straight-line basis over
the term of the license.

Hardware and software are delivered to customers at or at approximately the same
time. Software is generally installed within two weeks of delivery.

The hardware sold includes personal desktop computers, printers, network
servers, monitors, modems, hard drives and other storage media and cables. The
Company's software cannot be installed until the hardware is delivered.
Therefore, a delay in delivery of hardware will delay the recognition of
software sales revenues.

         d)       Inventories

Inventories are priced at the lower of cost, on a weighted-average basis, or
market and consist primarily of computer hardware and software.

         e)       Long-lived Assets

Property and equipment are stated at cost. Depreciation is provided primarily by
the straight- line method over the estimated useful lives of the assets. Other
long-lived assets are amortized using the straight-line method over the contract
life or the useful life, whichever is shorter.

         f)       Cash Equivalents

The Company considers all highly liquid investments with maturities of three
months or less when purchased to be cash equivalents.

         g)       Income Taxes

The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes", which
requires an asset and liability approach to determine deferred tax assets and
liabilities. The deferred assets and liabilities are determined based upon the
differences between financial reporting and tax bases of




                                      F-7



                   Tengtu International Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements
                                   (Continued)

assets and liabilities and are measured using the enacted tax rates and laws
that are expected to be in effect when the differences are assumed to reverse.

The Company files a consolidated return with its subsidiaries that are eligible
to be consolidated. Separate provisions for income tax are calculated for
subsidiaries that are not eligible for consolidation into the U.S. federal
income tax return.

         h)       Loss per Share

Loss per common and common equivalent share is computed based on the weighted
average number of common shares outstanding. Due to the antidilutive effect of
the assumed exercise of outstanding common stock equivalents at June 30, 2001,
2000 and 1999, loss per share does not give effect to the exercise of these
common stock equivalents in any year presented.

         i)       Advertising Expense

The Company expenses advertising costs as incurred.

         j)       Impairment

The Company evaluates its long-lived assets to determine whether later events
and circumstances warrant revised estimates of useful lives or a reduction in
carrying value due to impairment.

         k)       Foreign Currency Transactions/Translation

The functional currency of the Company's subsidiary and joint venture in China
is the renminbi. The Company's Canadian subsidiary uses the Canadian dollar as
its functional currency and its Hong Kong subsidiary uses the Hong Kong dollar
as its functional currency. Foreign currency transactions are translated into
the functional currency at the exchange rate prevailing on the date of the
transaction. Material gains and losses from foreign currency transactions are
reflected in the financial period in which the exchange rate changes. Foreign
transaction gains and losses in the functional currencies are immaterial.
Transactions denominated in other than the functional currencies are
insignificant and, therefore, foreign currency transaction gains and losses in
non-functional currencies are also immaterial.

Assets and liabilities of the financial statements of foreign subsidiaries and
joint venture are translated into U.S. dollars utilizing the exchange rate at
the balance sheet date, and revenues and expenses are translated using average
exchange rates in effect during the year. Translation adjustments are
accumulated and recorded as a separate component of stockholders' equity.




                                      F-8



                  Tengtu International Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements
                                   (Continued)


         k)       Foreign Currency Transactions/Translation (Continued)

The Chinese government imposes significant exchange restrictions on fund
transfers out of China that are not related to business operations. These
restrictions have not had a material impact on the Company because it has not
engaged in any significant transactions that are subject to the restrictions.

         l)       Accumulated Other Comprehensive Income

Accumulated other comprehensive income represents the change in equity of the
Company during the periods presented from foreign currency translation
adjustments.

         m)       Stock-based Compensation

On July 1, 1996, the Company adopted the disclosure requirements of SFAS No.
123, "Accounting for Stock-Based Compensation" for stock options and similar
equity instruments (collectively, "options") issued to employees; however, the
Company will continue to apply the intrinsic value based method of accounting
for options issued to employees prescribed by Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issues to Employees" rather than
the fair value based method of accounting prescribed by SFAS No. 123. SFAS No.
123 also applies to transactions in which an entity issues its equity
instruments to acquire goods or services from non-employees. Those transactions
must be accounted for based on the fair value of the consideration received or
the fair value of the equity instruments issued, whichever is more reliably
measurable.

         n)       Software Costs

Software development costs are capitalized if they are incurred after
technological feasibility has been established. Purchased software is
capitalized if it has an alternative future use. Research and development costs
for new products or enhancement of existing software and purchased software that
do not meet these requirements are expensed as incurred. Capitalized costs are
amortized using the straight line method over the lesser of five years or the
useful life of the related product.



                                      F-9

                  Tengtu International Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements
                                   (Continued)


3.       Property and Equipment

Property and equipment is comprised as follows:

                                                  June 30,

                                                    2001             2000
                                                    ----             ----
Computer hardware                                 $134,075         $131,590
Computer software                                    9,975            9,057
Furniture and fixtures                              45,650           53,770
Automobiles                                        206,553          206,553
Office equipment                                   109,489           95,528
Leasehold improvement                                  -0-           29,061
Idle equipment                                      73,305           73,305
Production equipment                             1,283,276        1,258,445
                                                 ---------        ---------
Total at Cost                                    1,862,323        1,857,309
Less: accumulated depreciation                  (1,150,938)        (889,469)
                                                 ---------        ---------
Net Property and Equipment                        $711,385         $967,840
                                                 =========        =========

Depreciation charged to operations for the years ended June 30, 2001, 2000 and
1999 was $261,471 $266,614, and $292,808 respectively, of which $192,342 ,
$207,916 and $214,601 was included in cost of sales for the years ended June 30,
2001, 2000, and 1999, respectively.

4.       License Fees

On June 21, 2000, the Company entered into a license agreement with Netopia,
Inc. The agreement grants the Company a fee-bearing, nonexclusive license right
to promote and otherwise market Netopia's website product and service to the
Company's customers. The agreement shall continue in perpetuity until terminated
by either party. The cost of the agreement of $125,000 is being amortized on a
straight-line basis over five years. Amortization for the year ended June 30,
2001 was $25,000. No amortization was recorded for the year ended June 30, 2000
due to the short amortization period of nine days.

5.       Long Term Debt

On December 23, 1999, the Company received cash of $l,500,000 in exchange for a
four year Floating Convertible Debenture ("Debenture") convertible into shares
of the Company's $.01 par value common stock ("common Stock") and a separate
Common Stock Warrant ("Warrant") for the purchase of 1,500,000 shares of common
stock. The Debenture is due December 15, 2003 and provides for accrual of
interest beginning December 15, 2000 at a rate equal to the best lending rate of
The Hong Kong and Shanghai Banking Corporation plus two percent (approximately
9% at both June 30, 2001 and 2000).

The Debenture is convertible into the Company's common stock at a conversion
price of $.50 during the first year, $1.00 during the second year, $2.00 during
the third year and $4.00 on any date thereafter. The unpaid balance of principal
and interest outstanding at maturity, if any, may be converted by the holder
into the Company's common stock at the then existing market price minus twenty
percent.




                                      F-10




                   Tengtu International Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements
                                   (Continued)


The Warrant gives the holder the right to purchase 1,500,000 shares of the
Company's common stock at $1.00 per share during the first year, $2.00 per share
during the second year and $4.00 on any date thereafter. The Warrant shall
become void three years after issuance. In connection with the purchase of the
Debenture and Warrant, the Company and the holder entered into an Investor
Rights Agreement which provides that on or before June 15, 2000, the holder may
purchase additional convertible debentures for up to U.S.$3.5 million and
receive additional warrants on substantially the same terms. The holder did not
exercise these rights. The Investor Rights Agreement also provides the holder(s)
of the Debenture, Warrant and or the shares issued upon conversion or exercise
thereof with registration and certain other rights. The effective interest rate
of the debenture is 8.5%.

Because no portion of the price paid by the holder was for the Warrants, the
Warrants were assigned a value by the Company and the Debenture was discounted
by that amount. The financial statements reflect entries of $346,154 for a
discount to the Debenture and paid in capital for the Warrant. This value was
assigned as follows. On the date that the Debenture and Warrant were sold to the
holder, the Company's stock was trading at $1.60 per share and the Warrant was
exercisable at $1.00. Therefore, the Warrant had a value between $0 and $.60 per
share. The Company chose to value the Warrant at $.30 per share. The gross
amount of the Debenture and Warrant were therefore $1.5 million (Debenture) plus
$450,000 (Warrant - $.30 x 1,500,000) for a total of $1.95 million. Of the $1.95
million, the Warrant represents 23.08% ($450,000/$1.95 million). The discount to
the Debenture was calculated by multiplying the percentage of the total
represented by the Warrant (23.08%) by the total proceeds received from the sale
($1.5 million) . The discount to the Debenture was therefore equal to $346,154
and the Debenture was discounted to $1,153,846 ($1.5 million - $346,154).

On the date the Debenture was issued, the conversion price was $.50 and the
market price was $1.60. The conversion feature was valued at the full adjusted
amount of the Debenture, after valuation of the Warrant, of $1,153,846. Because
the Debenture was immediately convertible, the full discount was charged to
interest expense for the year ended June 30, 2000.

A group of private investors, in July 1999, advanced approximately $250,000 to
Edsoft Platforms (Canada), Inc., one of the Company's subsidiaries, as a
shareholder's loan, bearing a 10% interest rate. One half of the loan can be
converted into common shares of the Company at $3 per share if the loan is not
paid in full at the maturity date of July 27, 2002.

Annual maturities of the long-term debt are as follows:

                                    Year Ending
                                    June 30,
                                   -----------
                                    2002              $        0
                                    2003                 255,297
                                    2004               1,274,030
                                                      -----------
                                                      $1,529,327
                                                      ===========





                                      F-11



                   Tengtu International Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements
                                   (Continued)


6.       Income Taxes

For the current year, none of the Company's operating subsidiaries will be
included in its federal income tax return as these are all foreign entities and
are therefore ineligible for consolidation.

The Company has accumulated approximately $10,877,000 of operating losses that
may be used to offset future federal taxable income. The utilization of the
losses expires in years from 2006 to 2021.

Due to an ownership change in the year ended June 30, 1996, annual utilization
of approximately $265,000 of the losses is expected to be limited to an
estimated $60,000 by current provisions of Section 382 of the Internal Revenue
Code, as amended.

As the Company is not liable for either current or deferred income taxes for the
years ended June 30, 2001, 2000, and 1999, respectively, no provision is shown
on the statement of operations. For U.S. tax purposes, the Company has recorded
a deferred tax asset of approximately $3,698,000 at June 30, 2001 and $3,079,000
at June 30, 2000 due principally to net operating losses. A valuation allowance
of an identical amount has been recorded as the Company believes that it is more
likely than not that the losses will not be utilized. The allowance has the
effect of reducing the carrying value of the deferred tax asset to $0. The
valuation allowance increased approximately $619,500 and $1,266,000 during the
years ended June 30, 2001 and 2000, respectively. The Company's Hong Kong
subsidiary has recorded a deferred tax asset of approximately $73,500 at June
30, 2001 and $55,400 at June 30, 2000, totally offset by a valuation allowance
due to the uncertainty of realization.

The Company is a U.S. company that operates through a branch office in Canada.
As a U.S. company, it is required to file an income tax return and report those
branch operations. The income tax returns have generated the above net operating
losses.

The net operating losses for the Company's Chinese subsidiaries total
approximately $2,531,800. Net operating losses in China can be carried forward
for five years. The Company's Chinese net operating losses expire between 2002
and 2006. The net operating loss for the Hong Kong subsidiary is approximately
$467,800 and expires only if there is an ownership change.

7.       Concentration of Credit Risk

The Company operates through subsidiaries located principally in Beijing and
Hong Kong, China and an investee in Toronto, Canada; the administrative office
is in Vancouver, Canada. The Company grants credit to its customers in these
geographic regions.

The Company performs certain credit evaluation procedures and does not require
collateral. The Company believes that credit risk is limited because the Company
routinely assesses the financial strength of its customers, and based upon
factors surrounding the credit risk of its customers,




                                      F-12



                   Tengtu International Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements
                                   (Continued)


establishes an allowance for uncollectible accounts and, as a consequence,
believes that its accounts receivable credit risk exposure beyond such
allowances is limited.

The Company established an allowance for doubtful accounts at June 30, 2001 and
2000 of $200,097. The Company believes any credit risk beyond this amount would
be negligible.

At June 30, 2001, the Company had approximately $1,017,700 of cash in banks
uninsured. The Company does not require collateral or other securities to
support financial instruments that are subject to credit risk.

For the fiscal year ended June 30, 2001, approximately 93.5% of sales were
generated through the contract contributed to the Company's joint venture
subsidiary (see Note 2a). Receivables related to these sales transactions are
grouped together with due from related party. For the fiscal years ended June
30, 2000 and 1999, no customer accounted for more than 10% of total sales.

8.       Commitments and Contingencies

         a) The Company has entered into operating leases for office space, none
of which extend beyond June 30, 2002. The minimum rental payments on these
leases for the year ending June 30, 2002 are $52,000.

Rent expense for the years ended June 30, 2001, 2000 and 1999 has been charged
as follows:

                                                   Year Ended June 30,
                                            2001             2000        1999
                                            ----             ----        ----
General and administrative expense        $94,207          $62,671      $54,551
Selling expense                            69,747            6,281        8,900
Cost of sales                              35,433           33,945       52,114
                                         --------         --------     --------
Total rent expense                       $199,387         $102,897     $115,565
                                         ========         ========     ========




                                      F-13



                   Tengtu International Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements
                                   (Continued)





The Company has contracts with various executives and consultants. The minimum
cash compensation due under these contracts is as follows:


                                   Year Ending
                                   June 30,
                                   -----------
                                      2002                  $218,400
                                      2003                   128,400
                                      2004                   128,400
                                      2005                    42,800
                                                            --------
                                                            $518,000
                                                            ========

         b) The Company is committed to contribute $1,010,000 to the joint
venture and to begin making deferred compensation payments to its related party
consultants upon the completion of its next major financing transaction.
However, the timing of the payment of the deferred compensation and additional
contributions is discretionary and not defined in any agreement. The Company's
Board of Directors has not defined a "major financing transaction," and such
definition will be wholly within its discretion.

         c) The Company is a party to a litigation in the normal course of
business. In management's opinion, the litigation will not materially affect the
Company's financial position, results of operations or cash flow.

         d) The Company's joint venture subsidiary has committed to install
15,000 units of one of its products under the contract with the Chinese public
school system (see Note 2a). The partner of the Company's joint venture
subsidiary has entered into a Memorandum of Intent with the Chinese Ministry of
Education on behalf of the joint venture. The Memorandum establishes the China
Broadband Education Resource Center )"CBERC") for the distribution of various
educational tools to individual schools for an annual fee basis. The joint
venture is committed to contributing approximately $10,000,000, as well as
hardware and software, to CBERC.

9.       Foreign Operations

The Company operates principally in three geographic areas: China, Canada and
Hong Kong. Following is a summary of information by area for June 30, 2001. For
the years ended June 30, 2000 and 1999, the Company had minimal sales and
incurred principally administrative expenses.

Net Sales to Unaffiliated Customers:          Rounded to nearest $000

         China                                       $5,347,000
         Canada                                               0
         Hong Kong                                      219,000
                                                     ----------
                                                     $5,566,000
                                                     ==========

Income (Loss) From Operations:
         China                                       $1,356,000
         Canada                                               0

         Hong Kong                                     (108,000)
Other income                                            865,000




                                      F-14



                   Tengtu International Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements
                                   (Continued)

General corporate expenses                        (2,406,000)
                                                  ----------
Net loss as reported in the
  accompanying statements                         $  293,000
                                                  ==========

Identifiable Assets
         China                                    $7,508,000
         Hong Kong                                    27,000
General corporate assets                           1,298,000
Total Assets as reported in the
  accompanying                                    $8,833,000
balance sheet


There were no interarea sales in fiscal 2001. Identifiable assets are those that
are identifiable with operations in each geographical area. General corporate
assets consist primarily of cash, cash equivalents, fixed assets, and
prepayment. Sales are attributed to areas based on location of customers.

10.      Related Party Transactions

Due to the downsizing of the staff of the Chinese joint venture in prior years,
the operations of the joint venture during the years ended June 30, 2001 and
2000 were carried out by the minority Chinese partner. At June 30, 2001 and
2000, the Chinese subsidiary has a balance due from the minority Chinese partner
of approximately $6,330,500 and $170,100, respectively.

During fiscal 2001, 2000 and 1999, respectively, the Company incurred consulting
and related expenses of approximately $800,284, $1,493,000 and $775,000 from
Officers and Directors of the Company or its subsidiaries or companies
controlled by these Officers and Directors. No payments have been made for the
amounts incurred for the years ended June 30, 2000 and 1999. $375,504 was paid
for the year ended June 30, 2001.

Of the total expenses incurred, approximately $84,700 in 2001, $182,800 in 2000
and $243,750 in 1999 represent the value of common shares issued for services to
Officers, shareholders or companies controlled by shareholders. The Officers
entered into agreements with the Company in the year ended June 30, 1997 that
entitled them to receive 500,000 and 100,000 shares, respectively, at the date
the agreements were signed. Deferred compensation of $731,250 was recorded in
the year ended June 30, 1997, and is being amortized over the three year term of
each agreement.

In October, 1999, the Company and Comadex Industries, Ltd. entered into a
consulting agreement for the employment of Pak Cheung as the Company's Chairman
and CEO. Pursuant to that agreement Comadex received 3,000,000 common shares for
past services rendered, resulting in a charge to related party consultants
expense of $750,000. Conadex shall receive an incentive of 1% of the capital
raised in excess of $3,000,000 by Mr. Cheung for the Company or any Company
subsidiary that is 50% or more owned by the Company.




                                      F-15


                   Tengtu International Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements
                                   (Continued)

On September 9, 1999 a Company Director loaned $100,000 to the Company. The loan
bore interest at 6% per annum and was due in twelve months. The loan was
convertible at the option of the Company Director at the rate of $.35 per share,
or into an aggregate of 285,714 shares of the Company's common stock. The loan
was guaranteed by another Director of the Company. At the date of the loan, the
Company's common stock was trading at $.25 per share, therefore the loan did not
contain a beneficial conversion feature. This loan was converted to 285,714
shares in October 2000.

11.      Equity line

On October 25, 2000, the Company entered into an investment agreement with
Swartz Private Equity L.L.C. ("Swartz") (the "Investment Agreement"). The
Investment Agreement entitles the Company to issue and sell up to $30 million of
the Company's common stock to Swartz subject to a formula based on the stock
price and trading volume, from time to time over a three year period,
following the effective date of a registration statement on Form S-1. The
Company's registration statement on Form S-1 was declared effective by the
Securities and Exchange Commission during the quarter ended December 31, 2000.
The investment Agreement defines each issuance and sale as a "Put."

Under the Investment Agreement, Swartz will pay the Company a percentage of the
market price for each share of common stock during the 20 business days
immediately following the date the Company elects to sell stock to Swartz in a
Put. For each share of common stock, Swartz will pay the Company the lesser of:

                  - the "market price" for each share, minus $.075; or - 92% of
                    the "market price" for each share.

The "market price" is the lowest bid price during the 20 day period preceding a
Put.

Each time the Company sells shares of its common stock to Swartz, it will also
issue five year warrants to Swartz to purchase its common stock in an amount
corresponding to 10% of the number of shares in the Put. Each warrant will be
exercisable at 110% of the market price for the applicable Put.

As consideration for making its financing commitment to the Company, Swartz was
issued a warrant to purchase 1,200,000 shares of the Company's common stock
exercisable at $.745 per share until October 25, 2005. The warrant was valued
using the Black-Scholes option valuation model. The charge to operations for the
year ended June 30, 2001 was approximately $93,100 (see Note 17).

12.      Stock Options

The Company's Board of Directors approved two stock option plans for its
employees, consultants and Directors totaling 5,000,000 common shares. The first
stock option plan was approved on December 29, 1998 for two million common
shares. The second stock option plan was approved on August 31, 1999 for three
million common shares. Both plans were approved by the shareholders of the
Company.




                                      F-16




                   Tengtu International Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements
                                   (Continued)



The maximum number of common shares granted to any individual under the two
stock option plans is 300,000 common shares. The following were granted stock
options under the first plan in March 1999 (1997 Plan):

         Pak Cheung, Chairman and CEO                300,000 common shares
         Barry Clark, Director                       300,000 common shares
         Jack Lian, Director                         300,000 common shares
         Hai Nan, Former Director                    300,000 common shares
         Xiao Feng Lin, President,
             joint venture subsidiary                300,000 common shares
         Greg McLelland, Vice President              150,000 common shares *
         Simon Hui, VP Finance and Controller        75,000 common shares
         Michael Meakes, Vice President - Iconix     50,000 common shares
         Other Employees                             300,000 common shares **
         Gordon Reid, Director                       75,000 common shares
         John Watt, Director                         75,000 common shares
         Michael Nikiforuk, Director                 75,000 common shares
                                                     ---------

Total                                                2,300,000 common shares
                                                     =========

Simon Hui (75,000 common shares) and other employees (180,000 common shares)
exercised options during the year ended June 30, 2000.

         * On April 8, 1997, the Company entered into an agreement with Gregory
         McLelland to provide consulting services and to serve as an Officer of
         the Company. The term of the agreement was three years. The agreement
         provides an annual cash salary, 100,000 shares of common stock upon
         signing of the agreement and options to purchase 50,000 shares of
         common stock annually for three years.

         ** To various employees of subsidiaries who are not Officers or
Directors of the Company.

The shortfall in the 1997 Plan was made up from shares included in the 1999
Plan.

The following were granted stock options under the 1999 Plan and exercised them
during the year ended June 30, 2000:

         Simon Hui, VP Finance and Controller        75,000 common shares

All of the stock options granted under the 1997 Plan, except for 150,000 issued
to Greg McLelland, had an exercise price greater than the market price on the
date of grant, and therefore, no compensation expense has been recognized for
these options. The contractual life of the options under both plans cannot
exceed ten years from the date of the grant. The Board of Directors determines
the life, but has not yet done so for the options granted.



                                      F-17



                   Tengtu International Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements
                                   (Continued)


Greg McLelland was granted options on April 8, 1997 to purchase 150,000 shares
of common stock at one-third of the market price of the stock at the date of the
grant. The options vested equally over three years, beginning with the year
ended June 30, 1997. At June 30, 2000, there is no remaining contractual life.
Because the exercise price of the options was below the market price at the date
of the grant, the Company has recorded deferred compensation expense of $150,000
in accordance with APB Opinion No. 25 and related interpretations. The deferral
has been recognized ratably over three years, with $50,000 being charged to
operations for the year ended June 30, 1999.

For the year ended June 30, 2000, certain employees exercised their options to
purchase a total of 330,000 shares for $71,940. The shares were purchased by
issuing promissory notes to the Company. The notes mature in five years. The
notes are interest free in the first year and have an interest rate of 3% per
annum for each subsequent year that the notes are outstanding. Partial or full
repayment may be due prior to maturity if the employee sells part or all of the
shares purchased. The repayment is equal to the ratio of the shares sold over
the total shares purchased.

On August 1, 1999 the Company entered into a one year contract with a marketing
consultant. As part of its fee, the consultant received three warrants from the
Company, each representing 50,000 shares of the Company's common stock. Each of
the warrants is exercisable for five years at the following dates and prices: a)
warrant 1 - August 1, 1999 at $.75 per share; b) warrant 2 - February 1, 2000 at
$1.50 per share and c) warrant 3 - August 1, 2000 at $3.00 per share.

The following table summarizes information concerning currently outstanding and
exercisable stock options and warrants:

                                              Weighted
                                              Average
              Exercise     Outstanding at   Contractual        Exercisable
              Price        June 30, 2001       Life          At June 30, 2001
              --------     --------------   -----------     -----------------
Options       $.218        2,045,000       3.80 years        2,045,000
Options       $.325        150,000          .15 years          150,000
Options       $.968        150,000          .15 years          100,000
Options       $.220        100,000          .20 years          100,000
Warrants     $2.000        1,500,000        .84 years        1,500,000




                                      F-18
<PAGE>


                   Tengtu International Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements
                                   (Continued)

Warrants          $ .750            50,000        .05 years           50,000
Warrants          $1.500            50,000        .05 years           50,000
Warrants          $ .562         1,200,000       1.10 years        1,200,000
Warrants          $ .220            46,800        .05 years           46,800
Warrants          $3.000            50,000        .05 years           50,000

On September 15 and December 21, 2000, the Company granted non-transferable
options to its legal counsel to purchase 150,000 and 100,000 shares,
respectively, of common stock at the market price of the stock at the dates of
the grant. The options are valued using the Black-Scholes option pricing model
and resulted in a charge to operations of approximately $152,500.

On December 23, 1999, the Company granted non-transferrable options to its legal
counsel to purchase 150,000 shares of common stock at $.325 per share, which
approximated the market price of the stock at the date of the grant. There was
no charge to operations as the value of the options, using the Black-Scholes
option pricing model, was immaterial.

The agreements covering these options contain anti-dilution provisions to adjust
the number of options and the exercise prices for various changes, as defined in
the agreements, of the shares of the Company's common stock.

Had the Company elected to recognize compensation expense for all options
granted to employees using the fair value method prescribed by SFAS 123, the
Company's net loss and net loss per share would be the pro forma amounts
indicated below:

                                          Year Ended June 30,
                                 2001               2000               1999
                                 ----               ----               ----
Net Income (Loss)
   as Reported                 $(293,169)        $(4,701,285)     $(1,886,399)
Pro Forma Net Loss                --                 --           $(2,376,299)
Loss Per Share as Reported        --                 --           $      (.10)
Pro Forma Loss Per Share          --                 --           $      (.12)

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options, which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. The weighted average
fair value of stock options granted to employees used in determining pro forma
amounts is estimated at $1.31 for Mr. McLelland's 150,000 options and $.15 for
the remaining 1,850,000, for the year ended June 30, 1999.





                                      F-19



                   Tengtu International Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements
                                   (Continued)



The fair value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model for the pro forma amounts with the following
weighted average assumptions:


                                                  June 30, 1999
                                                  -------------
Risk Free Interest Rate                                5.75
Expected Life                                          5.0
Expected Volatility                                   20.7%
Expected Dividends                                    None

13.      Fair Value of Financial Instruments

SFAS No. 107, "Disclosures about Fair Values of Financial Instruments", requires
disclosing fair value to the extent practicable for financial instruments which
are recognized or unrecognized in the balance sheet. The fair value of the
financial instruments disclosed herein is not necessarily representative of the
amount that could be realized or settled, nor does the fair value amount
consider the tax consequences of realization or settlement.

For certain financial instruments, including cash and cash equivalents, trade
receivables and payable, and short-term debt, it was assumed that the carrying
amount approximated fair value because of the near term maturities of such
obligations. The fair values of long-term debt and long-term notes receivable
were determined based on current rates at which the Company could borrow or
advance funds with similar remaining maturities, which amount approximates their
carrying value.

14.      Statements of Cash Flows Supplemental Disclosures

For the year ended June 30, 2001, the Company issued 285,714 shares of common
stock through the conversion of a $100,000 loan from a Director. During the
fiscal year ended June 30, 2001, the Company received $3,107,000 in loan
proceeds. The loan with accrued interest, totaling $3,168,259, was converted to
10,537,529 shares of common stock during the year.

For the year ended June 30, 2000, the Company issued 3,120,000 shares of common
stock in lieu of cash payments for certain services rendered. The value of such
services was $765,000. The Company also issued 330,000 shares of common stock to
employees exercising their stock options. The total price of the shares was
$71,940 and was paid by the employees via promissory notes given to the company.
                                  June 30
                                  2001              2000             1999
                                  ----              ----             ----
Interest Paid                   $158,824             --               --
Income Tax Paid                    --                --               --




                                      F-20




                   Tengtu International Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements
                                   (Continued)


15.      Authoritative Pronouncements


The FASB issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities", which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. SFAS No. 133 requires that entities
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. The accounting
for changes in the fair value of a derivative depends on the intended use of the
derivative and how it is designated, for example, gains or losses related to
changes in the fair value of a derivative not designated as a hedging instrument
are recognized in earnings in the period of the change, while certain types of
hedging may be initially reported as a component of other comprehensive income
(outside earnings) until the consummation of the underlying transaction.

SFAS No. 133, as amended by SFAS No. 138, is effective for all fiscal quarters
of fiscal years beginning after June 15, 2000. Initial application of SFAS No.
133 should be as of the beginning of a fiscal quarter; on that date, hedging
relationships must be designated anew and documented pursuant to the provisions
of SFAS No. 133. The provisions of SFAS No. 133 are not to be applied
retroactively to the financial statements of prior periods. Due to the Company's
limited use of derivative financial instruments, adoption of Statement No. 133
has not had a significant effect on the Company's consolidated result of
operations, financial position, or cash flows.

The FASB has issued SFAS No. 141, "Business Combinations" and SFAS No. 142,
"Goodwill and Other Intangible Assets" in July 2001. These statements will
change the accounting for business combinations and goodwill in two significant
ways. First, SFAS No. 141 requires that the purchase method of accounting be
used for all business combinations initiated after June 30, 2001. Use of the
pooling-of-interests method will be prohibited. Second, SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. Thus, amortization of goodwill, including goodwill recorded in past
business combinations, will cease upon adoption of this SFAS, which for the
Company will be July 1, 2001. The Company expects that adoption of SFAS No. 142
will not have a material impact on its financial statements.

16.      Allowance For Bad Debts

<TABLE>
<CAPTION>


For the
 Year                               Charged
 Ended            Balance-          to               Charged to                         Balance
June 30,          Beginning         Expense          Other Accts.      Deductions       Ending
--------          ---------         -------          ------------      ----------       -------

<C>               <C>               <C>              <C>               <C>              <C>  <C>
2001              $200,097          $  ---           $   ----          $   ----         $200 097
2000              $209,081          $  (8,984)       $   ----          $   ----         $200,097
1999              $ 66,900          $143,081         $   ----          $   ----         $209,081
</TABLE>


17. Subsequent Events

On August 28, 2001, counsel for the Company sent a letter to Swartz stating that
the Company viewed its agreement with Swartz (see Note 11) to be null and void,
and that all outstanding warrants issued to Swartz under the agreement are
cancelled. The letter cited the March 31, 2001 Current Issues and Rulemaking
Projects Quarterly Update issued by the Securities and Exchange Commission as
the basis for the Company's action. On September 7, 2001, Swartz filed a
complaint in the State of Georgia seeking to enforce the agreement. If Swartz is
successful, the Company may be liable for various termination fees under the
agreement, as well as other costs and damages. The Company has discussed this
matter with its counsel, believes it has a strong defense and intends to
vigorously defend itself against this complaint.

18.      Equity Investment

The Company owns approximately 32% of the common shares of Iconix International,
Inc. ("Iconix") and accounts for this investment on an equity basis. The
following is summarized financial information of Iconix as of June 30, 2001 and
2000 and for each of the three fiscal years in the period ended June 30, 2001.




                                      F-21


                   Tengtu International Corp. and Subsidiaries
                   Notes to Consolidated Financial Statements
                                   (Continued)


<TABLE>
<CAPTION>

                                                          2001          2000       1999


<S>                                                   <C>            <C>         <C>
         Current assets                               $  44,790      $  70,000   $697,140
         Non current assets                             353,274        206,473    273,994
         Current liabilities                             26,692        221,656    210,524
         Non current liabilities                        353,274           0           0
         Net sales                                      147,939        613,082  1,720,752
         Gross profit                                   148,527        262,087    402,592
         Income (loss) from continuing operations      (664,210)      (602,845)   (55,385)
         Net Income (loss)                             1,264,086      (602,845)   (55,385)
</TABLE>


19.      Other Income

For the year ended June 30, 1998, the Company terminated an operating lease for
office space. The landlord sued the Company for the remainder of the lease
payments and certain termination penalties under the lease. The Company accrued
and charged operations for approximately $530,000, which represented the
estimated costs of the remaining lease payments and termination penalties.
During the year ended June 30, 2001, the Company has been advised by its counsel
that the landlord was able to rent the space and the Company is not liable for
the rent payments and penalties. The Company has therefore reversed the accrual
and recorded this as other income. The balance of approximately $103,000 is
comprised of write-offs and reversals of the balances of various estimated costs
and prepayments received from customers accrued in prior years for which the
Company is no longer liable for payment or provision of goods.

20.  Quarterly Financial Data (Unaudited)

     The following table presents certain unaudited results of operations data
for the interim quarterly periods during the years ended June 30, 2001 and 2000.
The Company believes that all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the results of operations in accordance
with general accepted accounting principles, have been made. The results of
operations for any interim period are not necessarily indicative of the
operating results for a full year or any future period (See Note 21).

<TABLE>
<CAPTION>

                                   2000                                          2001
             -------------------------------------------------      -----------------------------------------------------
             Sept 30,       Dec.31,     March 31,     June 30,        Sept 30,      Dec. 31,      March 31,       June 30,
             --------       --------   ---------      ---------       -------      --------      ---------       ---------

<S>        <C>         <C>          <C>           <C>           <C>            <C>            <C>              <C>
Revenues    $ 392,004     $ 149,500    $  24,498    $  (207,997)    $ $1,143,446  $   359,379     $ 1,450,879     $ 2,612,335

Gross
Profit      $ 184,536     $ (51,129)   $(115,410)   $   (41,141)    $    107,479  $    46,291     $   818,748     $ 1,437,678

Gross
Profit
Margin             47%         -34%        -471%             80%              9%           13%             56%             55%

Operating
Income
(Loss)      $(361,090)    $(775,511)   $(828,086)   $(1,377,306)    $   (542,262) $(1,496,927)    $  (143,496)    $   887,078

Net
Income
(Loss)      $(334,087)    $(598,389)   $(838,073)   $(2,756,009)    $   (597,835) $(1,566,746)    $  (238,776)    $ 2,110,188

Earnings
Per Share
 Basic      $   (0.02)    $    (.03)   $    (.04)   $      (.13)    $       (.03) $      (.07)    $      (.01)    $      .08
 Diluted    $   (0.02)    $    (.03)   $    (.04)   $      (.13)    $       (.03) $      (.07)    $      (.01)    $      .08

</TABLE>


21.    Restatement

       The Company determined that VAT tax payable had erroneously been posted
       to sales, and that a VAT tax surcharge and VAT tax recoverable had not
       been recorded. The Company has also reclassified a receivable for a VAT
       tax refund from Other Receivable to Due from Related Party. The impact of
       the restatement is summarized below. In addition, the June 30, 2001
       quarter in Note 20 has been revised to reflect the restated items.

                                   As Filed      Restatement Items     Restated
                                   --------      -----------------     --------

       Sales                       $6,213,450        $(647,411)       $5,566,039
       Cost of Sales                3,091,102            64,741        3,155,843
       Gross Profit                 3,122,348         (712,152)        2,410,196
       Other Income                   632,974           317,718          947,692
       Net Income/(Loss)              104,266         (397,435)        (293,169)
       Due from Related Party       6,462,887         (132,426)        6,330,461
       Other Receivable               339,044         (265,007)           74,037
       Accumulated Deficit         15,080,108           397,433       15,477,541
       Earnings/Loss Per Share:
       Basic                           $0.004          $(0.016)         $(0.012)
       Diluted                         $0.004          $(0.016)         $(0.012)




                                      F-22